<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 1996
REGISTRATION NO. 333-04343
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------
STX ACQUISITION CORP. STX CHEMICALS CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
76-0500122 (I.R.S. EMPLOYER IDENTIFICATION NUMBER) 76-0502785
----------------
C/O THE STERLING GROUP, INC.
EIGHT GREENWAY PLAZA, SUITE 702
HOUSTON, TEXAS 77046
(713) 877-8257
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
FRANK J. HEVRDEJS
EIGHT GREENWAY PLAZA, SUITE 702
HOUSTON, TEXAS 77046
(713) 877-8257
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
DAVID J. GRAHAM EARL S. WELLSCHLAGER MORTON A. PIERCE
ANDREWS & KURTH L.L.P. PIPER & MARBURY L.L.P. DEWEY BALLANTINE
4200 TEXAS COMMERCE TOWER 36 SOUTH CHARLES STREET 1301 AVENUE OF THE
HOUSTON, TEXAS 77002 BALTIMORE, MARYLAND 21201 AMERICAS
(713) 220-4156 (410) 576-1747 NEW YORK, NEW YORK 10019
(212) 259-8000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
STX ACQUISITION CORP.
STX CHEMICALS CORP.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN FORM S-
1 REGISTRATION STATEMENT CAPTION OR LOCATION IN PROSPECTUS
---------------------------------- ---------------------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus..... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus.... Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges............. Prospectus Summary; Risk Factors; The
Company; Selected Historical Financial
Data; Pro Forma Consolidated Financial
Statements and Other Information
4. Use of Proceeds.............. Use of Proceeds
5. Determination of Offering
Price........................ Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution..................... Not Applicable
7. Selling Security Holders..... Not Applicable
8. Plan of Distribution......... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to
be Registered................ Prospectus Summary; Capitalization;
Description of the Notes; Description of
the Units
10. Interests of Named Experts
and Counsel.................. Not Applicable
11. Information with Respect to
the Registrant............... Outside Front and Inside Front Cover Pages
of Prospectus; Prospectus Summary; The
Company; Risk Factors; The Transaction;
Selected Historical Financial Data; Pro
Forma Consolidated Financial Statements and
Other Information; Capitalization;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business Management; Principal
Stockholders; Certain Transactions;
Description of the Notes; Description of
the Units; Description of the Credit
Facility; Legal Matters; Experts; Financial
Statements
12. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities.................. Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 12, 1996
Sterling Chemicals, Inc.
(a subsidiary of Sterling Chemicals Holdings, Inc.
and formerly STX Chemicals Corp.)
LOGO $275,000,000 % Senior Subordinated Notes Due 2006
Sterling Chemicals Holdings, Inc.
(the survivor of the merger of
Sterling Chemicals, Inc. and STX Acquisition Corp.)
$ Representing Units
each Unit consisting of
One % Senior Secured Discount Note Due 2008
and
Warrants to Purchase Shares of Common Stock
--------
The Securities offered hereby will be issued upon consummation of the merger
("Merger") of STX Acquisition Corp. ("STX Acquisition") with and into
Sterling Chemicals, Inc. (the "Company"), which upon consummation of the
Merger will be renamed Sterling Chemicals Holdings, Inc. ("Holdings"). STX
Chemicals Corp. ("Chemicals"), to be renamed Sterling Chemicals, Inc.
upon consummation of the Merger, is offering (the "Notes Offering")
$275,000,000 in aggregate principal amount of % Senior Subordinated
Notes Due 2006 (the "Notes"), and STX Acquisition is offering (the
"Units Offering") Units consisting of $100,000,000 in
initial proceeds ($ million in aggregate principal amount
at maturity) of % Senior Secured Discount Notes Due 2008 (the
"Discount Notes") and Warrants (the "Warrants") to purchase an
aggregate of shares of common stock, par value $.01 per
share, of Holdings ("Holdings Common Stock") at an exercise
price of $.01 per share. The Notes and the Units are
collectively referred to herein as the "Securities" and the
Notes Offering and the Units Offering are collectively
referred to herein as the "Offerings."
The Notes are unsecured senior subordinated obligations of Chemicals ranking
subordinate in right of payment to all existing and future Senior Debt (as
defined) of Chemicals and will be effectively subordinated to all Debt
(as defined) and other liabilities of the subsidiaries of Chemicals
(including trade obligations). Chemicals has not issued, and does not
have any firm arrangement to issue, any significant Debt that would
be subordinate to the Notes. As of June 30, 1996, on a pro forma
basis after giving effect to the Transaction (as defined), the
aggregate amount of Senior Debt of Chemicals would have been
approximately $361.9 million.
The Discount Notes will be senior secured obligations of Holdings ranking
pari passu with other Senior Debt of Holdings, and will be effectively
subordinated to all Debt and other liabilities of Chemicals and its
subsidiaries (including trade obligations). Holdings has not issued,
and does not have any firm arrangement to issue, any significant Debt
that would be subordinate to the Discount Notes. As of June 30,
1996, on a pro forma basis after giving effect to the
transaction, Holdings would have had no Debt other than the
Discount Notes, and the aggregate liabilities (consisting of
Debt and trade payables) of Chemicals and its subsidiaries
would have been approximately $697.5 million (including
the Notes and the Credit Facility). See
"Capitalization." The Discount Notes will be secured,
on a second priority basis, by a pledge of all of
the capital stock of Chemicals.
(continued on next page)
--------
FOR A DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE SECURITIES, SEE "RISK FACTORS" BEGINNING ON PAGE 15.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECU-
RITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REP-
RESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions Issuer(1)(2)
---------- ------------- ------------
<S> <C> <C> <C>
Per Note................................... % % %
Total...................................... $ $ $
Per Unit................................... $ $ $
Total...................................... $ $ $
</TABLE>
(1) Plus accrued interest on the Notes and accreted original discount on the
Discount Notes, if any, from , 1996.
(2) Before deducting expenses payable by Holdings and Chemicals, estimated at
$1,000,000.
--------
The Securities are being offered by the several Underwriters when, as and if
issued, delivered to and accepted by the Underwriters and subject to their
right to reject orders in whole or in part. It is expected that delivery of
Securities will be made on or about , 1996 against payment in immediately
available funds.
CS First Boston Chase Securities Inc.
The date of this Prospectus is , 1996.
<PAGE>
(continued from previous page)
STX Acquisition is a Delaware corporation formed in April 1996 by an
investor group led by The Sterling Group, Inc. ("TSG") and The Unicorn Group,
L.L.C. ("Unicorn") to effect the Merger. At the time of the Merger, Chemicals,
a Delaware corporation formed in May 1996 as a wholly owned subsidiary of STX
Acquisition, will become a wholly owned subsidiary of Holdings and will
acquire all of the operating assets of the Company. Upon completion of the
Merger, the Discount Notes will be obligations of Holdings and the Notes will
be obligations of Chemicals. The proceeds of the Offerings will be used to
partially finance the Merger. The sale of the Securities offered hereby is
subject to the consummation of the Merger, the closing of all financing
therefor and the acquisition by Chemicals of the operating assets of the
Company, all of which will occur concurrently.
Interest on the Notes is payable semiannually on and of each year,
commencing , 1997. Except as described below, the Notes are not redeemable
at the option of Chemicals prior to , 2001. Thereafter, the Notes will be
redeemable, in whole or in part, at the option of Chemicals, at the redemption
prices set forth herein, together with accrued and unpaid interest, if any, to
the date of redemption. Up to 35% of the original principal amount of the
Notes will be redeemable on or prior to , 1999, at the option of Chemicals,
from the net proceeds of one or more Public Equity Offerings (as defined) at a
redemption price equal to % of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of redemption. Upon a Change
of Control (as defined), each holder of Notes may require Chemicals to
purchase all or a portion of such holder's Notes at 101% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the date
of purchase. There can be no assurance that Chemicals will be able to raise
sufficient funds to meet this obligation should it arise. For a more complete
description of the Notes, see "Description of the Notes."
Each Unit consists of $1,000 principal amount at maturity of Discount Notes
of Holdings and Warrants to purchase shares of Holdings Common Stock.
The Discount Notes and the Warrants will not become separately transferable
until the earlier of (i) 30 days following the closing of the Units Offering
and (ii) such date as the Underwriters may, in their discretion, deem
appropriate.
The Discount Notes are being offered at a substantial discount from their
principal amount at maturity. The initial issue amount of each Discount Note
will be $ per $1,000 principal amount at maturity assuming % of the
issue price of each Unit is allocated to the Discount Notes ( % of the
principal amount at maturity), representing a yield to maturity of %
(computed on a semiannual bond equivalent basis) calculated from , 1996.
Cash interest will not accrue on the Discount Notes prior to , 2001 at
which time cash interest will accrue on the Discount Notes at a rate of %
per annum. Interest on the Discount Notes is payable semiannually on and
of each year, commencing , 2002. BECAUSE THE DISCOUNT NOTES DO NOT
ACCRUE CASH INTEREST PRIOR TO , 2001, THE DISCOUNT NOTES ARE NOT SUITABLE
INVESTMENTS FOR INVESTORS SEEKING CURRENT INCOME. Except as described below,
the Discount Notes are not redeemable at the option of Holdings prior to ,
2001. Thereafter, the Discount Notes will be redeemable, in whole or in part,
at the option of Holdings, at the redemption prices set forth herein together
with accrued and unpaid interest, if any, to the date of redemption. Up to 35%
of the Accreted Value (as defined) of the Discount Notes will be redeemable on
or prior to , 1999, at the option of Holdings, from the net proceeds of one
or more Public Equity Offerings at a redemption price equal to % of the
Accreted Value thereof, together with accrued and unpaid interest, if any, to
the redemption date. Upon the occurrence of a Change of Control, each holder
of Discount Notes may require Holdings to purchase all or a portion of such
holder's Discount Notes at a purchase price in cash equal to 101% of the
Accreted Value thereof, together with accrued and unpaid interest, if any, to
the date of purchase. There can be no assurance that Holdings will be able to
raise sufficient funds to meet this obligation should it arise. For a more
complete description of the Discount Notes, see "Description of the Units."
Each Warrant will entitle the holder, commencing , 1997, to purchase
shares of Holdings Common Stock at an exercise price of $.01 per share. Upon
consummation of the Transaction, the Warrants will initially entitle the
holders thereof to acquire, in the aggregate, approximately % of
outstanding Holdings Common Stock on a fully diluted basis.
For information regarding the applicability of the reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") following
the Transaction, see "Available Information."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE SECURITIES
AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR
ACCOUNTS OF OTHERS IN THE SECURITIES PURSUANT TO EXEMPTIONS FROM RULES 10B-6,
10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
2
<PAGE>
[Flow chart depicting feedstocks for the Company's products, intermediates (the
Company's products), downstream uses for the Company's products and key end
markets.]
<PAGE>
[PHOTOS APPEAR HERE]
SODIUM CHLORATE OPERATIONS IN BUCKINGHAM, QUEBEC.
FACILITY DETAIL
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995
CURRENT -------------------------
OPERATING ANNUAL RATED UTILIZATION
UNIT/PRODUCT LOCATION CAPACITY(A) PRODUCTION(A) RATE(B)
- ------------ -------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
PETROCHEMICALS Texas City, Texas
Styrene(c) 1,700 1,433 96%
Acrylonitrile 740 711 96
Acetic Acid(d) 800 644 107
Methanol(e) 150 NA NA
Plasticizers 280 282 101
Tertiary Butylamine 21 13 62
Sodium Cyanide 100 59 59
PULP CHEMICALS
Sodium Chlorate Buckingham, Quebec 137 127 96%
Grande Prairie, Alberta 55 54 98
Thunder Bay, Ontario 57 50 94
Vancouver, British Columbia 101 101 101
Valdosta, Georgia(f) 110 NA NA
----- ----- ---
Total 460 332 97%
Sodium Chlorite Buckingham, Quebec 3.7 3.3 97%
</TABLE>
- -------
(a) Petrochemicals in millions of pounds and pulp chemicals in thousands of
tons, unless otherwise noted.
(b) Utilization rates based on 1995 rated capacities.
(c) Styrene capacity has increased from 1,500 million pounds in 1995 to 1,700
million pounds effective in 1996; the 1995 utilization rate is based on a
production capacity of 1,500 million pounds.
(d) Acetic acid capacity has increased from 600 million pounds in 1995 to
approximately 800 million pounds effective June 1996; the 1995 utilization
rate is based on a production capacity of 600 million pounds.
(e) Capacity in millions of gallons. The methanol facility is scheduled to
begin production by September 1996.
(f) The Valdosta, Georgia facility is scheduled to begin production by late
1996.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. At the time of the Transaction, the
Company will change its name to Sterling Chemicals Holdings, Inc., Chemicals
will change its name to Sterling Chemicals, Inc. and the Company's operating
assets will be conveyed to Chemicals. See "The Transaction." As used herein,
the term "STX Acquisition" refers to STX Acquisition Corp. prior to the
consummation of the Transaction, and the term "Holdings" refers to the
surviving corporation in the Merger. The term "Company" refers both to Sterling
Chemicals, Inc. and its subsidiaries prior to the consummation of the
Transaction and, thereafter, to Holdings and its subsidiaries. The term
"Chemicals" refers to STX Chemicals Corp., which after the Transaction will be
a wholly owned subsidiary of Holdings known as Sterling Chemicals, Inc. Certain
operating and industry terms are defined in the Glossary included herein.
This Prospectus contains certain forward-looking statements with respect to
the business of the Company and the industry in which it operates. These
forward-looking statements are subject to certain risks and uncertainties which
may cause actual results to differ significantly from such forward-looking
statements. See "Risk Factors."
THE COMPANY
The Company is one of North America's leading producers of selected commodity
petrochemicals, used in the production of a wide array of consumer goods and
industrial products, and pulp chemicals used in paper manufacturing. The
Company ranks among the top three North American producers in terms of rated
production capacity for each of its primary products, including styrene,
acrylonitrile, acetic acid and sodium chlorate. Other products manufactured by
the Company include methanol, plasticizers, tertiary butylamine, sodium cyanide
and sodium chlorite. The Company manufactures all of its petrochemicals at a
single facility in Texas City, Texas (the "Texas City Plant"), and believes
that the large scale of this facility and its location on the U.S. Gulf Coast
provides it with certain cost advantages. The Company's pulp chemicals are
currently produced at four plants in Canada. A fifth plant, under construction
in Valdosta, Georgia, is scheduled to begin production in late 1996. The
Company believes that its pulp chemical plants benefit from their proximity to
key customers in the pulp industry and their access to competitively priced
electricity, which represents the most significant production cost in sodium
chlorate manufacturing.
In recent years, the Company has pursued a strategy of growth and product
diversification. In 1992, the Company acquired its pulp chemicals business
which has current sodium chlorate production capacity of 350,000 tons. In 1995,
the Company began a three-year, $200 million capacity expansion and upgrade
program, which is expected to be approximately 80% complete by the end of
fiscal 1996. Through this program, the Company will have expanded its total
petrochemical production capacity by approximately 1.4 billion pounds,
including capacity additions of 200 million pounds of styrene, 200 million
pounds of acetic acid and 150 million gallons (approximately 995 million
pounds) of methanol. In addition, the Company is expanding its sodium chlorate
production capacity by 110,000 tons, or 30%, by constructing a new facility in
Valdosta, Georgia. Through this strategy, the Company has sought to capitalize
on the continuing secular growth in global demand for its key products, while
reducing its sensitivity to the cyclicality of the markets for any particular
product. The following table sets forth the total revenues for the Company by
its primary products.
<TABLE>
<CAPTION>
NINE
MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30,
---------------- ---------
1993 1994 1995 1995 1996
---- ---- ------ ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Petrochemicals:
Styrene............................................ $144 $288 $ 467 $398 $249
Acrylonitrile...................................... 124 138 251 210 124
Acetic acid........................................ 64 76 94 75 50
Other.............................................. 68 76 74 54 64
---- ---- ------ ---- ----
400 578 886 737 487
Pulp Chemicals....................................... 119 123 144 106 114
---- ---- ------ ---- ----
Total.............................................. $519 $701 $1,030 $843 $601
==== ==== ====== ==== ====
</TABLE>
3
<PAGE>
Styrene. The Company is the third largest North American producer of styrene,
a chemical intermediate utilized in the production of plastic and synthetic
rubbers used in packaging, housewares, automotive components, luggage, toys and
building products. The Company's styrene unit is one of the largest in the
world and has an annual rated production capacity of 1.7 billion pounds,
following a recent debottlenecking, which represents approximately 12% of total
North American capacity. In fiscal 1995, the styrene unit operated at an
average utilization rate of 96% and generated revenues of $467 million, which
represented approximately 45% of the Company's total revenues.
Acrylonitrile. The Company is the second largest global producer of
acrylonitrile, the principal raw material for acrylic fibers used in textiles
and industrial applications. The Company's acrylonitrile unit has an annual
rated production capacity of 740 million pounds, which represents approximately
21% of total North American capacity. In fiscal 1995, the acrylonitrile unit
operated at an average utilization rate of 96% and generated revenues of $251
million, which represented approximately 24% of the Company's total revenues.
Acetic Acid. The Company is the third largest North American producer of
acetic acid, a product made from carbon monoxide and methanol. Acetic acid is
primarily used in the manufacture of intermediate products, such as vinyl
acetate monomer, which are used to produce various consumer products, including
adhesives, glue, cigarette filters and surface coatings. Following a 200
million pound capacity expansion completed in June 1996, the Company's acetic
acid unit has an annual rated production capacity of approximately 800 million
pounds, which represents approximately 17% of total North American capacity. In
fiscal 1995, the acetic acid unit operated at an average utilization rate of
107% and generated revenues of $94 million, which represented approximately 9%
of the Company's total revenues.
Sodium Chlorate. Upon completion of its Valdosta, Georgia plant, the Company
will be the second largest North American producer of sodium chlorate, which is
converted to chlorine dioxide for use in the pulp bleaching process. The
Company's four sodium chlorate plants have an aggregate annual rated production
capacity of 350,000 tons, and the Valdosta, Georgia plant, scheduled to begin
production in late 1996, will increase the Company's total annual capacity by
30% to approximately 460,000 tons. Following completion of the Valdosta plant,
the Company will account for approximately 22% of North American sodium
chlorate capacity. In addition, the Company's ERCO Systems Group is the
worldwide leader in the design, sale and technical service of large scale
chlorine dioxide generators, which are used to convert sodium chlorate to
chlorine dioxide. Since the mid-1980s, North American demand for sodium
chlorate has grown at an average annual rate of approximately 10%, as pulp
manufacturers are substituting chlorine dioxide for elemental chlorine in
bleaching applications in anticipation of environmental regulations that would
eliminate the use of elemental chlorine in pulp manufacturing. In fiscal 1995,
the Company's sodium chlorate plants operated at a weighted average utilization
rate of 97% and its pulp chemicals business generated revenues of $144 million,
which represented approximately 14% of the Company's total revenues.
4
<PAGE>
RECENT TRENDS
The primary markets in which the Company competes, especially styrene and
acrylonitrile, are cyclical and sensitive to changes in the balance between
supply and demand, the price of feedstocks and the level of general economic
activity. Historically, these markets have experienced alternating periods of
tight supply and rising prices and profit margins, followed by periods of large
capacity additions resulting in oversupply and declining prices and margins.
Global styrene and acrylonitrile markets experienced strong demand growth and
rising prices and profit margins from the end of fiscal 1994 through most of
fiscal 1995. During the fourth quarter of fiscal 1995 and into the first half
of fiscal 1996, styrene and acrylonitrile prices declined as a result of a
general slowdown in global economic growth, inventory drawdowns by customers
and reduced imports of petrochemicals and plastics by China, a major merchant
market purchaser. In recent months, however, prices for styrene and
acrylonitrile have stabilized after declines in the first six months of fiscal
1996, and the Company anticipates that pricing and profitability for its
styrene and acrylonitrile products will be relatively stable for the remainder
of fiscal 1996. Thereafter, anticipated expansions in worldwide production
capacity of styrene in 1997 and 1998 are expected to affect pricing of this
product for a period until global demand increases sufficiently to absorb such
additional production capacity. The Company currently expects acrylonitrile
market conditions to remain relatively stable through fiscal 1997.
Sodium chlorate sales prices and profit margins strengthened throughout
fiscal 1995 and into fiscal 1996 as a result of strong demand growth. In recent
months, weakness in the pulp and paper markets has resulted in somewhat slower
demand growth for sodium chlorate. However, sodium chlorate demand in the
remainder of fiscal 1996 and in fiscal 1997 is expected to benefit from the
anticipated promulgation of environmental regulations which would mandate the
elimination of elemental chlorine use in pulp bleaching applications.
The Company believes that it has developed an operating strategy to allow it
to compete effectively in periods of both rising and declining product prices.
During periods of peak demand, the experience and skill of its management has
allowed the Company to operate its petrochemical units at utilization rates
above its rated capacities, enhancing the Company's earnings generation during
favorable market conditions. During cyclical downturns, the Company believes
that the profitability of its operations is supported by its long-term sales
contracts and conversion agreements which accounted for approximately 53% of
its petrochemical sales volumes in fiscal 1995, as well as management's
emphasis on minimizing fixed costs such as selling, general and administrative
expenses.
BUSINESS STRATEGY
The Company's business strategy is to capitalize on its competitive market
position to take advantage of periods of tight supply and high prices and
margins for its primary products, which historically have occurred on a
cyclical basis, and to expand its production capacity to capture future growth
opportunities in the petrochemical and pulp chemical industries. Key elements
of the Company's business strategy are to: (i) maintain a competitive cost
position in petrochemicals by investing in new technology and equipment; (ii)
pursue low cost expansions in petrochemicals, such as its recent 30% expansion
of acetic acid capacity and construction of a world-scale 150 million gallon
methanol plant; (iii) pursue growth opportunities in pulp chemicals through the
current construction of additional capacity; (iv) continue to build strong
industry partnerships in petrochemicals through securing long-term supply
contracts with key customers; and (v) implement a focused acquisition strategy,
targeting chemical businesses and assets which would strengthen the Company's
existing market positions, provide upstream or downstream integration or
produce complementary chemical products.
5
<PAGE>
THE TRANSACTION
The proceeds of the Offerings will provide a portion of the funding required
for the acquisition by the stockholders of STX Acquisition, including an
investor group formed by TSG and Unicorn, of a controlling interest in the
Company. Pursuant to an Amended and Restated Agreement and Plan of Merger dated
as of April 24, 1996 (the "Merger Agreement") between STX Acquisition and the
Company, STX Acquisition will be merged with and into the Company (the
"Merger"). Current stockholders of the Company will have the option with
respect to each share of common stock, par value $.01 per share, of the Company
("Company Common Stock") to elect to receive $12.00 cash or to retain their
Company Common Stock ("Rollover Shares"). The aggregate number of Rollover
Shares is limited to 5.0 million, the maximum number of Rollover Shares.
Consequently, stockholders who elect to retain their shares of Company Common
Stock may be subject to proration. Certain stockholders of the Company executed
an Inducement Agreement with the Company (the "Inducement Agreement") which
provides that such stockholders will make elections to receive Rollover Shares
rather than cash (amounting to an aggregate of approximately 2.3 million
Rollover Shares, the minimum number of Rollover Shares). Consummation of the
Merger is subject to numerous conditions, including the consummation of the
Offerings and the other financing transactions described herein. The Merger and
the related financings are referred to herein as the "Transaction." See "The
Transaction."
The sale of the Securities offered hereby is subject to the consummation of
the Merger, the closing of a bank credit facility and a private placement of
equity and the conveyance to Chemicals of the operating assets of the Company,
all of which will occur concurrently.
Seven putative class action complaints have been filed relating to the
proposed Merger and the events leading up to the recommendation of the approval
thereof by the Board of Directors of the Company. The complaints generally
allege that the course of conduct taken by the directors in considering the
Company's strategic alternatives and in recommending the Merger was in
violation of their fiduciary duties to the Company's stockholders and seek
injunctive relief and unspecified damages. The Company believes that these
actions are without merit and has instructed legal counsel to vigorously defend
such actions. See "Business--Legal Proceedings--Shareholder Lawsuits."
Credit Facility. Upon consummation of the Merger, Chemicals will enter into a
bank credit facility (the "Credit Facility") with a syndicate of lenders led by
Texas Commerce Bank National Association, as administrative agent, and Credit
Suisse and Chase Securities Inc. as co-arrangers. The Credit Facility will
consist of (i) a six and one half year $100.0 million revolving credit facility
(the "Revolving Credit Facility"), (ii) a six and one half year $200.0 million
term loan and an eight year $150.0 million term loan (collectively, the "Term
Loans") and (iii) a four year $6.5 million term loan (the "ESOP Term Loan") to
fund a new Employee Stock Ownership Plan (the "New ESOP"). See "Management--
Compensation of Executive Officers" and "Description of the Credit Facility."
Equity Private Placement. Upon consummation of the Merger, STX Acquisition
will complete a private placement of shares of its Common Stock (the "Equity
Private Placement"), which will represent an equity contribution of
approximately $103.1 million, assuming the minimum number of Rollover Shares.
Purchasers of shares in the Equity Private Placement are expected to include an
investor group formed by TSG and Unicorn and the New ESOP. The New ESOP will
acquire its shares with the proceeds from a $6.5 million loan from Chemicals
(the "Chemicals ESOP Loan").
Upon consummation of the Transaction, the investors in the Equity Private
Placement, including principals of TSG and Unicorn, and certain principal
stockholders of the Company will control the Company through the ownership of
at least approximately 75% of the outstanding shares of Holdings Common Stock,
assuming the maximum number of Rollover Shares.
6
<PAGE>
The following table sets forth the estimated sources and uses of funds to
effect the Merger, as if the Merger had occurred on June 30, 1996.
<TABLE>
<CAPTION>
SOURCES OF FUNDS DOLLARS IN MILLIONS
---------------- -------------------
<S> <C>
Revolving Credit Facility............................. $ 5.4
Term Loans............................................ 350.0
ESOP Term Loan........................................ 6.5
Notes offered hereby.................................. 275.0
Units offered hereby.................................. 100.0
Equity Private Placement (a).......................... 103.1
------
Total............................................... $840.0
======
<CAPTION>
USES OF FUNDS
-------------
<S> <C>
Purchase of Company Common Stock (b).................. $640.7
Purchase of other equity interests (c)................ 14.6
Refinance outstanding debt............................ 138.2
Chemicals ESOP Loan (d)............................... 6.5
Estimated Transaction expenses and fees (e)........... 40.0
------
Total............................................... $840.0
======
</TABLE>
- --------
(a) Represents proceeds from the sale of STX Acquisition Common Stock to
investors in the Equity Private Placement, assuming the minimum number of
Rollover Shares. The amount of cash provided through the Equity Private
Placement may be reduced to $70.7 million if the maximum number of Rollover
Shares is retained by existing stockholders.
(b) Represents the funding of the purchase of Company Common Stock, at $12.00
per share, from stockholders who elect to receive cash in the Merger,
assuming the minimum number of Rollover Shares. The amount of funding
required to purchase the Company Common Stock may be reduced to $608.3
million if the maximum number of Rollover Shares is retained by existing
stockholders.
(c) Pursuant to the terms of the Merger Agreement, stock appreciation rights,
phantom stock and restricted stock will be converted at the time of
consummation of the Merger into rights to receive cash. See "The
Transaction-- The Merger."
(d) For a description of the Chemicals ESOP Loan, see "Management--Compensation
of Executive Officers."
(e) Estimated expenses and fees include Underwriters' discounts, advisory fees,
bank fees, legal and accounting fees, printing costs and other Transaction
expenses.
7
<PAGE>
ORGANIZATIONAL CHART
The following chart depicts the summary organizational structure of the
Company and its operating entities after the Transaction and the sources of
financing for the Merger, assuming the minimum number of Rollover Shares.
[Organizational chart depicting Sterling Chemicals Holdings, Inc.; Sterling
Chemicals, Inc.; Sterling Canada Inc.; and Sterling Pulp Chemicals, Ltd.]
8
<PAGE>
THE OFFERINGS
NOTES:
Issuer...................... Sterling Chemicals, Inc. (a subsidiary of
Sterling Chemicals Holdings, Inc. and formerly
STX Chemicals Corp.).
Securities Offered.......... $275,000,000 aggregate principal amount of %
Senior Subordinated Notes Due 2006.
Maturity Date............... , 2006.
Interest Payment Dates...... and of each year, commencing
, 1997.
Optional Redemption......... The Notes will be redeemable at the option of
Chemicals, in whole or in part, at any time on or
after , 2001 at the redemption prices set
forth herein, plus accrued interest to the date
of redemption. In addition, Chemicals may, at its
option, redeem prior to , 1999, up to 35% of
the original principal amount of the Notes at %
of the principal amount thereof, plus accrued
interest to the date of redemption, with the net
proceeds of one or more Public Equity Offerings.
Ranking..................... The Notes will constitute unsecured senior
subordinated indebtedness of Chemicals and will
be subordinated in right of payment to all
present and future Senior Debt of Chemicals,
including borrowings under the Credit Facility.
Chemicals has not issued, and does not have any
firm arrangements to issue, any significant Debt
that would be subordinate to the Notes. As of
June 30, 1996, after giving pro forma effect to
the Transaction, Chemicals would have had
approximately $361.9 million in Senior Debt. In
addition, the holders of the Notes will
effectively rank junior to all creditors of
Chemicals' subsidiaries, including trade
creditors.
Change of Control........... Upon a Change of Control (as defined herein),
Chemicals will be required to make an offer to
purchase the Notes at 101% of the principal
amount thereof, plus accrued interest to the date
of purchase. There can be no assurance that
Chemicals will be able to raise sufficient funds
to meet this obligation should it arise.
Certain Covenants........... The Notes Indenture (as defined herein) will
contain certain covenants that, among other
things, limit the ability of Chemicals to pay
dividends or make certain other restricted
payments, incur additional indebtedness, engage
in transactions with affiliates, incur liens and
engage in asset sales. The Notes Indenture will
also restrict Chemicals' ability to consolidate
or merge with, or transfer all or substantially
all of its assets to another person. See
"Description of the Notes--Certain Covenants."
Use of Proceeds............. The proceeds from the Notes Offering will be used
to fund, in part, the Merger.
9
<PAGE>
UNITS:
Issuer...................... Sterling Chemicals Holdings, Inc. (the survivor
of the merger of Sterling Chemicals, Inc. and STX
Acquisition Corp.).
Securities Offered.......... Units consisting of $100,000,000 in initial
proceeds and $ in aggregate principal amount at
maturity of Senior Secured Discount Notes Due
2008 and Warrants to purchase shares of
Holdings Common Stock. Each Unit consists of
$1,000 principal amount at maturity of Discount
Notes and Warrants to purchase shares of
Holdings Common Stock.
Separability................ The Discount Notes and the Warrants will not
become separately transferable until the earlier
of (i) 30 days following the Closing Date and
(ii) such date as the Underwriters may, in their
discretion, deem appropriate.
Use of Proceeds............. The proceeds from the Units Offering will be used
to fund, in part, the Merger.
Discount Notes:
Discount Notes Offered...... $ million aggregate principal amount at
maturity of % Senior Secured Discount Notes Due
2008 ($ million aggregate initial Accreted
Value).
Maturity Date............... , 2008.
Interest Payment Dates...... The Discount Notes will be issued at a
substantial discount from their principal amount
at maturity, and there will not be any payment of
interest on the Discount Notes prior to ,
2002. From and after , 2001, the Discount
Notes will bear cash interest at the rate per
annum set forth on the cover page of this
Prospectus, payable semi-annually on each
and . For the nine months ended June 30,
1996, on a pro forma basis after giving effect to
the Transaction, Holdings would have had a ratio
of earnings to fixed charges of 1.1 to 1.0. There
can be no assurance that Holdings will have
adequate cash available at the time of the
scheduled interest payments.
Original Issue Discount..... For federal income tax purposes, the Discount
Notes will be issued with original issue
discount. Each holder of a Discount Note must
include in gross income for federal income tax
purposes a portion of such original issue
discount for each day during each taxable year on
which a Discount Note is held, even though cash
interest does not begin to accrue until ,
2001 and no cash interest will be payable until
, 2002. As a result, holders of Discount
Notes will accrue amounts in gross income before
receiving cash payments attributable to such
gross income. See "Certain United States Federal
Income Tax Consequences."
Optional Redemption......... The Discount Notes will be redeemable, at the
option of Holdings, in whole or in part, at any
time after , 2001 at the redemption prices
set forth herein, plus accrued interest to the
date of redemption. In addition, Holdings may, at
its option, redeem prior to , 1999, up to 35%
of the Accreted Value of the
10
<PAGE>
Discount Notes at % of the Accreted Value
thereof, plus accrued interest to the date of
redemption, with the net proceeds of one or more
Public Equity Offerings.
Security.................... The Discount Notes will be secured, on a second
priority basis, by a pledge of all of the capital
stock of Chemicals. Lenders under the Credit
Facility will have a first priority lien on the
capital stock of Chemicals.
Ranking..................... The Discount Notes will be senior secured
obligations of Holdings and will rank pari passu
in right of payment with all senior indebtedness
of Holdings and will be senior in right of
payment to any future subordinated indebtedness
of Holdings. Holdings has not issued, and does
not have any firm arrangement to issue, any
significant Debt that would be subordinate to the
Discount Notes. As a result of the holding
company structure after the Merger, the holders
of the Discount Notes will effectively rank
junior to all creditors of Chemicals and its
subsidiaries, including the lenders under the
Credit Facility, holders of the Notes and trade
creditors. As of June 30, 1996, on a pro forma
basis after giving effect to the Transaction, the
Discount Notes would have been effectively
subordinate to $697.5 million of aggregate
liabilities (consisting of Debt and trade
payables) of Chemicals and its subsidiaries. In
addition, in the event of a default or similar
occurrence there can be no assurance that the
second priority security interest in the capital
stock of Chemicals will be available or
sufficient to satisfy claims by holders of the
Discount Notes.
Change of Control........... Upon a Change of Control (as defined), Holdings
will be required to make an offer to purchase the
Discount Notes at 101% of the Accreted Value
thereof, plus accrued interest, if any, to the
date of purchase. There can be no assurance that
Holdings will be able to raise sufficient funds
to meet this obligation should it arise.
Certain Covenants........... The Discount Notes Indenture (as defined herein)
will contain certain covenants that, among other
things, limit the ability of Holdings to pay
dividends or make certain other restricted
payments, incur additional indebtedness, engage
in transactions with affiliates, incur liens,
engage in asset sales and engage in sale and
leaseback transactions. The Discount Notes
Indenture will also restrict Holdings' ability to
consolidate or merge with, or transfer all or
substantially all of its assets to another
person. See "Description of the Units--
Description of Discount Notes--Certain
Covenants."
Warrants:
Exercise Price.............. $.01 per share of Holdings Common Stock.
Expiration.................. The Warrants are exercisable beginning on the
first anniversary of the Closing Date and at any
time thereafter prior to , 2008.
Anti-Dilution............... The number of shares of Holdings Common Stock to
be acquired upon exercise of each Warrant will be
adjusted upon, among other things, certain
dividends or other distributions of Holdings
Common Stock and a combination or
reclassification of Holdings.
Voting Rights............... Warrant holders will have no voting rights.
11
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER INFORMATION
The summary consolidated financial information set forth below has been
derived from previously published consolidated financial statements of the
Company, certain of which appear elsewhere in this Prospectus, and should be
read in conjunction with, and is qualified in its entirety by reference to,
such consolidated financial statements and their accompanying notes. The
consolidated financial information set forth below (i) as of year end and for
each of the years in the five-year period ended September 30, 1995 has been
derived from audited consolidated financial statements of the Company and (ii)
as of June 30, 1995 and June 30, 1996 and for the nine-month periods then ended
has been derived from unaudited consolidated financial statements of the
Company, which, in the opinion of management, have been prepared on a basis
consistent with the audited consolidated financial statements of the Company
and contain all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the interim financial position and results
of operations.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
--------------------------------------- -------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ -------- ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $542.7 $430.5 $518.8 $700.8 $1,030.2 $843.1 $600.7
Cost of goods sold...... 472.4 402.6 477.9 606.9 758.6 597.7 508.7
------ ------ ------ ------ -------- ------ ------
Gross profit.......... 70.3 27.9 40.9 93.9 271.6 245.4 92.0
Selling, general and
administrative
expenses............... 9.7 10.3 25.5 24.4 31.7 24.5 23.8
SAR program expense
(benefit).............. -- -- -- 21.8 (2.8) 1.6 6.2
------ ------ ------ ------ -------- ------ ------
Income from
operations............ 60.6 17.6 15.4 47.7 242.7 219.3 62.0
Interest and debt
related expenses, net
of interest income..... 6.1 8.4 22.4 22.1 14.6 12.7 4.4
Other (income) expense.. -- -- -- (2.6) -- -- 3.7
------ ------ ------ ------ -------- ------ ------
Income (loss) before
taxes and
extraordinary item... 54.5 9.2 (7.0) 28.2 228.1 206.6 53.9
Provision (benefit) for
income taxes........... 17.7 4.7 (1.6) 9.1 75.0 68.5 18.3
------ ------ ------ ------ -------- ------ ------
Income (loss) before
extraordinary item
and change in
accounting principle. 36.8 4.5 (5.4) 19.1 153.1 138.1 35.6
Cumulative effect of
change in accounting
for post-retirement
benefits other than
pensions............... -- (10.4) -- -- -- -- --
Extraordinary item, loss
on early extinguishment
of debt, net of tax.... -- -- -- -- (3.1) (3.1) --
------ ------ ------ ------ -------- ------ ------
Net income (loss)..... $ 36.8 $ (5.9) $ (5.4) $ 19.1 $ 150.0 $135.0 $ 35.6
====== ====== ====== ====== ======== ====== ======
OTHER DATA:
EBITDA (a).............. $ 78.5 $ 41.0 $ 52.5 $108.6 $ 281.4 $251.7 $ 99.6
Depreciation and
amortization (b)....... 17.9 23.4 37.1 39.1 41.5 30.8 31.4
Capital expenditures.... 34.4 16.0 12.2 12.3 54.0 26.8 73.0
OPERATING DATA:
Revenues:
Styrene................ $ 257 $ 151 $ 144 $ 288 $ 467 $ 398 $ 249
Acrylonitrile.......... 155 137 124 138 251 210 124
Acetic acid............ 69 66 64 76 94 75 50
Sodium chlorate........ -- 9 81 83 102 73 82
Annual capacity at
period end (MM lbs):
Styrene................ 1,500 1,500 1,500 1,500 1,500 1,500 1,700
Acrylonitrile.......... 700 700 700 700 740 740 740
Acetic acid............ 600 600 600 600 600 600 800
Sodium chlorate (000
tons)................. -- 340 340 340 350 340 350
Sales volume (MM lbs):
Styrene................ 1,495 1,213 1,191 1,460 1,433 1,150 1,295
Acrylontrile........... 663 573 528 668 739 604 475
Acetic acid............ 557 620 578 599 635 487 346
Sodium chlorate (000
tons)................. -- 26 248 294 336 248 233
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
---------------------------------- -------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............... $ 28.6 $ 56.8 $ 31.0 $ 20.8 $ 74.6 $ 88.3 $ 83.0
Net property, plant and
equipment.................... 230.6 343.8 314.3 291.1 309.1 289.0 350.8
Total assets.................. 362.5 608.5 546.8 580.9 609.9 620.6 659.0
Total long-term debt
(including current portion).. 78.7 326.5 291.9 226.4 121.4 128.6 138.2
Stockholders' equity.......... 112.2 87.3 70.3 89.7 239.3 222.2 273.1
</TABLE>
- --------
(a) EBITDA represents income from operations before taking into consideration
depreciation and amortization and the impact of accruals for the Company's
stock appreciation rights ("SAR") program. See footnote (b). The SAR
program will not be continued after the Transaction. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to incur and service debt. EBITDA should not be considered by an investor
as an alternative to net income or income from operations, as an indicator
of the operating performance of the Company or as an alternative to cash
flows as a measure of liquidity.
(b) Depreciation and amortization expense included herein excludes the
amortization of deferred debt financing costs which is included in interest
expense.
13
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA
The pro forma statement of operations presented below for the year ended
September 30, 1995 and the nine months ended June 30, 1996 have been derived
from the unaudited pro forma financial statements included elsewhere herein,
and give effect to the Transaction as if it had occurred on October 1, 1994.
The pro forma consolidated balance sheet data at June 30, 1996 presented below
has been derived from the unaudited pro forma consolidated balance sheet of
Chemicals and Holdings included elsewhere herein and give effect to the
Transaction as if it had occurred on June 30, 1996.
The summary pro forma financial data do not necessarily represent what
Chemicals' or Holdings' financial position and results of operations would have
been if the Transaction had actually been completed as of the dates indicated
and are not intended to project Chemicals' and Holdings' financial position or
results of operations for any future period. The summary pro forma financial
data should be read in conjunction with the historical consolidated financial
statements of the Company, the pro forma financial statements of Chemicals and
Holdings, "Selected Historical Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein.
The pro forma adjustments were applied to the respective historical financial
statements to reflect and account for the Transaction as a recapitalization.
Accordingly, the historical basis of the Company's assets and liabilities has
not been impacted by the Transaction.
<TABLE>
<CAPTION>
CHEMICALS HOLDINGS
---------------------- ----------------------
NINE NINE
MONTHS MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30, SEPTEMBER 30, JUNE 30,
1995 1996 1995 1996
------------- -------- ------------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $1,030.2 $600.7 $1,030.2 $600.7
Cost of goods sold............... 759.0 509.0 759.0 509.0
-------- ------ -------- ------
Gross profit..................... 271.2 91.7 271.2 91.7
Selling, general and
administrative expenses......... 31.7 23.8 31.7 23.8
-------- ------ -------- ------
Income from operations.......... 239.5 67.9 239.5 67.9
Interest expense, net............ 65.4 47.3 79.1 57.6
Other expense.................... -- 3.7 -- 3.7
-------- ------ -------- ------
Income from continuing
operations before income taxes. 174.1 16.9 160.4 6.6
Provision for income taxes....... 56.1 5.3 51.3 1.7
-------- ------ -------- ------
Income from continuing
operations.................... $ 118.0 $ 11.6 $ 109.1 $ 4.9
======== ====== ======== ======
Earnings per share from
continuing operations........... $ 10.54 $ 0.47
OTHER DATA:
EBITDA........................... $ 281.4 $ 99.6 $ 281.4 $ 99.6
Depreciation and amortization.... 41.9 31.7 41.9 31.7
Cash interest expense, net....... 61.4 44.3 61.4 44.3
Ratio of EBITDA to interest
expense, net.................... 4.3x 2.1x 3.6x 1.7x
Ratio of EBITDA to cash interest
expense, net.................... 4.6x 2.2x 4.6x 2.2x
Ratio of earnings to fixed
charges......................... 3.5x 1.3x 2.9x 1.1x
BALANCE SHEET DATA:
Working capital.................. $103.7 $103.7
Net property, plant and
equipment....................... 350.8 350.8
Total assets..................... 691.4 694.4
Total long-term debt (including
current portion)................ 636.9 736.9
Total stockholders' equity....... (179.2) (276.2)
</TABLE>
14
<PAGE>
RISK FACTORS
Prospective purchasers of the Securities offered hereby should consider the
specific risk factors set forth below, as well as the other information set
forth in this Prospectus.
FORWARD-LOOKING STATEMENTS MAY NOT PROVE ACCURATE
When used in this Prospectus, the words "anticipate," "estimate," "project"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks, uncertainties and assumptions.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially
from those anticipated, estimated or projected.
Among the key factors that have a direct bearing on the Company's results of
operations and the industry in which it operates are the availability and
prices of raw materials for production of the Company's products, the cyclical
nature of the markets for the Company's products, global economic conditions,
competition from other petrochemical companies, the availability of attractive
acquisition opportunities, demand for the Company's products and risks
inherent in foreign operations. These and other factors are discussed below
and elsewhere in this Prospectus.
HIGH FINANCIAL LEVERAGE
If the closing of the Transaction had occurred at June 30, 1996, Holdings,
on a consolidated basis, would have had indebtedness of $736.9 million and
stockholders' equity of $(276.2) million, and Chemicals would have had
indebtedness of $636.9 million and stockholders' equity of $(179.2) million.
In addition, on a pro forma basis for the nine months ended June 30, 1996,
Holdings would have had a ratio of earnings to fixed charges of 1.1 to 1.0.
Holdings will not be required to make cash interest payments on the Discount
Notes prior to , 2002, but there can be no assurance that Holdings
will have adequate cash available at that time and thereafter to make the
scheduled semi-annual interest payments. The high degree of leverage of
Holdings and Chemicals will have important consequences to holders of the
Units and the Notes, including the following: (i) the ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes, if needed, may be
impaired; (ii) a substantial portion of cash flow from operations will be
dedicated to cover cash interest requirements ($47.7 million on a pro forma
basis for the nine months ended June 30, 1996, or approximately 95% of pro
forma cash flow from operations, before cash interest requirements, for such
period), thereby reducing the funds available for operations and any future
business opportunities; and (iii) the degree of leverage may make the Company
more vulnerable to a downturn in its business or the economy generally. As of
June 30, 1996, on a pro forma basis Holdings' total indebtedness as a
percentage of total capitalization would have been 160%. See "Pro Forma
Consolidated Financial Statements and Other Information" and "Description of
the Credit Facility." Any inability of Holdings or Chemicals to service their
respective obligations could have a significant adverse effect on the market
value and marketability of the Securities.
SUBSTANTIAL RESTRICTIONS AND COVENANTS
The Credit Agreement and the Notes Indenture and the Discount Notes
Indenture (collectively, the "Indentures") contain numerous financial and
operating covenants, including, but not limited to, restrictions on Holdings'
and Chemicals' ability to incur indebtedness, pay dividends, create liens,
sell assets, engage in certain mergers and acquisitions and refinance existing
indebtedness. These covenants may limit the Company's ability to pursue its
planned acquisition strategy. See "--Ability to Complete Acquisitions." In the
event of a Change of Control, Holdings and Chemicals will be required, subject
to certain conditions, to offer to purchase all outstanding Discount Notes and
Notes, respectively, at a price equal to 101% of the Accreted Value, with
respect to the Discount Notes, and 101% of the principal amount thereof, with
respect to the Notes, plus accrued interest. There can be no assurance that
Holdings or Chemicals will be able to raise sufficient funds to meet their
respective obligations in connection with a Change of Control Offer. The
ability of Holdings and Chemicals to comply with the covenants and other terms
of the Credit Agreement and the Indentures, to make cash payments with respect
to the Discount Notes and the Notes and to satisfy its other debt obligations
will depend on the
15
<PAGE>
future performance of the Company. In the event the Company fails to comply
with the various covenants contained in the Credit Agreement or the
Indentures, it would be in default thereunder, and in any such case the
maturity of substantially all of its long-term debt could be accelerated. A
default under either Indenture is an event of default under the Credit
Agreement. The Credit Agreement will prohibit the repayment, purchase,
redemption, defeasance or other payment of any of the principal of the
Discount Notes and the Notes at any time prior to their stated maturity. See
"Description of the Notes," "Description of the Units" and "Description of the
Credit Facility."
HOLDING COMPANY STRUCTURE
Holdings will be a holding company whose only material asset will be the
capital stock of Chemicals. The Discount Notes will be an obligation of
Holdings and the holders of Discount Notes will have no direct recourse to the
assets of Chemicals. Holdings will conduct no business and will be dependent
on distributions from Chemicals in order to meet its debt service obligations,
including any obligations with respect to the Discount Notes. In addition, due
to the conveyance of assets and liabilities from Holdings to Chemicals
immediately after the Merger, Holdings will not have any material assets other
than the stock of Chemicals but will remain obligated under many of its
contracts as the assignor of such interests. Because of the substantial
leverage of both Holdings and Chemicals, and the dependence by Holdings upon
the operating performance of Chemicals to generate distributions to Holdings,
there can be no assurance that any such distributions will be adequate to fund
Holdings' obligations when due. In addition, the Credit Facility, the Notes
Indenture and applicable state law will impose restrictions on the payment of
dividends and the making of loans by Chemicals to Holdings. For a further
description of the contractual restrictions on Chemicals, see "Description of
the Notes" and "Description of the Credit Facility." As a result of the
foregoing restrictions, Holdings may be unable to gain access to the cash flow
or assets of Chemicals in amounts sufficient to pay interest on the Discount
Notes when interest thereon first becomes payable in cash on , 2002 and
principal of the Discount Notes when due or in the event of a Change of
Control or other required principal payment. In that event, Holdings may be
required to (i) refinance the Discount Notes, (ii) seek additional debt
financing or additional equity financing, (iii) refinance all or a portion of
the indebtedness of Chemicals with indebtedness containing covenants allowing
Holdings to gain access to such cash flow or assets, (iv) obtain modifications
of the covenants restricting access to cash flow or assets contained in the
then existing indebtedness of Chemicals, (v) merge Chemicals with Holdings,
which merger would be subject to compliance with applicable debt covenants or
obtaining necessary lender consents or (vi) pursue a combination of the
foregoing actions. The measures Holdings may undertake to gain access to
sufficient cash flow to meet its future debt service requirements on the
Discount Notes will depend on general economic and financial market
conditions, as well as the financial condition of Holdings and Chemicals and
other relevant factors existing at the time. No assurance can be given that
any of the foregoing measures can be accomplished.
SUBORDINATION; RANKING
The Notes will be general unsecured obligations of Chemicals and will be
subordinated in right of payment to all Senior Debt, including all
indebtedness of Chemicals under the Credit Facility. As of June 30, 1996,
after giving pro forma effect to the Transaction, approximately $361.9 million
of Senior Debt would have been outstanding. The Notes Indenture permits
Chemicals to incur additional Senior Debt, provided certain conditions are
met, and Chemicals expects from time to time to incur additional Senior Debt.
In addition, the Notes Indenture permits Senior Debt to be secured. By reason
of the subordination provisions of the Notes Indenture, in the event of the
insolvency, liquidation, reorganization, dissolution or other winding-up of
Chemicals, holders of Senior Debt must be paid in full before the holders of
the Notes may be paid. In addition, no payment may be made with respect to the
Notes during the continuance of a payment default under any Designated Senior
Debt (as defined). Accordingly, there may be insufficient assets remaining
after such payments to pay amounts due on the Notes. Furthermore, if certain
non-payment defaults exist with respect to Designated Senior Debt, the holders
of such Designated Senior Debt will be able to prevent payments on the Notes
for certain periods of time. See "Description of the Notes--Ranking."
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The Discount Notes will be senior secured obligations of Holdings and will
rank pari passu in right of payment with all Senior Debt of Holdings and
senior in right of payment to any future subordinated indebtedness of
Holdings. As a result of the Company's holding company structure, the holders
of the Discount Notes will effectively rank junior to all creditors of
Chemicals and its subsidiaries, including the lenders under the Credit
Facility, holders of the Notes and trade creditors. In the event of the
dissolution, bankruptcy, liquidation or reorganization of Holdings or
Chemicals, the holders of the Discount Notes may not receive any amounts with
respect to the Discount Notes until after the payment in full of all claims of
the creditors of Chemicals and its subsidiaries. At June 30, 1996, after
giving pro forma effect to the Transaction, Holdings would have had no
indebtedness other than the Discount Notes, and the indebtedness of Chemicals
would have been $636.9 million. See "Capitalization." In addition, although
the Discount Notes are secured on a second priority basis by a pledge of the
capital stock of Chemicals, the lenders under the Credit Facility will have a
first priority lien on such capital stock and, therefore, there can be no
assurance that the security will be available or sufficient to satisfy any
claims by holders of the Discount Notes.
RAW MATERIAL PRICES AND AVAILABILITY
For each of the Company's products, the cost of raw materials and utilities
is far greater than all other costs of production combined. Therefore, an
adequate supply of raw materials at reasonable prices is critical to the
success of the Company's business. The Company does not produce many of its
major raw materials (benzene, ethylene, propylene, ammonia and methanol),
although the Company has a methanol plant under construction at the Texas City
Plant which is expected to begin production by September 1996. These materials
are all commodity petrochemicals and the price for each can fluctuate widely
for a variety of reasons, including changes in the availability of these
products because of major capacity additions or significant plant operating
problems. A number of the Company's raw material suppliers provide the Company
with a significant amount of its raw materials, and if one significant
supplier or a number of significant suppliers were unable to meet their
obligations under present supply arrangements, or if such arrangements could
not be renewed upon expiration, the Company could be required to incur
increased costs for its raw materials. The ability to pass on increases in raw
material prices to the Company's customers is, to a large extent, dependent on
market conditions. There may be periods of time in which increases in
feedstock prices are not recovered by the Company due to an inability to
increase the selling prices of its products because of weakness in demand for,
or oversupply of, such products, and therefore, certain increases in raw
materials prices may have a material adverse effect on the results of
operations of the Company.
CYCLICAL MARKETS FOR PRODUCTS; DEPENDENCE ON KEY PRODUCTS
The Company's business consists of the production and sale of styrene,
acrylonitrile, acetic acid and other petrochemicals, as well as certain pulp
chemicals. The Company's two primary petrochemical products are styrene and
acrylonitrile, which accounted for 45% and 24% of the Company's 1995 revenues,
respectively. See "Business--Products." Historically, the prices of the
Company's petrochemical and pulp chemical products have been cyclical and
sensitive to overall supply relative to demand, the level of general business
activity and the availability and price of feedstocks. In the past, the
Company's products have experienced market tightness accompanied by higher
prices and periods of oversupply accompanied by lower prices. Certain styrene
producers have announced plans to add significant production capacity over the
next several years, particularly in the Far East. Current global production
capacity for styrene is estimated to be approximately 40 billion pounds and
the Company believes that approximately 7.2 billion pounds of capacity will be
added by competitors in the next two years, including an estimated 3.5 billion
pounds in 1997 and 3.7 billion pounds in 1998. Although less than 5% of such
additional capacity is expected to be added on the U.S. Gulf Coast, where the
Company operates, the Company expects that prices for styrene will decline
from current levels until global demand for styrene increases sufficiently to
absorb such additional production capacity, and such declines could adversely
affect the Company's results of operations. In addition, the Company expects
competitors to increase production capacity of acrylonitrile during the next
two years, and such increases could adversely affect prices for acrylonitrile.
In any event, the prices for the Company's products are expected to fluctuate
in the future, and any prolonged or
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severe softness in the market for any of its principal products will adversely
affect the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
HIGHLY COMPETITIVE INDUSTRY
The industry in which the Company operates is highly competitive. Many of
the Company's competitors, particularly in the petrochemical industry, are
larger and have substantially greater financial resources than the Company.
Among the Company's competitors are some of the world's largest chemical
companies that have their own raw material resources. In addition, a
significant portion of the Company's business is based upon widely available
technology. The entrance of new competitors into the industry and the addition
by existing competitors of new capacity may reduce the Company's ability to
maintain profit margins or its ability to preserve its market share, or both.
Such developments could have a negative impact on the Company's ability to
obtain higher profit margins, even during periods of increased demand for the
Company's products. See "--Cyclical Markets for Products; Dependence on Key
Products."
DEPENDENCE ON TEXAS CITY PLANT
All of the Company's petrochemicals, including all of its styrene and
acrylonitrile, are produced at the Texas City Plant. Significant unscheduled
downtime at the Texas City Plant due to equipment breakdowns, interruptions in
the supply of raw materials or natural gas, power failures, natural forces or
any other cause, including the normal hazards associated with the production
of petrochemicals, could materially adversely affect the Company. Although the
Company maintains insurance, including business interruption insurance, that
it considers to be adequate under the circumstances, there can be no assurance
that a significant interruption in the operation of a facility would not have
a material adverse effect on the Company's financial condition and results of
operations. See "Business--Insurance."
ABILITY TO COMPLETE ACQUISITIONS
A significant element of the Company's business strategy is to pursue
strategic acquisitions that either expand or complement the Company's products
or markets. The financing for such acquisitions will likely affect the
Company's debt or equity capitalization. There can be no assurance that the
Company will be able to identify and make acquisitions on terms favorable to
it or that the Company will be able to obtain financing for such acquisitions
on terms the Company finds acceptable. In addition, the Indentures and the
Credit Facility will substantially limit the Company's ability to incur
additional debt to finance such acquisitions. See "Description of the Notes,"
"Description of the Units" and "Description of the Credit Facility."
ENVIRONMENT AND SAFETY
The Company's operations involve the handling, production, transportation
and disposal of materials classified as hazardous or toxic and are subject to
extensive federal, state and local regulatory requirements relating to
environmental affairs, waste management, health and safety and chemical
products. Operating permits are or may be required for the operation of some
of the Company's operating units and chemical waste disposal operations, and
these permits are subject to revocation, modification and renewal.
Governmental authorities have the power to enforce compliance with these
regulations and permits, and violators are subject to fines, injunctions or
both. Third parties may also have the right to sue to enforce compliance.
Management believes that the Company's operations are in compliance in all
material respects with applicable environmental laws. However, the operations
of a chemical manufacturing facility entail some risk of environmental damage,
and there can be no assurance that material costs or liabilities will not be
incurred. Moreover, it is possible that other developments, such as
increasingly strict requirements of environmental laws and enforcement
policies, could bring into question the handling, manufacture, use, emission
or disposal of substances or pollutants by the Company. There can be no
assurance that past or future operations will not result in exposure to injury
or claims of injury by employees or the public due to toxic or hazardous
materials. In addition, a catastrophic event at the Company's facilities could
result in liabilities to the Company substantially in excess of its insurance
coverages. See "Business--Insurance."
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The Company's pulp chemical business is sensitive to potential environmental
regulation. In general, environmental regulations support substitution of
chlorine dioxide, which is produced from sodium chlorate, for elemental
chlorine in the pulp bleaching process. Certain environmental groups are
encouraging passage of regulations which restrict the amount of Absorbable
Organic Halides ("AOX") or chlorine derivatives in bleach plant effluent.
Increased substitution of chlorine dioxide for elemental chlorine in the pulp
bleaching process significantly reduces the amount of AOX and chlorine
derivatives in bleach plant effluent. As long as there is no outright ban on
chlorine containing compounds, regulation restricting AOX or chlorine
derivatives in bleach plant effluent should favor the use of chlorine dioxide,
thus sodium chlorate. However, any significant ban on chlorine containing
compounds could have a material adverse effect on the Company's financial
condition and results of operations.
For further information on environmental and safety matters, see "Business--
Environmental and Safety Matters."
LONG-TERM CONTRACTS AND SIGNIFICANT CUSTOMERS
The Company sells substantial portions of its styrene and acrylonitrile
production under long-term contracts, and sells all of its acetic acid,
plasticizers, tertiary butylamine ("TBA") and sodium cyanide production under
long-term contracts with single customers. These contracts are intended to
provide some stability if demand for or prices of the Company's products
decline significantly, but also limit the Company's ability to take full
advantage of attractive market conditions during periods of higher prices for
these products. During fiscal 1995 a significant portion of the Company's
production from the Texas City Plant was dedicated to multi-year contracts
with Monsanto Company ("Monsanto"), subsidiaries of The British Petroleum
Company P.L.C. ("BP"), BASF Corporation ("BASF"), Mitsubishi International
Corporation ("Mitsubishi"), Flexsys America L.P. (a joint venture between
Monsanto and Akzo Nobel NV) ("Flexsys") and E.I. du Pont de Nemours and
Company ("DuPont"). Revenues from BP and Mitsubishi accounted for
approximately 16% and 13%, respectively, of the Company's fiscal 1995
revenues. Under certain market conditions, the loss of one or more of these
customers or a material reduction in the amount of product purchased by one or
more of them could have a material adverse effect on the Company. See
"Business--Sales and Marketing" and "--Contracts."
FOREIGN OPERATIONS, COUNTRY RISKS AND EXCHANGE RATE FLUCTUATIONS
Approximately 14% of the Company's fiscal 1995 revenues were derived from
its Canadian operations and approximately 52% were derived from export sales.
International operations and exports to foreign markets are subject to a
number of special risks, including currency exchange rate fluctuations, trade
barriers, exchange controls, national and regional labor strikes, political
risks and risks of increases in duties, taxes and governmental royalties, as
well as changes in laws and policies governing operations of foreign-based
companies. In addition, earnings of foreign subsidiaries and intercompany
payments are subject to foreign income tax rules that may reduce cash flow
available to meet required debt service and other obligations of the Company.
Since the Company derives most of its pulp chemicals revenues from
production and sales by subsidiaries within Canada, the Company has organized
its subsidiary structure and its operations in part based on certain
assumptions about various Canadian tax (including, among others, income tax
and withholding tax) laws, currency exchange and capital repatriation laws and
other relevant laws. While the Company believes that such assumptions are
correct, there can be no assurance that Canadian taxing or other authorities
will reach the same conclusion. If such assumptions are incorrect, or if
Canada were to change or modify such laws or the current interpretation
thereof, the Company may suffer adverse tax and financial consequences.
A portion of the Company's expenses and sales are denominated in foreign
currencies, and accordingly, the Company's revenues, cash flows and earnings
may be affected by fluctuations in certain foreign exchange rates, principally
between the United States dollar and the Canadian dollar, which may also have
adverse tax effects. In addition, because a portion of the Company's sales,
cost of goods sold and other expenses are denominated in Canadian dollars, the
Company has a translation exposure to fluctuations in the Canadian dollar
against the U.S.
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dollar. These currency fluctuations could have a material impact on the
Company as increases in the value of the Canadian dollar have the effect of
increasing the U.S. dollar equivalent of cost of goods sold and other expenses
with respect to the Company's Canadian production facilities. The Company
enters into forward foreign exchange contracts to hedge such exposure for
periods consistent with its committed exposure, but does not engage in
currency speculation.
FRAUDULENT CONVEYANCE RISKS
The incurrence by Holdings of the indebtedness evidenced by the Discount
Notes and by Chemicals of the indebtedness evidenced by the Notes is subject
to review under relevant federal and state fraudulent conveyance statutes
("Fraudulent Conveyance Statutes") in a bankruptcy case or a lawsuit by or on
behalf of creditors of Holdings or Chemicals. Under these statutes, if at the
time the Discount Notes and Notes were issued and the obligations due
thereunder incurred, (i) Holdings issued the Discount Notes or Chemicals
issued the Notes with actual intent to hinder, delay or defraud creditors or
(ii) Holdings or Chemicals received less than a reasonably equivalent value in
exchange for the obligations incurred under the Discount Notes or Notes,
respectively, and if at the time such obligations were incurred, Holdings or
Chemicals (a) was insolvent or rendered insolvent by reason of such
transactions, (b) was engaged or was about to engage in a business or
transaction for which its assets were unreasonably small in relation to such
business or transaction or its remaining assets constituted unreasonably small
capital or (c) intended to incur, or believed or reasonably should have
believed that it would incur, debts beyond its ability to pay as they matured
(as the foregoing terms are defined in or interpreted under the Fraudulent
Conveyance Statutes), such court could subordinate all or a part of the
Discount Notes or Notes to existing and future indebtedness of Holdings or
Chemicals, recover any payments made on the Discount Notes or Notes or take
other action detrimental to the holders of the Discount Notes or Notes,
including, under certain circumstances, invalidating the Discount Notes or
Notes.
Based upon financial and other information currently available to it, STX
Acquisition and Chemicals believe that the indebtedness evidenced by the
Discount Notes and Notes will be incurred and the proceeds of the Discount
Notes and Notes will be used for proper purposes and in good faith. Certain
courts have held, however, that a company's purchase of its own capital stock
does not constitute reasonably equivalent value or fair consideration for
incurring indebtedness. Each of STX Acquisition and Chemicals believes that,
at the time of, and after giving effect to, the incurrence of the indebtedness
evidenced by the Discount Notes and Notes, it will be solvent and will have
sufficient capital to carry on its business and that it will be able to pay
its debts as they mature. No assurance can be given, however, that a court
would concur with such beliefs and positions.
Depending upon the law of the jurisdiction being applied, a company may be
considered insolvent for these purposes if the company is generally not paying
its debts as they become due, or if the sum of the company's debts is greater
than all of the company's property at a fair valuation. It is impossible to
predict which jurisdiction would govern any bankruptcy case by or on behalf of
Holdings or Chemicals.
DEFERRED CASH INTEREST PAYMENTS ON DISCOUNT NOTES AND CERTAIN FEDERAL INCOME
TAX CONSEQUENCES
The Discount Notes will be issued at a substantial discount from their
stated principal amount payable on the Discount Notes at final maturity.
Consequently, although cash interest will not accrue on the Discount Notes
prior to , 2001 and there will be no periodic payments of cash
interest on the Discount Notes prior to , 2002, original issue
discount will be includable in the gross income of a holder of Discount Notes,
for federal income tax purposes, in advance of the receipt of cash payments on
the Discount Notes. Since a portion of the issue price of the Units will be
allocated, for federal income tax purposes, to the Warrants, the amount of
original issue discount will be greater than the difference between the
principal amount at final maturity of the Discount Notes and the purchase
price of the Units. See "Certain United States Federal Income Tax
Consequences" for a more detailed discussion of the federal income tax
consequences to the holders of the Discount Notes regarding the purchase,
ownership and disposition of the Discount Notes.
If a bankruptcy case is commenced by or against Holdings under the United
States Bankruptcy Code after the issuance of the Discount Notes, the claim of
a holder of Discount Notes with respect to the principal amount
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thereof may be limited to an amount equal to the sum of (i) the portion of the
initial issue price of the Units allocated, for federal income tax purposes,
to the Discount Notes and (ii) that portion of the original issue discount
which is not deemed to constitute "unmatured interest" for purposes of the
United States Bankruptcy Code. Any original issue discount that was not
amortized as of any such bankruptcy filing would constitute "unmatured
interest."
CONTROL BY CERTAIN STOCKHOLDERS
Upon consummation of the Transaction, the investors in the Equity Private
Placement, including principals of TSG and Unicorn, and certain principal
stockholders of the Company will control the Company through the ownership of
at least approximately 75% of the outstanding shares of Holdings Common Stock,
assuming the maximum number of Rollover Shares. See "Principal Stockholders."
In addition, such investors and stockholders will enter into a Stockholders
Agreement, the effect of which will be to restrict transfers of shares outside
of the control group. See "Description of Capital Stock--Transfer
Restrictions." Accordingly, such stockholders collectively will have the
ability to exercise control over the business and affairs of the Company,
including the ability to elect all of the Board of Directors, the power to
determine the management of the business and the power to determine the
outcome of corporate actions requiring stockholders' approval. TSG and
Unicorn, affiliates of which will be principal stockholders of the Company,
will receive consulting fees in connection with the Transaction. See "Certain
Transactions."
ABSENCE OF A PUBLIC MARKET FOR THE SECURITIES
The Securities are new securities for which there currently is no trading
market and there can be no assurance as to the liquidity of any market for any
of the Securities that may develop, the ability of holders of the Securities
to sell their Securities, or the prices at which holders of the Securities
would be able to sell their Securities. If such markets were to exist, the
Securities could trade at prices higher or lower than their initial purchase
prices depending on many factors, including prevailing interest rates, the
Company's operating results and the market for similar securities. Although
the Underwriters have informed the Company and STX Acquisition that the
Underwriters currently intend to make a market in the Securities, such
Underwriters are not obligated to do so, and any such market making may be
discontinued at any time without notice. Accordingly, there can be no
assurance as to the development or liquidity of any market for the Discount
Notes, the Warrants or the Notes. Holdings does not intend to apply for
listing of the Securities on any securities exchange or for quotation on the
Nasdaq National Market, and plans to withdraw the Common Stock from listing on
the New York Stock Exchange upon consummation of the Transaction.
RISKS ASSOCIATED WITH THE WARRANTS
The warrants are not exercisable until the first anniversary of the Closing
Date. Nevertheless, certain risks associated with the ownership of Common
Stock may be relevant to purchasers of Units, particularly upon the exercise
of Warrants. For example, it is expected that the liquidity of Holdings Common
Stock will be significantly limited after consummation of the Merger. In
addition, the high degree of financial leverage of Holdings will result in
negative stockholders' equity upon completion of the Transaction. See "Pro
Forma Consolidated Financial Statements and Other Information." Finally, the
terms of the Indentures and the Credit Facility will restrict the Company's
ability to pay dividends on the Holdings Common Stock, and it is not expected
that Holdings will pay such dividends for the forseeable future. Also, see "--
Control by Certain Stockholders," "--Absence of Public Market for the
Securities" and "Description of Capital Stock--Transfer Restrictions."
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THE TRANSACTION
THE MERGER
The following summary of the material provisions of the Merger Agreement is
subject to, and is qualified in its entirety by reference to, all of the
provisions of the Merger Agreement. The Merger Agreement is filed as an
exhibit to the Registration Statement of which this Prospectus is a part and
is available for inspection as described under "Available Information."
Capitalized terms used but not defined herein shall have the meanings set
forth in the Merger Agreement, and such defined terms are incorporated herein
by reference.
Pursuant to the Merger Agreement, at such time as the certificate of merger
is filed with the Secretary of State of the State of Delaware (the "Effective
Time"), STX Acquisition will merge with and into the Company, with the Company
as the surviving corporation. It is anticipated that the Effective Time will
occur as soon as practicable following the special meeting of the stockholders
of the Company called for the purpose of approving and adopting the Merger
Agreement (the "Special Meeting"). In the Merger, (a) each share of Company
Common Stock owned by the Company, any wholly owned subsidiary of the Company
or STX Acquisition will be canceled without any consideration being delivered
in exchange therefor; and (b) each other share of Company Common Stock, other
than shares held by stockholders exercising dissenters' rights, will either be
(i) retained by the holder thereof as Rollover Shares or (ii) converted into
the right to receive $12.00 in cash. The aggregate number of Rollover Shares
is limited to 5.0 million, consequently, stockholders electing to retain their
shares of Company Common Stock may be subject to proration. At the Effective
Time, each share of STX Acquisition Common Stock will be converted into shares
of Company Common Stock. Certain stockholders of the Company executed the
Inducement Agreement pursuant to which such stockholders have agreed to make
elections to receive Rollover Shares rather than cash with respect to all or a
portion of the Company Common Stock held by them.
In connection with the execution of the Merger Agreement, certain
stockholders of the Company have executed irrevocable proxies pursuant to
which each such stockholder appoints officers of STX Acquisition as his proxy
for the purpose of taking the actions necessary to approve the Merger
Agreement. Such irrevocable proxies represent approximately 18% of the
outstanding Company Common Stock.
The obligations of the Company and STX Acquisition to consummate the Merger
are subject to the satisfaction of certain conditions, including (a) approval
and adoption of the Merger Agreement by the stockholders of the Company at the
Special Meeting; (b) the absence of any action by any court, government or
governmental agency preventing the consummation of the Merger; (c) the
expiration or termination of the waiting period applicable to the consummation
of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations thereunder; (d) the effectiveness
under the Securities Act of 1933, as amended (the "Securities Act"), of each
registration statement required to be filed with the Securities and Exchange
Commission (the "SEC") in order to consummate the transactions contemplated by
the Merger Agreement; and (e) the receipt of all governmental consents, orders
and approvals required to consummate the Merger.
The obligations of the Company to consummate the Merger are subject to
additional conditions, including (a) the accuracy of all representations and
warranties of STX Acquisition and the compliance, in all material respects, by
STX Acquisition with all conditions and all material obligations, agreements
and covenants on the part of STX Acquisition contained in the Merger
Agreement; (b) the execution by the stockholders of STX Acquisition of a Tag-
Along Agreement that provides that if any of such stockholders propose to
transfer, sell or otherwise dispose of (a "transfer") in the aggregate 51% or
more of the Holdings Common Stock then issued and outstanding, all other
holders of Holdings Common Stock will have the right to participate in such
transfer on a pro rata basis and on the same terms and conditions; (c) the
receipt of customary legal opinions; and (d) certain other conditions. The
obligations of STX Acquisition to consummate the Merger are also subject to
additional conditions, including (i) the accuracy of all representations and
warranties of the Company and the compliance, in all material respects, by the
Company with all conditions and all material obligations, agreements
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and covenants on the part of the Company contained in the Merger Agreement;
(ii) the absence of any changes or events (including litigation developments)
that constitute a material adverse change in the business or prospects of the
Company; (iii) the obtaining by STX Acquisition of the related financings
described under "--Financing Arrangements;" (iv) the cancellation of all stock
options, SARs and phantom shares relating to Company Common Stock; (v) the
receipt of customary accountants' comfort letters and legal opinions; and (vi)
certain other conditions. Either the Company or STX Acquisition may extend the
time for performance of any of the obligations of the other or, to the extent
permissible, waive compliance with those obligations at its discretion.
Under the Merger Agreement, (i) each option, warrant or other right to
acquire equity interests in the Company and each security convertible into or
exchangeable for such equity interests or obligating the Company to enter into
any such option, warrant or other right will be automatically canceled as of
the Effective Time, with no consideration exchanged therefor, (ii) each SAR
will be converted as of the Effective Time into the right to receive a cash
payment in an amount equal to the excess, if any, of $12.00 over the base
price provided for in such SAR (unless the holder of any SAR, the Company and
STX Acquisition agree otherwise in writing), (iii) each share of outstanding
phantom stock relating to the Company will be automatically converted as of
the Effective Time into the right to receive a cash payment in the amount of
$12.00 and (iv) all outstanding shares of restricted stock will be immediately
and fully vested. Except as otherwise agreed to by the Company and STX
Acquisition, each arrangement providing for the issuance or grant of any
equity interest in the Company or any of its subsidiaries, including any stock
purchase plan, will terminate as of the Effective Time. See "Management--
Compensation of Executive Officers--After the Transaction."
ASSET TRANSFER
Pursuant to the terms of the Merger Agreement, at the Effective Time, the
Company will convey all of the assets and properties of the Company to
Chemicals. In connection with, and as partial consideration for, such
conveyance, Chemicals will expressly assume and agree to pay, perform and
discharge when due any and all liabilities of the Company related to such
assets and properties. If the conveyance of any particular asset or property
(i) would be ineffective as between the Company and Chemicals without the
consent of any third party, (ii) would cause the impairment or loss of
ownership of such asset or property, (iii) would result in any material
penalty or other detriment to the Company or Chemicals or (iv) is prohibited
by law or any judgment, order or decree of any government or governmental
agency, then such asset or property will not be conveyed until such time as
such consent has been obtained or such circumstance has been rectified.
FINANCING ARRANGEMENTS
Pursuant to the terms of the Merger Agreement, STX Acquisition and Chemicals
are required to consummate certain related financings simultaneously with the
closing of the Merger. The Company may terminate the Merger Agreement if STX
Acquisition has not arranged the required financing and satisfied the
applicable funding obligations by August 31, 1996. The financing for the
Merger will be provided through the Offerings made hereby, together with
borrowings pursuant to the Credit Facility and the proceeds from the Equity
Private Placement. All of such financings will be consummated simultaneously
with the closing of the Merger.
Pursuant to the Merger Agreement, Chemicals is required to negotiate and
enter into definitive loan documents for a bank credit facility with Texas
Commerce Bank National Association, as administrative agent, and Credit Suisse
and Chase Securities Inc. as co-arrangers. It is currently anticipated that
the Credit Facility will consist of (i) a six and one half year $100.0 million
revolving credit facility, (ii) a six and one half year $200.0 million term
loan, (iii) an eight year $150.0 million term loan and (iv) a four year $6.5
million ESOP Term Loan. See "Description of the Credit Facility." The terms of
the Credit Facility cannot be modified or amended in any material respect
without prior consultation with the Company.
Equity financing for the Transaction is to be provided pursuant to
commitments from a group of investors to purchase a maximum of $103.1 million
of Common Stock of STX Acquisition in the Equity Private
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Placement. Purchasers of shares in the Equity Private Placement are expected
to include an investor group formed by TSG and Unicorn and the New ESOP. It is
anticipated that upon consummation of the Transaction, the investors in the
Equity Private Placement, including principals of TSG and Unicorn and certain
principal stockholders of the Company, will own at least approximately 75% of
Holdings Common Stock, assuming the maximum number of Rollover Shares. The New
ESOP will acquire its shares with the proceeds of the Chemicals ESOP Loan. The
commitments to purchase in the Equity Private Placement may not be amended or
modified in any material respect without prior consultation with the Company.
See "Principal Stockholders" and "Underwriting."
TRANSACTION SPONSORS
TSG is a Texas-based private financial organization engaged in the
acquisition and ownership of operating businesses. Since its formation in
1982, TSG has completed 32 acquisitions for a total consideration of
approximately $5.5 billion. Eleven of such acquisitions, representing
approximately $3.5 billion in total consideration, have involved companies in
various segments of the chemical industry. TSG promotes employee ownership
through the use of employee stock ownership plans, direct equity ownership by
management and key employees as well as profit sharing plans which typically
include all full-time employees. Unicorn is a New Jersey-based private
financial organization engaged in the acquisition of businesses. Since its
formation in 1984, Unicorn has originated investments in over 40
entrepreneurial companies primarily in chemicals and related industries. Frank
Diassi, the current Managing General Partner of Unicorn, will be the Chairman
of the Board of both Holdings and Chemicals, and Frank Hevrdejs, the President
and a principal of TSG, and Hunter Nelson, a principal of TSG, will both be
directors of Holdings and Chemicals following the consummation of the
Transaction. See "Certain Transactions."
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USE OF PROCEEDS
The net proceeds from the Offerings are estimated to be $362.8 million,
after deducting original issue discount, underwriting discounts and
commissions and estimated offering expenses payable by the Company. Net
proceeds from the Offerings constitutes a portion of the financing required to
effect the Merger.
The following table sets forth the estimated sources and uses of funds to
effect the Merger, as if the Merger occurred on June 30, 1996.
<TABLE>
<CAPTION>
SOURCES OF FUNDS DOLLARS IN MILLIONS
---------------- -------------------
<S> <C>
Revolving Credit Facility............................. $ 5.4
Term Loans............................................ 350.0
ESOP Term Loan........................................ 6.5
Notes offered hereby.................................. 275.0
Units offered hereby.................................. 100.0
Equity Private Placement (a).......................... 103.1
------
Total............................................... $840.0
======
<CAPTION>
USES OF FUNDS
-------------
<S> <C>
Purchase of Company Common Stock (b).................. $640.7
Purchase of other equity interests (c)................ 14.6
Refinance outstanding debt (d)........................ 138.2
Chemicals ESOP Loan (e)............................... 6.5
Estimated Transaction expenses and fees (f)........... 40.0
------
Total............................................... $840.0
======
</TABLE>
- --------
(a) Represents proceeds from the sale of STX Acquisition Common Stock to
investors in the Equity Private Placement, assuming the minimum number of
Rollover Shares. The amount of cash provided through the Equity Private
Placement may be reduced to $70.7 million if the maximum number of
Rollover Shares is retained by existing stockholders.
(b) Represents the funding of the purchase of Company Common Stock, at $12.00
per share, from stockholders who elect to receive cash in the Merger,
assuming the minimum number of Rollover Shares. The amount of funding
required to purchase the Company Common Stock may be reduced to $608.3
million if the maximum number of Rollover Shares is retained by existing
stockholders.
(c) Pursuant to the terms of the Merger Agreement, SARs, phantom stock and
restricted stock will be converted at the time of consummation of the
Merger into rights to receive cash. See "The Transaction--The Merger."
(d) Consists of $107.2 million outstanding under the Company's current credit
facility, on which the Company paid interest of 7.37% as of June 30, 1996.
Such borrowings were incurred in 1995 to refinance existing indebtedness.
Also includes $31.0 million outstanding under a credit facility associated
with the Company's Valdosta, Georgia sodium chlorate plant, on which the
Company paid interest of 6.1% as of June 30, 1996. Such borrowings were
incurred in 1995 in connection with the construction of such plant. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources--Historical" and Notes to
Consolidated Financial Statements.
(e) For a description of the Chemicals ESOP Loan, see "Management--
Compensation of Executive Officers."
(f) Estimated expenses and fees include Underwriters' discounts, advisory
fees, bank fees, legal and accounting fees, printing costs and other
Transaction expenses.
25
<PAGE>
CAPITALIZATION
The following table sets forth (i) the unaudited consolidated historical
capitalization of the Company, (ii) the unaudited consolidated pro forma
capitalization of Chemicals as adjusted to give effect to the Transaction, and
(iii) the unaudited consolidated pro forma capitalization of Holdings as
adjusted to give effect to the Transaction. See "Pro Forma Consolidated
Financial Statements and Other Information" and the Company's consolidated
financial statements and their accompanying notes included elsewhere herein.
<TABLE>
<CAPTION>
JUNE 30, 1996(A)
------------------------------
ACTUAL AS ADJUSTED
----------- ------------------
THE COMPANY CHEMICALS HOLDINGS
----------- --------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Long-term debt:
Existing credit facility..................... $107.2 $ -- $ --
Construction loan facility................... 31.0 -- --
Revolving Credit Facility.................... -- 5.4 5.4
Term Loans................................... -- 350.0 350.0
ESOP Term Loan............................... -- 6.5 6.5
Notes........................................ -- 275.0 275.0
Discount Notes............................... -- -- 100.0
------ ------ ------
Total long-term debt (b)....................... 138.2 636.9 736.9(c)
Common stock held by New ESOP.................. -- -- 6.5
Less: Unearned compensation.................. -- -- (6.5)
Stockholders' equity:
Common stock (d)............................. 0.6 0.1 0.1
Warrants (e)................................. -- -- --
Additional paid-in capital (deficit) (f)..... 33.2 (175.7) (562.5)
Retained earnings (deficit).................. 310.7 (3.6) 307.1
Pension adjustment........................... (1.6) -- (1.6)
Accumulated translation adjustment........... (19.3) -- (19.3)
Deferred compensation (g).................... (0.1) -- --
Treasury stock (h)........................... (50.4) -- --
------ ------ ------
Total stockholders' equity................. 273.1 (179.2) (276.2)
------ ------ ------
Total capitalization........................... $411.3 $457.7 $460.7
====== ====== ======
</TABLE>
- --------
(a) The Merger will be accounted for as a recapitalization due to the number
of Rollover Shares to be retained by existing stockholders. Consequently,
the Merger will have no impact on the historical basis of the Company's
assets and liabilities. In addition to the adjustments reflected in the
capitalization table, there will be adjustments to reduce current and
long-term accrued liabilities to reflect payments to employees and
directors of the Company for obligations under the Company's incentive
plans.
(b) Includes pro forma current maturities of approximately $8.7 million.
(c) Upon consummation of the Transaction, Chemicals will make a subordinated
loan to Holdings of approximately $448.7 million, representing the net
proceeds of the Notes Offering and amounts initially borrowed under the
Term Loans after repayment of existing indebtedness, purchase of certain
equity interests and payment of Transaction expenses. Such loan is
reflected in additional paid-in capital of Chemicals and eliminated in
consolidation.
(d) Represents the net effect of the Transaction on the 60.327 million shares
issued at $.01 par value per share. There will be 10.891 million shares
issued subsequent to the Transaction.
(e) Warrants to be issued in connection with the Units Offering, which will be
valued upon determination of the terms of the Units Offering, have not
been valued in the table above.
(f) Reflects the consideration to be paid to the stockholders in the Merger
plus the canceled treasury stock and fees and expenses of the Transaction
which are allocated to equity accounts. Netted against these items are the
additional paid-in capital contributed by STX Acquisition, amounts
allocated to par value of Holdings Common Stock as a result of the Merger
and the historical amount of additional paid-in capital.
(g) Eliminates the unvested portion of the restricted stock which was issued
under the Company's Omnibus Stock and Incentive Plan.
(h) Treasury stock of the Company is eliminated in connection with the
Transaction.
26
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected consolidated financial information set forth below has been
derived from previously published consolidated financial statements of the
Company, certain of which appear elsewhere in this Prospectus, and should be
read in conjunction with, and is qualified in its entirety by reference to,
such consolidated financial statements and their accompanying notes. The
consolidated financial information set forth below (i) as of year end and for
each of the years in the five-year period ended September 30, 1995 has been
derived from audited consolidated financial statements of the Company and (ii)
as of June 30, 1995 and June 30, 1996 and for the nine-month periods then
ended has been derived from unaudited consolidated financial statements of the
Company, which, in the opinion of management, have been prepared on a basis
consistent with the audited consolidated financial statements of the Company
and contain all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the interim financial
position and results of operations. The interim period results of operations
presented are not necessarily indicative of the results to be expected for the
full year.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
---------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ -------- ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $542.7 $430.5 $518.8 $700.8 $1,030.2 $843.1 $600.7
Cost of goods sold...... 472.4 402.6 477.9 606.9 758.6 597.7 508.7
------ ------ ------ ------ -------- ------ ------
Gross profit.......... 70.3 27.9 40.9 93.9 271.6 245.4 92.0
Selling, general and
administrative
expenses............... 9.7 10.3 25.5 24.4 31.7 24.5 23.8
SAR program expenses
(benefit).............. -- -- -- 21.8 (2.8) 1.6 6.2
------ ------ ------ ------ -------- ------ ------
Income from
operations........... 60.6 17.6 15.4 47.7 242.7 219.3 62.0
Interest and debt
related expenses, net
of interest income..... 6.1 8.4 22.4 22.1 14.6 12.7 4.4
Other (income) expense.. -- -- -- (2.6) -- -- 3.7
------ ------ ------ ------ -------- ------ ------
Income (loss) before
taxes and
extraordinary item... 54.5 9.2 (7.0) 28.2 228.1 206.6 53.9
Provision (benefit) for
income taxes........... 17.7 4.7 (1.6) 9.1 75.0 68.5 18.3
------ ------ ------ ------ -------- ------ ------
Income (loss) before
extraordinary item
and change in
accounting principle. 36.8 4.5 (5.4) 19.1 153.1 138.1 35.6
Cumulative effect of
change in accounting
for post-retirement
benefits other than
pensions............... -- (10.4) -- -- -- -- --
Extraordinary item, loss
on early extinguishment
of debt, net of tax.... -- -- -- -- (3.1) (3.1) --
------ ------ ------ ------ -------- ------ ------
Net income (loss)..... $ 36.8 $ (5.9) $ (5.4) $ 19.1 $ 150.0 $135.0 $ 35.6
====== ====== ====== ====== ======== ====== ======
Per share data:
Income (loss) before
extraordinary item and
change in accounting
principle............. $ 0.67 $ 0.08 $(0.10) $ 0.34 $ 2.76 $ 2.48 $ 0.64
Cumulative effect of
change in accounting
for post-retirement
benefits other than
pensions.............. -- (0.19) -- -- -- -- --
Extraordinary item..... -- -- -- -- (0.06) (0.06) --
------ ------ ------ ------ -------- ------ ------
Net income (loss) per
share................. $ 0.67 $(0.11) $(0.10) $ 0.34 $ 2.70 $ 2.42 $ 0.64
====== ====== ====== ====== ======== ====== ======
OTHER DATA:
EBITDA (a).............. $ 78.5 $ 41.0 $ 52.5 $108.6 $ 281.4 $251.7 $ 99.6
Depreciation and
amortization(b)........ 17.9 23.4 37.1 39.1 41.5 30.8 31.4
Capital expenditures.... 34.4 16.0 12.2 12.3 54.0 26.8 73.0
Ratio of earnings to
fixed charges(c)....... 7.1x 1.8x -- 2.1x 12.6x 13.7x 5.8x
Deficiency of earnings
to cover fixed charges. -- -- $ 7.3 -- -- -- --
OPERATING DATA:
Revenues:
Styrene................ $ 257 $ 151 $ 144 $ 288 $ 467 $ 398 $ 249
Acrylonitrile.......... 155 137 124 138 251 210 124
Acetic acid............ 69 66 64 76 94 75 50
Sodium chlorate........ -- 9 81 83 102 73 82
Annual capacity at
period end (MM lbs):
Styrene................ 1,500 1,500 1,500 1,500 1,500 1,500 1,700
Acrylonitrile.......... 700 700 700 700 740 740 740
Acetic acid............ 600 600 600 600 600 600 800
Sodium chlorate (000
tons)................. -- 340 340 340 350 340 350
Sales volume (MM lbs):
Styrene................ 1,495 1,213 1,191 1,460 1,433 1,150 1,295
Acrylontrile........... 663 573 528 668 739 604 475
Acetic acid............ 557 620 578 599 635 487 346
Sodium chlorate (000
tons)................. -- 26 248 294 336 248 233
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
---------------------------------- -------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............... $ 28.6 $ 56.8 $ 31.0 $ 20.8 $ 74.6 $ 88.3 $ 83.0
Net property, plant and
equipment.................... 230.6 343.8 314.3 291.1 309.1 289.0 350.8
Total assets.................. 362.5 608.5 546.8 580.9 609.9 620.6 659.0
Total long-term debt
(including current portion).. 78.7 326.5 291.9 226.4 121.4 128.6 138.2
Stockholders' equity.......... 112.2 87.3 70.3 89.7 239.3 222.2 273.1
</TABLE>
- --------
(a) EBITDA represents income from operations before taking into consideration
depreciation and amortization and the impact of accruals for the Company's
SAR program. See footnote (b). The SAR program will not be continued after
the Transaction. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt.
EBITDA should not be considered by an investor as an alternative to net
income or income from operations, as an indicator of the operating
performance of the Company or as an alternative to cash flows as a measure
of liquidity.
(b) Depreciation and amortization expense included herein excludes the
amortization of deferred debt financing costs which is included in
interest expense.
(c) For purposes of computing these ratios, earnings consist of income from
continuing operations before income taxes and fixed charges (excluding
capitalized interest). Fixed charges consist of interest expense on debt,
amortization of financing costs, capitalized interest and the portion
(approximately one-third) of rental expense that management believes is
representative of the interest component of rental expense.
28
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION
The pro forma statements of operations presented below for the year ended
September 30, 1995, and the nine months ended June 30, 1996, have been derived
from the financial statements included elsewhere herein and give effect to the
Transaction as if it had occurred on October 1, 1994. The pro forma
consolidated balance sheet at June 30, 1996, presented below has been derived
from the unaudited consolidated balance sheet included elsewhere herein and
gives effect to the Transaction as if it had occurred on June 30, 1996. The
summary pro forma consolidated financial data do not necessarily represent
what such entities' financial position or results of operations would have
been if the Transaction had actually been completed as of the dates indicated
and are not intended to project such entities' financial position or results
of operations for any future period or as of any date. The information
presented below should be read in conjunction with the historical Consolidated
Financial Statements of Sterling Chemicals, Inc. and its subsidiaries and the
related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.
The pro forma adjustments were applied to the respective historical
financial statements to reflect and account for the Transaction as a
recapitalization. Accordingly, the historical basis of Sterling Chemicals,
Inc.'s assets and liabilities has not been impacted by the Transaction.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THE HOLDINGS
COMPANY PRO FORMA CHEMICALS PRO FORMA PRO
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS FORMA
---------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues................ $1,030.2 $1,030.2 $1,030.2
Cost of goods sold...... 758.6 0.4 (a) 759.0 759.0
-------- ------ -------- ----- --------
Gross Profit.......... 271.6 (0.4) 271.2 271.2
Selling, general and
administrative
expenses............... 28.9 2.8 (b) 31.7 31.7
-------- ------ -------- ----- --------
Income from
operations........... 242.7 (3.2) 239.5 239.5
Interest expense, net... 14.6 50.8 (c) 65.4 13.7 (c) 79.1
-------- ------ -------- ----- --------
Income from continuing
operations before
income taxes......... 228.1 (54.0) 174.1 (13.7) 160.4
Provision (benefit) for
income taxes 75.0 (18.9)(d) 56.1 (4.8)(d) 51.3
-------- ------ -------- ----- --------
Income from continuing
operations........... $ 153.1 $(35.1) $ 118.0 $(8.9) $ 109.1
======== ====== ======== ===== ========
Income per share from
continuing operations.. $ 2.76 $ 10.54
Weighted average common
shares outstanding..... 55.674 10.349(e)
OTHER DATA:
EBITDA (f).............. $ 281.4 $ 281.4 $ 281.4
Depreciation and
amortization(g)........ 41.5 41.9 41.9
Cash interest expense,
net.................... 12.6 61.4 61.4
Ratio of EBITDA to
interest expense, net.. 19.3x 4.3x 3.6x
Ratio of EBITDA to cash
interest expense, net.. 22.3x 4.6x 4.6x
Ratio of earnings to
fixed charges (h)...... 12.6x 3.5x 2.9x
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Statements
29
<PAGE>
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR NINE MONTHS ENDED JUNE 30, 1996
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THE HOLDINGS
COMPANY PRO FORMA CHEMICALS PRO FORMA PRO
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS FORMA
---------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues................ $600.7 $600.7 $600.7
Cost of goods sold...... 508.7 0.3 (a) 509.0 509.0
------ ------ ------ ----- ------
Gross Profit.......... 92.0 (0.3) 91.7 91.7
Selling, general and
administrative
expenses............... 30.0 (6.2)(b) 23.8 23.8
------ ------ ------ ----- ------
Income from
operations........... 62.0 5.9 67.9 67.9
Interest expense, net... 4.4 42.9 (c) 47.3 10.3 (c) 57.6
Other expense........... 3.7 3.7 3.7
------ ------ ------ ----- ------
Income (loss) from
continuing operations
before income taxes.. 53.9 (37.0) 16.9 (10.3) 6.6
Provision (benefit) for
income taxes........... 18.3 (13.0)(d) 5.3 (3.6)(d) 1.7
------ ------ ------ ----- ------
Income (loss) from
continuing
operations........... $ 35.6 $(24.0) $ 11.6 $(6.7) $ 4.9
====== ====== ====== ===== ======
Income per share from
continuing operations.. $ 0.64 $ 0.47
Weighted average common
shares outstanding..... 55.685 10.349 (e)
OTHER DATA:
EBITDA (f).............. $ 99.6 $ 99.6 $ 99.6
Depreciation and
amortization(g)........ 31.4 31.7 31.7
Cash interest expense,
net.................... 3.5 44.3 44.3
Ratio of EBITDA to
interest expense, net.. 22.6x 2.1x 1.7x
Ratio of EBITDA to cash
interest expense, net.. 28.5x 2.2x 2.2x
Ratio of earnings to
fixed charges (h)...... 5.8x 1.3x 1.1x
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Statements
30
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
THE HOLDINGS
COMPANY PRO FORMA CHEMICALS PRO FORMA PRO
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS FORMA
---------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 6.5 $ -- $ 6.5 $ -- $ 6.5
Accounts receivable... 149.1 149.1 149.1
Inventories........... 47.6 47.6 47.6
Prepaid expenses...... 7.9 7.9 7.9
Deferred income taxes. 8.3 8.3 8.3
------ ------ ------ ------ ------
Total current
assets............. 219.4 -- 219.4 -- 219.4
Property, plant and
equipment, net......... 350.8 350.8 350.8
Other assets............ 88.8 32.4 (i) 121.2 3.0 (i) 124.2
------ ------ ------ ------ ------
Total............... $659.0 $ 32.4 $691.4 $ 3.0 $694.4
====== ====== ====== ====== ======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 60.6 $ -- $ 60.6 $ -- $ 60.6
Accrued expenses...... 57.9 (2.8)(j) 55.1 55.1
Current portion of
long-term debt....... 17.9 (17.9)(k) -- --
------ ------ ------ ------ ------
Total current
liabilities........ 136.4 (20.7) 115.7 -- 115.7
Long-term debt.......... 120.3 516.6 (k) 636.9 100.0 (k) 736.9
Deferred income taxes... 46.3 (5.3)(l) 41.0 41.0
Deferred credits and
other liabilities...... 82.9 (5.9)(j) 77.0 77.0
Common stock held by New
ESOP................... -- -- 6.5 (q) 6.5
Less: Unearned
compensation......... -- -- (6.5)(r) (6.5)
Stockholders' equity:
Common stock.......... 0.6 (0.5)(m) 0.1 0.1
Warrants.............. -- -- -- (s) --
Additional paid-in
capital (deficit).... 33.2 (208.9)(n) (175.7) (386.8)(t) (562.5)
Retained earnings
(deficit)............ 310.7 (314.3)(o) (3.6) 310.7 (u) 307.1
Pension adjustment.... (1.6) 1.6 (n) -- (1.6)(v) (1.6)
Accumulated
translation
adjustment........... (19.3) 19.3 (n) -- (19.3)(v) (19.3)
Deferred compensation. (0.1) 0.1 (j) -- --
------ ------ ------ ------ ------
323.5 (502.7) (179.2) (97.0) (276.2)
Treasury stock........ (50.4) 50.4 (p) -- --
------ ------ ------ ------ ------
Stockholders'
equity............. 273.1 (452.3) (179.2) (97.0) (276.2)
------ ------ ------ ------ ------
Total............... $659.0 $ 32.4 $691.4 $ 3.0 $694.4
====== ====== ====== ====== ======
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Statements
31
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 1995 AND AS OF AND FOR THE NINE MONTHS ENDED
JUNE 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
The pro forma financial data have been derived by the application of pro
forma adjustments to the Company's historical financial statements for the
periods noted. The Merger has been accounted for as a recapitalization which
will have no impact on the historical basis of assets and liabilities. The pro
forma financial data assume there are no dissenting shareholders to the
Merger.
(a) Represents the amortization of organization cost pursuant to the
Merger.
(b) Represents the elimination of compensation benefit (expense)
associated with the Company's SAR plan, which will be terminated in
connection with the Merger. The adjustment amounts represent the SAR plan
compensation benefit (expense) recorded in the Company's historical
financial statements.
(c) Represents the elimination of interest expense related to the
historical debt outstanding and the incurrence of interest expense related
to the issuance of the Credit Facility, the Notes, and the Discount Notes
as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30,
1995 1996
------------- -----------
<S> <C> <C>
Holdings
Discount Notes (i)........................... $ 13.5 $10.1
Amortization of deferred financing costs..... 0.2 0.2
------ -----
Total Holdings............................. $ 13.7 $10.3
====== =====
Chemicals
Interest expense on the Company's historical
debt........................................ $(14.8) $(6.9)
Amortization of historical deferred financing
costs....................................... (2.0) (0.9)
Interest expense on the Credit Facility (ii). 30.8 23.1
Interest expense on the Notes (iii).......... 32.3 24.2
Amortization of deferred financing costs..... 4.0 3.0
Commitment fee............................... 0.5 0.4
------ -----
Total Chemicals............................ $ 50.8 $42.9
====== =====
</TABLE>
--------
(i) For purposes of the pro forma statement of operations, the
effective annual interest rate is assumed to equal 13.5%. A 1% change
in the interest rate payable on the outstanding balance under the
Discount Notes would change annual interest expense and cash interest
expense by $1.0 million and $0, respectively, before the effect of
income taxes.
(ii) For purposes of the pro forma statement of operations, the
effective annual interest rate is assumed to equal 8.5%. A 1% change in
the interest rate payable on the outstanding balance under the Credit
Facility would change each of annual interest expense and cash interest
expense by $3.6 million before the effect of income taxes.
(iii) For purposes of the pro forma statement of operations, the
effective annual interest rate is assumed to equal 11.75%. A 1% change
in the interest rate payable on the outstanding balance under the Notes
would change each of annual interest expense and cash interest expense
by $2.8 million before the effect of income taxes.
(d) Represents the tax effect of the pro forma adjustments at a 35%
statutory rate.
32
<PAGE>
(e) Weighted average shares outstanding after giving effect to the
Transaction represents the 10.891 million shares of Holdings Common Stock
issued less the 0.542 million shares of Holdings Common Stock held by the
New ESOP, which are not considered outstanding for earnings per share
calculations until they are allocated to New ESOP plan participants.
(f) EBITDA represents income from operations before taking into
consideration depreciation and amortization and historical SARs benefit of
$2.8 million for the year ended September 30, 1995 and SARs expense of $6.2
million for the nine months ended June 30, 1996. See footnote (g). EBITDA
is presented because it is a widely accepted financial indicator of a
company's ability to incur and service debt. EBITDA should not be
considered by an investor as an alternative to net income or income from
operations, as an indicator of the operating performance of the Company or
as an alternative to cash flows as a measure of liquidity.
(g) Depreciation and amortization expense included herein excludes the
amortization of deferred debt financing costs which is included in interest
expense.
(h) For purposes of computing these ratios, earnings consist of income
from continuing operations before income taxes and fixed charges (excluding
capitalized interest). Fixed charges consist of interest expense on debt,
amortization of financing costs, capitalized interest and the portion
(approximately one-third) of rental expense that management believes is
representative of the interest component of rental expense.
(i) Represents the capitalization of organization and deferred financing
costs related to the Merger, net of expensing the historical deferred
financing costs as follows:
<TABLE>
<S> <C>
Chemicals
Organization and debt financing costs........................ $35.4
Historical debt financing costs.............................. (3.0)
-----
Total Chemicals............................................ $32.4
=====
Holdings
Debt financing costs......................................... $ 3.0
=====
</TABLE>
(j) Represents the settlement of obligations pursuant to the Company's
SARs, phantom stock and restricted stock, which will be terminated in
connection with the Merger.
(k) Represents the repayment of the Company's historical debt outstanding
and the incurrence of debt relating to the Credit Facility, the issuance of
the Notes, and the issuance of the Discount Notes as follows:
<TABLE>
<S> <C>
Holdings
Discount Notes................................................ $ 100.0
Warrants (s).................................................. --
-------
Total Holdings.............................................. $ 100.0
=======
Chemicals
Repayment of historical Debt outstanding...................... $(138.2)
Credit Facility............................................... 361.9
Notes......................................................... 275.0
-------
Total Chemicals............................................. $ 498.7
=======
</TABLE>
Subject to the borrowing base (as defined), the unused portion of the
$100 million Revolving Credit Facility will be available for working
capital and general corporate purposes, including funding $8.7 million of
current maturities on the Term Loans.
(l) Represents the deferred tax impact of expensing historical deferred
financing costs and settlement of obligations pursuant to the Company's
SARs, phantom stock and restricted stock.
33
<PAGE>
(m) Represents the net effect of the Transaction on the 60.327 million
shares issued at $.01 par value per share. There will be 10.891 million
shares issued subsequent to the Transaction.
(n) Represents (i) the contribution to Chemicals of the Company's net
assets, except for $0.1 million attributable to common stock; net of (ii)
cash advanced to Holdings, comprising the new debt proceeds, net of debt
issue and organization costs, repayment of historical Debt and settlement
of obligations pursuant to the Company's SARs, phantom stock and restricted
stock.
(o) Represents the contribution of the Company's net assets to Chemicals,
net of the write-off of historical deferred financing costs and settlement
of obligations pursuant to the Company's SARs, phantom stock and restricted
stock, after tax effects.
(p) Represents the cancellation of the 4.64 million shares of treasury
stock.
(q) Represents the proceeds from the purchase of 0.542 million shares of
Common Stock by the New ESOP in connection with the Transaction. Common
stock held by the New ESOP has been classified outside of permanent equity
because, under certain conditions, participants can require Chemicals to
purchase for cash common stock distributed to them by the New ESOP.
(r) Represents unearned compensation expense related to Common Stock held
by the New ESOP.
(s) The Warrants to be issued in connection with the Units Offering,
which will be valued upon determination of the terms of the Units Offering,
have not been valued in the pro forma financial statements.
(t) Represents amounts distributed to convert to cash 53.389 million
shares of the Company's common stock for total consideration of $640.7
million; net of the issuance of 8.048 million shares in the Equity Private
Placement for total consideration of $96.6 million; plus $1.6 million in
equity financing costs as a result of the Transaction; plus historical
amounts of retained earnings, pension adjustment and accumulated
translation adjustment; net of the cash advanced to Holdings per note (n).
The pro forma consolidated financial statements have been prepared under
the assumption that all outstanding shares of common stock are converted to
cash, except for the 2.301 million Rollover Shares, the minimum number of
Rollover Shares.
(u) Represents the Company's historical retained earnings.
(v) Represents reinstatement of historical amounts of pension adjustment
and accumulated translation adjustment.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The primary markets in which the Company competes, especially styrene and
acrylonitrile, are cyclical and are sensitive to changes in the balance
between supply and demand, the price of feedstocks, and the level of general
economic activity. Historically, these markets have experienced alternating
periods of tight supply and rising prices and profit margins, followed by
periods of large capacity additions resulting in oversupply and declining
prices and margins. However, the secular growth trend for major petrochemical
products globally has been, and is projected to continue to be, 1.3 to 2.0
times the gross domestic product growth rate. These growth rates are driven by
new applications and the substitution of petrochemical-based plastics and
fibers for materials such as metals, paper, glass, wood and cotton. In
addition, growth of petrochemicals and plastics consumption in the developing
regions of the world has been tied to increasing per capita usage of such
products, which historically has lagged behind that in the U.S. Demand from
the Far East, particularly China, tends to have a disproportionate impact on
the global markets for the Company's primary petrochemical products, due to
both volume and volatility of the region's demand. Although in the last three
fiscal years the Company's direct sales to China average less than 3% of total
revenues, much of the Company's Far Eastern petrochemical product demand is
ultimately driven by Chinese demand for downstream products.
The Company sells its products primarily pursuant to multi-year contracts
and spot transactions in both the domestic and export markets. This long-term,
high volume focus allows the Company to maintain relatively low selling,
general and administrative expenses relating to product marketing. Prices for
the Company's commodity chemicals are determined by global market factors,
including changes in the cost of raw materials, that are largely beyond the
Company's control, and, except with respect to certain of its multi-year
contracts, the Company generally sells its products at prevailing market
prices.
During the past five years, the Company's results of operations have varied
significantly from year to year primarily as a result of cyclical changes in
the markets for its primary products. The Company has attempted to stabilize
these fluctuations by manufacturing two product groups, petrochemicals and
pulp chemicals, which are subject to different market dynamics, including
timing differences in their respective cyclical upturns and downturns.
However, as prices for the Company's products are expected to continue to
fluctuate in the future, any prolonged or severe softness in the market for
any of its principal products, particularly styrene and acrylonitrile, will
adversely affect the Company. In addition, in petrochemicals, the Company
markets substantial volumes (approximately 60.0%, 50.5% and 53.7% of total
sales volumes in fiscal 1993, 1994 and 1995, respectively) and generates
substantial revenues (approximately 36.4%, 32.1% and 30.2% of total revenues
in fiscal 1993, 1994 and 1995, respectively) under conversion agreements
whereby the customer furnishes raw materials which the Company processes in
exchange for a fee designed to cover its fixed and variable costs of
production. These conversion agreements allow the Company to maintain lower
levels of working capital and, in some cases, to gain access to certain
improvements in manufacturing process technology. The Company believes its
conversion agreements help insulate the Company to some extent from the
effects of declining markets and changes in raw material prices while allowing
it to share in the benefits of favorable market conditions for most of the
products sold under these arrangements.
In recent years, the Company has pursued a strategy of growth and product
diversification. In 1992, the Company acquired its pulp chemicals business
which has current sodium chlorate production capacity of 350,000 tons. In
1995, the Company began a three-year, $200 million capacity expansion and
upgrade program. Approximately 80% of the capital expenditures are expected to
be completed by the end of fiscal 1996, and the balance will be completed in
fiscal 1997. Expenditures incurred after the Transaction are expected to be
funded from operating cash flow and borrowings under the Revolving Credit
Facility. Through this program, the Company will have expanded its total
petrochemical production capacity by approximately 1.4 billion pounds,
including capacity additions of 200 million pounds of styrene, 200 million
pounds of acetic acid and 150 million gallons (approximately 995 million
pounds) of methanol. In addition, the Company is expanding its sodium
35
<PAGE>
chlorate production capacity by 110,000 tons, or 30%, by constructing a new
facility in Valdosta, Georgia. Through this strategy, the Company has sought
to capitalize on the continuing secular growth in global demand for its key
products, while reducing its sensitivity to the cyclicality of the markets for
any particular product.
The Company believes that announced global capacity additions in styrene,
particularly in the Far East, will result in overcapacity for this market
during 1997-1998. However, the Company also believes that demand for styrene
will continue to grow at historical rates and that, over time, such potential
overcapacity will diminish. Notwithstanding the anticipated weakness in the
styrene markets, and despite the substantial interest payments payable on the
indebtedness incurred to finance the Transaction, the Company believes that
cash flow from operations, together with funds available under the Revolving
Credit Facility, will be adequate to make required payments of principal and
interest on the indebtedness that will be outstanding upon consummation of the
Transaction. See "Risk Factors--High Financial Leverage," "Risk Factors--
Cyclical Markets for Products; Dependence on Key Products" and "--Liquidity
and Capital Resources."
PETROCHEMICALS
Styrene
From 1991 to 1993, styrene's profitability was depressed because of industry
overcapacity and global recessionary pressures. However, the market for
styrene and its derivatives experienced strong growth in 1994 based primarily
on global economic growth. The U.S. economy and the economies of most Asian
countries expanded during fiscal 1994 while Europe's economy began to recover.
The strength of the U.S. automotive, housing and packaging markets also
contributed to the increased demand for styrene. By the spring of 1994,
increased demand for styrene had absorbed much of the excess capacity. In
addition, some competitors' styrene plants experienced operating difficulties
and scheduled shutdowns during the year which further tightened the market.
Most styrene plants were operating near full capacity during the last half of
fiscal 1994.
Global growth in demand for styrene and its derivatives, particularly in the
Far East, continued into fiscal 1995. Most styrene producers again operated
their plants at or near full capacity for most of fiscal 1995. A series of
significant price increases kept margins increasing into the third quarter of
fiscal 1995. During the fourth quarter of the year, however, average styrene
prices decreased 45% and average margins decreased approximately 75% from
their third quarter levels. The Company believes that demand began to weaken
in the third quarter as a result of a general slowdown in the worldwide
economic growth rate, prompting customers to begin utilizing their available
inventories and decreasing purchases of additional product, and due to
significantly decreased purchases of styrene and styrene derivatives by China.
From the fourth quarter of fiscal 1995 and continuing through the first
quarter of fiscal 1996, market conditions for styrene weakened largely as a
result of changes in China's enforcement of economic and tax policies and
monetary constraints that negatively affected its imports of styrene and its
derivatives. While it is impossible to predict when China's chemical imports
will return to previous levels, the Company anticipates that styrene pricing
and profitability will be relatively stable for the remainder of fiscal 1996.
Acrylonitrile
The acrylonitrile market exhibits characteristics in capacity utilization,
selling prices and profit margins similar to those of styrene. Moreover, as a
result of the Company's high percentage of export acrylonitrile sales, demand
for the Company's acrylonitrile is most significantly influenced by export
customers, particularly those that supply acrylic fiber to China. In recent
years the acrylic fiber market has been subject to volatility because of
fluctuations in demand from the Chinese market.
36
<PAGE>
The Company enjoyed strong demand for acrylonitrile during fiscal 1994
because of favorable economic conditions worldwide, including strong demand
for acrylic fiber in China and in most other Asian countries. In addition,
poor cotton crops in parts of the world contributed to increased demand for
all synthetic fibers, including acrylic fiber. By the end of fiscal 1994, most
acrylonitrile producers were operating at or near full capacity. As a result
of this tight supply, acrylonitrile profitability began increasing in the
fourth quarter of fiscal 1994 and continued through the third quarter of
fiscal 1995 as sales prices increased ahead of escalating raw material prices.
The improvement in market conditions for acrylonitrile into fiscal 1995 was
primarily due to continued improved demand, particularly in China, for acrylic
fiber and ABS resins, the largest derivatives of acrylonitrile.
Acrylonitrile demand began to weaken after the third quarter of fiscal 1995
for the same reasons that caused the significant negative changes in the
styrene market. Demand for acrylonitrile from export customers decreased
significantly in the fourth quarter of fiscal 1995, although export prices and
margins did not decrease significantly until the first quarter of fiscal 1996.
Market conditions for acrylonitrile weakened significantly in the first half
of fiscal 1996 primarily due to the changes in demand from China as described
above. In recent months, however, acrylonitrile prices have stabilized after
declines in the first six months of fiscal 1996 and the Company anticipates
that acrylonitrile pricing and profitability will be relatively stable for the
remainder of fiscal 1996.
PULP CHEMICALS
Historically, sodium chlorate has experienced cycles in capacity
utilization, selling prices and profit margins. Since the mid-1980s, North
American demand for sodium chlorate has grown at an average annual rate of 10%
as pulp mills have accelerated substitution of sodium chlorate-based chlorine
dioxide for elemental chlorine in bleaching applications. However, from 1990
through mid-1994, the industry operated well below rated capacity, resulting
in declining product prices, due to oversupply created by significant capacity
expansions from 1990 to 1992.
From mid-1994, sodium chlorate supply tightened considerably as sales
volumes increased because of (i) increased substitution of chlorine dioxide
for elemental chlorine in the bleaching process, in anticipation of
environmental regulations that would eliminate the use of elemental chlorine
in pulp manufacturing, and (ii) general improvement in pulp and paper market
conditions. As a result, during the fourth quarter of fiscal 1994, the Company
realized its first sodium chlorate price increase since acquiring the business
in 1992. Beginning in fiscal 1994, royalty revenues also increased because of
higher chlorine dioxide generator operating rates and new start-ups. Eight new
Company generators commenced operation in fiscal 1994, including the first
such generator in China. The Company also was awarded 10 new generator
contracts in fiscal 1994. Improved market conditions continued through fiscal
1995 and into fiscal 1996, resulting in higher revenues from sales of both
sodium chlorate and chlorine dioxide generators and from royalties. In recent
months, weakness in the pulp and paper markets has resulted in somewhat slower
demand growth for sodium chlorate. Nevertheless, the Company expects that
revenues and operating profits from its pulp chemicals operations for fiscal
1996 will exceed fiscal 1995 levels.
37
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth revenues, gross profit and operating income
for the Company's primary product groups for the years ended September 30,
1993, 1994 and 1995 and the nine months ended June 30, 1995 and 1996.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30,
--------------------- -------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
REVENUES:
Petrochemicals:
Styrene.................................. $ 144 $ 288 $ 467 $ 398 $ 249
Acrylonitrile............................ 124 138 251 210 124
Acetic Acid.............................. 64 76 94 75 50
Other.................................... 68 76 74 54 64
Pulp Chemicals............................ 119 123 144 106 114
------ ------ ------ ------ ------
$ 519 $ 701 $1,030 $ 843 $ 601
====== ====== ====== ====== ======
GROSS PROFIT:
Petrochemicals............................ $ 7 $ 58 $ 225 $ 212 $ 49
Pulp Chemicals............................ 34 36 47 33 43
------ ------ ------ ------ ------
$ 41 $ 94 $ 272 $ 245 $ 92
====== ====== ====== ====== ======
OPERATING INCOME:
Petrochemicals............................ $ (4) $ 37 $ 212 $ 200 $ 34
Pulp Chemicals............................ 19 11 31 19 28
------ ------ ------ ------ ------
$ 15 $ 48 $ 243 $ 219 $ 62
====== ====== ====== ====== ======
SALES VOLUME:
Petrochemicals (MMlbs.):
Styrene.................................. 1,191 1,460 1,433 1,150 1,295
Acrylonitrile............................ 528 668 739 604 475
Acetic Acid.............................. 578 599 635 487 346
Sodium Chlorate (000 tons)................ 248 294 336 248 233
</TABLE>
COMPARISON OF NINE MONTHS ENDED JUNE 30, 1996 TO NINE MONTHS ENDED JUNE 30,
1995
Revenues
Revenues for the first nine months of fiscal 1996 were $601 million compared
to revenues of $843 million for the first nine months of fiscal 1995, a
decrease of 29%. The decrease in revenues was primarily in the Company's
petrochemical business due to lower sales prices for styrene and
acrylonitrile, which was partially offset by increased revenues in the pulp
chemical business due to higher sodium chlorate sales prices.
Petrochemicals
For the first nine months of fiscal 1996, the Company's revenues from its
petrochemical business decreased 34% to $487 million when compared to the
first nine months of fiscal 1995 primarily due to decreases in styrene and
acrylonitrile average sales prices and lower acrylonitrile and acetic acid
sales volumes.
Styrene. Styrene revenues in the first nine months of fiscal 1996 decreased
approximately 37% to $249 million compared to the same period of fiscal 1995
due to lower styrene sales prices because of weak market conditions, partially
offset by higher sales volumes. Average sales prices for the first nine months
of fiscal 1996
38
<PAGE>
decreased by approximately 45%. Sales volumes in the first nine months of
fiscal 1996 increased by approximately 13% over the same period in fiscal 1995
when a shutdown for scheduled maintenance and catalyst replacement restricted
production. The Company's styrene unit operated at approximately 102% of its
rated capacity of 1.7 billion pounds for the first nine months of fiscal 1996,
compared to approximately 104% for the corresponding period in fiscal 1995.
Debottlenecking completed in December 1995 increased the Company's styrene
annual production capacity to 1.7 billion pounds. Percentages for 1995 are
based on a rated capacity of 1.5 billion pounds.
The prices of styrene's major raw materials, benzene and ethylene, were
substantially lower during the first nine months of fiscal 1996 compared to
the same period in fiscal 1995. Benzene prices were approximately 22% lower
while ethylene prices were approximately 30% lower. These decreases helped to
offset some of the decrease in selling prices discussed above, but styrene
margins still declined substantially.
Acrylonitrile. Acrylonitrile revenues in the first nine months of fiscal
1996 decreased approximately 41% to $124 million compared to the corresponding
period in fiscal 1995 primarily due to decreases of approximately 25% in
average sales prices and 21% in sales volumes. Reduced imports of
acrylonitrile derivatives by the Far East market (primarily acrylic fiber and
ABS) resulted in lower acrylonitrile sales volumes and prices.
The Company's acrylonitrile unit operated at approximately 82% of rated
capacity during the first nine months of fiscal 1996 compared to approximately
101% for the corresponding period of fiscal 1995. This reduction in operating
rate was attributable to an extended shutdown for most of March 1996 for
scheduled maintenance and installation of the first phase of a state-of-the-
art distributive control system. These operations were performed during a
period of reduced demand for acrylonitrile. As a result, profits decreased
because of higher fixed cost per pound produced. The shutdown has been
completed and should result in increased efficiencies and stronger operating
fundamentals in the future.
The prices of propylene and ammonia, which are the major raw materials used
to make acrylonitrile, were approximately 24% and 22% lower, respectively, in
the first nine months of fiscal 1996 than in the corresponding period in
fiscal 1995. These decreases helped to offset some of the lower selling prices
discussed above, but margins still declined substantially.
Acetic Acid. Acetic acid revenues in the first nine months of fiscal 1996
decreased approximately 33% to $50 million compared to the same period of
fiscal 1995 primarily due to a 29% decrease in sales volume related to a
shutdown of the acetic acid unit for expansion by 200 million pounds annual
capacity and for installation of a distributive control system. The expansion
of the acetic acid unit and the construction of the partial oxidation plant by
Praxair Hydrogen Supply, Inc. ("Praxair") at the Texas City Plant were
completed in June 1996. The partial oxidation plant will supply raw materials
to the Company's acetic acid unit and will allow the acetic acid unit to
operate at full capacity in future periods.
Other Petrochemical Products. Revenues during the first nine months of
fiscal 1996 from the Company's other petrochemical products (excluding $7
million of lactic acid revenues) increased approximately 30% to $57 million,
primarily due to increases in revenues from plasticizers. The Company ceased
production of lactic acid in May 1996. In the second and third quarters of
fiscal 1996, the Company wrote off the remaining net book value of the lactic
acid plant assets and expensed other related costs resulting in a $3.7 million
charge against earnings before taxes.
Pulp Chemicals
Revenues from the Company's pulp chemical business for the first nine months
of fiscal 1996 increased by approximately 8% to $114 million compared to the
first nine months of fiscal 1995 primarily due to an increase in sodium
chlorate average sales prices of approximately 19%, partially offset by a 6%
decrease in sales volumes. Sodium chlorate has experienced higher sales prices
as a result of improved demand due to increased chlorine dioxide utilization
in pulp bleaching. Royalty revenues in the first nine months of fiscal 1996
from installed generator technology increased approximately 5% over the first
nine months of fiscal 1995 as a result of higher customer operating rates and
increased capacity.
39
<PAGE>
The Company's sodium chlorate plants operated at approximately 89% of rated
capacity during the first nine months of fiscal 1996 compared to 98% for the
1995 period. The lower operating rate resulted from recent weakness in paper
demand.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the first nine
months of fiscal 1996 increased to $30 million compared to $26 million in the
first nine months of fiscal 1995 primarily due to an increase in expenses
related to the Company's SAR program of $4.6 million.
Income from Operations
Income from operations for the first nine months of fiscal 1996 was $62
million (before the effect of the $3.7 million pre-tax charge against earnings
relating to the write-off of the Company's lactic acid plant assets)
consisting of $34 million from petrochemical operations and $28 million from
pulp chemical operations. This amount represented a 72% decrease from the same
period of fiscal 1995, primarily due to weakness in the markets for styrene
and acrylonitrile discussed above, which resulted in significantly lower
margins during the first nine months of fiscal 1996 compared to the 1995
period. This weakness was partially offset by higher operating income from
pulp chemicals and other petrochemicals. In addition, the Company incurred
approximately $4.4 million in start-up expenses during the first nine months
of fiscal 1996 in connection with the construction of the methanol plant.
Interest and Debt Related Expenses
Interest expense for the first nine months of fiscal 1996 decreased $8.3
million compared to the 1995 period primarily due to lower outstanding debt in
fiscal 1996. The Company's average interest rate per annum on June 30, 1996,
and on June 30, 1995 was 7.1%.
Provision for Income Taxes
Provision for income taxes for the first nine months of fiscal 1996 was
$18.3 million, with an effective tax rate of 34%, compared to $68.5 million,
with an effective tax rate of 33%, for the same period of fiscal 1995. The
decrease was primarily the result of the significant decrease in the Company's
taxable income of $53.9 million for the first nine months of fiscal 1996 from
$206.6 million in the corresponding period of fiscal 1995.
Net Income
Due to the factors described above, including the $3.7 million pre-tax
charge against earnings relating to the write-off of the Company's lactic acid
plant assets, net income for the first nine months of fiscal 1996 was $35.6
million compared to $135.0 million for the same period of fiscal 1995.
COMPARISON OF FISCAL 1995 TO FISCAL 1994
Revenues
The Company's revenues for fiscal 1995 were $1.03 billion, an increase of
$329 million from fiscal 1994. Fiscal 1995 revenues were the highest in
Company history, achieved primarily through higher sales prices and volumes
for styrene and acrylonitrile due to improving conditions in the commodity
chemical markets in 1994 and 1995. The Company's pulp chemical business also
experienced record revenues in 1995 primarily due to increased sales prices
and volumes of sodium chlorate.
Petrochemicals
The financial performance of the Company's petrochemical business was
significantly better during fiscal 1995 than in fiscal 1994. Petrochemical
revenues increased 53% to $886 million from fiscal 1994, primarily as a result
of increased average styrene and acrylonitrile sales prices and higher
acrylonitrile sales volumes.
40
<PAGE>
Styrene. Styrene revenues increased 62% to $467 million in fiscal 1995
compared to fiscal 1994 primarily because of a 64% increase in average sales
prices. The styrene unit operated at approximately 96% of its 1.5 billion
pound capacity in fiscal 1995, slightly higher than in fiscal 1994, in spite
of two planned shutdowns for maintenance and catalyst replacement during
fiscal 1995 compared to no shut downs in the prior year. The second planned
shutdown, which occurred in the fourth quarter 1995, also included
modernization of the styrene unit's control instrumentation with state-of-the-
art distributive control systems.
During fiscal 1995, approximately 46% of the Company's styrene production,
representing approximately 61% of styrene revenues, was sold in the export
market. The average prices for styrene's primary raw materials, benzene and
ethylene, increased 5% and 40%, respectively, in fiscal 1995 compared to
fiscal 1994. However, the Company was able to increase styrene selling prices
and thereby margins through most of the fiscal year until the dramatic fall in
prices and margins in the fourth quarter of fiscal 1995.
Acrylonitrile. Acrylonitrile revenues for fiscal 1995 totaled $251 million,
an increase of 82% from fiscal 1994. The increased revenues primarily resulted
from an increase of 70% in average sales prices, peaking at unprecedented
levels in the third quarter of fiscal 1995, and an 11% increase in sales
volumes.
The Company's acrylonitrile unit operated at approximately 96% of capacity
during fiscal 1995, in spite of a planned shutdown for maintenance in the
first quarter and an approximately two-week unscheduled shutdown in the fourth
quarter of fiscal 1995 to correct a mechanical problem. During fiscal 1995,
most acrylonitrile producers, including the Company, were operating their
plants at or near full capacity in response to strong demand.
Acrylonitrile revenues from export sales constituted 93% of the Company's
total acrylonitrile revenues and 81% of its acrylonitrile production for 1995.
Almost all of the Company's domestic acrylonitrile revenues are from
conversion agreements. Average export acrylonitrile prices and margins were
significantly higher in fiscal 1995 than in fiscal 1994 as a result of the
strong demand during most of the year.
The average prices of acrylonitrile's primary raw materials, propylene and
ammonia, increased substantially in fiscal 1995 compared to fiscal 1994.
Average propylene prices were approximately 70% higher and average ammonia
prices increased by approximately 35%. However, the Company was able to
substantially improve margins for acrylonitrile during most of the year due to
increases in acrylonitrile sales prices, until the downturn in the fourth
quarter that negatively affected sales prices and margins.
Acetic Acid. Acetic acid revenues for fiscal 1995 totaled $94 million, an
increase of approximately 24% from fiscal 1994. The increase in revenues was
related to an increase in passed through raw material costs, specifically
methanol, during the period.
Other Petrochemical Products. Revenues in fiscal 1995 from plasticizers,
lactic acid, tertiary butylamine and sodium cyanide were approximately $74
million, a decrease of approximately 3% compared to fiscal 1994. The decline
was primarily attributable to lower lactic acid revenues.
Pulp Chemicals
Revenues from the Company's pulp chemical business increased by
approximately 17% to $144 million in fiscal 1995. The increase in revenues
resulted primarily from (i) a 14% increase in sodium chlorate sales volumes,
due to the substitution of sodium chlorate for elemental chlorine in the
bleaching process, and (ii) an 7% increase in average selling prices. Royalty
revenues from installed generator technology increased by 15% to $19 million
in fiscal 1995 as a result of higher customer operating rates and additional
installed capacity. Sales of generator technology were approximately the same
in 1995 as the previous year.
The increased sodium chlorate sales volumes in fiscal 1995 resulted in
increased capacity utilization, which contributed to lower per unit cost and
increased margins. The Company's sodium chlorate facilities operated at
approximately 97% of capacity in fiscal 1995, compared to 86% during fiscal
1994.
41
<PAGE>
Selling, General and Administrative Expenses
The Company's SG&A in fiscal 1995 were $29 million compared to $46 million
in fiscal 1994. A $25 million decrease in the expense related to the SAR
program, resulting from a 50% decrease in the number of SARs outstanding and a
decrease in the Company's stock price at the end of fiscal 1995 compared to
the end of fiscal 1994, was partially offset by a $4 million increase in
employee profit sharing, which was directly related to the Company's improved
earnings in fiscal 1995.
Income from Operations
Income from operations for fiscal 1995 was $243 million, consisting of $212
million from petrochemical operations and $31 million from pulp chemical
operations. This amount represented a 409% increase from fiscal 1994. The
increase was primarily the result of strength in the markets for styrene and
acrylonitrile discussed above, which resulted in significantly higher margins
and volumes during fiscal 1995 compared to fiscal 1994.
Interest and Debt Related Expenses
Interest expense decreased $7.5 million in fiscal 1995 primarily due to the
Company's repayment of $105 million of debt during the year. The Company's
average interest rates decreased to 7% per annum on September 30, 1995 from 8%
per annum on September 30, 1994 primarily due to the refinancing in April
1995.
Provision for Income Taxes
Provision for income taxes for fiscal 1995 was $75 million, with an
effective tax rate of 33%, compared to $9 million, with an effective tax rate
of 32% for fiscal 1994. The increase was primarily due to the significant
increase in the Company's taxable income of $228 million for fiscal 1995 from
$28 million in fiscal 1994, which was largely the result of higher earnings
from the pulp chemicals business.
Accounting Changes
Beginning in fiscal 1995, the Company adopted Financial Accounting Standards
Board Interpretation No. 39, "Offsetting of Amounts Related to Certain
Contracts" ("FIN 39"). That standard requires, among other things, that
insured liabilities of the Company be recorded separately as a liability and a
claim receivable. The Company previously recorded these items on a net basis.
The adoption of FIN 39 did not have a material effect on the Company's
financial position, results of operations or liquidity.
The Financial Accounting Standards Board has issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," which the Company is required to adopt by fiscal 1997. The
Company does not anticipate that the adoption of this Statement will have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
Net Income
Due to the factors described above, net income for fiscal 1995 was $150
million compared to $19 million for fiscal 1994.
COMPARISON OF FISCAL 1994 TO FISCAL 1993
Revenues
Revenues for fiscal 1994 totaled $701 million, an increase of $182 million
from fiscal 1993. The higher revenues resulted primarily from an increase in
styrene and acrylonitrile sales volumes and higher average styrene sales
prices. The pulp chemical business contributed $123 million to the Company's
revenues in fiscal 1994, an increase of $4 million over fiscal 1993.
42
<PAGE>
Petrochemicals
Petrochemical revenues in fiscal 1994 increased 45% to $578 million compared
to fiscal 1993 primarily due to increases in styrene sales volumes and prices.
Styrene. Styrene revenues increased 100% to $288 million in fiscal 1994
compared to fiscal 1993 because of a 63% increase in average sales prices, a
23% increase in sales volumes and a shift to more direct sales from conversion
sales. Approximately one-third of the Company's styrene was previously
marketed under one of its conversion agreements that expired late in 1993. In
fiscal 1994, this volume was successfully marketed under various sales
agreements and spot sales. Revenues recognized from a direct sale are
significantly greater than revenues recognized from an equivalent conversion
sale since in a direct sale, the Company supplies the raw materials and sells
the finished product at a price which includes the value of the raw materials.
The styrene unit operated at approximately 98% of its 1.5 billion pound
capacity in fiscal 1994 compared to about 75% of capacity in fiscal 1993. In
addition to increased demand, two planned shutdowns for maintenance and
installation of new and improved catalyst during fiscal 1993, compared to no
shutdowns in 1994, contributed to the increase in operating rates.
During fiscal 1994, approximately 55% of the Company's styrene production,
representing approximately 62% of styrene revenues, was sold in the export
market, which is typically more volatile than the domestic market. While the
prices for styrene's raw materials, benzene and ethylene, increased
significantly during the second half of the fiscal year, their average prices
for the year increased only slightly.
Acrylonitrile. Acrylonitrile revenues for fiscal 1994 totaled $138 million,
an increase of 11% from fiscal 1993, as a result of a 27% increase in sales
volumes which was partially offset by a 12% decrease in average sales prices.
Although average sales prices were lower in fiscal 1994 than in 1993,
acrylonitrile prices and margins increased significantly during the last half
of fiscal 1994. Acrylonitrile's profitability did not significantly improve
until the fourth fiscal quarter, however, because of increasing raw material
costs.
The Company's acrylonitrile unit operated at 96% capacity during fiscal 1994
compared to approximately two-thirds capacity in fiscal 1993. Average export
acrylonitrile prices were lower in fiscal 1994 than fiscal 1993, and the
average price of acrylonitrile's primary raw material, propylene, was slightly
higher. Acrylonitrile's performance benefited from lower per unit fixed costs
because of higher operating rates in fiscal 1994 compared to the prior year.
Export sales of acrylonitrile increased in 1994 and constituted the great
majority of revenues in fiscal years 1994 and 1993.
Acetic Acid. Acetic acid revenues totaled $76 million for fiscal 1994, a 19%
increase over fiscal 1993 due to higher sales volumes.
Other Petrochemical Products. Revenues from the Company's other
petrochemical products were $76 million in fiscal 1994, an increase of
approximately 12% compared to fiscal 1993, primarily due to higher sales
volumes of plasticizers.
Pulp Chemicals
Revenues from the Company's pulp chemical business increased 3% to $123
million, primarily because of increased sales volumes of sodium chlorate and
higher royalty revenues. Revenues from sodium chlorate increased 4% from
fiscal 1993 as higher sales volumes were partially offset by lower average
sales prices. The increased sales volumes resulted in increased capacity
utilization, which contributed to lower per unit cost and increased margins. A
3% decrease in the average cost of electricity, the predominant cost in the
manufacturing of sodium chlorate, also contributed to lower costs. The
Company's sodium chlorate facilities operated at approximately 86% of capacity
in fiscal 1994, compared to 75% during fiscal 1993.
43
<PAGE>
Selling, General and Administrative Expenses
The Company's SG&A increased solely because of expenses related to the SAR
program. The Company recognized expense of $22 million related to the SAR
program in fiscal 1994 because of the increase in the Company's stock price.
Prior to this accrual, SG&A was $1.1 million lower in fiscal 1994 compared to
1993, despite employee profit sharing expense of $1.7 million in fiscal 1994
compared to none in fiscal 1993. There were no expenses associated with the
SARs in fiscal 1993.
Income from Operations
Income from operations for fiscal 1994 was $48 million, consisting of $37
million from petrochemical operations and $11 million from pulp chemical
operations. This amount represented a 210% increase from fiscal 1993. The
increase was primarily the result of strength in the markets for styrene
discussed above, which resulted in significantly higher volumes and margins
during fiscal 1994 compared to fiscal 1993.
Provision (Benefit) for Income Taxes
Provision for income taxes for fiscal 1994 was $9.1 million, with an
estimated effective tax rate of 32%, compared to a benefit of $(1.6) million,
with an estimated effective tax rate of 22%, for the same period of fiscal
1993. The increase was primarily the result of the significant increase in the
Company's taxable income of $28 million during fiscal 1994 from a loss before
taxes of $(7) million in fiscal 1993, as well as $2.6 million of income from a
gain on the sale of assets.
Net Income (Loss)
Due to the factors described above, net income for fiscal 1994 was $19.1
million compared to a loss of $(5.4) million for fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
Historical
Net cash provided by operations decreased to $31 million during the first
nine months of fiscal 1996 compared to $128 million for the 1995 period
primarily due to decreased earnings partially offset by lower payments for
interest and income taxes. The Company's long-term debt increased by
approximately $17 million, net of repayments, during the first nine months of
fiscal 1996 due to borrowings of $31 million to finance the construction of
the Valdosta, Georgia sodium chlorate plant. In addition, approximately $41
million was disbursed over the first nine months of fiscal 1996 for the
capital spending program in the petrochemical business as discussed below.
Net cash provided by operations increased to $192 million for fiscal 1995
from $75 million in fiscal 1994. This increase resulted primarily from
increased earnings during fiscal 1995, partially offset by a change in working
capital. The Company utilized the increased cash from operations to reduce
long-term debt by $105 million during the year, and for capital expenditures
of approximately $54 million for various projects as a part of its three-year
capital program.
Net cash used in investing activities for the year ended September 30, 1995
was approximately $54 million, compared to $10 million in the prior year. For
the nine months ended June 30, 1996, net cash used in investing activities was
$73 million, compared to $27 million in the prior period. The net cash used in
investing activities in all of such periods was used for capital expenditures
as described below in "--Capital Expenditures." Net cash used in financing
activities for the year ended September 30, 1995 was approximately $109
million, compared to $65 million in the prior year. For the nine months ended
June 30, 1996, net cash provided by financing activities was $17 million,
primarily from proceeds, net of repayments, from long-term debt incurred in
such period, compared to net cash used in financing activities of $102 million
in the prior period, primarily for repayment of long-term debt.
44
<PAGE>
Historically, the Company has funded its working capital needs with cash
from operations and borrowings under its credit facilities. Working capital
was $83 million at June 30, 1996, up from $75 million at September 30, 1995.
Higher styrene sales volumes in June 1996 compared to September 1995 resulted
in a $37 million increase in accounts receivable. Lower raw material costs
contributed to an $11 million decrease in accounts payable. The higher styrene
and acrylonitrile sales volumes were the primary reasons for a $20 million
decrease in inventory. Cash and cash equivalents decreased $24 million
primarily as a result of expenditures in the first nine months of fiscal 1996
in connection with the Company's three-year $200 million capital program.
In April 1995, the Company entered into a credit facility consisting of a
revolving credit facility of $150 million and a term loan of $125 million. The
Company used the proceeds from such facility to refinance its existing debt.
Also in 1995, Sterling Pulp entered into a Cdn. $20 million revolving credit
facility, the proceeds of which were utilized to refinance the revolving debt
associated with such subsidiary, and a $60 million credit facility in
connection with the construction of its sodium chlorate plant in Valdosta,
Georgia. At June 30, 1996, the Company had indebtedness of $107 million under
the term loan and $31 million under the Valdosta credit facility. Upon
consummation of the Transaction, all of the outstanding borrowings under the
term loan, the Canadian revolver and the Valdosta credit facility will be
repaid.
Pro Forma for the Transaction
As a result of the Transaction, the Company will have significantly
increased cash requirements for debt service relating to the Credit Facility
and the Notes. If the Merger had occurred on June 30, 1996, the Company
estimates that, in addition to the proceeds from the Offerings, it would have
borrowed $355.4 million under the Credit Facility and $6.5 million under the
ESOP Term Loan with $94.6 million available for borrowings under the Revolving
Credit Facility, after giving effect to the borrowing base limitations. On a
pro forma basis for the year ended September 30, 1995, cash interest expense,
net, including interest on the Credit Facility and the Notes, would have
totalled approximately $61.4 million. After the Transaction, the Company will
rely on internally generated funds and, to the extent necessary, on borrowings
under the Revolving Credit Facility to meet cash requirements. The Company's
ability to incur additional debt is limited by terms of the Credit Facility
and the limitations in the Indentures. See "Description of Credit Facility,"
"Description of Notes" and "Description of Units."
Capital Expenditures
In fiscal 1995, the Company initiated a three-year capital spending program
of approximately $200 million. The program includes modernization of the Texas
City Plant, the new methanol plant at Texas City, the acetic acid expansion,
the new sodium chlorate plant at Valdosta, Georgia, debottlenecking projects
at its existing sodium chlorate facilities and various other projects.
Capital expenditures for fiscal 1995 were $54 million compared to $12
million in fiscal 1994. The fiscal 1995 capital expenditures were primarily
for plant instrumentation modernization and process improvements, the acetic
acid expansion, the new methanol plant and the new sodium chlorate plant. The
Company funded its fiscal 1995 capital expenditures from operating cash flow.
Capital expenditures for the first nine months of fiscal 1996 were $73 million
compared to $27 million in the same period last year. The capital expenditures
in the first nine months of fiscal 1996 were primarily for the expansion of
the acetic acid unit and the ongoing construction of the methanol plant and
the Valdosta, Georgia sodium chlorate plant. As of June 30, 1996, the Company
has spent approximately two-thirds of its three-year $200 million capital
plan. During the remainder of fiscal 1996, the Company expects to spend an
additional $25 million to $30 million on capital expenditures. The remaining
fiscal 1996 expenditures will primarily be for the methanol plant and for a
portion of the new sodium chlorate plant which will be completed by late 1996.
The Company expects to fund its remaining fiscal 1996 capital expenditures
after the Transaction from operating cash flow and its Revolving Credit
Facility, as needed.
Capital expenditures for fiscal 1996 are expected to be approximately $100
million, with about $50 million dedicated to the petrochemical business
primarily for the completion of the acetic acid expansion, construction of the
methanol plant and modernization of the plant instrumentation. The remainder
will be invested in the pulp
45
<PAGE>
chemical business primarily for construction of the Georgia sodium chlorate
plant. Capital expenditures for fiscal 1997 are expected to be approximately
$43 million, including approximately $29 million for replacement and
environmental compliance expenditures.
Environmental
As part of the capital spending program described above, the Company
anticipates capital expenditures of approximately $25 million over the next
five years for environmentally-related prevention, containment, process
improvements and remediation at the Texas City Plant. Specific classifications
of these expenditures are difficult to project, since an expenditure may be
made for more than one purpose. The Company's capital expenditures for
environmentally-related prevention, containment and process improvements were
$3 million and $2 million for fiscal years 1995 and 1994, respectively. During
both fiscal years, the Company did not incur any material expenditures to
remediate previously contaminated sites. The Company did not incur any other
infrequent or non-recurring material environmental expenditures which were
required under existing environmental regulations in fiscal years 1995 or
1994. See "Business--Environmental and Safety Matters."
The Company routinely incurs expenses associated with managing hazardous
substances and pollution in ongoing operations. These operating expenses
include items such as depreciation on its waste treatment facilities, outside
waste management, fuel, electricity and salaries. The amounts of these
operating expenses were approximately $45 million and $44 million for fiscal
years 1995 and 1994, respectively. The Company does not anticipate a material
increase in these types of expenses during fiscal 1996. The Company considers
these types of environmental expenditures normal operating expenses and
includes them in cost of goods sold.
Foreign Exchange
The Company does not engage in currency speculation. However, the Company
enters into forward foreign exchange contracts to reduce risk due to Canadian
dollar exchange rate movements. The forward foreign exchange contracts have
varying maturities with none exceeding 18 months. The Company makes net
settlements of U.S. dollars for Canadian dollars at rates agreed to at
inception of the contracts. The Company had a notional amount of approximately
$26 million and $20 million of forward foreign exchange contracts outstanding
to buy Canadian dollars at September 30, 1995 and 1994, respectively. The
deferred gain on these forward foreign exchange contracts at September 30,
1995 and 1994 was immaterial.
46
<PAGE>
BUSINESS
GENERAL
The Company is one of North America's leading producers of selected
commodity petrochemicals, used in the production of a wide array of consumer
goods and industrial products, and pulp chemicals used in paper manufacturing.
The Company ranks among the top three North American producers in terms of
rated production capacity for each of its primary products, including styrene,
acrylonitrile, acetic acid and sodium chlorate. Other products manufactured by
the Company include methanol, plasticizers, tertiary butylamine, sodium
cyanide and sodium chlorite. The Company manufactures all of its
petrochemicals at its Texas City Plant, and believes that the large scale of
this facility and its location on the U.S. Gulf Coast provides it with certain
cost advantages. The Company's pulp chemicals are currently produced at four
plants in Canada. A fifth plant, under construction in Valdosta, Georgia, is
scheduled to begin production in late 1996. The Company believes that its pulp
chemical plants benefit from their proximity to key customers in the paper
industry and their access to competitively priced electricity, which
represents the most significant production cost in sodium chlorate
manufacturing.
In recent years, the Company has pursued a strategy of growth and product
diversification. In 1992, the Company acquired its pulp chemicals business
which has current sodium chlorate production capacity of 350,000 tons. In
1995, the Company began a three-year, $200 million capacity expansion and
upgrade program, which is expected to be approximately 80% complete by the end
of fiscal 1996. Through this program, the Company will have expanded its total
petrochemical production capacity by approximately 1.4 billion pounds,
including capacity additions of 200 million pounds of styrene, 200 million
pounds of acetic acid and 150 million gallons (approximately 995 million
pounds) of methanol. In addition, the Company is expanding its sodium chlorate
production capacity by 110,000 tons, or 30%, by constructing a new facility in
Valdosta, Georgia. Through this growth, the Company has sought to capitalize
on the continuing secular growth in global demand for its key products, while
reducing its sensitivity to the cyclicality of the markets for any particular
product. The following table sets forth the total revenues and sales volumes
for the Company by its primary products.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
-------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
REVENUE
Petrochemicals:
Styrene.......................... $ 144 $ 288 $ 467 $ 398 $ 249
Acrylonitrile.................... 124 138 251 210 124
Acetic Acid...................... 64 76 94 75 50
Other............................ 68 76 74 54 64
------ ------ ------ -------- --------
400 578 886 737 487
Pulp Chemicals..................... 119 123 144 106 114
------ ------ ------ -------- --------
Total.............................. $ 519 $ 701 $1,030 $ 843 $ 601
====== ====== ====== ======== ========
SALES VOLUMES
Petrochemicals (MM lbs.):
Styrene.......................... 1,191 1,460 1,433 1,150 1,295
Acrylonitrile.................... 528 668 739 604 475
Acetic Acid...................... 578 599 635 487 346
Sodium Chlorate (000 tons)......... 248 294 336 248 233
</TABLE>
47
<PAGE>
BUSINESS STRATEGY
The Company's strategy is to capitalize on its competitive market position
to take advantage of periods of tight supply and high prices and margins for
its primary products, which historically have occurred on a cyclical basis,
and to expand its production capacity to capture future growth opportunities
in the petrochemical and pulp chemical industries. The expansion strategy
includes pursuing both internal growth opportunities, through capacity
additions and debottleneckings, as well as strategic acquisitions of chemical
businesses. Key elements of the Company's business strategy are as follows:
Maintain Competitive Cost Position in Petrochemicals. The Company is
currently upgrading and modernizing the Texas City Plant as part of its
strategy of increasing its competitiveness by investing in new technology and
equipment. The plant modernization effort at Texas City includes a significant
capital commitment for replacing the older control technology in the styrene,
acrylonitrile and acetic acid units with state-of-the-art distributive control
systems, which should result in increased efficiencies and stronger operating
fundamentals. The Company believes that the Texas City Plant enjoys certain
cost advantages due to economies of scale and its proximity to sources of its
principal raw materials.
Pursue Low Cost Expansions in Petrochemicals. The Company is finalizing
significant capacity expansions in its petrochemicals business, including the
expansion of its acetic acid unit and construction of a new methanol plant.
The acetic acid expansion was completed in June 1996 and increased capacity by
more than 30% to nearly 800 million pounds per year. In conjunction with this
expansion, the Company is constructing a world-scale 150 million gallon
methanol facility scheduled to begin production by September 1996. Capital
investment will be shared equally by the Company and BP. The Company will be
entitled to 60% of the methanol production and BP will be entitled to the
remaining 40% of production. Approximately one-half of the total methanol
production will be used as a raw material in the Company's acetic acid unit,
replacing methanol currently purchased from third parties. The Company
believes that both its acetic acid expansion and new methanol plant
construction will be completed for significantly less than the typical capital
cost of a new plant.
Pursue Growth Opportunities in Pulp Chemicals. The Company's strategy in
pulp chemicals is to capture a significant portion of the growing North
American demand for sodium chlorate derivatives in pulp bleaching
applications. To this end, the Company is constructing a new 110,000 ton per
year sodium chlorate plant in Valdosta, Georgia, scheduled to begin production
in late 1996. The new facility will increase the Company's total annual sodium
chlorate capacity by 30% to approximately 460,000 tons. The plant site was
selected because of its proximity to existing customers (currently being
supplied by the Company's Canadian plants) and its access to competitively
priced electricity, which represents the most significant variable production
cost in sodium chlorate manufacturing. In addition to the Valdosta plant, the
Company has recently debottlenecked each of its four Canadian sodium chlorate
plants to add incremental production capacity.
Continue to Build Strong Industry Partnerships in Petrochemicals. The
Company plans to build on its strategy of securing long-term supply contracts
with key customers. The Company believes that it must provide high quality
products and superior customer service to maintain these long-term
relationships and has implemented management practices to insure continuous
improvement in these areas. Approximately 25% of the Company's styrene and 40%
of acrylonitrile volumes are manufactured under long-term conversion
agreements and 100% of its acetic acid, plasticizers and tertiary butylamine
are sold under long-term contracts which provide for production cost
reimbursement plus profit sharing. The Company believes such agreements help
insulate its operating performance, to some extent, from the effects of
declining markets and changes in raw material prices, while allowing it to
share in the benefits of favorable market conditions. In addition, the
Company's long-term, high volume focus allows it to maintain relatively low
selling, general and administrative expenses.
Implement a Focused Acquisition Strategy. The Company plans to pursue a
disciplined acquisition strategy focusing on chemical businesses and assets
which produce either:
. The same products as the Company presently manufactures, further
strengthening the Company's market position and providing cost
efficiencies in its base businesses;
. Products which provide upstream or downstream integration from the
Company's base businesses, enhancing the Company's manufacturing position
within a product chain; or
. Products which are complementary to the Company's base businesses,
further diversifying the Company's product and market positions and
reducing its overall sensitivity to economic cycles and pricing
fluctuations.
48
<PAGE>
There can be no assurance that the Company will be able to obtain financing
for such acquisitions on terms the Company finds acceptable. In addition, the
Credit Facility and the Indentures will substantially limit the Company's
ability to incur additional debt to finance such acquisitions unless certain
coverage ratios are maintained. The Indentures will also restrict the Company's
ability to consolidate with or merge with or into any other entity unless
certain conditions are met. See "Description of the Notes," "Description of the
Units" and "Description of the Credit Facility." Should the Company be unable
to finance proposed acquisitions, the Company's ability to implement its
acquisition strategy would be impaired. The Company believes, however, that
acquisitions are not required for it to continue to maintain its competitive
market position for its existing products.
PRODUCT SUMMARY
The Company's principal products and their primary end uses and raw materials
are set forth below.
<TABLE>
<CAPTION>
INTERMEDIATE
COMPANY PRODUCT PRODUCTS PRIMARY END PRODUCTS RAW MATERIALS
- --------------- ------------ -------------------- -------------
<S> <C> <C> <C>
PETROCHEMICALS
Styrene Polystyrene Building products, boat and Ethylene and Benzene
ABS/SAN resins automotive components,
Styrene butadiene rubber disposable cups and trays,
Styrene butadiene latex packaging and containers,
Polyester resins housewares, tires, audio and
video cassettes, luggage,
childrens' toys, paper
coating, appliance parts and
carpet backing
Acrylonitrile Acrylic fibers Apparel, furnishings, Ammonia, Air and Propylene
ABS/SAN resins upholstery, household
appliances, carpets;
plastics for automotive
parts and ABS and SAN
polymers
Acetic Acid Vinyl acetate monomer Adhesives, cigarette filters Methanol and Carbon
and surface coatings Monoxide
Methanol Acetic acid Adhesives, cigarette filters Natural Gas
MTBE and surface coatings;
Formaldehyde gasoline oxygenate and
octane enhancer; plywood
Plasticizers Polyvinyl chloride (PVC) Flexible plastics such as Alpha-Olefins, Carbon
shower curtains and liners, Monoxide,
floor coverings, cable Hydrogen, Orthoxylene and
insulation, upholstery and Air
plastic molding
TBA NA Pesticides, solvents, Isobutylene and the
pharmaceuticals and acrylonitrile
synthetic rubber co-product Hydrogen
Cyanide ("HCN")
Sodium Cyanide NA Electroplating and precious Sodium Hydroxide and co-
metals recovery product HCN
PULP CHEMICALS
Sodium Chlorate Chlorine dioxide Bleaching agent for pulp Salt, Water, Electricity
production; Downstream
products include high
quality office and coated
papers
Sodium Chlorite Chlorine dioxide Antimicrobial agent for Sodium Chlorate and
municipal water treatment, Hydrochloric Acid
disinfectant for fresh
produce
Chlorine Dioxide NA Chlorine dioxide for use in NA
Generators the bleaching of pulp
</TABLE>
For the nine months ended June 30, 1996, the Company's styrene,
acrylonitrile, acetic acid and other petrochemicals represented approximately
41%, 21%, 8% and 11%, respectively, of the Company's revenues, and pulp
chemicals represented approximately 19% of the Company's revenues.
49
<PAGE>
INDUSTRY OVERVIEW
General
The primary markets in which the Company competes, especially styrene and
acrylonitrile, are cyclical and are sensitive to changes in the balance
between supply and demand, the price of feedstocks, and the level of general
economic activity. Historically, these markets have experienced alternating
periods of tight supply and rising prices and profit margins, followed by
periods of large capacity additions resulting in oversupply and declining
prices and margins. However, the secular growth trend for major petrochemical
products globally has been, and is projected to continue to be, 1.3 to 2.0
times the gross domestic product growth rate. These growth rates are driven by
new applications and the substitution of petrochemical-based plastics and
fibers for materials such as metals, paper, glass, wood and cotton. In
addition, growth of petrochemicals and plastics consumption in the developing
regions of the world has been tied to increasing per capita usage of such
products, which historically has lagged behind that in the U.S.
Global styrene and acrylonitrile markets experienced strong demand growth
and rising prices and profit margins from the end of fiscal 1994 through most
of fiscal 1995. During the fourth quarter of fiscal 1995 and into the first
half of fiscal 1996, styrene and acrylonitrile prices declined as a result of
a general slowdown in global economic growth, inventory drawdowns by customers
and reduced import of petrochemicals and plastics by China, a major merchant
market purchaser. In recent months, however, prices for styrene and
acrylonitrile have stabilized after declines in the first six months of fiscal
1996 and the Company anticipates that pricing and profitability for its
styrene and acrylonitrile products will be relatively stable for the remainder
of fiscal 1996. Thereafter, anticipated expansions in worldwide production
capacity of styrene in 1997 and 1998 are expected to affect pricing of this
product for a period until global demand increases sufficiently to absorb such
additional production capacity. The Company currently expects acrylonitrile
market conditions to remain relatively stable through fiscal 1997.
Sodium chlorate sales prices and profit margins strengthened throughout
fiscal 1995 and into fiscal 1996 as a result of strong demand growth. In
recent months, weakness in the pulp and paper markets has resulted in somewhat
slower demand growth for sodium chlorate. However, sodium chlorate demand in
the remainder of fiscal 1996 and in fiscal 1997 is expected to benefit from
the anticipated promulgation of environmental regulations rules which would
mandate the elimination of elemental chlorine use in pulp bleaching
applications.
The Company believes that it has developed an operating strategy to allow it
to compete effectively in periods of both rising and declining product prices.
During periods of peak demand, the experience and skill of its operating
management has allowed the Company to operate at utilization rates above its
rated capacities for several key products, enhancing the Company's earnings
generation during favorable market conditions. During cyclical downturns, the
Company believes that the profitability of its operations is supported by
having long-term sales contracts and conversion agreements, which accounted
for approximately 53% of its petrochemical sales volumes in fiscal 1995, as
well as management's emphasis on minimizing fixed costs such as selling,
general and administrative expenses.
Styrene
From 1991 to 1993, styrene's profitability was depressed because of both
industry overcapacity and global recessionary pressures. By the spring of
1994, however, demand growth resulting from economic expansion had absorbed
much of the excess capacity. As a result, styrene prices and margins increased
substantially in fiscal 1994 and through most of fiscal 1995, and average
industry utilization rates exceeded rated capacity by the third quarter of
fiscal 1995. Shortly thereafter, styrene prices started decreasing as demand
weakened as a result of a general slowdown in the worldwide economic growth
rate, prompting customers to begin utilizing their available inventories and
decreasing purchases of additional product. The weakening market conditions
were accelerated in the fourth fiscal quarter of 1995 by significantly
decreased purchases of styrene and styrene derivatives by China, primarily as
a result of changes in China's enforcement of economic and tax policies and
monetary constraints that negatively affected its imports. China accounts for
a significant portion of global purchases of styrene and styrene derivatives.
Styrene prices reached a low in the first quarter of fiscal 1996, but have
rebounded somewhat since then. According to CMAI, spot prices for styrene
averaged approximately 19.4 cents
50
<PAGE>
per pound in the first quarter of fiscal 1996, approximately 23.2 cents per
pound in the second quarter and approximately 25.7 cents per pound in the
third quarter. While the industry cannot predict when China's chemical imports
will return to previous levels, the Company believes that fundamental demand
growth trends in the Far East for styrene remain positive.
According to CMAI, the North American styrene industry operated at
approximately a 97.8% utilization rate in fiscal 1995, and approximately 94.1%
in the first nine months of fiscal 1996. Certain styrene producers have
announced plans to add significant production capacity over the next several
years, particularly in the Far East. Current global production capacity for
styrene is estimated to be approximately 40 billion pounds and the Company
believes that approximately 7.2 billion pounds of capacity will be added by
competitors in the next two years, including an estimated 3.5 billion pounds
in fiscal 1997 and 3.7 billion pounds in fiscal 1998. Although less than 5% of
such additional capacity is expected to be added on the U.S. Gulf Coast, where
the Company operates, the Company expects that prices for styrene will decline
from current levels until global demand for styrene increases sufficiently to
absorb such additional production capacity.
The chart below details the average selling prices and capacity utilization
rates for the North American styrene industry during the period 1985 through
June 30, 1996.
NORTH AMERICAN STYRENE PRICES AND CAPACITY UTILIZATION
[Bar chart describing average selling prices and capacity obligation rates for
the North American styrene industry from 1995 through 1996 appears here.]
Source: CMAI.
Acrylonitrile
The acrylonitrile market exhibits characteristics in capacity utilization,
selling prices and profit margins similar to those of styrene. Moreover, as a
result of the Company's high percentage of export acrylonitrile sales, demand
for the Company's acrylonitrile is most significantly influenced by export
customers, particularly those that supply acrylic fiber to China. In recent
years the acrylic fiber market has been subject to volatility because of
fluctuations in demand from the Chinese market. During most of fiscal 1995,
strong demand for acrylic fiber
51
<PAGE>
and ABS, particularly in China, increased demand for acrylonitrile. However,
the Company believes that acrylonitrile demand began to weaken in the third
quarter of fiscal 1995 for the same reasons that caused the deterioration in
the styrene market. Demand for acrylonitrile from export customers decreased
significantly in the fourth quarter of fiscal 1995 as a result of these
developments, although export prices and margins did not decrease
significantly until the first quarter of fiscal 1996. According to CMAI,
export prices for acrylonitrile have increased from 35 cents per pound in the
second quarter of fiscal 1996 to 38 cents per pound in the third quarter of
fiscal 1996. While the industry cannot predict when China's chemical imports
will return to previous levels, the Company believes that fundamental demand
growth trends for acrylonitrile in the Far East remain positive.
According to CMAI, the North American acrylonitrile industry operated at
approximately a 96.9% utilization rate in fiscal 1995, and approximately 99.0%
in the first nine months of fiscal 1996. The Company believes that during
fiscal 1997 and 1998, global industry capacity will increase by approximately
940 million pounds or 9%. Although the Company believes demand growth will
match capacity in 1997, production capacity anticipated to be added in 1998
may result in lower utilization rates, prices and margins for acrylonitrile in
1998.
The chart below details the average selling prices and capacity utilization
rates for the North American acrylonitrile industry from the period 1985
through June 30, 1996.
NORTH AMERICAN ACRYLONITRILE PRICES AND CAPACITY UTILIZATION
[Bar chart describing average selling prices and capacity utilization rates
for the North American acrylonitrile industry from 1995 through 1996 appears
here.]
Source: CMAI.
52
<PAGE>
Sodium Chlorate
Historically, sodium chlorate has experienced cycles in capacity
utilization, selling prices and profit margins. From 1990 to 1994, the
industry had been operating well below rated capacity, resulting in declining
product prices, due to oversupply created by significant capacity expansion in
the period from 1990 to 1992. Since the mid-1980s, however, North American
demand for sodium chlorate has grown at an average annual rate of 10% as pulp
mills have accelerated substitution of sodium chlorate-based chlorine dioxide
for elemental chlorine in bleaching applications. Chlorine dioxide is a
powerful and highly selective oxidizing agent suitable for pulp bleaching with
the ability to substantially reduce hazardous substances, including dioxins
and furans, in bleach plant effluent as well as produce high-brightness pulp
with little or no damage to the cellulose fiber.
Substitution of chlorine dioxide for elemental chlorine is driven by
environmental concerns. Through the end of 1995, approximately 80% to 85% of
Canadian plant capacity and approximately 60% to 65% of U.S. plant capacity
has been converted to chlorine dioxide. The Environmental Protection Agency
has published draft regulations which, if enacted, are likely to mandate the
elimination of elemental chlorine usage in bleaching applications, resulting
in complete substitution to chlorine dioxide by the North American pulp
industry.
PRODUCTS
The Company ranks among the top three North American producers in terms of
rated production capacity for each of its primary products: styrene,
acrylonitrile, acetic acid and sodium chlorate. Other products manufactured by
the Company include methanol, plasticizers, TBA, sodium cyanide and sodium
chlorite. The Company manufactures all of its petrochemicals at its Texas City
Plant. The Company's pulp chemicals are produced at four plants in Canada. A
fifth plant under construction in Valdosta, Georgia, is scheduled to begin
production in late 1996. The Company also designs and provides technology for
large-scale chlorine dioxide generators for the pulp and paper industry.
PETROCHEMICALS
Styrene. The Company manufactures styrene from ethylene and benzene. Styrene
is principally used in the manufacture of intermediate products such as
polystyrene, ABS/SAN resins, synthetic rubbers, SBLatex and unsaturated
polyester resins. These intermediate products are used to produce various
consumer products, including building products, boat and automotive
components, disposable cups and trays, packaging and containers, housewares,
tires, audio and video cassettes, luggage, children's toys, paper coatings,
appliance parts and carpet backing.
The Company is the third largest North American producer of styrene. The
Company's styrene unit is one of the largest in the world and has an annual
rated production capacity of 1.7 billion pounds, following a recent
debottlenecking, which represents approximately 12% of total North American
capacity. The Company sells approximately 25% of its styrene pursuant to long-
term conversion contracts. Approximately 46% of the Company's styrene was
exported in fiscal 1995, principally to the Far East, either directly or
pursuant to arrangements with large international trading companies. In fiscal
1995, the styrene unit operated at an average utilization rate of 96% and
generated revenues of $467 million, which represented 45% of the Company's
total revenues.
Acrylonitrile. The Company manufactures acrylonitrile from propylene and
ammonia. Acrylonitrile is used primarily in the manufacture of intermediate
products such as acrylic fiber and ABS/SAN resins. The principal end uses for
acrylonitrile include apparel, furnishings, upholstery, household appliances,
carpets and plastics for automotive parts.
The Company is the second largest global producer of acrylonitrile. The
Company's acrylonitrile unit has an annual rated production capacity of 740
million pounds, which represents approximately 21% of total North American
capacity. The Company sells approximately 40% of its acrylonitrile pursuant to
long-term conversion
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agreements. Approximately 80% of the Company's acrylonitrile production in
fiscal 1995 was exported, principally to the Far East, either directly or
pursuant to arrangements with large international trading companies. In fiscal
1995, the acrylonitrile unit operated at an average utilization rate of 96%
and generated revenues of $251 million, which represented 24% of the Company's
total revenues.
Hydrogen cyanide is a by-product of acrylonitrile manufacturing and is used
by the Company as a raw material for the production of TBA and sodium cyanide.
Acetic Acid. The Company produces acetic acid from carbon monoxide and
methanol. Acetic acid is primarily used in the manufacture of intermediate
products such as vinyl acetate monomer. These intermediate products are used
to produce various consumer products, including pharmaceuticals, adhesives,
glue, cigarette filters and surface coatings.
The Company is the third largest North American producer of acetic acid.
Following a 200 million pound capacity expansion completed in June 1996, the
Company's acetic acid unit has an annual rated production capacity of
approximately 800 million pounds, which represents approximately 17% of total
North American capacity. All of the Company's production is sold to BP
pursuant to a long-term contract through 2016. In fiscal 1995, the acetic acid
unit operated at an average utilization rate of 107% and generated revenues of
$94 million, which represented 9% of the Company's total revenues.
Methanol. The Company is constructing a world-scale, 150 million gallon per
year methanol plant at the Texas City Plant. The plant is expected to be
operational by September 1996. Capital investment in the plant and production
capacity will be shared equally by the Company and BP. The Company will be
entitled to 60% of methanol production and BP will be entitled to the
remaining 40% of production. Approximately one-half of the total methanol
production will be used as a raw material in the Company's acetic acid plant,
replacing methanol that is currently being purchased. The plant will be
constructed at significantly less than normal replacement cost because
available equipment already at the Texas City Plant is being refurbished and
used in the project. The plant will use highly efficient state-of-the-art
catalyst technology. The lower capital investment coupled with modern
operating technology should result in a methanol plant with significant
competitive advantages.
In a project related to the new methanol plant, Praxair has constructed a
new partial oxidation unit at the Company's Texas City Plant that will supply
carbon monoxide and hydrogen to the Company for use in the production of
acetic acid and plasticizers. The partial oxidation unit began production in
late June 1996. The Company's synthesis gas reformer, which currently is being
used to produce carbon monoxide and hydrogen at the Texas City Plant, will be
available for use in the methanol plant.
Plasticizers. The Company manufactures plasticizers employing a series of
processes using alpha-olefins and orthoxylene as the primary raw materials.
Major end-uses for plasticizers include flexible plastics used in shower
curtains and liners, floor coverings, cable insulation, upholstery and plastic
molding. The Company has an agreement with BASF pursuant to which the Company
sells all of its plasticizer production to BASF through the end of the decade.
The Company's plasticizer capacity is 280 million pounds per year.
TBA. TBA is produced by the addition of hydrogen cyanide to isobutylene in
an acid catalyst reaction. The Company uses a portion of its by-product
hydrogen cyanide from acrylonitrile production in this process. Major end uses
for TBA include pesticides, solvents and synthetic rubber. The Company sells
all of its TBA production to Flexsys pursuant to a long-term conversion
agreement. The Company's capacity for TBA is currently 21 million pounds per
year.
Sodium Cyanide. The Company operates a sodium cyanide plant at the Texas
City Plant which is owned by DuPont. The Company and DuPont have an agreement
whereby the Company receives a fee for operating the
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facility through 2004. The facility uses hydrogen cyanide by-product produced
by the Company as a raw material. The capacity of this plant is 100 million
pounds per year.
PULP CHEMICALS
Sodium Chlorate. Sodium chlorate is used in the production of chlorine
dioxide and is sold primarily to pulp manufacturers for use as a bleaching
chemical primarily in the pulp manufacturing process. Bleached pulp is used to
make uncoated paper for commercial printing and for office copiers and
printers, and coated paper for magazines, catalogues, promotional printed
products, packing, tissue and other products and as a raw material to produce
sodium chlorite.
Sodium chlorate is manufactured by passing an electric current through an
undivided cell containing a solution of sodium chloride (salt). Electric power
costs typically represent approximately 70% of the variable cost of production
of sodium chlorate. Electric power is purchased by each of the Company's
facilities pursuant to contracts with local electric utilities. Consequently,
the rates charged by local electric utilities are an important competitive
factor among sodium chlorate producers. The Company's electrical power costs
are believed to be competitive with other producers in the areas in which it
operates.
Upon completion of the Valdosta, Georgia plant, the Company will be the
second largest producer of sodium chlorate. The Company's four sodium chlorate
plants have an aggregate annual rated production capacity of 350,000 tons. The
Valdosta plant, scheduled to begin production in late 1996, will increase the
Company's total annual capacity by 30% to nearly 460,000 tons. Following
completion of the plant, the Company will account for approximately 22% of
North American sodium chlorate capacity. Valdosta, Georgia was selected
because of its proximity to existing customers, currently being supplied from
the Company's Canadian plants, and to reliable, competitively priced
electricity. The new facility is intended to meet the growing market demand
from the pulp and paper industry in the southeastern U.S. In fiscal 1995, the
Company's sodium chlorate plants operated at a weighted average utilization
rate of 97% and its pulp chemicals business generated revenues of $144
million, which represented 14% of the Company's total revenues.
Chlorine Dioxide Generators. Through its ERCO Systems Group ("ERCO"), the
Company is the largest worldwide supplier of patented technology for the
generators which certain pulp mills use to convert sodium chlorate into
chlorine dioxide. Each mill that uses chlorine dioxide requires at least one
generator. The Company receives revenue when a generator is sold to a mill and
also receives royalties from the mill after start-up, generally over the next
ten-year period, based on the amount of chlorine dioxide produced by the
generator. Historically, the Company has supplied approximately two-thirds of
all pulp mill generators worldwide.
The research and development group of Sterling Pulp works to develop new and
more efficient generators. When pulp mills move to higher levels of
substitution of chlorine dioxide for elemental chlorine, they are usually
required to upgrade generator capacity or purchase new generator technology.
Mills may also convert to a newer generator to take advantage of efficiency
advances and technological improvements. Each upgrade or conversion results in
a licensing agreement which generally provides for payment of an additional
ten-year royalty.
The Company has a representative office in Beijing, China. This office
focuses on the development of opportunities for future sales of sodium
chlorate and chlorine dioxide generators as well as for the licensing and
construction of sodium chlorate plants in that region. The first generator in
China to convert sodium chlorate to chlorine dioxide was sold by ERCO and
commenced operation in fiscal 1994, and since then several more generators
have been sold by ERCO for use in China.
Sodium Chlorite. The Company manufactures sodium chlorite at its Buckingham,
Quebec facility. Sodium chlorite is a specialty product used primarily to
produce chlorine dioxide for water treatment and as a disinfectant for fresh
produce. The Company has a rated annual capacity of approximately 3,500 tons,
which represents approximately 40% of total North American capacity.
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SALES AND MARKETING
The Company sells its products primarily pursuant to multi-year contracts
and spot transactions in both the domestic and export markets through its
commercial organization and sales force. This long-term, high volume focus
allows the Company to maintain relatively low selling, general and
administrative expenses related to the marketing of its products. The Company
competes primarily on the basis of product price, quality and deliverability.
Prices for the Company's commodity chemicals are determined by market factors
that are largely beyond the Company's control, and, except with respect to a
number of its multi-year contracts, the Company generally sells its products
at prevailing market prices. The Company emphasizes the importance of
delivering products to its customers on time and within specifications. In its
effort to insure that its products are of consistently high quality, the
Company uses a statistical quality control program.
Some of the Company's multi-year contracts for its petrochemical products
are structured as conversion agreements, pursuant to which the customer
furnishes raw materials which the Company processes. In exchange, the Company
receives a fee typically designed to cover its fixed and variable costs of
production and to generally provide an element of profit dependent on the
existing market conditions for the product. These conversion agreements allow
the Company to maintain lower levels of working capital and, in some cases, to
gain access to certain improvements in manufacturing process technology. The
Company believes its conversion agreements help insulate the Company to some
extent from the effects of declining markets and changes in raw material
prices while allowing it to share in the benefits of favorable market
conditions for most of the products sold under these arrangements. The balance
of the Company's products are sold by its direct sales force, which
concentrates on the styrene, acrylonitrile and pulp chemical markets. Revenues
from BP and Mitsubishi accounted for approximately 16% and 13%, respectively,
of the Company's fiscal 1995 revenues.
The Company sells sodium chlorate primarily in Canada and the U.S. generally
under one to five year supply contracts, most of which provide for minimum and
maximum volumes or a percentage of requirements at market prices. In addition,
most sales contracts contain certain "meet or release" pricing clauses and
some contain restrictions on the amount of future price increases. Certain
contracts are evergreen and require advance notice before termination. There
were no individual customers of the Company's pulp chemical business which
accounted for more than 10% of the Company's revenues in fiscal 1995.
CONTRACTS
The Company's key multi-year contracts and conversion agreements, which
collectively accounted for 28% of the Company's 1995 revenues, are detailed
below:
Styrene-Bayer
The Company and Bayer Corporation ("Bayer"), a subsidiary of Bayer AG, are
currently operating under a conversion agreement effective through December
31, 2000. Under this agreement, the Company provides Bayer, subject to a
specified minimum and maximum, a major portion of Bayer's styrene requirements
for its manufacture of styrene-containing polymers. The agreement permits
Bayer to terminate its obligations upon twelve months' notice to the Company
should Bayer sell its business that uses styrene or to assign the agreement,
subject to the Company's consent, to a third party that may purchase the
business. During fiscal 1995, the Company delivered approximately 13% of its
styrene production pursuant to the predecessor agreement.
Styrene-BP Chemicals
Effective April 1, 1994 the Company and BP entered into a styrene sales and
purchase agreement. The term of the agreement initially expires in December
1996. The Company and BP are currently negotiating an extension of this
agreement. Although the likelihood and terms of any extension are impossible
to predict, at this time management has no reason to believe that the
agreement will not be extended. During fiscal 1995, the Company delivered
approximately 13% of its styrene production to BP pursuant to this agreement.
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Acrylonitrile-Monsanto
The Company and Monsanto entered into a multi-year conversion agreement
effective January 1, 1994 which superceded a prior agreement that had been in
place since 1986. The initial term of this agreement will expire at the end of
1998, at which time the agreement will convert to an "evergreen" contract with
successive two year terms if not terminated. During fiscal 1995, the Company
delivered approximately 25% of its acrylonitrile production to Monsanto
pursuant to this agreement.
Acrylonitrile-BP Chemicals
In 1988, the Company entered into a long-term conversion agreement with BP,
under which BP contributed the majority of the capital expenditures required
for starting the third acrylonitrile reactor train at the Texas City Plant and
has the option to take up to approximately one-sixth of the Company's total
acrylonitrile capacity. BP furnishes the necessary raw materials and pays the
Company a conversion fee for the amount of acrylonitrile it takes. During
fiscal 1995, the Company delivered approximately 21% of its acrylonitrile
production to BP pursuant to this agreement. This agreement has an initial
term of ten years, with BP having the option to extend the agreement for two
additional five-year terms. One of the Company's three acrylonitrile reactors
incorporates certain BP technological improvements under a separate license
agreement from BP, and the Company has the right to incorporate these and any
future improvements into its other existing acrylonitrile facilities. BP has a
first security interest in and lien on the third reactor and related equipment
and in the first acrylonitrile produced in the three reactor units and the
proceeds generated from the sales thereof to the extent of the acrylonitrile
which BP is entitled to purchase under the production agreement. These rights
are only to be exercised upon an event of default by the Company.
Acetic Acid-BP Chemicals
The Company has had an agreement in effect since August 1986 with BP which,
as now amended, gives BP the exclusive right to purchase all of the Company's
acetic acid production until August 2016. In exchange for that exclusive
right, BP is obligated to make certain unconditional monthly payments to the
Company until August 2006. BP provides methanol and reimburses the Company on
the basis designed to provide the Company with full cost recovery. In
addition, the Company is entitled to receive annually a portion of the profits
earned by BP from the sale of acetic acid produced by the Company. The acetic
acid unit is subject to certain security arrangements (taking the form of a
sale-leaseback transaction) which provide that, until August 1996, under
certain limited circumstances generally under the Company's control, BP can
take physical possession of and operate the acetic acid unit. In August 1996,
title to the acetic acid unit will revert to the Company.
Plasticizers-BASF
The Company has a product sales agreement with BASF that initially extends
through the end of the decade, pursuant to which the Company sells all of its
plasticizer production to BASF. BASF provides certain raw materials to the
Company and markets the plasticizers produced by the Company. BASF pays fees
to the Company on a formula basis designed to reimburse the Company's direct
and allocated costs. In addition, the Company is entitled to a share of
profits earned by BASF attributable to the plasticizers supplied by the
Company. BASF retains title to and has a security interest in the raw
materials furnished by it and in the finished inventory of plasticizers
produced by the Company for delivery to BASF.
TBA-Flexsys
The Company sells all of its TBA production to Flexsys pursuant to a long-
term conversion agreement which expires on December 31, 1996, but continues
thereafter unless terminated by either party with 24 months prior written
notification, as of December 31 of any calendar year. The Company has not
received any such notice.
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Sodium Cyanide-DuPont
The Company operates a sodium cyanide facility owned by DuPont which was
constructed in 1989 on land owned by the Company at the Texas City Plant. The
Company and DuPont have an agreement whereby the Company receives a fee for
operating the facility for up to 30 years. The facility utilizes as a raw
material hydrogen cyanide, a by-product of the Company's acrylonitrile
production process. The Company is compensated by DuPont for the raw material
value of the hydrogen cyanide as well as for the Company's allocated and
incremental out-of-pocket costs for operating the facility. Either party may
terminate this agreement by giving 36 months written notice. Termination by
the Company prior to the 15th anniversary of the agreement (2004) would
require various remedies to be made by the Company to DuPont, including
penalties and cost of removal of the facility from the Company's plant site.
Termination by DuPont prior to 2004 would require DuPont to pay for the cost
of removal of the facility and reimbursement of the Company's fixed costs for
12 months. Assignability of the agreement is limited, and if the Company
assigns the agreement under certain circumstances, it must deliver to DuPont a
lease for the land on which the facility is situated and permit DuPont to
operate the facility. DuPont also may operate the sodium cyanide facility in
the event of certain defaults.
COMPETITION
The industry in which the Company operates is highly competitive. Many of
the Company's competitors, particularly in the petrochemical industry, are
larger and have substantially greater financial resources than the Company.
Among the Company's competitors are some of the world's largest chemical
companies that have their own raw material resources. In addition, a
significant portion of the Company's business is based upon widely available
technology. The entrance of new competitors into the industry and the addition
by existing competitors of new capacity may reduce the Company's ability to
maintain profit margins or its ability to preserve its market share, or both.
Such developments could have a negative impact on the Company's ability to
obtain higher profit margins, even during periods of increased demand for the
Company's products.
The Company's primary domestic competitors by product are set forth below:
Styrene The Dow Chemical Company, ARCO Chemical Company, Amoco
Chemical Company (a subsidiary of Amoco Corporation),
Chevron Chemical Company (a subsidiary of Chevron
Corporation), Cos-Mar (a joint venture of General Electric
Company and FINA Inc.) and Huntsman Chemical Corporation
Acrylonitrile The British Petroleum Company P.L.C., Cytec Industries
Inc., E.I. du Pont de Nemours and Company and Monsanto
Company
Acetic Acid Hoechst Celanese Corporation, Eastman Chemical Company and
Hanson PLC
Plasticizers Exxon Corporation, Aristech Chemicals and Eastman Chemical
Company
TBA BASF AG and Nitto Chemical Industry Co., Ltd.
Sodium Chlorate Akzo Nobel NV, CXY Chemicals Ltd. and Kerr-McGee
Corporation
Sodium Chlorite Vulcan Chemicals (a subsidiary of Vulcan Materials Co.)
Historically, petrochemical industry profitability has been affected by
vigorous price competition, which may intensify due to, among other things,
new domestic and foreign industry capacity. The Company's businesses are
subject to changes in the world economy, including changes in currency
exchange rates. In general, weak economic conditions either in the United
States or in the world tend to reduce demand and put pressure on margins.
Operations outside the United States are subject to the economic and political
risks inherent in the countries in which they operate. Additionally, the
export and domestic markets can be affected significantly by import laws and
regulations. During 1995, the Company's export sales were approximately 52% of
total revenues. It is not possible to predict accurately how changes in raw
material costs, market conditions or other factors will affect petrochemical
industry margins in the future.
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RAW MATERIALS AND ENERGY RESOURCES
For each of the Company's products, the combined cost of raw materials and
utilities is far greater than all other production costs combined. Thus, an
adequate supply of these materials at reasonable prices is critical to the
success of the Company's business. The Company does not currently produce any
of its major raw materials (benzene, ethylene, propylene, ammonia and
methanol) at the Texas City Plant, or electricity at its pulp chemical
facilities, although the Company's methanol plant is expected to commence
production by September 1996. The Company believes that its primary raw
materials will, for the foreseeable future, remain in adequate supply to meet
demand. The Company obtains certain of its raw materials pursuant to
conversion agreements as described below.
Styrene
The Company manufactures styrene from ethylene and benzene. The Company's
styrene conversion agreements require that other parties furnish to the
Company the ethylene and/or benzene necessary to fulfill its conversion
obligations. Approximately 30% and 20% of the Company's fiscal 1995 benzene
and ethylene requirements, respectively, were furnished by customers pursuant
to conversion arrangements. The Company purchases benzene and ethylene for use
in the remainder of its production of styrene for sale to others. Benzene and
ethylene are both commodity petrochemicals and the price for each can
fluctuate widely due to significant changes in the availability of these
products, such as major capacity additions or significant plant operating
problems, and due to variations in the economy and commodity chemical markets
in general. The Company has multi-year arrangements with several ethylene
suppliers that provide for its estimated requirements for purchased ethylene
at generally prevailing and competitive market prices.
Acrylonitrile
The Company produces acrylonitrile by reacting propylene and ammonia over a
solid-fluidized catalyst at low pressure. The Company's conversion agreements
require that other parties furnish to the Company the propylene and/or ammonia
necessary to fulfill its conversion obligations. Approximately 40% of the
Company's fiscal 1995 propylene and ammonia requirements were furnished by
customers pursuant to conversion arrangements. The Company purchases propylene
and ammonia for use in the remainder of its production of acrylonitrile for
sale to others. Propylene and ammonia are both commodity petrochemicals and
the price for each can fluctuate widely due to significant changes in the
availability of these products, such as major capacity additions or
significant plant operating problems, and due to variations in the economy and
commodity chemical markets in general.
TECHNOLOGY AND LICENSING
Petrochemicals
In 1986, Monsanto granted the Company a nonexclusive, irrevocable and
perpetual right and license to use Monsanto's technology at the Texas City
Plant and other technology Monsanto acquired through third party licenses in
effect at the time of the acquisition of the plant from Monsanto for the
purpose of continuing the production of the chemicals which were then produced
at the Texas City Plant. During fiscal 1991, BP purchased the acetic acid
technology from Monsanto (subject to the above licenses). The Company believes
that these licenses are material to the operation of the Texas City Plant.
BP has granted to the Company a non-exclusive, perpetual, royalty free
license (except in the case of a breach of the related production agreement)
to use BP's acrylonitrile technology at the Texas City Plant as part of the
acrylonitrile expansion project. The Company and BP have agreed to cross-
license any technology or improvements relating to the manufacture of
acrylonitrile in the Company's facility.
Management believes that the manufacturing processes that the Company
utilizes at the Texas City Plant are cost effective and competitive. Although
the Company does not engage in alternative process research with respect to
its U.S. operations, it does monitor new technology developments, and when the
Company believes it is appropriate the Company will seek to obtain licenses
for process improvements.
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Pulp Chemicals
The Company produces sodium chlorate using state-of-the-art metal cell
technology.
The principal business of ERCO is the design, sale and technical service of
custom-built patented chlorine dioxide generators. Sterling Pulp's engineering
group is involved in the technical support of the Company's sales and
marketing group through joint calling efforts and defines the scope of a
project and produces technical schedules and cost estimates. The Company
performs detailed design of chlorine dioxide generators which are then
constructed by customers. Plant and instrumentation testing and generator
start-up are handled by a joint engineering/technical service team of the
Company. The Company was involved in a number of patent disputes with Akzo
Nobel regarding chlorine dioxide technology. The parties reached a settlement
of such disputes that allows licensees of both the Company and Akzo Nobel to
operate their chlorine dioxide generators within the broadest range of
operating conditions, subject to payment of royalties in certain
circumstances.
The Company's pulp chemical research and development activities are carried
out at its Toronto, Ontario laboratories. Activities include the development
of new or improved chlorine dioxide generation processes and research in new
technologies focusing on electrochemical and membrane technology related to
chorine dioxide, including improvement of quality and reduction of quantity of
pulp mill effluents and treatment of municipal water supplies.
ENVIRONMENTAL AND SAFETY MATTERS
The Company's operations involve the handling, production, transportation
and disposal of materials classified as hazardous or toxic and are extensively
regulated under environmental and health and safety laws. Operating permits
required for the Company's operations are subject to periodic renewal and may
be revoked or modified for cause or when new or revised environmental laws or
requirements are implemented.
New laws or permit requirements and conditions may affect the Company's
operations, products or waste disposal. Past or future operations may result
in claims, regulatory action or liabilities. Expenditures could be required to
upgrade wastewater collection, pretreatment, disposal systems or other
matters. Some risk of environmental costs and liabilities is inherent in
particular operations and products of the Company, as it is with other
companies engaged in similar businesses.
The Company conducts environmental management programs to maintain
compliance with applicable environmental laws. As part of these programs, the
Company conducts or commissions reviews of its environmental performance and
addresses issues identified. The Company routinely conducts inspection and
surveillance programs to detect and respond to any leaks or spills of
regulated hazardous substances and to correct any identified regulatory
deficiency. To reduce the risk of offsite consequences from any unanticipated
event, the Company acquired a greenbelt buffer zone adjacent to the Texas City
Plant in 1991. The Company also participates in a regional air monitoring
network to monitor ambient air quality in the Texas City community. This
program is part of the Company's commitment to Responsible Care initiatives of
the Chemical Manufacturers Association and Canadian Chemical Producers
Association.
The Company has recently been recognized as a 33/50 Environmental Champion
by the EPA for surpassing the emission reduction goals of the 33/50 program at
the Texas City Plant faster than the EPA's timetable. The voluntary 33/50
program targeted 17 high priority chemicals included in the EPA's Toxic
Release Inventory. Six of the 17 chemicals are present at the Company's Texas
City Plant. The goal of the program was a 33% reduction in air emissions of
these compounds by 1992, compared to 1987 levels, and a 50% reduction by 1995.
For the 1994 reporting year, the Company achieved a 74% reduction in the
targeted chemicals including a 99% reduction in chromium and nickel compounds,
a 96% reduction in hydrogen cyanide emissions by converting this byproduct
into sodium cyanide and an 87% reduction in benzene emissions primarily by
constructing a major new waste water treatment facility. In addition to these
improvements, the Company has voluntarily initiated a complete review of the
overall environmental condition at its Texas City Plant and will initiate
appropriate
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actions or preventative projects necessary to insure that the facility
continues to operate in a safe and environmentally responsible manner,
including appropriate responses to previously identified elevated
concentrations of certain chemicals in the soil and groundwater. The Company
is presently unable to determine what remediation or other action, if any, may
need to be taken regarding these conditions. No assurances can be given that
the Company will not incur material environmental expenditures associated with
its facilities, operations or products.
Changing and increasingly strict environmental laws and regulations might
affect the manufacture, handling, processing, distribution or use of chemical
products and the release, treatment, storage or disposal of wastes by the
Company. For example, at both the state and federal level, the trend towards
regulation of discharges on a sectoral, geographic or multimedia basis may
directly or indirectly affect producers of specific chemicals. Such actions
may be expected to exert pressure on companies in the commodity chemical
industry to enhance their wastewater recycling and on-site treatment systems
to reflect the government's evolving views. Accordingly, the Company could be
required from time to time to make expenditures to upgrade its wastewater
collection, pretreatment or disposal systems at the Texas City Plant.
Production of chemical products involves the use, storage, transportation
and disposal of materials that may be classified as hazardous or toxic under
applicable laws. Management believes that the Company's procedures for the
use, storage, transportation and disposal of these materials are consistent
with industry standards and applicable laws and that it takes precautions to
protect its employees and others from harmful exposure to such materials.
However, there can be no assurance that past or future operations will not
result in exposure or injury or to claims of injury by employees or the public
due to the use, storage, transportation or disposal of these materials.
Under the Assets Purchase Agreement for the Company's acquisition of the
Texas City Plant from Monsanto, Monsanto agreed to be liable and to indemnify
the Company for certain environmental liabilities. The contractual indemnity
expires upon certain changes of control of the Company. Monsanto has taken the
position that the Transaction will be such a change of control. Accordingly,
any future claims the Company may have against Monsanto may necessarily be
based upon statutory laws or common law principles, although there can be no
assurance that the Company would prevail against Monsanto with respect to any
such claim. Based on information currently available, the Company believes the
loss of the indemnity will not have a material adverse effect on its financial
condition.
In connection with the Company's purchase of the pulp chemical business in
1992, the seller, Tenneco Canada, Inc., contractually retained liability for
costs, damages, fines, penalties and other losses under claims by third
parties (including employees and authorities) arising from the ownership or
operation of the facilities and businesses prior to the acquisition. The
Company is also indemnified against the breach of environmental remediation
covenants. These covenants oblige the indemnifying party to do specific
remedial work (including decommissioning the old section of the Vancouver
facility, which is underway) at the facilities within set time periods, and to
do any investigation, monitoring or remedial work required by present or
future legislation governing environmental conditions predating the
acquisition. The indemnity also protects the Company against losses arising
from the remediation of pre-acquisition environmental conditions or from pre-
acquisition violations of environmental laws. With the exception of any third
party claims, the losses against which the Company is indemnified do not
include consequential damages or lost profits. The Company has agreed to an
assignment of the Tenneco Canada, Inc. obligations to Albright & Wilson UK
Limited.
Groundwater data obtained in the course of the acquisition of the pulp
chemical business indicated elevated concentrations of certain chemicals in
the soil and groundwater at the four Canadian sites. The Company conducted a
focused baseline sampling of groundwater conditions beneath its Canadian
facilities in connection with Tenneco Canada's indemnification of the Company
for preclosing conditions which confirmed the previous data. The Company from
time to time has encountered elevated concentrations of chemicals in soils or
groundwater at its Canadian plants which it has addressed or is addressing.
During the course of the acquisition of the pulp chemical facilities by the
Company, air emissions sources were reviewed, and any available dustfall and
vegetation stress studies were considered. This review indicated
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emission excursion episodes at specific locations in the scrubber systems at
the Thunder Bay, Buckingham and Vancouver facilities. The conditions at
Thunder Bay and Vancouver have been addressed and satisfactorily resolved and
the conditions at Buckingham are being addressed. The Company believes that it
is otherwise in compliance in all material respects with permit requirements
under applicable provincial law for operating emissions sources.
The Company's pulp chemical business is sensitive to potential environmental
regulation. The Environmental Protection Agency has published draft
regulations which, if enacted, would support substitution of chlorine dioxide,
which is produced from sodium chlorate, for elemental chlorine in the pulp
bleaching process. Certain environmental groups are encouraging passage of
regulations which restrict the amount of AOX or chlorine derivatives in bleach
plant effluent. Increased substitution of chlorine dioxide for elemental
chlorine in the pulp bleaching process significantly reduces the amount of AOX
and chlorine derivatives in bleach plant effluent. As long as there is not an
outright ban on chlorine containing compounds, regulation restricting AOX or
chlorine derivatives in bleach plant effluent should favor the use of chlorine
dioxide, thus sodium chlorate. Any significant ban on all chlorine containing
compounds could have a material adverse effect on the Company's financial
condition and results of operations.
There are currently efforts in some jurisdictions to ban all chlorine and
chlorine-containing products, including chlorine dioxide, from the pulp
bleaching process. British Columbia has a regulation in place that would
effectively eliminate the use of chlorine dioxide in the bleaching process by
the year 2002. The pulp and paper industry is working to change this
regulation and believes that a ban of chlorine dioxide in the bleaching
process will yield no measurable environmental or public health benefit. In
the event such regulations were implemented, the Company would seek to sell
its products to customers in other markets. The Company is not aware of any
other laws or regulations currently in place which would restrict the use of
the product.
Emissions into the air from the Texas City Plant are subject to certain
permit requirements and self-implementing emission limitations and standards
under state and federal law. The Texas City Plant is located in an area that
is classified by the EPA as not having attained the ambient air quality
standards for ozone, which is controlled by direct regulation of volatile
organic compounds ("VOCs") and nitrogen oxide ("NOx"). Additional requirements
were issued in fiscal 1992 and modified in fiscal 1994 by the Texas Natural
Resource Conservation Commission in order to achieve ambient air quality
standards for ozone. These measures may substantially increase the Company's
VOCs and NOx control costs in the future, although the cost and full impact,
if any, cannot be determined at this time.
Additionally, the Clean Air Act Amendments of 1990 contain new federal
permit requirements and provisions governing toxic air emissions. The Company
has incurred and will incur additional costs to comply with this law and with
requirements issued by the State of Texas to control VOCs and NOx, as will all
other similarly situated organic chemical manufacturing facilities.
Management believes that the Company is in compliance in all material
respects with applicable environmental law. However, there can be no assurance
that past practices or future operations will not result in material claims or
regulatory action.
EMPLOYEES
As of June 30, 1996, the Company had approximately 1,189 employees,
including approximately 303 at its facilities in Canada. Approximately 60% of
the employees at the Company's manufacturing facilities are covered by union
agreements. The primary union agreement is with the Texas City, Texas Metal
Trades Council, AFL-CIO, of Galveston County, Texas and covers all hourly
employees at the Texas City Plant. The Company signed
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<PAGE>
a new labor agreement in early May 1996 which is subject to renegotiation in
April 1999. The new agreement increases the flexibility of work rules which
the Company believes will increase the overall efficiency of the Texas City
Plant. Employees at the Vancouver plant are represented by the Pulp, Paper and
Woodworkers Union. The Vancouver agreement was renegotiated in November 1994
and is subject to further renegotiation in November 1997. Employees at the
Buckingham plant are represented by either the Energy and Chemicals Workers
Union or an office and professional workers union. Both agreements were
negotiated in November 1994 and are subject to renegotiation in November 1997.
The Company believes its relationship with its employees is good.
INSURANCE
The Company currently maintains $500 million of coverage for property damage
to its Texas City Plant and resulting business interruption. Although the
Company carries such insurance, it has only one styrene manufacturing facility
and one acrylonitrile manufacturing facility; thus, a significant interruption
in the operation of either facility could have a material adverse affect on
the Company's financial condition, results of operations or cash flows. The
Company maintains $338 million of combined coverage for property damage and
resulting business interruption for its pulp chemical operations. The Company
also maintains other insurance coverages for various risks associated with its
business. There is no assurance that the Company will not incur losses beyond
the limits of, or outside the coverage of, its insurance. From time to time
various types of insurance for companies in the chemical industry have been
very expensive or, in some cases, unavailable. There is no assurance that in
the future the Company will be able to maintain its existing coverage or that
the premiums will not increase substantially.
PROPERTIES
The principal executive offices of the Company are located in Houston, Texas
and are subleased through Citicorp, N.A.
The Texas City Plant is located approximately 45 miles south of Houston in
Texas City, Texas, on a 290-acre site on Galveston Bay near many other
chemical manufacturing complexes and refineries. The Company has facilities to
load its products in drums, containers, trucks, railcars, barges and ocean-
going tankers for shipment to customers. The site offers room for future
expansion and includes a greenbelt around the northern edge of the plant site.
The Texas City Plant comprises seven basic operating units which can be
divided into three groups based on the chemistry involved. One group of
operating units involves synthesis gas chemistry (carbon monoxide and
hydrogen), and its facilities include the synthesis gas complex, the acetic
acid unit and three plasticizer units (oxo-alcohol, phthalic anhydride and
linear phthalate esters). Carbon monoxide and hydrogen are utilized as
feedstocks in the oxo-alcohol manufacturing process, and carbon monoxide is a
feedstock to produce acetic acid. A new partial oxidation unit is being
constructed by Praxair at the Texas City Plant to supply carbon monoxide and
hydrogen to the Company. See "--Raw Materials and Energy Resources--
Petrochemicals--Acetic Acid." The synthesis gas reformer will then be
available for use in the new methanol unit also under construction at the
Texas City Plant. A second group of operating units involves acrylonitrile and
hydrogen cyanide chemistry, and its facilities include the acrylonitrile unit,
the TBA unit and the sodium cyanide unit. Ammonia and propylene are used as
feedstocks in the acrylonitrile process, and hydrogen cyanide, a by-product of
that process, is used as a feedstock for the other units in this second group
and is also burned as fuel. The third operating group is based on ethylene and
benzene chemistry, and its facilities comprise the ethylbenzene and styrene
units. Although the styrene unit is independent of the rest of the facility
from a feedstock and by-product standpoint, it is the cornerstone of the
Company's energy balance, as it uses large quantities of by-product steam
generated by the acrylonitrile and phthalic anhydride units, thus reducing the
demands on the Company's steam generating facility. In this way, the Company's
utilities system links the three operating groups together in an effort to
minimize utility costs. This integration results in cost efficiencies without
significantly compromising the operating flexibility of the individual product
units.
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The Company owns all of the facilities and equipment located at the Texas
City Plant other than the sodium cyanide unit owned by DuPont, a cogeneration
facility owned by a joint venture between the Company and Praxair, the new
partial oxidation unit currently under construction at the site by Praxair and
the acetic acid unit and related facilities which are operated under a ten-
year sale leaseback arrangement with BP ending in August 1996. Upon expiration
of such ten-year period, title to the acetic acid unit will revert to the
Company. The Company also owns storage facilities, approximately 200 rail cars
and an acetic acid barge. In addition, the Company subleases approximately
20,000 square feet of office space in Houston, Texas for its corporate
headquarters, owns a 50,000 square foot office building in Toronto and leases
several storage facilities in the U.S. and Asia.
Information regarding the Company's plants is presented below:
<TABLE>
<CAPTION>
PLANT LOCATION ACREAGE OWNED/LEASED
-------------- ------- ------------
<S> <C> <C>
PETROCHEMICALS:
Texas City, Texas.................................. 290 acres Owned/Leased
PULP CHEMICALS:
Buckingham, Quebec................................. 20 acres Owned
Vancouver, British Columbia........................ 20 acres Owned
Thunder Bay, Ontario............................... 20 acres Leased
Grande Prairie, Alberta............................ 15 acres Leased
Valdosta, Georgia.................................. 18 acres Leased
</TABLE>
LEGAL PROCEEDINGS
SHAREHOLDER LAWSUITS
In April and May, 1996, six putative class action complaints relating to the
proposed Merger and the events leading up to the recommendation of the
approval thereof by the Board of Directors of the Company were filed in the
Court of Chancery for New Castle County, Delaware. By order dated May 22,
1996, the Court consolidated the six actions. The complaints name the Company
and each of its directors as defendants. One of the complaints names TSG,
Unicorn, and STX Acquisition as defendants as well. The complaints generally
allege that the course of conduct taken by the directors in considering the
Company's strategic alternatives and in recommending the Merger has been in
violation of their fiduciary duties to the Company's stockholders and seek
injunctive relief and unspecified damages. These lawsuits are styled: (i) Kurt
Kopf et al. v. Sterling Chemicals, Inc., Gordon A. Cain, et al; Civil Action
No. 14960; (ii) Ernest Hack v. Sterling Chemicals, Inc., Gordon A. Cain et al;
Civil Action No. 14962; (iii) Salim Shiry, et al. v. Sterling Chemicals, Inc.,
Gordon A. Cain et al; Civil Action No. 14963; (iv) Olga Fried, et al. v.
Sterling Chemicals, Inc., Gordon A. Cain; et al; Civil Action No. 14969; (v)
Maria Lerman, et al. v. Sterling Chemicals, Inc., Gordon A. Cain, et al, Civil
Action No. 14972; and (vi) Alm R. Kahn v. Sterling Chemicals, Inc., The
Sterling Group, Inc., The Unicorn Group, Inc., STX Acquisition Corp., Gordon
A. Cain, et al, Civil Action No. 14981. In addition, a seventh putative class
action complaint relating to the same matters was filed in the District Court
of Harris County, Texas in May 1996, styled Sigmund Balaban v. Gordon A. Cain,
et. al, Case No. 96-26271. The Company believes that these actions are without
merit and has instructed legal counsel to vigorously defend each action. While
lawsuits are in the early stages, at this time they are not anticipated to
have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
PETROCHEMICALS
On January 30, 1995, the Company filed a lawsuit against Huntsman Chemical
Corporation and certain affiliates seeking a declaratory judgment in
connection with an alleged agreement arising from discussions, previously
suspended by the Company relating to possible future capacity rights for a
significant portion of the Company's styrene unit at its Texas City Plant. In
the lawsuit, the Company is requesting a judicial
64
<PAGE>
determination that, among other things, there was no enforceable agreement
between the Company and any of the defendants. In response, the defendants
filed a counterclaim demanding a jury trial and asserting that a contractual
agreement existed, that the Company breached the alleged agreement, and that
as a result the defendants incurred an unspecified amount of "massive
damages." Subsequently, the Company filed a motion for summary judgment. On
November 30, 1995, the court granted the Company's motion for summary judgment
in Sterling Chemicals, Inc. v Huntsman Chemical Corporation; Huntsman Styrene
Corporation and Huntsman Corporation; Cause No. 95-005256; In the 61st
Judicial District Court of Harris County, Texas. The summary judgment confirms
that, as a matter of law, no enforceable contract or agreement ever existed
between the Company and the defendants. The court's order, which includes
recovery of legal fees, also moots the defendants' counterclaim against the
Company for damages resulting from breach of the alleged contract. The
defendants have appealed this decision. The Company believes a loss with
respect to this matter is not probable and is unable to quantify a reasonably
possible loss estimate at this time.
On June 19, 1995, a lawsuit styled George Allemand and Willie Allemand vs.
Sterling Chemical, Inc., et al.; Cause No. A-152,286; In the 58th Judicial
District Court of Jefferson County, Texas, was filed against the Company and
several other corporate defendants asserting personal injury and mental
anguish resulting from an incident occurring on June 16, 1995 in which a hose
being used to unload a barge of sulfuric acid at the Company's Texas City
Plant ruptured, spraying sulfuric acid on an employee of Marine Fueling
Service, Inc. The plaintiffs seek an unspecified amount of damages. The
incident is under investigation and discovery is ongoing.
On May 8, 1994, an ammonia release occurred at the Company's Texas City
Plant while a reactor in the acrylonitrile unit was being restarted after a
shutdown for routine maintenance. The Company estimated that approximately
three thousand pounds of ammonia were emitted into the atmosphere.
Approximately nine thousand individuals have filed claims directly with the
Company alleging personal injury and/or property damage as a result of
exposure to the ammonia. The Company and its insurance carriers are in the
process of evaluating these claims. Approximately two thousand of these claims
have been settled and three thousand have been denied by the Company.
Settlements, costs and expenses to date have totaled approximately $3.0
million. All amounts above the Company's $1.0 million deductible (which has
been charged against earnings) have been paid by its insurance carriers. A
number of suits and interventions in existing suits were filed by various
plaintiffs in April and early May 1996 relating to the ammonia release. These
suits and interventions were presumably filed in anticipation of the
expiration of the applicable two year statute of limitations. There are now a
total of approximately 45 suits and interventions involving over 5,000
plaintiffs pending against the Company. The Company recently participated in a
binding, non-appealable arbitration proceeding with respect to approximately
1,500 of such plaintiffs. The outcome of this proceeding is expected to be
received in the fall of 1996. The Company does not believe that the suits
relating to the ammonia release will have a material adverse impact on the
financial position, results of operations, or cash flows of the Company, and
the Company intends to vigorously defend all such suits.
On April 27, 1994, approximately one thousand two hundred plaintiffs filed a
lawsuit styled Angela Smith, et al. vs. Amoco Chemical Company, et al.; Cause
No. 95CV0509; In the 212th Judicial District Court of Galveston County, Texas,
suing the Company and eighteen other corporate defendants in the Texas City,
Texas area. The plaintiffs seek an unspecified amount of damages for personal
injury and property damages arising from alleged chemical releases. Discovery
is proceeding and the Company is vigorously defending this lawsuit.
On May 9, 1991, a lawsuit styled Moranda Allen, et al. vs. Sterling
Chemical, Inc., et al.; Cause No. 91-019786; In the 127th Judicial District
Court of Harris County, Texas, was filed against the Company and several other
petrochemical companies operating in the Texas City, Texas area. The
plaintiffs in the lawsuit assert personal injury and property damage claims
arising from alleged chemical releases. The plaintiffs seek an unspecified
amount of damages. Although the court dismissed a number of the plaintiffs for
failure to comply with discovery, over three hundred plaintiffs remain. The
Company is vigorously defending this lawsuit.
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<PAGE>
PULP CHEMICALS
The Company's primary competitor in the supply of patented technology for
generators which convert sodium chlorate into chlorine dioxide is Akzo Nobel
(formerly Eka Nobel) and its affiliates. The Company was previously engaged
with Akzo Nobel in numerous patent disputes throughout the world in which the
Company and Akzo Nobel were challenging certain patents of the other and
attempting to restrict the other's operating range. The Company and Akzo Nobel
have reached an out-of-court settlement resolving all such disputes. The
settlement allows licensees of both the Company and Akzo Nobel to operate
their chlorine dioxide generators within the broadest range of operating
conditions, subject to payment of royalties in certain circumstances. The
settlement did not have a material adverse effect on the Company's financial
position or results of operations.
On January 8, 1996, Repap New Brunswick, Inc. (formerly Miramichi Pulp and
Paper, Inc.) filed a lawsuit styled Repap New Brunswick, Inc. v. Sterling Pulp
Chemicals, Ltd; In the Court of Queen's Bench of New Brunswick, Trial
Division, Judicial District of Miramichi. The plaintiff asserts property
damage, business interruption and lost profits claims resulting from the
December 17, 1992 explosion of plaintiff's chlorine dioxide generator. The
plaintiff seeks an unspecified total amount of damages. The Company is
vigorously defending this lawsuit. Based on management's review of the
available information and advice of outside legal counsel, the Company
believes that final resolution of this matter will not have a material adverse
effect on its financial position, results of operations or cash flow.
The Company is subject to various other claims and legal actions that arise
in the ordinary course of business.
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<PAGE>
MANAGEMENT
PRESENT DIRECTORS AND EXECUTIVE OFFICERS
Frank J. Hevrdejs is currently the President and sole director and Hunter
Nelson and John D. Hawkins are currently Vice Presidents of STX Acquisition
and Chemicals.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of both Holdings and Chemicals following the
consummation of the Transaction.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Frank P. Diassi......... 63 Chairman of the Board of Directors
Robert W. Roten......... 62 President, Chief Executive Officer and Director
Jim P. Wise............. 52 Vice President--Finance and Chief Financial Officer
Richard K. Crump........ 50 Vice President--Commercial
Robert N. Bannon........ 51 Vice President--Operations, President Sterling Pulp Chemicals,
Ltd.
F. Maxwell Evans........ 51 Vice President, General Counsel and Secretary
Robert O. McAlister..... 56 Vice President--Human Resources and Administration
Stewart H. Yonts........ 50 Treasurer
J. Virgil Waggoner...... 68 Director (Vice Chairman)
Allan R. Dragone........ 70 Director
Frank J. Hevrdejs....... 50 Director
Hunter Nelson........... 43 Director
</TABLE>
Frank P. Diassi. Mr. Diassi is currently Managing General Partner of
Unicorn, a private financial organization. He organized Unicorn in 1984 and
has originated investments in over 40 entrepreneurial companies. Prior to
forming Unicorn, Mr. Diassi organized and operated several businesses ranging
from chemical distribution to the manufacturing of organic chemicals and
detergent products. In addition, he had a number of years of executive
experience with the petrochemical department of Continental Oil Company. He
has been Chairman of the Board of Hawkeye Chemical Company and was a founding
director of Arcadian Corporation, the largest nitrogen fertilizer company in
the Western hemisphere. Mr. Diassi currently serves as Chairman of the Board
of Software Plus, Inc. In addition, he serves on the Board of Mail-Well, Inc.
and several private companies. In 1991, Unicorn Ventures, Ltd. and Unicorn
Ventures II, L.P. (the "Ventures"), small business investment companies acting
under license of the Small Business Administration (the "SBA"), and of which
Unicorn was the managing general partner, filed for reorganization under
Chapter 11 of the Federal Bankruptcy Code. The Ventures were successfully
reorganized in 1995 pursuant to a plan which included full payment of general
creditors and a restructuring of the secured debt held by the SBA.
Robert W. Roten. Mr. Roten spent the first 25 years of his career with
Monsanto Company and served as Vice President for sales and marketing for El
Paso Products Company from 1981 to 1983. Mr. Roten was President of Materials
Exchange, Inc., a Houston-based petrochemical and plastics marketing firm,
from 1983 until 1986. He served as Vice President--Commercial of the Company
from August 1986 until September 1991, when he became Vice President--
Corporate Development. Mr. Roten became Executive Vice President and Chief
Operating Officer of the Company in April 1993.
Jim P. Wise. Mr. Wise was employed by Transco Energy Company as Executive
Vice President, Chief Financial Officer and a member of the Board of Directors
from November 1982 until September 1991. From September 1991 to July 1994, he
was Chairman and Chief Executive Officer of Neostar Group, Inc., a private
investment banking and financial advisory firm. From July 1994 to September
1994, he was Senior Vice President and Chief Financial Officer of U.S.
Delivery Systems, Inc. Mr. Wise joined the Company on September 26, 1994 as
Vice President--Finance and Chief Financial Officer.
67
<PAGE>
Richard K. Crump. Mr. Crump was Vice President of Materials Management for
El Paso Products Company from 1976 through 1983 and Vice President of Sales
for Rammhorn Marketing from 1984 to August 1986. He served as Director--
Commercial of the Company from August 1986 until October 1991, when he became
Vice President--Commercial.
Robert N. Bannon. Mr. Bannon was employed by Monsanto Company for 15 years,
most recently as Manager, Strategic Operations--Sales. He became a Director in
the Company's Commercial Department in August 1986. He became the Director of
Manufacturing for the Company in October 1989, and served in that capacity
until he became Vice President--Operations in October 1991. Mr. Bannon has
been the President of Sterling Pulp Chemicals, Ltd. since August 1992 and is a
Director of Mainland Bank in Texas City, Texas.
F. Maxwell Evans. Mr. Evans joined the law firm of Bracewell & Patterson of
Houston, Texas in 1973 and was a partner in the firm from 1979 through
December 1991. He received an L.L.M. in Environmental Law in August 1992. He
became General Counsel and Secretary of the Company on September 1, 1992 and
was promoted to Vice President, General Counsel and Secretary on July 26,
1995.
Robert O. McAlister. Mr. McAlister was employed by Champlin Petroleum
Company, a subsidiary of Union Pacific Corporation from 1974 to 1987 where he
held a variety of positions in Human Resources, Marketing and Strategic
Planning. In 1987, he joined Champlin Refining and Chemicals, Inc., a joint
venture between Champlin Petroleum and PDVSA, the national oil company of
Venezuela, as Vice President of Human Resources. He joined the Company in 1991
as Director of Human Resources and was promoted to Vice President--Human
Resources and Administration on July 26, 1995.
Stewart H. Yonts. Mr. Yonts was employed by Tenneco, Inc. from 1976 to 1980,
last serving as Tax Counsel. Mr. Yonts was Tax Manager of Home Petroleum
Corporation from 1980 to 1982 and Director of Taxes of MCO Resources, Inc., a
natural resources company, from 1982 to 1986. He joined the Company as Tax
Manager in August 1986 and served as Manager of Taxes and Benefits Accounting
from November 1989 until he became the Treasurer on October 1, 1994.
J. Virgil Waggoner. Mr. Waggoner has served as President of the Company
since 1986. From 1950 to 1980 Mr. Waggoner was employed by Monsanto Company,
last serving as Group Vice President and Managing Director of Monsanto's
Plastics and Resins Company. Mr. Waggoner was President of El Paso Products
Company (now a subsidiary of Rexene Corporation), a commodity chemicals and
plastics company, from 1980 to 1983 and was a self-employed industry
consultant from 1983 to 1986. Mr. Waggoner has been on the Boards of Directors
of Kirby Corporation and Mail-Well, Inc. since July 1993 and February 1994,
respectively.
Allan R. Dragone. Mr. Dragone has been a director of Arcadian Corporation
since 1989, and served as Chairman of the Board from 1989 to 1990. He was
President and Chief Executive Officer of Azko America, Inc., a chemicals
producer, from 1986 to 1989, and was Chairman of the Board of Fiber
Industries, Inc., a polyester fibers producer, from 1987 to 1989. He also is a
director of United Water Resources, Inc., a water services company; a director
of Wellman, Inc., a polyester fibers producer and plastic reclamation company;
and a director of PM Holdings Corporation and its subsidiary, Purina Mills,
Inc., an animal feed producer. He was Chairman of the Board of the New York
Racing Commission from 1990 to 1995, and currently serves as a trustee.
Frank J. Hevrdejs. Mr. Hevrdejs is a principal and President of TSG, which
he co-founded in 1982. Mr. Hevrdejs has actively participated in acquisitions
of over 40 businesses in the past 15 years. He is Chairman of First Sterling
Ventures Corp., an investment company, Enduro Holdings, Inc., a structural and
electrical manufacturing company, and Fibreglass Holdings, Inc., a truck
accessory manufacturer. He is also a board member of Mail-Well, Inc., an
envelope manufacturer and commercial printer, Purina Mills, Inc., an animal
feed producer, and Eagle U.S.A., an air-freight company.
Hunter Nelson. Mr. Nelson is currently a principal with TSG. Prior to
joining TSG in 1989, he served as vice president of administration and general
counsel of Fiber Industries, Inc., a producer of polyester fibers. Mr.
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Nelson was previously a partner in the law firm of Andrews & Kurth L.L.P.
specializing in general corporate and securities law. Mr. Nelson serves on the
board of Sterling Diagnostic Imaging, Inc. and several other private
companies.
In addition to the above named directors, the following individuals are
expected to become directors as a result of significant purchases of STX
Acquisition Common Stock in the Equity Private Placement by entities with
which they are affiliated.
George B. Gregory. Age 33. Mr. Gregory is a Managing Director of Koch
Equities Inc., a subsidiary of Koch Industries, Inc., where he is responsible
for leading the chemical investment and acquisitions effort. Prior to joining
Koch Equities Inc., Mr. Gregory worked as a consultant for Monitor Company and
as a chemist for E.I. duPont de Nemours & Company.
Robert B. Calhoun. Age 53. Mr. Calhoun has been President of Clipper Asset
Management Corporation, the sole general partner of The Clipper Group, L.P., a
private investment firm, since 1991, and of Clipper Capital Corporation, the
sole general partner of Clipper Capital Partners, L.P., an affiliated private
investment firm, since 1993. From 1975 to 1991, Mr. Calhoun was a Managing
Director of CS First Boston Corporation. Mr. Calhoun is also a director of
HighwayMaster Communications, Inc., Avondale Incorporated and Interstate
Bakeries Corporation.
COMPENSATION OF DIRECTORS
Upon consummation of the Transaction, fees payable to non-employee directors
of Holdings have initially been set at $20,000 per year and an attendance fee
of $1,000 for each meeting of the Board or a committee thereof. Members of the
Board of Directors who are employees of Holdings or Chemicals will not receive
a fee for their services as directors. All directors will be reimbursed for
travel expenses for their services as directors.
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<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
HISTORICAL INFORMATION
Set forth below is information regarding compensation arrangements and
benefits paid or made available to the five most highly compensated executive
officers of the Company (the "named executive officers") for the three fiscal
years ended September 30, 1995. Compensation during such fiscal years included
participation in certain stock option, stock appreciation and other benefit
plans sponsored by the Company or its subsidiaries, in which the named
executive officers will no longer be eligible to participate after the
Transaction. For information regarding cash compensation arrangements and
benefit plans to be implemented by the Company, see the information set forth
below under the caption "--After the Transaction."
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------
ANNUAL
COMPENSATION(3) AWARDS PAYOUTS
----------------- ----------------------- ------------
RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL SALARY BONUS STOCK UNDERLYING COMPENSATION
POSITION YEAR ($)(1) ($)(2) AWARD(S) OPTIONS/SARS ($)(4)
- ------------------ ---- -------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
J. Virgil Waggoner...... 1995 $325,000 $506,851 $ -0- -0- $ 9,675
President and Chief 1994 279,166 134,987 -0- -0- 1,916
Executive Officer 1993 275,000 -0- -0- -0- 11,452
Robert W. Roten......... 1995 205,000 266,394 -0- 20,000/-0- 9,364
Executive Vice
President and 1994 177,500 71,579 -0- -0- 8,817
Chief Operating Officer 1993 175,000 -0- -0- -0- 9,450
Robert N. Bannon........ 1995 180,000 233,906 -0- 15,000/-0- 9,045
President-Sterling Pulp 1994 152,500 61,353 -0- -0- 7,561
Chemicals, Ltd. 1993 150,000 -0- -0- -0-/262,500 8,100
Richard K. Crump........ 1995 180,000 233,906 -0- 15,000/-0- 9,045
Vice President-- 1994 152,500 61,353 -0- -0- 7,561
Commercial 1993 150,000 -0- -0- -0- 8,100
Jim P. Wise............. 1995 180,000 413,906(5) 186,975 12,500/-0- 1,620
Vice President--Finance
and 1994 3,409 -0- -0- -0- 31
Chief Financial Officer 1993 -0- -0- -0- -0- -0-
</TABLE>
- --------
(1) Includes amounts deferred under the Company's 401(K) Savings and
Investment Plan.
(2) Paid pursuant to the Company's Profit Sharing Plan.
(3) No named executive officer received any perquisites and other personal
benefits the aggregate amount of which exceeded the lesser of either
$50,000 or 10% of the total annual salary and bonus reported for 1995 in
the Summary Compensation Table.
(4) For fiscal year 1995, All Other Compensation includes matching
contributions paid by the Company pursuant to the Company's 401(k) Savings
and Investment Plan, as follows: Mr. Waggoner, $6,750, Mr. Roten, $7,519,
Mr. Bannon, $7,425, Mr. Crump, $7,425 and Mr. Wise, $0; and premiums for
group term life insurance paid by the Company as follows: Mr. Waggoner,
$2,925, Mr. Roten, $1,845, Mr. Bannon, $1,620, Mr. Crump, $1,620 and Mr.
Wise, $1,620.
(5) In addition to payments pursuant to the Company's profit sharing plan,
this amount includes an additional $90,000 in cash and the value of 12,000
shares of Common Stock awarded to Mr. Wise. On the date of the award, the
fair market value of the Common Stock was $7.50 per share.
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<PAGE>
Option Grants in Last Fiscal Year. The following sets forth certain options
granted in fiscal 1995 to purchase Company Common Stock.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
PERCENT OF RATES OF STOCK
NUMBER OF TOTAL PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE(1) EXPIRATION -----------------
NAME GRANTED (#) FISCAL YEAR (PER SHARE) DATE(3) 5% 10%
- ---- ----------- ------------ ----------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
J. Virgil Waggoner...... -0- -0- -- -- $ -0- $ -0-
Robert W. Roten......... 20,000 24% $13.375 October 1, 2004 169,802 430,310
Robert N. Bannon........ 15,000 18% 13.375 October 1, 2004 127,351 322,733
Richard K. Crump........ 15,000 18% 13.375 October 1, 2004 127,351 322,733
Jim P. Wise............. 12,500 15% 13.375 October 1, 2004 106,126 268,944
</TABLE>
- --------
(1) Options were granted at 100% of fair market value on the date of grant.
(2) The dollar amounts set forth under these columns are the result of
calculations of assumed annual rates of stock price appreciation from
October 1, 1994 (the date of grant of the options awarded) to October 1,
2004 (the date of expiration of such options) of 0%, 5% and 10%. Based on
these assumed annual rates of stock price appreciation of 0%, 5% and 10%,
respectively, the Company's stock price at October 1, 2004 is projected to
be $13.50, $21.99 and $35.02, respectively. These assumptions are not
intended to forecast future appreciation of the Company's stock price. The
Company's stock price may increase or decrease in value over the time
period set forth above. Optionees will not realize value under their
option grants without stock price appreciation which will benefit all
stockholders. The potential realizable value computation does not take
into account federal or state income tax consequences of option exercises
or sales of appreciated stock.
(3) The options granted on October 1, 1994 are exercisable from the third
through the tenth anniversaries of the date of grant. However, upon
consummation of the Merger, each outstanding option to acquire Company
Common Stock will be canceled. See "The Transaction."
Aggregate SAR Exercises in Fiscal 1995 and Year-end Option/SAR Values. The
following table provides information on SAR exercises in fiscal 1995 by the
named executive officers and the value of such officers' unexercised options
and SARs at September 30, 1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT AT SEPTEMBER 30, 1995
SEPTEMBER 30, 1995 (#)(1) ($)(3)
SHARES ACQUIRED VALUE -------------------------- -------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ------------ ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Virgil Waggoner...... -0- $ -0- -0- -0-/-0- $-0- $ -0-/-0-
Robert W. Roten......... -0- -0- -0- 20,000/-0- -0- -0-/-0-
Robert N. Bannon........ -0- 1,004,883 -0- 15,000/131,250(2) -0- -0-/557,813
Richard K. Crump........ -0- -0- -0- 15,000/-0- -0- -0-/-0-
Jim P. Wise............. -0- -0- -0- 12,500/-0- -0- -0-/-0-
</TABLE>
- --------
(1) Upon consummation of the Merger, each outstanding option to acquire
Company Common Stock will be canceled. See "The Transaction."
(2) In September 1992, the Company initiated a Stock Appreciation Rights
Program (the "Program") pursuant to the Omnibus Stock and Incentive Plan,
to provide additional compensation to certain Executive Officers and other
employees of the Company. Under the Program, the Company offered each
participant the right to purchase a specified number of shares of the
Company's Common Stock and granted 20 SARs for each share purchased. In
fiscal 1993, Mr. Bannon purchased 13,125 shares and was granted 262,500
SARs. During fiscal 1995, the participants unanimously agreed, at the
Company's request, to amend the Program to, among other things, limit the
potential value of the SARs by placing a ceiling on the amounts that the
Company may be required to pay upon exercise of the SARs. Under the
amended Program, Mr. Bannon exercised 25% of his SARs on October 10, 1994
and an additional 25% of his SARs on September 1, 1995 for the fixed
amount payable to him of $9.00 and $6.31 per SAR, respectively, and is
permitted to exercise up to 50% and 100% of his remaining SARs on
September 1, 1996, and September 1, 1997, respectively, limited by the
maximum amount payable on such dates of $10.00 per SAR and $11.00 per SAR,
respectively, provided
71
<PAGE>
he is still employed by the Company on such date. However, upon
consummation of the Merger, each such SAR will be converted into the right
to receive a cash payment equal to the excess, if any, of $12.00 over the
base price provided for in such SAR. See "The Transaction." The amounts
indicated in the column entitled "Value Realized ($)" represent the amount
paid to the holder of the SARs upon exercise thereof.
(3) An "In-the-Money" option or SAR is an option or SAR for which the market
price on the date the option or SAR was granted is less than the market
price of Company Common Stock at September 30, 1995. All of the value
shown reflects stock price appreciation since the granting of the option
or SAR, as the case may be.
The Company has maintained the Sterling Chemicals, Inc. Amended and Restated
Stock Appreciation Rights Plan for Non-Employee Directors (the "SAR Plan") for
the benefit of certain non-employee members of the Board of Directors.
Pursuant to the SAR Plan, other than Gordon A. Cain and J. Virgil Waggoner,
each member of the Board of Directors at the time of the adoption of the SAR
Plan (a "Participant") was awarded 40,000 SARs on January 27, 1993 at a grant
price of $4.00 per SAR. The aggregate number of SARs that were awarded to all
Participants under the SAR Plan is 200,000. The SAR Plan was amended in
October 1994 to limit the potential value of the SARs by placing a ceiling on
the amounts that the Company may be required to pay upon the exercise of the
SARs. Participants were given greater flexibility with respect to the dates on
which they may exercise their SARs. Under the amended SAR Plan, each
Participant exercised 25% of his SARs on October 10, 1994 and an additional
25% of his SARs on September 1, 1995 for the fixed amount payable to him of
$9.00 and $6.31 per SAR, respectively, and is permitted to exercise up to 50%,
and 100% of his remaining SARS on September 1, 1996, and September 1, 1997,
respectively, limited by the maximum amount payable on such dates of $10.00
per SAR and $11.00 per SAR, respectively, provided the Participant is a member
of the Board of Directors on each such date. All unexercised SARs terminate at
12:01 a.m. on September 2, 1997.
Upon consummation of the Merger, each SAR relating to the Company will be
converted into the right to receive a cash payment equal to the excess, if
any, of $12.00 over the grant price provided for in such SAR, and the SAR Plan
will terminate. See "The Transaction."
Pension Plans. The Company has maintained a defined benefit Salaried
Employees' Pension Plan (the "Pension Plan") covering substantially all
salaried employees, including the named executive officers. Pension costs are
borne solely by the Company and determined annually on an actuarial basis with
contributions made accordingly. The pension benefits payable under the Pension
Plan for individuals hired by Monsanto (from which the Company acquired its
Texas City Plant) prior to April 1, 1986 are based on such individual's vested
percentage times years of service multiplied by 1.4% of Average Earnings (as
defined). Individuals hired by Monsanto on or after April 1, 1986 and other
individuals hired by the Company receive a pension payable under the Pension
Plan based on such individual's vested percentage times years of service
multiplied by 1.2% of Average Earnings. Average Earnings excludes, among other
things, amounts received under the Company's Profit Sharing Plan and is
generally defined as the greater of (i) average compensation received during
the highest three of the final five calendar years of employment or (ii)
average compensation received during the final 36 months of employment.
For those Company employees who were (i) employed by the Company prior to
October 1, 1986, (ii) previously employed by Monsanto and (iii) accruing a
Monsanto pension plan benefit, the Company recognizes Monsanto pension plan
years of service offset by any vested benefit under the Monsanto pension plan.
For those Company employees as of August 21, 1992 who were (i) previously
employed by Albright & Wilson based in the United States and (ii) participants
in the Tenneco Canada, Inc. Retirement Plan, the Company recognizes Tenneco
Canada, Inc. Retirement Plan years of service offset by any vested benefit
under that plan. A participant will become vested only after five years of
service, except that Canadian participants will become vested after two years
of service.
72
<PAGE>
The following table illustrates the aggregate of the annual normal
retirement benefits payable under the Pension Plan, Equalization Plan and
Supplemental Plan (as defined) based on 1.4% of Average Earnings, without
reduction for any offset amounts.
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------
AVERAGE EARNINGS 10 20 30 40
- ---------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
$ 50,000........................................ $ 7,000 $14,000 $21,000 $28,000
100,000........................................ 14,000 28,000 42,000 56,000
150,000........................................ 21,000 42,000 63,000 84,000
200,000........................................ 21,000 42,000 63,000 84,000
250,000........................................ 21,000 42,000 63,000 84,000
300,000........................................ 21,000 42,000 63,000 84,000
350,000........................................ 21,000 42,000 63,000 84,000
400,000........................................ 21,000 42,000 63,000 84,000
</TABLE>
The following table illustrates the annual normal retirement benefits
payable under the Pension Plan based on 1.2% of Average Earnings, without
reduction for any offset amounts. Such benefit levels assume retirement at age
65, the years of service shown, continued existence of the Pension Plan,
Equalization Plan and Supplemental Plan without substantial change and payment
in the form of a single life annuity.
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------
AVERAGE EARNINGS 10 20 30 40
- ---------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
$ 50,000........................................ $ 6,000 $12,000 $18,000 $24,000
100,000........................................ 12,000 24,000 36,000 48,000
150,000........................................ 18,000 36,000 54,000 72,000
200,000........................................ 18,000 36,000 54,000 72,000
250,000........................................ 18,000 36,000 54,000 72,000
300,000........................................ 18,000 36,000 54,000 72,000
350,000........................................ 18,000 36,000 54,000 72,000
400,000........................................ 18,000 36,000 54,000 72,000
</TABLE>
The benefits under the Pension Plan are computed by multiplying Average
Earnings by credited years of service times the respective percentages
referred to above. The benefits payable under the Pension Plan are not reduced
by any benefits payable under Social Security or other offset amounts. The
benefits payable to Table A participants are reduced by the amount of pension
benefits which participants may be entitled to under Monsanto's pension plan.
The number of credited years of service of each of the named executive
officers are as follows: J. Virgil Waggoner--39 years; Robert W. Roten--34
years; Richard K. Crump--9 years; Robert N. Bannon--24 years; and Jim P.
Wise--1 year.
Pension Benefit Equalization Plan. The Company has maintained the Sterling
Chemicals, Inc. Pension Benefit Equalization Plan (the "Equalization Plan").
The Equalization Plan provides additional benefits to employees whose
retirement benefits under the Pension Plan are reduced, curtailed or otherwise
limited as a result of certain limitations under the Internal Revenue Code of
1986, as amended (the "Code"). The additional benefits provided by the
Equalization Plan are in an amount equal to the benefits under the Pension
Plan which are reduced, curtailed or limited by reason of the application of
such limitations. All employees who participate in the Pension Plan are
eligible to participate in the Equalization Plan. Benefits have been paid to
participants under the Equalization Plan and such benefits are generally
payable at the time, and in the manner, benefits are payable under the Pension
Plan.
Supplemental Employee Retirement Plan. The Company has maintained the
Sterling Chemicals, Inc. Supplemental Employee Retirement Plan (the
"Supplemental Plan"). The Supplemental Plan also provides additional benefits
to certain employees whose retirement benefits under the Pension Plan are
reduced, curtailed or otherwise limited because such employee's annual
compensation is in excess of $150,000 or because certain
73
<PAGE>
Social Security integration benefits were removed from the Pension Plan. The
additional benefits provided by the Supplemental Plan are in an amount equal
to the benefits under the Pension Plan which are reduced, curtailed or limited
by reason of the applications of such limitations. Only those employees who
are a part of management or are "highly compensated" and are subject to
limitations on Pension Plan benefits imposed by the Code may participate in
the Supplemental Plan. No benefits have been paid to participants under the
Supplemental Plan and such benefits are generally payable at the time, and in
the manner, benefits are payable under the Pension Plan.
Assuming retirement at age 65, or their current age, if older, and the
continuation of their current levels of base salary until such retirement, as
of September 30, 1995, total retirement benefits under the Equalization Plan
and/or the Supplemental Plan payable to Messrs. Waggoner, Roten, Crump,
Bannon, and Wise will be $122,003, $86,098, $53,616, $85,389, and $30,847 per
year, respectively, reduced by the value of the benefits payable under the
Pension Plan, which are $71,761, $62,148, $44,680, $69,105, and $25,706 per
year, respectively.
Termination Pay Plan. On April 24, 1996, the Company adopted a Consolidated
Termination Pay Plan for All Salaried Employees of the Company and its
Subsidiaries (the "Consolidated Plan"), which supercedes and replaces all
prior termination pay plans (collectively, the "Prior Plans").
The Consolidated Plan provides that if, within the 24-month period following
a "change of control," the employment of any full time salaried employee of
Sterling Chemicals, Inc. (or any wholly owned direct or indirect subsidiary
thereof, or any successor thereto) is terminated for any reason (other than
the employee's death or disability, resignation or retirement or termination
for cause), or such employee is requested to accept a new job which is less
than equivalent to his or her job immediately prior to the change of control
in terms of compensation, job level, job responsibilities or credits, such
employee shall be entitled to receive termination pay. Such an event giving
rise to termination pay under the plan is defined as a "Triggering Event."
The termination pay payable to any eligible employee following a Triggering
Event is equal to 36 months' pay (for certain members of senior management),
or 24 months' pay (for all other salaried employees) (the relevant period
being referred to as such employee's "Termination Pay Period") at the
employee's base pay rate in effect at the time of the change of control, and
is payable as and when such base salary would otherwise have been payable to
such employee if such employee had not been terminated. An affected employee
is to receive continued health benefits for the Termination Pay Period, and an
amount equal to the projected amount of profit sharing that would have been
received by the affected employee under the Company's Amended and Restated
Salaried Employees' Profit Sharing Plan during the Termination Pay Period.
Other amounts payable upon a Triggering Event include benefits accrued under
the Company's ESOP, the Company's Amended and Restated Savings and Investment
Plan (the "Savings Plan"), the Pension Plan, the Supplemental Plan or the
Equalization Plan, or any similar plan in effect for Canadian employees, which
would be forfeited by the employee due to the Triggering Event.
The Consolidated Plan also provides for outplacement services and gross-up
payments for any excise tax imposed by Section 4999 of the Code or any
interest or penalty thereon.
For purposes of the Consolidated Plan, a "change of control" means (i) the
acquisition of or the ownership of 50% or more of the total voting stock of
the Company then issued and outstanding, by any person or group of affiliated
persons, or entities not affiliated with the Company as of April 24, 1996,
either with or without the consent of the Company, or (ii) individuals who
were members of the Board of the Company immediately prior to a meeting of the
stockholders of the Company involving a contest for the election of directors
do not constitute a majority of the Board immediately following such election
unless the election of such new directors was recommended to the stockholders
by management of the Company, or (iii) in addition to (i) and (ii) above, with
respect to employees of Sterling Pulp Chemicals, Ltd. and Sterling Pulp
Chemicals US, Inc., only, the acquisition of or the ownership of 50% or more
of the total voting stock of Sterling Pulp Chemicals, Ltd. or Sterling Canada,
Inc. The Transaction will constitute a "change of control" under the
Consolidated Plan. However, as there are
74
<PAGE>
currently no plans to terminate any employees covered under the Consolidated
Plan, no payments are expected to be made under such plan in connection with
the Transaction.
After the Transaction
Pension Plans. The Pension Plan, the Equalization Plan and the Supplemental
Plan will remain in place following the Transaction.
Employee Stock Ownership Plan. In connection with the Transaction, the New
ESOP will be established which will cover substantially all eligible
employees. The New ESOP, which will invest primarily in shares of Holdings
Common Stock, will borrow $6.5 million from Chemicals pursuant to the
Chemicals ESOP Loan to purchase shares of STX Acquisition Common Stock at the
closing of the Transaction ("Closing") which will be converted into 541,662
shares of Holdings Common Stock. The Chemicals ESOP Loan bears interest at
interest rates based on the Base Rate (as defined in the Credit Agreement)
plus a margin or the Eurodollar Rate (as defined) plus a margin. The
outstanding principal of the Chemicals ESOP Loan is payable in 16 equal
quarterly installments during the period beginning December 31, 1996 and
ending September 30, 2000. The shares of STX Acquisition Common Stock to be
purchased by the New ESOP will be pledged as security for the Chemicals ESOP
Loan (the "ESOP Pledge"), and such shares will be released and allocated to
New ESOP participants' accounts as the Chemicals ESOP Loan is discharged. It
is anticipated that employer contributions to the New ESOP will be in amounts
sufficient to enable the New ESOP to discharge its indebtedness under the
Chemicals ESOP Loan. Shares released under the ESOP Pledge will be allocated
to each participant based on his or her compensation relative to all
compensation for all New ESOP participants. Until the Chemicals ESOP Loan is
paid in full, contributions will be used to pay the outstanding principal and
interest on the Chemicals ESOP Loan. Distributions from the New ESOP are made
in cash or Holdings Common Stock upon a participant's retirement, death,
disability or termination of employment. If Holdings Common Stock is
distributed to a participant, the participant may, within two 60-day periods,
require Chemicals to purchase all or a portion of such Holdings Common Stock
at its fair market value as determined by an independent appraiser as of an
annual valuation date (the "Put Options"). The first 60-day period commences
on the date the participant receives a distribution of Holdings Common Stock
and the second 60-day period commences a year from such date. Pursuant to an
Employee Stockholders Agreement to be entered into by each participant, if a
participant fails to exercise either of the two Put Options, the participant
may transfer the shares of Holdings Common Stock only upon receipt of a bona
fide third party offer and only after first offering the shares to the New
ESOP, then to Holdings and then to other employee stockholders party to such
agreement. Employees of Chemicals will own approximately 5% of the outstanding
Holdings Common Stock through the New ESOP after the Transaction.
Savings Plan. The Savings Plan covers substantially all employees, including
executive officers, and will be amended and continued after the Transaction.
The Savings Plan is designed to qualify under Section 401(k) of the Code. Each
participant has the option to defer taxation of a portion of his or her
earnings by directing the Company to contribute a percentage of such earnings
to the Savings Plan. A participant may direct up to a maximum of 15% of
eligible earnings to the Savings Plan, subject to certain limitations set
forth in the Code for certain "highly compensated" participants, as defined in
Section 414(q) of the Code. A participant's contributions become distributable
upon the termination of his or her employment for any reason.
Stock Option Plan. Holdings expects to adopt a stock option plan (the
"Option Plan") after the Transaction. The Option Plan will be administered by
the Compensation Committee of the Board of Directors (the "Committee"). Option
grants under the Option Plan may be made to directors and key employees
selected by the Committee. The Committee may provide that the options will
vest immediately or in increments over a period of time.
Profit Sharing Plan. Chemicals expects to establish a Profit Sharing Plan
covering all full time employees, including executive officers. The Profit
Sharing Plan will be administered by the Committee. Amounts paid under the
Profit Sharing Plan will constitute taxable income in the year received and
will be based on Chemicals'
75
<PAGE>
financial performance over a period of time to be determined. The Committee
will determine a percentage of the amount by which the Company's earnings
before depreciation, amortization, interest and taxes (and before profit
sharing) exceed a minimum level. If earnings exceed this minimum level,
Chemicals may make distributions to employees. The Committee may change the
amount set aside for profit sharing and the proportion of such amount
allocated to an individual employee or group of employees. The Profit Sharing
Plan will not be qualified under Section 401(a) of the Code.
76
<PAGE>
PRINCIPAL STOCKHOLDERS
HISTORICAL
The following table sets forth certain information regarding the beneficial
ownership of Company Common Stock as of July 15, 1996, by (i) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each director and nominee for
director of the Company, (iii) each named executive officer of the Company,
and (iv) all of the directors and executive officers as a group. In addition,
employees of the Company, including the Company's executive officers, own
5,988,448 shares of Company Common Stock through the Sterling Chemicals, Inc.
Employee Stock Ownership Plan (the "Current ESOP"), which represents 10.8% of
the outstanding shares of Company Common Stock. These shares are held of
record by Merrill Lynch & Co. Incorporated ("Merrill Lynch"), as trustee of
the Current ESOP, who disclaims beneficial ownership of the shares. The
Current ESOP shares are allocated to the account of each employee who has sole
voting power of their respective Current ESOP shares. Unless otherwise
indicated, each of the stockholders has sole voting and investment power with
respect to the shares beneficially owned. The information is based upon
information furnished to the Company by each individual or entity named below.
<TABLE>
<CAPTION>
COMPANY COMMON
STOCK
---------------------------
NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES PERCENT
- --------------------------------------- ---------- -------
<S> <C> <C>
Gordon A. Cain..................................... 6,632,850(2) 11.9%
J. Virgil Waggoner................................. 4,113,194(3) 7.4
William A. McMinn.................................. 84,579 *
James J. Kerley.................................... 144,579 *
Gilbert M. A. Portal............................... ---- *
Frank J. Pizzitola................................. 10,000 *
Raymond R. Knowland................................ 2,500 *
Robert W. Roten.................................... 997,364(4) 1.8
Robert N. Bannon................................... 163,201(5) *
Richard K. Crump................................... 476,649(6) *
Jim P. Wise........................................ 26,269(7) *
All executive officers and directors of the Company
as a group (14 persons)............................ 12,808,428(2)(3)(8) 23.0
</TABLE>
- --------
* Less than 1%
(1) The mailing address of each such beneficial owner is 1200 Smith Street,
Suite 1900, Houston, Texas 77002-4312.
(2) Includes 375,000 shares held in Mr. Cain's Keogh Plan, over which Mr. Cain
has sole voting power and includes 2,257,850 shares with respect to which
Mr. Cain disclaims beneficial ownership, held by a private family
foundation for which Mr. Cain serves as the Chairman of the Board of
Trustees and has shared voting and disposition powers.
(3) Includes 50,602 shares held by Mr. Waggoner's wife, with respect to which
Mr. Waggoner disclaims beneficial ownership. Includes 77,472 shares over
which Mr. Waggoner has sole voting power held by Merrill Lynch, as Trustee
of the Current ESOP as of July 15, 1996 and allocated to Mr. Waggoner's
account.
(4) Includes 49,216 shares over which Mr. Roten has sole voting power held by
Merrill Lynch, as Trustee of the Current ESOP as of July 15, 1996 and
allocated to Mr. Roten's account.
(5) Includes 29,053 shares over which Mr. Bannon has sole voting power held by
Merrill Lynch, as Trustee of the Current ESOP as of July 15, 1996 and
allocated to Mr. Bannon's account.
(6) Includes 37,507 shares over which Mr. Crump has sole voting power held by
Merrill Lynch, as Trustee of the Current ESOP as of July 15, 1996 and
allocated to Mr. Crump's account.
(7) Includes 419 shares over which Mr. Wise has sole voting power held by
Merrill Lynch, as Trustee of the Current ESOP as of July 15, 1996 and
allocated to Mr. Wise's account.
(8) Includes 221,023 shares held by Merrill Lynch, as Trustee of the Current
ESOP and allocated through July 15, 1996 to the accounts of such officers.
77
<PAGE>
AFTER THE TRANSACTION
As described in "The Transaction," the Equity Private Placement will be
consummated simultaneously with the Merger and shares of STX Acquisition
Common Stock purchased in the Equity Private Placement will be converted into
a certain number of shares of Holdings Common Stock. In connection with the
Equity Private Placement, the purchasers therein and certain other
stockholders of the Company have agreed to enter into a Stockholders Agreement
which restricts transfer of shares of Holdings Common Stock held by such
stockholders (with certain exceptions) unless such shares are first offered to
the New ESOP, Holdings and finally to the other stockholders party to the
agreement. In addition, the agreement restricts the ability of any stockholder
who is a party to the agreement to initiate a disposition of a control
position in Holdings without first complying with the right of first refusal
provisions. See "Description of Capital Stock--Transfer Restrictions." In
addition, employees of CS First Boston Corporation or its affiliates who
purchase shares in the Equity Private Placement have entered into a Nominee
and Stockholders' Agreement with Clipper Capital Associates, L.P. with respect
to the voting and transfer of such shares. It is anticipated that upon
consummation of the Transaction, investors in the Equity Private Placement
including affiliates of TSG and Unicorn and certain principal stockholders of
the Company will own at least approximately 75% of Holdings Common Stock
assuming the maximum number of Rollover Shares.
As of the date hereof, it is expected that upon consummation of the
Transaction each of (i) affiliates of Clipper Capital Partners, L.P.
(collectively, "The Clipper Group"), (ii) Koch Equities Inc., (iii) Fayez
Sarofim & Co., (iv) Olympus Growth Fund II, L.P., (v) Frank J. Hevrdejs and
(vi) Frank P. Diassi will beneficially own 5% or greater of the outstanding
capital stock of Holdings. In addition, William C. Oehming, Hunter Nelson and
Susan O. Rheney, principals of TSG, will invest in the Equity Private
Placement and be stockholders of Holdings. A Voting Agreement among certain
significant holders of Holdings Common Stock (including TSG, Koch Equities
Inc. and The Clipper Group) who are expected to own in the aggregate over 40%
of the Holdings Common Stock will provide for each of such parties to vote
their shares of Holdings Common Stock in favor of a nominee to the Board of
Directors of Holdings to be selected by each of Koch Equities and The Clipper
Group. See "Underwriting." The rights of Koch Equities and The Clipper Group
to select a nominee under such Voting Agreement are terminated in the event
their ownership of Holdings Common Stock represents less than 5% of the total
outstanding shares of Holdings Common Stock. In addition, persons who will
acquire 10% or more of the Holdings Common Stock pursuant to the Equity
Private Placement and certain other stockholders will be parties to a
Registration Rights Agreement providing certain piggyback and demand
registration rights to such stockholders.
CERTAIN TRANSACTIONS
TSG and Unicorn have entered into an agreement with STX Acquisition pursuant
to which such firms have provided to STX Acquisition and its subsidiaries
consulting and advisory services with respect to the organization of STX
Acquisition and its subsidiaries, structuring and financing of the
Transaction, arrangements for outside consulting services, advice with respect
to employee benefit and compensation arrangements and other matters. The
agreement also provides that STX Acquisition will utilize the consulting
services of TSG in any future acquisitions or securities offerings within the
succeeding 24 months on terms to be negotiated and that STX Acquisition will
indemnify TSG and Unicorn against liabilities relating to their services. Upon
consummation of the Merger, Holdings will pay TSG and Unicorn one-time
transaction fees of approximately $8 million and $4 million, respectively, for
these services and reimburse TSG and Unicorn for their expenses. These
transaction fees are consistent with fees paid to TSG in other transactions,
but were not negotiated on an arm's length basis. Since its formation in 1982,
TSG has completed 32 acquisitions for a total consideration of approximately
$5.5 billion. TSG has provided similar consulting and advisory services in
other transactions in which TSG has been involved. STX Acquisition believes
these fees are reasonable and customary in transactions of this type.
In addition, STX Acquisition has agreed that if Holdings or any of its
subsidiaries determines within 24 months to dispose of or acquire any assets
or businesses or to offer its securities for sale or to raise any debt or
78
<PAGE>
equity financing, Holdings or its subsidiary will retain TSG as a consultant
with respect to the transaction, provided that TSG's fees are competitive and
Holdings and TSG mutually agree on the terms of the engagement.
STX Acquisition and Chemicals were formed by an investor group led by TSG
and Unicorn for the purpose of effecting the Transaction. After the
Transaction, Mr. Diassi, Managing General Partner of Unicorn, will be Chairman
of the Board of Holdings and Chemical and Mr. Hevrdejs, a principal and
director of TSG and Mr. Nelson is a principal of TSG, will be directors of
Holdings and Chemicals. See "Management." Messrs. Hevrdejs, Diassi and Nelson,
together with other officers, employees and affiliates of TSG and Unicorn and
officers, directors and employees of the Company, are expected to purchase STX
Acquisition Common Stock in the Equity Private Placement.
As a matter of policy, all future transactions between Holdings or Chemicals
and their respective directors, officers and affiliates are expected to be on
terms no less favorable to Holdings or Chemicals than those available from
unaffiliated third parties. Under the Indentures, all future transactions that
involve consideration to TSG or Unicorn in excess of $2.5 million will be
approved by a majority of the disinterested members of the Board of Directors
of Holdings or Chemicals, as the case may be. The Notes Indenture will
restrict transactions between Chemicals and its affiliates and the Discount
Notes Indenture will restrict transactions between Holdings and its
affiliates. See "Description of the Units--Description of the Discount Notes--
Certain Covenants--Limitation on Transactions with Affiliates" and
"Description of the Notes--Certain Covenants--Limitation on Transactions with
Affiliates."
As described in "Principal Stockholders--After the Transaction," it is
currently anticipated that upon consummation of the Transaction, Koch Equities
Inc., a subsidiary of Koch Industries, Inc., ("Koch Industries") will own at
least 5% of the outstanding capital stock of Holdings. The Company and
affiliates of Koch Industries have ongoing commercial relationships,
including, from time to time, supply of raw materials or sales of
petrochemicals. For the fiscal year ended September 30, 1995, sales to and
purchases from Koch Industries and its affiliates represented less than 1% and
3%, respectively, of the Company's revenues.
In addition to the employee benefits that will continue after the Merger as
described under "Management--Compensation of Executive Officers--After the
Transaction," prospective investors should also consider the matters described
below.
Relationships with TSG. TSG was founded in 1982 by Messrs. Gordon A. Cain
and Frank J. Hevrdejs. In 1992, Mr. Cain made a decision to reduce his level
of business activity. By December 1993, Mr. Cain had sold all of his stock in
TSG and resigned as an officer and director. Since that time, Mr. Cain has had
no equity or other financial interest in TSG, although at TSG's invitation he
has invested in three transactions organized by TSG. For marketing purposes,
Mr. Cain was described as Chairman Emeritus of TSG until November 1995, but
since December 1992 has had no role in TSG's ongoing operations. TSG is
currently controlled by Messrs. Hevrdejs and William C. Oehmig, the husband of
Mr. Cain's stepdaughter. Messrs. Cain and William A. McMinn assist TSG as
senior advisors on selected transactions. Although Mr. McMinn has received
certain advisory fees for such services, Mr. Cain has not. Neither Mr. Cain
nor Mr. McMinn participated in any such capacity in connection with the
Merger. TSG and Mr. McMinn recently assisted Mr. Cain with the acquisition of
a company in a transaction unrelated to the Merger and similar assistance may
be provided with respect to future transactions. Messrs. Cain, Waggoner and
McMinn, along with principals of TSG, invested in such transaction, and
Messrs. Cain and McMinn are members of the Board of Directors of the surviving
corporation in such transaction. Messrs. Cain and McMinn also sublease office
space from TSG, either directly or through companies with which they are
affiliated. Messrs. Cain and McMinn, along with Mr. J. Virgil Waggoner, Robert
W. Roten, the Company's Executive Vice-President, and Richard K. Crump, a
Vice-President in the Company, have previously co-invested with principals of
TSG in several transactions. Approximately 10 years ago, the Company's Texas
City petrochemical facility was purchased by the Company from Monsanto Company
in a leveraged buyout led by Mr. Cain (at which time he was a director and
principal stockholder of TSG) and Mr. Waggoner. Principals of TSG currently
own 897,000 shares of Common Stock of the Company, representing approximately
1.6% of the outstanding shares. As of the date of the Merger Agreement
principals of TSG owned 100% of the common stock of STX Acquisition.
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Continuing Equity Interest of Certain Persons. Certain directors and
executive officers of the Company and others will have continuing equity
interests in Holdings following the Merger. Messrs. Frank J. Hevrdejs and
William C. Oehmig (stockholders of the Company and principals of TSG) and
Messrs. Gordon A. Cain, J. Virgil Waggoner, and Robert W. Roten, each executed
an Inducement Agreement. Pursuant to the Inducement Agreement, Messrs. Cain,
Waggoner and Roten each agreed to make Rollover Elections as to a portion of
their shares of Company Common Stock (an aggregate of 1,404,254 Rollover
Shares), subject to pro rata reduction with Rollover Elections made by other
stockholders of the Company if Rollover Elections exceed the maximum number of
Rollover Shares. Messrs. Hevrdejs and Oehmig agreed to make Rollover Elections
as to 100% of their Company Common Stock (an aggregate of 897,000 Rollover
Shares) provided that their Rollover Shares will not be subject to pro rata
reduction. Unless Rollover Elections exceed the maximum number of Rollover
Shares, following the Merger, Messrs. Cain, Waggoner and Roten would
collectively own approximately 12.9% of the outstanding shares of Holdings
Common Stock and Messrs. Hevredjs and Oehmig would collectively own a minimum
of approximately 8.2% of such outstanding shares.
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DESCRIPTION OF THE NOTES
The Notes are to be issued pursuant to the Indenture, dated as of , 1996
(the "Notes Indenture"), between Chemicals and Fleet National Bank of
Connecticut, as trustee (the "Trustee"). Following is a summary of material
provisions of the Notes Indenture. This summary does not purport to be
complete and is subject to and is qualified in its entirety by reference to
all provisions of the Notes and the Notes Indenture (including provisions made
part of the Notes Indenture by reference to the Trust Indenture Act of 1939,
as amended), including the definitions therein of terms not defined herein.
Certain terms used herein are defined below under "Certain Definitions". A
copy of the Notes Indenture is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
GENERAL
The Notes will be senior subordinated unsecured obligations of Chemicals,
will be limited to $275,000,000 aggregate principal amount and will mature on
, 2006. The Notes will bear interest at the rate per annum shown on the
front cover of this Prospectus from , 1996 or from the most recent date to
which interest has been paid as provided for, payable semi-annually on
and of each year, commencing , 1997 to each Person in whose name a
Note is registered at the close of business on the preceding or , as the
case may be. Principal of and premium, if any, and interest on the Notes will
be payable, and the transfer of Notes will be registrable, at the office or
the agency maintained by Chemicals in the City of New York. In addition,
payment of interest may, at the option of Chemicals, be made by check mailed
to the address of the person entitled thereto as it appears in the Note
Register. Interest will be computed on the basis of a 360-day year of twelve
30-day months.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any multiple thereof. No service charge will be
made for any registration of transfer or exchange of Notes, but Chemicals may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of Chemicals prior to , 2001. Thereafter, the
Notes will be redeemable, at Chemicals' option, in whole or in part from time
to time, upon not less than 30 or nor more than 60 days' notice mailed to each
Holder of Notes to be redeemed at the Holder's address appearing in the Note
Register, at the following redemption prices (expressed as percentages of
principal amount), plus accrued interest to the redemption date (subject to
the right of Holders of record on the relevant record date to receive interest
due on the relevant interest payment date), if redeemed during the 12-month
period beginning of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2001............................................................ %
2002............................................................
2003............................................................
2004............................................................ 100.00%
</TABLE>
In addition, at any time and from time to time prior to , 1999, Chemicals
may redeem in the aggregate up to 35% of the original principal amount of the
Notes with the proceeds of one or more Public Equity Offerings following which
there is a Public Market, at a redemption price (expressed as a percentage of
principal amount) of % plus accrued interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided,
however, that at least $ aggregate principal amount of the Notes must
remain outstanding after each such redemption.
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In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other
method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal
to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note.
RANKING
The indebtedness evidenced by the Notes will constitute senior subordinated
unsecured obligations of Chemicals. The payment of the principal of and
premium, if any, and interest on the Notes will be subordinate in right of
payment, as set forth in the Notes Indenture, to the prior payment in full in
cash or cash equivalents of all existing and future Senior Debt of Chemicals,
including Chemicals' obligations under the Credit Agreement, and will rank
pari passu in right of payment with all existing and future senior
subordinated indebtedness of Chemicals. The Notes will be senior in all
respects to any subordinated indebtedness of Chemicals. At June 30, 1996,
after giving effect to the Transaction, the aggregate principal amount of
outstanding Senior Debt of Chemicals would have been approximately $361.9
million and Chemicals would have had no subordinated indebtedness. Although
the Notes Indenture contains limitations on the amount of additional Debt that
Chemicals may incur, under certain circumstances the amount of such Debt could
be substantial and, in any case, such Debt may be Senior Debt. Chemicals has
agreed in the Notes Indenture that it will not incur, directly or indirectly,
any Debt that is subordinate or junior in ranking in right of payment to its
Senior Debt unless such Debt is Senior Subordinated Debt or is expressly
subordinated in right of payment to Senior Subordinated Debt. See "--Certain
Covenants--Limitation on Debt".
A portion of the operations of Chemicals is conducted through its
subsidiaries. Claims of creditors of such subsidiaries, including trade
creditors, secured creditors and creditors holding debt and guarantees issued
by such subsidiaries, and claims of preferred stockholders (if any) of such
subsidiaries generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of Chemicals,
including holders of the Notes, even though such obligations will not
constitute Senior Debt. The Notes, therefore, will be effectively subordinated
to creditors (including trade creditors) and preferred stockholders (if any)
of subsidiaries of Chemicals. At June 30, 1996, after giving effect to the
Transaction, the aggregate liabilities (consisting of Debt and trade payables)
of Chemicals' subsidiaries would have been approximately $697.5 million.
Although the Notes Indenture limits the incurrence of Debt and preferred stock
of certain of Chemicals' subsidiaries, such limitation is subject to a number
of significant qualifications. Moreover, the Notes Indenture does not impose
any limitation on the incurrence by such subsidiaries of liabilities that are
not considered Debt under the Notes Indenture. See "--Certain Covenants--
Limitation on Debt" and "--Limitation on Restrictions on Distributions from
Subsidiaries; Limitation on Preferred Stock of Subsidiaries."
Chemicals may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"Defeasance" below and may not repurchase, redeem or otherwise retire any
Notes (collectively, "pay the Notes") if (i) any Designated Senior Debt is not
paid or prepaid when due or (ii) any other default on Designated Senior Debt
occurs and the maturity of such Designated Senior Debt is accelerated in
accordance with its terms unless, in either case, the default has been cured
or waived and any such acceleration has been rescinded or such Designated
Senior Debt has been paid in full. However, Chemicals may pay the Notes
without regard to the foregoing if Chemicals and the Trustee receive written
notice approving such payment from the Representative of the Designated Senior
Debt with respect to which either of the events set forth in clause (i) or
(ii) of the immediately preceding sentence has occurred and is continuing.
During the continuance of any default (other than a default described in
clause (i) or (ii) of the second preceding sentence) with respect to any
Designated Senior Debt pursuant to which the maturity thereof may be
accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable
grace periods, Chemicals may not pay the Notes for a period (a "Payment
Blockage Period") commencing upon the receipt by the Trustee (with a copy to
Chemicals) of written notice (a "Blockage Notice") of such default from the
Representative of the holders of such Designated Senior Debt specifying an
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election to effect a Payment Blockage Period and ending 179 days thereafter
(or earlier if such Payment Blockage Period is terminated (i) by written
notice to the Trustee and Chemicals from the Person or Persons who gave such
Blockage Notice, (ii) because the default giving rise to such Blockage Notice
is no longer continuing or (ii) because such Designated Senior Debt has been
repaid in full). Notwithstanding the provisions described in the immediately
preceding sentence, unless the holders of such Designated Senior Debt or the
Representative of such holders have accelerated the maturity of such
Designated Senior Debt, Chemicals may resume payments on the Notes after the
end of such Payment Blockage Period. The Notes shall not be subject to more
than one Payment Blockage Period in any consecutive 360-day period,
irrespective of the number of defaults with respect to Designated Senior Debt
during such period.
Upon any payment or distribution of the assets of Chemicals upon a total or
partial liquidation or dissolution or reorganization of or similar proceeding
relating to Chemicals or its property, the holders of Senior Debt will be
entitled to receive payment in full of such Senior Debt before the Holders are
entitled to receive any payment, and until the Senior Debt is paid in full,
any payment or distribution to which Holders would be entitled but for the
subordination provisions of the Notes Indenture will be made to holders of
such Senior Debt as their interests may appear. If a distribution is made to
Holders that, due to the subordination provisions, should not have been made
to them, such Holders are required to hold it in trust for the holders of
Senior Debt and pay it over to them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default,
Chemicals or the Trustee shall promptly notify the holders of Designated
Senior Debt or the Representative of such holders of the acceleration.
By reason of the subordination provisions contained in the Notes Indenture,
in the event of insolvency, creditors of Chemicals who are holders of Senior
Debt may recover more, ratably, than the Holders, and creditors of Chemicals
who are not holders of Senior Debt may recover less, ratably, than holders of
Senior Debt and may recover more, ratably, than the Holders.
Except as limited above, the terms of the subordination provisions described
above will not apply to payments from money or the proceeds of U.S. Government
Obligations held in trust by the Trustee for the payment of principal of and
interest on the Notes pursuant to the provisions described under "--
Defeasance".
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder shall have the right
to require Chemicals to repurchase such Holder's Notes at a purchase price in
cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest (if any) to the date of repurchase (subject to the right of holders
of record on the relevant record date to receive interest due on the relevant
interest payment date).
The occurrence of any of the following events will constitute a "Change of
Control" under the Notes Indenture:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more of the Permitted Holders, is or
becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act except that a Person shall be deemed to have "beneficial
ownership" of all shares that any 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 35% of the total voting power
of the Voting Stock of Holdings; provided that the Permitted Holders
"beneficially own," as defined above, directly or indirectly, in the
aggregate a lesser percentage of the total voting power of the Voting Stock
of Holdings than such other Person and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors of Holdings (for the purposes of this
clause (i), (A) such other Person shall be deemed to beneficially own any
Voting Stock of a corporation (the "specified corporation") held by any
other corporation (the "parent corporation"), if such other Person
"beneficially owns" (as defined above), directly or indirectly, more than
35% of the voting power of the Voting Stock of such parent corporation and
the Permitted Holders "beneficially own" (as defined above),
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directly or indirectly, in the aggregate a lesser percentage of the voting
power of the Voting Stock of such parent corporation and do not have the
right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of such parent
corporation and (B) the Permitted Holders shall be deemed to beneficially
own any Voting Stock of a specified corporation held by any parent
corporation so long as the Permitted Holders beneficially own (as so
defined), directly or indirectly, in the aggregate a majority of the voting
power of the Voting Stock of the parent corporation);
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of Holdings or
Chemicals (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of Holdings
or Chemicals, as the case may be, was approved by a majority of the
directors of Holdings or Chemicals, as the case may be, 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 Board of Directors of Holdings
or Chemicals, as the case may be, then in office;
(iii) the merger or consolidation of Holdings or Chemicals with or into
another Person or the merger of another Person (other than a Permitted
Holder) with or into Holdings or Chemicals, or the sale or transfer in one
or a series of transactions of all or substantially all the assets of
Holdings or Chemicals to another Person (other than a Permitted Holder)
and, in the case only of any such merger or consolidation, the securities
of Holdings or Chemicals that are outstanding immediately prior to such
transaction and which represent 100% of the aggregate voting power of the
Voting Stock of Holdings or Chemicals are changed into or exchanged for
cash, securities or property, unless pursuant to such transaction such
securities are changed into or exchanged for, in addition to any other
consideration, securities of the surviving corporation that represent
immediately after such transaction, at least a majority of the aggregate
voting power of the Voting Stock of the surviving corporation; or
(iv) for so long as a holding company ownership structure is maintained
over Chemicals, Holdings shall hold less than a majority of the Capital
Stock of Chemicals (other than Preferred Stock of Chemicals issued in
accordance with the terms of the Notes Indenture) or less than a majority
of the Voting Stock of Chemicals.
Within 30 days following any Change of Control, Chemicals will mail a notice
to each Holder with a copy to the Trustee stating (i) that a Change of Control
has occurred and that such Holder has the right to require Chemicals to
purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest (if any) to the date
of purchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the relevant interest payment date); (ii) the
material circumstances and facts regarding such Change of Control (including,
but not limited to, information with respect to pro forma historical income,
cash flow and capitalization after giving effect to such Change of Control);
(iii) the repurchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and (iv) the instructions,
determined by Chemicals consistent with the Notes Indenture, that a Holder
must follow in order to have its Notes repurchased.
Chemicals shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
Chemicals shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof. Neither the Board of Directors nor the
Trustee may waive compliance by the Company with its obligation to repurchase
Notes upon a Change of Control.
The Change of Control purchase feature is a result of negotiations between
Chemicals and the Underwriters. Management has no present intention to engage
in a transaction involving a Change of Control, although it is possible that
Chemicals or Holdings would decide to do so in the future. The provisions of
the Notes Indenture relating to a Change of Control may not afford Holders
protection in the event of a highly leveraged transaction,
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reorganization, restructuring, merger or similar transaction (including, in
certain circumstances, a transaction involving Chemicals' management or its
affiliates) that may adversely affect Holders, if such transaction does not
constitute a Change of Control, as defined above. Any such transaction will
result in a Change of Control only if it is the type of transaction specified
by such definition. For example, a merger or consolidation with, or sale of
assets to, a Permitted Holder (defined to include, among others, the
purchasers in the Equity Private Placement and the employees and stockholders
of TSG and Unicorn) would not meet the definition of Change of Control and,
therefore, Holders of Notes would not be entitled to require Chemicals to
purchase their Notes.
The Credit Agreement generally will prohibit Chemicals from purchasing any
Notes, and will also provide that the occurrence of certain change of control
events with respect to Chemicals would constitute a default thereunder. In the
event a Change of Control occurs at a time when Chemicals is prohibited from
purchasing Notes, Chemicals could seek the consent of its lenders to the
purchase of Notes or could attempt to refinancing the borrowings that contain
such prohibition. If Chemicals does not obtain such a consent or repay such
borrowings, Chemicals will remain prohibited from purchasing Notes. In such
case, Chemicals' failure to purchase tendered Notes would constitute an Event
of Default under the Notes Indenture which would, in turn, constitute a
default under the Credit Agreement. In such circumstances, the subordination
provisions in the Notes Indenture would likely restrict payment to the Holders
of Notes.
Upon consummation of the Transaction, Chemicals will not have any Debt that
is pari passu with the Notes that contain any change of control provisions.
Future indebtedness of Chemicals may contain prohibitions on the occurrence of
certain events that would constitute a Change of Control or require such
indebtedness to be repurchased upon a Change of Control. Moreover, the
exercise by the holders of their rights to require Chemicals to repurchase the
Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on
Chemicals. Finally, Chemicals' ability to pay cash to the holders of Notes
following the occurrence of a Change of Control may be limited by Chemicals'
then existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required repurchases. The
provisions under the Notes Indenture relating to the Company's obligation to
make an offer to repurchase the Notes as a result of a Change of Control may
be waived or modified with the prior written consent of the Holders of a
majority in principal amount of the Notes.
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of Chemicals, and,
thus, removal of incumbent management.
CERTAIN COVENANTS
The Notes Indenture will contain certain covenants, including among others
the ones summarized below:
Limitation on Debt. (a) Chemicals shall not Incur, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur any Debt unless the
Consolidated EBITDA Coverage Ratio at the date of such Incurrence exceeds 1.75
to 1.0 if such Debt is Incurred on or prior to , 1998 or 2.0 to 1.0 if such
Debt is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), Chemicals and its
Restricted Subsidiaries may Incur the following Debt: (1) Debt Incurred
pursuant to the Revolving Credit Provisions of the Credit Agreement or any
other revolving credit facility which, when taken together with all letters of
credit and the principal amount of all other Debt Incurred under this clause
(1), does not exceed the greater of $100 million and the sum of (i) 65% of the
gross book value of the inventory of Chemicals and its Restricted
Subsidiaries, and (ii) 85% of the gross book value of the accounts receivable
of Chemicals and its Restricted Subsidiaries; (2) Debt Incurred pursuant to
the Term Loan Provisions of the Credit Agreement or any indenture or term loan
provisions of any other credit or loan agreement which, when taken together
with the principal amount of all other Debt Incurred pursuant to this clause
(2), does not exceed $350 million outstanding at any one time less the
aggregate amount of all principal repayments of any such Debt actually made
after the Issue Date (other than any such principal repayments made as a
result of the Refinancing of any such Debt); (3) Debt Incurred pursuant to the
ESOP Loan
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Provisions of the Credit Agreement in an aggregate principal amount not to
exceed $6.5 million outstanding at any one time less the aggregate amount of
all principal repayments of any such Debt actually made after the Issue Date
(other than any such principal repayments made as a result of the Refinancing
of any such Debt); (4) Debt of Chemicals owed to and held by a Wholly Owned
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock that results in such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any transfer of such Debt (other than to a Wholly
Owned Subsidiary) shall be deemed, in each case, to constitute the issuance of
such Debt by Chemicals; (5) Debt of a Restricted Subsidiary incurred and
outstanding on or prior to the date on which such Restricted Subsidiary became
a Restricted Subsidiary or was acquired by Chemicals (other than Debt issued
in connection with, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by Chemicals); (6) the Notes; (7) Debt outstanding
on the Issue Date (other than Debt described in clause (1), (2), (3), (4), (5)
or (6); (8) Refinancing Debt in respect of Debt Incurred pursuant to paragraph
(a) or pursuant to clause (6) or (7) or this clause (8); (9) Hedging
Obligations; provided that with respect to Interest Rate Agreements and
Currency Agreements (if such Currency Agreements relate to Debt), only to the
extent directly related to Debt permitted to be incurred by Chemicals pursuant
to the Notes Indenture; and (10) Debt in an aggregate principal amount which,
together with all other Debt of Chemicals and the Restricted Subsidiaries then
outstanding (other than Debt permitted by clauses (1) through (9) of this
paragraph (b) or paragraph (a) above) does not exceed $25 million.
(c) Notwithstanding paragraphs (a) and (b) above, Chemicals shall not Incur
any Debt if the proceeds thereof are used, directly or indirectly, to repay,
prepay, redeem, defease, retire, refund or refinance any Subordinated
Obligations unless such Debt shall be subordinated to the Notes to at least
the same extent as such Subordinated Obligations.
(d) Notwithstanding paragraphs (a) and (b) above, (i) Chemicals shall not
Incur any Debt if such Debt is subordinated or junior in ranking to any Senior
Debt, unless such Debt is Senior Subordinated Debt or is expressly
subordinated in right of payment to Senior Subordinated Debt and (ii)
Chemicals shall not issue any Secured Debt which is not Senior Debt unless
contemporaneously therewith effective provision is made to secure the Notes
equally and ratably with such Secured Debt for so long as such Secured Debt is
secured by a Lien.
(e) For purposes of determining compliance with paragraph (b) of this
covenant, (i) in the event that an item of Debt meets the criteria of more
than one of the types of Debt described in paragraph (b), Chemicals, in its
sole discretion, will classify such item of Debt and only be required to
include the amount and type of such Debt in one of the clauses of paragraph
(b) and (ii) an item of Debt may be divided and classified in more than one of
the types of Debt in paragraph (b).
Limitation on Restricted Payments. (a) Chemicals shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to (i) declare or
pay any dividend or make any distribution on or in respect of its Capital
Stock (including any payment in connection with any merger or consolidation
involving Chemicals) or similar payment to the direct or indirect holders of
its Capital Stock (except dividends or distributions payable solely in its
Non-Convertible Capital Stock or in options, warrants or other rights to
purchase its Non-Convertible Capital Stock and except dividends or
distributions payable to Chemicals or a Restricted Subsidiary), and other than
pro rata dividends or other distributions made by a Restricted Subsidiary of
Chemicals that is not a Wholly Owned Subsidiary to minority shareholders (or
owners of an equivalent interest in the case of a Restricted Subsidiary that
is an entity other than a corporation), (ii) purchase, redeem or otherwise
acquire or retire for value any Capital Stock of Chemicals, any direct or
indirect parent of Chemicals or a Restricted Subsidiary (other than such
Capital Stock owned by Chemicals or any Wholly Owned Subsidiary), (iii)
purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment, any Subordinated Obligations (other than purchase, repurchase or
other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition), or (iv) make any
Investment in any Person (other than a Permitted Investment) (any such
dividend, distribution, purchase, redemption,
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repurchase, defeasance, other acquisition, retirement, or Investment being
herein referred to as a "Restricted Payment"), if at the time Chemicals or
such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall
have occurred and be continuing (or would result therefrom); (2) Chemicals,
after giving pro forma effect to such Restricted Payment, would not be
permitted to Incur an additional $1.00 of Debt pursuant to clause (a) under
"Limitation on Debt"; or (3) the aggregate amount of such Restricted Payment
and all other Restricted Payments since the Issue Date would exceed the sum
of: (A) 50% of the Consolidated Net Income accrued during the period (treated
as one accounting period) from the beginning of the fiscal quarter during
which the Notes were originally issued to the end of the most recent fiscal
quarter ending at least 45 days prior to the date of such Restricted Payment
(or, in case such Consolidated Net Income shall be a deficit, minus 100% of
such deficit); provided, however, that if the Notes achieve an Investment
Grade Rating during any fiscal quarter, the percentage for such fiscal quarter
(and for any other fiscal quarter where, on the first day of such fiscal
quarter, the Notes shall have an Investment Grade Rating) will be 100% of
Consolidated Net Income during such fiscal quarter; provided, further,
however, that if such Restricted Payment is to be made in reliance upon an
additional amount permitted pursuant to the immediately preceding proviso, the
Notes must have an Investment Grade Rating at the time such Restricted Payment
is declared or, if not declared, made; (B) the aggregate Net Cash Proceeds
received by Chemicals from the issue or sale of its Capital Stock (other than
Redeemable Stock or Exchangeable Stock) subsequent to the Issue Date (other
than an issuance or sale to a Subsidiary or an employee stock ownership plan
or similar trust); (C) the aggregate Net Cash Proceeds received by Chemicals
from the issue or sale of its Capital Stock (other than Redeemable Stock or
Exchangeable Stock) to an employee stock ownership plan subsequent to the
Issue Date; provided, however, that if such employee stock ownership plan
issues any Debt, such aggregate amount shall be limited to an amount equal to
any increase in the Consolidated Net Worth of Chemicals resulting from
principal repayments made by such employee stock ownership plan with respect
to Debt issued by it to finance the purchase of such Capital Stock; (D) the
amount by which Debt of Chemicals is reduced on Chemicals' balance sheet upon
the conversion or exchange (other than by a Subsidiary) subsequent to the
Issue Date, of any Debt of Chemicals convertible or exchangeable for Capital
Stock (other than Redeemable Stock or Exchangeable Stock) of Chemicals (less
the amount of any cash, or other property, distributed by Chemicals upon such
conversion or exchange); (E) an amount equal to the sum of (i) the net
reduction in Investments in Unrestricted Subsidiaries resulting from
dividends, repayments of loans or advances or other transfers of assets, in
each case to Chemicals or any Restricted Subsidiary from Unrestricted
Subsidiaries, and (ii) the portion (proportionate to Chemicals' equity
interest in such Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated
a Restricted Subsidiary; provided, however, that the foregoing sum shall not
exceed, in the case of any Unrestricted Subsidiary, the amount of Investments
previously made (and treated as a Restricted Payment) by Chemicals or any
Restricted Subsidiary in such Unrestricted Subsidiary; (F) to the extent not
covered in clauses (A) through (E) above, the aggregate net cash proceeds
received after the date of the Notes Indenture by Chemicals as capital
contributions (other than from any of its Restricted Subsidiaries; and (G) $5
million; provided, however, that, to the extent used, such $5 million shall
reduce the amount available for Investments pursuant to clause (xii) of the
definition of "Permitted Investments" set forth under "--Certain Definitions;"
and provided, further, however, that the amounts available under this clause
(G) and under clause (xii) of the definition of "Permitted Investments" shall
in no event exceed $10 million in the aggregate.
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of
Chemicals made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of Chemicals (other than Redeemable Stock or
Exchangeable Stock of Chemicals and other than Capital Stock of Chemicals
issued or sold to a Subsidiary or an employee stock ownership plan); provided,
however, that (A) such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds
from such sale shall be excluded from clauses (3)(B) and (3)(C) of paragraph
(a); (ii) any purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Obligations of Chemicals made by exchange
for, or out of the proceeds of the substantially concurrent sale of, Debt of
Chemicals which is permitted to be Incurred pursuant to the covenant described
under "Limitation on Debt" above; provided, however, that such purchase,
redemption,
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defeasance or other acquisition or retirement for value shall be excluded in
the calculation of the amount of Restricted Payments; (iii) any purchase or
redemption of Subordinated Obligations from Net Available Cash to the extent
permitted under "Limitation on Sales of Assets and Subsidiary Stock" below;
provided, however, that such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments; (iv) dividends paid within
60 days after the date of declaration thereof if at such date of declaration
such dividend would have complied with this provision; provided, however, that
at the time of declaration of such dividend, no other Default shall have
occurred and be continuing (or would result therefrom); and provided, further,
however, that such dividend shall be included in the calculation of the amount
of Restricted Payments; (v) the declaration or payment of any dividend on
shares of Chemicals' Common Stock so long as (x) Chemicals would be permitted
immediately after giving pro forma effect to such declaration or payment to
Incur an additional $1.00 of Debt pursuant to clause (a) under "Limitation on
Debt", (y) such declaration or payment is made immediately prior to a date on
which cash interest is required to be paid on the Discount Notes and (z) the
full amount of such payment is applied by Holdings on such date as payment of
such cash interest on the Discount Notes; provided that such dividend shall be
included in the calculation of the amount of Restricted Payments; (vi)
payments to the ESOP on behalf of the employees of Holdings or its
Subsidiaries; provided that all such payments by Chemicals and its
Subsidiaries may not exceed, during any fiscal year, 10% of the aggregate
compensation expense during such fiscal year attributable to employees of
Holdings and its Subsidiaries who are eligible to participate in the ESOP;
(vii) a payment to Holdings to pay its operating and administrative expenses
including, without limitation, directors fees, legal and audit expenses, SEC
compliance expenses, and corporate franchise and other taxes, in an amount not
to exceed the greater of $2.0 million per fiscal year and 0.2% of revenues of
Chemicals for the preceding fiscal year; provided, however, that such amount
shall be excluded in the calculation of the amount of Restricted Payments;
(viii) a payment by Chemicals to Holdings or to the ESOP or directly by
Chemicals to be used to repurchase common stock of Holdings distributed to
participants and beneficiaries of the ESOP as required by and in accordance
with the ESOP as in effect on the Issue Date and Section 409(h)(1)(B) of the
Code and the regulations thereunder; provided, however, that such amount shall
be excluded in the calculation of the amount of Restricted Payments; (ix) a
payment by Chemicals to Holdings or the ESOP, or directly by Chemicals, to be
used to repurchase, redeem, acquire or retire for value any Capital Stock of
Holdings pursuant to any stockholder's agreement, management equity
subscription plan or agreement, stock option plan or agreement, or employee
benefit plan in effect as of the Issue Date or such employee plan or agreement
or employee benefit plan as may be adopted by Chemicals or Holdings from time
to time; provided, however, that the aggregate price paid for all Capital
Stock repurchased, redeemed, acquired or retired by Chemicals or on behalf of
Holdings or Chemicals shall not exceed $5 million in any fiscal year;
provided, further, however, that such amount, to the extent related to the
ESOP, shall be excluded in the calculation of Restricted Payments; (x) a
payment to Holdings pursuant to the tax sharing agreement as the same may be
amended from time to time in a manner not materially adverse to Chemicals;
provided, however, that such amount shall be excluded in the calculation of
the amount of Restricted Payments; (xi) any payment to Holdings to permit
Holdings to make payments for advisory services owed pursuant to the
engagement letter dated as of April 23, 1996 by and between STX Acquisition
and TSG; provided, however, that such amount shall be excluded in the
calculation of the amount of Restricted Payments; (xii) a payment to Holdings
to permit Holdings to comply with the terms of the Discount Notes Indenture
relating to the application of proceeds from an Asset Disposition (relating to
the sale or disposition of property by Chemicals) as defined in such Discount
Notes Indenture; provided, however, that such amount shall be excluded in the
calculation of the amount of Restricted Payments; and (xiii) the Permitted
Dividend; provided that such Permitted Dividend shall be excluded in the
calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
Chemicals shall not, and shall not permit any Restricted Subsidiary to, create
or permit to exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary to (i) pay dividends
or make any other distributions on its Capital Stock or pay any Debt or other
obligation owed to Chemicals, (ii) make any loans or advances to Chemicals or
(iii) transfer any of its property or assets to Chemicals, except: (a) any
encumbrance or restriction pursuant to an agreement in effect on the Issue
Date or pursuant to the issuance of the Notes; (b) any encumbrance or
restriction with respect to a Restricted Subsidiary pursuant to an agreement
relating to any Debt
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Incurred by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by Chemicals (other than Debt Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by Chemicals) and outstanding on such date; (c) any
encumbrance or restriction pursuant to an agreement effecting a Refinancing of
Debt Incurred pursuant to an agreement referred to in clause (a) or (b) or
contained in any amendment to an agreement referred to in clause (a) or (b);
provided, however, that the encumbrances and restrictions contained in any of
such refinancing agreement or amendment are no less favorable to the Holders
than encumbrances and restrictions with respect to such Restricted Subsidiary
contained in such agreements; (d) any such encumbrance or restriction
consisting of customary nonassignment provisions in leases governing leasehold
interests to the extent such provisions restrict the transfer of the lease or
other customary non-assignment provisions in contracts (other than contracts
that constitute Debt) entered into the ordinary course of business to the
extent such provisions restrict the transfer of the assets subject to such
contracts; and (e) in the case of clause (iii) above, restrictions contained
in security agreements or mortgages securing Debt of a Restricted Subsidiary
to the extent such restrictions restrict the transfer of the property subject
to such security agreements or mortgages; (f) encumbrances or restrictions
imposed by operation of applicable law; and (g) any restriction with respect
to a Restricted Subsidiary imposed pursuant to an agreement entered into for
the sale or disposition of all or substantially all the Capital Stock or
assets of such Restricted Subsidiary pending the closing of such sale or
disposition.
Limitation on Sales of Assets and Subsidiary Stock. (a) Chemicals shall not,
and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) Chemicals or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at
least equal to the fair market value, as determined in good faith by the Board
of Directors (including as to the value of all non-cash consideration), of the
shares and assets subject to such Asset Disposition and at least 75% of the
consideration thereof received by Chemicals or such Restricted Subsidiary is
in the form of cash or cash equivalents, and (ii) an amount equal to 100% of
the Net Available Cash from such Asset Disposition is applied by Chemicals (or
such Restricted Subsidiary, as the case may be) (A) first, to the extent
Chemicals elects (or is required by the terms of any Senior Debt), to prepay,
repay or purchase Senior Debt or Debt (other than any Redeemable Stock) of a
Wholly Owned Subsidiary (in each case other than Debt owed to Chemicals or an
Affiliate of Chemicals or Holdings) within 180 days from the later of the date
of such Asset Disposition or the receipt of such Net Available Cash; (B)
second, to the extent of the balance of such Net Available Cash after
application in accordance with clause (A), at Chemicals' election to the
investment by Chemicals, any Wholly Owned Subsidiary or the Restricted
Subsidiary making such Asset Disposition in assets to replace the assets that
were the subject of such Asset Disposition or an asset that (as determined by
the Board of Directors) will be used in the business of Chemicals, the Wholly
Owned Subsidiaries or the Restricted Subsidiary making such Asset Disposition
existing on the date of original issuance of the Notes or in businesses
reasonably related thereto, in each case within the later of one year from the
date of such Asset Disposition or the receipt of such Net Available Cash; (C)
third, to the extent of the balance of such Net Available Cash after
application and in accordance with clauses (A) and (B), to make an offer to
purchase Notes (and any other Senior Subordinated Debt of Chemicals designated
by Chemicals) pursuant to and subject to the conditions contained in the Notes
Indenture; and (D) fourth, to the extent of the balance of such Net Available
Cash after application in accordance with clauses (A), (B) and (C), to (x) the
acquisition by Chemicals, any Wholly Owned Subsidiary or the Restricted
Subsidiary making such Asset Disposition of Tangible Property or (y) the
prepayment, repayment or purchase of Debt (other than any Redeemable Stock) of
Chemicals or Debt of any Restricted Subsidiary (in either case other than Debt
owed to Chemicals or an Affiliate of Chemicals), in each case within one year
from the later of the receipt of such Net Available Cash and the date the
offer described in clause (b) below is consummated; provided, however, that in
connection with any prepayment, repayment or purchase of Debt pursuant to
clause (A), (C) or (D) above, Chemicals shall cause the related loan
commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. Notwithstanding the
foregoing provisions of this paragraph, Chemicals and its Restricted
Subsidiaries shall not be required to apply any Net Available Cash in
accordance with this paragraph except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which are not applied in accordance
with this paragraph exceeds $20 million. Pending application of Net Available
Cash pursuant to this paragraph, such Net Available Cash shall be invested in
Temporary Cash Investments.
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For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the express assumption of Debt of Chemicals or any
Restricted Subsidiary and the release of Chemicals or such Restricted
Subsidiary from all liability on such Debt in connection with such Asset
Disposition and (y) securities received by Chemicals or any Restricted
Subsidiary from the transferee that are converted by Chemicals or such
Restricted Subsidiary into cash within 90 days of the receipt of such
securities. The 75% limitation referred to in the previous paragraph shall not
apply to any Asset Disposition in which the cash portion of the consideration
received therefor, determined in accordance with the previous sentence, is
equal to or greater than what the after-tax proceeds would have been had such
Asset Disposition complied with such 75% limitation.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Subordinated Debt) pursuant to clause (a)(ii)(C)
above, Chemicals will be required to purchase Notes tendered pursuant to an
offer by Chemicals for the Notes (and other Senior Subordinated Debt) at a
purchase price of 100% of their principal amount (without premium) plus
accrued but unpaid interest (or, in respect of such other Senior Subordinated
Debt, such lesser price, if any, as may be provided for by the terms of such
Senior Debt) in accordance with the procedures (including prorating in the
event of oversubscription) set forth in the Notes Indenture. If the aggregate
purchase price of Notes (and any other Senior Subordinated Debt) tendered
pursuant to such offer is less than the Net Available Cash allotted to the
purchase thereof, Chemicals will be required to apply the remaining Net
Available Cash in accordance with clause (a)(ii)(D) above. Chemicals shall not
be required to make such an offer to purchase Notes (and other Senior
Subordinated Debt) pursuant to this covenant if the Net Available Cash
available therefor is less than $10 million (which lesser amount shall be
carried forward for purposes of determining whether such an offer is required
with respect to any subsequent Asset Disposition).
To the extent that any or all of the Net Available Cash of any Foreign Asset
Sale is prohibited or delayed by applicable local law from being repatriated
to the United States, the portion of such Net Available Cash so affected shall
not be required to be applied at the time provided above, but may be retained
by the applicable Restricted Subsidiary (and invested in accordance with the
last sentence of the first paragraph of section (a) of this covenant) so long,
but only so long, as the applicable local law will not permit repatriation to
the United States. Chemicals shall agree to cause the applicable Restricted
Subsidiary to promptly take all actions required by the applicable local law
to permit such repatriation. Once such repatriation of any of such affected
Net Available Cash is permitted under the applicable local law, such
repatriation shall be immediately effected and such repatriated Net Available
Cash will be applied in the manner as described in this covenant.
(c) Chemicals shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, Chemicals shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
Limitation on Transactions with Affiliates. Chemicals shall not, and shall
not permit any Restricted Subsidiary to, conduct any business or enter into
any transaction or series of related transactions (including the purchase,
sale, lease or exchange of any property or the rendering of any service) with
any Affiliate of Holdings or Chemicals (an "Affiliate Transaction") unless (i)
the terms of such Affiliate Transaction are (A) set forth in writing and (B)
as favorable to Chemicals or such Restricted Subsidiary as terms that would be
obtainable at the time for a comparable transaction or series of related
transactions in arm's length dealings with an unrelated third Person, (ii) if
such Affiliate Transaction involves an amount in excess of $2.5 million, the
disinterested members of the Board of Directors have, by resolution,
determined in good faith that such Affiliate Transaction meets the criteria
set forth in (i)(B) above, and (iii) if such Affiliate Transaction involves an
amount in excess of $7.5 million, such Affiliate Transaction is determined by
an Independent Financial Advisor to be fair from a financial standpoint to
Chemicals or its Restricted Subsidiary, as the case may be. The foregoing
requirements shall not be applicable to (x) contracts with Koch Equities Inc.
or its affiliates in the ordinary course of business on terms as favorable to
Chemicals or the relevant Restricted Subsidiary as would be obtainable at the
time for a comparable transaction in arm's length dealings with an unrelated
third Person or (y) any purchase or supply contracts in the ordinary course of
business on terms as favorable to Chemicals or the relevant Restricted
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Subsidiary as would be obtainable at the time for a comparable transaction in
arm's length dealings with an unrelated third Person; provided that the Board
of Directors shall, not later than the 60th day after the end of each six-
month period following the Issue Date, have reviewed such contracts and
determined that such contracts meet the criteria set forth in this clause (y).
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Restricted Payment or Permitted Investment permitted to be paid pursuant to
the covenant described under "Limitation on Restricted Payments," (ii) any
issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board of
Directors of Chemicals or the board of directors of the relevant Restricted
Subsidiary, (iii) loans or advances to employees in the ordinary course of
business, but in any event not to exceed $2 million in the aggregate
outstanding at any one time, (iv) the payment of reasonable and customary fees
to directors of Chemicals and its Restricted Subsidiaries who are not
employees of Chemicals or its Restricted Subsidiaries, (v) any transaction
between Chemicals and a Wholly Owned Subsidiary or between Wholly Owned
Subsidiaries, (vi) one-time fees payable to Sterling and Unicorn in connection
with the Transaction in an aggregate amount not to exceed $8 million and $4
million, respectively and (vii) indemnification payments to directors and
officers of Chemicals in accordance with applicable state laws.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. Chemicals shall not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of
any shares of its Capital Stock except (i) to Chemicals or a Wholly Owned
Subsidiary, (ii) if, immediately after giving effect to such issuance, sale or
other disposition, such Restricted Subsidiary remains a Restricted Subsidiary
or (iii) if all shares of Capital Stock of such Restricted Subsidiary are sold
or otherwise disposed of; provided, however, that in connection with any sale
pursuant to this clause (iii), Chemicals may retain no more that 10% of the
outstanding Capital Stock of the Restricted Subsidiary being sold as a portion
of the purchase price in connection with such sale. In connection with any
such sale or disposition of Capital Stock, Chemicals or any such Restricted
Subsidiary shall comply with the covenant described under "--Limitation on
Sales of Assets and Subsidiary Stock."
SEC Reports. Notwithstanding that Chemicals may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, Chemicals shall file with the SEC and provide the Trustee and Holders
with such annual reports and such information, documents and other reports as
are specified in Sections 13 and 15(d) of the Exchange Act, such information,
documents and other reports to be so filed and provided at the times specified
for the filing of such information, documents and reports under such Sections.
MERGER AND CONSOLIDATION
Chemicals shall not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, all or
substantially all its assets to, any Person unless: (i) the resulting,
surviving or transferee Person (the "Successor Company") is a Person organized
and existing under the laws of the United States or any State thereof or the
District of Columbia and the Successor Company (if not Chemicals) expressly
assumes by a supplemental indenture, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of Chemicals under the
Notes Indenture and the Notes; (ii) immediately after giving effect to such
transaction (and treating any Debt which becomes an obligation of the
Successor Company or any Subsidiary of the Successor Company as a result of
such transaction as having been Incurred by such Person at the time of such
transaction), no Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction the Successor Company
would be able to Incur an additional $1.00 of Debt pursuant to paragraph (a)
under "--Limitation on Debt"; (iv) immediately after giving effect to such
transaction, the Successor Company has Consolidated Net Worth in an amount
which is not less than the Consolidated Net Worth of Chemicals immediately
prior to such transaction minus any costs incurred in connection with the
transaction; (v) Chemicals delivers to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the Notes
Indenture.
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The Successor Company shall be the successor to Chemicals and shall succeed
to, and be substituted for, and may exercise every right and power of,
Chemicals under the Notes Indenture, but the predecessor Company in the case
of a conveyance, transfer or lease shall not be released from the obligation
to pay the principal of and interest on the Notes.
DEFAULTS
An "Event of Default" is defined in the Notes Indenture as (a) a default in
any payment of interest on any Note when the same becomes due and payable, and
such default continues for a period of 30 days; (b) a default in the payment
of the principal of any Note when the same becomes due and payable at its
Stated Maturity, upon redemption, upon declaration, upon required repurchase
or otherwise; (c) the failure by Chemicals to comply with its obligations
under "--Merger and Consolidation"; (d) the failure by Chemicals to comply for
30 days after notice with any of its obligations in the covenants described
above under "--Change of Control" (other than a failure to purchase Notes), or
under "--Certain Covenants" under "--Limitation on Debt", "-- Limitation on
Restricted Payments", "--Limitation on Restrictions on Distributions from
Restricted Subsidiaries", "--Limitation on Sales of Assets and Subsidiary
Stock" (other than a failure to purchase Notes), "--Limitation on Transactions
with Affiliates", or "--SEC Reports"; (e) the failure by Chemicals to comply
with any of its agreements in the Notes or the Notes Indenture (other than
those referred to in (a), (b), (c) or (d) above) and such failure continues
for 60 days after the notice specified below; (f) a default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Debt for money borrowed by Chemicals or
any of its Subsidiaries (or the payment of which is Guaranteed by Chemicals or
any of its Subsidiaries) whether such Debt or Guarantee now exists, or is
created after the date of the Notes Indenture, which default (i) is caused by
failure to pay principal of or premium, if any, or interest on such Debt prior
to the expiration of the grace period provided in such Debt on the date of
such default ("Payment Default") or (ii) results in the acceleration of such
Debt prior to its express maturity and, in each case, the principal amount of
any such Debt, together with the principal amount of any other such Debt under
which there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $10 million or more; (g) certain events of bankruptcy
or insolvency of Chemicals or any Significant Subsidiary; or (h) any final
non-appealable judgment or decree not covered by insurance or as to which the
insurance carrier has denied responsibility for the payment of money in excess
of $10 million is rendered against Chemicals or a Significant Subsidiary and
is not discharged and there is a period of 60 days following such judgment
during which such judgment or decree is not discharged, waived or the
execution thereof stayed. A Default under clause (d) or (e) is not an Event of
Default until the Trustee or the Holders of at least 25% in principal amount
of the Notes notify Chemicals of the Default and Chemicals does not cure such
Default within the time specified after receipt of such notice.
If an Event of Default (other than certain events of bankruptcy, insolvency
or reorganization of Chemicals) occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the outstanding Notes may
declare the principal of and accrued but unpaid interest on all the Notes to
be due and payable. Upon such a declaration, such principal and interest shall
be due and payable immediately. If an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of Chemicals or a
Significant Subsidiary occurs and is continuing, the principal of and interest
on all the Notes will ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any holders
of the Notes. Under certain circumstances, the holders of a majority in
principal amount of the outstanding Notes may rescind any such acceleration
with respect to the Notes and its consequences.
Subject to the provisions of the Notes Indenture relating to the duties of
the Trustee, in case an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or powers under the
Notes Indenture at the request or direction of any of the holders of the Notes
unless such holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce the right
to receive payment of principal, premium (if any) or interest when due, no
holder of a Note may pursue any remedy with respect to the Notes Indenture or
the Notes unless (i) such holder has previously given the Trustee notice that
an Event of Default is continuing; (ii) holders of at least 25% in principal
amount of the outstanding Notes have requested the Trustee to pursue the
remedy; (iii) such holders have offered the Trustee
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reasonable security or indemnity against any loss, liability or expense; (iv)
the Trustee has not complied with such request within 60 days after the
receipt thereof and the offer of security or indemnity and (v) the holders of
a majority in principal amount of the outstanding Notes have not given the
Trustee a direction inconsistent with such request within such 60-day period.
Subject to certain restrictions, the holders of a majority in principal amount
of the outstanding Notes are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
of exercising any trust or power conferred on the Trustee.
The Notes Indenture provides that if a Default occurs and is continuing and
is known to the Trustee, the Trustee must mail to each Holder notice of the
Default within 90 days (or such shorter period as may be required by
applicable law) after it occurs. Except in the case of a Default in the
payment of principal of, premium (if any) or interest on any Note, the Trustee
may withhold notice if and so long as a committee of its trust officers
determines that withholding notice is in the interest of the holders of the
Notes. In addition, Chemicals is required to deliver to the Trustee, within
120 days after the end of each fiscal year, a certificate indicating whether
the signers thereof know of any Default that occurred during the previous
year. Chemicals also is required to deliver to the Trustee, within 30 days
after the occurrence thereof, written notice of any event which would
constitute certain Defaults, their status and what action Chemicals is taking
or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Notes Indenture may be amended or
supplemented with the consent of the holders of a majority in principal amount
of the Notes then outstanding and any past default or compliance with any
provisions may be waived with the consent of the holders of a majority in
principal amount of the Notes then outstanding. However, without the consent
of each holder of an outstanding Note, no amendment may, among other things,
(i) reduce the amount of Notes whose holders must consent to an amendment;
(ii) reduce the rate of or extend the time for payment of interest on any
Note; (iii) reduce the principal of or extend the Stated Maturity of any Note;
(iv) reduce the premium payable upon the redemption of any Note or change the
time at which any Note may or shall be redeemed; (v) make any Note payable in
money other than that stated in the Note; (vi) impair the right of any holder
of the Notes to receive payment of principal of and interest on such holder's
Notes on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such holder's Notes; (vii)
make any change in the amendment provisions which requires each holder's
consent or in the waiver provisions; or (viii) make any change to the
subordination provisions of the Notes Indenture that would adversely affect
the Holders.
Without the consent of any holder of the Notes, Chemicals and the Trustee
may amend or supplement the Notes Indenture to cure any ambiguity, omission,
defect or inconsistency, to provide for the assumption by a successor
corporation of the obligations of Chemicals under the Notes Indenture, to
provide for uncertificated Notes in addition to or in place of certificated
Notes (provided that the uncertificated Notes are issued in registered form
for purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated Notes are described in Section 163(f)(2)(B) of the Code), to
add Guarantees with respect to the Notes, to add to the covenants of Chemicals
and its Subsidiaries for the benefit of the Holders or to surrender any right
or power conferred upon Chemicals, to make any change that does not adversely
affect the rights of any Holder or to comply with any requirement of the SEC
in connection with the qualification of the Notes Indenture under the Trust
Indenture Act of 1939.
The consent of the Holders is not necessary under the Notes Indenture to
approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the Notes Indenture becomes effective, Chemicals is
required to mail to Holders a notice briefly describing such amendment.
However, the failure to give such notice to all Holders, or any defect
therein, will not impair or affect the validity of the amendment.
TRANSFER
The Notes will be issued in registered form and will be transferred only
upon the surrender of the Notes being transferred for registration of
transfer. Chemicals may require payment of a sum sufficient to cover any tax,
assessment or other governmental charge payable in connection with certain
transfers and exchanges.
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DEFEASANCE
Chemicals at any time may terminate all its obligations under the Notes and
the Notes Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligation to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. Chemicals at any time may terminate its obligations under the covenants
described under "--Certain Covenants" and "--Change of Control," the operation
of the cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under
"--Defaults" above and the limitations contained in clauses (iii) and (iv) of
the first paragraph under "--Merger and Consolidation" above ("covenant
defeasance").
Chemicals may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If Chemicals exercises its legal
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default with respect thereto. If Chemicals exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clauses (d), (f), (g) (with respect only to
Significant Subsidiaries) or (h) under "--Events of Default" above or the
failure of Chemicals to comply with "--Change of Control" above.
In order to exercise either defeasance option, Chemicals must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivering to the Trustee an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such
deposit and defeasance and will be subject to Federal income tax on the same
amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of
legal defeasance only, such Opinion of Counsel must be based on a ruling of
the Internal Revenue Service or a change in applicable Federal income tax
law).
CONCERNING THE TRUSTEE
Fleet National Bank of Connecticut is to be the Trustee under the Notes
Indenture and has been appointed by Chemicals as Registrar and Paying Agent
with regard to the Notes.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Notes Indenture provides that if an Event of Default
occurs (and is not cured), the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his
own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Notes Indenture
at the request of any Holder of Notes, unless such Holder shall have offered
to the Trustee security and indemnity satisfactory to it against any loss,
liability or expense and then only to the extent required by the terms of the
Notes Indenture.
GOVERNING LAW
The Notes Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the
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provisions described under "--Certain Covenants--Limitation on Affiliate
Transactions" and "--Certain Covenants--Limitations on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act) of Capital Stock
representing 10% or more of the total voting power of the Voting Stock (on a
fully diluted basis) of Chemicals or of rights or warrants to purchase such
Capital Stock (whether or not currently exercisable) and any Person who would
be an Affiliate of any such beneficial owner pursuant to the first sentence
hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) of shares of
Capital Stock of a Restricted Subsidiary (other than directors' qualifying
shares), property or other assets (each referred to for the purposes of this
definition as a "disposition") by Chemicals or any of its Restricted
Subsidiaries, including any disposition by means of a merger, consolidation or
similar transaction, for gross proceeds in excess of $2.0 million, other than
(i) a disposition by a Restricted Subsidiary to Chemicals or by Chemicals or a
Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of
property or assets (other than shares of Capital Stock of a Restricted
Subsidiary and which do not constitute all or substantially all of the assets
of any division or line of business of Chemicals or any Restricted Subsidiary)
at fair market value in the ordinary course of business, (iii) for purposes of
the covenant described under "--Certain Covenants--Limitation on Sales of
Assets and Subsidiary Stock" only, a disposition that constitutes a Restricted
Payment or a Permitted Investment permitted by the covenant described under
"--Certain Covenants--Limitation on Restricted Payments", (iv) the disposition
of all or substantially all of the assets of Chemicals permitted by the
covenant described under "Merger and Consolidation" and (v) the disposition of
assets in exchange for other assets that satisfy the requirement for
replacement assets set forth in Section (a)(ii)(B) of the covenant described
under "--Certain Covenants--Limitation on Sales of Assets and Subsidiary
Stock."
"Attributable Debt", in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale/Leaseback Transaction (including any period for which such lease has
been extended).
"Average Life" means, as of the date of determination, with respect to any
Debt or Preferred Stock, the quotient obtained by dividing (i) the sum of the
products of numbers of years from the date of determination to the dates of
each successive scheduled principal payment of such Debt or redemption or
similar payment with respect to such Preferred Stock multiplied by the amount
of such payment by (ii) the sum of all such payments.
"Board of Directors" means the Board of Directors of Chemicals or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Canadian Facility" means a revolving loan and letter of credit facility for
loans and letters of credit in Canadian or U.S. dollars to or for the account
of Sterling Pulp Chemicals, Ltd., a Wholly Owned Subsidiary of Chemicals.
"Capital Lease Obligations" of a Person means any obligation which is
required to be classified and accounted for as a capital lease on the face of
a balance sheet of such Person prepared in accordance with GAAP; the amount of
such obligation shall be the capitalized amount thereof, determined in
accordance with generally accepted accounting principles; and the Stated
Maturity thereof shall be the date of the last payment of rent or any other
amount due under such lease prior to the first date upon which such lease may
be terminated by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in such Person (however designated), including any Preferred Stock,
but excluding any debt securities convertible into or exchangeable for such
equity.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Commodity Agreement" means any commodity future contract, commodity option
or other similar agreement or arrangement entered into by Chemicals or any
Restricted Subsidiary that is designed to protect Chemicals or any Restricted
Subsidiary against fluctuations in the price of commodities used by Chemicals
or a Restricted Subsidiary as raw materials in the ordinary course of
business.
"Consolidated EBITDA Coverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days prior to the
date of such determination to (ii) Consolidated Interest Expense for such four
fiscal quarters; provided, however, that (1) if Chemicals or any Restricted
Subsidiary has Incurred any Debt since the beginning of such period that
remains outstanding or if the transaction giving rise to the need to calculate
the Consolidated EBITDA Coverage Ratio is an Incurrence of Debt, or both,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Debt as if such Debt had been
Incurred on the first day of such period and the discharge of any other Debt
repaid, repurchased, defeased or otherwise discharged with the proceeds of
such new Debt as if such discharge had occurred on the first day of such
period, (2) if since the beginning of such period Chemicals or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such period
shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition for
such period, or increased by an amount equal to the EBITDA (if negative),
directly attributable thereto for such period, and Consolidated Interest
Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Debt of Chemicals
or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to Chemicals and its continuing Restricted
Subsidiaries in connection with such Asset Dispositions for such period (or,
if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Debt of such
Restricted Subsidiary to the extent Chemicals and its continuing Restricted
Subsidiaries are no longer liable for such Debt after such sale), (3) if since
the beginning of such period Chemicals or any Restricted Subsidiary (by merger
or otherwise) shall have made an Investment in any Restricted Subsidiary (or
any Person which becomes a Restricted Subsidiary) or an acquisition of assets,
including any acquisition of assets occurring in connection with a transaction
causing a calculation to be made hereunder, which constitutes all or
substantially all of an operating unit of a business, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the Incurrence of any Debt) as if such Investment or
acquisition occurred on the first day of such period, and (4) if since the
beginning of such period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into Chemicals or any Restricted Subsidiary
since the beginning of such period) shall have made any Asset Disposition or
any Investment that would have required an adjustment pursuant to clause (2)
or (3) above if made by Chemicals or a Restricted Subsidiary during such
period, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto as if such Asset Disposition
or Investment occurred on the first day of such period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto, and the amount of
Consolidated Interest Expense associated with any Debt Incurred in connection
therewith, the pro forma calculations shall be determined in good faith by a
responsible financial or accounting Officer of Chemicals. If any Debt bears a
floating rate of interest and is being given pro forma effect, the interest of
such Debt shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Debt if such Interest
Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of Chemicals and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such interest expense, (i) interest expense
attributable to Capital Lease Obligations, (ii) amortization of debt discount
and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest
payments, (v) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, (vi) net costs
under Interest Rate Agreements (including amortization of fees), (vii)
Preferred Stock dividends in respect of all Redeemable Stock of Chemicals and
all Preferred Stock held by Persons other than Chemicals or a Wholly Owned
Subsidiary, (viii) interest incurred in connection with Investments in
discontinued operations; (ix) interest actually paid by Chemicals or any of
its Restricted Subsidiaries under any Guarantee of Debt or other obligation
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of any other Person and (x) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than Chemicals
or any Restricted Subsidiary) in connection with Debt Incurred by such plan or
trust.
"Consolidated Net Income" means, for any period, the net income of Chemicals
and its consolidated Subsidiaries; provided, however, that there shall not be
included in such Consolidated Net Income (i) any net income of any Person if
such Person is not a Restricted Subsidiary, except that (A) subject to the
exclusion contained in clause (iv) below, Chemicals' equity in the net income
of any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such Person
during such period to Chemicals or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other distribution
to a Restricted Subsidiary, to the limitations contained in clause
(iii) below) and (B) Chemicals' equity in a net loss of any such Person for
such period shall be included in determining such Consolidated Net Income to
the extent of any cash actually contributed by Chemicals or a Restricted
Subsidiary to such Person during such period; (ii) any net income (or loss) of
any Person acquired by Chemicals or a Subsidiary in a pooling of interests
transaction for any period prior to the date of such acquisition; (iii) any
net income of any Restricted Subsidiary to the extent such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment
of dividends or the making of distributions by such Restricted Subsidiary,
directly or indirectly, to Chemicals, except that (A) subject to the exclusion
contained in clause (iv) below, Chemicals' equity in the net income of any
such Restricted Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Restricted Subsidiary during such period to Chemicals or
another Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution to another Restricted Subsidiary,
to the limitation contained in this clause) and (B) Chemicals' equity in a net
loss of any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income; (iv) any gain or loss realized upon
the sale or other disposition of any assets of Chemicals or its consolidated
Subsidiaries (including pursuant to any sale-and-leaseback arrangement) which
is not sold or otherwise disposed of in the ordinary course of business and
any gain or loss realized upon the sale or other disposition of any Capital
Stock of any Person; (v) extraordinary gains or losses; and (vi) the
cumulative effect of a change in accounting principles. Notwithstanding the
foregoing, for the purposes of the covenant described under "Certain
Covenants--Limitation on Restricted Payments" only, there shall be excluded
from Consolidated Net Income any dividends, repayments of loans or advances or
other transfers of assets from Unrestricted Subsidiaries to Chemicals or a
Restricted Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (a)(3)(E) thereof.
"Consolidated Net Worth" of any Person means the total of the amounts shown
on the balance sheet of such Person and its consolidated subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of
the most recent fiscal quarter of such Person ending at least 45 days prior to
the taking of any action for the purpose of which the determination is being
made, as (i) the par or stated value of all outstanding Capital Stock of such
Person plus (ii) paid-in capital or capital surplus relating to such Capital
Stock plus (iii) any retained earnings or earned surplus less (A) any
accumulated deficit, (B) any amounts attributable to Redeemable Stock and (C)
any amounts attributable to Exchangeable Stock.
"Credit Agreement" means the agreement dated June 21, 1996 among Chemicals,
Texas Commerce Bank National Association, as administrative agent, and the
other lenders party thereto, and their respective successors and assigns, as
the same may be amended, supplemented, waived and otherwise modified from time
to time in accordance with the terms thereof.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"Debt" of any Person means, without duplication, (i) the principal of and
premium (if any) in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable; (ii) all Capital
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Lease Obligations of such Person and all Attributable Debt in respect of
Sale/Leaseback Transactions entered into by such Person; (iii) all obligations
of such Person issued or assumed as the deferred purchase price of property,
all conditional sale obligations of such Person and all obligations of such
Person under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business); (iv) all obligations of
such Person for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction (other than obligations with
respect to letters of credit securing obligations (other than obligations
described in (i) through (iii) above) entered into in the ordinary course of
business of such Person to the extent such letters of credit are not drawn
upon or, if and to the extent drawn upon, such drawing is reimbursed no later
than the third Business Day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit); (v) all Redeemable
Stock of such Person and, with respect to any Subsidiary of such Person, all
Preferred Stock other than pay-in-kind dividends in the form of Preferred
Stock (the amount of Debt represented thereby shall equal the greater of its
liquidation preference and the redemption, repayment or other repurchase
obligations with respect thereto, but excluding any accrued dividends); (vi)
all Hedging Obligations of such Person; (vii) all obligations of the type
referred to in clauses (i) through (v) of other Persons and all dividends of
other Persons for the payment of which, in either case, such Person is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any Guarantee; and (viii) all obligations of
the type referred to in clauses (i) through (vi) of other Persons secured by
any Lien on any property or asset of such Person (whether or not such
obligation is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount
of the obligation so secured. The amount of Debt of any Person at any date
shall be the outstanding balance of such date of all unconditional obligations
as described above and the maximum liability upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at
such date; provided, however, that the amount outstanding at any time of any
Debt Incurred with original issue discount is the face amount of such Debt
less the remaining unamortized portion of the original issue discount of such
Debt at such time as determined in conformity with GAAP.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Debt" means the Debt under the Credit Agreement and any
bank credit facility refinancing such Debt.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of
Chemicals, (b) depreciation expense, (c) amortization expense, (d) an amount
equal to any extraordinary gain or loss realized in connection with an Asset
Disposition, (e) the impact of accruals for periods prior to the Issue Date
for the Company's Stock Appreciation Rights Plan and (f) all other non-cash
items reducing such Consolidated Net Income (excluding any non-cash item to
the extent it represents an accrual of, or reserve for, cash disbursements for
any subsequent period) less all non-cash items increasing such Consolidated
Net Income (such amount calculated pursuant to this clause (f) not to be less
than zero), in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation
and amortization of, a Subsidiary of Chemicals shall be added to Consolidated
Net Income to compute EBITDA only to the extent (and in the same proportion)
that the net income of such Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted
at the date of determination to be dividended or otherwise paid to Chemicals
by such Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to such Subsidiary or its stockholders.
"ESOP Loan Provisions" means the provisions of the Credit Agreement pursuant
to which lenders thereunder have committed to make ESOP loans available to
Chemicals.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchangeable Stock" means any Capital Stock which is exchangeable or
convertible into another security (other than Capital Stock of Chemicals which
is neither Exchangeable Stock nor Redeemable Stock).
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"Foreign Asset Sale" means an Asset Sale in respect of Capital Stock or
assets of a Foreign Subsidiary or a Restricted Subsidiary of the type
described in Section 936 of the Code to the extent that the proceeds of such
Asset Sale are received by a Person subject in respect of such proceeds to the
tax laws of a jurisdiction other than the United States or any state thereof
or the District of Columbia.
"Foreign Subsidiary" means a Restricted Subsidiary that is incorporated in a
jurisdiction other than the United States or a State thereof or the District
of Columbia and with respect to which more than 66 2/3% of any of its sales,
earnings or assets (determined on a consolidated basis in accordance with
GAAP) are located in, generated from or derived from operations located in
territories or jurisdictions outside the United States.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth (i) in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such
other statements by such other entity as approved by a significant segment of
the accounting profession, and (iv) the rules and regulations of the SEC
governing the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt or other obligation of any Person
and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation of such Person (whether arising by
virtue of partnership arrangements, or by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Debt or other obligation
of the payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part); provided, however, that the term "Guarantee"
shall not include endorsements for collection or deposit in the ordinary
course of business or guarantees of obligations of a Subsidiary in the
ordinary course of business if such obligations do not constitute Debt of such
Subsidiary. The term "Guarantee" used as a verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement, Currency Agreement or Commodity
Agreement.
"Holder" means the Person in whose name a Note is registered on the
Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Debt or Capital Stock of a Person existing at
the time such Person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary. The term "Incurrence" when used as a noun
shall have a correlative meaning. The accretion of principal of a non-interest
bearing or other discount security shall be deemed the Incurrence of Debt.
"Independent Financial Advisor" means a reputable accounting, appraisal or
investment banking firm that, in the reasonable good faith judgment of the
Board of Directors of Chemicals, is qualified to perform the task for which
such firm has been engaged and is independent with respect to Chemicals and
its Affiliates.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect Chemicals of any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any loan or advance to, any acquisition of
Capital Stock, equity interest, obligation or other security of, or capital
contribution or other investment in, or any other credit extension to
(including by way of Guarantee of any Debt of), such Person. For purposes of
the definition of "Unrestricted Subsidiary", the definition of "Restricted
Payment" and the covenant described under "--Certain Covenants--
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Limitation on Restricted Payments," (i) "Investment" shall include the portion
(proportionate to Chemicals' equity interest in such Subsidiary) of the fair
market value of the net assets of any Subsidiary of Chemicals at the time that
such Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that if such designation is made in connection with the acquisition of such
Subsidiary or the assets owned by such Subsidiary, the "Investment" in such
Subsidiary shall be deemed to be the consideration paid in connection with
such acquisition; provided, further, however, that upon a redesignation of
such Subsidiary as a Restricted Subsidiary, Chemicals shall be deemed to
continue to have a permanent "Investment" in an Unrestricted Subsidiary equal
to an amount (if positive) equal to (x) Chemicals' "Investment" in such
Subsidiary at the time of such redesignation less (y) the portion
(proportionate to Chemicals' equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
"Investment Grade Rating" means a rating of BBB- or higher by S&P and Baa3
or higher by Moody's or the equivalent of such rating by S&P and Moody's or by
any other Rating Agencies selected as provided in the definition of Rating
Agency.
"Issue Date" means the date on which the Notes are originally issued, after
giving effect to the Transaction.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Moody's" means Moody's Investors Service, Inc.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and
when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to
such properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, title and recording expenses, commissions and other fees and expenses
incurred, and all Federal, state, provincial, foreign and local taxes required
to be accrued as a liability under GAAP, as a consequence of such Asset
Disposition, (ii) all payments made on any Debt which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien
upon or other security agreement of any kind with respect to such assets, or
which must by its terms, or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law be repaid out of the proceeds from
such Asset Disposition, (iii) all distributions and other payments required to
be made to minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Disposition and (iv) the deduction of appropriate amounts
provided by the sellers as a reserve, in accordance with GAAP, against any
liabilities associated with the property or other assets disposed in such
Asset Disposition and retained by Chemicals or any Restricted Subsidiary after
such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-Convertible Capital Stock" means, with respect to any corporation, any
non-convertible Capital Stock of such corporation and any Capital Stock of
such corporation convertible solely into non-convertible common stock of such
corporation; provided, however, that Non-Convertible Capital Stock shall not
include any Redeemable Stock or Exchangeable Stock.
"Permitted Dividend" means the distribution, on or prior to October 15,
1996, from Chemicals to Holdings, in the form of a dividend, of the receivable
relating to the Permitted Loan, which distribution results in the discharge in
full of the Permitted Loan.
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"Permitted Holders" means (i) the purchasers in the Equity Private
Placement, (ii) any Person who on the date of issuance of the Notes is an
officer, director, stockholder, employee or consultant of Sterling or Unicorn,
(iii) each of Frank J. Hevrdejs, William C. Oehmig, J. Virgil Waggoner, Robert
W. Roten and Gordon Cain, (iv) any Permitted Transferee with respect to any
Person covered by the preceding clauses (i) through (iii), (v) the ESOP or
(vi) any savings or investment plan sponsored by Chemicals or Holdings.
"Permitted Investment" means an Investment by Chemicals or any Restricted
Subsidiary in (i) a Wholly Owned Subsidiary or a Person that will, upon the
making of such Investment, become a Wholly Owned Subsidiary; (ii) Temporary
Cash Investments; (iii) receivables owing to Chemicals or any Restricted
Subsidiary if created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms; (iv) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to Chemicals or any Restricted
Subsidiary or in satisfaction of judgments; (v) any Person to the extent such
Investment represents the non-cash portion of the consideration received for
an Asset Disposition as permitted pursuant to the covenant described under "--
Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock"; (vi)
Investments by Chemicals or a Restricted Subsidiary in a Person to the extent
the consideration for such Investment consists of shares of Capital Stock of
Chemicals or Holdings (other than Redeemable Stock of Chemicals); (vii)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (viii) loans or
advances to employees or to a trust for the benefit of such employees that are
made in the ordinary course of business of Chemicals or such Restricted
Subsidiary; (ix) the ESOP Loan; (x) the Permitted Loan; (xi) another Person if
as a result of such Investment such Person is merged or consolidated with or
into, or transfers or conveys all or substantially all of its assets to,
Chemicals or a Restricted Subsidiary; provided that such Person's primary
business is reasonably related to the business of Chemicals and its Restricted
Subsidiaries; and (xii) Investments in Unrestricted Subsidiaries or joint
ventures (whether in corporate or partnership form or otherwise), in either
case in entities engaged in businesses reasonably related to the business of
Chemicals and its Restricted Subsidiaries, in an aggregate amount not to
exceed $10 million; provided, however, that the amount available for
Investments pursuant to this clause (xii) shall be reduced in accordance with
clause (a)(3)(G) under "--Certain Covenants--Limitation on Restricted
Payments."
"Permitted Loan" means the subordinated loan to Holdings by Chemicals, to be
made on the Issue Date, of up to $485 million, representing the proceeds of
the Notes Offering and amounts initially borrowed under the Term Loan
Provisions of the Credit Agreement net of repayment of existing Debt, purchase
of certain equity interests and payment of Transaction expenses; provided,
however, that such loan is subordinated in right of payment to the Notes; and
provided, further, however, that such loan is discharged in full on or prior
to October 15, 1996 through the Permitted Dividend.
"Permitted Transferee" means with respect to any Person, (i) in the case of
an entity, any Affiliate of such Person, and (ii) in the case of an
individual, any person related by lineal or collateral consanguinity to such
individual or to the spouse of such individual (adopted persons shall be
considered the natural born child of their adoptive parents; lineal
consanguinity is that relationship that exists between persons of whom one is
descended (or ascended) in a direct line from the other, as between son,
father, grandfather, great-grandfather; and collateral consanguinity is that
relationship that exists between persons who have the same ancestors, but who
do not descend (or ascend) from the other, as between uncle and nephew, or
cousin and cousin), in each case to whom such Person has transferred Common
Stock of Holdings.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
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"Public Equity Offering" means an underwritten primary public offering of
common stock of Holdings pursuant to an effective registration statement under
the Securities Act.
"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of the Holdings has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Rating Agency" means S&P and Moody's, or if S&P or Moody's or both shall
not make a rating on the Notes publicly available, a nationally recognized
statistical rating agency or agencies, as the case may be, selected by
Chemicals (as certified by a resolution of the Board of Directors) which shall
be substituted for S&P or Moody's or both, as the case may be.
"Redeemable Stock" means any Capital Stock that by its terms or otherwise is
required to be redeemed on or prior to the Stated Maturity of the Notes or is
redeemable at the option of the holder thereof at any time on or prior to the
Stated Maturity of the Notes.
"Refinance" means, in respect of any Debt, to refinance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue other Debt in
exchange or replacement for, such indebtedness. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Debt" means Debt that Refinances any Debt of Chemicals or any
Restricted Subsidiary existing on the Issue Date or Incurred in compliance
with the Notes Indenture including Debt that Refinances Refinancing Debt;
provided, however, that (i) such Refinancing Debt has a Stated Maturity no
earlier than the Stated Maturity of the Debt being Refinanced, (ii) such
Refinancing Debt has an Average Life at the time such Refinancing Debt is
Incurred that is equal to or greater than the Average Life of the Debt being
Refinanced, (iii) such Refinancing Debt has an aggregate principal amount (or
if Incurred with original issue discount, an aggregate issue price) that is
equal to or less than the aggregate principal amount (or if Incurred with
original issue discount, the aggregate accreted value) then outstanding or
committed (plus fees and expenses, including any premium and defeasance costs)
under the Debt being Refinanced and (iv) with respect to any Refinancing Debt
of Debt other than Senior Debt, such Refinancing Debt shall rank no more
senior, and shall be at least as subordinated, in right of payment to the
Notes as the Debt being so extended, renewed, refunded or refinanced;
provided, further, however, that Refinancing Debt shall not include (x) Debt
of a Subsidiary that Refinances Debt of Chemicals or (y) Debt of Chemicals or
a Restricted Subsidiary that Refinances Debt of an Unrestricted Subsidiary.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Debt of Chemicals.
"Restricted Subsidiary" means any Subsidiary of Chemicals that is not an
Unrestricted Subsidiary.
"Revolving Credit Provisions" means the provisions of the Credit Agreement
pursuant to which lenders thereunder have committed to make available to
Chemicals a revolving credit facility, including the Canadian Facility.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby Chemicals or a Restricted Subsidiary
transfers such property to a Person and Chemicals or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Debt" means any Debt of Chemicals secured by a Lien.
"Senior Debt" means (i) Debt of Chemicals, whether outstanding on the Issue
Date or thereafter Incurred and (ii) accrued and unpaid interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to Chemicals whether or not such interest is an
allowable claim in any such proceeding) in respect of (A) indebtedness of
Chemicals for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which
Chemicals is responsible or
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liable unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are
subordinate in right of payment to the Notes; provided, however, that Senior
Debt shall not include (1) any obligation of Chemicals to Holdings or any
subsidiary of Holdings, (2) any liability for Federal, state, local or other
taxes owed or owing by Chemicals, (3) any accounts payable or other liability
to trade creditors arising in the ordinary course of business (including
guarantees thereof or instruments evidencing such liabilities), (4) any Debt
of Chemicals (and any accrued and unpaid interest in respect thereof) which is
subordinate or junior in any respect to any other Debt or other obligation of
Chemicals, (5) that portion of any Debt which at the time of Incurrence is
Incurred in violation of the Notes Indenture, (6) Debt owed, due, or
guaranteed on behalf of, any director, officer or employee of Chemicals or any
Subsidiary (including without limitation amounts owed for compensation), and
(7) Debt which when Incurred and without respect to any election under Section
1111(b) of Title 11 United States Code, is without recourse to Chemicals.
"Senior Subordinated Debt" means the Notes and any other Debt of Chemicals
that specifically provides that such Debt is to rank pari passu with the Notes
in right of payment and is not subordinated by its terms in right of payment
to any Debt or other obligation of Chemicals which is not Senior Debt.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" of Chemicals as defined in Rule 1-02 of Regulation S-
X, promulgated by the SEC.
"S&P" means Standard & Poor's Ratings Group.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the principal of such security is due
and payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such security at the
option of the holder thereof upon the happening of any contingency unless such
contingency has occurred).
"Subordinated Obligation" means any Debt of Chemicals (whether outstanding
on Issue Date or hereafter Incurred) which is subordinate or junior in right
of payment to the Notes.
"Subsidiary" means any corporation, association, partnership or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) Chemicals, (ii) Chemicals and one or more
Subsidiaries or (iii) one or more Subsidiaries.
"Tangible Property" means all land, buildings, machinery and equipment and
leasehold interests and improvements which would be reflected on a balance
sheet of Chemicals prepared in accordance with generally accepted accounting
principles, excluding (i) all rights, contracts and other intangible assets of
any nature whatsoever and (ii) all inventories and other current assets.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 270 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized
by the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50,000,000 (or the foreign
currency equivalent thereof) and has outstanding debt which is rated "A" (or
such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker
dealer or mutual fund distributor, (iii) repurchase obligations with a term of
not more than 30 days for underlying securities of the types described in
clause (i) above entered into with a bank meeting the qualifications described
in clause (ii) above, (iv) investments in commercial paper, maturing not more
than 180 days after the date of acquisition, issued by a corporation (other
than an Affiliate of Chemicals or Holdings) organized and in existence under
the laws of the United States of America or any foreign country recognized by
the United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to
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Moody's or "A-1" (or higher) according to S&P, (v) investments in securities
with maturities of six months or less from the date of acquisition issued or
fully guaranteed by any state, commonwealth or territory of the United States
of America, or by any political subdivision or taxing authority thereof, and
rated at least "A" by S&P or "A" by Moody's, (vi) participations (for a tenor
of not more than 90 days) in loans to Persons having short-term credit ratings
of at least "A-1" and "P-1" by S&P and Moody's, respectively, (vii) with
respect to any Foreign Subsidiary organized in Canada, commercial paper of
Canadian companies rated R-1 High or the equivalent thereof by Dominion Bond
Rating Services with maturities of less than one year and (viii) with respect
to Foreign Subsidiaries not organized in Canada, government obligations of
another country whose debt securities are rated by S&P and/or Moody's "A-1" or
"P-1", or the equivalent thereof (if a short-term debt rating is provided by
either) or at least "AA" or "AA2", or the equivalent thereof (if a long-term
unsecured debt rating is provided by either), in each case, with maturities of
less than 12 months.
"Term Loan Provisions" means the provisions of the Credit Agreement pursuant
to which lenders thereunder have committed to make term loans available to
Chemicals.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb)
as in effect on the date of this Notes Indenture.
"Trustee" means the party named as such in the Notes Indenture until a
successor replaces it and, thereafter, means the successor.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States
of America (including any agency or instrumentality thereof) for the payment
of which the full faith and credit of the United States of America is pledged
and which are not callable at the issuer's option.
"Unrestricted Subsidiary" means (i) any Subsidiary of Chemicals that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
of Chemicals (including any newly acquired or newly formed Subsidiary) to be
an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries
owns any Capital Stock or Debt of, or holds any Lien on any property of,
Chemicals or any other Subsidiary of Chemicals that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if
such Subsidiary has assets of greater than $1,000, such designation would be
permitted under the covenant described under "--Certain Covenants--Limitation
on Restricted Payments;" and provided, further, however, that (1) no
Subsidiary of Chemicals that is a Restricted Subsidiary on the Issue Date
(other than a Restricted Subsidiary with total assets of $1,000 or less on the
Issue Date) may be designated an Unrestricted Subsidiary and (2) no Subsidiary
holding, directly or indirectly, any assets (other than assets totaling $1,000
or less which constituted the only assets of a Restricted Subsidiary on the
Issue Date) held by Chemicals or a Restricted Subsidiary on the Issue Date may
be designated an Unrestricted Subsidiary. The Board of Directors may designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however,
that immediately after giving effect to such designation (x) if such
Unrestricted Subsidiary at such time has Debt, Chemicals could Incur $1.00 of
additional Debt under paragraph (a) of the covenant described under "--Certain
Covenants--Limitation on Debt" and (y) no Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be by
Chemicals to the Trustee by promptly filing with the Trustee a copy of the
board resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the foregoing
provisions.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by Chemicals
or another Wholly Owned Subsidiary; provided, however, that a Foreign
Subsidiary shall be a Wholly Owned Subsidiary if more than 90% of the Capital
Stock and Voting Stock thereof is owned by Chemicals or another Wholly Owned
Subsidiary.
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DESCRIPTION OF THE UNITS
Each Unit consists of $1,000 principal amount at maturity of Discount Notes
and Warrants to purchase shares of Holdings Common Stock. The Discount Notes
and the Warrants will not be separately transferable until the earlier of (i)
30 days from the Closing Date and (ii) such date as the Underwriters may, in
their discretion, deem appropriate (the "Separation Date").
DESCRIPTION OF THE DISCOUNT NOTES
The Discount Notes are to be issued pursuant to the Indenture, dated as of
, 1996 (the "Discount Notes Indenture"), between Holdings and Fleet
National Bank of Connecticut, as Trustee (the "Trustee"). The following is a
summary of material provisions of the Discount Notes Indenture. This summary
does not purport to be complete and is subject to and is qualified in its
entirety by reference to all the provisions of the Discount Notes and the
Discount Notes Indenture (including provisions made part of the Discount Notes
Indenture by reference to the Trust Indenture Act of 1939, as amended),
including the definitions therein of terms not defined herein. Certain terms
used herein are defined below under "--Certain Definitions". A copy of the
form of the Discount Notes Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
GENERAL
The Discount Notes will be senior secured obligations of Holdings, will be
limited to $ million aggregate principal amount at maturity ($ million
aggregate initial Accreted Value) and will mature on , 2008. The Discount
Notes will accrete at the rate per annum shown on the front cover of this
Prospectus, compounded semi-annually, to an aggregate principal amount of $
million by , 2001. The Discount Notes are being offered at a substantial
discount from their principal amount at maturity. Although for federal income
tax purposes a significant amount of original issue discount, taxable as
ordinary income, will be recognized by a Holder as such discount accrues from
the Issue Date, no interest will be payable on the Discount Notes prior to
, 2002. From and after , 2001, the Discount Notes will bear interest at
the rate per annum shown on the front cover of this Prospectus from , 2001
or from the most recent date to which interest has been paid or provided for,
payable semi-annually on and of each year, commencing , 2002 to each
Person in whose name a Discount Note is registered at the close of business on
the preceding or , as the case may be. Principal of and premium, if
any, and interest on the Discount Notes will be payable, and the transfer of
Discount Notes will be registrable, at the office or agency maintained by
Holdings in the City of New York. In addition, payment of interest may, at the
option of Holdings, be made by check mailed to the address of the person
entitled thereto as it appears in the Discount Note Register. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
The Discount Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 principal amount at maturity and any
multiple thereof. No service charge will be made for any registration of
transfer or exchange of Discount Notes, but Holdings may require payment of a
sum sufficient to cover any transfer tax or other governmental charge payable
in connection therewith.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Discount Notes will not
be redeemable at the option of Holdings prior to , 2001. Thereafter, the
Discount Notes will be redeemable, at Holdings' option, in whole or in part
from time to time, upon not less than 30 nor more than 60 days' prior notice
mailed to each Holder of Discount Notes to be redeemed at the Holder's address
appearing in the Discount Note Register, at the following redemption prices
(expressed in percentages of principal amount at maturity), plus accrued
interest to the redemption date (subject to the right of Holders of record on
the relevant record date to receive interest due on
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the relevant interest payment date), if redeemed during the 12-month period
beginning of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2001............................................................ %
2002............................................................
2004............................................................
2005............................................................
2006 and thereafter............................................. 100.00%
</TABLE>
In addition, at any time and from time to time prior to , 1999, Holdings
may redeem in the aggregate up to 35% of the Accreted Value of the Discount
Notes with the net proceeds of one or more Public Equity Offerings following
which there is a Public Market, at a redemption price (expressed as a
percentage of Accreted Value on the redemption date) of % plus accrued
interest to the redemption date (subject to the right of Holders of record on
the relevant record date to receive interest due on the relevant interest
payment date); provided, however, that at least $ million aggregate
principal amount at maturity of the Discount Notes must remain outstanding
after each such redemption.
In the case of any partial redemption, selection of the Discount Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Discount Note of $1,000 in principal amount at
maturity or less shall be redeemed in part. If any Discount Note is to be
redeemed in part only, the notice of redemption relating to such Discount Note
shall state the portion of the principal amount at maturity thereof to be
redeemed. A new Discount Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Discount Note.
RANKING
The indebtedness evidenced by the Discount Notes will constitute senior
obligations of Holdings, will rank pari passu in right of payment with all
existing and future senior indebtedness of Holdings and will be senior in
right of payments to all future subordinated indebtedness of Holdings. At June
30, 1996, on a pro forma basis after giving effect to the Transaction,
Holdings would have had no debt other than the Discount Notes. See
"Capitalization."
Substantially all of the operations of Holdings are conducted through its
subsidiaries. Claims of creditors of such subsidiaries, including trade
creditors, secured creditors and creditors holding indebtedness and guarantees
issued by such subsidiaries, and claims of preferred stockholders (if any) of
such subsidiaries generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of Holdings,
including holders of the Discount Notes. The Discount Notes, therefore, will
be effectively subordinated to creditors (including trade creditors) and
preferred stockholders (if any) of subsidiaries of Holdings. At June 30, 1996,
after giving effect to the Transaction, the aggregate liabilities (consisting
of Debt and trade payables) of Holdings' subsidiaries would have been
approximately $697.5 million, including the Notes. Although the Discount Notes
Indenture limits the incurrence of Debt and preferred stock of Holdings'
subsidiaries, such limitation is subject to a number of significant
qualifications. Moreover, the Discount Notes Indenture does not impose any
limitation on the incurrence by such subsidiaries of liabilities that are not
considered Debt under the Discount Notes Indenture. See "--Certain Covenants--
Limitation on Debt" and "--Limitation on Restrictions on Distributions from
Subsidiaries; Limitation on Preferred Stock of Subsidiaries".
SECURITY
The Discount Notes will be secured by a second priority lien on all the
Capital Stock of Chemicals (the "Collateral"), subject to a first priority
lien in favor of the lenders under the Credit Agreement. The Trustee and the
holders of the Discount Notes shall not have any right to enforce their lien
on the Collateral. Only the lenders under the Credit Agreement will have the
right to direct and control any sale or other disposition of the Collateral in
foreclosure or other judicial proceedings or private sale, none of which
require the consent of the holders of the Discount Notes. Upon any such sale
of the Collateral, the lien securing the Discount Notes will be automatically
extinguished with the rights of the holders of the Discount Notes in the event
of such sale being limited to the right to receive excess proceeds after
payment in full of all indebtedness owed to the lenders under
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the Credit Agreement. In the event of a default or similar occurrence there
can be no assurance that such second priority interest will be available or
sufficient to satisfy claims by Holders of the Discount Notes.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder shall have the right
to require Holdings to repurchase such Holder's Discount Notes at a purchase
price in cash equal to 101% of the Accreted Value thereof plus accrued and
unpaid interest (if any) to the date of repurchase (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date).
The occurrence of any of the following events will constitute a "Change of
Control" under the Discount Notes Indenture:
(i) Any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a Person shall be deemed to have "beneficial ownership" of
all shares that any 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 35% of the total voting power of the
Voting Stock of Holdings; provided that the Permitted Holders "beneficially
own" (as defined above), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of Holdings than
such other Person and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the
Board of Directors of Holdings (for the purposes of this clause (i), (A)
such other Person shall be deemed to beneficially own any Voting Stock of a
corporation (the "specified corporation") held by any other corporation
(the "parent corporation"), if such other Person beneficially owns (as
defined above), directly or indirectly, of more than 35% of the voting
power of the Voting Stock of such parent corporation and the Permitted
Holders beneficially own (as defined above), directly or indirectly, in the
aggregate a lesser percentage of the voting power of the Voting Stock of
such parent corporation and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the board of directors of such parent corporation and (B) the Permitted
Holders shall be deemed to beneficially own any Voting Stock of a specified
corporation held by any parent corporation so long as the Permitted Holders
beneficially own (as so defined), directly or indirectly, in the aggregate
a majority of the voting power of the Voting Stock of the parent
corporation);
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of Holdings or
Chemicals (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of Holdings
or Chemicals, as the case may be, was approved by a majority of the
directors of Holdings or Chemicals, as the case may be, 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 Board of Directors of Holdings
or Chemicals, as the case may be, then in office;
(iii) the merger or consolidation of Holdings or Chemicals with or into
another Person or the merger of another Person (other than a Permitted
Holder) with or into Holdings or Chemicals, or the sale or transfer in one
or a series of transactions of all or substantially all the assets of
Holdings or Chemicals to another Person (other than a Permitted Holder),
and, in the case only of any such merger or consolidation, the securities
of Holdings or Chemicals that are outstanding immediately prior to such
transaction and which represent 100% of the aggregate voting power of the
Voting Stock of Holdings or Chemicals are changed into or exchanged for
cash, securities or property, unless pursuant to such transaction such
securities are changed into or exchanged for, in addition to any other
consideration, securities of the surviving corporation that represent
immediately after such transaction, at least a majority of the aggregate
voting power of the Voting Stock of the surviving corporation; or
(iv) Holdings shall hold less than 100% of the Capital Stock of Chemicals
(other than Preferred Stock of Chemicals issued in accordance with the
terms of the Discount Notes Indenture) or less than 100% of the Voting
Stock of Chemicals.
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Within 30 days following any Change of Control, Holdings shall mail a notice
to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require Holdings to
purchase such Holder's Discount Notes at a purchase price in cash equal to
101% of the Accreted Value thereof plus accrued and unpaid interest, if any,
to the date of purchase (subject to the right of holders of record on the
relevant record date to receive interest on the relevant interest payment
date); (2) the material circumstances and facts regarding such Change of
Control (including information with respect to pro forma historical income,
cash flow and capitalization, each after giving effect to such Change of
Control); (3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed in the event of a
Change of Control); and (4) the instructions determined by Holdings,
consistent with the covenant described hereunder, that a Holder must follow in
order to have its Discount Notes purchased.
Holdings shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Discount Notes pursuant to this covenant.
To the extent that the provisions of any securities laws or regulations
conflict with the provisions of the covenant described above, Holdings shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under such covenant by virtue thereof.
Neither the Board of Directors nor the Trustee may waive compliance by
Holdings with its obligation to repurchase Discount Notes upon a Change of
Control.
The Change of Control purchase feature is a result of negotiations between
Holdings and the Underwriters. Management has no present intention to engage
in a transaction involving a Change of Control, although it is possible that
Holdings or Chemicals would decide to do so in the future. The provisions of
the Discount Notes Indenture relating to a Change of Control may not afford
Holders protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction (including, in
certain circumstances, a transaction involving Holdings' management or its
affiliates) that may adversely affect Holders, if such transaction does not
constitute a Change of Control, as defined above. Any such transaction will
result in a Change of Control only if it is the type of transaction specified
by such definition. For example, a merger or consolidation with, or sale of
assets to, a Permitted Holder (defined to include, among others, the
purchasers in the Equity Private Placement and the employees and stockholders
of TSG and Unicorn) would not meet the definition of Change of Control and,
therefore, Holders of Discount Notes would not be entitled to require
Chemicals to purchase their Discount Notes.
The Credit Agreement generally will prohibit Holdings from purchasing any
Discount Notes, and will also provide that the occurrence of certain change of
control events with respect to Holdings would constitute a default thereunder.
In the event a Change of Control occurs at a time when Holdings is prohibited
from purchasing Discount Notes, Holdings could seek the consent of its lenders
to the purchase of Discount Notes or could attempt to refinance the borrowings
that contain such prohibition. If Holdings does not obtain such a consent or
repay such borrowings, Holdings will remain prohibited from purchasing
Discount Notes. In such case, Holdings' failure to purchase tendered Discount
Notes would constitute an Event of Default under the Discount Notes Indenture
which would, in turn, constitute a default under the Credit Agreement.
Upon consummation of the Transaction, Holdings will not have any Debt that
is pari passu with the Discount Notes that contains any Change of Control
provisions. Future indebtedness of Holdings may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the holders of their right to require Holdings to
repurchase the Discount Notes could cause a default under such indebtedness,
even if the Change of Control itself does not, due to the financial effect of
such repurchase on Holdings. Finally, Holdings' ability to pay cash to the
holders of Discount Notes following the occurrence of a Change of Control may
be limited by Holdings' then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
required repurchases. The provisions under the Discount Notes Indenture
relating to the Company's obligation to make an offer to repurchase the
Discount Notes as a result of a Change of Control may be waived or modified
with the prior written consent of the Holders of a majority in principal
amount of the Discount Notes.
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The Change of Control purchase feature of the Discount Notes may in certain
circumstances make more difficult or discourage a takeover of Holdings, and,
thus, removal of incumbent management.
CERTAIN COVENANTS
The Discount Notes Indenture will contain certain covenants, including among
others the ones summarized below:
Limitation on Debt. (a) Holdings shall not Incur, and shall not permit any
Restricted Subsidiary to Incur, directly or indirectly, any Debt unless the
Consolidated EBITDA Coverage Ratio at the date of such Incurrence exceeds 1.75
to 1.0 if such Debt is Incurred on or prior to , 1998 or 2.0 to 1.0 if such
Debt is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), Holdings and its Restricted
Subsidiaries may Incur the following Debt: (1) Debt Incurred by Chemicals and
its Restricted Subsidiaries pursuant to the Revolving Credit Provisions of the
Credit Agreement or any other revolving credit facility which, when taken
together with all letters of credit and the principal amount of all other Debt
Incurred pursuant to this clause (1), does not exceed the greater of $100
million and the sum of (i) 65% of the gross book value of the inventory of
Chemicals and its Restricted Subsidiaries and (ii) 85% of the gross book value
of the accounts receivable of Chemicals and its Restricted Subsidiaries; (2)
Debt Incurred by Chemicals and its Restricted Subsidiaries pursuant to the
Term Loan Provisions of the Credit Agreement or any indenture or term loan
provisions of any other credit or loan agreement which, when taken together
with the principal amount of all other Debt Incurred pursuant to this clause
(2), does not exceed $350 million outstanding at any one time less the
aggregate amount of all principal repayments of any such Debt actually made
after the Issue Date (other than any such principal repayments made as a
result of the Refinancing of any such Debt); (3) Debt Incurred by Chemicals
and its Restricted Subsidiaries pursuant to the ESOP Loan Provisions of the
Credit Agreement in an aggregate principal amount not to exceed $6.5 million
outstanding at any one time less the aggregate amount of all principal
repayments of any such Debt actually made after the Issue Date (other than any
such principal repayments made as a result of the Refinancing of any such
Debt); (4) Debt of Holdings owed to and held by a Wholly Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of any Capital
Stock which results in such Wholly Owned Subsidiary ceasing to be a Wholly
Owned Subsidiary or any transfer of such Debt (other than to a Wholly Owned
Subsidiary) shall be deemed, in each case, to constitute the Incurrence of
such Debt by Holdings; (5) Debt of a Restricted Subsidiary Incurred and
outstanding on or prior to the date on which such Restricted Subsidiary became
a Restricted Subsidiary or was acquired by Holdings (other than Debt Incurred
in connection with, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by Holdings); (6) the Discount Notes and the Notes;
(7) Debt outstanding on the Issue Date (other than Debt described in clause
(1), (2), (3), (4), (5) or (6)); (8) Refinancing Debt in respect of Debt
Incurred pursuant to paragraph (a) or pursuant to clause (6) or (7) or this
clause (8); (9) Hedging Obligations; provided that with respect to Interest
Rate Agreements and Currency Agreements (if such Currency Agreements relate to
Debt), only to the extent directly related to Debt permitted to be Incurred by
Holdings pursuant to the Discount Notes Indenture; (10) the Permitted Loan;
and (11) Debt in an aggregate principal amount which, together with all other
Debt of Holdings and the Restricted Subsidiaries then outstanding (other than
Debt permitted by clauses (1) through (9) above or paragraph (a)) does not
exceed $25 million.
(c) Notwithstanding the foregoing, Holdings shall not Incur any Debt
pursuant to the foregoing paragraph (b) if the proceeds thereof are used,
directly or indirectly, to Refinance any Subordinated Obligations unless such
Debt shall be subordinated to the Discount Notes to at least the same extent
as such Subordinated Obligations.
(d) For purposes of determining compliance with paragraph (b) of this
covenant, (i) in the event that an item of Debt meets the criteria of more
than one of the types of Debt described in paragraph (b), Holdings, in its
sole discretion, will classify such item of Debt and only be required to
include the amount and type of such Debt in one of the clauses of paragraph
(b) and (ii) an item of Debt may be divided and classified in more than one of
the types of debt in paragraph (b).
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Limitation on Restricted Payments. (a) Holdings shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to (i) declare or
pay any dividend or make any distribution on or in respect of its Capital
Stock (including any payment in connection with any merger or consolidation
involving Holdings) or similar payment to the direct or indirect holders of
its Capital Stock (except dividends or distributions payable solely in its
Non-Convertible Capital Stock or in options, warrants or other rights to
purchase its Non-Convertible Capital Stock and except dividends or
distributions payable to Holdings or a Restricted Subsidiary), and other than
pro rata dividends or other distributions made by a Restricted Subsidiary of
Holdings that is not a Wholly Owned Subsidiary to minority shareholders (or
owners of an equivalent interest in the case of a Restricted Subsidiary that
is an entity other than a corporation), (ii) purchase, redeem or otherwise
acquire or retire for value any Capital Stock of Holdings, any direct or
indirect parent of Holdings, or a Restricted Subsidiary (other than such
Capital Stock owned by Holdings or any Wholly Owned Subsidiary), (iii)
purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment, any Subordinated Obligations (other than the purchase,
repurchase or other acquisition of Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition)
or (iv) make any Investment in any Person (other than a Permitted Investment)
(any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement, Investment being herein referred to
as a "Restricted Payment"), if at the time Holdings or such Restricted
Subsidiary makes such Restricted Payment: (1) a Default shall have occurred
and be continuing (or would result therefrom); or (2) Holdings, after giving
pro forma effect to such Restricted Payment, would not be permitted to Incur
an additional $1.00 of Debt pursuant to clause (a) under "--Limitation on
Debt"; or (3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of: (A) 50% of
the Consolidated Net Income accrued during the period (treated as one
accounting period) from the beginning of the fiscal quarter during which the
Discount Notes were originally issued to the end of the most recent fiscal
quarter ending at least 45 days prior to the date of such Restricted Payment
(or, in case such Consolidated Net Income shall be a deficit, minus 100% of
such deficit); provided, however, that if the Discount Notes achieve an
Investment Grade Rating during any fiscal quarter, the percentage for such
fiscal quarter (and of any other fiscal quarter where, on the first day of
such fiscal quarter, the Discount Notes shall have an Investment Grade Rating)
will be 100% of Consolidated Net Income during such fiscal quarter; provided,
further, however, that if such Restricted Payment is to be made in reliance
upon an additional amount permitted pursuant to the immediately preceding
proviso, the Discount Notes must have an Investment Grade Rating at the time
such Restricted Payment is declared or, if not declared, made; (B) the
aggregate Net Cash Proceeds received by Holdings from the issue or sale of its
Capital Stock (other than Redeemable Stock or Exchangeable Stock) subsequent
to the Issue Date (other than an issuance or sale to a Subsidiary or an
employee stock ownership plan or similar trust); (C) the aggregate Net Cash
Proceeds received by Holdings from the issue or sale of its Capital Stock
(other than Redeemable Stock or Exchangeable Stock) to an employee stock
ownership plan subsequent to the Issue Date; provided, however, that if such
employee stock ownership plan issues any Debt, such aggregate amount shall be
limited to an amount equal to any increase in the Consolidated Net Worth of
Holdings resulting from principal repayments made by such employee stock
ownership plan with respect to Debt issued by it to finance the purchase of
such Capital Stock; (D) the amount by which Debt of Holdings is reduced on
Holdings's balance sheet upon the conversion or exchange (other than by a
Subsidiary) subsequent to the Issue Date, of any Debt of Holdings convertible
or exchangeable for Capital Stock (other than Redeemable Stock or Exchangeable
Stock) of Holdings (less the amount of any cash, or other property,
distributed by Holdings upon such conversion or exchange); (E) an amount equal
to the sum of (i) the net reduction in Investments in Unrestricted
Subsidiaries resulting from dividends, repayments of loans or advances or
other transfers of assets, in each case to Holdings or any Restricted
Subsidiary from Unrestricted Subsidiaries, and (ii) the portion (proportionate
to Holdings' equity interest in such Subsidiary) of the fair market value of
the net assets of an Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided, however, that the
foregoing sum shall not exceed, in the case of an Unrestricted Subsidiary, the
amount of Investments previously made (and treated as a Restricted Payment) by
Holdings or any Restricted Subsidiary in such Unrestricted Subsidiary; (F) to
the extent not covered in clauses (A) through (E) above, the aggregate net
cash proceeds received after the date of the Discount Notes Indenture by
Holdings as capital contributions (other than from any Restricted
Subsidiaries); and (G) $5 million; provided,
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however, that, to the extent used, such $5 million shall reduce the amount
available for Investments pursuant to clause (xii) of the definition of
"Permitted Investments" set forth under "--Certain Definitions;" and provided,
further, however, that the amounts available under this clause (G) and under
clause (xii) of the definition of "Permitted Investments" shall in no event
exceed $10 million in the aggregate.
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of
Holdings made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of Holdings (other than Redeemable Stock or
Exchangeable Stock of Holdings and other than Capital Stock issued or sold to
a Subsidiary or an employee stock ownership plan); provided, however, that (A)
such purchase or redemption shall be excluded in the calculation of the amount
of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be
excluded from clauses (3)(B) and (3)(C) of paragraph (a); (ii) any purchase,
redemption, defeasance or other acquisition or retirement for value of
Subordinated Obligations of Holdings made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Debt of Holdings which is
permitted to be Incurred pursuant to the covenant described under "--
Limitation on Debt" above; provided, however, that such purchase, redemption,
defeasance or other acquisition or retirement for value shall be excluded in
the calculation of the amount of Restricted Payments; (iii) any purchase or
redemption of Subordinated Obligations of Holdings from Net Available Cash to
the extent permitted under "--Limitation on Sales of Assets and Subsidiary
Stock" below; provided, however, that such purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments; (iv)
dividends paid within 60 days after the date of declaration thereof if at such
date of declaration such dividend would have complied with this provision;
provided, however, that at the time of declaration of such dividend, no other
Default shall have occurred and be continuing (or would result therefrom); and
provided, further, however, that such dividend shall be included in the
calculation of the amount of Restricted Payments; (v) repurchases of common
stock of Holdings distributed to participants and beneficiaries of the ESOP as
required by and in accordance with the ESOP and Section 409(h)(1)(B) of the
Code and the regulations thereunder; provided, however, that such amount shall
be excluded in the calculation of the amount of Restricted Payments; (vi)
payments to the ESOP on behalf of employees of Holdings or its Subsidiaries;
provided that all such payments by Holdings and its Subsidiaries may not
exceed, during any fiscal year, 10% of the aggregate compensation expense
during such fiscal year attributable to employees of Holdings and its
Subsidiaries who are eligible to participate in the ESOP; and (vii) the
repurchase, redemption, acquisition or retirement for value of any Capital
Stock of Holdings pursuant to any stockholder's agreement, management equity
subscription plan or agreement, stock option plan or agreement or employee
benefit plan in effect as of the Issue Date or such employee plan or agreement
or employee benefit plan as may be adopted by Holdings or Chemicals from time
to time; provided, however, that the aggregate price paid for all Capital
Stock repurchased, redeemed, acquired or retired by or on behalf of Holdings
or Chemicals shall not exceed $5 million in any fiscal year; provided,
further, however, that such amount, to the extent related to the ESOP, shall
be excluded in the calculation of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
Holdings shall not, and shall not permit any Restricted Subsidiary to, create
or permit to exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary to (i) pay dividends
or make any other distributions on its Capital Stock or pay any Debt or other
obligation owed to Holdings, (ii) make any loans or advances to Holdings or
(iii) transfer any of its property or assets to Holdings, except: (a) any
encumbrance or restriction pursuant to an agreement in effect on the Issue
Date or pursuant to the issuance of the Discount Notes or the Notes; (b) any
encumbrance or restriction with respect to a Restricted Subsidiary pursuant to
an agreement relating to any Debt Incurred by such Restricted Subsidiary on or
prior to the date on which such Restricted Subsidiary was acquired by Holdings
(other than Debt Incurred as consideration in, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by Holdings) and outstanding on
such date; (c) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Debt Incurred pursuant to an agreement referred to
in clause (a) or (b) or contained in any amendment to an agreement referred to
in clause (a) or (b); provided, however, that the encumbrances and
restrictions contained in any of such refinancing agreement or amendment are
no less favorable to the Holders than encumbrances and restrictions with
respect to such Restricted Subsidiary contained in such agreements; (d) any
such encumbrance or restriction consisting of customary nonassignment
provisions in leases governing leasehold interests to the
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extent such provisions restrict the transfer of the lease or other customary
non-assignment provisions in contracts (other than contracts that constitute
Debt) entered into in the ordinary course of business to the extent such
provisions restrict the transfer of the assets subject to such contracts; (e)
in the case of clause (iii) above, restrictions contained in security
agreements or mortgages securing Debt of a Restricted Subsidiary to the extent
such restrictions restrict the transfer of the property subject to such
security agreements or mortgages; (f) encumbrances or restrictions imposed by
operation of applicable law; and (g) any restriction with respect to a
Restricted Subsidiary imposed pursuant to an agreement entered into for the
sale or disposition of all or substantially all the Capital Stock or assets of
such Restricted Subsidiary pending the closing of such sale or disposition.
Limitation on Sales of Assets and Subsidiary Stock. (a) Holdings shall not,
and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) Holdings or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at
least equal to the fair market value, as determined in good faith by the Board
of Directors (including as to the value of all non-cash consideration), of the
shares and assets subject to such Asset Disposition and at least 75% of the
consideration thereof received by Holdings or such Restricted Subsidiary is in
the form of cash or cash equivalents, and (ii) an amount equal to 100% of the
Net Available Cash from such Asset Disposition is applied by Holdings (or such
Restricted Subsidiary, as the case may be) (A) first, to the extent Holdings
elects (or is required by the terms of any Senior Debt), to prepay, repay or
purchase Senior Debt or Debt (other than any Redeemable Stock) of a Wholly
Owned Subsidiary (in each case other than Debt owed to Holdings or an
Affiliate of Holdings) within 180 days from the later of the date of such
Asset Disposition or the receipt of such Net Available Cash; (B) second, to
the extent of the balance of such Net Available Cash after application in
accordance with clause (A), at Holdings's election to the investment by
Holdings, any Wholly Owned Subsidiary or the Restricted Subsidiary making such
Asset Disposition in assets to replace the assets that were the subject of
such Asset Disposition or an asset that (as determined by the Board of
Directors) will be used in the business of Holdings, the Wholly Owned
Subsidiaries or the Restricted Subsidiary making such Asset Disposition
existing on the Issue Date or in businesses reasonably related thereto, in
each case within the later of one year from the date of such Asset Disposition
or the receipt of such Net Available Cash; (C) third, to the extent of the
balance of such Net Available Cash after application and in accordance with
clauses (A) and (B), to make an offer to purchase Discount Notes (and any
other Senior Debt designated by Holdings) pursuant to and subject to the
conditions contained in the Discount Notes Indenture; and (D) fourth, to the
extent of the balance of such Net Available Cash after application in
accordance with clauses (A), (B) and (C), to (x) the acquisition by Holdings,
any Wholly Owned Subsidiary or the Restricted Subsidiary making such Asset
Disposition of Tangible Property or (y) the prepayment, repayment or purchase
of Debt (other than any Redeemable Stock) of Holdings or Debt of any
Restricted Subsidiary (in either case other than Debt owed to Holdings or an
Affiliate of Holdings), in each case within one year from the later of the
receipt of such Net Available Cash and the date the offer described in
paragraph (b) below is consummated; provided, however, that in connection with
any prepayment, repayment or purchase of Debt pursuant to clause (A), (C) or
(D) above, Holdings shall cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. Notwithstanding the foregoing provisions of this
paragraph, Holdings and its Restricted Subsidiaries shall not be required to
apply any Net Available Cash in accordance with this paragraph except to the
extent that the aggregate Net Available Cash from all Asset Dispositions which
are not applied in accordance with this paragraph exceeds $20 million. Pending
application of Net Available Cash pursuant to this paragraph, such Net
Available Cash shall be invested in Temporary Cash Investments.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the express assumption of Debt of Holdings or any
Restricted Subsidiary and the release of Holdings or such Restricted
Subsidiary from all liability on such Debt in connection with such Asset
Disposition and (y) securities received by Holdings or any Restricted
Subsidiary from the transferee that are converted by Holdings or such
Restricted Subsidiary into cash within 90 days of the receipt of such
securities. The 75% limitation referred to in the previous paragraph shall not
apply to any Asset Disposition in which the cash portion of the consideration
received therefor, determined in accordance with the previous sentence, is
equal to or greater than what the after-tax proceeds would have been had such
Asset Disposition complied with such 75% limitation.
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(b) In the event of an Asset Disposition that requires the purchase of the
Discount Notes (and other Senior Debt) pursuant to clause (a)(ii)(C) above,
Holdings will be required to purchase Discount Notes tendered pursuant to an
offer by Holdings for the Discount Notes (and other Senior Debt) at a purchase
price of 100% of the Accreted Value of each Discount Note on the date of such
offer (without premium) plus accrued but unpaid interest (or, in respect of
such other Senior Debt, such lesser price, if any, as may be provided for by
the terms of such Senior Debt) in accordance with the procedures (including
prorating in the event of oversubscription) set forth in the Discount Notes
Indenture. If the aggregate purchase price of Discount Notes (and any other
Senior Debt) tendered pursuant to such offer is less than the Net Available
Cash allotted to the purchase thereof, Holdings will be required to apply the
remaining Net Available Cash in accordance with clause (a)(ii)(D) above.
Holdings shall not be required to make such an offer to purchase Discount
Notes (and other Senior Debt) pursuant to this covenant if the Net Available
Cash available therefor is less than $10 million (which lesser amount shall be
carried forward for purposes of determining whether such an offer is required
with respect to any subsequent Asset Disposition).
To the extent that any or all of the Net Available Cash of any Foreign Asset
Sale is prohibited or delayed by applicable local law from being repatriated
to the United States, the portion of such Net Available Cash so affected shall
not be required to be applied at the time provided above, but may be retained
by the applicable Restricted Subsidiary (and invested in accordance with the
last sentence of the first paragraph of section (a) of this covenant) so long,
but only so long, as the applicable local law will not permit repatriation to
the United States. Holdings shall agree to cause the applicable Restricted
Subsidiary to promptly take all actions required by the applicable local law
to permit such repatriation. Once such repatriation of any of such affected
Net Available Cash is permitted under the applicable local law, such
repatriation shall be immediately effected and such repatriated Net Available
Cash will be applied in the manner as described in this covenant.
(c) Holdings shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Discount Notes pursuant to
this covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, Holdings shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
Limitation on Transactions with Affiliates. (a) Holdings shall not, and
shall not permit any Restricted Subsidiary to, conduct any business or enter
into any transaction or series of related transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of Holdings (an "Affiliate Transaction") unless
(i) the terms of such Affiliate Transaction are (A) set forth in writing and
(B) as favorable to Holdings or such Restricted Subsidiary as terms that would
be obtainable at the time for a comparable transaction or series of related
transactions in arm's length dealings with an unrelated third Person, (ii) if
such Affiliate Transaction involves an amount in excess of $2.5 million, the
disinterested members of the Board of Directors have, by resolution,
determined in good faith that such Affiliate Transaction meets the criteria
set forth in (i)(B) above and (iii) if such Affiliate Transaction involves an
amount in excess of $7.5 million, such Affiliate Transaction is determined by
an Independent Financial Advisor to be fair from a financial standpoint to
Holdings or its Restricted Subsidiary, as the case may be. The foregoing
requirements shall not be applicable to (x) contracts with Koch Equities Inc.
or its affiliates in the ordinary course of business on terms as favorable to
Holdings or the relevant Restricted Subsidiary as would be obtainable at the
time for a comparable transaction in arm's length dealings with an unrelated
third Person or (y) any purchase or supply contracts in the ordinary course of
business on terms as favorable to Holdings or the relevant Restricted
Subsidiary as would be obtainable at the time for a comparable transaction in
arm's length dealings with an unrelated third Person, provided that the Board
of Directors shall, not later than the 60th day after the end of each six-
month period following the Issue Date, have reviewed such contracts and
determined that such contracts meet the criteria set forth in this clause (y).
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Restricted Payment or Permitted Investment permitted to be paid pursuant to
the covenant described under "--Limitation on Restricted Payments", (ii) any
issuance of securities, or other payments, awards or grants in cash,
securities or otherwise
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pursuant to, or the funding of, employment arrangements, stock options and
stock ownership plans approved by the Board of Directors of Chemicals or the
board of directors of the relevant Restricted Subsidiary, (iii) loans or
advances to employees in the ordinary course of business, but in any event not
to exceed $2 million in the aggregate outstanding at any one time, (iv) the
payment of reasonable and customary fees to directors of Holdings and its
Restricted Subsidiaries who are not employees of Holdings or its Restricted
Subsidiaries, (v) any transaction between Holdings and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries, (vi) one-time fees payable to
TSG and Unicorn in connection with the Transaction in an aggregate amount not
to exceed $8 million and $4 million, respectively and (vii) indemnification
payments to directors and officers of Holdings in accordance with applicable
state laws.
Limitation on Liens. Holdings shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, Incur or permit to exist any Lien of
any nature whatsoever on any of its properties (including Capital Stock of a
Restricted Subsidiary) securing Debt of Holdings, whether owned at the Issue
Date or thereafter acquired, other than Permitted Liens, without effectively
providing that the Discount Notes shall be secured equally and ratably with
(or prior to) the obligations so secured for so long as such obligations are
so secured; provided, however, that Holdings may Incur other Liens to secure
Debt as long as the amount of outstanding Debt secured by Liens Incurred
pursuant to this proviso does not exceed 5% of Consolidated Net Tangible
Assets, as determined based on the consolidated balance sheet of Holdings as
of the end of the most recent fiscal quarter ending at least 45 days prior
thereto.
Limitation on Sale/Leaseback Transactions. Holdings shall not, and shall not
permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction
with respect to any property unless (i) Holdings or such Restricted Subsidiary
would be entitled to (A) Incur Debt in an amount equal to the Attributable
Debt with respect to such Sale/Leaseback Transaction pursuant to the covenant
described under "--Limitation on Debt" and (B) create a Lien on such property
securing such Attributable Debt without equally and ratably securing the
Discount Notes pursuant to the covenant described under "--Limitation on
Liens", (ii) the net proceeds received by Holdings or any Restricted
Subsidiary in connection with such Sale/Leaseback Transaction are at least
equal to the fair value (as determined by the Board of Directors) of such
property and (iii) Holdings applies the proceeds of such transaction in
compliance with the covenant described under "--Limitation on Sale of Assets
and Subsidiary Stock".
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. Holdings shall not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of
any shares of its Capital Stock except (i) to Holdings or a Wholly Owned
Subsidiary, (ii) if, immediately after giving effect to such issuance, sale or
other disposition, such Restricted Subsidiary remains a Restricted Subsidiary;
or (iii) if all shares of Capital Stock of such Restricted Subsidiary are sold
or otherwise disposed of; provided, however, that in connection with any sale
pursuant to this clause (iii), Holdings may retain no more than 10% of the
outstanding Capital Stock of the Restricted Subsidiary being sold as a portion
of the purchase price in connection with such sale. In connection with any
such sale or disposition of Capital Stock, Holdings or any such Restricted
Subsidiary shall comply with the covenant described under "--Limitation on
Sales of Assets and Subsidiary Stock."
Impairment of Security Interest. Holdings shall not, and Holdings shall not
permit any of its Subsidiaries to, take or knowingly or negligently omit to
take, any action which action or omission might or would have the result of
impairing or adversely affecting the security interest with respect to the
Collateral for the benefit of the Trustee and the holders of the Discount
Notes, and Holdings shall not, and shall not permit any of its Subsidiaries
to, grant to any Person other than the Collateral Agent, for the benefit of
the Trustee and the holders of the Discount Notes and other beneficiaries
described in the Pledge Agreement, any interest whatsoever in any of the
Collateral.
Amendments to Pledge Agreement. Holdings shall not, and Holdings shall not
permit any of its Subsidiaries to, amend, modify or supplement, or permit or
consent to any amendment, modification or supplement of, the Pledge Agreement
in any way that would be adverse to the holders of the Discount Notes.
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SEC Reports. Notwithstanding that Holdings may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, Holdings shall file with the SEC and provide the Trustee and Holders with
such annual reports and such information, documents and other reports
specified in Sections 13 and 15(d) of the Exchange Act, such information,
documents and other reports to be so filed and provided at the times specified
for the filing of such information, documents and reports under such Sections.
MERGER AND CONSOLIDATION
Holdings shall not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, all or
substantially all its assets to, any Person, unless: (i) the resulting,
surviving or transferee Person (the "Successor Company") shall be a Person
organized and existing under the laws of the United States of America, any
State thereof or the District of Columbia and the Successor Company (if not
Holdings) expressly assumes, by an indenture supplemental thereto, executed
and delivered to the Trustee, in form acceptable to the Trustee, all the
obligations of Holdings under the Discount Notes, the Discount Notes Indenture
and the Pledge Agreement; (ii) immediately after giving effect to such
transaction (and treating any Debt which becomes an obligation of the
Successor Company or any Subsidiary as a result of such transaction as having
been Incurred by such Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction, the Successor Company
would be able to Incur an additional $1.00 of Debt pursuant to paragraph (a)
of the covenant described under "--Limitation on Debt"; (iv) immediately after
giving effect to such transaction, the Successor Company shall have
Consolidated Net Worth in an amount which is not less than the Consolidated
Net Worth of Holdings prior to such transaction minus any costs incurred in
connection with such transaction; and (v) Holdings shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and such supplemental indenture (if
any) comply with the Discount Notes Indenture.
The Successor Company shall be the successor to Holdings and shall succeed
to, and be substituted for, and may exercise every right and power of,
Holdings under the Discount Notes Indenture, but the predecessor Person in the
case of a conveyance, transfer or lease shall not be released from the
obligation to pay the principal of and interest on the Discount Notes.
DEFAULTS
An "Event of Default" is defined in the Discount Notes Indenture as (a) a
default in any payment of interest on any Discount Note when the same becomes
due and payable, and such default continues for a period of 30 days; (b) a
default in the payment of the principal of any Discount Note when the same
becomes due and payable at its Stated Maturity, upon redemption, upon
declaration, upon required repurchase or otherwise; (c) the failure by
Holdings to comply with its obligations under "--Merger and Consolidation";
(d) the failure by Holdings to comply for 30 days after notice with any of its
obligations in the covenants described above under "--Change of Control"
(other than a failure to purchase Discount Notes) or under "--Certain
Covenants" under "--Limitation on Debt", "--Limitation on Restricted
Payments", "--Limitation on Restrictions on Distributions from Restricted
Subsidiaries", "--Limitation on Sales of Assets and Subsidiary Stock" (other
than a failure to purchase Discount Notes), "--Limitation on Transactions with
Affiliates", "--Limitation on Liens", "--Limitation on Sale/Leaseback
Transactions", "--Limitation on the Sale or Issuance of Capital Stock of
Restricted Subsidiaries", "--Impairment of Security Interest", "--Amendments
to Pledge Agreement" or "--SEC Reports"; (e) the failure by Holdings to comply
with any of its agreements in the Discount Notes or the Discount Notes
Indenture (other than those referred to in (a), (b), (c) or (d) above) and
such failure continues for 60 days after the notice specified below; (f) a
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Debt for money
borrowed by Holdings or any of its Subsidiaries (or the payment of which is
Guaranteed by Holdings or any of its Subsidiaries) whether such Debt or
Guarantee now exists, or is created after the date of the Discount Notes
Indenture, which default (i) is caused by failure to pay principal of or
premium, if any, or interest on such Debt prior to the expiration of the grace
period provided in such Debt on the date of such default ("Payment Default")
or (ii) results in the
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acceleration of such Debt prior to its express maturity and, in each case, the
principal amount of any such Debt, together with the principal amount of any
other such Debt under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $10 million or more; (g) certain
events of bankruptcy or insolvency of Holdings or any Significant Subsidiary;
(h) any final non-appealable judgment or decree not covered by insurance or as
to which the insurance carrier has denied responsibility for the payment of
money in excess of $10 million is rendered against Holdings or a Significant
Subsidiary and is not discharged and there is a period of 60 days following
such judgment during which such judgment or decree is not discharged, waived
or the execution thereof stayed; or (i) the security interest under the Pledge
Agreement shall, at any time, cease to be in full force and effect for any
reason other than the satisfaction in full of all obligations under the
Discount Notes Indenture and discharge of the Discount Notes Indenture or any
security interest created thereunder shall be declared invalid or
unenforceable or Holdings shall assert, in any pleading in any court of
competent jurisdiction, that such security interest is invalid or
unenforceable. A Default under clause (d) or (e) is not an Event of Default
until the Trustee or the Holders of at least 25% in principal amount of the
Discount Notes notify Holdings of the Default and Holdings does not cure such
Default within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Discount Notes may
declare the Accreted Value of and accrued but unpaid interest on all the
Discount Notes to be due and payable (collectively, the "Default Amount").
Upon such a declaration, the Default Amount shall be due and payable
immediately. If an Event of Default relating to certain events of bankruptcy,
insolvency or reorganization of Holdings or a Significant Subsidiary occurs
and is continuing, the Default Amount on all the Discount Notes will ipso
facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any holders of the Discount Notes.
Under certain circumstances, the holders of a majority in principal amount of
the outstanding Discount Notes may rescind any such acceleration with respect
to the Discount Notes and its consequences.
Subject to the provisions of the Discount Notes Indenture relating to the
duties of the Trustee, in case an Event of Default occurs and is continuing,
the Trustee will be under no obligation to exercise any of the rights or
powers under the Discount Notes Indenture at the request or direction of any
of the holders of the Discount Notes unless such holders have offered to the
Trustee reasonable indemnity or security against any loss, liability or
expense. Except to enforce the right to receive payment of principal, premium
(if any) or interest when due, no holder of a Discount Note may pursue any
remedy with respect to the Discount Notes Indenture or the Discount Notes
unless (i) such holder has previously given the Trustee notice that an Event
of Default is continuing; (ii) holders of at least 25% in principal amount of
the outstanding Discount Notes have requested the Trustee to pursue the
remedy; (iii) such holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense; (iv) the Trustee has not
complied with such request within 60 days after the receipt thereof and the
offer of security or indemnity and (v) the holders of a majority in principal
amount of the outstanding Discount Notes have not given the Trustee a
direction inconsistent with such request within such 60-day period. Subject to
certain restrictions, the Holders of a majority in principal amount of the
outstanding Discount Notes are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
of exercising any trust or power conferred on the Trustee.
The Discount Notes Indenture provides that if a Default occurs and is
continuing and is known to the Trustee, the Trustee must mail to each Holder
notice of the Default within 90 days (or such shorter period as may be
required by applicable law) after it occurs. Except in the case of a Default
in the payment of principal of, premium (if any) or interest on any Discount
Note, the Trustee may withhold notice if and so long as a committee of its
trust officers determines that withholding notice is in the interest of the
holders of the Discount Notes. In addition, Holdings is required to deliver to
the Trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers thereof know of any Default that occurred
during the previous year. Holdings also is required to deliver to the Trustee,
within 30 days after the occurrence thereof, written notice of any event which
would constitute certain Defaults, their status and what action Holdings is
taking or proposes to take in respect thereof.
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AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Discount Notes Indenture may be amended
or supplemented with the consent of the holders of a majority in principal
amount of the Discount Notes then outstanding and any past default or
compliance with any provisions may be waived with the consent of the holders
of a majority in principal amount of the Discount Notes then outstanding.
However, without the consent of each holder of an outstanding Discount Note,
no amendment may, among other things, (i) reduce the amount of Discount Notes
whose holders must consent to an amendment; (ii) reduce the rate of or extend
the time for payment of interest on any Discount Note; (iii) reduce the
principal amount at maturity or Accreted Value of any Discount Note or extend
the Stated Maturity of any Discount Note; (iv) reduce the premium payable upon
the redemption of any Discount Note or change the time at which any Discount
Note may or shall be redeemed; (v) make any Discount Note payable in money
other than that stated in the Discount Note; (vi) impair the right of any
holder of the Discount Notes to receive payment of principal of, or premium if
any, and interest on such holder's Discount Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Discount Notes; (vii) make any change in the
amendment provisions which requires each holder's consent or in the waiver
provisions; (viii) make any change in the Pledge Agreement that would
adversely affect the Holders.
Without the consent of any holder of the Discount Notes, Holdings and the
Trustee may amend or supplement the Discount Notes Indenture to cure any
ambiguity, omission, defect or inconsistency, to provide for the assumption by
a successor corporation of the obligations of Holdings under the Discount
Notes Indenture, to provide for uncertificated Discount Notes in addition to
or in place of certificated Discount Notes (provided that the uncertificated
Discount Notes are issued in registered form for purposes of Section 163(f) of
the Code, or in a manner such that the uncertificated Discount Notes are
described in Section 163(f)(2)(B) of the Code), to add Guarantees with respect
to the Discount Notes, to add to the covenants of Holdings and its
Subsidiaries for the benefit of the Holders or to surrender any right or power
conferred upon Holdings, to make any change that does not adversely affect the
rights of any Holder or to comply with any requirement of the SEC in
connection with the qualification of the Discount Notes Indenture under the
Trust Indenture Act of 1939.
The consent of the Holders is not necessary under the Discount Notes
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
Holdings has agreed not to amend or waive any covenant in the Discount Notes
Indenture that would make the terms of the Discount Notes materially more
onerous on the lenders under the Credit Agreement without the prior written
consent of such lenders.
After an amendment under the Discount Notes Indenture becomes effective,
Holdings is required to mail to Holders a notice briefly describing such
amendment. However, the failure to give such notice to all Holders, or any
defect therein, will not impair or affect the validity of the amendment.
TRANSFER
The Discount Notes will be issued in registered form and will be transferred
only upon the surrender of the Discount Notes being transferred for
registration of transfer. Holdings may require payment of a sum sufficient to
cover any tax, assessment or other governmental charge payable in connection
with certain transfers and exchanges.
DEFEASANCE
Holdings at any time may terminate all its obligations under the Discount
Notes and the Discount Notes Indenture ("legal defeasance"), except for
certain obligations, including those respecting the defeasance trust and
obligation to register the transfer or exchange of the Discount Notes, to
replace mutilated, destroyed, lost or stolen Discount Notes and to maintain a
registrar and paying agent in respect of the Discount Notes. Holdings at
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any time may terminate its obligations under the covenants described under "--
Certain Covenants" and "--Change of Control", the operation of the cross
acceleration provision, the bankruptcy provisions with respect to Significant
Subsidiaries and the judgment default provision described under "--Defaults"
above and the limitations contained in clauses (iii) and (iv) of the first
paragraph under "Merger and Consolidation" above ("covenant defeasance").
Holdings may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If Holdings exercises its legal
defeasance option, payment of the Discount Notes may not be accelerated
because of an Event of Default with respect thereto. If Holdings exercises its
covenant defeasance option, payment of the Discount Notes may not be
accelerated because of an Event of Default specified in clause (d), (f), (g)
(with respect only to Significant Subsidiaries) or (h) under "--Events of
Default" above or the failure of Holdings to comply with "--Change of Control"
above.
In order to exercise either defeasance option, Holdings must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Discount Notes to redemption or maturity, as the case may be,
and must comply with certain other conditions, including delivering to the
Trustee an Opinion of Counsel to the effect that holders of the Discount Notes
will not recognize income, gain or loss for Federal income tax purposes as a
result of such deposit and defeasance and will be subject to Federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred (and, in
the case of legal defeasance only, such Opinion of Counsel must be based on a
ruling of the Internal Revenue Service or a change in applicable Federal
income tax law).
CONCERNING THE TRUSTEE
Fleet National Bank of Connecticut is to be the Trustee under the Discount
Notes Indenture and has been appointed by Holdings as Registrar and Paying
Agent with regard to the Discount Notes.
The Holders of a majority in principal amount of the outstanding Discount
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Discount Notes Indenture provides that if an Event of
Default occurs (and is not cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Discount
Notes Indenture at the request of any Holder of Discount Notes, unless such
Holder shall have offered to the Trustee security and indemnity satisfactory
to it against any loss, liability or expense and then only to the extent
required by the terms of the Discount Notes Indenture.
GOVERNING LAW
The Discount Notes Indenture provides that it and the Discount Notes will be
governed by, and construed in accordance with, the laws of the State of New
York without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be
required thereby.
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CERTAIN DEFINITIONS
"Accreted Value" means, (A) as of any date prior to , 2001, an amount per
$1,000 principal amount at maturity of Discount Notes that is equal to the sum
of (a) the initial offering price ($ per $1,000 principal amount of
Discount Notes) of such Discount Notes and (b) the portion of the excess of
the principal amount of such Discount Note over such initial offering price
which shall have been amortized through such date, such amount to be so
amortized on a daily basis and compounded semi-annually on each and at
the rate of % per annum from the Issue Date through the date of
determination computed on the basis of a 360-day year of twelve 30-day months
(the following table indicating the Accreted Value at the semiannual
compounding dates with respect to each $1,000 principal amount at maturity of
Discount Notes set forth below):
<TABLE>
<CAPTION>
ACCRETED
DATE VALUE
---- --------
<S> <C>
, 1996......................................................... $
, 1997.........................................................
, 1997.........................................................
, 1998.........................................................
, 1998.........................................................
, 1999.........................................................
, 1999.........................................................
, 2000.........................................................
, 2000.........................................................
, 2001.........................................................
</TABLE>
and (B) as of any date on or after , 2001, the principal amount of each
Discount Note.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the provisions described under "--Certain
Covenants--Limitation on Affiliate Transactions" and "--Certain Covenants--
Limitations on Sales of Assets and Subsidiary Stock" only, "Affiliate" shall
also mean any beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) of Capital Stock representing 10% or more of the total voting
power of the Voting Stock (on a fully diluted basis) of Holdings or of rights
or warrants to purchase such Capital Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) of shares of
Capital Stock of a Restricted Subsidiary (other than directors' qualifying
shares), property or other assets (each referred to for the purposes of this
definition as a "disposition") by Holdings or any of its Restricted
Subsidiaries, including any disposition by means of a merger, consolidation or
similar transaction, for gross proceeds in excess of $2.0 million, other than
(i) a disposition by a Restricted Subsidiary to Holdings or by Holdings or a
Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of
property or assets (other than shares of Capital Stock of a Restricted
Subsidiary and which do not constitute all or substantially all of the assets
of any division or line of business of Holdings or any Restricted Subsidiary)
at fair market value in the ordinary course of business, (iii) for purposes of
the covenant described under "--Certain Covenants--Limitation on Sale of
Assets and Subsidiary Stock" only, a disposition that constitutes a Restricted
Payment or a Permitted Investment permitted by the covenant described under
"--Certain Covenants--Limitation on Restricted Payments", (iv) the disposition
of all or substantially all of the assets of Holdings permitted by the
covenant described under "Merger and Consolidation" and (v) the disposition of
assets in exchange for other assets that satisfy the requirement for
replacement assets set forth in
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Section (a)(ii)(B) of the covenant described under "--Certain Covenants--
Limitation on Sales of Assets and Subsidiary Stock".
"Attributable Debt", in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Discount Notes, compounded annually) of the total obligations of
the lessee for rental payments during the remaining term of the lease included
in such Sale/Leaseback Transaction (including any period for which such lease
has been extended).
"Average Life" means, as of the date of determination, with respect to any
Debt or Preferred Stock, the quotient obtained by dividing (i) the sum of the
products of numbers of years from the date of determination to the dates of
each successive scheduled principal payment of such Debt or redemption or
similar payment with respect to such Preferred Stock multiplied by the amount
of such payment by (ii) the sum of all such payments.
"Board of Directors" means the Board of Directors of Holdings or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Canadian Facility" means a revolving loan and letter of credit facility for
loans and letters of credit in Canadian or U.S. dollars to or for the account
of Sterling Pulp Chemicals, Ltd., a Wholly Owned Subsidiary of Holdings.
"Capital Lease Obligations" of a Person means any obligation which is
required to be classified and accounted for as a capital lease on the face of
a balance sheet of such Person prepared in accordance with GAAP; the amount of
such obligation shall be the capitalized amount thereof, determined in
accordance with generally accepted accounting principles; and the Stated
Maturity thereof shall be the date of the last payment of rent or any other
amount due under such lease prior to the first date upon which such lease may
be terminated by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in such Person (however designated), including any Preferred Stock,
but excluding any debt securities convertible into or exchangeable for such
equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodity Agreement" means any commodity future contract, commodity option
or other similar agreement or arrangement entered into by Holdings or any
Restricted Subsidiary that is designed to protect Holdings or any Restricted
Subsidiary against fluctuations in the price of commodities used by Holdings
or a Restricted Subsidiary as raw materials in the ordinary course of
business.
"Consolidated Current Liabilities" as of the date of determination means the
aggregate amount of liabilities of Holdings and its consolidated Subsidiaries
which may properly be classified as current liabilities (including taxes
accrued as estimated), on a consolidated basis, after eliminating (i) all
intercompany items between Holdings and any Subsidiary and (ii) all current
maturities of long-term Debt, all as determined in accordance with GAAP
consistently applied.
"Consolidated EBITDA Coverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days prior to the
date of such determination to (ii) Consolidated Interest Expense for such four
fiscal quarters; provided, however, that (1) if Holdings or any Restricted
Subsidiary has Incurred any Debt since the beginning of such period that
remains outstanding or if the transaction giving rise to the need to calculate
the Consolidated EBITDA Coverage Ratio is an Incurrence of Debt, or both,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Debt as if such Debt had been
Incurred on the first day of such period and the discharge of any other Debt
repaid, repurchased, defeased or otherwise
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discharged with the proceeds of such new Debt as if such discharge had
occurred on the first day of such period, (2) if since the beginning of such
period Holdings or any Restricted Subsidiary shall have made any Asset
Disposition, the EBITDA for such period shall be reduced by an amount equal to
the EBITDA (if positive) directly attributable to the assets which are the
subject of such Asset Disposition for such period, or increased by an amount
equal to the EBITDA (if negative), directly attributable thereto for such
period, and Consolidated Interest Expense for such period shall be reduced by
an amount equal to the Consolidated Interest Expense directly attributable to
any Debt of Holdings or any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to Holdings and its continuing
Restricted Subsidiaries in connection with such Asset Dispositions for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Debt of such Restricted Subsidiary to the extent Holdings and its continuing
Restricted Subsidiaries are no longer liable for such Debt after such sale),
(3) if since the beginning of such period Holdings or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or
an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder,
which constitutes all or substantially all of an operating unit of a business,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto (including the Incurrence of any Debt)
as if such Investment or acquisition occurred on the first day of such period,
and (4) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into Holdings or any
Restricted Subsidiary since the beginning of such period) shall have made any
Asset Disposition or any Investment that would have required an adjustment
pursuant to clause (2) or (3) above if made by Holdings or a Restricted
Subsidiary during such period, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto as if
such Asset Disposition or Investment occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to
an acquisition of assets, the amount of income or earnings relating thereto,
and the amount of Consolidated Interest Expense associated with any Debt
Incurred in connection therewith, the pro forma calculations shall be
determined in good faith by a responsible financial or accounting Officer of
Holdings. If any Debt bears a floating rate of interest and is being given pro
forma effect, the interest of such Debt shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Debt if such Interest Rate Agreement has a remaining term in excess of 12
months). For the purpose of calculating the Consolidated EBITDA Coverage Ratio
at any time until two years after the Issue Date in connection with the
Incurrence of Debt by any Restricted Subsidiary to finance the acquisition of
a business reasonably related to the business of Holdings and the Restricted
Subsidiaries, any non-cash interest expense on the Discount Notes shall be
excluded.
"Consolidated Interest Expense" means, for any period, the total interest
expense of Holdings and its consolidated Restricted Subsidiaries, plus, to the
extent not included in such interest expense, (i) interest expense
attributable to Capital Lease Obligations, (ii) amortization of debt discount
and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest
payments, (v) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, (vi) net costs
under Interest Rate Agreements (including amortization of fees), (vii)
Preferred Stock dividends in respect of all Redeemable Stock of Holdings and
all Preferred Stock held by Persons other than Holdings or a Wholly Owned
Subsidiary, (viii) interest incurred in connection with Investments in
discontinued operations; (ix) interest actually paid by Holdings or any of its
Restricted Subsidiaries under any Guarantee of Debt or other obligation of any
other Person and (x) the cash contributions to any employee stock ownership
plan or similar trust to the extent such contributions are used by such plan
or trust to pay interest or fees to any Person (other than Holdings or any
Restricted Subsidiary) in connection with Debt Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of Holdings
and its consolidated Subsidiaries; provided, however, that there shall not be
included in such Consolidated Net Income (i) any net income of any Person if
such Person is not a Restricted Subsidiary, except that (A) subject to the
exclusion contained in clause (iv) below, Holdings' equity in the net income
of any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such Person
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during such period to Holdings or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other distribution
to a Restricted Subsidiary, to the limitations contained in clause (iii)
below) and (B) Holdings' equity in a net loss of any such Person for such
period shall be included in determining such Consolidated Net Income to the
extent of any cash actually contributed by Holdings or a Restricted Subsidiary
to such Person during such period; (ii) any net income (or loss) of any Person
acquired by Holdings or a Subsidiary in a pooling of interests transaction for
any period prior to the date of such acquisition; (iii) any net income of any
Restricted Subsidiary to the extent such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the
making of distributions by such Restricted Subsidiary, directly or indirectly,
to Holdings, except that (A) subject to the exclusion contained in clause (iv)
below), Holdings's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted Subsidiary
during such period to Holdings or another Restricted Subsidiary as a dividend
or other distribution (subject, in the case of a dividend or other
distribution to another Restricted Subsidiary, to the limitation contained in
this clause) and (B) Holdings's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such Consolidated
Net Income; (iv) any gain or loss realized upon the sale or other disposition
of any assets of Holdings or its consolidated subsidiaries (including pursuant
to any sale-and-leaseback arrangement) which is not sold or otherwise disposed
of in the ordinary course of business and any gain or loss realized upon the
sale or other disposition of any Capital Stock of any Person; (v)
extraordinary gains or losses; and (vi) the cumulative effect of a change in
accounting principles. Notwithstanding the foregoing, for the purposes of the
covenant described under "Certain Covenants--Limitation on Restricted
Payments" only, there shall be excluded from Consolidated Net Income any
dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to Holdings or a Restricted Subsidiary to the extent
such dividends, repayments or transfers increase the amount of Restricted
Payments permitted under such covenant pursuant to clause (a)(3)(E) thereof.
"Consolidated Net Worth" of any Person means the total of the amounts shown
on the balance sheet of such Person and its consolidated subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of
the most recent fiscal quarter of such Person ending at least 45 days prior to
the taking of any action for the purpose of which the determination is being
made, as (i) the par or stated value of all outstanding Capital Stock of such
Person plus (ii) paid-in capital or capital surplus relating to such Capital
Stock plus (iii) any retained earnings or earned surplus less (A) any
accumulated deficit, (B) any amounts attributable to Redeemable Stock and (C)
any amounts attributable to Exchangeable Stock.
"Consolidated Net Tangible Assets" as of any date of determination, means
the total amount of assets (less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items) which would appear on a consolidated balance sheet
of Holdings and its consolidated Subsidiaries, determined on a consolidated
basis in accordance with GAAP, and after deducting therefrom Consolidated
Current Liabilities and, to the extent otherwise included, the amounts of: (i)
minority interests in consolidated Subsidiaries held by Persons other than
Holdings or a Subsidiary; (ii) excess of cost over fair value of assets of
businesses acquired, as determined in good faith by the Board of Directors;
(iii) any revaluation or other write-up in book value of assets subsequent to
the Issue Date as a result of a change in the method of valuation in
accordance with GAAP consistently applied; (iv) unamortized debt discount and
expenses and other unamortized deferred charges, goodwill, patents,
trademarks, service marks, trade names, copyrights, licenses, organization or
developmental expenses and other intangible items; (v) treasury stock; and
(vi) cash set apart and held in a sinking or other analogous fund established
for the purpose of redemption or other retirement of Capital Stock to the
extent such obligation is not reflected in Consolidated Current Liabilities.
"Credit Agreement" means the agreement dated June 21, 1996 among Chemicals,
Texas Commerce Bank National Association, as administrative agent, and the
other lenders party thereto, and their respective successors and assigns, as
the same may be amended, supplemented, waived and otherwise modified from time
to time in accordance with the terms thereof.
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"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"Debt" of any Person means, without duplication, (i) the principal of and
premium (if any) in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable; (ii) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of business);
(iv) all obligations of such Person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction (other
than obligations with respect to letters of credit securing obligations (other
than obligations described in (i) through (iii) above) entered into in the
ordinary course of business of such Person to the extent such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the third Business Day following receipt by such
Person of a demand for reimbursement following payment on the letter of
credit); (v) all Redeemable Stock of such Person and, with respect to any
Subsidiary of such Person, all Preferred Stock other than pay-in-kind
dividends in the form of Preferred Stock (the amount of Debt represented
thereby shall equal the greater of its liquidation preference and the
redemption, repayment or other repurchase obligations with respect thereto,
but excluding any accrued dividends); (vi) all Hedging Obligations of such
Person; (vii) all obligations of the type referred to in clauses (i) through
(v) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee; and (viii) all obligations of the type referred to in clauses (i)
through (vi) of other Persons secured by any Lien on any property or asset of
such Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured. The amount of
Debt of any Person at any date shall be the outstanding balance of such date
of all unconditional obligations as described above and the maximum liability
upon the occurrence of the contingency giving rise to the obligation, of any
contingent obligations at such date; provided, however, that the amount
outstanding at any time of any Debt Incurred with original issue discount is
the face amount of such Debt less the remaining unamortized portion of the
original issue discount of such Debt at such time as determined in conformity
with GAAP.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of
Holdings, (b) depreciation expense, (c) amortization expense, (d) an amount
equal to any extraordinary gain or loss realized in connection with an Asset
Disposition, (e) the impact of accruals for periods prior to the Issue Date
for the Company's Stock Appreciation Rights Plan and (f) all other non-cash
items reducing such Consolidated Net Income (excluding any non-cash items to
the extent it represents an accrual of, or reserve for, cash disbursements for
any subsequent period) less all non-cash items increasing such Consolidated
Net Income (such amount calculated pursuant to this clause (f) not to be less
than zero), in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation
and amortization of, a Subsidiary of Holdings shall be added to Consolidated
Net Income to compute EBITDA only to the extent (and in the same proportion)
that the net income of such Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted
at the date of determination to be dividended or otherwise paid to Holdings by
such Subsidiary without prior approval (that has not been obtained), pursuant
to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to
such Subsidiary or its stockholders.
"ESOP Loan Provisions" means the provisions of the Credit Agreement pursuant
to which lenders thereunder have committed to make ESOP loans available to
Chemicals.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchangeable Stock" means any Capital Stock which is exchangeable or
convertible into another security (other than Capital Stock of Holdings which
is neither Exchangeable Stock nor Redeemable Stock).
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"Foreign Asset Sale" means an Asset Sale in respect of Capital Stock or
assets of a Foreign Subsidiary or a Restricted Subsidiary of the type
described in Section 936 of the Code to the extent that the proceeds of such
Asset Sale are received by a Person subject in respect of such proceeds to the
tax laws of a jurisdiction other than the United States or any state thereof
or the District of Columbia.
"Foreign Subsidiary" means a Restricted Subsidiary that is incorporated in a
jurisdiction other than the United States or a State thereof or the District
of Columbia and with respect to which more than 66 2/3% of any of its sales,
earnings or assets (determined on a consolidated basis in accordance with
GAAP) are located in, generated from or derived from operations located in
territories or jurisdictions outside the United States.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth (i) in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such
other statements by such other entity as approved by a significant segment of
the accounting profession, and (iv) the rules and regulations of the SEC
governing the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt or other obligation of any Person
and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation of such Person (whether arising by
virtue of partnership arrangements, or by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Debt or other obligation
of the payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part); provided, however, that the term "Guarantee"
shall not include endorsements for collection or deposit in the ordinary
course of business or guarantees of obligations of a Subsidiary in the
ordinary course of business if such obligations do not constitute Debt of such
Subsidiary. The term "Guarantee" used as a verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement, Currency Agreement or Commodity
Agreement.
"Holder" means the Person in whose name a Discount Note is registered on the
Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Debt or Capital Stock of a Person existing at
the time such Person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary. The term "Incurrence" when used as a noun
shall have a correlative meaning. The accretion of principal of a non-interest
bearing or other discount security shall be deemed the Incurrence of Debt.
"Independent Financial Advisor" means a reputable accounting, appraisal or
investment banking firm that, in the reasonable good faith judgment of the
Board of Directors of Holdings, is qualified to perform the task for which
such firm has been engaged and is independent with respect to Holdings and its
Affiliates.
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"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect Holdings or any Restricted Subsidiary against fluctuations in interest
rates.
"Investment" in any Person means any loan or advance to, any acquisition of
Capital Stock, equity interest, obligation or other security of, or capital
contribution or other investment in, or any other credit extension to
(including by way of Guarantee of any Debt of) such Person. For purposes of
the definition of "Unrestricted Subsidiary," the definition of "Restricted
Payment" and the covenant described under "--Certain Covenants--Limitation on
Restricted Payments", (i) "Investment" shall include the portion
(proportionate to Holdings' equity interest in such Subsidiary) of the fair
market value of the net assets of any Subsidiary of Holdings at the time that
such Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that if such designation is made in connection with the acquisition of such
Subsidiary or the assets owned by such Subsidiary, the "Investment" in such
Subsidiary shall be deemed to be the consideration paid in connection with
such acquisition; provided, further, however, that upon a redesignation of
such Subsidiary as a Restricted Subsidiary, Holdings shall be deemed to
continue to have a permanent "Investment" in an Unrestricted Subsidiary equal
to an amount (if positive) equal to (x) Holdings' "Investment" in such
Subsidiary at the time of such redesignation less (y) the portion
(proportionate to Holdings' equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
"Investment Grade Rating" means a rating of BBB- or higher by S&P and Baa3
or higher by Moody's or the equivalent of such rating by S&P and Moody's or by
any other Rating Agencies selected as provided in the definition of Rating
Agency.
"Issue Date" means the date on which the Discount Notes are originally
issued, after giving effect to the Transaction.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Moody's" means Moody's Investor Service, Inc.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and
when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to
such properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, title and recording expenses, commissions and other fees and expenses
incurred, and all Federal, state, provincial, foreign and local taxes required
to be accrued as a liability under GAAP, as a consequence of such Asset
Disposition, (ii) all payments made on any Debt which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien
upon or other security agreement of any kind with respect to such assets, or
which must by its terms, or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law be repaid out of the proceeds from
such Asset Disposition, and (iii) all distributions and other payments
required to be made to minority interest holders in Subsidiaries or joint
ventures as a result of such Asset Disposition and (iv) the deduction of
appropriate amounts provided by the sellers as a reserve, in accordance with
GAAP, against any liabilities associated with the property or other assets
disposed in such Asset Disposition and retained by Holdings or any Restricted
Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
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"Non-Convertible Capital Stock" means, with respect to any corporation, any
non-convertible Capital Stock of such corporation and any Capital Stock of
such corporation convertible solely into non-convertible common stock of such
corporation; provided, however, that Non-Convertible Capital Stock shall not
include any Redeemable Stock or Exchangeable Stock.
"Permitted Holders" means (i) the purchasers in the Equity Private
Placement, (ii) any Person who on the date of issuance of the Discount Notes
is an officer, director, stockholder, employee or consultant of Sterling or
Unicorn, (iii) each of Frank J. Hevrdejs, William C. Oehmig, J. Virgil
Waggoner, Robert W. Roten and Gordon Cain, (iv) any Permitted Transferee with
respect to any Person covered by the preceding clauses (i) through (iii), (v)
the ESOP or (vi) any savings or investment plan sponsored by Chemicals or
Holdings.
"Permitted Investment" means an Investment by Holdings or any Restricted
Subsidiary in (i) a Wholly Owned Subsidiary or a Person that will, upon the
making of such Investment, become a Wholly Owned Subsidiary; (ii) Temporary
Cash Investments; (iii) receivables owing to Holdings or any Restricted
Subsidiary if created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms; (iv) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to Holdings or any Restricted Subsidiary
or in satisfaction of judgments; (v) any Person to the extent such Investment
represents the non-cash portion of the consideration received for an Asset
Disposition as permitted pursuant to the covenant described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock"; (vi)
Investments by Holdings or a Restricted Subsidiary in a Person to the extent
the consideration for such Investment consists of shares of Capital Stock of
Holdings (other than Redeemable Stock); (vii) payroll, travel and similar
advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (viii) loans or advances to employees or
to a trust for the benefit of such employees that are made in the ordinary
course of business of Holdings or such Restricted Subsidiary; (ix) the ESOP
Loan; (x) the Permitted Loan; (xi) another Person if as a result of such
Investment such Person is merged or consolidated with or into, or transfers or
conveys all or substantially all of its assets to, Holdings or a Restricted
Subsidiary; provided that such Person's primary business is reasonably related
to the business of Holdings and its Restricted Subsidiaries; and (xii)
Investments in Unrestricted Subsidiaries or joint ventures (whether in
corporate or partnership form or otherwise), in either case in entities
engaged in businesses reasonably related to the business of Holdings and its
Restricted Subsidiaries, in an aggregate amount not to exceed $10 million;
provided, however, that the amount available for Investments pursuant to this
clause (xii) shall be reduced in accordance with clause (a)(3)(G) under "--
Certain Covenants--Limitation on Restricted Payments".
"Permitted Liens" means, with respect to any Person, (a) pledges or deposits
by such Person under worker's compensation laws, unemployment insurance laws
or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Debt) or leases to which
such Person is a party, or deposits to secure public or statutory obligations
of such Person or deposits of cash or United States government bonds to secure
surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case Incurred in the ordinary course of business; (b) Liens imposed by
law, such as carriers', warehousemen's and mechanics' Liens, in each case for
sums not yet due or being contested in good faith by appropriate proceedings
or other Liens arising out of judgments or awards against such Person with
respect to which such Person shall then be proceeding with an appeal or other
proceedings for review; (c) Liens for property taxes not yet subject to
penalties for non-payment or which are being contested in good faith by
appropriate proceedings; (d) Liens in favor of issuers of surety bonds or
letters of credit issued pursuant to the request of and for the account of
such Person in the ordinary course of its business; provided, however, that
such letters of credit do not constitute Debt; (e) minor survey exceptions,
minor encumbrances, easements or reservations of, or rights of others for,
licenses, rights of way, sewers, electric lines, telegraph and telephone lines
and other similar purposes, or zoning or other restrictions as to the use of
real property or Liens incidental to the conduct of the business of such
Person or to the ownership of its properties which were not Incurred in
connection with Debt and which do not in the aggregate materially adversely
affect the value of said properties or materially impair their use in the
operation of the business of
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such Person; (f) Liens securing Debt Incurred to finance the construction,
purchase or lease of, or repairs, improvements or additions to, property of
such Person; provided, however, that the Lien may not extend to any other
property owned by such Person or any of its Subsidiaries at the time the Lien
is Incurred, the Debt secured by the Lien may not be Incurred more than 180
days after the later of the acquisition, completion of construction, repair,
improvement, addition or commencement of full operation of the property
subject to the Lien, the Debt secured by such Lien shall have otherwise been
permitted to be issued under the Discount Notes Indenture, and the aggregate
principal amount of Debt secured by such Liens shall not exceed the lesser of
cost or Fair Market Value of the assets or property so acquired or
constructed; (g) Liens to secure Debt permitted under the provisions described
in clause (b)(1) and (2) under "--Certain Covenants--Limitation on Debt"; (h)
Liens existing on the Issue Date; (i) Liens on property or shares of Capital
Stock of another Person at the time such other Person becomes a Subsidiary of
such Person; provided, however, that such Liens are not created, incurred or
assumed in connection with, or in contemplation of, such other Person becoming
such a Subsidiary; provided further, however, that such Lien may not extend to
any other property owned by such Person or any of its Subsidiaries; (j) Liens
on property at the time such Person or any of its Subsidiaries acquires the
property, including any acquisition by means of a merger or consolidation with
or into such Person or a Subsidiary of such Person; provided, however, that
such Liens are not created, incurred or assumed in connection with, or in
contemplation of, such acquisition; provided further, however, that the Liens
may not extend to any other property owned by such Person or any of its
Subsidiaries; (k) Liens securing Debt or other obligations of a Subsidiary of
such Person owing to such Person or a Wholly Owned Subsidiary of such Person;
(l) Liens securing Interest Rate Agreements and Currency Agreements so long as
such Interest Rate Agreements and Currency Agreements relate to Debt that is,
and is permitted to be under the Discount Notes Indenture, secured by a Lien
on the same property securing such Interest Rate Agreements and Currency
Agreements; (m) Liens created pursuant to the terms of the Pledge Agreement
and (n) Liens to secure any Refinancing (or successive Refinancings) as a
whole, or in part, of any Debt secured by any Lien referred to in the
foregoing clauses (f), (h), (i) and (j); provided, however, that (x) such new
Lien shall be limited to all or part of the same property that secured the
original Lien (plus improvements to or on such property) and (y) the Debt
secured by such Lien at such time is not increased to any amount greater than
the sum of (A) the outstanding principal amount or, if greater, committed
amount of the Debt described under clauses (f), (h), (i) or (j) at the time
the original Lien became a Permitted Lien and (B) an amount necessary to pay
any fees and expenses, including premiums, related to such refinancing,
refunding, extension, renewal or replacement. Notwithstanding the foregoing,
"Permitted Liens" will not include any Lien described in clauses (f), (i) or
(j) above to the extent such Lien applies to any assets acquired directly or
indirectly from Net Available Cash pursuant to clause (a)(ii)(B) or (D) of the
covenant described under "--Certain Covenants--Limitation on Sale of Assets
and Subsidiary Stock".
"Permitted Loan" means the loan to Holdings by Chemicals, to be made on the
Issue Date, of up to $485 million, representing the proceeds of the Notes
Offering and amounts initially borrowed under the Term Loan Provisions of the
Credit Agreement net of repayment of existing Debt, purchase of certain equity
interests and payment of Transaction expenses; provided, however, that such
loan is subordinated in right of payment to the Discount Notes; and provided,
further, however, that such loan is discharged in full on or prior to October
15, 1996 through the distribution from Chemicals to Holdings, in the form of a
dividend, of the receivable relating thereto.
"Permitted Transferee" means with respect to any Person, (i) in the case of
an entity, any Affiliate of such Person, and (ii) in the case of an
individual, any person related by lineal or collateral consanguinity to such
individual or to the spouse of such individual (adopted persons shall be
considered the natural born child of their adoptive parents; lineal
consanguinity is that relationship that exists between persons of whom one is
descended (or ascended) in a direct line from the other, as between son,
father, grandfather, great-grandfather; and collateral consanguinity is that
relationship that exists between persons who have the same ancestors, but do
not descend (or ascend) from the other, as between uncle and nephew, or cousin
and cousin), in each case to whom such Person has transferred Common Stock of
Holdings.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
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"Preferred Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Public Equity Offering" means an underwritten primary public offering of
common stock of Holdings pursuant to an effective registration statement under
the Securities Act.
"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of Holdings has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.
"Rating Agency" means S&P and Moody's, or if S&P or Moody's or both shall
not make a rating on the Discount Notes publicly available, a nationally
recognized statistical rating agency or agencies, as the case may be, selected
by Holdings (as certified by a resolution of the Board of Directors) which
shall be substituted for S&P or Moody's or both, as the case may be.
"Redeemable Stock" means any Capital Stock that by its terms or otherwise is
required to be redeemed on or prior to the Stated Maturity of the Discount
Notes or is redeemable at the option of the holder thereof at any time on or
prior to the Stated Maturity of the Discount Notes.
"Refinance" means, in respect of any Debt, to refinance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue other Debt in
exchange or replacement for, such indebtedness. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Debt" means Debt that Refinances any Debt of Holdings or any
Restricted Subsidiary existing on the Issue Date or Incurred in compliance
with the Discount Notes Indenture including Debt that Refinances Refinancing
Debt; provided, however, that (i) such Refinancing Debt has a Stated Maturity
no earlier than the Stated Maturity of the Debt being Refinanced, (ii) such
Refinancing Debt has an Average Life at the time such Refinancing Debt is
Incurred that is equal to or greater than the Average Life of the Debt being
Refinanced, (iii) such Refinancing Debt has an aggregate principal amount (or
if Incurred with original issue discount, an aggregate issue price) that is
equal to or less than the aggregate principal amount (or if Incurred with
original issue discount, the aggregate accreted value) then outstanding or
committed (plus fees and expenses, including any premium and defeasance costs)
under the Debt being Refinanced and (iv) with respect to any Refinancing Debt
of Debt other than Senior Debt, such Refinancing Debt shall rank no more
senior, and shall be at least as subordinated, in right of payment to the
Discount Notes as the Debt being so extended, renewed, refunded or refinanced;
provided further, however, that Refinancing Debt shall not include (x) Debt of
a Subsidiary that Refinances Debt of Holdings or (y) Debt of Holdings or a
Restricted Subsidiary that Refinances Debt of an Unrestricted Subsidiary.
"Restricted Subsidiary" means any Subsidiary of Holdings that is not an
Unrestricted Subsidiary.
"Revolving Credit Provisions" means the provisions of the Credit Agreement
pursuant to which lenders thereunder have committed to make available to
Chemicals a revolving credit facility, including the Canadian Facility.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby Holdings or a Restricted Subsidiary
transfers such property to a Person and Holdings or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Senior Debt" means (i) Debt of Holdings, whether outstanding on the Issue
Date or thereafter Incurred and (ii) accrued and unpaid interest (including
interest accruing on or after the filing of any petition in bankruptcy
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or for reorganization relating to Holdings whether or not such interest is an
allowable claim in any such proceeding) in respect of (A) indebtedness of
Holdings for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which
Holdings is responsible or liable unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
provided that such obligations are subordinate in right of payment to the
Discount Notes; provided, however, that Senior Debt shall not include (1) any
obligation of Holdings to any Subsidiary, (2) any liability for Federal,
state, local or other taxes owed or owing by Holdings, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course
of business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Debt of Holdings (and any accrued and unpaid interest in
respect thereof) which is subordinate or junior in any respect to any other
Debt or other obligation of Holdings, (5) that portion of any Debt which at
the time of Incurrence is Incurred in violation of the Discount Notes
Indenture, (6) Debt owed, due, or guaranteed on behalf of, any director,
officer or employee of Holdings or any Subsidiary (including, without
limitation, amounts owed for compensation), and (7) Debt which when Incurred
and without respect to any election under Section 1111(b) of Title 11 United
States Code, is without recourse to Holdings.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" of Holdings as defined in Rule 1-02 of Regulation S-
X, promulgated by the SEC.
"S&P" means Standard & Poor's Ratings Group.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the principal of such security is due
and payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such security at the
option of the holder thereof upon the happening of any contingency unless such
contingency has occurred).
"Subordinated Obligation" means any Debt of Holdings (whether outstanding on
Issue Date or hereafter Incurred) which is subordinate or junior in right of
payment to the Discount Notes.
"Subsidiary" means any corporation, association, partnership or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) Holdings, (ii) Holdings and one or more
Subsidiaries or (iii) one or more Subsidiaries.
"Tangible Property" means all land, buildings, machinery and equipment and
leasehold interests and improvements which would be reflected on a balance
sheet of Holdings prepared in accordance with generally accepted accounting
principles, excluding (i) all rights, contracts and other intangible assets of
any nature whatsoever and (ii) all inventories and other current assets.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 270 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized
by the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50,000,000 (or the foreign
currency equivalent thereof) and has outstanding debt which is rated "A" (or
such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker
dealer or mutual fund distributor, (iii) repurchase obligations with a term of
not more than 30 days for underlying securities of the types described in
clause (i) above entered into with a bank meeting the qualifications described
in clause (ii) above, (iv) investments in commercial paper, maturing not more
than 180 days after the date of acquisition, issued by a corporation (other
than an Affiliate of Holdings) organized and in existence under the laws of
the United States of America or any foreign country recognized by the United
States of America with a
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rating at the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's or "A-1" (or higher) according to S&P, (v)
investments in securities with maturities of six months or less from the date
of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by S&P or "A" by Moody's,
(vi) participations (for a tenor of not more than 90 days) in loans to Persons
having short-term credit ratings of at least "A-1" and "P-1" by S&P and
Moody's, respectively, (vii) with respect to any Foreign Subsidiary organized
in Canada, commercial paper of Canadian companies rated R-1 High or the
equivalent thereof by Dominion Bond Rating Services with maturities of less
than one year and (viii) with respect to Foreign Subsidiaries not organized in
Canada, government obligations of another country whose debt securities are
rated by S&P and/or Moody's "A-1" or "P-1", or the equivalent thereof (if a
short-term debt rating is provided by either) or at least "AA" or "AA2", or
the equivalent thereof (if a long-term unsecured debt rating is provided by
either), in each case, with the maturities of less than 12 months.
"Term Loan Provisions" means the provisions of the Credit Agreement pursuant
to which lenders thereunder have committed to make term loans available to
Chemicals.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S)77aaa-77bbbb)
as in effect on the date of this Discount Notes Indenture.
"Trustee" means the party named as such in the Discount Notes Indenture
until a successor replaces it and, thereafter, means the successor.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States
of America (including any agency or instrumentality thereof) for the payment
of which the full faith and credit of the United States of America is pledged
and which are not callable at the issuer's option.
"Unrestricted Subsidiary" means (i) any Subsidiary of Holdings that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
of Holdings (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries own
any Capital Stock or Debt of, or holds any Lien on any property of, Holdings
or any other Subsidiary of Holdings that is not a Subsidiary of the Subsidiary
to be so designated; provided, however, that either (A) the Subsidiary to be
so designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets of greater than $1,000, such designation would be permitted under the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments"; and provided, further, however, that no (1) Subsidiary of Holdings
that is a Restricted Subsidiary on the Issue Date (other than a Restricted
Subsidiary with total assets of $1,000 or less on the Issue Date) may be
designated an Unrestricted Subsidiary and (2) no Subsidiary holding, directly
or indirectly, any assets (other than assets totaling $1,000 or less which
constituted the only assets of a Restricted Subsidiary on the Issue Date) held
by Holdings or a Restricted Subsidiary on the Issue Date may be designated an
Unrestricted Subsidiary. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) if such Unrestricted Subsidiary at
such time has Debt, Holdings could Incur $1.00 of additional Debt under
paragraph (a) of the covenant described under "--Certain Covenants--Limitation
on Debt" and (y) no Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be by Holdings to the Trustee by
promptly filing with the Trustee a copy of the board resolution giving effect
to such designation and an Officer's Certificate certifying that such
designation complied with the foregoing provisions.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
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"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by Holdings
or another Wholly Owned Subsidiary; provided, however, that a Foreign
Subsidiary shall be a Wholly Owned Subsidiary if more than 90% of the Capital
Stock and Voting Stock thereof is owned by Holdings or another Wholly Owned
Subsidiary.
DESCRIPTION OF THE WARRANTS
A total of Warrants will be issued under a warrant agreement
(the "Warrant Agreement") dated as of , 1996, between
Holdings and KeyCorp Shareholder Services, Inc. as Warrant Agent (the "Warrant
Agent"). The Warrants are subject to the terms contained in the Warrant
Agreement. The following summary, which describes certain material provisions
of the Warrant Agreement and the Warrants, does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, the Warrant
Agreement and the Warrants, including the definitions therein of the
capitalized terms not defined herein. A copy of the form of the Warrant
Agreement is filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
GENERAL
The Warrants will be exercisable at any time beginning twelve months
following the Closing Date and on or prior to the Expiration Date. Each
Warrant, when exercised, will entitle the holder thereof to receive one share
of Holdings Common Stock, subject to adjustment, at an exercise price of $.01
per share (the "Exercise Price"). Upon consummation of the Transaction, the
Warrants will initially entitle the holders thereof to acquire, in the
aggregate, approximately % of the outstanding Holdings Common Stock on a
fully diluted basis. The Discount Notes and the Warrants will not trade
separately until the Separation Date. All outstanding Warrants will expire on
, 2008 (the "Expiration Date"). Holdings will give notice not
less than 90 nor more than 120 days prior to the Expiration Date to the
registered holders of the then outstanding Warrants. If Holdings fails to give
this notice, the Warrants will nevertheless terminate and become void on the
Expiration Date.
METHOD OF EXERCISE
The Warrants may be exercised at any time beginning twelve months following
the Closing Date by surrendering to the Warrant Agent a Warrant certificate
signed by the registered holder indicating such holder's election to exercise
or sell all or a portion of the Warrants evidenced by such certificate,
together with payment in full of the applicable Exercise Price (payable in
cash or through the surrender of unexercised Warrants, as provided in the
Warrant Agreement). Upon surrender of the Warrant certificate for exercise or
sale and payment of the Exercise Price, the Warrant Agent will deliver or
cause to be delivered, to or upon the written order of any holder, appropriate
evidence of ownership of any shares of Holdings Common Stock or other
securities or property (including any money) to which such holder is entitled,
together with Warrant certificates evidencing any Warrants not exercised or
sold.
Certificates for Warrants will be issued in fully registered form only. No
service charge shall be made for registration of transfer or exchange upon
surrender of any Warrant certificate at the office of the Warrant Agent
maintained for that purpose. Holdings may require payment of a sum sufficient
to cover any tax or other government charge that may be imposed in connection
with any registration or transfer or exchange of Warrant certificates.
Fractional shares of Holdings Common Stock are not required to be issued
upon exercise of Warrants, but in lieu thereof Holdings will pay a cash
adjustment.
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ADJUSTMENT
The number of shares of Holdings Common Stock issuable upon the exercise of
each Warrant and the Exercise Price are subject to adjustment in certain
events, including (i) a dividend or distribution on Holdings Common Stock in
shares of Holdings' capital stock or a stock split, combination, subdivision
or reclassification of Holdings Common Stock, (ii) the issuance of rights,
options, warrants or convertible or exchangeable securities (collectively,
"Rights") to all holders of Holdings Common Stock entitling such holders to
purchase shares of Holdings Common Stock for a consideration per share less
than the then current market value per share of Holdings Common Stock, (iii)
the sale of shares of Common Stock or Rights at a price below the then current
market value per share of Holdings Common Stock, and (iv) the distribution to
all holders of Holdings Common Stock of any of Holdings' assets, debt
securities, or any rights or warrants to purchase securities (excluding those
rights referred to in clause (ii) above and excluding cash dividends or other
cash distributions from current or retained earnings).
In the event of a distribution to holders of Holdings Common Stock which
results in an adjustment to the number of shares of Holdings Common Stock or
other consideration for which a Warrant may be exercised, the holders of the
Warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend. See
"Certain United States Federal Income Tax Consequences."
MERGERS, CONSOLIDATIONS, ETC.
In the event that Holdings consolidates or mergers with or into, or sells
all or substantially all of its property and assets to, another person, each
Warrant thereafter shall entitle the holder to receive upon the exercise
thereof the number of shares of capital stock or other securities or property
which the holder of a share of Holdings Common Stock is entitled to receive
upon completion of such consolidation, merger or sale of assets. If Holdings
merges, consolidates or sells all or substantially all of its property and
assets to another person and, in connection therewith, consideration to the
holders of Common Stock in exchange for their shares is payable solely in
cash, or in the event of the dissolution, liquidation or winding-up of
Holdings, then the holders of the Warrants will be entitled to receive
distributions on an equal basis with the holders of Holdings Common Stock (or
other securities) issuable upon exercise of the Warrants, as if the Warrants
had been exercised immediately prior to such event (or the record date
therefor), less the Exercise Price. Upon receipt by the holders of such
payment, if any, the Warrants will expire and the rights of holders thereof
with respect to the Warrants will cease. In the case of any such merger,
consolidation or sale of assets, the surviving or acquiring person and, in the
event of any dissolution, liquidation or winding-up of Holdings, Holdings,
must deposit with the Warrant Agent the funds, if any, necessary to pay the
holders of the Warrants. After such funds and the surrendered Warrants are
received, the Warrant Agent must make payment by delivering a check in such
amount as is appropriate (or, in the case of consideration other than cash,
such consideration as is appropriate) to such person or persons as it may be
directed in writing by the holders surrendering such Warrants.
REGISTRATION REQUIREMENT
Holdings is required, under the terms of the Warrant Agreement, to use its
best efforts to cause to be declared effective no later than twelve months
after the Closing Date, a shelf registration statement with respect to the
issuance of the shares of Holdings Common Stock upon the exercise of the
Warrants. Holdings is required to use its best efforts to maintain the
effectiveness of such shelf registration statement until the earlier of (i)
such time as all Warrants have been exercised and (ii) the Expiration Date.
During any consecutive 365-day period, Holdings will have the ability to
suspend availability of such shelf registration statement for up to two 15
consecutive day periods (except for the 30 consecutive day period immediately
prior to the Expiration Date) if Holdings' Board of Directors determines in
good faith that there is a valid purpose for the suspension and provides
notice of such determination to the holders at their addresses appearing in
the register of Warrants maintained by the Warrant Agent.
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NO RIGHTS AS STOCKHOLDERS
Holders of Warrants are not entitled, by virtue of being such holders, to
receive dividends or subscription rights, vote, consent, exercise any
preemptive right or receive notice as stockholders of Holdings in respect of
any meeting of stockholders for the election of directors of Holdings or any
other matter, or exercise any other rights whatsoever as stockholders of
Holdings.
RESERVATION OF SHARES
Prior to the consummation of the Offering, the Company will authorize and
reserve for issuance such number of shares of Holdings Common Stock as shall
be issuable upon exercise of all outstanding Warrants. Such shares of Holdings
Common Stock, when issued, will be duly and validly issued, fully paid and
non-assessable, free of preemptive rights and free from all taxes, liens,
charges and security interests with respect to the issue thereof.
REPORTS
Whether or not required by the rules and regulations of the SEC, so long as
any of the Warrants remain outstanding, Holdings shall cause copies of the
reports described under "Description of the Discount Notes--Certain
Covenants--SEC Reports" to be filed with the Warrant Agent and mailed to the
holders at their addresses appearing in the register of Warrants maintained by
the Warrant Agent.
AMENDMENT
From time to time, Holdings and the Warrant Agent, without the consent of
the holders of the Warrants, may amend or supplement the Warrant Agreement for
certain purposes, including the curing of defects or inconsistencies or making
changes that do not adversely affect the rights of any holder. Any amendment
or supplement to the Warrant Agreement that has an adverse effect on the
interests of the holders of the Warrants shall require the written consent of
the holders of a majority of the then outstanding Warrants. The consent of
each holder of the Warrants affected shall be required for any amendment
pursuant to which the number of shares of Holdings Common Stock receivable
upon the exercise of Warrants would be decreased (other than pursuant to
adjustments provided for in the Warrant Agreement).
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Upon consummation of the Transaction, the authorized capital stock of
Holdings will be 22,000,000 shares, consisting of 20,000,000 shares of
Holdings Common Stock and 2,000,000 shares of Preferred Stock of Holdings, par
value $0.01 per share ("Preferred Stock"). The following summary is qualified
in its entirety by reference to the Form of Holdings' Certificate of
Incorporation (the "Charter") and the Amended Bylaws of the Company (the
"Bylaws"), which will be the Certificate of Incorporation and Bylaws of
Holdings upon consummation of the Merger. Copies of the Charter and Bylaws are
included as exhibits to the Registration Statement of which this Prospectus is
a part.
Holdings Common Stock. The holders of Holdings Common Stock are entitled to
dividends in such amounts and at such times as may be declared by the Board of
Directors out of funds legally available therefor. Holders of Holdings Common
Stock are entitled to one vote per share for the election of directors and
other corporate matters. In the event of liquidation, dissolution or winding
up of Holdings, holders of Holdings Common Stock would be entitled to share
ratably in all assets of Holdings available for distribution to the holders of
Holdings Common Stock. Holdings Common Stock carries no preemptive rights. All
outstanding shares of Holdings Common Stock are expected to be duly
authorized, validly issued, fully paid and nonassessable.
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Preferred Stock. The Board of Directors is authorized to issue from time to
time, without stockholder authorization, in one or more designated series,
shares of preferred stock with such dividend, redemption, conversion and
exchange provisions as are provided in the particular series. Upon
consummation of the Transaction, none of such shares will have been issued.
Except as by law expressly provided, or except as may be provided by
resolution of the Board of Directors, the Preferred Stock shall have no right
or power to vote on any question or in any proceeding or to be represented at,
or to receive notice of, any meeting of stockholders of Holdings. The issuance
of the Preferred Stock could have the effect of delaying or preventing a
change in control of Holdings. The Board of Directors has no present plans to
issue any of the Preferred Stock.
PROVISIONS HAVING POSSIBLE ANTI-TAKEOVER EFFECT
Statutory Provisions. Section 203 ("Section 203") of the General Corporation
Law of the State of Delaware (the "Delaware Act") restricts certain
transactions between a corporation organized under Delaware law (or its
majority-owned subsidiaries) and any person holding 15% or more of the
corporation's outstanding voting stock, together with the affiliates or
associates of such person (an "Interested Stockholder"). Section 203 generally
prohibits a publicly held Delaware corporation from engaging in the following
transactions with an Interested Stockholder, for a period of three years from
the date the stockholder becomes an Interested Stockholder (unless certain
conditions, described below, are met): (a) all mergers or consolidations, (b)
sales, leases, exchanges or other transfers of 10% or more of the aggregate
assets of the corporation, (c) issuances or transfers by the corporation of
any stock of the corporation which would have the effect of increasing the
Interested Stockholder's proportionate share of the stock of any class or
series of the corporation, (d) any other transaction which has the effect of
increasing the proportionate share of the stock of any class or series of the
corporation which is owned by the Interested Stockholder, and (e) receipt by
the Interested Stockholder of the benefit (except proportionately as a
stockholder) of loans, advances, guarantees, pledges or other financial
benefits provided by the corporation.
The three-year ban does not apply if either the proposed transaction or the
transaction by which the Interested Stockholder became an Interested
Stockholder is approved by the board of directors of the corporation prior to
the date such stockholder becomes an Interested Stockholder. Additionally, an
Interested Stockholder may avoid the statutory restriction if, upon the
consummation of the transaction whereby such stockholder becomes an Interested
Stockholder, the stockholder owns at least 85% of the outstanding voting stock
of the corporation without regard to those shares owned by the corporation's
officers and directors or certain employee stock plans. Business combinations
are also permitted within the three-year period if approved by the board of
directors and authorized at an annual or special meeting of stockholders, by
the holders of at least 66 2/3% of the outstanding voting stock not owned by
the Interested Stockholder. In addition, any transaction is exempt from the
statutory ban if it is proposed at a time when the corporation has proposed,
and a majority of certain continuing directors of the corporation have
approved, a transaction with a party which is not an Interested Stockholder of
the corporation (or who becomes such with board approval) if the proposed
transaction involves (a) certain mergers or consolidations involving the
corporation, (b) a sale or other transfer of over 50% of the aggregate assets
of the corporation, or (c) a tender or exchange offer for 50% or more of the
outstanding voting stock of the corporation.
Section 203 is not applicable to corporations that do not have a class of
voting stock that is (i) listed on a national securities exchange, (ii)
authorized for quotation on the NASDAQ Stock Market, or (iii) held of record
by more than 2,000 stockholders, unless the foregoing results from action
taken, directly or indirectly, by an Interested Stockholder or from a
transaction in which a person becomes an Interested Stockholder. Upon
consummation of the Transaction, it is expected that Section 203 will not be
applicable to Holdings, though it may be applicable in the future. A
corporation may, at its option, exclude itself from the coverage of Section
203 if its original Certificate of Incorporation contains a provision
expressly electing not to be governed by Section 203. The Charter will not
contain such a provision.
Charter and Bylaw Provisions. The Charter will provide that the number of
directors will be fixed by the Board of Directors in accordance with the
Bylaws, but will consist of not less than three nor more than 15
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members. The Bylaws currently provide that the Board of Directors will consist
of seven members. A director of Holdings may be removed only upon the
affirmative vote of the holders of not less than a majority of the outstanding
capital stock entitled to vote at an election of directors.
The Charter will provide that Holdings may, by action of its Board of
Directors, issue warrants, rights and options with such terms as determined by
the Board of Directors. This provision will allow the Board of Directors to
adopt a rights plan. Holdings does not currently have a rights plan in effect.
The Charter will provide that Holdings may, by action of its Board of
Directors, provide for a sinking fund for the purchase or redemption of shares
of any series and specify the terms and conditions governing the operations of
any such fund. Upon consummation of the Transaction, Holdings will not have
any such fund.
The Charter will provide that nominations of persons for election to the
Board of Directors may be made by or at the direction of the Board of
Directors, and that the Bylaws may set forth procedures for nominations of
persons for election to the Board of Directors. The Bylaws do not currently
contain any such procedures. The Charter and the Bylaws will provide that any
newly created directorship resulting from an increase in the number of
directors or a vacancy on the Board of Directors shall be filled by vote of a
majority of the remaining directors then in office, even though less than a
quorum. The Charter will also provide that special meetings of the
stockholders may only be called by the Board of Directors and that the
stockholders may not act by written consent. The Charter will provide that
these provisions of the Charter, and the Bylaws as a whole, may not be amended
by the stockholders without the approval of at least 66 2/3% of the voting
power of all shares of Holdings entitled to vote generally in the election of
directors, voting together as a single class.
The foregoing provisions of the Charter and the Bylaws, and of Section 203
if applicable, together with the ability of the Board of Directors to issue
Preferred Stock without further stockholder action, could delay or frustrate
the removal of incumbent directors or the assumption of control by the holder
of a large block of Holdings Common Stock even if such removal or assumption
would be beneficial, in the short term, to stockholders of Holdings. The
provisions could also discourage or make more difficult a merger, tender offer
or proxy contest even if such event would be favorable to the interests of
stockholders.
LIMITATION ON DIRECTORS AND OFFICERS LIABILITY
The Delaware Act authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by such
legislation, directors are accountable to corporations and their stockholders
for monetary damages for conduct constituting gross negligence in the exercise
of their duty of care. Although the Delaware Act does not change directors'
duty of care, it enables corporations to limit available relief to equitable
remedies such as injunction or rescission. The Charter limits the liability of
Holdings' directors to Holdings or its stockholders (in their capacity as
directors but not in their capacity as officers) to the fullest extent
permitted by the Delaware Act. Specifically, directors of Holdings will not be
personally liable for monetary damages for breach of a director's fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to Holdings or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware Act or (iv) for any
transaction from which the director derived an improper personal benefit.
The inclusion of this provision in the Charter may have the effect of
reducing the likelihood of derivative litigation against directors and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefited Holdings and its stockholders.
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TRANSFER RESTRICTIONS
Purchasers of shares in the Equity Private Placement will become parties to
a Stockholder Agreement (the "Stockholder Agreement"), which restricts
transfers of shares of Holdings Common Stock owned by a stockholder other than
(i) Rollover Shares (except with respect to such shares held by parties to the
Inducement Agreement), and (ii) shares distributed to such stockholder by the
New ESOP or the Company's existing Employee Stock Ownership Plan. Except for
certain permitted transfers, and subject to the Control Provision (as defined)
and the Material Agreement Provision (as defined), the Stockholders Agreement
permits the stockholders who are parties thereto (the "Holders") to transfer
their shares of Common Stock or any interest therein only upon receipt of a
bona fide third party offer and after first offering such shares to the New
ESOP, then to Holdings and finally to the other Holders (the "Eligible
Offerees"). Subject to the Control Provision and the Material Agreement
Provision, the Stockholders Agreement permits the Holders to transfer their
shares of Common Stock or an interest therein, without first receiving a bona
fide third party offer and first offering the shares to the Eligible Offerees,
only if the transfer is: (1) between Holders; (2) by any Holder to the New
ESOP or Holdings; (3) by any Holder to a wholly-owned subsidiary corporation
or parent corporation of such Holder and vice versa; (4) by any individual
Holder during such Holder's lifetime to a guardian of his estate, to his
spouse during marriage and not incident to a divorce, or to certain relatives
of such Holder or spouse, and to trusts for the benefit of such Holder, his
spouse, or certain relatives of such Holder or spouse, and vice versa; (5) to
the estate, heirs, beneficiaries or legatees of any individual Holder upon his
death; (6) by certain investors that are Holders to their Associates (as
defined), or the officers, directors, shareholders or employees and certain
consultants of such Holders, and certain of their relatives and their
Associates; (7) by any Holder at a price per share of $12.00 until there has
been a New ESOP valuation of the Common Stock at which time the price shall be
the New ESOP valuation of such Common Stock, to any person who has become a
director, officer or employee of the Company after the date of the Merger; (8)
by a Holder to a bank or other financial institution for the purpose of
securing a loan to a Holder to purchase shares of Common Stock; (9) by the New
ESOP to New ESOP participants, alternate payees and beneficiaries to the
extent required by law or the provisions of the New ESOP; (10) to certain
charitable organizations; (11) with the consent of the Company, by any Holder
to a qualified retirement plan sponsored by the Holder or any corporation
controlling, controlled by or under common control with such Holder; (12) by
any such qualified retirement plan to participants, alternate payees and
beneficiaries to the extent required by law; (13) made, within one year after
the Closing Date, by TSG, William C. Oehmig or Frank J. Hevrdejs in
transactions exempt from registration under the Securities Act; (14) by any
Holder which is a partnership, corporation or limited liability company to the
equity holders of such Holder as a distribution pursuant to law, its
organization documents or its dissolution; (15) by a Holder pursuant to such
Holder's rights under any registration rights agreement to which the Company
is a party or by which it is bound; or (16) by a Holder that is an investment
fund or account which is managed by an investment advisor to the investment
advisor or another fund or account managed by such advisor, and vice versa.
The purchase price of shares of Common Stock under the Stockholders
Agreement is (1) the price contained in the bona fide third party offer in the
event of such an offer or (2) the fair market value of the shares being
purchased, as last determined under the New ESOP (or if no such determination
has yet been made, $12.00 per share), in the event of any other purchase
thereunder.
The Stockholders Agreement contains a provision (the "Material Agreement
Provision") prohibiting the stockholders who are parties thereto from
transferring shares of Common Stock if, in the reasonable judgment of
Holdings, the transfer would cause a material breach, default, event of
default or acceleration of payments under any agreement to which Holdings or
any of its subsidiaries is a party and under which the indebtedness or
liability of Holdings exceeds $1.0 million.
The Stockholders Agreement contains provisions (the "Control Provision")
respecting Control Dispositions, as defined below. The Control Provision
prohibits any stockholder who is a party to the Stockholders Agreement from
initiating the acceptance of a Control Disposition offer without first
complying with the right of first refusal provisions in the Stockholders
Agreement. After compliance with applicable right of first refusal provisions
in the Stockholders Agreement, a stockholder who desires to, and is permitted
to,
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initiate the acceptance of a Control Disposition offer (the "Initiating
Stockholder") must give to each other holder of Common Stock who is a party to
the Stockholders Agreement the option to participate in the proposed Control
Disposition on a pro rata basis.
A Control Disposition is defined as any disposition or series of related
dispositions which would have the effect of transferring to any transferee or
group more than (i) 40% of the then outstanding shares of Common Stock, or
(ii) 15% of the shares of Common Stock then outstanding if thereafter the
proposed transferee would directly or indirectly have beneficial ownership of
50% or more of all of the then outstanding Common Stock.
By becoming a party to the Stockholders Agreement, Holders also become bound
by a Tag-Along Agreement as required pursuant to the Merger Agreement. The
Tag-Along Agreement provides that if any of such Holders propose to transfer,
sell or otherwise dispose of (a "Transfer") in the aggregate 51% or more of
the Holdings Common Stock then issued and outstanding, the other holders of
Holdings Common Stock will have the right to participate in such Transfer on a
pro rata basis.
The Stockholders Agreement requires that, at any time that Holdings is
engaged in an underwritten public offering of its securities, each stockholder
who is a party thereto refrain from making any disposition of Common Stock on
a securities exchange or in the over-the-counter or any other public trading
market for the period of time requested by Holdings.
The Stockholders Agreement will terminate upon any of the following events:
(i) the dissolution of Holdings; (ii) any event that reduces the number of
Holders to one in accordance with the terms thereof; (iii) a registered public
offering of Common Stock (excluding certain offerings) resulting in net
proceeds to the Company of not less than $75 million; (iv) the written
agreement of at least the Required Voting Percentage (as defined); or (v) 10
years after the Closing Date; except that the provisions of the Stockholders
Agreement applicable to Control Dispositions that also constitute a Transfer
that is subject to the Tag-Along Agreement shall remain in force and effect
for so long as the Tag-Along Agreement remains in force and effect.
TRANSFER AGENT
The Transfer Agent for the Holdings Common Stock will be KeyCorp Shareholder
Services, Inc.
DESCRIPTION OF THE CREDIT FACILITY
As part of the Transaction, Chemicals has entered into a Credit Agreement
(the "Credit Agreement") with Texas Commerce Bank National Association, as
administrative agent (the "Agent"), for a syndicate of lenders, and Credit
Suisse and Chase Securities Inc. as co-arrangers. Funding of the Credit
Facility is subject to (i) there being no Material Adverse Effect (as defined
in the Credit Agreement), (ii) the closing of the Offerings and the Equity
Private Placement and (iii) the consummation of the Merger. The following
description summarizes material provisions of the Credit Agreement; the
description does not purport to be complete and is subject to, and qualified
in its entirety by reference to, the provisions of the Credit Agreement,
including the definitions therein of certain terms, a copy of which has been
filed as an exhibit to the Registration Statement of which this prospectus is
a part.
The Credit Agreement provides for facilities consisting of (i) a six and one
half year revolving credit facility providing for up to $100.0 million in
revolving loans (the "Revolving Credit Facility"), (ii) a term loan facility
providing for up to $350.0 million in term loans ("Term Loans") consisting of
(x) a six and one half year $200.0 million term loan and (y) an eight year
$150.0 million term loan and (iii) a four year $6.5 million ESOP Term Loan.
At the Closing, it is anticipated that Chemicals will borrow all of the Term
Loans. The proceeds from such borrowings will be used to (i) finance the
Merger (ii) refinance certain existing indebtedness of the Company
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and (iii) to finance the payment of certain fees and expenses related to the
Merger and the related financings. Additionally, at the Closing, Chemicals
will borrow the entire amount of the ESOP Term Loan and lend those funds to
the New ESOP, which will use such funds to purchase STX Acquisition Common
Stock.
The Credit Agreement requires the principal amount of the Term Loans to be
amortized in quarterly installments beginning with the fiscal quarter ending
December 31, 1996, plus additional mandatory prepayments based upon
consolidated excess cash flow. The ESOP Term Loan will be amortized in 16
equal quarterly installment amounts of $406,250 during its four-year term. The
Revolving Credit Facility is a six and one half year revolving line of credit
to Chemicals. Advances under the Revolving Credit Facility will be subject to
a Borrowing Base (as defined) consisting of 85% of eligible accounts
receivable and 65% of eligible inventory with an inventory cap of 50% of the
Borrowing Base.
Under the Credit Agreement, Chemicals is permitted to make optional
prepayments without premium or penalty. Prepayments of borrowings must be
accompanied by payments of all breakage costs and lenders' expenses or losses,
if any, incurred as a result of such prepayment.
Chemicals' obligations under the Revolving Credit Facility, the Term Loans
and the ESOP Term Loan (collectively, the "Credit Facility") will be secured
by a first priority lien on the capital stock of Chemicals' domestic
subsidiaries, 65% of the capital stock of its foreign subsidiaries and
substantially all of the domestic assets of Chemicals, including without
limitation, accounts receivable, inventory, intangibles and fixed assets and
assignments of certain material leases, licenses and contracts. In addition,
the Credit Facility is secured by a pledge by Holdings of all of the capital
stock of Chemicals. A second lien on the capital stock of Chemicals will be
permitted to secure the obligations under the Discount Notes.
The domestic subsidiaries of Chemicals will guarantee the obligations under
the Credit Facility. The six and one half year term loan, the ESOP Term Loan
and the Revolving Credit Facility initially bear interest at a rate per annum
of, at Chemicals' option, either the Eurodollar Rate (as defined) plus 2.5% or
the Base Rate (as defined) plus 1.5%. The applicable margin will be reduced
based on Chemicals' ratio of total outstanding debt at the end of each fiscal
quarter to EBITDA for the four quarter period ending on such quarter. The
eight year term loan will bear interest at the Eurodollar Rate plus 3.0% or
the Base Rate plus 2.0%.
The Credit Agreement contains numerous financial and operating covenants,
including, but not limited to, restrictions on Chemicals' ability to incur
indebtedness, pay dividends, create liens, sell assets, engage in mergers and
acquisitions and refinance existing indebtedness. The Credit Agreement also
requires Chemicals to satisfy certain financial covenants and tests. In
addition, the Credit Agreement includes various circumstances that will
constitute, subject in certain cases to notice and grace periods, an event of
default thereunder.
The Credit Agreement requires Chemicals to pay the following fees in
connection with the maintenance of the Credit Agreement: (i) commitment fees
to be paid to the lenders in amounts equal to 1/2 of 1% per annum (decreasing
to .375 of 1% depending on the debt to EBITDA ratio) on the unused commitment
under the Revolving Credit Facility payable quarterly in arrears until such
time as the Revolving Credit Facility matures, and (ii) an annual
administration fee to the Agent. In addition, at closing Chemicals will pay
various fees and closing costs in connection with the origination and
syndication of the Credit Facility.
Chemicals will also be required to reimburse the Agent for all reasonable
out-of-pocket costs and expenses incurred in the preparation, documentation,
syndication and administration of the Credit Agreement and to reimburse the
lenders for all out-of-pocket costs and expenses incurred in connection with
the enforcement of their rights after a default under the Credit Agreement.
Chemicals agreed to indemnify the Agent and the lenders, certain of their
affiliates, and their respective officers, directors, employees, agents and
attorneys against certain liabilities arising out of or relating to the Credit
Agreement and the transactions contemplated thereby.
As provided for in the Credit Agreement, Sterling Pulp Chemicals, Ltd.
("Sterling Pulp") will enter into a revolving credit facility (the "Canadian
Revolver") with a Canadian financial institution to be determined. The
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Canadian Revolver is expected to provide for revolving credit and bank
overdraft loans up to an aggregate of approximately $15 million, subject to a
borrowing base limitation. The Canadian Revolver will be secured by a first
lien on the inventory and accounts receivable of Sterling Pulp. The amount
available under the Canadian Revolver will represent a sub-limit under the
$100 million Revolving Credit Facility.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material U.S. federal income tax
consequences expected to apply to United States Holders (as defined below) and
the material U.S. federal income and estate tax consequences expected to apply
to Non-United States Holders (as defined below) from the purchase, ownership
and disposition of the Notes, the Discount Notes (collectively, the Notes and
the Discount Notes are sometimes referred to as "Debt Securities"), the
Warrants and shares of Common Stock received upon exercise of the Warrants
("Warrant Shares"). The summary is based upon currently applicable law,
including current provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed Treasury regulations (the "regulations"),
judicial decisions, and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the "IRS") will not take a
contrary view, and no ruling from the IRS has been or will be sought.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conclusions set
forth herein. Any such changes or interpretations may be retroactive and could
affect the tax consequences applicable to holders of the Debt Securities and
Warrants.
The following summary is for general information only, does not address all
aspects of U.S. federal taxation that may be relevant to particular investors,
deals only with holders that will hold the Securities (and any Holdings Common
Stock acquired upon exercising a Warrant) as capital assets, and does not
discuss any aspect of state, local, or foreign tax laws. The tax treatment of
a holder of the Securities may vary depending upon such holder's particular
situation. Certain holders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, taxpayers subject to
the alternative minimum tax, and foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules
not discussed below. EACH POTENTIAL INVESTOR SHOULD CONSULT HIS OR HER TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF PURCHASING, HOLDING AND
DISPOSING OF THE SECURITIES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE,
LOCAL AND FOREIGN TAX LAWS.
UNITED STATES FEDERAL INCOME TAXATION OF UNITED STATES HOLDERS
This section discusses certain rules applicable to a holder of Debt
Securities, Warrants or Warrant Shares that is a United States Holder. For
purposes of this discussion, a "United States Holder" means a holder of Debt
Securities, Warrants or Warrant Shares who or which is (i) an individual who
is a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in the United States or under the laws of the
United States or any political subdivision thereof or (iii) a person otherwise
subject to U.S. federal income taxation on its worldwide income.
THE DEBT SECURITIES
Stated Interest and Original Issue Discount
Holders of Notes will be required to include stated interest in gross income
in accordance with their method of accounting for tax purposes unless the
Notes are issued with more than a de minimis amount of original issue
discount. At present, Chemicals and the Underwriters expect that the Notes
will be issued with no or a de minimis amount of original issue discount.
Holders of Discount Notes will be required to include stated interest and
original issue discount on the Discount Notes in gross income in accordance
with the original issue discount rules discussed below. As a result, holders
of Discount Notes will be required to include amounts in income with respect
to the Discount Notes prior to the receipt of cash payments attributable to
such income (regardless
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of whether the holder is a cash or accrual method taxpayer). Furthermore, even
after interest payments commence on the Discount Notes, the amount of interest
that a holder is required to include in income for any taxable year may exceed
the cash payments actually made to the holder for that taxable year.
Taxation of Original Issue Discount--General Rules
The amount of original issue discount, if any, on a debt instrument is the
excess of its "stated redemption price at maturity" over its "issue price,"
subject to a statutorily defined de minimis exception. The "issue price" of a
debt instrument offered for cash as part of an investment unit, such as a
Discount Note issued together with a Warrant, is as described below under "--
Discount Notes." The "stated redemption price at maturity" of a debt
instrument is the sum of its principal amount plus all other payments required
thereunder, other than payments of "qualified stated interest" (defined
generally as stated interest that is unconditionally payable in cash or in
property (other than debt instruments of the issuer) at least annually at a
single fixed rate that appropriately takes into account the length of
intervals between payments).
In general, the holder of a debt instrument issued with original issue
discount must include in gross income for federal income tax purposes the sum
of the daily portions of original issue discount with respect to that debt
instrument for each day during the taxable year on which the holder owns the
debt instrument. The daily portions of original issue discount with respect to
a debt instrument are determined by allocating to each day during a taxable
year a ratable portion of the original issue discount attributable to the
accrual period (generally, the accrual periods with respect to any debt
instrument consist of periods of one year or less from the date of original
issuance) in which such day is included. The amount of original issue discount
attributable to each accrual period equals the amount determined by (i)
multiplying the "adjusted issue price" of the debt instrument at the beginning
of the accrual period by the yield to maturity of the debt instrument (i.e.,
the discount rate that, when applied to all payments under the debt
instrument, results in a present value equal to the issue price) and (ii)
subtracting therefrom the amount of the qualified stated interest, if any,
allocable to that accrual period. The "adjusted issue price" at the beginning
of any accrual period is the issue price of the debt instrument, plus the
amount of original issue discount taken into account for all prior accrual
periods, minus the amount of all cash payments previously made on the debt
instrument (other than payments of qualified stated interest). This constant
yield method of determining the amount of original issue discount includable
in income for any period will ordinarily require a holder of a debt instrument
to include increasing amounts of original issue discount in income in
successive accrual periods.
The tax basis of a debt instrument in the hands of the holder is increased
by the amount of original issue discount, if any, on the debt instrument that
is included in the holder's gross income and is decreased by the amount of any
cash payments (other than payments of qualified stated interest) received with
respect to the debt instrument, whether such payments are denominated as
principal or interest.
Notes
It is presently expected that the Notes will be issued for an amount equal
to the stated principal amount payable at maturity on those Notes, and that
all of the interest payable on the Notes will be qualified stated interest.
The issue price of the Notes will be determined without regard to pre-issuance
accrued interest. (Such interest will be returned to the holder of the
obligation as part of the first interest payment on the obligation and treated
as a tax-free return of capital.) As a result, it is presently expected that
the Notes will be issued with no original issue discount. Holders of Notes
will be required to include the qualified stated interest payable on the Notes
in their gross income in accordance with their method of accounting for tax
purposes. In the event that the Notes are issued with a de minimis amount of
original issue discount, the original issue discount rules would not apply to
the Notes and Holders of the Notes would be required to include any de minimis
original issue discount in income as principal payments were made on the
Notes. However, if the Notes are issued with more than a de minimis amount of
original issue discount, the Notes would be subject to the original issue
discount rules, and Holders of the Notes would be required to include that
original issue discount in income in accordance with those rules.
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Discount Notes
The Discount Notes will be issued with original issue discount for federal
income tax purposes. As a result, holders of Discount Notes will be required
to include amounts in income over the term of the Discount Notes in accordance
with the rules described above.
Because the original purchasers of the Discount Notes will also be
purchasing Warrants, the Discount Notes and the Warrants will be treated as
"investment units". The issue price of a debt instrument issued as part of an
investment unit is determined by allocating the issue price of the investment
unit among each element of such unit in accordance with their relative fair
market values on the date of issuance. The issue price of an investment unit
is equal to the first price at which a substantial amount of units is sold,
excluding sales to bond houses, brokers and similar persons or organizations
acting in the capacity of underwriters, wholesalers or placement agents.
Holdings will make an allocation of the issue price between the Discount Notes
and the Warrants based on their relative values at the time of issuance.
Holdings' allocation is binding on a holder of Discount Notes unless such
holder explicitly discloses a contrary position on his or her tax return for
the year in which the Discount Notes and Warrants are acquired. This
allocation is, however, not binding on the IRS, and therefore, there can be no
assurance that the IRS will respect such allocation. Because none of the
payments of stated interest on the Discount Notes will constitute payments of
qualified stated interest, the stated redemption price at maturity of the
Discount Notes will be equal to the sum of the principal amount plus all
payments of stated interest.
Optional Redemption
Holdings may redeem the Discount Notes at the times and the redemption
prices set forth under the heading "Description of the Discount Notes--
Optional Redemption" and Chemicals may redeem the Notes at the times and the
redemption prices set forth under the heading "Description of the Notes--
Optional Redemption." In addition, in the event of a Change of Control (as
defined under the headings "Description of the Discount Notes--Certain
Definitions" and "Description of the Notes--Certain Definitions"), Holdings
will be required to offer to redeem all of the Discount Notes and Chemicals
will be required to offer to redeem all of the Notes. Under the original issue
discount regulations, if an issuer of a debt instrument with original issue
discount has an unconditional option to redeem such debt instrument, the
issuer will be treated as having exercised such option if, by treating the
date of deemed exercise of the option as the maturity date and the redemption
price (and all payments of stated interest (other than qualified stated
interest payments) made to the date of deemed exercise) as the stated
redemption price at maturity, the yield to maturity on such debt instrument
would be lower than such yield would have been had the option not been deemed
exercised. Because a redemption of the Discount Notes or the Notes under the
terms applicable in the case of an optional redemption will not lower the
yield to maturity on such notes, neither the Discount Notes nor the Notes will
be deemed to be called prior to their maturity. In addition, under the
original issue discount regulations, Holdings' obligation to offer to redeem
the Discount Notes and Chemicals' obligation to offer to redeem the Notes on a
Change of Control will not affect the yield or maturity date of the Discount
Notes or the Notes unless, based on all of the facts and circumstances as of
the issue date, it is more likely than not that a redemption will occur as a
result of a Change of Control. Holdings and Chemicals have no present
intention to treat the redemption provisions applicable on a Change of Control
or any option to redeem the Discount Notes or the Notes prior to their stated
maturity as being triggered or exercised or as otherwise affecting the
computation of the yield to maturity of, or the original issue discount on,
the Discount Notes or the Notes.
Applicable High Yield Discount Obligation Rules
The original issue discount on any obligation that constitutes an
"applicable high yield discount obligation" is not deductible until paid. An
"applicable high yield discount obligation" is any debt instrument that (i)
has a maturity date which is more than five years from the date of issue, (ii)
has a yield to maturity which equals or exceeds five percentage points over
the applicable federal rate for the calendar month in which the obligation is
issued and (iii) has "significant original issue discount." A debt instrument
generally has "significant original issue discount" if, as of the close of any
accrual period ending more than five years after the date of issue, the
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excess of the interest that has accrued on the obligation over the interest
that is required to be paid thereunder exceeds the product of the issue price
of the instrument and its yield to maturity. Moreover, if the debt
instrument's yield to maturity exceeds the applicable federal rate plus six
percentage points, a ratable portion of the issuing corporation's deduction
for original issue discount (the "Disqualified OID") will be denied. For
purposes of the dividends-received deduction under Section 243 of the Code,
the Disqualified OID will be treated as a dividend to the extent it would have
been so treated if it had been distributed by the issuing corporation with
respect to its stock.
Holdings expects that, based on the terms of the instrument and its
projected yield to maturity, the Discount Notes will constitute applicable
high yield discount obligations, and a portion of the original issue discount
on those obligations will be treated as Disqualified OID. As a result,
Holdings will not be allowed a deduction for the accrual of original issue
discount on the Discount Notes until such interest is actually paid, and
Holdings will not be allowed a deduction for the accrual or payment of the
portion of the original issue discount that constitutes Disqualified OID.
Corporate holders of the Discount Notes should be allowed a dividends received
deduction (generally at a 70 percent rate) with respect to the accrual of the
Disqualified OID so long as Holdings has current or accumulated earnings and
profits in excess of such amount. The Notes will not constitute applicable
high yield discount obligations.
Market Discount
Purchasers of Debt Securities should be aware that an acquisition of Debt
Securities may be affected by the market discount provisions of the Code.
These rules generally provide that, subject to a statutorily defined de
minimis exception, if a holder of a debt instrument purchases it at a "market
discount" (as defined below) and thereafter recognizes gain on a disposition
of the debt instrument (including a gift), the lesser of such gain (or
appreciation, in the case of a gift) and the portion of the market discount
that accrued while the debt instrument was held by such holder will be treated
as ordinary interest income at the time of the disposition. For this purpose,
a purchase at a "market discount" is defined to include a purchase at or after
the original issue at a price below the stated redemption price at maturity,
or, in the case of a debt instrument issued with original issue discount, such
as a Discount Note, at a price below its "adjusted issue price" (i.e., its
issue price, plus the aggregate original issue discount includible in income
by all holders of the debt instrument, minus all payments made on the note,
other than payments of qualified stated interest). The market discount rules
also provide that a holder who acquires a debt instrument at a market discount
(and who does not elect to include such market discount in income on a current
basis) may be required to defer a portion of any interest expense that may
otherwise be deductible on any indebtedness incurred or maintained to purchase
or carry such debt instrument until the holder disposes of the debt instrument
in a taxable transaction. Holders who purchase the Debt Securities at original
issuance at the issue price will not be subject to the market discount
provisions with respect to such obligations.
The Debt Securities provide that they may be redeemed, in whole or in part,
before maturity. If some or all of the Debt Securities are redeemed in part,
each holder of a Note or Discount Note so redeemed that was acquired at a
market discount would be required to treat the principal payment as ordinary
interest income to the extent of any accrued market discount on such Note or
Discount Note.
Any market discount on a Note or Discount Note will be considered to accrue
ratably from the date of its acquisition to its maturity date, unless the
holder makes an irrevocable election to accrue market discount on a constant
interest rate basis. In addition, a holder of a debt instrument acquired at a
market discount may elect to include the market discount in income as the
discount thereon accrues, either on a straight-line basis or, if elected, on a
constant interest rate basis. The current inclusion election, once made,
applies to all market discount obligations acquired by such holder on or after
the first day of the first taxable year to which the election applies, and the
election may not be revoked without the consent of the IRS. If a holder of a
Note or Discount Note elects to include market discount in income, the
foregoing rules with respect to the recognition of ordinary income on a sale
or other disposition of such Note or Discount Note and the deferral of
interest deductions on
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indebtedness related to such Note or Discount Note would not apply. Any
accrued market discount which is included in a holder's gross income would
increase the adjusted tax basis of the Note or Discount Note in the hands of
the holder.
Acquisition Premium
A holder who pays an "acquisition premium" for a Discount Note may be
entitled to a reduction in the amount of original issue discount includable in
such holder's income for any taxable year to the extent of the portion of the
acquisition premium properly allocable to such year. "Acquisition premium" is
any amount paid by a holder for a Discount Note in excess of its "adjusted
issue price" (i.e., its issue price increased by the original issue discount
previously accrued on the Discount Note and decreased by cash payments (other
than qualified stated interest) made with respect to such Discount Note) at
the time of the acquisition.
Amortizable Bond Premium
Generally, if the tax basis of a debt instrument held as a capital asset
exceeds the sum of all amounts payable on the obligation other than qualified
stated interest, such excess may constitute amortizable bond premium that the
holder may elect to amortize under the constant interest rate method and
deduct over the period from his or her acquisition date to the obligation's
maturity date. A holder who elects to amortize bond premium must reduce his or
her tax basis in the related obligation by the amount of the aggregate
deductions allowable for amortizable bond premium.
In the case of a debt instrument, such as a Note, that may be called at a
premium prior to maturity, the earlier call date of the debt instrument is
treated as the maturity date of the debt instrument and the amount of bond
premium is determined by treating the amount payable on such call date as the
amount payable at maturity if such a calculation produces a smaller
amortizable bond premium than the method described in the preceding paragraph.
If a holder of a debt instrument is required to amortize and deduct bond
premium by reference to a certain call date, the debt instrument will be
treated as maturing on such date for the amount payable, and, if not redeemed
on such date, the debt instrument will be treated as reissued on such date for
the amount so payable. If a debt instrument purchased at a premium is redeemed
prior to its maturity, a purchaser who has elected to deduct bond premium may
deduct any remaining unamortized bond premium as an ordinary loss in the
taxable year of redemption.
The amortizable bond premium deduction is treated as an offset to interest
income on the related security for federal income tax purposes. Each
prospective purchaser is urged to consult his or her tax advisor as to the
consequences of the treatment of such premium as an offset to interest income
for federal income tax purposes.
The IRS recently issued proposed regulations on the treatment of amortizable
bond premium. Each prospective purchaser should consult his or her tax advisor
regarding the potential application of the proposed regulations.
Constant Yield Election
A holder of a Note or Discount Note, subject to certain limitations, may
elect to include all interest and discount on the Note or Discount Note in
gross income under the constant yield method. For this purpose, interest
includes stated and unstated interest, acquisition discount, de minimis
original issue discount, original issue discount, de minimis market discount
and market discount, as adjusted by any acquisition premium and amortizable
bond premium. This election, if made in respect of a market discount bond,
will constitute an election to include market discount in income currently on
all market discount bonds acquired by such holder on or after the first day of
the first taxable year to which the election applies. See "--Market Discount."
Sale, Exchange, Retirement or other Disposition
In general, a holder of a Note or Discount Note will recognize gain or loss
upon the sale, exchange, retirement or other taxable disposition of the Note
or Discount Note measured by the difference between (i) the amount of cash and
the fair market value of property received (except to the extent such cash or
property is
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attributable to accrued but unpaid qualified stated interest, which will be
taxable as ordinary income) and (ii) the holder's tax basis in the Note or
Discount Note (as increased by any original issue discount and market discount
previously included in income by the holder and decreased by any cash payments
received (other than payments constituting qualified stated interest) and any
amortizable bond premium deducted over the term of the Note or Discount Note).
Subject to the market discount and amortizable bond premium rules discussed
above, any such gain or loss will generally be long-term capital gain or loss
if the holder has owned the obligation for more than one year.
WARRANTS
The federal income tax consequences of the purchase and the exercise or sale
of Warrants will depend, to some extent, on whether they are viewed, for
federal income tax purposes, as equivalent to common stock. There is no
authority directly dealing with that issue. Because nominal consideration is
required to exercise the Warrants and the exercise of the Warrants is
economically compelling, Holdings believes that, if presented with the issue,
it is likely that the IRS would recharacterize the Warrants as issued and
outstanding shares of non-voting common stock of Holdings for federal income
tax purposes.
Neither Holdings nor the holder will recognize gain or loss as a result of
Holding's issuance of the Warrants as part of the Units. The holder's adjusted
tax basis in a Warrant will be an amount equal to the issue price of the
Warrant.
Neither Holdings nor the holder will recognize gain or loss as a result of a
holder's receipt of Warrant Shares upon exercising Warrants. A holder's
adjusted tax basis in the Warrant Shares will be an amount equal to the
holder's adjusted tax basis in the Warrants plus the amount paid to Holdings
as the exercise price for the Warrants. If the Warrants lapse without
exercise, the holder should recognize a capital loss in an amount equal to the
holder's adjusted tax basis in the Warrants. Any such capital loss will be
long-term capital loss if the holding period for the Warrants exceeds one
year. In the event that a Warrant is sold or otherwise disposed of in a
taxable exchange, the holder will realize and recognize capital gain or loss
in an amount equal to the difference between the amount realized on the
exchange and the holder's adjusted tax basis in the Warrant. If the Warrant
has been held for more than one year, any capital gain or loss recognized by
the holder will be long-term capital gain or loss.
If the Warrants are exercised and Warrant Shares are thereafter disposed of
in a taxable transaction, holders of Warrant Shares will realize and recognize
capital gain or loss in an amount equal to the difference between the amount
realized on the exchange and the holder's adjusted tax basis in the Warrant
Shares. The gain or loss recognized will be long-term capital gain or loss if
the holding period with respect to the Warrant Shares is more than one year.
The holding period of Warrant Shares will depend on whether the Warrants are
treated as warrants or as common stock. If the Warrants are treated as stock,
the holding period of the Warrant Shares will include the holding period of
the Warrants. On the other hand, if the Warrants are treated as warrants the
holding period for the Warrant Shares will commence on the date the Warrants
are exercised.
The conversion ratio of the Warrants is subject to adjustment under certain
circumstances. If an adjustment increases the proportionate interest of a
holder of a Warrant in the fully diluted Common Stock (e.g., an adjustment to
reflect a taxable dividend paid to holders of Common Stock), Section 305 of
the Code may treat holders of the Warrants as having received a constructive
dividend distribution.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding may apply to certain noncorporate holders with respect to
payments made by Holdings or Chemicals for interest on the Debt Securities,
dividends on the Warrant Shares, or the redemption of the Debt Securities.
Such holders will be subject to backup withholding at a rate of 31 percent
unless the beneficial owner of such security supplies the payor or its agent
with a taxpayer identification number, certified under penalties of perjury,
and certain other information, or otherwise establishes, in the manner
prescribed by law, an exemption from backup withholding. In addition, if a
Warrant, a Warrant Share or a Debt Security is sold to (or through) a "broker"
(disregarding redemptions by Holdings or the Company), the broker may be
required to withhold 31
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percent of the entire sale price, unless either (i) the broker determines that
the seller is a corporation or other exempt recipient or (ii) the seller
provides, in the required manner, certain identifying information. Such a sale
must also be reported by the broker to the IRS, unless the broker determines
that the seller is an exempt recipient. The term "broker" as defined by
Treasury regulations, includes all persons who, in the ordinary course of
business, stand ready to effect sales made by others.
Any amount withheld under backup withholding rules from a payment to a
holder is allowable as a credit or refund against the holder's federal income
tax, provided that the holder furnishes the required information to the IRS.
In addition, certain penalties may be imposed by the IRS on a holder who is
required to supply information but does not do so in the proper manner.
UNITED STATES FEDERAL TAXATION OF NON-UNITED STATES HOLDERS
This section discusses certain special rules applicable to a holder of Debt
Securities, Warrants or Warrant Shares that is a Non-United States Holder. For
purposes of this discussion, a "Non-United States Holder" means a holder of
Debt Securities, Warrants or Warrant Shares that is not a United States
Holder.
THE DEBT SECURITIES
Interest and Original Issue Discount Attributable to the Discount Notes and
Interest Attributable to the Notes
Except to the extent qualifying as "portfolio interest", as defined below,
payments of stated interest on the Notes and payments of principal and
interest on the Discount Notes (to the extent of accrued original issue
discount) received by a Non-United States Holder will generally be subject to
withholding of United States federal income tax at the rate of 30 percent (or
such lower treaty rate as may be applicable) unless the payments are
effectively connected with the conduct of a trade or business within the
United States by the Non-United States Holder. If the payments are effectively
connected with the conduct of a trade or business in the United States by the
Non-United States Holder, such payments will be subject to United States
federal income tax on a net basis at the rates applicable to United States
persons generally (and, with respect to corporate holders, may also be subject
to a 30 percent branch profits tax). If payments are subject to United States
federal income tax on a net basis in accordance with the rules described in
the preceding sentence, such payments will not be subject to United States
withholding tax so long as the holder provides Chemicals or Holdings, as the
case may be, with a properly executed Form 4224. Non-United States Holders
should consult any applicable income tax treaties, which may provide for a
lower rate of withholding tax, exemption from or reduction of branch profits
tax, or other rules different from those described above.
Portfolio interest is exempt from the 30 percent withholding tax discussed
above. Except as set out below, interest (including original issue discount)
paid to a Non-United States Holder attributable to the Notes or the Discount
Notes will constitute "portfolio interest" within the meaning of Sections
871(h) and 881(c) of the Code, provided Chemicals, Holdings or their paying
agent receives (i) from the beneficial owner, a properly completed Form W-8
(or substitute Form W-8) under penalties of perjury which provides the
beneficial owner's name and address and certifies that the beneficial owner of
the Note or the Discount Note is a Non-United States Holder, or (ii) from a
security clearing organization, bank or other financial institution that holds
the Notes or the Discount Notes in the ordinary course of its trade or
business (a "financial institution") on behalf of the beneficial owner,
certification under penalties of perjury that such a Form W-8 (or substitute
Form W-8) has been received by it or by a qualifying intermediary from the
beneficial owner, and a copy of the Form W-8 is furnished to the payor. The
portfolio interest exemption will not apply to interest or original issue
discount income attributable to the Notes or the Discount Notes received by
(i) a 10 percent shareholder (including any shares held indirectly by
attribution) of Holdings, (ii) a Non-United States Holder that holds the Notes
or the Discount Notes in connection with the conduct of a trade or business
within the United States, or (iii) certain banks.
Gain on Disposition of the Notes and the Discount Notes
A Non-United States Holder will generally not be subject to United States
federal income tax with respect to gain recognized on disposition of the Notes
or the Discount Notes unless (i) the gain is effectively connected
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with a trade or business of the Non-United States Holder in the United States
or (ii) in the case of a Non-United States Holder that is an individual, such
holder is present in the United States for 183 or more days in the taxable
year of the disposition and certain other requirements are met. In addition,
if stated interest on the Notes or original issue discount on the Discount
Notes, as applicable, does not qualify for the portfolio interest exemption,
gain recognized by a Non-United States Holder on the disposition of the Notes
or Discount Notes to the extent of accrued but unpaid stated interest or
original issue discount, as applicable, may be subject to United States
federal income tax.
WARRANTS
Dividends on Warrant Shares
Any dividends paid on the Warrant Shares that are received by a Non-United
States Holder will generally be subject to withholding of United States
federal income tax at the rate of 30 percent (or such lower treaty rate as may
be applicable) unless the payments are effectively connected with the conduct
of a trade or business within the United States by the Non-United States
Holder. If the payments are effectively connected with the conduct of a trade
or business in the United States by the Non-United States Holder, such
payments will be subject to United States federal income tax on a net basis at
the rates applicable to United States persons generally (and, with respect to
corporate holders, may also be subject to a 30 percent branch profits tax). If
payments are subject to United States federal income tax on a net basis in
accordance with the rules described in the preceding sentence, such payments
will not be subject to United States withholding tax so long as the holder
provides Holdings with a properly executed Form 4224. Non-United States
Holders should consult any applicable income tax treaties, which may provide
for a lower rate of withholding tax, exemption from or reduction of branch
profits tax, or other rules different from those described above.
Under current Treasury regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country for
purposes of determining the applicability of a tax treaty providing for a
lower rate of withholding. However, Treasury regulations proposed in April of
1996 would, if finalized in their current form, require Non-United States
Holders to file a "withholding certificate" with Holdings' withholding agent
(or, under certain circumstances, a "qualified intermediary") to obtain the
benefit of an applicable tax treaty providing for a lower rate of withholding
tax on dividends. The required withholding certificate would have to contain
the name and address of the holder and the basis for any reduced rate claimed.
See the discussion below under "--Proposed Regulations relating to Withholding
and Information Reporting."
Gain on Disposition of the Warrants or Warrants Shares
A Non-United States Holder will generally not be subject to United States
federal income tax with respect to gain recognized on disposition of the
Warrants or Warrant Shares unless (i) the gain is effectively connected with a
trade or business of the Non-United States Holder in the United States; (ii)
in the case of a Non-United States Holder that is an individual, such holder
is present in the United States for 183 or more days in the taxable year of
the disposition and certain other requirements are met; or (iii) Holdings is
at the time of the disposition, or was at any time during the testing period,
a United States real property holding corporation ("USRPHC") as defined under
Section 897(c)(2) of the Code and, in the event the Warrants (if the Warrants
are appropriately treated as an issue of non-voting common stock of Holdings)
or the Warrant Shares are regularly traded on an established securities
market, the Non-United States Holder actually or constructively owned, at any
time during the testing period, more than five percent of such Warrants or
Warrant Shares, respectively. For purposes of this paragraph, the "testing
period" means the shorter of (i) the five-year period ending on the date of
the disposition of such property and (ii) the period during which the Non-
United States Holder held the property. Holdings can give no assurance that it
is not a USRPHC.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under Treasury Regulations, Chemicals and Holdings must report annually to
the IRS the amount of interest (including original issue discount) and
dividends paid to each Non-United States Holder, and the United States
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federal income tax, if any, withheld with respect to such interest and
dividends. Such information may be made available by the IRS to the tax
authorities in a foreign country under the provisions of an applicable tax
treaty or information exchange agreement.
Backup withholding (which generally is a withholding tax imposed at the rate
of 31 percent on payments to persons that fail to furnish certain required
information) generally will not apply to payments to Non-United States Holders
of principal, interest, and premium (if any) on the Debt Securities if (i) the
holder certifies to the issuer or its agent under penalties of perjury that it
is a Non-United States Holder and provides its name and address or (ii) a
securities clearing organization, bank, or other financial institution that
holds customers' securities in the ordinary course of its trade or business
and that holds the Debt Security on behalf of its owner certifies to the
issuer or its agent, under penalties of perjury, that it has received such
statement from the owner or from a financial institution between it and the
owner and furnishes the issuer or its agent with a copy of such statement.
Under temporary regulations, dividends payable on the Warrant Shares at an
address outside the United States are not subject to backup withholding absent
knowledge that the payee is a United States Holder. However, Treasury
regulations proposed in April of 1996 would, if finalized in their current
form, require a Non-United States Holder of Warrant Shares to file a
withholding certificate with Holdings' withholding agent (or, under certain
circumstances, a qualified intermediary) representing that such Non-United
States Holder is a foreign person in order to avoid backup withholding on
dividends paid on those Shares. See the discussion below under "--Proposed
Regulations relating to Withholding and Information Reporting."
Under present law, payment of the proceeds from a sale of a Debt Security,
Warrant or Warrant Share to or through a foreign office of a broker is not
subject to information reporting or backup withholding, except that if the
broker is a U.S. person, or a foreign person with certain types of
relationships to the United States, information reporting may apply to such
payment unless the broker has documentary evidence in its records that the
holder is a Non-United States Holder and certain other conditions are met or
an exemption from information reporting is otherwise established. Payment of
the proceeds from a sale of a Debt Security, Warrant or Warrant Share to or
through the U.S. office of a broker is subject to information reporting and
backup withholding unless the beneficial owner under penalties of perjury
certifies, among other things, that it is a Non-United States Holder or
otherwise establishes an exemption from information reporting and backup
withholding.
PROPOSED REGULATIONS RELATING TO WITHHOLDING AND INFORMATION REPORTING
On April 22, 1996 the IRS issued proposed regulations relating to (i)
withholding income tax on U.S.-source income paid to Non-United States
Holders; (ii) claiming Non-United States Holder status to avoid backup
withholding; and (iii) reporting to the IRS of payments to Non-United States
Holders. The proposed regulations would substantially revise some aspects of
the current system for withholding on and reporting amounts paid to Non-United
States Holders. The regulations unify current certification procedures and
forms and reliance standards are clarified. Most forms are proposed to be
combined into a single form: Form W-8. In general, the regulations are
proposed to be effective for payments made after December 31, 1997.
Certificates issued, however, on or before the date that is 60 days after the
proposed regulations are made final will continue to be valid until they
expire. All proposed regulations are subject to change before adoption in
their final form. No reliable prediction can be made as to when, if ever, the
proposed regulations will be made final and, if so, as to their final form.
UNITED STATES FEDERAL ESTATE TAXES
The Warrants or Warrant Shares owned or treated as owned by an individual
who is not a citizen or domiciliary of the United States at the date of death
will be included in such individual's estate for United States federal estate
tax purposes, unless an applicable estate tax treaty provides otherwise.
Subject to applicable treaty provisions, Debt Securities held at the time of
death (or theretofore transferred subject to certain retained rights or
powers) by an individual who is not a citizen or domiciliary of the United
States at the time of death will not be included in such person's gross estate
for United States federal estate tax purposes provided that (i) the decedent
is not a 10 percent shareholder of Holdings and (ii) the decedent does not
hold the Debt Securities in connection with a trade or business within the
United States.
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UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1996 (the "Underwriting Agreement"), the Underwriters
named below (the "Underwriters") have severally but not jointly agreed to
purchase from the Issuers the following respective principal amounts of the
Securities:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT
UNDERWRITER OF NOTES OF UNITS
----------- ------------ ------------
<S> <C> <C>
CS First Boston Corporation.................... $ $
Chase Securities Inc...........................
------------ ------------
Total........................................ $275,000,000 $
============ ============
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the Securities if any are purchased. The
Underwriting Agreement provides that, in the event of a default by an
Underwriter, in certain circumstances, the purchase commitment of the non-
defaulting Underwriter may be increased or the Underwriting Agreement may be
terminated.
The Issuers have been advised by the Underwriters that the Underwriters
propose to offer the Securities to the public initially at the public offering
prices set forth on the cover page of this Prospectus and to certain dealers
at such price less a concession of % and % of the principal amount per
Note and Unit, respectively, and the Underwriters and such dealers may allow a
discount of % and % of such principal amount per Note and Unit,
respectively, on sales to certain other dealers. After the initial public
offering, the public offering prices and concessions and discounts to dealers
may be changed by the Underwriters.
The Securities are new issues of securities with no established trading
market. The Underwriters have advised the Issuers that they intend to act as
market makers for the Securities. However, the Underwriters are not obligated
to do so and may discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of the trading markets for the
Securities.
The Underwriters have informed the Issuers that they do not expect to
confirm sales to any account over which they exercise discretionary authority
without prior specific written consent.
The Issuers have agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriters may be required to make in
respect thereof.
The Clipper Group includes investment partnerships in which affiliates of CS
First Boston Corporation and CS Holding, the principal shareholder of CS First
Boston Corporation, are limited partners. Based in Zurich, Switzerland, CS
Holding is also the principal shareholder of Credit Suisse. The Clipper Group
will purchase up to $25 million of equity and certain employees of CS First
Boston Corporation or its affiliates are expected to purchase up to $2 million
of equity in the Equity Private Placement. See "Principal Stockholders." CS
First Boston Corporation and its affiliates may be deemed to have an indirect
right to the economic benefits of a portion of such equity. The Offerings,
therefore, are being conducted in accordance with the applicable provisions of
Schedule E to the By-Laws of the National Association of Securities Dealers,
Inc. Schedule E requires that the yields on the Securities not be lower than
that recommended by a "qualified independent underwriter" meeting certain
standards. Accordingly, Chase Securities Inc. is acting as the qualified
independent underwriter in pricing the Offerings and conducting due diligence.
The yields on the Securities, when sold to the public at the public offering
prices set forth on the cover page of this Prospectus, are no lower than that
recommended by Chase Securities Inc.
In the ordinary course of their respective businesses, affiliates of CS
First Boston Corporation have performed, and may in the future perform,
investment banking services for the Issuers and their subsidiaries and
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have engaged, and may in the future engage, in commercial banking transactions
with the Issuers and their subsidiaries. Pursuant to an agreement among TSG,
Unicorn and CS First Boston Corporation, CS First Boston Corporation has
provided certain financial advisory services to TSG and Unicorn with respect
to the Transaction, for which CS First Boston Corporation will receive a fee
of approximately $4.0 million. Credit Suisse, an affiliate of CS First Boston
Corporation, is a co-arranger and lender under the Credit Facility and will
receive certain fees in connection therewith. See "Description of the Credit
Facility."
Chase Securities Inc. is an affiliate of Texas Commerce Bank National
Association which will be administrative agent and a lender to Chemicals under
the Credit Facility and will receive customary fees in connection with the
Credit Facility. Texas Commerce Bank National Association will receive its
proportionate share of the repayment by the Company of amounts outstanding
under its existing credit facilities from the proceeds of the Offerings. Chase
Securities Inc. will act as co-arranger for the Credit Facility, for which it
will receive customary fees. Affiliates of Chase Securities Inc. have
participated and in the future may participate in various financing and
banking transactions for the Company, Chemicals, Holdings and TSG and certain
of its affiliates.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Securities in Canada is being made only on a private
placement basis exempt from the requirement that the Issuers prepare and file
a prospectus with the securities regulatory authorities in each province where
trades of Securities are effected. Accordingly, any resale of the Securities
in Canada must be made in accordance with applicable securities laws which
will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the Securities.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Securities in Canada who receives a purchase confirmation
will be deemed to represent to the Issuers and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such Securities without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, such purchaser is purchasing as principal and not as agent,
and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The Securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws.
All of the issuers' directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Ontario purchasers to effect service of process within Canada
upon the issuers or such persons. All or a substantial portion of the assets
of the issuers and such persons may be located outside of Canada and, as a
result, it may not be possible to satisfy a judgment against the issuers or
such persons in Canada or to enforce a judgment obtained in Canadian courts
against such issuers or persons outside of Canada.
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NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Securities to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Securities acquired by such purchaser pursuant to the Offerings. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Issuers. Only one
such report must be filed in respect of Securities acquired on the same date
and under the same prospectus exemption.
LEGAL MATTERS
Andrews & Kurth L.L.P., Houston, Texas has passed upon certain matters with
respect to the validity of Units and Notes offered hereby, as counsel for STX
Acquisition and Chemicals. After the Transaction, members of Andrews & Kurth
L.L.P. are expected to own less than 0.1% of the outstanding Common Stock of
Holdings. Certain legal matters will be passed upon for the Underwriters by
Dewey Ballantine, New York, New York.
CHANGE OF ACCOUNTANTS
On October 25, 1995, the Audit Committee of the Board of Directors of the
Company recommended and the Board of Directors of the Company approved the
engagement of the firm of Arthur Andersen LLP ("Arthur Andersen") as its
independent auditors for the year ending September 30, 1996, to replace the
firm of Coopers & Lybrand L.L.P. The termination by the Company of the
engagement of Coopers & Lybrand L.L.P. was effective upon the completion of
the audit for the year ended September 30, 1995, and the filing of the
Company's Annual Report on Form 10-K for such year. The appointment of Arthur
Andersen as the Company's independent auditors for the fiscal year ending
September 30, 1996 was ratified by the stockholders at the 1996 Annual Meeting
of Stockholders.
During the two most recent fiscal years and the subsequent period through
December 18, 1995, the date of filing of the Company's Annual Report on Form
10-K, there were no disagreements with Coopers & Lybrand L.L.P. on any matter
of accounting principles or practices, financial statement disclosure, or
audit scope or procedures, which disagreements, if not resolved to their
satisfaction, would have caused them to make reference in connection with
their report to the subject matter of the disagreement.
During the two most recent fiscal years and the subsequent period through
December 18, 1995, the date of filing of the Company's Annual Report on Form
10-K, the Company has not been advised by Coopers & Lybrand L.L.P. of any of
the reportable events listed in Item 304(a)(1)(v)(A) through (D) of SEC
Regulation S-K and during such period the Company has not consulted with
Arthur Andersen regarding any matter referenced under Item 304(a)(2) of SEC
Regulation S-K.
The audit reports of Coopers & Lybrand L.L.P. on the consolidated financial
statements of the Company as of and for the fiscal years ended September 30,
1995 and 1994, did not contain any adverse opinion or disclaimer of opinion,
nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles, except for an explanatory paragraph noting that the
Company changed its method of accounting for income taxes effective October 1,
1993.
The Company requested that Coopers & Lybrand L.L.P. furnish a letter
addressed to the SEC stating whether Coopers & Lybrand L.L.P. agreed with the
above statements. A copy of the Coopers & Lybrand L.L.P. letter to the SEC
stating that such firm agreed with the above statements, dated December 18,
1995, was filed as Exhibit 16 to the Company's Form 8-K, dated December 18,
1995.
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EXPERTS
The consolidated balance sheet of Holdings as of May 14, 1996 and the
balance sheet of Chemicals as of May 14, 1996 included in the Prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein, and are included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
The consolidated balance sheet of Sterling Chemicals, Inc. as of September
30, 1995 and 1994 and the consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended September 30, 1995, included in this Prospectus, have been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
STX Acquisition and Chemicals have filed with the SEC a registration
statement (the "Registration Statement") under the Securities Act on Form S-1
(Reg. No. 333-04343) with respect to the Securities offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved. The Registration Statement and any amendments thereto,
including exhibits filed or incorporated by reference as a part thereof, are
available for inspection and copying at the SEC's offices as described above.
The Company is subject to the informational requirements of the Exchange Act
and, accordingly, files reports, proxy statements and other information with
the SEC. Such reports, proxy statements and other information filed with the
SEC are available for inspection and copying at the public reference
facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, DC 20549, and at the SEC's Regional Offices located
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and at Seven World Trade Center, Suite 1300, New York, New York 10048.
Copies of such documents may also be obtained from the Public Reference
Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC
20549, at prescribed rates.
STX Acquisition and Chemicals are not currently subject to the periodic
reporting and other informational requirements of the Exchange Act. Upon the
effectiveness of the Registration Statement STX Acquisition and Chemicals will
become subject to the informational requirements of the Exchange Act, and in
accordance therewith will file all reports and other information as required
thereby with the SEC.
The obligation of Holdings (as successor to STX Acquisition) to file
periodic reports with the SEC pursuant to the Exchange Act may be suspended if
(i) Holdings ceases to have a class of equity securities held by 750 or more
persons and (ii) the Discount Notes are held of record by fewer than 300
holders at the beginning of any fiscal year other than the fiscal year in
which the Registration Statement becomes effective. The obligation of
Chemicals to file periodic reports with the SEC pursuant to the Exchange Act
may be suspended if the Notes are held of record by fewer than 300 holders at
the beginning of any fiscal year other than the fiscal year in which the
Registration Statement becomes effective. The Indentures will provide,
however, that STX Acquisition and Chemicals, respectively, must file with the
SEC and provide the holders of the respective notes with copies of annual
reports and other information, documents and reports specified in Section 13
and 15(d) of the Exchange Act as long as the respective notes are outstanding.
151
<PAGE>
GLOSSARY
The following glossary lists certain of the more frequently used terms in
this Prospectus.
<TABLE>
<C> <S>
ABS acrylonitrile butadiene styrene resins.
ACRYLONITRILE a colorless flammable liquid resulting from propylene
ammoxidation, primarily used in the manufacture of
intermediate products such as acrylic fibers and ABS
resins for apparel, furnishings, upholstery, household
appliances, carpets and plastics for automotive parts.
ACETIC ACID a colorless liquid derived from the reaction of
methanol with carbon monoxide, bacterial action on
ethyl alcohol, the oxidation of acetaldehyde or other
processes; acetic acid and its derivatives have
applications in adhesives, paper, paints, solvents,
textiles and flavoring agents.
BENZENE a volatile, colorless, highly flammable liquid used by
the Company as a raw material for the manufacture of
styrene.
CHLORINE DIOXIDE a bleaching agent produced by reacting sodium chlorate
or sodium chlorite in an acid medium; used primarily in
pulp bleaching and as an antimacrobial.
CONVERSION ARRANGEMENT an arrangement whereby the Company receives the raw
materials from a customer and sells the finished
product to that customer at a price which reflects the
added value of processing.
DEBOTTLENECKING an increase in output using the same basic plant by
improving process efficiency or changing certain
equipment which currently limits production capability.
ETHYLENE a basic building block commodity chemical used to
manufacture styrene.
KRAFT PULP a strong paper or pulp made from wood chips. Bleached
kraft pulp is used to make uncoated paper, diapers and
paperboard.
METHANOL a colorless liquid obtained by the destructive
distillation of wood or the incomplete oxidation of
natural gas, or produced synthetically from carbon
monoxide and hydrogen; primarily used by the Company in
the manufacture of acetic acid.
MONOMER a molecule or compound of relatively simple structure
that can be converted to polymers through reaction with
itself or other molecules.
PLASTICIZERS products made by the Company primarily from alpha-
olefins and orthoxylene used in the manufacture of
flexible plastics.
PROPYLENE a colorless flammable gas used as a raw material in the
manufacture of acrylonitrile.
SAN styrene acrylonitrile resins, used in the production of
various consumer products.
SODIUM CHLORATE a colorless, water soluble solid primarily used in the
production of chlorine dioxide.
SODIUM CHLORITE a specialty product used to produce chlorine dioxide
primarily for water treatment and as a disinfectant for
fresh produce.
SODIUM CYANIDE a white, water soluble powder used chiefly in
electroplating and in the mining of precious metals.
STYRENE a product manufactured from ethylene and benzene.
Styrene is principally used in the manufacture of
intermediate products such as polystyrene, ABS,
synthetic rubbers, SB latex, unsaturated polyester
resins and SAN.
TBA tertiary butylamine, a product manufactured from
isobutylene and hydrogen cyanide; TBA is used in the
production of pesticides and solvents.
</TABLE>
A-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STX Acquisition Corp. and Subsidiary:
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheet as of May 14, 1996........................... F-3
Notes to Consolidated Balance Sheet..................................... F-4
STX Chemicals Corp.:
Independent Auditors' Report............................................ F-5
Balance Sheet as of May 14, 1996........................................ F-6
Note to Balance Sheet................................................... F-7
Sterling Chemicals, Inc.:
Report of Independent Accountants....................................... F-8
Consolidated Statement of Operations for the Years Ended September 30,
1995,
1994 and 1993.......................................................... F-9
Consolidated Balance Sheet as of September 30, 1995 and 1994............ F-10
Consolidated Statement of Changes in Stockholders' Equity for the Years
Ended
September 30, 1995, 1994 and 1993...................................... F-11
Consolidated Statement of Cash Flows for the Years Ended September 30,
1995,
1994 and 1993.......................................................... F-12
Notes to Consolidated Financial Statements.............................. F-13
Supplemental Financial Information--Quarterly Financial Data
(Unaudited)............................................................ F-29
Condensed Consolidated Balance Sheet as of June 30, 1996 and September
30, 1995 (Unaudited)................................................... F-30
Condensed Consolidated Statement of Operations for the Nine Months Ended
June 30, 1996 and 1995 (Unaudited)..................................... F-31
Condensed Consolidated Statement of Cash Flows for the Nine Months Ended
June 30, 1996 and 1995 (Unaudited)..................................... F-32
Notes to Condensed Consolidated Financial Statements (Unaudited)........ F-34
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
STX Acquisition Corp. and Subsidiary
We have audited the accompanying consolidated balance sheet of STX
Acquisition Corp. and Subsidiary as of May 14, 1996. This consolidated balance
sheet is the responsibility of the Company's management. Our responsibility is
to express an opinion on the consolidated balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the financial position of STX Acquisition
Corp. and Subsidiary as of May 14, 1996 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
May 20, 1996
F-2
<PAGE>
STX ACQUISITION CORP.
CONSOLIDATED BALANCE SHEET
MAY 14, 1996
<TABLE>
<S> <C>
Assets--Cash............................................................ $2,008
======
Stockholders' Equity
Common stock, $.01 par value; 900,000 shares authorized; 84 shares
issued and outstanding............................................... $ 1
Additional paid-in capital............................................ 2,007
------
Total Stockholders' Equity.............................................. $2,008
======
</TABLE>
See accompanying notes.
F-3
<PAGE>
STX ACQUISITION CORP.
NOTES TO CONSOLIDATED BALANCE SHEET
AS OF MAY 14, 1996
1. ORGANIZATION AND OPERATIONS
The consolidated balance sheet includes the accounts of STX Acquisition
Corp. ("STX Acquisition") and its wholly-owned subsidiary, STX Chemicals Corp.
("Chemicals").
STX Acquisition is a Delaware Corporation formed in April 1996 by an
investor group led by The Sterling Group, Inc. and The Unicorn Group L.L.C. to
effect the merger (the "Merger") of STX Acquisition with and into Sterling
Chemicals, Inc., (the "Company"). Pursuant to an Agreement and Plan of Merger
dated April 24, 1996 between STX Acquisition and the Company, the stockholders
of STX Acquisition will acquire a controlling interest in the Company through
the Merger, with the Company being the surviving corporation. Chemicals will
become a wholly owned subsidiary of the Company and all operating assets and
related liabilities of the Company will be conveyed to and assumed by
Chemicals.
2. COMMITMENTS AND CONTINGENCIES
In April and May, 1996 six putative class action complaints relating to the
proposed Merger and the events leading up to the recommendation of the
approval thereof by the Board of Directors of the Company were filed in the
Court of Chancery for New Castle, Delaware (the "Court"). It is anticipated
that the Court will consolidate the six actions. The complaints name the
Company and each of its directors as defendants and generally allege that the
course of conduct taken by the Company's directors in considering the
Company's strategic alternatives and in recommending the Merger has been in
violation of their fiduciary duties to the Company's stockholders and seek
injunctive relief and unspecified damages. One of the lawsuits includes STX
Acquisition as a defendant. Such lawsuit is styled Alan R. Kahn V. Sterling
Chemicals, Inc., The Sterling Group, Inc., The Unicorn Group, Inc., STX
Acquisition Corp., Gordon A. Cain, et al; Civil Action No. 14981; In the Court
of Chancery of the State of Delaware, New Castle County, Delaware. STX
Acquisition believes that this action is without merit. While this lawsuit is
in the early stages, at this time it is not anticipated to have a material
adverse effect on the financial position of STX Acquisition.
F-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
STX Chemicals Corp.
We have audited the accompanying balance sheet of STX Chemicals Corp. (a
wholly owned subsidiary of STX Acquisition Corp.) as of May 14, 1996. This
balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on the balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for an
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of STX Chemicals Corp. as of May 14,
1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
May 20, 1996
F-5
<PAGE>
STX CHEMICALS CORP.
(A WHOLLY OWNED SUBSIDIARY OF STX ACQUISITION CORP.)
BALANCE SHEET
MAY 14, 1996
<TABLE>
<S> <C>
Assets--Cash............................................................ $1,000
======
Stockholder's Equity
Common stock, $.01 par value; 1,000 shares authorized,
issued and outstanding............................................... $ 10
Additional paid-in capital............................................ 990
------
Total Stockholder's Equity.............................................. $1,000
======
</TABLE>
See accompanying note.
F-6
<PAGE>
STX CHEMICALS CORP.
(A WHOLLY OWNED SUBSIDIARY OF STX ACQUISITION CORP.)
NOTE TO BALANCE SHEET
AS OF MAY 14, 1996
1. ORGANIZATION AND OPERATIONS
STX Chemicals Corp. ("Chemicals"), incorporated in Delaware in May 1996, is
a wholly owned subsidiary of STX Acquisition Corp. ("STX Acquisition"). STX
Acquisition was formed to effect the merger of STX Acquisition with and into
Sterling Chemicals, Inc. (the "Company"). Concurrently with the merger,
Chemicals will become a wholly owned subsidiary of the Company and all
operating assets and related liabilities of the Company will be conveyed to
and assumed by Chemicals.
F-7
<PAGE>
REPORT OF INDEPENDENT
ACCOUNTANTS
To the Board of Directors and Stockholders of Sterling Chemicals, Inc.
We have audited the consolidated balance sheet of Sterling Chemicals, Inc.
as of September 30, 1995 and 1994 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the
three years in the period ended September 30, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sterling
Chemicals, Inc. as of September 30, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended September 30, 1995, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
October 25, 1995
F-8
<PAGE>
STERLING CHEMICALS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
Revenues........................................ $1,030,198 $700,840 $518,821
Cost of goods sold.............................. 758,580 606,916 477,902
---------- -------- --------
Gross profit.................................... 271,618 93,924 40,919
Selling, general and administrative expenses
(Note 7)....................................... 28,856 46,150 25,495
Interest and debt related expenses, net of
interest income................................ 14,604 22,126 22,392
Gain on sale of assets.......................... -- (2,606)
---------- -------- --------
Income (loss) before taxes and extraordinary
item........................................... 228,158 28,254 (6,968)
Provision (benefit) for income taxes............ 75,005 9,122 (1,548)
---------- -------- --------
Income (loss) before extraordinary item......... 153,153 19,132 (5,420)
Extraordinary item, loss on early extinguishment
of debt,
net of tax (Note 3)............................ 3,104 -- --
---------- -------- --------
Net income (loss)............................... $ 150,049 $ 19,132 $ (5,420)
========== ======== ========
Per share data:
Income (loss) before extraordinary item......... $ 2.76 $ 0.34 $ (0.10)
Extraordinary item.............................. .06 -- --
---------- -------- --------
Net income (loss) per share..................... $ 2.70 $ 0.34 $ (0.10)
========== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE>
STERLING CHEMICALS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 30,882 $ 2,013
Accounts receivable...................................... 112,102 127,705
Inventories.............................................. 67,867 69,758
Prepaid expenses......................................... 3,878 2,700
Deferred income taxes.................................... 5,622 9,332
-------- --------
Total current assets................................... 220,351 211,508
Property, plant and equipment, net......................... 309,084 291,126
Other assets............................................... 80,504 78,291
-------- --------
Total assets........................................... $609,939 $580,925
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 72,016 $ 76,857
Accrued liabilities...................................... 55,858 80,071
Current portion of long-term debt........................ 17,857 33,771
-------- --------
Total current liabilities.............................. 145,731 190,699
Long-term debt............................................. 103,581 192,621
Deferred income tax liability.............................. 40,297 38,837
Deferred credits and other liabilities..................... 81,012 69,034
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock, $.01 par value, 150,000 shares authorized,
60,327 shares issued, 55,674 and 55,660 shares
outstanding at September 30, 1995 and 1994,
respectively............................................ 603 603
Additional paid-in capital............................... 33,269 33,232
Retained earnings........................................ 275,052 125,003
Pension adjustment....................................... (1,556) (950)
Accumulated translation adjustment....................... (17,307) (17,322)
Deferred compensation.................................... (129) (68)
-------- --------
289,932 140,498
Treasury stock, at cost, 4,653 and 4,667 shares at
September 30, 1995 and 1994, respectively............... (50,614) (50,764)
-------- --------
Total stockholders' equity................................. 239,318 89,734
-------- --------
Total liabilities and stockholders' equity................. $609,939 $580,925
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-10
<PAGE>
STERLING CHEMICALS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ACCUMULATED
------------- PAID-IN RETAINED PENSION TRANSLATION DEFERRED TREASURY
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT COMPENSATION STOCK
------ ------ ---------- -------- ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30,
1992................... 60,150 $602 $35,478 $114,603 $(1,009) $ (6,610) $(234) $(55,487)
Net loss................ -- -- -- (5,420) -- -- -- --
Translation adjustment.. -- -- -- -- -- (9,574) -- --
Dividends paid on common
stock $.06 per share... -- -- -- (3,312) -- -- -- --
Common stock issued..... 175 1 700 -- -- -- -- --
Treasury stock
transactions........... -- -- (1,470) -- -- -- (135) 2,286
Amortization of deferred
compensation........... -- -- -- -- -- -- 205 --
Pension adjustment...... -- -- -- -- (288) -- -- --
------ ---- ------- -------- ------- -------- ----- --------
Balance, September 30,
1993................... 60,325 603 34,708 105,871 (1,297) (16,184) (164) (53,201)
Net income.............. -- -- -- 19,132 -- -- -- --
Translation adjustment.. -- -- -- -- -- (1,138) -- --
Common stock issued..... 2 -- 6 -- -- -- -- --
Treasury stock
transactions........... -- -- (1,482) -- -- -- -- 2,437
Amortization of deferred
compensation........... -- -- -- -- -- -- 96 --
Pension adjustment...... -- -- -- -- 347 -- -- --
------ ---- ------- -------- ------- -------- ----- --------
Balance, September 30,
1994................... 60,327 603 33,232 125,003 (950) (17,322) (68) (50,764)
Net income.............. -- -- -- 150,049 -- -- -- --
Translation adjustment.. -- -- -- -- -- 15 -- --
Treasury stock
transactions........... -- -- 37 -- -- -- -- 150
Amortization of deferred
compensation........... -- -- -- -- -- -- (61) --
Pension adjustment...... -- -- -- -- (606) -- -- --
------ ---- ------- -------- ------- -------- ----- --------
Balance, September 30,
1995................... 60,327 $603 $33,269 $275,052 $(1,556) $(17,307) $(129) $(50,614)
====== ==== ======= ======== ======= ======== ===== ========
</TABLE>
F-11
<PAGE>
STERLING CHEMICALS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers................ $1,159,192 $709,026 $558,088
Miscellaneous cash receipts................. 14,007 10,618 10,945
Cash paid to suppliers and employees........ (893,324) (614,856) (497,920)
Interest paid............................... (14,811) (20,443) (21,622)
Interest received........................... 2,540 60 86
Income taxes paid........................... (75,766) (9,156) (1,463)
---------- -------- --------
Net cash provided by operating activities..... 191,838 75,249 48,114
Cash flows from investing activities:
Capital expenditures........................ (53,962) (12,343) (12,175)
Proceeds from sale of assets................ -- 2,606 --
---------- -------- --------
Net cash used in investing activities......... (53,962) (9,737) (12,175)
Cash flows from financing activities:
Proceeds from long-term debt................ 217,000 -- --
Repayment of long-term debt................. (322,282) (65,517) (33,649)
Dividends paid.............................. -- -- (3,312)
Other....................................... (3,735) 643 (96)
---------- -------- --------
Net cash used in financing activities......... (109,017) (64,874) (37,057)
Effect of U.S./Canadian exchange rate on cash. 10 23 (155)
---------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................. 28,869 661 (1,273)
Cash and cash equivalents--beginning of year.. 2,013 1,352 2,625
---------- -------- --------
Cash and cash equivalents--end of year........ $ 30,882 $ 2,013 $ 1,352
========== ======== ========
Reconciliation of Net Income (Loss) to Cash
Provided by Operating Activities:
Net income (loss)............................. $ 150,049 $ 19,132 $ (5,420)
Adjustments to reconcile net income (loss) to
net cash provided by
operating activities:
Depreciation and amortization............... 43,033 40,953 38,679
Extraordinary item.......................... 3,104 -- --
Deferred tax expense (benefit).............. 4,280 (4,817) 1,239
Accrued compensation including SARs......... (2,638) 21,941 205
Other....................................... 1,058 (1,180) 1,494
Change in assets/liabilities:
Accounts receivable......................... 22,540 (52,304) (17,705)
Inventories................................. 1,921 (9,493) 17,708
Prepaid expenses............................ (1,183) 2,649 2,430
Other assets................................ (4,075) (1,437) (4,411)
Accounts payable............................ (4,117) 34,083 8,123
Accrued liabilities......................... (21,447) 17,604 6,332
Other liabilities........................... (687) 8,118 (560)
---------- -------- --------
Net cash provided by operating activities..... $ 191,838 $ 75,249 $ 48,114
========== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-12
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Sterling Chemicals, Inc. (the "Company") operates petrochemical facilities
in Texas City, Texas and pulp chemical facilities throughout Canada. The
significant accounting policies of the Company are described below.
Principles of Consolidation
The consolidated financial statements include all majority-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated. The Company's investment in a cogeneration joint venture is
accounted for under the equity method with earnings from the joint venture
recorded as a reduction of cost of goods sold.
Cash Equivalents
The Company considers all investments purchased with an original maturity of
three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market; cost is determined on
the first-in, first-out ("FIFO") basis except for stores and supplies, which
are valued at average cost.
The Company enters into agreements with other companies to exchange chemical
inventories in order to minimize working capital requirements and to
facilitate distribution logistics. Balances related to quantities due to or
payable by the Company are included in inventory.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Major renewals and
improvements which extend the useful lives of the equipment are capitalized.
Major planned maintenance expenses are accrued for during the periods prior to
the maintenance, while routine repair and maintenance expenses are charged to
operations as incurred. Disposals are removed at carrying cost less
accumulated depreciation with any resulting gain or loss reflected in
operations. Depreciation is provided using the straight-line method over
estimated useful lives ranging from 5 to 25 years with the predominant life of
the plant and equipment being 15 years. The Company capitalizes interest costs
which are incurred as part of the cost of constructing major facilities and
equipment. The amount of interest capitalized for the fiscal years 1995, 1994
and 1993 was $1,024, $145 and $291, respectively.
Patents and Royalties
The cost of patents is amortized on a straight-line basis over their
estimated useful lives which approximates ten years. The Company capitalized
the value of the chlorine dioxide generator technology acquired in 1992 based
on the net present value of all estimated remaining royalty payments
associated with the technology. The resulting intangible amount is included in
other assets and is amortized over an average life for these royalty payments
of ten years.
Debt Issue Costs
Debt issue costs relating to long-term debt are amortized using the interest
method and are included in other assets.
F-13
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Income Taxes
Deferred income taxes are recorded to reflect the tax consequences in future
years of differences between the tax basis of assets and liabilities and the
financial reporting amounts at each year-end.
Revenue Recognition
The Company generates revenues through sales in the open market, raw
material conversion agreements and long-term supply contracts. In addition,
the Company has entered into shared profit arrangements with respect to
certain petrochemical products. The Company recognizes revenue from sales in
the open market, raw material conversion agreements and long-term supply
contracts as the products are shipped. Revenues from shared profit
arrangements are estimated and accrued monthly. The Company also generates
revenues from the construction and sale of chlorine dioxide generators which
are recognized using the percentage of completion method. Deferred credits are
amortized over the life of the contract which gave rise to them. The Company
also receives prepaid royalties which are recognized over a period which is
typically ten years.
Foreign Exchange
Assets and liabilities denominated in Canadian dollars are translated into
U.S. dollars at year-end exchange rates and revenues and expenses are
translated at the average monthly exchange rates. Translation adjustments are
reported as a separate component of stockholders' equity while transaction
gains and losses are included in operations when incurred.
Financial Instruments
The Company's Canadian subsidiaries enter into forward foreign exchange
contracts to minimize the short-term impact of Canadian dollar fluctuations on
certain of its Canadian dollar denominated commitments. Gains or losses on
these contracts are deferred and are included in operations in the same period
in which the related transactions are settled.
The Company has entered into interest rate swap agreements to hedge interest
rate fluctuation on its long-term debt. The differences between the floating
interest rate or the Company's debt and the fixed contract rate under the
interest rate swap agreements are reflected as a component of interest expense
in the consolidated financial statements. The impact of interest rate swaps on
interest expense in 1995 was not material. For all of the Company's financial
instruments the counterparties were large financial institutions and therefore
the risk of credit loss is considered minimal.
Income (Loss) Per Share
Income (loss) per share for fiscal years 1995, 1994 and 1993 has been
computed using a weighted average shares outstanding of 55,674,000, 55,606,000
and 55,252,000, respectively.
Environmental Costs
Environmental costs are expensed unless the expenditures extend the economic
useful life of the assets. Costs that extend the economic life of the assets
are capitalized and depreciated over the remaining life of such assets.
Reclassification
Certain amounts reported in the financial statements for the prior periods
have been reclassified to conform with the current financial statement
presentation with no effect on net income (loss) or stockholders' equity.
F-14
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
2. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Inventories:
Finished products....................................... $ 44,802 $ 49,189
Raw materials........................................... 16,506 21,761
--------- ---------
Inventories at FIFO cost................................ 61,308 70,950
Inventories under exchange agreements................... (4,783) (12,350)
Stores and supplies..................................... 11,342 11,158
--------- ---------
$ 67,867 $ 69,758
========= =========
Property, plant and equipment:
Land.................................................... $ 11,775 $ 11,771
Buildings............................................... 26,955 24,944
Plant and equipment..................................... 422,479 406,860
Construction in progress................................ 49,782 14,132
Less accumulated depreciation........................... (201,907) (166,581)
--------- ---------
$ 309,084 $ 291,126
========= =========
Other assets:
Patents and technology, net............................. $ 40,971 $ 46,918
Estimated insurance recoveries.......................... 10,315 --
Intangible pension asset................................ 3,733 4,139
Deferred catalyst....................................... 4,357 4,126
Debt issue costs........................................ 3,370 5,835
Other................................................... 17,758 17,273
--------- ---------
$ 80,504 $ 78,291
========= =========
Accrued liabilities:
Repairs................................................. $ 9,021 $ 13,468
Income taxes............................................ 2,250 13,257
Interest................................................ 574 576
Estimated contract adjustments.......................... 1,536 9,684
Property taxes.......................................... 6,179 5,796
Litigation contingency.................................. 6,000 --
Accrued compensation.................................... 10,019 21,719
Other................................................... 20,279 15,571
--------- ---------
$ 55,858 $ 80,071
========= =========
Deferred credits and other liabilities:
Deferred revenue........................................ $ 21,969 $ 27,513
Accrued postretirement benefits......................... 24,722 22,746
Additional minimum pension liability.................... 6,127 5,601
Accrued compensation.................................... 2,922 9,030
Litigation contingency.................................. 10,315 --
Other................................................... 14,957 4,144
--------- ---------
$ 81,012 $ 69,034
========= =========
</TABLE>
F-15
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
3. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1995 1994
-------- --------
<S> <C> <C>
Revolving credit facilities................................. $ 902 $ 32,940
Term loan................................................... 120,536 20,000
Project loan................................................ -- 16,134
Subsidiary term loan........................................ -- 113,050
Subordinated note........................................... -- 44,268
-------- --------
Total debt outstanding.................................... 121,438 226,392
Less:
Current maturities........................................ (17,857) (33,771)
-------- --------
Total long-term debt........................................ $103,581 $192,621
======== ========
</TABLE>
On April 13, 1995, the Company entered into a seven-year agreement (the
"Credit Agreement") with a group of 14 commercial banks to refinance the
Company's existing debt except for the revolving debt associated with Sterling
Pulp Chemicals, Ltd. ("Sterling Pulp"). The Credit Agreement provides for a
revolving credit facility of $150,000 (the "Revolver") and a term loan of
$125,000 (the "Term Loan"). On April 28, 1995, Sterling Pulp entered into a
separate agreement for a Cdn. $20,000 revolving credit facility (the "Canadian
Revolver"). The Canadian Revolver was utilized to refinance the revolving debt
associated with Sterling Pulp.
The Revolver and the Term Loan bear interest at the Base Rate or, at the
Company's option, the Eurodollar rate. The Base Rate is equal to the greater
of the Prime Rate as announced from time to time by the agent bank, or the
Federal Funds Rate plus 1/2%. The Eurodollar Rate is equal to the Eurodollar
Interbank Rate plus the Margin Percentage, which is adjustable quarterly and
can range from 0.65% to 1.25%. Subsequent to the closing of the Credit
Agreement, the Company entered into an interest rate swap, equivalent in
amount and term to the Term Loan. The swap effectively replaces the variable
rate on the Term Loan with a fixed interest rate of approximately 7% per annum
for the remaining term.
In connection with arranging the Credit Agreement, the Company incurred fees
of approximately $3,000 which will be amortized over the term of the loans.
Unamortized debt issue costs related to the retired loans were expensed in
April 1995 and are recorded as an extraordinary loss from early extinguishment
of debt of approximately $3,104, net of tax of $1,571, or $.06 per share.
At September 30, 1995, the Company had indebtedness of $120,536 under the
Term Loan and $902 under the Canadian Revolver. The carrying value of such
debt approximates the market value of the debt due to its floating rate
nature. Additionally, the Company had $2,172 in letters of credit under the
Revolver and $1,070 in letters of credit under the Canadian Revolver, both of
which reduced the amount available under these respective facilities. The
weighted average interest rate of the Company's long-term debt at September
30, 1995 was 6.6%. In addition, availability under the Revolver for loans and
letters of credit is subject to a monthly borrowing base. At September 30,
1995, the borrowing base limited availability under the Revolver to $129,398.
The Term Loan requires equal quarterly installments of $4,464 over the
seven- year term. This payment schedule has resulted in a significant decrease
in current maturities of long-term debt from $33,771 on September 30, 1994 to
$17,857 on September 30, 1995. The Revolver and the Canadian Revolver mature
at the end of their seven-year terms, and no principal payments are required
prior to that time.
F-16
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
The Revolver and the Term Loan are collateralized by substantially all of
the inventory and accounts receivable of the Company and certain of its
domestic subsidiaries, all of the Company's equity interests in Sterling
Canada, Inc. (a wholly-owned subsidiary of the Company), 65% of the equity of
Sterling Pulp and Sterling NRO, Ltd., and certain contract rights of the
Company. Additionally, certain of the Company's domestic subsidiaries have
guaranteed the Revolver and Term Loan.
The Credit Agreement contains a number of financial and other covenants that
management believes are customary in lending transactions of this type. The
Credit Agreement allows the Company to redeem, retire or acquire shares of its
capital stock and to make dividend payments, within certain conditions and
limitations, as long as no Default or Event of Default (as defined in the
Credit Agreement) has occurred or is continuing.
On September 28, 1995, Sterling Pulp entered into a seven-year credit
agreement to finance the construction of the Georgia sodium chlorate plant
(the "Chlorate Plant Credit Agreement") with the same bank group that is a
party to the Credit Agreement. Sterling Pulp can borrow up to $60 million
under the Chlorate Plant Credit Agreement to purchase taxable bonds from the
local county development authority that will use the bond proceeds to finance
the construction of the plant. The first quarterly scheduled principal payment
on the debt is due October 1, 1997 while the final scheduled payment is due
July 1, 2002. There is an annual excess cash flow test required by the
Chlorate Plant Credit Agreement that could result in mandatory prepayments of
some of the scheduled principal payments. Most of the debt is scheduled to be
paid during the last two years of the seven-year term. As a result of a
guaranty provided by the Company, the overall borrowing rate under the
Chlorate Plant Credit Agreement will be the same as under the Credit
Agreement, excluding the effect of any interest rate hedging arrangements. The
debt will be collateralized by the taxable bonds and the Company's interest in
the plant. No debt was outstanding under the Chlorate Plant Credit Agreement
at September 30, 1995.
Debt Maturities
The estimated remaining principal payments on the outstanding debt are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING PRINCIPAL
SEPTEMBER 30, PAYMENTS
------------- ---------
<S> <C>
1996........................................................ $ 17,857
1997........................................................ 17,857
1998........................................................ 17,857
1999........................................................ 17,857
2000........................................................ 17,857
2001........................................................ 17,857
2002........................................................ 14,296
--------
Total outstanding debt...................................... $121,438
========
</TABLE>
F-17
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
4. INCOME TAXES:
A reconciliation of federal statutory income taxes to the Company's
effective tax provision (benefit) before extraordinary item follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER
30,
------------------------
1995 1994 1993
------- ------ -------
<S> <C> <C> <C>
Provision (benefit) for federal income tax at
the statutory rate............................ $79,855 $9,772 $(2,994)
Foreign sales corporation...................... (7,991) -- --
State and foreign income taxes................. 2,862 90 877
Estimated income tax settlement and other...... 279 (740) 569
------- ------ -------
Effective tax provision (benefit).............. $75,005 $9,122 $(1,548)
======= ====== =======
</TABLE>
The provision (benefit) for income taxes is composed of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER
30,
------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
From operations:
Current federal.............................. $67,393 $18,618 $(2,849)
Deferred federal............................. 1,075 (7,809) 148
Deferred foreign............................. 3,489 (1,687) 1,153
Current state................................ 2,947 -- --
Deferred state............................... 101 -- --
------- ------- -------
Total tax provision (benefit).................. $75,005 $ 9,122 $(1,548)
======= ======= =======
</TABLE>
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes("SFAS 109"), effective October
1, 1993. Under SFAS 109, deferred income taxes are provided for temporary
differences between the tax basis of assets and liabilities and amounts for
financial reporting purposes. The adoption of this statement did not have an
effect on the Company's results of operations. Upon adoption of SFAS 109, the
Company's current deferred tax asset and deferred tax liability each increased
by approximately $1,600.
The components of the deferred income taxes for 1993 (a disclosure no longer
required for years subsequent to adoption of SFAS 109) are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1993
-------------
<S> <C>
Depreciation and amortization............................... $1,709
Alternate minimum tax....................................... (959)
Accrued expenses for book purposes.......................... 484
Pension expense............................................. (729)
Postretirement expense...................................... (667)
Effect of tax rate change................................... 500
Other....................................................... 963
------
Total deferred tax expense.................................. $1,301
======
</TABLE>
F-18
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
The components of the Company's deferred income tax assets and liabilities
are summarized below:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------
1995 1994
------- -------
<S> <C> <C>
Assets:
Accrued liabilities...................................... $10,475 $13,099
Accrued postretirement cost.............................. 8,719 7,405
Tax loss and credit carryforward......................... 7,470 11,389
Other.................................................... -- 523
------- -------
Total deferred tax assets................................ 26,664 32,416
Less current deferred income tax benefit................. 5,622 9,332
------- -------
Noncurrent deferred tax assets........................... $21,042 $23,084
======= =======
Liabilities:
Property, plant and equipment............................ $57,466 $60,756
Accrued pension cost..................................... 2,471 1,165
Other.................................................... 1,402 --
------- -------
Total deferred tax liabilities........................... $61,339 $61,921
======= =======
</TABLE>
The Company has approximately Cdn. $25,000 in Canadian tax loss
carryforwards which will expire from 1998 through 2001.
5. EMPLOYEE BENEFITS:
The Company has established the following benefit plans:
Retirement Benefit Plans
The Company has non-contributory pension plans in the United States and
employer and employee contributory plans in Canada which cover all salaried
and wage employees. The benefits under these plans are based primarily on
years of service and employees' pay near retirement. For those Company
employees who were employed by the Company as of September 30, 1986 and were
previously employed by Monsanto, the Company recognizes their Monsanto pension
years of service for purposes of determining benefits under the Company's
plans. For those Company employees who were employed by the Company on August
21, 1992 and were previously employed by Tenneco Inc., the Company recognizes
their Tenneco Inc. pension years of service for purposes of determining
benefits under the Company's plans. The Company's funding policy is consistent
with the funding requirements of federal law and regulations. Plan assets
consist principally of common stocks and government and corporate securities.
The Company has recorded its additional minimum liability in accordance with
Statement of Financial Accounting Standards No. 87 "Employers' Accounting for
Pensions." In recognizing the additional pension liability at September 30,
1995 and 1994, the Company recorded a liability of $6,127 and $5,601, an
intangible asset of $3,733 and $4,139, which is included with other assets,
and a reduction of stockholders' equity of $1,556 and $950, net of deferred
tax of $838 and $512, respectively.
F-19
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
The components of pension expense for the years ended September 30, 1995,
1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service cost (for benefits earned during the
period)........................................ $3,288 $3,386 $3,195
Interest cost on projected benefit obligation... 4,471 3,891 3,499
Actual return on plan assets and contributions.. (5,825) 617 (2,940)
Deferral of asset gain (loss)................... 1,909 (3,997) 59
Net amortization of unrecognized amounts........ 871 848 863
------ ------ ------
Pension expense................................. $4,714 $4,745 $4,676
====== ====== ======
</TABLE>
Assumptions used in determining the projected benefit obligation and pension
cost for the periods were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
----------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Discount rates.......................................... 7.5% 8.0% 7.5%
Rates of increase in salary compensation level.......... 5.5% 5.5% 5.5%
Expected long-term rate of return on assets............. 9.0% 9.0% 9.0%
</TABLE>
The funded status of the Company's pension plans for which assets exceed
accumulated benefits and plans for which accumulated benefits exceed assets as
of the actuarial valuation dates of August 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
----------------------- -----------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of
benefits based on service to
date and present pay levels:
Vested benefit obligation..... $ 26,222 $21,743 $19,392 $17,776
Non-vested benefit obligation. 1,029 1,293 2,040 1,309
-------- ------- ------- -------
Accumulated benefit
obligation................... 27,251 23,036 21,432 19,085
Plan assets at fair value..... 33,540 21,134 26,835 16,795
-------- ------- ------- -------
Plan assets in excess of (less
than) accumulated benefit
obligation................... 6,289 (1,902) 5,403 (2,290)
Additional amounts related to
projected salary increases... 16,431 658 14,806 812
-------- ------- ------- -------
Plan assets less than total
projected benefit obligation. (10,142) (2,560) (9,403) (3,102)
Unrecognized net loss
resulting from plan
experience and changes in
actuarial assumptions........ 5,995 2,579 4,935 1,871
Unrecognized prior service
cost......................... 2 3,689 (49) 3,949
Unrecognized transition
obligation................... 2,716 156 3,067 182
-------- ------- ------- -------
Prepaid (accrued) pension cost
before additional minimum
liability.................... (1,429) 3,864 (1,450) 2,900
Additional minimum liability.. -- (6,127) -- (5,601)
-------- ------- ------- -------
Total accrued pension
obligation.................... $ (1,429) $(2,263) $(1,450) $(2,701)
======== ======= ======= =======
</TABLE>
F-20
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Postretirement Benefits Other Than Pensions
The Company provides certain health care benefits and life insurance
benefits for retired employees. Substantially all of the Company's employees
become eligible for these benefits at normal retirement age. The Company
accrues the cost of these benefits during the period in which the employee
renders the necessary service.
Health care benefits are provided to employees who retire from the Company
with ten or more years of service except for Canadian employees subject to
collective bargaining agreements. All of the Company's employees are eligible
for postretirement life insurance. Postretirement health care benefits for
most U.S. employees are provided for under a contributory, comprehensive plan
while all other plans are non-contributory. Benefit provisions for most hourly
and some salaried employees are subject to collective bargaining. In general,
the plan stipulates that retiree health care benefits are paid as covered
expenses are incurred. For U.S. employees, postretirement medical plan
deductibles are assumed to increase at the rate of the long-term consumer
price index. Approximately two hundred seventy-four retirees and dependents
are covered under these plans. The components of postretirement benefits cost
other than pensions for the years ended September 30, 1995 and 1994 were as
follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Service cost (for benefits earned during the period)....... $1,084 $1,064
Interest cost on projected benefit obligation.............. 1,835 1,688
Amortization of plan amendments............................ 29 29
------ ------
$2,948 $2,781
====== ======
</TABLE>
Actuarial assumptions used to determine fiscal year 1995 and 1994 costs and
benefit obligations for postretirement benefit plans other than pensions
include an average discount rate of 7.5% and an average rate of future
increases in benefit compensation of 5.5%. The assumed composite rate of
future increases in per capita cost of health care benefits ( health care cost
trend rate ) was 7.8% for fiscal year 1995, exclusive of demographic changes,
decreasing gradually to 5.5% by the year 2028.
These trend rates reflect current cost performance and management's
expectation that future rates will decline. Increasing the health care cost
trend rate by one percentage point would increase the accumulated
postretirement benefit obligation by $1,391 and would increase annual
aggregate service and interest costs by $173.
The following sets forth the plan's funded status reconciled with amounts
reported in the Company's consolidated balance sheet at September 30, 1995 and
1994.
Accumulated postretirement benefit obligation (APBO):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Retirees............................................... $ 7,315 $ 5,956
Fully eligible active plan participants................ 7,690 7,234
Other active plan participants......................... 11,956 11,752
------- -------
Total APBO............................................. 26,961 24,942
Plan assets at fair value.............................. -- --
Unrecognized loss...................................... (1,987) (1,915)
Unrecognized prior service cost........................ (252) (281)
------- -------
Accrued postretirement benefit liability............... $24,722 $22,746
======= =======
</TABLE>
F-21
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Postemployment Benefits
During the first quarter of fiscal 1993, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" ("SFAS 112"). SFAS 112 requires
accrual accounting for benefits provided to former or inactive employees after
employment but before retirement. The Company implemented the provisions of
SFAS 112 in fiscal 1995 and the effect of adoption on the Company's financial
position and results of operations was not material.
Employee Stock Ownership Trust
The Employee Stock Ownership Trust ("ESOT") was formed to invest primarily
in the Company's common stock and includes only participants contributing to
the Company's Savings and Investment Plan ("SIP"). The Company's contribution
to the ESOT is 60% of the participant's SIP contributions to the extent that
such participant's contributions do not exceed 7.5% of the employee's eligible
earnings. The Company's contributions are subject to a 20% per year vesting
schedule commencing after one year of service. The Company's contributions to
the ESOT for the years ended September 30, 1995, 1994 and 1993 were $1,684,
$1,688 and $1649, respectively.
Profit Sharing Plans
The Company provides profit sharing plans for the benefit of salaried and
hourly employees meeting certain eligibility requirements. These plans were
amended and restated in fiscal 1993. The Company distributes quarterly, to
eligible employees, a specified percentage of its earnings before interest,
taxes, depreciation and amortization above a specified level. The amount of
each eligible employee's quarterly cash distribution is related to a specified
percentage of such employee's base salary or wages, with the percentage
determined by the employee's position in the Company. Profit sharing expense
for the years ended September 30, 1995 and 1994 was $13,038 and $3,815,
respectively. There was no profit sharing expense during fiscal 1993.
Omnibus Stock and Incentive Plan
The Company has an Omnibus Stock and Incentive Plan, under which the Company
may grant to key employees incentive and nonincentive stock options, stock
appreciation rights, restricted stock, performance units and performance
shares. The terms and amounts of the awards are determined by the Compensation
Committee of the Board of Directors. Upon a change of control of the Company,
all awards granted under the plan become fully vested and all performance
based awards will be paid at the higher of performance goals or actual
performance to date. 3,000,000 shares of the Company's stock were reserved
under the plan when it was established. As of September 30, 1995, 263,000
shares have been issued.
In fiscal year 1993, the Company granted stock appreciation rights ("SARs")
to certain key employees and directors. Total expense benefit is determined
based on 3,632,000 SARs granted, the vesting period (five years beginning
September 1992) and the appreciation of the Company's stock price above $4 per
share, which was the fair market value of the Company's common stock on the
date of grant of the SARs. In October 1994, the Company amended the SAR
program by modifying the vesting periods and limiting the amount of
appreciation for each SAR during each vesting period, thereby limiting the
Company's aggregate future expenses. The Company recorded expense (benefit)
for the years ended September 30, 1995 and 1994 of ($2,767) and $21,800,
respectively, and paid $8,297 in October 1994 and $5,820 in September 1995
pursuant to the SARs, as amended. There was no expense associated with the
SARs for fiscal year 1993 as the market price of the Company's stock at
September 30, 1993 was less than the price at the date of grant. The expense
(benefit) for the SARs is included in selling, general and administrative
expenses in the Company's income statement.
F-22
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
In fiscal 1995, the Company granted 82,500 stock options to certain officers
of the Company with an exercise price of $13.50 per share. The options are
exercisable from the third through the tenth anniversary of the date of the
grant.
6. COMMITMENTS AND CONTINGENCIES:
Product Contracts
The Company has certain long-term agreements which provide for the
dedication of 100% of the Company's production of acetic acid, plasticizers,
TBA and sodium cyanide, each to one customer. The Company also has various
sales and conversion agreements which dedicate significant portions of the
Company's production of styrene monomer and acrylonitrile to various
customers. These agreements generally provide for cost recovery plus an agreed
margin or element of profit based upon market price.
Lease Commitments
The Company has entered into various long-term noncancellable operating
leases. Future minimum lease commitments at September 30, 1995 are as follows:
fiscal 1996--$2,135; fiscal 1997--$1,971; fiscal 1998--$1,878; fiscal 1999--
$1,661; fiscal 2000--$1,553; and $5,701 thereafter. Rent expense for fiscal
years 1995, 1994 and 1993 was not material.
Environmental and Safety Matters
The Company's operations involve the handling, production, transportation
and disposal of materials classified as hazardous or toxic and are extensively
regulated under environmental and health and safety laws. Operating permits
which are required for the Company's operations are subject to periodic
renewal and may be revoked or modified for cause.
New laws or permit requirements and conditions may affect the Company's
operations, products or waste disposal. Past or future operations may result
in claims or liabilities. Expenditures could be required to upgrade wastewater
collection, pretreatment, disposal systems or other matters.
The Company routinely incurs expenses associated with managing hazardous
substances and pollution in ongoing operations. These operating expenses
include items such as depreciation on its waste treatment facilities, outside
waste management, fuel, electricity and salaries. The amounts of these
operating expenses were approximately $45,000 and $44,000 for fiscal years
1995 and 1994, respectively. The Company does not anticipate a material
increase in these types of expenses during fiscal 1996. The Company considers
these types of environmental expenditures normal operating expenses and
includes them in cost of goods sold.
At its Texas City facility, the Company has reduced emissions of targeted
chemicals 74% from 1987 levels under the EPA's voluntary 33/50 program. These
reductions included a 96% reduction in hydrogen cyanide emissions and an 87%
reduction in benzene emissions. Additionally, the Company will initiate
appropriate actions or preventive projects necessary to insure that the
facility continues to operate in a safe and environmentally responsible
manner. No assurances can be given that the Company will not incur material
environmental expenditures associated with its facilities, operations or
products.
The Company's sodium chlorate market is sensitive to potential environmental
regulation. In general, environmental regulations support substitution of
chlorine dioxide, which is produced from sodium chlorate, for elemental
chlorine in the pulp bleaching process. Certain environmental groups are
encouraging passage of
F-23
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
regulations which restrict the amount of Absorbable Organic Halides (AOX) or
chlorine derivatives in bleach plant effluent. Increased substitution of
chlorine dioxide for elemental chlorine in the pulp bleaching process
significantly reduces the amount of AOX and chlorine derivatives in bleach
plant effluent. As long as there is not an outright ban on chlorine-containing
compounds, regulation restricting AOX or chlorine derivatives in bleach plant
effluent should favor the use of chlorine dioxide, thus sodium chlorate. Any
significant ban on all chlorine-containing compounds could have a material
adverse effect on the Company's financial condition and results of operations.
British Columbia has a regulation in place that would effectively eliminate
the use of chlorine dioxide in the bleaching process by the year 2002. The
pulp and paper industry is working to change this regulation and believes that
the ban of chlorine dioxide in the bleaching process will yield no measurable
environmental or public health benefit. The Company is not aware of any other
laws or regulations currently in place which would restrict the use of the
product.
Legal Proceedings
Petrochemicals
HUNTSMAN LAWSUIT: On January 30, 1995, the Company filed a lawsuit against
Huntsman Chemical Corporation and certain affiliates seeking a declaratory
judgment in connection with an alleged agreement arising from discussions,
previously suspended by the Company, relating to possible future capacity
rights for a significant portion of the Company's styrene monomer unit at its
Texas City facility. In the lawsuit, the Company is requesting a judicial
determination that, among other things, there was no enforceable agreement
between the Company and any of the defendants. In response, the defendants
filed a counterclaim demanding a jury trial and asserting that a contractual
agreement existed, that the Company breached the alleged agreement, and that
as a result the defendants incurred an unspecified amount of "massive
damages". Subsequently, the Company filed a motion for summary judgment.
On November 30, 1995, summary judgment was granted in the Company's favor.
The summary judgment, which is subject to appeal, confirms that as a matter of
law, no enforceable contract or agreement ever existed between the Company and
the defendants. The Court's order also moots the defendants' counterclaim
against the Company for damages resulting from breach of the alleged contract.
The Company believes a loss with respect to this matter is not probable and
is unable to quantify a reasonably possible loss estimate (as defined in
Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies") at this time.
ALLEMAND LAWSUIT: On June 19, 1995, a lawsuit was filed against the Company
and several other corporate defendants asserting personal injury and mental
anguish resulting from an incident occurring on June 16, 1995 in which a hose
being used to unload a barge of sulfuric acid at the Company's Texas City
facility ruptured, spraying sulfuric acid on an employee of Marine Fueling
Service, Inc. The plaintiffs seek an unspecified amount of damages. The
incident is under investigation and discovery is ongoing.
AMMONIA RELEASE: On May 8, 1994, an ammonia release occurred at the
Company's Texas City facility while a reactor in the acrylonitrile unit was
being restarted after a shutdown for routine maintenance. The Company
estimated that approximately three thousand pounds of ammonia were emitted
into the atmosphere.
F-24
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Approximately nine thousand individuals have filed claims directly with the
Company alleging personal injury and/or property damage as a result of
exposure to the ammonia. The Company and its insurance carriers are in the
process of evaluating these claims. Approximately two thousand of these claims
have been settled and three thousand have been denied. Settlements, costs and
expenses to date have totaled less than $2,000. All amounts above the
Company's $1,000 deductible (which has been charged against earnings) have
been paid by its insurance carriers.
Sixteen lawsuits involving approximately four thousand plaintiffs have been
filed against the Company seeking unspecified damages for personal injuries
and property damage as a result of the release. Additional claims and
litigation against the Company asserting similar claims may ensue.
SMITH LAWSUIT: On April 27, 1994, approximately one thousand two hundred
plaintiffs sued the Company and eighteen other corporate defendants in the
Texas City, Texas area. The plaintiffs seek an unspecified amount of damages
for personal injury and property damages arising from alleged chemical
releases. Discovery is proceeding and the Company is vigorously defending this
lawsuit.
ALLEN LAWSUIT: On May 9, 1991, a lawsuit was filed against the Company and
several other petrochemical companies operating in the Texas City, Texas area.
The plaintiffs in the lawsuit assert personal injury and property damage
claims arising from alleged chemical releases. The plaintiffs seek an
unspecified amount of damages. Although the court dismissed a number of the
plaintiffs for failure to comply with discovery, over three hundred plaintiffs
remain. The Company is vigorously defending this lawsuit.
The Company is subject to various other claims and legal actions that arise
in the ordinary course of its business.
Pulp Chemicals
The Company's primary competitor in the supply of patented technology for
generators which convert sodium chlorate into chlorine dioxide is Akzo Nobel
and its affiliates. The Company and Akzo Nobel are involved in numerous patent
disputes throughout the world in which the Company and Akzo Nobel are
challenging certain patents of the other and attempting to restrict the
other's operating range. If either party is successful in these disputes, the
other party may be required to make adjustments and modifications to its
commercial operations or obtain a license from the prevailing party. The
Company believes that it is entitled to certain indemnities from Tenneco
Canada with respect to the acquired technology. The Company and Akzo Nobel
have initiated discussions to resolve these disputes.
Litigation Contingency
In accordance with Statement of Financial Accounting Standards No. 5,
"Accounting for Contingencies" and Financial Accounting Standards Board
Interpretation No. 39 "Offsetting of Amounts Related to Certain Contracts",
the Company has made estimates of the reasonably possible range of liability
with regard to its outstanding litigation for which it may incur liability.
These estimates are based on management's judgments using currently available
information as well as consultation with the Company's insurance carriers and
outside legal counsel. A number of the claims in these litigation matters are
covered by the Company's insurance policies or by third-party indemnification
of the Company. The Company therefore has also made estimates of its probable
recoveries under insurance policies or from third-party indemnitors based on
its understanding of its insurance policies and indemnifications, discussions
with its insurers and indemnitors and consultation with outside legal counsel,
in addition to management's judgments. Based on the foregoing as of September
30, 1995,
F-25
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
the Company has accrued approximately $17,000 as its estimate of aggregate
contingent liability for these matters, and has also recorded aggregate
receivables from its insurers and third party indemnitors of approximately
$16,000. In addition, management estimates that at present, the reasonably
possible range of loss, in addition to the amount accrued, is from $0 to
$37,000. The Company believes that it is insured or indemnified for this
additional reasonably possible loss, except for a portion which is not
material.
While the Company has based its estimates on its evaluation of available
information to date and the other matters described above, much of the
litigation is in its early stages and it is impossible to predict with
certainty the ultimate outcome. The Company will adjust its estimates as
necessary as additional information is developed and evaluated. However, the
Company believes that the final resolution of these contingencies will not
have a material adverse impact on the financial position, results of
operations or cash flows of the Company.
The timing of probable insurance and indemnity recoveries, and payment of
liabilities, if any, is not expected to have a material effect on the
financial position, results of operations or cash flows of the Company.
7. SEGMENT AND GEOGRAPHIC INFORMATION:
Sales to individual customers constituting 10% or more of total revenues (in
any of the last three fiscal years) and sales by geographic region were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Major Customers:
British Petroleum plc and subsidiaries.......... $169,944 $103,637 $ 54,497
Mitsubishi International Corporation............ $129,812 $ 69,920 $ 60,186
Export Sales:
Export revenues................................. $534,067 $324,930 $158,804
Percentage of total revenues.................... 52% 46% 31%
Export revenues (as a percent of total exports)
by geographical area:
Asia.......................................... 64% 80% 61%
Europe........................................ 36% 16% 39%
Other......................................... -- 4% --
</TABLE>
F-26
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
Geographic Segment Information:
Revenues:
United States................................. $ 886,247 $578,295 $399,486
Canada........................................ 143,951 122,545 119,335
---------- -------- --------
Total........................................... $1,030,198 $700,840 $518,821
========== ======== ========
Income before taxes and extraordinary item:
United States................................. $ 210,320 $ 27,106 $(12,877)
Canada........................................ 17,838 1,148 5,909
---------- -------- --------
Total........................................... $ 228,158 $ 28,254 $ (6,968)
========== ======== ========
Net Income:
United States................................. $ 140,382 $ 17,979 $ (8,991)
Canada........................................ 9,667 1,153 3,571
---------- -------- --------
Total........................................... $ 150,049 $ 19,132 $ (5,420)
========== ======== ========
Assets:
United States................................. $ 405,324 $376,594 $331,149
Canada........................................ 204,615 204,331 215,605
---------- -------- --------
Total........................................... $ 609,939 $580,925 $546,754
========== ======== ========
Selling, general and administrative expenses:
United States................................. $ 14,535 $ 10,232 $ 10,422
Canada........................................ 17,088 14,075 15,073
SARs.......................................... (2,767) 21,843 --
---------- -------- --------
Total........................................... $ 28,856 $ 46,150 $ 25,495
========== ======== ========
Other Information:
Depreciation and amortization:
United States................................. $ 28,386 $ 26,327 $ 25,021
Canada........................................ $ 14,647 $ 14,626 $ 13,826
Capital expenditures:
United States................................. $ 45,759 $ 7,875 $ 9,377
Canada........................................ $ 8,203 $ 4,468 $ 2,798
</TABLE>
8. FINANCIAL INSTRUMENTS:
Foreign Exchange
The Company enters into forward foreign exchange contracts to hedge Canadian
dollar currency transactions on a continuing basis for periods consistent with
its committed exposures. The forward foreign exchange contracts have varying
maturities with none exceeding 18 months. The Company makes net settlements of
U.S. dollars for Canadian dollars at rates agreed to at inception of the
contracts.
The Company does not engage in currency speculation. However, the Company
enters into forward foreign exchange contracts to reduce risk due to Canadian
dollar exchange rate movements. The Company had a notional amount of
approximately $26,000 and $20,000 of forward foreign exchange contracts
outstanding to buy Canadian dollars at September 30, 1995 and 1994,
respectively. The deferred gain on these forward foreign exchange contracts at
September 30, 1995 and 1994 was immaterial.
F-27
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Concentration of Credit Risk
The Company sells its products primarily to companies involved in the
petrochemical and pulp and paper manufacturing industries. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral for accounts receivable. However, letters of credit are
required by the Company on many of its export sales. The Company's credit
losses have been minimal.
The Company maintains cash deposits with major banks which from time to time
may exceed federally insured limits. Management periodically assesses the
financial condition of the institutions and believes that any possible loss is
minimal.
Investments
It is the policy of the Company to invest its excess cash in investment
instruments or securities whose value is not subject to market fluctuations
such as certificates of deposit, repurchase agreements or Eurodollar deposits
with domestic or foreign banks or other financial institutions. Other
permitted investments include commercial paper of major U.S. corporations with
ratings of A1 by Standard & Poor's or P1 by Moody's, loan participations of
major U.S. corporations with a short term credit rating of A1/P1 and direct
obligations of the U.S. Government or its agencies. In addition, not more than
$5,000 will be invested with any single bank, financial institution or U.S.
corporation.
9. RELATED PARTY TRANSACTIONS:
The Company, through a wholly-owned subsidiary, is a partner in a joint
venture which constructed and operates a cogeneration plant at the Texas City
facility. During fiscal years 1995, 1994 and 1993, the Company purchased
$16,622, $16,546 and $16,646 of steam and electricity from the joint venture,
respectively, and recorded earnings of $3,391, $2,788 and $2,598,
respectively. The Company's investment in the joint venture is not material.
F-28
<PAGE>
STERLING CHEMICALS, INC.
SUPPLEMENTAL FINANCIAL INFORMATION--QUARTERLY FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL FIRST SECOND THIRD FOURTH(/1/)
YEAR QUARTER QUARTER QUARTER QUARTER
------ -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Revenues........................ 1995 $240,622 $303,954 $298,491 $187,131
1994 $130,560 $154,754 $204,668 $210,858
Gross profit.................... 1995 $ 48,354 $ 93,530 $103,504 $ 26,230
1994 $ 2,971 $ 14,806 $ 27,861 $ 48,286
Income before extraordinary
item........................... 1995 $ 22,259 $ 56,077 $ 59,767 $ 15,050
1994 $ (3,489) $ 1,829 $ 5,544 $ 15,248
Net income (loss)............... 1995 $ 22,259 $ 56,077 $ 56,663 $ 15,050
1994 $ (3,489) $ 1,829 $ 5,544 $ 15,248
Per Share Data:
Income (loss) before
extraordinary item............. 1995 $ .40 $ 1.01 $ 1.08 $ .27
1994 $ (.06) $ .03 $ .10 $ .27
Net income (loss)............... 1995 $ .40 $ 1.01 $ 1.02 $ .27
1994 $ (.06) $ .03 $ .10 $ .27
</TABLE>
- --------
(1) The decline in revenues, gross profit and net income in the fourth quarter
of fiscal 1995 relative to previous quarters resulted from the decrease in
prices and margins for styrene and acrylonitrile as well as the negative
impact from the shutdowns in styrene and acrylonitrile during the quarter.
See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations."
Fourth quarter net income in fiscal 1994 included a charge of $12,159, or
$.14 per share, for expenses related to the SARs described in Note 5 of the
"Notes to Consolidated Financial Statements." In the fourth quarter of
fiscal 1995, the charge was $(4,325), or $(.05) per share. The Company's
stock price decreased from $13.50 on September 30, 1994 to $8.25 on
September 30, 1995, resulting in the reversal of the previously accrued
expenses.
F-29
<PAGE>
STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
ASSETS 1996 1995
------ -------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 6,445 $ 30,882
Accounts receivable.................................... 149,139 112,102
Inventories............................................ 47,596 67,867
Prepaid expenses....................................... 7,917 3,878
Deferred income taxes.................................. 8,297 5,622
-------- --------
Total current assets................................. 219,394 220,351
Property, plant and equipment, net....................... 350,784 309,084
Other assets............................................. 88,794 80,504
-------- --------
Total assets......................................... $658,972 $609,939
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable....................................... $ 60,628 $ 72,016
Accrued liabilities.................................... 57,874 55,858
Current portion of long-term debt...................... 17,857 17,857
-------- --------
Total current liabilities............................ 136,359 145,731
Long-term debt........................................... 120,286 103,581
Deferred income taxes.................................... 46,308 40,297
Deferred credits and other liabilities................... 82,876 81,012
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 150,000 shares
authorized,
60,327 shares issued, 55,690 and 55,674 shares
outstanding, respectively............................. 603 603
Additional paid-in capital............................... 33,225 33,269
Retained earnings........................................ 310,686 275,052
Pension adjustment....................................... (1,556) (1,556)
Accumulated translation adjustment....................... (19,297) (17,307)
Deferred compensation.................................... (78) (129)
-------- --------
323,583 289,932
Treasury stock, at cost, 4,637 and 4,653 shares,
respectively............................................ (50,440) (50,614)
-------- --------
Total stockholders' equity........................... 273,143 239,318
-------- --------
Total liabilities and stockholders' equity......... $658,972 $609,939
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-30
<PAGE>
STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
-----------------
1996 1995
-------- --------
<S> <C> <C>
Revenues.................................................... $600,792 $843,067
Cost of goods sold.......................................... 508,749 597,677
-------- --------
Gross profit................................................ 92,043 245,390
Selling, general and administrative expenses................ 23,832 24,528
Stock appreciation rights (SARs) expense (benefit).......... 6,198 1,558
Other expense (Note 8)...................................... 3,706 --
Interest and debt related expenses, net of interest income.. 4,440 12,698
-------- --------
Income before income taxes and extraordinary item........... 53,867 206,606
Provision for income taxes.................................. 18,233 68,502
-------- --------
Income before extraordinary item............................ 35,634 138,104
Extraordinary item, loss on early extinguishment of debt,
net of tax................................................. -- 3,104
-------- --------
Net income.................................................. $ 35,634 $135,000
======== ========
Per share data:
Income before extraordinary item............................ $ 0.64 $ 2.48
Extraordinary item.......................................... -- (0.06)
-------- --------
Net income per share........................................ $ 0.64 $ 2.42
======== ========
Weighted average shares outstanding......................... 55,685 55,674
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-31
<PAGE>
STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers............................ $ 645,929 $ 862,019
Miscellaneous cash receipts............................. 14,969 13,450
Cash paid to suppliers and employees.................... (613,651) (675,326)
Interest paid........................................... (4,851) (12,316)
Interest received....................................... 579 2,254
Income taxes paid....................................... (11,601) (62,454)
--------- ---------
Net cash provided by operating activities................. 31,374 127,627
--------- ---------
Cash flows from investing activities:
Capital expenditures.................................... (73,045) (26,770)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt............................ 60,350 217,535
Repayment of long-term debt............................. (42,742) (315,282)
Other................................................... (289) (4,491)
--------- ---------
Net cash provided by (used in) financing activities....... 17,319 (102,238)
--------- ---------
Effect of exchange rate on cash........................... (85) (15)
--------- ---------
Net decrease in cash and cash equivalents................. (24,437) (1,396)
Cash and cash equivalents--beginning of period............ 30,882 2,013
--------- ---------
Cash and cash equivalents--end of period.................. $ 6,445 $ 617
========= =========
</TABLE>
F-32
<PAGE>
STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED
(IN THOUSANDS)
(UNAUDITED)
RECONCILIATION OF NET INCOME TO CASH
PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
------------------
1996 1995
-------- --------
<S> <C> <C>
Net income.................................................. $ 35,634 $135,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization............................. 32,425 32,170
Loss on disposal of assets................................ 3,080 259
Deferred tax expense...................................... 2,974 4,835
Accrued compensation...................................... 6,406 1,659
Change in:
Accounts receivable....................................... (38,671) (41,798)
Inventories............................................... 20,174 6,581
Prepaid expenses.......................................... (4,048) (2,898)
Other assets.............................................. (7,119) (11,220)
Accounts payable.......................................... (12,571) (1,706)
Accrued liabilities....................................... (20,588) (5,796)
Interest payable.......................................... (56) (2,462)
Taxes payable............................................. 5,846 (1,659)
Other liabilities......................................... 7,888 14,662
-------- --------
Net cash provided by operating activities................... $ 31,374 $127,627
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-33
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)
1. BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments necessary to present
fairly the consolidated financial position of Sterling Chemicals, Inc. and its
subsidiaries (the "Company") as of June 30, 1996 and its consolidated results
of operations and consolidated cash flows for the nine-month periods ended
June 30, 1996 and 1995. All such adjustments are of a normal and recurring
nature. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year. The
accompanying unaudited condensed consolidated financial statements should be,
and are assumed to have been, read in conjunction with the consolidated
financial statements and notes included in the Company's Annual Report for the
fiscal year ended September 30, 1995 (the "Annual Report").
2. RECLASSIFICATION:
Certain amounts reported in the financial statements for the prior periods
have been reclassified to conform with the current financial statement
presentation with no effect on net income or stockholders' equity.
3. INVENTORIES:
Inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
-------- -------------
<S> <C> <C>
Finished products................................. $29,325 $44,802
Raw materials..................................... 11,313 16,506
------- -------
Inventories at FIFO cost........................ 40,638 61,308
Inventories under exchange agreements............. (4,469) (4,783)
Stores and supplies............................... 11,427 11,342
------- -------
$47,596 $67,867
======= =======
</TABLE>
4. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
-------- -------------
<S> <C> <C>
Revolving credit facilities....................... $ -- $ 902
Term loan......................................... 107,143 120,536
Loan under chlorate plant credit agreement........ 31,000 --
-------- --------
Total debt outstanding.......................... 138,143 121,438
Less:
Current maturities.............................. (17,857) (17,857)
-------- --------
Total long-term debt.............................. $120,286 $103,581
======== ========
</TABLE>
F-34
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
5. COMMITMENTS AND CONTINGENCIES:
Product Contracts
The Company has certain long-term agreements which provide for the
dedication of 100% of the Company's production of acetic acid, plasticizers,
tertiary butylamine and sodium cyanide, each to one customer. The Company also
has various sales and conversion agreements which dedicate significant
portions of the Company's production of styrene monomer and acrylonitrile, the
Company's major petrochemical products, to various customers. These agreements
generally provide for cost recovery plus an agreed margin or element of profit
based upon market price.
Environmental Regulations
The Company's operations involve the handling, production, transportation
and disposal of materials classified as hazardous or toxic and are extensively
regulated under environmental and health and safety laws. Operating permits
which are required for the Company's operations are subject to periodic
renewal and may be revoked or modified for cause. New laws or permit
requirements and conditions may affect the Company's operations, products, or
waste disposal. Past or future operations may result in claims or liabilities.
Expenditures could be required to upgrade waste water collection,
pretreatment, or disposal systems or for other matters.
Legal Proceedings
Shareholder Lawsuits
In April and May, 1996, seven class action lawsuits were filed against the
Company and the Company's directors alleging conflict of interest and breach
of fiduciary duties relating to the sale of the Company (see Note 7). These
lawsuits are styled:
1. Kurt Kopf et al. v. Gordon A. Cain, et al; Civil Action No. 14960; In the
Court of Chancery of the State of Delaware, New Castle County, Delaware.
2. Ernest Hack v. Sterling Chemicals, Inc., et al; Civil Action No. 14962;
In the Court of Chancery of the State of Delaware, New Castle County,
Delaware.
3. Salim Shiry, et al. v. Gordon A. Cain, et al; Civil Action No. 14963; In
the Court of Chancery of the State of Delaware, New Castle County, Delaware.
4. Olga Fried, et al. v. Gordon A. Cain, et al; Civil Action No. 14969; In
the Court of Chancery of the State of Delaware, New Castle County, Delaware.
5. Maria Lerman, et al. v. Gordon A. Cain, et al; Civil Action No. 14972; In
the Court of Chancery of the State of Delaware, New Castle County, Delaware.
6. Alan R. Kahn v. Gordon A. Cain, et al; Civil Action No. 14981; In the
Court of Chancery of the State of Delaware, New Castle County, Delaware.
7. Sigmond Balaban v. Gordon A. Cain, et al.; Civil Action No. 96-26271; In
the 334th Judicial District Court of Harris County, Texas.
By order dated May 22, 1996, the Court of Chancery consolidated the six
lawsuits that had been commenced in Delaware under the name In re: Sterling
Chemicals, Inc. Shareholders Litigation, Civil Action No. 14960.
While all seven lawsuits are in their early stages, it is not anticipated
that they will have a material adverse impact on the financial position,
results of operations or cash flows of the Company.
Ammonia Litigation
A number of suits and interventions in existing suits were filed by various
plaintiffs in April and early May, 1996 alleging damages from exposure to the
May 8, 1994 ammonia release from the acrylonitrile unit at the Texas City
facility. These suits and interventions were presumably filed in anticipation
of the expiration of the
F-35
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
two year statute of limitations applicable to this release. There are now a
total of approximately 45 suits and interventions involving over 5,000
plaintiffs pending against the Company. The Company recently participated in a
binding non-appealable arbitration proceeding with respect to approximately
1500 of such plaintiffs. The outcome of this proceeding is expected to be
received in the fall of 1996. The Company does not believe that the suits
relating to the ammonia release will have a material adverse impact on the
financial position, results of operations, or cash flows of the Company and
the Company intends to vigorously defend all such suits.
Petrochemicals
HUNTSMAN LAWSUIT: On November 30, 1995, the trial court granted the
Company's motion for summary judgment filed by the Company in Sterling
Chemicals, Inc. v. Huntsman Chemical Corporation, Huntsman Styrene Corporation
and Huntsman Corporation. As discussed in the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1995, the summary judgment
confirms that, as a matter of law, no enforceable contract or agreement ever
existed between the Company and the defendants. The court's order, which
includes recovery of legal fees, also moots the defendants' counterclaim
against the Company for damages resulting from breach of the alleged contract.
The defendants have appealed this decision.
The Company believes a loss with respect to this matter is not probable and
is unable to quantify a reasonably possible loss estimate (as defined in
Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies") at this time.
Litigation Contingency:
In accordance with Statement of Financial Accounting Standards No. 5,
"Accounting for Contingencies," and Financial Accounting Standards Board
Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts,"
the Company has made estimates of the reasonably possible range of its
liability with regard to its outstanding litigation for which it may incur
liability. In addition, liabilities have been accrued based on the estimated
probable loss from such litigation. These estimates are based on management's
judgments using currently available information as well as consultation with
the Company's insurance carriers and outside legal counsel. A number of the
claims in these litigation matters are covered by the Company's insurance
policies or by third-party indemnification of the Company. The Company
therefore has also made estimates of its probable recoveries under these
insurance policies based on its understanding of these policies, discussions
with its insurers and consultation with outside legal counsel, in addition to
management's judgments. Based on the foregoing, as of June 30, 1996, the
Company has accrued approximately $18.8 million as its estimate of aggregate
contingent liability for these matters, and has also recorded aggregate
receivables from its insurers of $18.0 million. At June 30, 1996, management
estimates that the aggregate reasonably possible range of loss for all
litigation combined, in addition to the amount accrued, is from $0 to $49
million. The Company believes that it is insured for this additional
reasonably possible loss, except for a portion which is not material.
While the Company has based its estimates on its evaluation of available
information to date and the other matters described above, much of the
litigation is in its early stages and it is impossible to predict with
certainty the ultimate outcome. The Company will adjust its estimates as
necessary as additional information is developed and evaluated. However, the
Company believes that the final resolution of these contingencies will not
have a material adverse impact on the financial position, results of
operations, or cash flows of the Company. The timing of probable insurance
recoveries, and additional accruals or payment of liabilities, if any, are not
expected to have a material adverse effect on the financial position, results
of operations, or cash flows of the Company.
F-36
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
6. NEW ACCOUNTING STANDARDS:
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of". This statement
establishes new accounting standards for measuring the impairment of long-
lived assets. The Company is required to adopt this Statement by fiscal 1997.
The Company anticipates that the adoption of this Statement will not have a
material adverse effect on the Company's financial position, results of
operations, or cash flows.
7. RECENT DEVELOPMENTS:
On January 29, 1996, the Company announced that it was exploring all
strategic alternatives to enhance stockholder value. In this connection, the
Board of Directors established a Special Committee which retained Lazard
Freres & Co. LLC as its financial advisor and Piper & Marbury L.L.P. as legal
advisors.
On April 25, 1996, the Company announced that it had entered into a
definitive merger agreement (the "Merger Agreement") for the sale of the
Company to an investment group, STX Acquisition Corp., formed by The Sterling
Group, Inc. and The Unicorn Group, L.L.C. Under the terms of the Merger
Agreement, shareholders will receive $12.00 per share in cash, or may elect to
retain part or all of their shares in the Company, subject to a 5,000,000
share maximum, and proration to the extent aggregate elections exceed
5,000,000 shares.
On June 21, 1996, STX Acquisition Corp. delivered to the Company Definitive
Equity Documents as required by Section 7.07(d) of the Merger Agreement; and
on June 24, 1996, STX Acquisition Corp. delivered to the Company Definitive
Bank Loan Documents as required by Section 7.07(c) of the Merger Agreement.
On July 11, 1996, Sterling's Board of Directors established August 20, 1996
as the date of the special meeting (the "Special Meeting") of the stockholders
for the purpose of approving and adopting the Amended and Restated Agreement
and Plan of Merger, and established Monday, July 15, 1996 as the record date
for determining the stockholders entitled to vote at the Special Meeting.
The transaction is expected to be concluded by late August of this year and
is subject to customary closing conditions, including shareholder approval.
8. WRITE-OFF OF LACTIC ACID PLANT:
The Company has ceased production of lactic acid at its Texas City, Texas
facility in May, 1996. The Company charged to expense the remaining net book
value and other related costs resulting in a $3.6 million pretax charge
against earnings or $0.04 per share after taxes, in the second fiscal quarter
of 1996 and $0.1 million pretax charge against earnings in the third fiscal
quarter of 1996.
F-37
<PAGE>
[PHOTOS OF PETROCHEMICAL OPERATIONS IN TEXAS CITY, TEXAS AND STERLING CHEMICALS
LOGO APPEAR HERE.]
<PAGE>
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE ISSUERS OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSE-
QUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE ISSUERS SINCE SUCH DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 15
The Transaction........................................................... 22
Use of Proceeds........................................................... 25
Capitalization............................................................ 26
Selected Historical Financial Data........................................ 27
Pro Forma Consolidated Financial Statements and Other Information......... 29
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 35
Business.................................................................. 47
Management................................................................ 67
Principal Stockholders.................................................... 77
Certain Transactions...................................................... 78
Description of the Notes.................................................. 81
Description of the Units.................................................. 105
Description of Capital Stock.............................................. 133
Description of the Credit Facility........................................ 137
Certain United States Federal Income Tax Consequences..................... 139
Underwriting.............................................................. 148
Notice to Canadian Residents.............................................. 149
Legal Matters............................................................. 150
Change of Accountants..................................................... 150
Experts................................................................... 151
Available Information..................................................... 151
Glossary.................................................................. A-1
Index to Financial Statements............................................. F-1
</TABLE>
------------
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO OF STERLING CHEMICALS APPEARS HERE]
Sterling Chemicals, Inc.
$275,000,000
% Senior Subordinated Notes
Due 2006
Sterling Chemicals Holdings, Inc.
$
Representing Units
each Unit consisting of
One % Senior Secured Discount Note Due 2008
and
Warrants to Purchase Shares of Common Stock
PROSPECTUS
CS First Boston
Chase Securities Inc.
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below are the estimated expenses expected to be incurred in
connection with the issuance and distribution of the securities registered
hereby.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fees.......... $ 129,311
NASD filing fee............................................... 30,500
Legal fees and expenses....................................... 400,000
Accounting fees and expenses.................................. 300,000
Blue Sky fees and expenses.................................... 20,000
Miscellaneous expenses........................................ 120,189
----------
Total..................................................... $1,000,000
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("Section 145") permits
indemnification of directors, officers, agents and controlling persons of a
corporation under certain conditions and subject to certain limitations.
Article Eighth of STX Acquisition's Certificate of Incorporation and Section
6.1 of STX Acquisition's Bylaws provide for the indemnification of directors,
officers and other authorized representatives of the Company. The Certificate
of Incorporation and Section 145 provide that the corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise. Depending on the character of the
proceeding, the corporation may indemnify against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with such action, suit or proceeding if the
person seeking indemnification acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In the case of an action
by or in the right of the corporation, no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine that despite the adjudication of liability such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper. The Certificate of Incorporation and Section 145 further
provide that to the extent a director or officer of the corporation has been
successful in defense of any action, suit or proceeding referred to above or
in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith. The Bylaws provide for indemnification to the
maximum extent permitted by Delaware General Corporation Law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the formation of STX Acquisition, Frank J. Hevrdejs, T.
Hunter Nelson and Susan O. Rheney purchased an aggregate of 84 shares of
common stock for an aggregate consideration of $1,008. In such transaction,
STX Acquisition relied on Section 4(2) under the Securities Act for an
exemption from registration under the Securities Act. In connection with the
Merger, such shares will be purchased by Holdings for the original purchase
price.
II-1
<PAGE>
Concurrently with the consummation of the Offerings, STX Acquisition is
conducting a private placement of its Common Stock. At the effective date of
this Registration Statement, it is expected that STX Acquisition will have
commitments to purchase a maximum of $103.1 million of STX Acquisition Common
Stock from investors organized by TSG and Unicorn. In connection with the
Equity Private Placement, STX Acquisition will rely on Section 4(2) of the
Securities Act for an exemption from registration under the Securities Act.
The actual number of holders of STX Acquisition Common Stock and their
ownership will not be known until such time as the number of Rollover Shares
is determinable. The consummation of the Equity Private Placement will occur
simultaneously with the consummation of the Merger.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement
2.1 Amended and Restated Agreement and Plan of Merger between STX
Acquisition Corp. and Sterling Chemicals, Inc. dated as of April
24, 1996, incorporated by reference from the Company's Current
Report on Form 8-K dated April 24, 1996 as amended by Form 8-K/A.
3.1 Form of Certificate of Incorporation of Sterling Chemicals
Holdings, Inc.
3.2 Certificate of Incorporation of STX Chemicals, Inc.
3.3 Holdings' Bylaws (Amended Bylaws of Sterling Chemicals, Inc.),
incorporated by reference from exhibit 3.2 of the Company's
Annual Report on Form 10-K for the fiscal year ended September
30, 1994
3.4 Chemicals' Bylaws
4.1 Form of Common Stock Certificate of STX Acquisition, Inc.
4.2 Form of Common Stock Certificate of STX Chemicals, Inc.
4.3 Form of Warrant Certificate (included in Exhibit 4.4)
*4.4 Form of Warrant Agreement
*4.5 Form of Indenture governing the Discount Notes
4.6 Form of Discount Note (included in Exhibit 4.5)
*4.7 Form of Indenture governing the Notes
4.8 Form of Note (included in Exhibit 4.7)
4.9 Credit Agreement among Chemicals, Texas Commerce Bank as Agent,
Credit Suisse and Chase Securities Inc. as co-arrangers and the
lenders named therein, incorporated by reference from exhibit
(a) to the Company's Schedule 13E-3, Commission File No. 5-
40034.
*4.10 Stockholders Agreement
*4.11 Registration Rights Agreement
*4.12 Voting Agreement
*4.13 Tag Along Agreement
*4.14 Intercreditor Agreement
*4.15 Security Agreement (Pledge) between STX Acquisition Corp and
Texas Commerce Bank
*5.1 Opinion of Andrews & Kurth L.L.P.
10.1 Assets Purchase Agreement dated August 1, 1986, between Monsanto
Company and the Company, incorporated by reference from exhibit
10.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1992.
10.2 Sterling Chemicals, Inc. Salaried Employees' Pension Plan
(Restated as of October 1, 1993), incorporated by reference from
exhibit 10.6 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993.
10.3 Supplement to the Sterling Chemicals, Inc. Salaried Employees'
Pension Plan (Restated as of January 1, 1994), incorporated by
reference from exhibit 10.6(a) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994.
10.4 First and Second Amendments to the Sterling Chemicals, Inc.
Salaried Employees' Pension Plan dated April 27, 1994 and
September 23, 1994, respectively, incorporated by reference from
exhibit 10.6(b) to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1994.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.5 Sterling Chemicals, Inc. Hourly Paid Employees' Pension Plan
(Restated as of October 1, 1993), incorporated by reference from
exhibit 10.8 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993.
10.6 Supplement to the Sterling Chemicals, Inc. Hourly Paid Employee's
Pension Plan (Restated as of January 1, 1994), incorporated by
reference from exhibit 10.8(a) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994.
10.7 First Amendment to the Sterling Chemicals, Inc. Hourly Paid
Employees' Pension Plan dated April 27, 1994, incorporated by
reference from exhibit 10.8(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994.
10.8 Sterling Chemicals, Inc. Amended and Restated Savings and
Investment Plan, incorporated by reference from exhibit 10.10 to
the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1993.
10.9 Supplements to the Sterling Chemicals, Inc. Savings and Investment
Plan for Hourly Paid Employees and Salaried Employees,
incorporated by reference from exhibit 10.10(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended September 30,
1994.
10.10 First and Second Amendments to the Sterling Chemicals, Inc.
Amended and Restated Savings and Investment Plan dated April 27,
1994 and October 26, 1994, respectively, incorporated by reference
from exhibit 10.10(b) to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1994.
10.11 Sterling Chemicals, Inc. Pension Benefit Equalization Plan,
incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1995.
10.12 Sterling Chemicals, Inc. 1989 Omnibus Stock and Incentive Plan,
incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1995.
10.13 Sterling Chemicals, Inc. Amended and Restated Employee Stock
Ownership Plan, incorporated by reference from exhibit 10.12 to
the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1993.
10.14 First Amendment to the Sterling Chemicals, Inc. Amended and
Restated Employees' Stock Ownership Plan dated April 27, 1994,
incorporated by reference from exhibit 10.12(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended September 30,
1994.
+10.15 Styrene Monomer Conversion Contract dated November 3, 1995,
between Monsanto Company and the Company, incorporated by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1995.
+10.16 Acrylonitrile Exchange Contract dated January 1, 1994, between the
Company and Monsanto Company, incorporated by reference from
exhibit 10.19 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994.
+10.17 Production Agreement dated April 15, 1988 between BP Chemicals
Americas Inc. and the Company and First and Second Amendment
thereto, incorporated by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1995.
+10.18 Agreement dated May 2, 1988 between E. I. du Pont de Nemours and
Company and the Company, incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995.
10.19 License Agreement dated April 15, 1988, between BP Chemicals
Americas Inc. and the Company, incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995.
+10.20 Product Sales Agreement dated August 1, 1986, between BASF
Corporation and the Company, incorporated by reference from
exhibit 10.22 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992.
+10.21 Amendment No. 3 to Product Sales Agreement as of January 1, 1994,
between BASF Corporation and the Company, incorporated by
reference from exhibit 10.22(a) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994.
10.22 License Agreement dated August 1, 1986, between Monsanto Company
and the Company, incorporated by reference from exhibit 10.25 to
the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
+10.23 Amended Lease and Production Agreement dated August 8, 1994,
between BP Chemicals Americas Inc. and the Company, incorporated
by reference from exhibit 10.21 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994.
10.24 Form of Indemnity Agreement executed between the Company and each
of its officers and directors, incorporated by reference from
exhibit 10.30 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994.
10.25 Agreement dated January 30, 1987, among J. Virgil Waggoner, Gordon
A. Cain and the Company, regarding capital stock of the Company,
incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1995.
10.26 Amended and Restated Sterling Chemicals, Inc. Hourly Employees'
Profit Sharing Plan, incorporated by reference from exhibit 10.32
to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993.
10.27 Amended and Restated Sterling Chemicals, Inc. Salaried Employees'
Profit Sharing Plan, incorporated by reference from exhibit 10.31
to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993.
10.28 Sterling Chemicals, Inc. Amended and Restated Supplemental
Employee Retirement Plan, incorporated by reference from exhibit
10.34 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1989.
10.29 Sterling Chemicals, Inc. Deferred Compensation Plan, incorporated
by reference from exhibit 10.35 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1989.
10.30 Article of Agreement between the Company, its successors and
assigns, and Texas City, Texas Metal Trades Council, AFL-CIO Texas
City, Texas, May 1, 1993 to May 1, 1996, incorporated by reference
from exhibit 10.35 to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1993.
10.31 Conditional Performance Guaranty dated as of August 20, 1992, by
Albright & Wilson, Ltd. in favor of Sterling Pulp Chemicals, Ltd.,
Sterling Canada, Inc. and the Indemnities identified in Section
10.2 of the Purchase Agreement, incorporated by reference from
exhibit 10.38 to the Company's current Report on Form 8-K dated
September 3, 1992.
10.32 Performance Guaranty dated as of August 20, 1992, by the Company
in favor of Tenneco Canada Inc., Rio Linda Chemical Co., Albright
& Wilson Americas, Inc. and the Indemnities identified in Section
10.3 of the Purchase Agreement, incorporated by reference from
exhibit 10.39 to the Company's Current Report on Form 8-K dated
September 3, 1992.
10.33 Lease dated March 1, 1990 between Procter & Gamble, Inc. and
Tenneco Canada Inc., as amended by a Lease Modification Agreement
dated August 9, 1991, and Consent and Assignment Agreement dated
as of August 21, 1992 among 982174 Ontario Limited, Sterling Pulp
Chemicals, Ltd., Proctor & Gamble, Inc., Tenneco Canada Inc. and
The Bank of Nova Scotia, incorporated by reference from exhibit
10.45 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1992.
10.34 Lease dated July 1, 1977 between Canadian National Railway Company
and ERCO Industries Limited, and Consent and Assignment Agreement
dated as of August 21, 1992 among Tenneco Canada Inc., Sterling
Pulp Chemicals, Ltd., Canadian National Railway Company and The
Bank of Nova Scotia, incorporated by reference from exhibit 10.46
to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1992.
+10.35 Sales and Purchase Agreement dated April 1, 1994, between BP
Chemicals Ltd. and the Company, incorporated by reference from
exhibit 10.48 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994.
+10.36 Contract for Sale and Purchase of Ethylene dated October 28, 1988,
between Phillips 66 Company and the Company, incorporated by
reference from exhibit 10.49 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.37 Agreement between Sterling Pulp Chemicals Ltd. North Vancouver
British Columbia and Pulp, Paper and Woodworkers of Canada Local 5
British Columbia effective December 1, 1994 to November 30, 1997,
incorporated by reference from exhibit 10.50 to the Company's
Annual Report on Form 10-K for the fiscal year ended September 30,
1994.
+10.38 Contract for Sale and Purchase of Ethylene effective January 1,
1995, between Phillips Chemical Company and the Company,
incorporated by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1995.
+10.39 Chemical Products Sales Agreement--Ethylene, dated December 7,
1994, between Lyondell Petrochemical Company and the Company,
incorporated by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1995.
10.40 Agreement between Sterling Pulp Chemicals Ltd. Buckingham, Quebec
and the Energy and Chemicals Workers Union effective November 30,
1994 to November 30, 1997, incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended September
30, 1995.
10.41 Agreement between Sterling Pulp Chemicals Ltd., Buckingham,
Quebec, and the Office and Professional Employees International
Union, effective June 25, 1995 to November 14, 1997, incorporated
by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1995.
+10.42 Product Supply Agreement dated May 15, 1995, between Praxair
Hydrogen Supply, Inc. and the Company, incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
September 30, 1995.
12.1 Computation of Ratio of Earnings to Fixed Charges.
21.1 List of subsidiaries of STX Acquisition Corp. and STX Chemicals
Corp.
21.2 List of subsidiaries of Sterling Chemicals, Inc.
*23.1 Consent of Deloitte & Touche LLP
*23.2 Consent of Coopers & Lybrand L.L.P.
*23.3 Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1)
24.1 Powers of Attorney (included in Part II of the Registration
Statement)
25.1 Statement of eligibility of the trustee for the Notes and Discount
Notes.
27.1 STX Acquisition Corp. Financial Data Schedule
27.2 STX Chemicals Corp. Financial Data Schedule
</TABLE>
- --------
+ Confidential treatment has been requested with respect to portions of this
Exhibit, and such request has been granted.
*Filed herewith.
(b) Financial Statement Schedules:
None.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-5
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
the registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1933, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas
on the 12th day of August, 1996.
STX ACQUISITION CORP.
/s/ JOHN D. HAWKINS
By: _________________________________
John D. Hawkins
Attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on August 12, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C> <C>
/s/ FRANK J. HEVRDEJS* President and Director
____________________________________ (Chief Executive Officer)
Frank J. Hevrdejs
/s/ T. HUNTER NELSON* Vice President and Treasurer
____________________________________ (Chief Financial and
T. Hunter Nelson Accounting Officer)
</TABLE>
*By Power of Attorney
/s/ JOHN D. HAWKINS
_______________________________________
John D. Hawkins
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1933, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas
on the 12th day of August, 1996.
STX CHEMICALS CORP.
/s/ JOHN D. HAWKINS
By: _________________________________
John D. Hawkins
Attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on August 12, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C> <C>
/s/ FRANK J. HEVRDEJS* President and Director
____________________________________ (Chief Executive Officer)
Frank J. Hevrdejs
/s/ T. HUNTER NELSON* Vice President and Treasurer
____________________________________ (Chief Financial and
T. Hunter Nelson Accounting Officer)
</TABLE>
*By Power of Attorney
/s/ JOHN D. HAWKINS
_______________________________________
John D. Hawkins
II-8
<PAGE>
$275,000,000
STX CHEMICALS CORP.
(TO BE RENAMED STERLING CHEMICALS, INC.)
___% SENIOR SUBORDINATED NOTES DUE 2006
AND
$________________
STX ACQUISITION CORP.
(TO BE RENAMED STERLING CHEMICALS HOLDINGS, INC.)
UNITS CONSISTING OF
$________ ___% SENIOR SECURED DISCOUNT NOTES DUE 2008
AND
WARRANTS TO ACQUIRE ________ SHARES OF COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
August __, 1996
CS First Boston Corporation
Chase Securities Inc.
c/o CS First Boston Corporation,
Park Avenue Plaza,
New York, N.Y. 10055
Dear Sirs:
1. Introductory. STX Chemicals Corp., a Delaware corporation
("Chemicals"), proposes to issue and sell $275,000,000 principal amount of its
___% Senior Subordinated Notes Due 2006 (the "Notes"), and STX Acquisition
Corp., a Delaware corporation, which will merge with and into Sterling
Chemicals, Inc., with the surviving corporation to be renamed Sterling Chemical
Holdings, Inc. ("Holdings" and, together with Chemicals, the "Issuers"),
proposes to issue and sell _______ Units (the "Units"), consisting of
$__________ principal amount at maturity of its ____% Senior Secured Discount
Notes Due 2008 (the "Discount Notes") and Warrants (the "Warrants") to purchase
_______ shares of the common stock, par value $.01 per share, of Holdings (the
"Common Stock"). The shares of Common Stock issuable upon exercise of the
Warrants are referred to herein as the "Warrant Shares". The Units and the
Notes are collectively referred to herein as the "Securities". The Notes are to
be issued under an indenture, dated as of __________ __, 1996 (the "Notes
Indenture"), between Chemicals and Fleet National Bank of Connecticut, as
trustee (the "Notes Trustee"). The Discount Notes are to be issued under an
indenture, dated as of _________ __, 1996 (the "Discount Notes Indenture" and,
together with the Notes Indenture, the "Indentures"), between Holdings and Fleet
National Bank of Connecticut, as trustee (the "Discount Notes Trustee" and,
together with the Notes Trustee, the "Trustees"). The Warrants are to be issued
pursuant to
<PAGE>
a Warrant Agreement, dated as of _____________ ___, 1996 (the "Warrant
Agreement") between Holdings and KeyCorp Shareholder Services, Inc., as Warrant
Agent (the "Warrant Agent").
The proceeds from the offerings of the Notes and the Units will
provide a portion of the funding for the merger (the "Merger") of Holdings with
and into Sterling Chemicals, Inc., a Delaware corporation (the "Company")
pursuant to an Amended and Restated Agreement and Plan of Merger, dated as of
April 24, 1996, between Holdings and the Company (the "Merger Agreement"). In
connection with the Merger, stockholders of the Company may elect, with respect
to each share of common stock of the Company held, to receive $12.00 in cash or
retain such common stock, subject to proration. Upon consummation of the
Merger, the Company will be renamed Sterling Chemicals Holdings, Inc.,
Chemicals, a wholly-owned subsidiary of Holdings, will be renamed Sterling
Chemicals, Inc. and Chemicals will acquire all of the operating assets of the
Company in accordance with the terms of the Merger Agreement (the "Asset
Transfer"). Upon consummation of the Merger, Chemicals will enter into a bank
credit agreement (the "Credit Agreement") with a syndicate of lenders named
therein to provide term and revolving credit facilities aggregating $456.5
million. Chemicals' obligations under the Credit Agreement will be secured by a
first priority lien on the capital stock of Chemical's subsidiaries and
substantially all of the domestic assets of Chemicals and by a pledge by
Holdings of all of the capital stock of Chemicals pursuant to a security
agreement (the "Security Agreement"). The Discount Notes will be secured by a
second lien on the capital stock of Chemicals (the "Collateral") pursuant to the
Security Agreement. The Merger will be financed, in part, through a private
placement by Holdings of shares of STX Acquisition Corp. common stock (which,
pursuant to the Merger, will be converted into shares of Common Stock) providing
a minimum of $96,574,952 of proceeds (the "Equity Placement"). Upon
consummation of the Merger, a new employee stock ownership plan of Chemicals
("New ESOP") will be established and will acquire shares of Common Stock with
the proceeds from a loan from Chemicals (the "New ESOP Formation") and the
existing employee stock ownership plan of the Company ("Old ESOP") will be
terminated and its assets distributed to plan participants (the "Old ESOP
Termination").
For purposes of this Agreement, the offerings of the Notes and the
Units, the Merger, the Asset Transfer, the Equity Placement, the New ESOP
Formation, the Old ESOP Termination and the transactions contemplated by the
Warrant Agreement, the Indentures, the Merger Agreement, the Credit Agreement,
the Security Agreement and this Agreement are referred to collectively as the
"Transactions". For purposes of this Agreement, all references to Chemicals,
Holdings and their respective subsidiaries assume the consummation of, and shall
give effect to, the Transactions.
Chemicals and Holdings hereby, jointly and severally, agree with CS
First Boston Corporation and Chase Securities Inc. (the "Underwriters") as
follows:
2. Representations and Warranties. Each of Chemicals and Holdings,
jointly and severally, represents and warrants to, and agrees with, the
Underwriters that:
(i) A registration statement on Form S-1 (No. 333-04343) relating to
the Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission (the "Commission") and either (a) has
been declared effective under the Securities Act of 1933 (the "Act") and is
not proposed to be amended or (b) is proposed to be amended by amendment or
post-effective amendment. If such registration statement ("initial
registration statement") has been declared effective, (x) any additional
registration statement ("additional registration statement") relating to
the Securities may have been filed with the Commission pursuant to Rule
462(b) ("Rule 462(b)") under the Act and, if so filed, has become effective
upon filing pursuant to such Rule and the Securities all have been duly
registered under the Act pursuant to the initial registration statement
and, if applicable, the additional registration statement or (y) such
additional registration statement is proposed to be filed with the
Commission pursuant to Rule 462(b) and will become effective upon filing
pursuant to such Rule and upon such filing the Securities will all have
been duly registered under the Act pursuant to the initial registration
statement and such additional
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registration statement. If the Issuers do not propose to amend the initial
registration statement or if an additional registration statement has been
filed and the Issuers do not propose to amend it, and if any post-effective
amendment to either such registration statement has been filed with the
Commission prior to the execution and delivery of this Agreement, the most
recent amendment (if any) to each such registration statement has been
declared effective by the Commission or has become effective upon filing
pursuant to Rule 462(c) ("Rule 462(c)") under the Act or, in the case of
the additional registration statement, Rule 462(b). For purposes of this
Agreement, "Effective Time" with respect to the initial registration
statement or, if filed prior to the execution and delivery of this
Agreement, the additional registration statement means (a) if the Issuers
have advised the Underwriters that they do not propose to amend such
registration statement, the date and time as of which such registration
statement, or the most recent post-effective amendment thereto (if any)
filed prior to the execution and delivery of this Agreement, was declared
effective by the Commission or has become effective upon filing pursuant to
Rule 462(c), or (b) if the Issuers have advised the Underwriters that they
propose to file an amendment or post-effective amendment to such
registration statement, the date and time as of which such registration
statement, as amended by such amendment or post-effective amendment, as the
case may be, is declared effective by the Commission. If an additional
registration statement has not been filed prior to the execution and
delivery of this Agreement but the Issuers have advised the Underwriters
that they propose to file one, "Effective Time" with respect to such
additional registration statement means the date and time as of which such
registration statement is filed and becomes effective pursuant to Rule
462(b). "Effective Date" with respect to the initial registration statement
or the additional registration statement (if any) means the date of the
Effective Time thereof. The initial registration statement, as amended at
its Effective Time, including all information contained in the additional
registration statement (if any) and deemed to be a part of the initial
registration statement as of the Effective Time of the additional
registration statement pursuant to the General Instructions of the Form on
which it is filed and including all information (if any) deemed to be a
part of the initial registration statement as of its Effective Time
pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is hereinafter
referred to as the "Initial Registration Statement". The additional
registration statement, as amended at its Effective Time, including the
contents of the initial registration statement incorporated by reference
therein and including all information (if any) deemed to be a part of the
additional registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are herein referred to collectively as the
"Registration Statements" and individually as a "Registration Statement".
The form of prospectus relating to the Securities, as first filed with the
Commission pursuant to and in accordance with Rule 424(b) ("Rule 424(b)")
under the Act or (if no such filing is required) as included in a
Registration Statement, is hereinafter referred to as the "Prospectus". For
purposes of this Agreement, all references to any Registration Statement,
any preliminary prospectus, Prospectus, or any amendment or supplement to
any of the foregoing, shall be deemed to include the copy filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval System ("EDGAR"). No document has been or will be prepared or
distributed in reliance on Rule 434 under the Act. No stop order suspending
the effectiveness of such Registration Statement or any part thereof has
been issued and no proceeding for that purpose has been instituted or, to
the knowledge of Chemicals or Holdings, threatened by the Commission.
(ii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (a) on the Effective
Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all material respects to the requirements of the
Act, the Trust Indenture Act of 1939 ("Trust Indenture Act") and the rules
and regulations of the Commission ("Rules and Regulations") and did not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, (b) on the Effective Date of the
Additional Registration Statement (if any), each Registration Statement
conformed, or will conform, in all respects to the requirements of the
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Act, the Trust Indenture Act and the Rules and Regulations and did not
include, or will not include, any untrue statement of a material fact and
did not omit, or will not omit, to state any material fact required to be
stated therein or necessary to make the statements therein not misleading
and (c) on the date of this Agreement, the Initial Registration Statement
and, if the Effective Time of the Additional Registration Statement is
prior to the execution and delivery of this Agreement, the Additional
Registration Statement each conforms, and at the time of filing of the
Prospectus pursuant to Rule 424(b) or (if no such filing is required) at
the Effective Date of the Additional Registration Statement in which the
Prospectus is included, and on the Closing Date (as hereinafter defined)
each Registration Statement and the Prospectus, each as amended or
supplemented, will conform, in all respects to the requirements of the Act,
the Trust Indenture Act and the Rules and Regulations, and neither of such
documents includes, or will include, any untrue statement of a material
fact or omits, or will omit, to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
If the Effective Time of the Initial Registration Statement is subsequent
to the execution and delivery of this Agreement: (A) on the Effective Date
of the Initial Registration Statement, the Initial Registration Statement
and the Prospectus, each as amended or supplemented, will conform in all
material respects to the requirements of the Act, the Trust Indenture Act
and the Rules and Regulations, and neither of such documents will include
any untrue statement of a material fact or will omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading, and no Additional Registration Statement has been
or will be filed and (B) on the Closing Date, the Initial Registration
Statement and the Prospectus will conform in all material respects to the
requirements of the Act, the Trust Indenture Act and the Rules and
Regulations, and neither of such documents will include any untrue
statement of a material fact or will omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, and no Additional Registration Statement has been or will
be filed. The two preceding sentences do not apply to statements in or
omissions from a Registration Statement or the Prospectus based upon
written information furnished to the Issuers by any Underwriter
specifically for use therein, it being understood and agreed that the only
such information is that described as such in Section 7(b).
(iii) Each of Chemicals and Holdings has been duly incorporated and
is a validly existing corporation in good standing under the laws of the
State of Delaware, with power and authority (corporate and other) to own,
lease and operate its properties and conduct its business as described in
the Prospectus. Each of Chemicals and Holdings is duly qualified to do
business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the conduct of
its business requires such qualification, except where the failure to be so
qualified could not, individually or in the aggregate, have a material
adverse effect on the condition (financial or other), business, properties
or results of operations of Chemicals, Holdings and their subsidiaries
taken as a whole.
(iv) Chemicals is the only direct subsidiary of Holdings, and the
only direct and indirect subsidiaries of Chemicals as of the Closing Date
are listed on Schedule B hereto. Each subsidiary of Chemicals has been
duly incorporated and is a validly existing corporation in good standing
under the laws of the jurisdiction of its incorporation, with power and
authority (corporate and other) to own, lease and operate its properties
and conduct its business as described in the Prospectus; and each
subsidiary of Chemicals is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in which its
ownership or lease of property or the conduct of its business requires such
qualification, except where the failure to be so qualified could not,
individually or in the aggregate, have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of Chemicals, Holdings and their subsidiaries taken as a whole;
all of the issued and outstanding capital stock of each subsidiary of
Chemicals and Holdings has been duly authorized and validly issued and is
fully paid and nonassessable; all of the capital stock of Chemicals is
owned by Holdings free from liens,
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<PAGE>
encumbrances and defects, except pursuant to the Security Agreement; and
all of the capital stock of each subsidiary of Chemicals is owned by
Chemicals, directly or through subsidiaries, free from liens, encumbrances
and defects, except pursuant to the Security Agreement.
(v) The Indentures have been duly authorized and, if the Effective
Time of a Registration Statement is prior to the execution and delivery of
this Agreement, have been or otherwise upon such Effective Time will be
duly qualified under the Trust Indenture Act with respect to the Notes and
the Discount Notes registered thereby; the Notes and the Discount Notes
have been duly authorized; when the Notes and the Discount Notes are
delivered and paid for pursuant to this Agreement on the Closing Date, the
Indentures will have been duly executed and delivered and such Notes and
Discount Notes will have been duly executed, authenticated, issued and
delivered, and the Indentures, the Notes and the Discount Notes will
constitute valid and legally binding obligations of Chemicals and Holdings,
respectively, enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
(vi) The Warrant Agreement and the Warrants have been duly
authorized; and when the Warrants are delivered and paid for pursuant to
this Agreement on the Closing Date, the Warrant Agreement will have been
duly executed and delivered, the Warrants will have been duly executed,
issued and delivered, and the Warrant Agreement and the Warrants will
constitute valid and legally binding obligations of Holdings, enforceable
in accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.
(vii) The Warrant Shares have been duly authorized and reserved for
issuance upon exercise of the Warrants and, when issued upon such exercise,
will be validly issued, fully paid and nonassessable; the outstanding
shares of Common Stock have been duly authorized and validly issued, are
fully paid and nonassessable and conform to the description thereof
contained in the Prospectus; and the stockholders of Holdings have no
preemptive rights with respect to the Warrant Shares or the Common Stock.
Except as set forth in the Prospectus, there are no outstanding (A)
securities or obligations of Holdings convertible into or exchangeable for
any capital stock of Holdings, (B) warrants, rights or options to subscribe
for or purchase from Holdings any such capital stock or any such
convertible or exchangeable securities or obligations or (C) obligations of
Holdings to issue such shares, any such convertible or exchangeable
securities or obligations, or any such warrants, rights or obligations.
(viii) Except as disclosed to the Underwriters or in the Prospectus,
there are no contracts, agreements or understandings between Chemicals or
Holdings and any person that would give rise to a valid claim against
Chemicals or Holdings or any Underwriter for a brokerage commission,
finder's fee or other like payment in connection with the Transactions.
(ix) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between Chemicals or Holdings and any person
granting such person the right to require Chemicals or Holdings to file a
registration statement under the Act with respect to any securities of
Chemicals or Holdings owned or to be owned by such person or to require
Chemicals or Holdings to include such securities in the securities
registered pursuant to a Registration Statement or in any securities being
registered pursuant to any other registration statement filed by Chemicals
or Holdings under the Act.
(x) Except as disclosed in the Prospectus, no consent, approval,
authorization, or order of, or filing with, or notice to, any third party
or any governmental agency or body or any court is required for the
consummation of the Transactions, except such as have been obtained and
made and such as may be required under state securities laws.
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(xi) The execution, delivery and performance of the Indentures, the
Warrant Agreement, the Merger Agreement, the Credit Agreement, the Security
Agreement, this Agreement or any other document governing any of the
Transactions, and the consummation of the Transactions, including, without
limitation, the issuance and sale of the Securities and compliance with the
terms and provisions thereof, will not result in a breach or violation of
any of the terms and provisions of, or constitute a default under, any
statute, any rule, regulation or order of any governmental agency or body
or any court, domestic or foreign, having jurisdiction over Chemicals or
Holdings or any subsidiary of Chemicals or Holdings or any of their
properties, assets or operations, or any agreement or instrument to which
Chemicals or Holdings or any such subsidiary is a party or by which
Chemicals or Holdings or any such subsidiary is bound or to which any of
the properties of Chemicals and Holdings or any such subsidiary is subject,
or the charter or by-laws of Chemicals or Holdings or any such subsidiary.
Each of Chemicals and Holdings has full power and authority to authorize,
issue and sell the Notes and the Units, respectively, as contemplated by
this Agreement, the Indentures and the Warrant Agreement.
(xii) The Merger Agreement has been duly authorized, executed and
delivered and constitutes a valid and legally binding obligation of the
parties thereto, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
(xiii) The Credit Agreement has been duly authorized by Chemicals,
and upon execution and delivery thereof will be duly executed and delivered
and will constitute a valid and legally binding obligation of Chemicals,
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
(xiv) The Security Agreement has been duly authorized by Chemicals
and Holdings, and upon execution and delivery thereof will be duly executed
and delivered and will constitute a valid and legally binding obligation of
each of Chemicals and Holdings, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
(xv) The subscription agreements relating to the Equity Placement
have been duly authorized, executed and delivered by Holdings and
constitute valid and legally binding obligations of Holdings, enforceable
in accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.
(xvi) This Agreement has been duly authorized, executed and delivered
by the Issuers.
(xvii) Each of Chemicals and Holdings and their respective
subsidiaries has good and marketable title to all real properties and all
other properties and assets owned by them, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or to be made thereof by them,
except such as are described in the Prospectus; and each of Chemicals and
Holdings and their respective subsidiaries hold any leased real or personal
property under valid and enforceable leases with no exceptions thereto, or
defaults thereunder, that would materially interfere with the use made or
to be made thereof by them.
(xviii) Each of Chemicals and Holdings and their respective
subsidiaries possess adequate certificates, authorizations, licenses or
permits issued by appropriate governmental agencies or
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bodies necessary to conduct the business now operated by them and have not
received any notice of proceedings (or is aware of any facts that would be
expected to result in such proceeding) relating to the revocation or
modification of any such certificate, authorization, license or permit
that, if determined adversely to Chemicals, Holdings or any of their
subsidiaries, could, individually or in the aggregate, have a material
adverse effect on the condition (financial or other), business, properties
or results of operations of Chemicals, Holdings and their subsidiaries
taken as a whole. Each of Chemicals and Holdings and their respective
subsidiaries are in compliance with their respective obligations under such
certificates, authorizations, licenses or permits and no event has occurred
that allows, or after notice or lapse of time would allow, revocation or
termination of such certificates, authorizations, licenses or permits or
violation of such laws or regulations, except for such non-compliance and
events as could not, individually or in the aggregate, have a material
adverse effect on the condition (financial or other), business, properties
or results of operations of Chemicals, Holdings and their subsidiaries
taken as a whole.
(xix) No labor dispute with the employees of Chemicals or Holdings or
any subsidiary exists or, to the knowledge of Chemicals or Holdings, is
imminent that could, individually or in the aggregate, have a material
adverse effect on the condition (financial or other), business, properties
or results of operations of Chemicals, Holdings and their subsidiaries
taken as a whole.
(xx) Each of Chemicals, Holdings and their respective subsidiaries
owns or have obtained valid and enforceable licenses for the U.S. and
foreign patents, patent applications, inventions, technology, trademarks,
trademark registrations, service marks, service mark registrations, trade
names, copyrights, computer software, trade secrets and proprietary or
other intellectual property rights owned or used by or licensed to it or
necessary for the conduct of its business (collectively, the "Intellectual
Property"), and have not received any notice of infringement of or conflict
with asserted rights of others with respect to any Intellectual Property,
or questioning the use or validity of any Intellectual Property, in either
case that, if determined adversely to Chemicals, Holdings or any of their
subsidiaries could, individually or in the aggregate, have a material
adverse effect on the condition (financial or other), business, properties
or results of operations of Chemicals, Holdings and their subsidiaries
taken as a whole.
(xxi) Except as described in the Prospectus and except as could not,
individually or in the aggregate, have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of Chemicals, Holdings and their subsidiaries taken as a whole,
the properties, assets and operations of each of Chemicals and Holdings and
their respective subsidiaries are in compliance with all applicable
federal, state, local and foreign laws, rules and regulations, orders,
decrees, judgments, permits and licenses relating to public and worker
health and safety, and to the protection and clean-up of the natural
environment and to the protection or preservation of natural resources and
of plant and animal species, and activities or conditions related thereto,
including, without limitation, those relating to the production,
extraction, processing, manufacturing, generation, handling, disposal,
transportation or release of hazardous materials (collectively,
"Environmental Laws"). With respect to such properties, assets and
operations, including any previously owned, leased or operated properties,
assets or operations, there are no present or, to the best knowledge of
Chemicals or Holdings after due inquiry, past or reasonably anticipated
future events, conditions, circumstances, activities, practices, incidents,
actions or plans of Chemicals, Holdings or any of their respective
subsidiaries that may interfere with or prevent compliance or continued
compliance with applicable Environmental Laws in a manner that could,
individually or in the aggregate, have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of Chemicals, Holdings and their subsidiaries taken as a whole.
Except as described in the Prospectus and except as could not, individually
or in the aggregate, have a material adverse effect on the condition
(financial or other), business, properties or results of operations of
Chemicals, Holdings and their subsidiaries taken as a whole, none of
Chemicals, Holdings or any of their subsidiaries is the subject of any
federal,
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state, local or foreign investigation, and none of Chemicals, Holdings or
any of their subsidiaries has received any notice or claim (or is aware of
any facts that would form a reasonable basis for any claim), nor entered
into any negotiations or agreements with any third party, relating to any
liability or potential liability or remedial action or potential remedial
action under Environmental Laws, nor are there any pending, reasonably
anticipated or, to the best knowledge of Chemicals or Holdings, threatened
actions, suits or proceedings against or affecting Chemicals, Holdings, any
of their subsidiaries or their properties, assets or operations, in
connection with any such Environmental Laws. The term "hazardous
materials" shall mean those substances that are regulated by or form the
basis for liability under any applicable Environmental Laws.
(xxii) Each of Chemicals and Holdings and their subsidiaries have
filed on a timely basis all federal, state, local and foreign tax returns
required to be filed, such returns are complete and correct in all material
respects, and all taxes shown by such returns or otherwise assessed that
are due and payable have been paid, except such taxes as are being
contested in good faith and as to which adequate reserves have been
provided. The charges, accruals and reserves on the books of each of
Chemicals and Holdings and their respective subsidiaries in respect of any
tax liability for any year not finally determined are adequate to meet any
assessments or reassessments for additional taxes; and there has been no
tax deficiency asserted and, to the best knowledge of Chemicals and
Holdings, no tax deficiency might be asserted or threatened against
Chemicals, Holdings or any subsidiary that could, individually or in the
aggregate, have a material adverse effect on the condition (financial or
other), business, properties or results of operations of Chemicals,
Holdings and their subsidiaries taken as a whole.
(xxiii) Each "employee benefit plan" within the meaning of, and
subject to, the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), in which employees of Chemicals, Holdings or any of their
subsidiaries participate or as to which Chemicals, Holdings or any
subsidiary has any liability (the "ERISA Plans") is in compliance in all
material respects with the applicable provisions of ERISA and the Internal
Revenue Code of 1986, as amended (the "Code"). None of Chemicals, Holdings
or any of their subsidiaries has any liability with respect to the ERISA
Plans, nor do Chemicals or Holdings expect that any such liability will be
incurred, that could, individually or in the aggregate, have a material
adverse effect on the condition (financial or other), business, properties
or results of operations of Chemicals, Holdings and their subsidiaries
taken as a whole. The value of the aggregate vested and nonvested benefit
liabilities under each of the ERISA Plans that is subject to Section 412 of
the Code, determined as of the end of such ERISA Plan's most recent ended
plan year on the basis of the actuarial assumptions specified for funding
purposes in such Plan's most recent actuarial valuation report, did not
exceed the aggregate current value of the assets of such ERISA Plan
allocable to such benefit liabilities. None of Chemicals, Holdings or any
subsidiary has any material liability, whether or not contingent, with
respect to any ERISA Plan that provides post-retirement welfare benefits.
The descriptions of Holdings' stock option, stock bonus and other stock
plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus are accurate in all
material respects.
(xxiv) The New ESOP will constitute an "employee stock ownership
plan," as defined in Section 4975(e)(7) of the Code and Section 407(d)(6)
of ERISA. All loans to the trust created pursuant to the ESOP (the "New
ESOP Trust") and each pledge of shares of Common Stock by the New ESOP
Trust in connection with the New ESOP will satisfy the requirements of
Section 4975(d)(3) of the Code and Section 408(b)(3) of ERISA, and will not
subject Chemicals, Holdings or any of their subsidiaries to a tax imposed
under Section 4975 of the Code or a civil penalty assessed under Section
502(i) of ERISA. The Common Stock will satisfy the definition of a
"qualifying employer security" within the meaning of Section 4975(e)(8) of
the Code and Section 407(d)(5) of ERISA. The sale of shares of Common
Stock to the New ESOP Trust will satisfy the requirements of Section
4975(d)(13) of the Code and Section 408(e) of ERISA, and such sale
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will not subject Chemicals, Holdings nor any of their subsidiaries to a tax
imposed under Section 4975 of the Code of a civil penalty assessed under
Section 502(i) of ERISA. None of the transactions contemplated by the Old
ESOP Termination will constitute a material violation or result in any
material liability under ERISA or the Code (including, without limitation,
any tax under Section 4978B of the Code).
(xxv) Chemicals, Holdings and their respective subsidiaries maintain
a system of internal accounting controls sufficient for purposes of the
prevention or detection of errors or irregularities in amounts that could
be expected to be material to Chemicals' or Holdings' consolidated
financial statements and the recording of transactions so as to permit the
preparation of such consolidated financial statements in conformity with
generally accepted accounting principles.
(xxvi) (A) None of Chemicals, Holdings or any of their respective
subsidiaries is in violation of its charter or by-laws, (B) none of
Chemicals, Holdings or any of their respective subsidiaries is in violation
of any applicable law, ordinance, administrative or governmental rule or
regulation, or any order, decree or judgment of any court or governmental
agency or body having jurisdiction over Chemicals, Holdings or any
subsidiary and (C) no event of default or event that, but for the giving of
notice or the lapse of time or both, would constitute an event of default
exists, or upon the consummation of the Transactions will exist, under any
indenture, mortgage, loan agreement, note, lease, permit, license or other
agreement or instrument to which Chemicals, Holdings or any of their
respective subsidiaries is a party or to which any of the properties,
assets or operations of Chemicals, Holdings or any such subsidiary is
subject, except, in the case of clauses (B) and (C), for such violations
and defaults that could not, individually or in the aggregate, have a
material adverse effect on the condition (financial or other), business,
properties or results of operations of Chemicals, Holdings and their
subsidiaries taken as a whole. There are no statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statements or the Prospectus or to be filed as an exhibit to
the Registration Statements that are not described or filed as required.
(xxvii) Chemicals, Holdings and their respective subsidiaries carry
or are entitled to the benefits of insurance in such amounts and covering
such risks as is generally maintained by companies of established repute
engaged in the same or similar business, and all such insurance is in full
force and effect.
(xxviii) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting Chemicals, Holdings, any
of their respective subsidiaries or any of their respective properties,
assets or operations that, if determined adversely to Chemicals, Holdings
or any of their subsidiaries, could, individually or in the aggregate, have
a material adverse effect on the condition (financial or other), business,
properties or results of operations of Chemicals, Holdings and their
subsidiaries taken as a whole, or could materially and adversely affect the
ability of Chemicals or Holdings, as the case may be, to perform its
obligations under the Indentures, the Warrant Agreement, the Security
Agreement, this Agreement, or any other document governing any of the
Transactions, or which are otherwise material in the context of the
Transactions; and no such actions, suits or proceedings are threatened or,
to the knowledge of Chemicals or Holdings, contemplated.
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(xxix) The financial statements included in each Registration
Statement and the Prospectus comply with the requirements of the Act and
the Rules and Regulations, present fairly the financial position of
Chemicals, Holdings and its consolidated subsidiary and the Company and its
consolidated subsidiaries as of the dates shown and the results of
operations and cash flows of the Company and its consolidated subsidiaries
for the periods shown, and such financial statements have been prepared in
conformity with the generally accepted accounting principles in the United
States applied on a consistent basis; the assumptions used in preparing the
pro forma financial statements included in each Registration Statement and
the Prospectus provide a reasonable basis for presenting the significant
effects directly attributable to the transactions or events described
therein, the related pro forma adjustments give appropriate effect to those
assumptions, and the pro forma columns therein reflect the proper
application of those adjustments to the corresponding historical financial
statement amounts. The other financial information and statistical data
set forth in the Prospectus present fairly the information shown therein
and have been compiled on a basis consistent with that of the audited
consolidated financial statements included in the Registration Statements.
(xxx) Since the dates as of which information is given in the
Registration Statements and the Prospectus, (i) none of Chemicals, Holdings
or any of their respective subsidiaries has incurred any material liability
or obligation (indirect, direct or contingent) or entered into any material
verbal or written agreement or other transaction that is not in the
ordinary course of business or that could result in a material reduction in
the future earnings of Chemicals or Holdings and their respective
subsidiaries; (ii) none of Chemicals, Holdings or any of their respective
subsidiaries has sustained any material loss or interference with its
business or properties from fire, flood, windstorm, accident or other
calamity (whether or not covered by insurance); (iii) there has been no
change, except as contemplated by the Prospectus, in the indebtedness of
Chemicals or Holdings and no change in the capital stock of Chemicals or
Holdings and no dividend or distribution of any kind declared, paid or made
by Chemicals or Holdings on any class of its capital stock; and (iv) there
has been no material adverse change, nor any development or event involving
a prospective material adverse change, in the condition (financial or
other), business, properties or results of operations of Chemicals,
Holdings and their subsidiaries taken as a whole.
(xxxi) Neither Chemicals nor Holdings is and, after giving effect to
the consummation of the Transactions, neither will be an "investment
company" as defined in the Investment Company Act of 1940.
(xxxii) None of Chemicals, Holdings or any of their affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida Statutes and
Chemicals and Holdings agree to comply with such Section if prior to the
completion of the distribution of the Securities they or any of their
affiliates commence doing such business.
(xxxiii) The accountants reporting upon the audited financial
statements and schedules included in the Registration Statements and the
Prospectus are independent public accountants as required by the Act and
the Rules and Regulations.
3. Purchase, Sale and Delivery of Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, (i) Chemicals agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from Chemicals, at a purchase price of _____% of the principal amount thereof
plus accrued interest from ________ ___, 1996 to the Closing Date, the
respective principal amounts of Notes set forth opposite the names of the
Underwriters in Schedule A hereto, and (ii) Holdings agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from Holdings, at a purchase price of $_____
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per Unit plus accrued original issue discount from _______ ___, 1996 to the
Closing Date the respective number of Units set forth opposite the names of the
Underwriters in Schedule A hereto.
Chemicals and Holdings will deliver the Notes and the Units, respectively,
to the Underwriters against payment of the purchase prices therefor in Federal
(same day) funds by wire transfer to an account previously designated to CS
First Boston by the Issuers at a bank acceptable to CS First Boston at the
offices of Andrews & Kurth L.L.P., Texas Commerce Tower, 600 Travis, Suite 4200,
Houston, Texas 77002, at 9:00 A.M., New York time, on __________ ___, 1996, or
at such other time not later than seven full business days thereafter as CS
First Boston and the Issuers determine, such time being herein referred to as
the "Closing Date". The Securities so to be delivered will be in definitive
fully registered form, in such denominations and registered in such names as CS
First Boston requests and will be made available for checking and packaging at
the above offices of Andrews & Kurth L.L.P. at least 24 hours prior to the
Closing Date.
4. Offering by Underwriters. It is understood that the Underwriters
propose to offer the Securities for sale to the public as set forth in the
Prospectus.
5. Certain Agreements of the Issuers. Chemicals and Holdings jointly and
severally agree with the Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Issuers will
file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CS First Boston,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this Agreement
or (B) the fifteenth business day after the Effective Date of the Initial
Registration Statement. The Issuers will advise the Underwriters promptly
of any such filing pursuant to Rule 424(b). If the Effective Time of the
Initial Registration Statement is prior to the execution and delivery of
this Agreement and an additional registration statement is necessary to
register a portion of the Securities under the Act but the Effective Time
thereof has not occurred as of such execution and delivery, the Issuers
will file the additional registration statement or, if filed, will file a
post-effective amendment thereto with the Commission pursuant to and in
accordance with Rule 462(b) on or prior to 10:00 P.M., New York time, on
the date of this Agreement or, if earlier, on or prior to the time the
Prospectus is printed and distributed to any Underwriter, or will make such
filing at such later date as shall have been consented to by CS First
Boston.
(b) The Issuers will advise the Underwriters promptly of any proposal
to amend or supplement the initial or any additional registration statement
as filed or the related prospectus or the Initial Registration Statement,
the Additional Registration Statement (if any) or the Prospectus and will
not effect such amendment or supplementation without CS First Boston's
consent; and the Issuers will also advise the Underwriters promptly of the
effectiveness of each Registration Statement (if its Effective Time is
subsequent to the execution and delivery of this Agreement) and of any
amendment or supplementation of a Registration Statement or the Prospectus
and of the institution by the Commission of any stop order proceedings in
respect of a Registration Statement and will use their best efforts to
prevent the issuance of any such stop order and to obtain as soon as
possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act in connection with sales by any
Underwriter or dealer, any event occurs as a result of which the Prospectus
as then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Issuers will promptly notify the
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Underwriters of such event and will promptly prepare and file with the
Commission, at their own expense, an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance. Neither the Underwriters' consent to, nor the Underwriters'
delivery of, any such amendment or supplement shall constitute a waiver of
any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Issuers will make generally available to their
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act.
For the purpose of the preceding sentence, "Availability Date" means the
45th day after the end of the fourth fiscal quarter following the fiscal
quarter that includes such Effective Date, except that, if such fourth
fiscal quarter is the last quarter of Chemicals' or Holdings' fiscal year,
as the case may be, "Availability Date" means the 90th day after the end of
such fourth fiscal quarter.
(e) The Issuers will furnish to the Underwriters copies of each
Registration Statement (two of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as delivery of
a prospectus relating to the Securities is required to be delivered under
the Act in connection with sales by any Underwriter or dealer, the
Prospectus and all amendments and supplements to such documents, in each
case in such quantities as the Underwriters reasonably request. The
Prospectus shall be so furnished on or prior to 3:00 P.M., New York time,
on the business day following the later of the execution and delivery of
this Agreement or the Effective Time of the Initial Registration Statement.
All other documents shall be so furnished as soon as available. The Issuers
will pay the expenses of printing and distributing to the Underwriters all
such documents.
(f) The Issuers will arrange for the qualification of the Securities
for sale and the determination of their eligibility for investment under
the laws of such jurisdictions as CS First Boston designates and will
continue such qualifications in effect so long as required for the
distribution; provided, however, that neither Issuer will be required to
(i) qualify as a foreign corporation in any such jurisdiction or (ii)
subject itself to taxation in any such jurisdiction.
(g) So long as any of the Securities are outstanding, the Issuers
will furnish to the Underwriters, as soon as practicable after the end of
each fiscal year, a copy of any annual report to stockholders for such
year; and the Issuers will furnish to the Underwriters (i) as soon as
available, a copy of each report and any definitive proxy statement of
Chemicals or Holdings, as the case may be, filed with the Commission under
the Securities Exchange Act of 1934 or mailed to stockholders, and (ii) for
one year from the Closing Date, such other information concerning the
Issuers as the Underwriters may reasonably request.
(h) The Issuers will pay all expenses incident to the performance of
their obligations under this Agreement and will reimburse the Underwriters
(if and to the extent incurred by them) for any filing fees and other
expenses (including fees and disbursements of counsel) incurred by them in
connection with qualification of the Securities for sale and determination
of their eligibility for investment under the laws of such jurisdictions as
CS First Boston designates and the printing of memoranda relating thereto,
for any fees charged by investment rating agencies for the rating of the
Notes and the Discount Notes, for the filing fee of the NASD relating to
the Securities (including the fees and disbursements of counsel relating
thereto), for any travel expenses of the Issuers' officers and employees
and any other expenses of the Issuers in connection with attending or
hosting meetings with prospective purchasers of the Securities and for
expenses incurred in initial distributions of preliminary prospectuses and
the Prospectus (including any amendments and supplements thereto) to the
Underwriters.
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(i) For a period of 90 days after the date of the Prospectus, none of
Chemicals, Holdings or any of their subsidiaries will, directly or
indirectly, offer or sell in a public offering or an offering intended to
qualify (with respect to resales) for exemption from registration pursuant
to Rule 144A under the Act, any United States dollar-denominated debt
securities issued or guaranteed by Chemicals, Holdings or any of their
subsidiaries and having a maturity of more than one year from the date of
issue, or publicly disclose the intention to make any such offer or sale,
without the prior written consent of CS First Boston (which consent shall
not be unreasonably withheld).
(j) Holdings shall from time to time take all action necessary so
that the Warrant Shares, immediately upon their issuance upon the exercise
of the Warrants, will be listed on such securities exchanges, interdealer
quotation systems and markets, if any, on which other shares of Common
Stock are then listed or quoted.
(k) Chemicals and Holdings will do and perform all things required to
be done and performed under this Agreement by them that are within their
control prior to or after the Closing Date and to use all reasonable
efforts to satisfy all conditions precedent on their parts to the delivery
of the Securities.
6. Conditions of the Obligations of the Underwriters. The obligations of
the Underwriters to purchase and pay for any of the Securities on the Closing
Date will be subject to the accuracy of the representations and warranties on
the part of Chemicals and Holdings herein, to the accuracy of the statements of
officers of Chemicals and Holdings made pursuant to the provisions hereof, to
the performance by Chemicals and Holdings of their obligations hereunder and to
the following additional conditions precedent:
(a) The Underwriters shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, shall
be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, shall be prior to the filing of the amendment
or post-effective amendment to the registration statement to be filed
shortly prior to such Effective Time), of Arthur Andersen LLP confirming
that they are independent public accountants within the meaning of the Act
and the applicable published Rules and Regulations thereunder and stating
to the effect that:
(i) they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards
No. 71, Interim Financial Information, on the unaudited financial
statements of the Company included in the Registration Statements;
(ii) on the basis of the review referred to in clause (i) above,
a reading of the latest available interim financial statements of the
Company, inquiries of officials of the Company who have responsibility
for financial and accounting matters and other specified procedures,
nothing came to their attention that caused them to believe that:
(A) the unaudited financial statements of the Company
included in the Registration Statements do not comply as to form
in all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations or any material modifications should be made to such
unaudited financial statements for them to be in conformity with
generally accepted accounting principles;
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(B) at the date of the latest available balance sheet read
by such accountants, and at a subsequent specified date not more
than five days prior to the date of this Agreement, there was any
change in stockholders' equity or any increase in short-term
indebtedness or long-term debt or any decrease in consolidated
net current assets or total assets of the Company and its
consolidated subsidiaries, as compared with amounts shown on the
latest balance sheet included in the Prospectus; or
(C) for the period from the closing date of the latest
income statement included in the Prospectus to the closing date
of the latest available income statement read by such
accountants, and at a subsequent specified date not more than
five days prior to the date of this Agreement, there were any
decreases, as compared with the corresponding period of the
previous year and with the period of corresponding length ended
the date of the latest income statement included in the
Prospectus, in consolidated revenues, or net operating income, or
in the total or per share amounts of consolidated income before
extraordinary items or net income,
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter;
(iii)(A) they have read the pro forma financial statements and
other pro forma financial information included in the
Registration Statements (collectively, the "Pro Forma
Information");
(B) they have made inquiries of certain officials of the
Company who have responsibility for financial and accounting
matters about the basis for the pro forma adjustments;
(C) they have proved the arithmetic accuracy of the
application of the pro forma adjustments to the historical
amounts in the Pro Forma Information; and
(D) on the basis of such procedures, and such other
inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that
the Pro Forma Information included in the Registration Statements
has not been properly compiled and that the pro forma adjustments
have not been properly applied to the historical amounts in the
compilation of those statements; and
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements with the results obtained
from inquiries, a reading of general accounting records and other
procedures specified in such letter and have found such dollar
amounts, percentages and other financial information to be in
agreement with such results, except as otherwise specified in such
letter.
For purposes of this subsection and subsections (b) and (c) below, (i) if
the Effective Time of the Initial Registration Statement is subsequent to
the execution and delivery of this Agreement, "Registration Statements"
shall mean the initial registration statement as proposed to be amended by
the amendment or post-effective amendment to be filed shortly prior to its
Effective Time, (ii) if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of
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this Agreement but the Effective Time of the Additional Registration is
subsequent to such execution and delivery, "Registration Statements" shall
mean the Initial Registration Statement and the additional registration
statement as proposed to be filed or as proposed to be amended by the post-
effective amendment to be filed shortly prior to its Effective Time, and
(iii) "Prospectus" shall mean the prospectus included in the Registration
Statements.
(b) The Underwriters shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, shall
be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, shall be prior to the filing of the amendment
or post-effective amendment to the registration statement to be filed
shortly prior to such Effective Time), of Coopers & Lybrand L.L.P.
confirming that they are independent public accountants within the meaning
of the Act and the applicable published Rules and Regulations thereunder
and stating to the effect that:
(i) in their opinion the financial statements audited by them and
included in the Registration Statements comply as to form in all
material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations;
(ii) (A) they have read the Pro Forma Information;
(B) they have made inquiries of certain officials of the
Company who have responsibility for financial and accounting
matters about the basis for the pro forma adjustments;
(C) they have proved the arithmetic accuracy of the
application of the pro forma adjustments to the historical
amounts in the Pro Forma Information; and
(D) on the basis of such procedures, and such other
inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that
the Pro Forma Information included in the Registration Statements
has not been properly compiled and that the pro forma adjustments
have not been properly applied to the historical amounts in the
compilation of those statements; and
(iii) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements with the results obtained
from inquiries, a reading of general accounting records and other
procedures specified in such letter and have found such dollar
amounts, percentages and other financial information to be in
agreement with such results, except as otherwise specified in such
letter.
(c) The Underwriters shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, shall
be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, shall be prior to the filing of the amendment
or post-effective amendment to the registration statement to be filed
shortly prior to such Effective Time), of Deloitte & Touche LLP confirming
that they are independent public accountants within the meaning of the Act
and the applicable published Rules and Regulations thereunder and stating
to the effect that:
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<PAGE>
(i) in their opinion the financial statements audited by them and
included in the Registration Statements comply as to form in all
material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations; and
(ii) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements with the results obtained
from inquiries, a reading of general accounting records and other
procedures specified in such letter and have found such dollar
amounts, percentages and other financial information to be in
agreement with such results, except as otherwise specified in such
letter.
(d) If the Effective Time of the Initial Registration Statement is
not prior to the execution and delivery of this Agreement, such Effective
Time shall have occurred not later than 10:00 P.M., New York time, on the
date of this Agreement or such later date as shall have been consented to
by CS First Boston. If the Effective Time of the Additional Registration
Statement (if any) is not prior to the execution and delivery of this
Agreement, such Effective Time shall have occurred not later than 10:00
P.M., New York time, on the date of this Agreement or, if earlier, the time
the Prospectus is printed and distributed to any Underwriter, or shall have
occurred at such later date as shall have been consented to by CS First
Boston. If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Prospectus shall
have been filed with the Commission in accordance with the Rules and
Regulations and Section 5(a) of this Agreement. Prior to the Closing Date,
no stop order suspending the effectiveness of a Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Issuers or the Underwriters, shall
be contemplated by the Commission.
(e) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of Chemicals or Holdings or
any of their respective subsidiaries which, in the judgment of a majority
in interest of the Underwriters including CS First Boston, is material and
adverse and makes it impractical or inadvisable to proceed with completion
of the public offering or the sale of and payment for any of the
Securities; (ii) any downgrading in the rating of any debt securities or
preferred stock of Chemicals, Holdings or the Company by any "nationally
recognized statistical rating organization" (as defined for purposes of
Rule 436(g) under the Act), or any public announcement that any such
organization has under surveillance or review its rating of any debt
securities or preferred stock of Chemicals, Holdings or the Company (other
than an announcement with positive implications of a possible upgrading,
and no implication of a possible downgrading, of such rating); (iii) any
suspension or limitation of trading in securities generally on the New York
Stock Exchange, or any setting of minimum prices for trading on such
exchange, or any suspension of trading of any securities of Chemicals,
Holdings or the Company on any exchange or in the over-the-counter market;
(iv) any banking moratorium declared by U.S. Federal or New York
authorities; or (v) any outbreak or escalation of major hostilities in
which the United States is involved, any declaration of war by Congress or
any other substantial national or international calamity or emergency if,
in the judgment of a majority in interest of the Underwriters including CS
First Boston, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for any of the
Securities.
(f) The Underwriters shall have received an opinion, dated the
Closing Date, of Andrews & Kurth L.L.P., counsel for Chemicals and
Holdings, to the effect that:
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(i) Each of Chemicals and Holdings has been duly incorporated
and is a validly existing corporation in good standing under the laws
of the State of Delaware, with corporate power and authority
(corporate and other) to own, lease and operate its properties and
conduct its business as described in the Prospectus; and all of the
capital stock of Chemicals is owned by Holdings free from liens,
encumbrances and defects, except as pursuant to the Security
Agreement;
(ii) The Indentures have been duly authorized, executed and
delivered and have been duly qualified under the Trust Indenture Act;
the Notes and the Discount Notes have been duly authorized, executed,
authenticated, issued and delivered; and the Indentures, the Notes and
the Discount Notes constitute valid and legally binding obligations of
Chemicals and Holdings, respectively, enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles; and the Notes and the Discount Notes conform to the
descriptions thereof contained in the Prospectus;
(iii) The Warrant Agreement has been duly authorized, executed
and delivered; the Warrants have been duly authorized, executed,
issued and delivered; the Warrant Agreement and the Warrants
constitute valid and legally binding obligations of Holdings,
enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles; and the Warrants
conform to the descriptions thereof contained in the Prospectus;
(iv) The Warrant Shares have been duly authorized and reserved
for issuance upon exercise of the Warrants and, when issued upon such
exercise, will be validly issued, fully paid and nonassessable; the
outstanding shares of Common Stock conform to the description thereof
contained in the Prospectus; and the stockholders of Holdings have no
statutory preemptive rights with respect to the Warrant Shares or the
Common Stock.
(v) To the knowledge of such counsel, except as disclosed in the
Prospectus, no consent, approval, authorization, or order of, or
filing with, or notice to, any third party or any governmental agency
or body or any court is required for the consummation of the
Transactions, except such as have been obtained and made and such as
may be required under state securities laws;
(vi) To the knowledge of such counsel, the execution, delivery
and performance of the Indentures, the Warrant Agreement, the Merger
Agreement, the Credit Agreement, the Security Agreement and this
Agreement, and the consummation of the Transactions, including,
without limitation, the issuance and sale of the Securities and
compliance with the terms and provisions thereof, will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, [any statute, any rule, regulation or
order of any governmental agency or body or any court, domestic or
foreign, having jurisdiction over Chemicals or Holdings or any
subsidiary of Chemicals or Holdings or any of their properties, assets
or operations, or any agreement or instrument to which Chemicals or
Holdings or any such subsidiary is a party or by which Chemicals or
Holdings or any such subsidiary is bound or to which any of the
properties of Chemicals and Holdings or any such subsidiary is
subject,] or the charter or by-laws of Chemicals or Holdings or any
such subsidiary; and each of Chemicals and Holdings has full corporate
power and authority to authorize, issue and sell the Notes and the
Units, respectively, as contemplated by this Agreement, the Indentures
and the Warrant Agreement;
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(vii) The Merger Agreement has been duly authorized, executed
and delivered by Holdings and constitutes a valid and legally binding
obligation of Holdings, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles;
(viii) The Credit Agreement has been duly authorized, and upon
consummation of the Merger will have been duly executed and delivered
and will constitute a valid and legally binding obligation of
Chemicals, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles;
(ix) The Security Agreement has been duly authorized, and upon
consummation of the Merger will have been duly executed and delivered
and will constitute a valid and legally binding obligation of each of
Chemicals and Holdings, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles;
(x) The subscription agreements relating to the Equity Placement
have been duly authorized, executed and delivered and constitute valid
and legally binding obligations of Holdings, enforceable in accordance
with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to
general equity principles;
(xi) This Agreement has been duly authorized, executed and
delivered by the Issuers;
(xii) Neither Chemicals nor Holdings is and, after giving effect
to the consummation of the Transactions, neither will be an
"investment company" as defined in the Investment Company Act of 1940;
(xiii) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if any) was filed and became
effective under the Act as of the date and time (if determinable)
specified in such opinion, the Prospectus either was filed with the
Commission pursuant to the subparagraph of Rule 424(b) specified in
such opinion on the date specified therein or was included in the
Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the knowledge of such counsel,
no stop order suspending the effectiveness of a Registration Statement
or any part thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the
Act, and each Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective effective or
issue dates, complied as to form in all material respects with the
requirements of the Act, the Trust Indenture Act and the Rules and
Regulations. Such counsel have no reason to believe that any part of
a Registration Statement or any amendment thereto, as of its effective
date or as of the Closing Date, contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any amendment or supplement
thereto, as of its issue date or as of the Closing Date, contained any
untrue statement of a material fact or omitted to state any material
fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not
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misleading (it being understood that such counsel need express no
opinion as to the financial statements or other financial or
statistical data contained in the Registration Statements or the
Prospectus); and
(xiv) The Indentures, the Notes, the Discount Notes, the Warrant
Agreement, the Warrants, the Merger Agreement, the Credit Agreement
and the Security Agreement conform to the descriptions thereof
contained in the Prospectus; and the description in the Prospectus of
United States federal income tax matters under the heading "Certain
United States Federal Income Tax Consequences" is accurate in all
material respects and fairly presents the information required to be
shown.
(g) The Underwriters shall have received an opinion, dated the
Closing Date, of Borden & Elliot, Canadian counsel for Chemicals and
Holdings, to the effect that:
(i) Each subsidiary of Chemicals incorporated in Canada
("Canadian subsidiary") has been duly incorporated and is a validly
existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate
and other) to own, lease and operate its properties and conduct its
business as described in the Prospectus; and each Canadian subsidiary
is duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which its ownership or lease of
property or the conduct of its business requires such qualification,
except where the failure to be so qualified could not, individually or
in the aggregate, have a material adverse effect on the condition
(financial or other), business, properties or results of operations of
Chemicals, Holdings and their subsidiaries taken as a whole; all of
the issued and outstanding capital stock of each Canadian subsidiary
has been duly authorized and validly issued and is fully paid and
nonassessable; and the capital stock of each Canadian subsidiary is
owned by Chemicals, directly or through subsidiaries, free from liens,
encumbrances and defects, except pursuant to the Security Agreement;
(ii) To the knowledge of such counsel, each Canadian subsidiary
possesses adequate certificates, authorizations or permits issued by
appropriate governmental agencies or bodies necessary to conduct the
business now operated by it and has not received any notice of
proceedings (or is aware of any facts that would be expected to result
in such proceeding) relating to the revocation or modification of any
such certificate, authorization or permit that, if determined
adversely to such Canadian subsidiary, could, individually or in the
aggregate, have a material adverse effect on the condition (financial
or other), business, properties or results of operations of Chemicals,
Holdings and their subsidiaries taken as a whole. To the knowledge of
such counsel, each of the Canadian subsidiaries is in compliance with
its obligations under such certificates, authorizations or permits and
no event has occurred that allows, or after notice or lapse of time
would allow, revocation or termination of such certificates,
authorizations or permits or violation of such laws or regulations,
except for such non-compliance and events as could not, individually
or in the aggregate, have a material adverse effect on the condition
(financial or other), business, properties or results of operations of
Chemicals, Holdings and their subsidiaries taken as a whole;
(iii) Except as disclosed in the Prospectus, to the knowledge of
such counsel no consent, approval, authorization, or order of, or
filing with, or notice to, any third party or any governmental agency
or body or any court, in each case in Canada, is required for the
consummation of the Transactions, except such as have been made and
obtained; and
(iv) To the knowledge of such counsel, the execution, delivery
and performance of the Indentures, the Warrant Agreement, the Merger
Agreement, the Credit Agreement,
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the Security Agreement and this Agreement, and the consummation of the
Transactions, including the issuance and sale of the Securities and
compliance with the terms and provisions thereof, will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or any court of Canada having
jurisdiction over Chemicals or Holdings or any Canadian subsidiary or
any of their properties, assets or operations, or any agreement or
instrument to which Chemicals or Holdings or any such Canadian
subsidiary is a party or by which Chemicals or Holdings or any such
Canadian subsidiary is bound or to which any of the properties of
Chemicals and Holdings or any such Canadian subsidiary is subject, or
the charter or by-laws of any Canadian subsidiary.
(h) The Underwriters shall have received an opinion, dated the
Closing Date, of F. Maxwell Evans, Vice President, General Counsel and
Secretary of Chemicals and Holdings, solely in his capacity as such, to the
effect that:
(i) Each of Chemicals and Holdings is duly qualified to do
business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, except where the
failure to be so qualified could not, individually or in the
aggregate, have a material adverse effect on the condition (financial
or other), business, properties or results of operations of Chemicals,
Holdings and their subsidiaries taken as a whole; the outstanding
shares of Common Stock have been duly authorized and validly issued
and are fully paid and nonassessable; except as set forth in the
Prospectus and in Schedule 4.02 to the Merger Agreement, there are no
outstanding (A) securities or obligations of Holdings convertible into
or exchangeable for any capital stock of Holdings, (B) warrants,
rights or options to subscribe for or purchase from Holdings any such
capital stock or any such convertible or exchangeable securities or
obligations or (C) obligations of Holdings to issue such shares, any
such convertible or exchangeable securities or obligations, or any
such warrants, rights or obligations;
(ii) Each subsidiary of Chemicals incorporated in the United
States ("U.S. subsidiary") has been duly incorporated and is a validly
existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate
and other) to own, lease and operate its properties and conduct its
business historically conducted as described in the Prospectus; and
each subsidiary of Chemicals is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions in
which its ownership or lease of property or the conduct of its
business requires such qualification, except where the failure to be
so qualified could not, individually or in the aggregate, have a
material adverse effect on the condition (financial or other),
business, properties or results of operations of Chemicals, Holdings
and their subsidiaries taken as a whole; all of the issued and
outstanding capital stock of each U.S. subsidiary of Chemicals and
Holdings has been duly authorized and validly issued and is fully paid
and nonassessable; and the capital stock of each U.S. subsidiary of
Chemicals is owned by Chemicals, directly or through subsidiaries,
free from liens, encumbrances and defects, except as pursuant to the
Security Agreement;
(iii) To the knowledge of such counsel, each of Chemicals and
Holdings and their U.S. subsidiaries possess adequate certificates,
authorizations or permits issued by appropriate governmental agencies
or bodies necessary to conduct the business now operated by them and
have not received any notice of proceedings (or is aware of any facts
that would be expected to result in such proceeding) relating to the
revocation or modification of any such certificate, authorization or
permit that, if determined adversely to Chemicals, Holdings or any of
their subsidiaries, could, individually or in the
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aggregate, have a material adverse effect on the condition (financial
or other), business, properties or results of operations of Chemicals,
Holdings and their subsidiaries taken as a whole. To the knowledge of
such counsel, each of Chemicals and Holdings and their U.S.
subsidiaries are in compliance with their respective obligations under
such certificates, authorizations or permits and no event has occurred
that allows, or after notice or lapse of time would allow, revocation
or termination of such certificates, authorizations or permits or
violation of such laws or regulations, except for such non-compliance
and events as could not, individually or in the aggregate, have a
material adverse effect on the condition (financial or other),
business, properties or results of operations of Chemicals, Holdings
and their subsidiaries taken as a whole;
(iv) To the knowledge of such counsel, except as disclosed in
the Prospectus, there are no pending actions, suits or proceedings
against or affecting Chemicals, Holdings, any of their respective
subsidiaries or any of their respective properties, assets or
operations that, if determined adversely to Chemicals, Holdings or any
of their subsidiaries, could, individually or in the aggregate, have a
material adverse effect on the condition (financial or other),
business, properties or results of operations of Chemicals, Holdings
and their subsidiaries taken as a whole, or could materially and
adversely affect the ability of Chemicals or Holdings, as the case may
be, to perform its obligations under the Indentures, the Warrant
Agreement, the Security Agreement, this Agreement or any other
document governing any of the Transactions, or which are otherwise
material in the context of the Transactions; no such actions, suits or
proceedings are threatened or, to the knowledge of such counsel,
contemplated;
(v) To the knowledge of such counsel, the execution, delivery
and performance of the Indentures, the Warrant Agreement, the Merger
Agreement, the Credit Agreement, the Security Agreement and this
Agreement, and the consummation of the Transactions, including,
without limitation, the issuance and sale of the Securities and
compliance with the terms and provisions thereof, will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or any court, domestic or foreign,
having jurisdiction over Chemicals or Holdings or any subsidiary of
Chemicals or Holdings or any of their properties, assets or
operations, or any agreement or instrument to which Chemicals or
Holdings or any such subsidiary is a party or by which Chemicals or
Holdings or any such subsidiary is bound or to which any of the
properties of Chemicals and Holdings or any such subsidiary is
subject, or the charter or by-laws of Chemicals or Holdings or any
such subsidiary;
(vi) To the knowledge of such counsel, except as disclosed in
the Prospectus, there are no contracts, agreements or understandings
between Chemicals or Holdings and any person granting such person the
right to require Chemicals or Holdings to file a registration
statement under the Act with respect to any securities of Chemicals or
Holdings owned or to be owned by such person or to require Chemicals
or Holdings to include such securities in the securities registered
pursuant to a Registration Statement or in any securities being
registered pursuant to any other registration statement filed by
Chemicals or Holdings under the Act; and
(vii) The descriptions in the Registration Statements and
Prospectus of statutes, regulations, legal and governmental
proceedings and contracts and other documents are accurate in all
material respects and fairly present the information required to be
shown; and such counsel does not know of any statutes, regulations,
legal or governmental proceedings required to be described in a
Registration Statement or the Prospectus which are not described as
required or of any contracts or documents of a character required to
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be described in a Registration Statement or the Prospectus or to be
filed as exhibits to a Registration Statement which are not described
and filed as required. Such counsel has no reason to believe that any
part of a Registration Statement or any amendment thereto, as of its
effective date or as of the Closing Date, contained any untrue
statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus or any amendment or
supplement thereto, as of its issue date or as of the Closing Date,
contained any untrue statement of a material fact or omitted to state
any material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no
opinion as to the financial statements or other financial or
statistical data contained in the Registration Statements or the
Prospectus).
Such counsel may state in such opinion that no opinion is being
expressed therein with respect to the operations of STX Acquisition Corp.
and STX Chemicals Corp. prior to the consummation of the Transactions.
(i) The Underwriters shall have received an opinion, dated the
Closing Date, of Andrews & Kurth L.L.P. and/or Richards, Layton & Finger,
counsel for Holdings, substantially to the effect set forth in Section
8.02(e) of the Merger Agreement, in each case addressed to the Underwriters
or accompanied by letters stating that the Underwriters are entitled to
rely upon such opinions as if addressed to the Underwriters.
(j) The Underwriters shall have received an opinion, dated the
Closing Date, of Piper & Marbury L.L.P. and/or F. Maxwell Evans, counsel
for the Company, substantially to the effect set forth in Section 8.03(d)
of the Merger Agreement, in each case addressed to the Underwriters or
accompanied by letters stating that the Underwriters are entitled to rely
upon such opinions as if addressed to the Underwriters.
(k) The Underwriters shall have received from Dewey Ballantine,
counsel for the Underwriters, such opinion or opinions, dated the Closing
Date, with respect to the validity of the Securities, the Registration
Statements, the Prospectus and other related matters as the Underwriters
may require, and Chemicals and Holdings shall have furnished to such
counsel such documents as they request for the purpose of enabling them to
pass upon such matters.
(l) The Underwriters shall have received a certificate, dated the
Closing Date, of the President or any Vice-President and a principal
financial or accounting officer of each of Chemicals and Holdings in which
such officers, to the best of their knowledge after reasonable
investigation, shall state that: the representations and warranties of
Chemicals and Holdings in this Agreement are true and correct; Chemicals
and Holdings have complied with all agreements and satisfied all conditions
on their part to be performed or satisfied hereunder at or prior to the
Closing Date; no stop order suspending the effectiveness of any
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are contemplated by the Commission; the Additional
Registration Statement (if any) satisfying the requirements of
subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule 462(b),
including payment of the applicable filing fee in accordance with Rule
111(a) or (b) under the Act, prior to the time the Prospectus was printed
and distributed to any Underwriter; they have carefully examined the
Registration Statements and the Prospectus and neither any Registration
Statement nor the Prospectus or any amendment or supplement thereto, (i) as
of their respective effective times, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and (ii)
as of their respective issue dates and as of the Closing Date, contained
any untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the
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circumstances under which they were made, not misleading; and, subsequent
to the dates as of which information is given in the Registration
Statements and the Prospectus, there has been no material adverse change,
nor any development or event involving a prospective material adverse
change, in the condition (financial or other), business, properties or
results of operations of Chemicals, Holdings and their subsidiaries taken
as a whole except as set forth in or contemplated by the Prospectus or as
described in such certificate.
(m) The Underwriters shall have received a letter, dated the Closing
Date, of Arthur Andersen LLP which meets the requirements of subsection (a)
of this Section, except that the specified date referred to in such
subsection will be a date not more than five days prior to the Closing Date
for the purposes of this subsection.
(n) The Underwriters shall have received a letter, dated the Closing
Date, of Coopers & Lybrand L.L.P. which meets the requirements of
subsection (b) of this Section, except that the specified date referred to
in such subsection will be a date not more than five days prior to the
Closing Date for the purposes of this subsection.
(o) The Underwriters shall have received a letter, dated the Closing
Date, of Deloitte & Touche LLP which meets the requirements of subsection
(c) of this Section, except that the specified date referred to in such
subsection will be a date not more than five days prior to the Closing Date
for the purposes of this subsection.
(p) At the Closing Date, the Certificate of Merger relating to the
Merger shall have been duly filed with the Secretary of State of the State
of Delaware and the Merger shall have been consummated in accordance with
the terms of the Merger Agreement, and the Issuers shall have provided to
the Underwriters copies of all documents with respect to the consummation
of the Merger as they may reasonably request.
(q) At the Closing Date, the Credit Agreement shall have been executed
and delivered and be in full force and effect and all conditions to
borrowing thereunder shall have been satisfied, and the Issuers shall have
provided to the Underwriters copies of all documents with respect thereto
as they may reasonably request.
(r) At the Closing Date, the Security Agreement shall have been
executed and delivered and be in full force and effect, and the Issuers
shall have provided to the Underwriters copies of all documents with
respect thereto as they may reasonably request.
(s) At the Closing Date, the Equity Placement shall have been
consummated as described in the Prospectus, and the Issuers shall have
provided to the Underwriters copies of all documents with respect thereto
as they may reasonably request.
(t) At the Closing Date, the ESOP Formation shall have been completed
as described in the Prospectus, and the Issuers shall have provided to the
Underwriters copies of all documents with respect thereto as they may
reasonably request.
(u) At the Closing Date, the Asset Transfer shall have been completed
as described in the Prospectus, and the Issuers shall have provided to the
Underwriters copies of all documents with respect thereto as they may
reasonably request.
(v) At the Closing Date, evidence reasonably satisfactory to counsel
for the Underwriters shall have been furnished of the preparation of all
recordings and/or filings of all documents in connection with the Security
Agreement, and such other financing statements or security documents as may
be necessary to perfect the security interests created, or intended to be
created, by the
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Collateral. All filing fees and taxes in connection with such recordings or
filing shall have been paid or arrangements for their payment shall have
been made and counsel for the Underwriters shall have received evidence
satisfactory to them of such records, filings and payments.
(w) The Underwriters shall have received such other opinions,
certificates, letters and other documents from and on behalf of the Issuers
as the Underwriters may reasonably request.
Chemicals and Holdings will furnish the Underwriters with such conformed copies
of such opinions, certificates, letters and documents as the Underwriters
reasonably request. CS First Boston may in its sole discretion waive on behalf
of the Underwriters compliance with any conditions to the obligations of the
Underwriters hereunder.
7. Indemnification and Contribution. (a) Chemicals and Holdings, jointly
and severally, will indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement, the Prospectus, or any
amendment or supplement thereto, or any related preliminary prospectus, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred; provided, however, that Chemicals and Holdings will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement in or omission or alleged omission from any of such documents
in reliance upon and in conformity with written information furnished to
Chemicals and Holdings by any Underwriter specifically for use therein, it being
understood and agreed that the only such information furnished by any
Underwriter consists of the information described as such in subsection (b)
below; and provided, further, that with respect to any untrue statement or
alleged untrue statement in or omission or alleged omission from any preliminary
prospectus the indemnity agreement contained in this subsection (a) shall not
inure to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages or liabilities purchased the Securities concerned, to
the extent that a prospectus relating to such Securities was required to be
delivered by such Underwriter under the Act in connection with such purchase and
any such loss, claim, damage or liability of such Underwriter results from the
fact that there was not sent or given to such person, at or prior to the written
confirmation of the sale of such Securities to such person, a copy of the
Prospectus if the Company had previously furnished copies thereof to such
Underwriter.
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless Chemicals and Holdings against any losses, claims, damages or
liabilities to which Chemicals or Holdings may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to Chemicals or Holdings by such
Underwriter specifically for use therein, and will reimburse any legal or other
expenses reasonably incurred by Chemicals or Holdings in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred, it being understood and agreed that the only such
information furnished by any Underwriter consists of (i) the following
information in the Prospectus furnished on behalf of each Underwriter: the last
paragraph at the bottom of the cover page concerning the terms of the offering
by the Underwriters, the last two legends on page 2, the concession and
reallowance figures appearing in the third paragraph under the
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caption "Underwriting", the information contained in the second and third
sentences of the fourth paragraph under the caption "Underwriting" and the
information contained in the fifth paragraph under the caption "Underwriting";
and (ii) the following information in the Prospectus furnished on behalf of CS
First Boston: the information contained in the first, second and fourth
sentences of the seventh paragraph under the caption "Underwriting".
(c) Promptly after receipt by an indemnified party under this Section or
Section 9 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under subsection (a) or (b) above or Section 9, notify the indemnifying party of
the commencement thereof; but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under subsection (a) or (b) above or Section 9. In case
any such action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section or Section 9, as the
case may be, for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action.
(d) If the indemnification provided for in this Section or Section 9 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above (or Section 9, as the case may be), then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities
referred to in subsection (a) or (b) above (or Section 9, as the case may be)
(i) in such proportion as is appropriate to reflect the relative benefits
received by Chemicals and Holdings on the one hand and the Underwriters (or the
QIU (as hereinafter defined), as the case may be) on the other from the offering
of the Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of Chemicals and Holdings on the one hand and the Underwriters (or the
QIU, as the case may be) on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities as well
as any other relevant equitable considerations. The relative benefits received
by Chemicals and Holdings on the one hand and the Underwriters (or the QIU, as
the case may be) on the other shall be deemed to be in the same proportion as
the total net proceeds from the offerings (before deducting expenses) received
by Chemicals and Holdings bear to the total underwriting discounts and
commissions received by the Underwriters (or the QIU, as the case may be). The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
Chemicals and Holdings or the Underwriters (or the QIU, as the case may be) and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any action or claim which is
the subject of this subsection (d). Notwithstanding the provisions of this
subsection (d), no Underwriter (nor the QIU) shall be required to contribute any
amount in excess of the amount by which the total price at which the Securities
underwritten by it (or, in the case of the QIU, the Securities underwritten by
the QIU) and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter (or the QIU, as the case may be)
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or
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alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' and the QIU's obligations in this subsection (d) to contribute are
several in proportion to their respective underwriting obligations and not
joint.
(e) The obligations of Chemicals and Holdings under this Section and
Section 9 shall be in addition to any liability which Chemicals and Holdings may
otherwise have and shall extend, upon the same terms and conditions, to each
person, if any, who controls any Underwriter or the QIU within the meaning of
the Act; and the obligations of the Underwriters and the QIU under this Section
shall be in addition to any liability which the respective Underwriters (or the
QIU, as the case may be) may otherwise have and shall extend, upon the same
terms and conditions, to each director of Chemicals or Holdings, to each officer
of Chemicals or Holdings who has signed a Registration Statement and to each
person, if any, who controls Chemicals or Holdings within the meaning of the
Act.
8. Default of Underwriters. If any Underwriter or Underwriters default in
their obligations to purchase Notes or Units hereunder and the aggregate
principal amount of Notes or Units that such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed 10% of the total
principal amount of the Notes or Units, as the case may be, CS First Boston may
make arrangements satisfactory to Chemicals and Holdings for the purchase of
such Notes or Units by other persons, including any of the Underwriters, but if
no such arrangements are made by the Closing Date the non-defaulting
Underwriters shall be obligated severally, in proportion to their respective
commitments hereunder, to purchase the Notes and Units that such defaulting
Underwriters agreed but failed to purchase. If any Underwriter or Underwriters
so default and the aggregate principal amount of Notes or Units with respect to
which such default or defaults occur exceeds 10% of the total principal amount
of the Notes or Units, as the case may be, and arrangements satisfactory to CS
First Boston and Chemicals and Holdings for the purchase of such Notes and Units
by other persons are not made within 36 hours after such default, this Agreement
will terminate without liability on the part of any non-defaulting Underwriter
or Chemicals and Holdings, except as provided in Section 10. As used in this
Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
9. Qualified Independent Underwriter. Chemicals and Holdings hereby
confirm that, at their request, Chase Securities Inc. has without compensation
acted as "qualified independent underwriter" (in such capacity, the "QIU")
within the meaning of Schedule E to the By-Laws of the National Association of
Securities Dealers, Inc. in connection with the offering of the Securities.
Chemicals and Holdings, jointly and severally, will indemnify and hold harmless
the QIU against any losses, claims, damages or liabilities, joint or several, to
which the QIU may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon the QIU's acting (or alleged failing to act) as such
"qualified independent underwriter," except to the extent that such losses,
claims, damages or liabilities are finally judicially determined to have
resulted from the QIU's gross negligence or willful misconduct, and will
reimburse the QIU for any legal or other expenses reasonably incurred by the QIU
in connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred.
10. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of
Chemicals and Holdings or their officers and of the Underwriters set forth in or
made pursuant to this Agreement will remain in full force and effect, regardless
of any investigation, or statement as to the results thereof, made by or on
behalf of any Underwriter, Chemicals, Holdings or any of their respective
representatives, officers or directors or any controlling person, and will
survive delivery of and payment for the Securities. If this Agreement is
terminated pursuant to Section 8 or if for any reason the purchase of the
Securities by the Underwriters is not consummated, Chemicals and Holdings shall
remain responsible for the expenses to be paid or reimbursed by them pursuant to
Section 5 and the respective obligations of Chemicals and Holdings and the
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Underwriters pursuant to Section 7 and the obligations of Chemicals and Holdings
pursuant to Section 9 shall remain in effect. If the purchase of the Securities
by the Underwriters is not consummated for any reason other than solely because
of the termination of this Agreement pursuant to Section 8 or the occurrence of
any event specified in clause (iii), (iv) or (v) of Section 6(e), Chemicals and
Holdings, jointly and severally, will reimburse the Underwriters for all out-of-
pocket expenses (including fees and disbursements of counsel) reasonably
incurred by them in connection with the offering of the Securities.
11. Notices. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed, delivered or telegraphed and confirmed to
CS First Boston at Park Avenue Plaza, New York, N.Y. 10055, Attention:
Investment Banking Department--Transactions Advisory Group, or, if sent to
Chemicals or Holdings, will be mailed, delivered or telegraphed and confirmed to
it at Eight Greenway Plaza, Suite 702, Houston, Texas 77046, Attention: T.
Hunter Nelson; provided, however, that any notice to an Underwriter pursuant to
Section 7 will be mailed, delivered or telegraphed and confirmed to such
Underwriter.
12. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
13. Representation of Underwriters. CS First Boston will act for the
Underwriters in connection with this financing, and any action under this
Agreement taken by CS First Boston will be binding upon all the Underwriters.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
15. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
Chemicals and Holdings hereby submit to the non-exclusive jurisdiction of
the Federal and state courts in the Borough of Manhattan in The City of New York
in any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
27
<PAGE>
If the foregoing is in accordance with CS First Boston's understanding of
our agreement, kindly sign and return to Chemicals and Holdings the counterparts
hereof, whereupon it will become a binding agreement among Chemicals, Holdings
and the Underwriters in accordance with its terms.
Very truly yours,
STX Chemicals Corp.
By____________________________
Name:
Title:
STX Acquisition Corp.
By____________________________
Name:
Title:
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
CS First Boston Corporation
By__________________________
Name:
Title:
Chase Securities Inc.
By__________________________
Name:
Title:
28
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER NOTES
- ----------- -----------
<S> <C>
CS First Boston Corporation $
Chase Securities Inc.
-----------
Total $
===========
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER UNITS
- ----------- -----------
<S> <C>
CS First Boston Corporation
Chase Securities Inc.
-----------
Total
===========
</TABLE>
29
<PAGE>
SCHEDULE B
SUBSIDIARIES OF CHEMICALS
Owns 100% of:
Sterling Chemicals International, a Delaware corporation
Sterling Chemicals Energy, Inc., a Delaware corporation
Sterling Chemicals Marketing, Inc., a Virgin Islands corporation
Sterling Canada, Inc., a Delaware corporation
Owns 100% of:
Sterling Pulp Chemicals U.S., Inc., a Delaware corporation
Sterling NRO, Ltd., an Ontario corporation
Sterling Pulp Chemicals, Ltd., an Ontario corporation
Owns 99% of:
Sterling Pulp Industrial, L.L.C. a Delaware limited liability
company/(1)/
_________________
/(1)/ The remaining 1% is owned by Sterling Canada, Inc.
30
<PAGE>
WARRANT AGREEMENT
between
STERLING CHEMICALS HOLDINGS, INC.
and
KEYCORP SHAREHOLDER SERVICES, INC.,
Warrant Agent
Dated as of August ___, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I CERTAIN DEFINITIONS.............................................. 1
ARTICLE II ORIGINAL ISSUE OF WARRANTS....................................... 3
Section 2.1. Issuance of Warrants; Form of Warrant Certificates............... 3
Section 2.2. Legends.......................................................... 3
Section 2.3. Execution and Delivery of Warrant Certificates................... 4
Section 2.4. Transfers of Warrants Prior to the Separation Date; Separation of
Warrants and Discount Notes...................................... 4
Section 2.5. Transfer and Exchange............................................ 5
Section 2.6. Surrender of Warrant Certificates................................ 5
ARTICLE III EXERCISE PRICE; EXERCISE OF WARRANTS............................. 6
Section 3.1. Exercise Price................................................... 6
Section 3.2. Exercise; Restrictions on Exercise............................... 6
Section 3.3. Method of Exercise; Payment of Exercise Price.................... 6
ARTICLE IV ADJUSTMENTS...................................................... 7
Section 4.1. Adjustments...................................................... 7
Section 4.2. Notice of Adjustment............................................. 12
Section 4.3. Statement on Warrants............................................ 13
Section 4.4. Notice of Consolidation, Merger, Etc............................. 13
Section 4.5. Fractional Interests............................................. 13
ARTICLE V LOSS OR MUTILATION............................................... 13
ARTICLE VI AUTHORIZATION AND RESERVATION OF COMMON STOCK;
PURCHASE OF WARRANTS............................................. 14
Section 6.1. Reservation of Authorized Common Stock........................... 14
Section 6.2. Purchase of Warrants by Holdings................................. 14
ARTICLE VII WARRANT HOLDERS.................................................. 14
ARTICLE VIII THE WARRANT AGENT................................................ 15
Section 8.1. Duties and Liabilities........................................... 15
Section 8.2. Right to Consult Counsel......................................... 15
Section 8.3. Compensation; Indemnification.................................... 16
Section 8.4. No Restrictions on Actions....................................... 16
Section 8.5. Discharge or Removal; Replacement Warrant Agent.................. 16
Section 8.6. Successor Warrant Agent.......................................... 17
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE IX REGISTRATION..................................................... 17
Section 9.1. Effectiveness and Availability of Registration Statement......... 17
Section 9.2. Suspension....................................................... 17
Section 9.3. Blue Sky......................................................... 17
Section 9.4. Accuracy of Disclosure........................................... 18
Section 9.5. Indemnity........................................................ 18
Section 9.6. Expenses......................................................... 18
Section 9.7. Additional Acts.................................................. 18
ARTICLE X MISCELLANEOUS.................................................... 18
Section 10.1. Money Deposited with the Warrant Agent........................... 18
Section 10.2. Payment of Taxes................................................. 19
Section 10.3. Merger, Consolidation or Sale of Assets of Holdings.............. 19
Section 10.4. Reports to Holders............................................... 19
Section 10.5. Notices.......................................................... 19
Section 10.6. Governing Law.................................................... 20
Section 10.7. Binding Effect................................................... 20
Section 10.8. Counterparts..................................................... 20
Section 10.9. Amendments....................................................... 20
Section 10.10. Headings......................................................... 21
Section 10.11. Common Stock Legend.............................................. 21
Section 10.12. Third Party Beneficiaries........................................ 21
EXHIBIT A Form of Warrant Certificate.............................................. A-1
</TABLE>
ii
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of August ___, 1996 (this "Agreement"),
between STERLING CHEMICALS HOLDINGS, INC., a Delaware corporation ("Holdings"),
and KEYCORP SHAREHOLDER SERVICES, INC., a _________________ corporation, as
warrant agent (the "Warrant Agent").
Pursuant to the terms of an Underwriting Agreement dated as of August
___, 1996 (the "Underwriting Agreement"), between Holdings, on the one hand, and
CS First Boston Corporation and Chase Securities Inc., as Underwriters
(collectively, the "Underwriters"), on the other hand, Holdings has agreed to
issue and sell to the Underwriters Units (the "Units") consisting in the
aggregate of (x) $______ principal amount at maturity of Holdings' _____% Senior
Secured Discount Notes Due 2008 (the "Discount Notes") to be issued pursuant to
the provisions of an Indenture dated as of ______, 1996 (the "Indenture"),
between Holdings, as issuer, and _____________________, as trustee, and (y)
warrants (each, a "Warrant") entitling the holders thereof to purchase an
aggregate of _________ shares of common stock, par value $.01 per share, of
Holdings (subject to adjustment as provided herein) at a price of $.01 per
share. The Discount Notes and Warrants included in each Unit will become
separately transferable at the close of business upon the earlier of (i)
__________, 1996 and (ii) such date as the Underwriters may, in their
discretion, deem appropriate.
In consideration of the foregoing and of the agreements contained in
the Underwriting Agreement and for the purpose of defining the terms and
provisions of the Warrants and the respective rights and obligations thereunder
of Holdings, the Warrant Agent and the record holders of the Warrants (the
"Holders"), Holdings and the Warrant Agent hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
"Affiliate" of any Person means any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For purposes of this definition, "control," when used with respect
to any Person, means the power to direct the management and policies of such
Person, whether though the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" means any day which is not a Saturday, a Sunday, or any
other day on which banking institutions are authorized or required to be closed
in the State of New York or the state in which the principal corporate trust
office of the Warrant Agent is located.
"Closing Date" means _______ ___, 1996.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the shares of common stock, par value $.01 per
share, of Holdings and any other capital stock into which such shares may be
converted or reclassified
<PAGE>
or that may be issued in respect of, in exchange for, or in substitution of,
such common stock for reason of any stock splits, stock dividends,
distributions, mergers, consolidations or other like events.
"Current Market Value" has the meaning specified in Section 4.1(f)
hereof.
"Discount Notes" has the meaning specified in the recitals to this
Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercise Price" has the meaning specified in Section 3.1 hereof.
"Expiration Date" means ________, 2008.
"Holders" has the meaning specified in the recitals to this Agreement.
"Holdings" has the meaning specified in the preamble to this Agreement
and shall include its successors.
"Indenture" has the meaning specified in the recitals to this
Agreement.
"Independent Financial Expert" means a nationally recognized
investment banking firm or appraisal firm which is not an Affiliate of Holdings.
The Independent Financial Expert may be compensated and indemnified by Holdings
for opinions or services it provides as an Independent Financial Expert.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof or any other entity.
"Registration Statement" has the meaning specified in Section 10.1
hereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Separability Legend" has the meaning specified in Section 2.2(b)
hereof.
"Separation Date" means 5:00 p.m., New York City time, on the earlier
of (i) ___________, 1996 and (ii) such date as the Underwriters may, in their
sole discretion, deem appropriate.
"Spread" means, with respect to any Warrant, the Current Market Value
of the Underlying Securities issuable upon exercise of such Warrant adjusted as
provided herein, less the Exercise Price of such Warrant.
"Underlying Securities" means the shares of Common Stock or other
securities or property issuable upon exercise of the Warrants.
"Underwriters" has the meaning specified in the recitals to this
Agreement.
2
<PAGE>
"Underwriting Agreement" has the meaning specified in the recitals to
this Agreement.
"Units" has the meaning specified in the recitals to this Agreement.
"Value Report" has the meaning specified in Section 4.1(j) hereof.
"Warrant" has the meaning specified in the recitals to this Agreement.
"Warrant Agent" has the meaning specified in the preamble to this
Agreement and shall include its successors.
"Warrant Certificates" has the meaning specified in Section 2.1
hereof.
ARTICLE II
ORIGINAL ISSUE OF WARRANTS
Section 2.1. Issuance of Warrants; Form of Warrant Certificates. The
Warrants shall be issued in connection with the issuance of the Discount Notes
and shall not be separately transferable from the Discount Notes until the
Separation Date, as provided in Section 2.4 hereof. Certificates representing
the Warrants (the "Warrant Certificates") shall be issued in registered form
only, shall be substantially in the form attached hereto as Exhibit A, shall be
dated the date on which countersigned by the Warrant Agent and shall have such
insertions as are appropriate or required or permitted by this Agreement and may
have such letters, numbers or other marks of identification and such legends and
endorsements stamped, printed, lithographed or engraved thereon as Holdings may
deem appropriate and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any applicable law, rule or
regulation, or to conform to usage. The definitive Warrant Certificates shall
be typed, printed, lithographed or engraved or produced by any combination of
these methods or may be produced in any other manner permitted by applicable
law, rules and regulations, all as determined by the officers executing such
Warrant Certificates, as evidenced by their execution of such Warrant
Certificates.
Section 2.2. Legends. (a) Each Warrant shall bear the following legend
on the face thereof:
THE COMMON STOCK, PAR VALUE $.01 PER SHARE, OF HOLDINGS (THE "COMMON
STOCK") FOR WHICH THIS WARRANT IS EXERCISABLE MAY NOT BE OFFERED OR SOLD IN
THE UNITED STATES ABSENT REGISTRATION UNDER THE SECURITIES AND EXCHANGE ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS. ACCORDINGLY, NO HOLDER SHALL BE ENTITLED TO EXERCISE SUCH
HOLDER'S WARRANTS AT ANY TIME UNLESS, AT THE TIME OF EXERCISE, (i) A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT RELATING TO THE SHARES OF
COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAS BEEN FILED
WITH, AND
3
<PAGE>
DECLARED EFFECTIVE BY, THE SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION"), AND NO STOP ORDER SUSPENDING THE EFFECTIVENESS OF SUCH
REGISTRATION STATEMENT HAS BEEN ISSUED BY THE COMMISSION, OR (ii) THE
ISSUANCE OF SUCH SHARES IS PERMITTED PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
(b) Each Warrant Certificate issued prior to the Separation Date shall
bear the following legend (the "Separability Legend") on the face thereof:
THE WARRANTS EVIDENCED BY THIS CERTIFICATE WERE INITIALLY ISSUED AS PART OF
AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF _____% SENIOR SECURED
DISCOUNT NOTES DUE 2008 OF STERLING CHEMICALS HOLDINGS, INC. (THE "DISCOUNT
NOTES") AND WARRANTS. PRIOR TO 5:00 P.M, NEW YORK CITY TIME, ON THE
EARLIER OF (i) ______________, 1996 AND (ii) SUCH DATE AS THE UNDERWRITERS
MAY, IN THEIR DISCRETION, DEEM APPROPRIATE, THE WARRANTS EVIDENCED BY THIS
CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE
TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE DISCOUNT NOTES.
Section 2.3. Execution and Delivery of Warrant Certificates. Warrant
Certificates evidencing Warrants to purchase initially an aggregate of up to
______ shares of Common Stock may be executed, on or after the date of this
Agreement, by Holdings and delivered to the Warrant Agent for countersignature,
and the Warrant Agent shall thereupon countersign and deliver such Warrant
Certificates upon the written order and at the direction of Holdings to the
purchasers thereof on the date of issuance. The Warrant Agent is hereby
authorized to countersign and deliver Warrant Certificates as required by this
Section 2.3 or by Section 2.4, Section 2.5, Section 3.3, Section 3.4 or Article
V hereof.
The Warrant Certificates shall be executed on behalf of Holdings by
its Chairman of the Board, Chief Executive Officer or President or by a Vice
President, either manually or by facsimile signature printed thereon. The
Warrant Certificates shall be countersigned by manual or facsimile signature of
the Warrant Agent and shall not be valid for any purpose unless so
countersigned. In case any officer of Holdings whose signature shall have been
placed upon any of the Warrant Certificates shall cease to be an officer of
Holdings before countersignature by the Warrant Agent and the issuance and
delivery thereof, such Warrant Certificates may, nevertheless, be countersigned
by the Warrant Agent and issued and delivered with the same force and effect as
though such person had not ceased to be such officer of Holdings.
Section 2.4. Transfers of Warrants Prior to the Separation Date;
Separation of Warrants and Discount Notes. On or after the Separation Date, the
Holder of a Warrant Certificate containing a Separability Legend may surrender
such Warrant Certificate accompanied by a written application to the Warrant
Agent, duly executed by the Holder thereof, for a new Warrant Certificate or
certificates not containing the Separability Legend.
4
<PAGE>
Until the Separation Date, no Warrant may be sold, assigned or
otherwise transferred to any person unless simultaneously with such transfer,
the Warrant Agent receives confirmation from the Trustee for the Discount Notes
that the Holder thereof has requested a transfer to the same transferee of the
related Discount Notes.
Section 2.5. Transfer and Exchange. Holdings shall cause to be kept
at the office of the Warrant Agent a register in which, subject to such
reasonable regulations as it may prescribe, Holdings shall provide for the
registration of Warrant Certificates and transfers and exchanges of Warrant
Certificates as provided in this Agreement.
A Holder may transfer its Warrants only by written application to the
Warrant Agent stating the name of the proposed Transferee and otherwise
complying with the terms of this Agreement. No such transfer shall be effected
until, and such Transferee shall succeed to the rights of a Holder only upon,
final acceptance and registration of the transfer by the Warrant Agent in the
register in accordance with this Agreement. Prior to the registration of any
transfer of Warrants by a Holder as provided herein, Holdings, the Warrant Agent
and any agent of Holdings may treat the person in whose name the Warrants are
registered as the owner thereof for all purposes and as the person entitled to
exercise the rights represented thereby, any notice to the contrary
notwithstanding. When Warrants are presented to the Warrant Agent with a
request to register the transfer thereof or to exchange them for an equal number
of Warrants of other authorized denominations, the Warrant Agent shall register
the transfer or make the exchange as requested if the requirements of this
Agreement for such transaction are met. To permit registrations of transfers
and exchanges, Holdings shall execute Warrant Certificates at the Warrant
Agent's request. No service charge shall be made for any registration of
transfer or exchange of Warrants, but Holdings may require payment of a sum
sufficient to cover any transfer tax or similar governmental charge payable in
connection with any registration of transfer of Warrants.
The Warrants will initially be issued as part of the issuance of the
Units. Prior to the Separation Date, the Warrants may not be transferred or
exchanged separately from, but may be transferred or exchanged only together
with, the Discount Notes issued as part of such Units, as provided in Section
2.4 hereof.
All Warrant Certificates issued upon any registration of transfer or
exchange of Warrants shall be the valid obligations of Holdings, evidencing the
same obligations, and entitled to the same benefits under this Agreement, as the
Warrant Certificates surrendered for registration of transfer or exchange.
Section 2.6. Surrender of Warrant Certificates. Any Warrant
Certificate surrendered for registration of transfer, exchange or exercise of
the Warrants represented thereby shall, if surrendered to Holdings, be delivered
to the Warrant Agent, and all Warrant Certificates surrendered or so delivered
to the Warrant Agent shall be promptly cancelled by the Warrant Agent and shall
not be reissued by Holdings and, except as provided in this Article II in case
of an exchange, Article III hereof in case of the exercise of less than all the
Warrants represented thereby or Article V in case of a mutilated Warrant
Certificate, no Warrant Certificate shall be issued hereunder in lieu thereof.
The Warrant Agent shall destroy all cancelled Warrant Certificates in accordance
with its normal procedures.
5
<PAGE>
ARTICLE III
EXERCISE PRICE; EXERCISE OF WARRANTS
Section 3.1. Exercise Price. Each Warrant Certificate shall, when
countersigned by the Warrant Agent, entitle the Holder thereof, subject to the
provisions of this Agreement, to purchase ______ shares of Common Stock (subject
to adjustment as provided herein) for each Warrant represented thereby at a
purchase price (the "Exercise Price") of $.01 per share; provided that, at the
option of the Holder thereof, payment of the Exercise Price may be satisfied
through the delivery and cancellation of additional Warrants having an aggregate
Spread equal to the aggregate Exercise Price of the Warrants being exercised.
Section 3.2. Exercise; Restrictions on Exercise. (a) At any time
after _________, 1997 and on or before the Expiration Date, any outstanding
Warrants may be exercised on any Business Day; provided that the Registration
Statement is, at the time of exercise, effective and available or the exercise
of such Warrants is exempt from the registration requirements of the Securities
Act. Any Warrants not exercised by 5:00 p.m., New York City time, on the
Expiration Date shall expire and all rights of the Holders of such Warrants
shall terminate. Additionally, pursuant to Section 4.1(h)(B) hereof, the
Warrants may expire and all rights of the Holders of such Warrants shall
terminate in the event Holdings merges or consolidates with or sells all or
substantially all of its property and assets to a Person if the consideration
payable to holders of Common Stock in exchange for their Common Stock in
connection with such merger, consolidation or sale consists solely of cash or in
the event of the dissolution, liquidation or winding up of Holdings.
(b) Holdings shall give notice not less than 90 and not more than 120
days prior to the Expiration Date to the Holders of all then outstanding
Warrants to the effect that the Warrants will terminate and become void as of
5:00 p.m., New York City time, on the Expiration Date; provided, however, that
the failure by Holdings to give such notice as provided in this Section shall
not affect such termination and becoming void of the Warrants as of 5:00 p.m.,
New York City time, on the Expiration Date.
(c) In the event a Holder exercises its Warrants at a time when the
Registration Statement is not effective and available, such Holder must furnish
to the Warrant Agent and Holdings such certifications, legal opinions or other
information as either of them may reasonably require to confirm that such
exercise is being made pursuant to an exemption from the registration
requirements of the Securities Act.
Section 3.3. Method of Exercise; Payment of Exercise Price. In order
to exercise all or any of the Warrants represented by a Warrant Certificate, the
Holder thereof must surrender for exercise the Warrant Certificate to the
Warrant Agent at its corporate trust office set forth in Section 10.5 hereof,
with the Subscription Form set forth in the Warrant Certificate duly executed,
together with payment in full of the Exercise Price then in effect for each
share of Common Stock or other securities or property issuable upon exercise of
the Warrants as to which a Warrant is exercised; such payment may be made (x) by
wire transfer or by certified or official bank or bank cashier's check payable
to the order of Holdings or (y) as permitted pursuant to the proviso in Section
3.1. The Warrant Agent shall promptly notify Holdings in writing upon the
exercise of any Warrant and of the number of shares of Common Stock delivered
upon the exercise of such Warrant; all payments received upon exercise of
Warrants shall be delivered to
6
<PAGE>
Holdings by the Warrant Agent as instructed in writing by Holdings. If less
than all the Warrants represented by a Warrant Certificate are exercised, such
Warrant Certificate shall be surrendered and a new Warrant Certificate of the
same tenor and for the number of Warrants which were not exercised shall be
executed by Holdings and delivered to the Warrant Agent and the Warrant Agent
shall countersign the new Warrant Certificate, registered in such name or names
as may be directed in writing by the Holder, and shall deliver the new Warrant
Certificate to the Person or Persons entitled to receive the same. Upon
exercise of any Warrants following surrender of a Warrant Certificate in
conformity with the foregoing provisions, the Warrant Agent shall instruct
Holdings to transfer promptly to or upon the written order of the Holder of such
Warrant Certificate appropriate evidence of ownership of any Common Stock or
other securities or property (including money) to which it is entitled,
registered or otherwise placed in such name or names as may be directed in
writing by the Holder, and to deliver such evidence of ownership and any other
securities or property (including money) to the Person or Persons entitled to
receive the same, together with an amount in cash in lieu of any fractional
shares as provided in Section 4.5 hereof; provided that the Holder of such
Warrant shall be responsible for the payment of any transfer taxes or other
governmental charges imposed as the result of any change in ownership of such
Warrants or the issuance of such Common Stock or other securities or Warrants
other than to the registered owner of such Warrants. Upon exercise of a Warrant
or Warrants, the Warrant Agent is hereby authorized and directed to requisition
from any transfer agent of the Common Stock (and all such transfer agents are
hereby irrevocably authorized to comply with all such requests) certificates
(bearing the legend set forth in Section 10.11, if applicable) for the necessary
number of shares to which the Holder of the Warrant or Warrants may be entitled.
A Warrant shall be deemed to have been exercised immediately prior to the close
of business on the date of the surrender for exercise, as provided above, of the
Warrant Certificate representing such Warrant and, for all purposes of this
Agreement, the Person entitled to receive any Common Stock or other securities
or property deliverable upon such exercise shall, as between such Person and
Holdings, be deemed to be the Holder of such Common Stock or other securities or
property of record as of the close of business on such date and shall be
entitled to receive, and the Warrant Agent shall deliver to such Person, any
money, Common Stock or other securities or property to which he would have been
entitled had he been a record holder on such date.
ARTICLE IV
ADJUSTMENTS
Section 4.1. Adjustments. The number of shares of Common Stock
issuable upon exercise of each Warrant shall be subject to adjustment from time
to time as follows:
(a) Stock Dividends; Stock Splits; Reverse Stock Splits;
Reclassifications. In case Holdings shall (i) pay a dividend or make any other
distribution with respect to its Common Stock in shares of any class or series
of its capital stock, (ii) subdivide its outstanding Common Stock, (iii) combine
its outstanding Common Stock into a smaller number of shares or (iv) issue any
shares of its capital stock in a reclassification of the Common Stock (other
than a reclassification in connection with a merger, consolidation or other
business combination which will be governed by Section 4.1(h)), the number of
shares of Common Stock purchasable upon exercise of each Warrant immediately
prior to the record date for such dividend or distribution or the effective date
of such subdivision, combination or reclassification shall be adjusted so that
the Holder of each Warrant shall be entitled to receive the kind and number of
7
<PAGE>
shares of Common Stock or other securities of Holdings which such Holder would
have been entitled to receive after the happening of any of the events described
above had such Warrant been exercised immediately prior to the happening of such
event or any record date with respect thereto (with any record date requirement
being deemed to have been satisfied). An adjustment made pursuant to this
Section 4.1(a) shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
(b) Rights; Options; Warrants. In case Holdings shall issue rights,
options, warrants or convertible or exchangeable securities (other than a
convertible or exchangeable security subject to Section 4.1(a)) to all holders
of its Common Stock, entitling them to subscribe for or purchase Common Stock at
a price per share of Common Stock (determined in the case of such rights,
options, warrants or convertible or exchangeable securities, by dividing (x) the
total amount receivable by Holdings in consideration of the issuance of such
rights, options, warrants or convertible or exchangeable securities, if any,
plus the total consideration payable to Holdings upon exercise, conversion or
exchange thereof, by (y) the total number of shares of Common Stock covered by
such rights, options, warrants or convertible or exchangeable securities) which
is lower (at the record date for such issuance) than the then Current Market
Value per share of Common Stock, the number of shares of Common Stock thereafter
purchasable upon exercise of each Warrant shall be determined by multiplying the
number of shares of Common Stock theretofore purchasable upon exercise of each
Warrant by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such rights,
options, warrants or convertible or exchangeable securities plus the number of
additional shares of Common Stock offered for subscription or purchase or
issuable upon conversion or exchange, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to the issuance
of such rights, options, warrants or convertible or exchangeable securities plus
the number of shares which the aggregate offering price of the total number of
shares of Common Stock so offered would purchase at the then Current Market
Value per share of Common Stock. Such adjustment shall be made whenever such
rights, options, warrants or convertible or exchangeable securities are issued,
and shall become effective retroactively immediately after the record date for
the determination of shareholders entitled to receive such rights, options,
warrants or convertible or exchangeable securities.
(c) Issuance of Common Stock at Lower Values. In case Holdings shall
sell or issue any shares of Common Stock or Right (excluding (i) any Right
issued in any of the transactions described in Section 4.1(a) or (b) above, (ii)
any shares of Common Stock issued pursuant to (x) any Rights outstanding on the
date of this Agreement, (y) a Right, if on the date such Right was issued, the
exercise, conversion or exchange price per share of Common Stock with respect
thereto was at least equal to the then current Market Value per share of Common
Stock and (z) Rights (with respect to not more than an aggregate of 5% of the
outstanding shares of Common Stock) issued to employees of Holdings and its
subsidiaries resident in Canada pursuant to Holdings' stock option plan and
(iii) any Right issued as consideration when any corporation or business is
acquired, merged into or becomes part of Holdings or a subsidiary of Holdings in
an arm's-length transaction between Holdings and a Person other than an
Affiliate of Holdings) at a price per share of Common Stock (determined in the
case of such Right, by dividing (x) the total amount receivable by Holdings in
consideration of the sale and issuance of such Right, plus the total
consideration payable to Holdings upon exercise, conversion or exchange thereof,
by (y) the total number of shares of Common Stock covered by such Right) that is
lower than the Current Market Value per share of Common Stock in effect
immediately prior to such sale or issuance, then the number of shares of Common
Stock thereafter purchasable upon the
8
<PAGE>
exercise of each Warrant shall be determined by multiplying the number of shares
of Common Stock theretofore purchasable upon exercise of such Warrant by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately after such sale or issuance and the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such sale or issuance plus the number of shares of Common Stock which the
aggregate consideration received (determined as provided below) for such sale or
issuance would purchase at such Current Market Value per share of Common Stock.
For purposes of this Section 4.1(c), the shares of Common Stock which the holder
of any such Right shall be entitled to subscribe for or purchase shall be deemed
to be issued and outstanding as of the date of such sale and issuance and the
consideration received by Holdings therefor shall be deemed to be the
consideration received by Holdings for such Right, plus the consideration or
premiums stated in such Right to be paid for the shares of Common Stock covered
thereby. In case Holdings shall sell and issue shares of Common Stock or any
Right, for a consideration consisting, in whole or in part, of property other
than cash or its equivalent, then in determining the "price per share of Common
Stock" and the "consideration received by Holdings" for purposes of the first
sentence of this Section 4.1(c), the Board of Directors of Holdings shall
determine, in good faith, the fair value of said property, which determination
shall be evidenced by a resolution of the Board of Directors of Holdings. In
case Holdings shall sell and issue any Right together with one or more other
securities as part of a unit at a price per unit, then in determining the "price
per share of Common Stock" and the "consideration received by Holdings" for
purposes of the first sentence of this Section 4.1(c), the Board of Directors of
Holdings shall determine, in good faith, the fair value of the Right then being
sold as part of such unit. For purposes of this paragraph, a "Right" shall mean
any right, option, warrant or convertible or exchangeable security containing
the right to subscribe for or acquire one or more shares of Common Stock,
excluding the Warrants.
(d) Distributions of Debt, Assets, Subscription Rights or Convertible
Securities. In case Holdings shall fix a record date for the making of a
distribution to all holders of its Common Stock of evidences of its
indebtedness, assets, cash dividends or distributions (excluding dividends or
distributions referred to in Section 4.1(a) above and excluding distributions in
connection with the dissolution, liquidation or winding up of Holdings which
will be governed by Section 4.1(h)(B) below) or securities (excluding those
referred to in Section 4.1(a), Section 4.1(b) or Section 4.1(c) above), then in
each case the number of shares of Common Stock purchasable after such record
date upon the exercise of each Warrant shall be determined by multiplying the
number of shares of Common Stock purchasable upon the exercise of such Warrant
immediately prior to such record date by a fraction, the numerator of which
shall be the Current Market Value per share of Common Stock immediately prior to
the record date for such distribution and the denominator of which shall be the
Current Market Value per share of Common Stock immediately prior to the record
date for such distribution less the then fair value (as determined in good faith
by the Board of Directors of Holdings) of the portion of the assets, evidence of
indebtedness, cash dividends or distributions or securities so distributed
applicable to one share of Common Stock. Such adjustment shall be made whenever
any such distribution is made, and shall become effective on the date of
distribution retroactive to the record date for the determination of
shareholders entitled to receive such distribution.
(e) Expiration of Rights, Options and Conversion Privileges. Upon the
expiration of any rights, options, warrants or conversion or exchange privileges
that have previously resulted in an adjustment hereunder, if any thereof shall
not have been exercised, the number of shares of Common Stock issuable upon the
exercise of each Warrant shall, upon such
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expiration, be readjusted and shall thereafter, upon any future exercise, be
such as they would have been had they been originally adjusted (or had the
original adjustment not been required, as the case may be) as if (i) the only
shares of Common Stock so issued were the shares of Common Stock, if any,
actually issued or sold upon the exercise of such rights, options, warrants or
conversion or exchange rights and (ii) such shares of Common Stock, if any, were
issued or sold for the consideration actually received by Holdings upon such
exercise plus the consideration, if any, actually received by Holdings for
issuance, sale or grant of all such rights, options, warrants or conversion or
exchange rights whether or not exercised; provided, that no such readjustment
shall have the effect of decreasing the number of shares issuable upon exercise
of each Warrant by a number, in excess of the amount or number of the adjustment
initially made in respect to the issuance, sale or grant of such rights,
options, warrants or conversion or exchange rights.
(f) Current Market Value. For the purposes of any computation
hereunder, the Current Market Value per share of Common Stock or of any other
security (herein collectively referred to as a "security") at any date herein
specified shall be:
(i) if the security is not registered under the Exchange Act, the
value of the security (A) determined in good faith by the Board of
Directors of Holdings and certified in a board resolution based upon the
most recently completed arm's-length transaction with respect to such
security between Holdings and a Person other than an Affiliate of Holdings
and the closing of which occurs on such date or shall have occurred within
the six months preceding such date, or (B) if no such transaction shall
have occurred within such six-month period, most recently determined as of
a date within the six months preceding such date by an Independent
Financial Expert selected by Holdings, or (C) if no such determination
shall have been made within such six-month period or if Holdings so
chooses, determined as of such date by an Independent Financial Expert
selected by Holdings, or
(ii) if the security is registered under the Exchange Act, the average
of the daily market prices of the security for the 20 consecutive trading
days immediately preceding such date or, if the security has been
registered under the Exchange Act for less than 20 consecutive trading days
before such date, then the average of the daily market prices for all of
the trading days before such date for which daily market prices are
available. The market price for each such trading day shall be: (A) in
the case of a security listed or admitted to trading on any national
securities exchange, the closing sales price, regular way, on such day, or
if no sale takes place on such day, the average of the closing bid and
asked prices on such day on the principal national securities exchange on
which such security is listed or admitted, as determined by the Board of
Directors of Holdings, in good faith, (B) in the case of a security not
then listed or admitted to trading on any national securities exchange, the
last reported sale price on such day, or if no sale takes place on such
day, the average of the closing bid and asked prices on such day, as
reported by a reputable quotation source designated by Holdings, (C) in the
case of a security not then listed or admitted to trading on any national
securities exchange and as to which no such reported sale price or bid and
asked prices are available, the average of the reported high bid and low
asked prices on such day, as reported by a reputable quotation service, or
a newspaper of general circulation in the Borough of Manhattan, City and
State of New York customarily published on each Business Day, designated by
Holdings, or, if there shall be no bid and asked prices on such day, the
average of the high bid and low asked prices, as so reported, on the most
recent day (not more than 30
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days prior to the date in question) for which prices have been so reported
and (D) if there are no bid and asked prices reported during the 30 days
prior to the date in question, the Current Market Value of the security
shall be determined as if the security were not registered under the
Exchange Act.
(g) De Minimis Adjustments. No adjustment in the number of shares of
Common Stock purchasable hereunder shall be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in the number
of shares of Common Stock purchasable upon the exercise of each Warrant;
provided, however, that any adjustments which by reason of this Section 4.1(g)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations shall be made to the nearest one-
thousandth of a share.
(h) Consolidation, Merger, Etc. (A) Subject to the provisions of
Subsection (B) below of this Section 4.1(h), in case of the consolidation of
Holdings with, or merger of Holdings with or into, or of the sale of all or
substantially all of the properties and assets of Holdings to, any Person and in
connection therewith consideration is payable to holders of Common Stock (or
other securities or property purchasable upon exercise of Warrants) in exchange
therefor, the Warrants shall remain subject to the terms and conditions set
forth in this Agreement and each Warrant shall, after such consolidation, merger
or sale, entitle the Holder to receive upon exercise the number of shares of
capital stock or other securities or property (including cash) of Holdings, or
of such Person resulting from such consolidation or surviving such merger or to
which such sale shall be made, as the case may be, that would have been
distributable or payable on account of the shares of Common Stock (or other
securities or properties purchasable upon exercise of Warrants) if such Holder's
Warrants had been exercised immediately prior to such merger, consolidation or
sale (or, if applicable, the record date therefor); and in any such case the
provisions of this Agreement with respect to the rights and interests thereafter
of the Holders of Warrants shall be appropriately adjusted by the Board of
Directors of Holdings in good faith so as to be applicable, as nearly as may
reasonably be, to any shares of stock or other securities or any property
thereafter deliverable on the exercise of the Warrants.
(B) Notwithstanding the foregoing, (x) if Holdings merges or
consolidates with, or sells all or substantially all of its property and assets
to, another Person and consideration is payable to holders of Common Stock in
exchange for their Common Stock in connection with such merger, consolidation or
sale which consists solely of cash, or (y) in the event of the dissolution,
liquidation or winding up of Holdings, then the Holders of Warrants shall be
entitled to receive distributions on the date of such event on an equal basis
with holders of Common Stock (or other securities issuable upon exercise of the
Warrants) as if the Warrants had been exercised immediately prior to such event,
less the Exercise Price. Upon receipt of such payment, if any, the right of a
Holder shall terminate and cease and such Holder's Warrants shall expire. In
case of any such merger, consolidation or sale of assets, the surviving or
acquiring Person and, in the event of any dissolution, liquidation or winding up
of Holdings, Holdings shall deposit promptly with the Warrant Agent the funds,
if any, necessary to pay the Holders of the Warrants. After receipt of such
deposit from such Person or Holdings and after receipt of surrendered Warrant
Certificates, the Warrant Agent shall make payment by delivering a check in such
amount as is appropriate (or, in the case of consideration other than cash, such
other consideration as is appropriate) to such Person or Persons as it may be
directed in writing by the Holder surrendering such Warrants.
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(i) In addition to the foregoing adjustments, the Board of Directors
of Holdings may make any other adjustment to increase the number of Underlying
Securities issuable upon exercise of Warrants as it may, in good faith, deem
desirable to protect the rights and benefits of Holders. In addition, the
Company may from time to time increase the number of Underlying Securities
issuable upon exercise of Warrants, provided that any such increase must be
effective for at least 30 calendar days, and must be preceded by written notice
of such increase to the Holders and the Warrant Agent, which notice must be
mailed at least 30 calendar days prior to the effective date of such increase.
Any such increase shall not alter or adjust the Exercise Price.
(j) If at any time the Current Market Value of any security is
required in order to comply with the terms of this Agreement, and such Current
Market Value is determined in accordance with Section 4.1(f)(i) hereof: (1) if
clause (A) of Section 4.1(f)(i) is applicable, Holdings shall, as promptly as
practicable, deliver to the Warrant Agent a copy of the board resolution
certifying the Current Market Value determination and a brief description of the
arm's-length transaction upon which such determination was based; (2) if clause
(B) of Section 4.1(f)(i) is applicable, Holdings shall as promptly as
practicable deliver to the Warrant Agent the value report of the Independent
Financial Expert, stating the value of the security and briefly describing the
nature and scope of the examination upon which the determination was made (the
"Value Report"); and (3) if clause (C) of Section 4.1(f)(i) is applicable,
Holdings shall cause the Independent Financial Expert to deliver to Holdings,
with a copy to the Warrant Agent, within 45 days of the appointment of the
Independent Financial Expert, a Value Report. The Warrant Agent shall have no
duty with respect to any such board resolution or Value Report, except to keep
it on file and available for inspection by the Holders. The determination as to
value in accordance with the provisions of this Section 4.1(j) shall be
conclusive on all Persons. The Independent Financial Expert shall use one or
more valuation methods that it determines, in its best professional judgment, to
be most appropriate. The Independent Financial Expert shall consult with
management of Holdings in order to allow management to comment on the proposed
value prior to delivery to Holdings of any Value Report of the Independent
Financial Expert pursuant to clause (3) above.
Section 4.2. Notice of Adjustment. Whenever the number of shares of
Common Stock or other stock or property purchasable upon the exercise of each
Warrant is adjusted, as herein provided, Holdings shall cause the Warrant Agent
promptly to mail, at the expense of Holdings, to each Holder notice of such
adjustment or adjustments and shall deliver to the Warrant Agent a certificate
of a firm of independent public accountants selected by the Board of Directors
of Holdings (who may be the regular accountants employed by Holdings) setting
forth the number of shares of Common Stock or other stock or property
purchasable upon the exercise of each Warrant after such adjustment, setting
forth a brief statement of the facts requiring such adjustment and setting forth
the computation by which such adjustment was made. Such certificate shall be
conclusive evidence of the correctness of such adjustment. The Warrant Agent
shall be entitled to rely on such certificate and shall be under no duty or
responsibility with respect to any such certificate, except to exhibit the same,
from time to time, to any Holder desiring an inspection thereof during
reasonable business hours. The Warrant Agent shall not at any time be under any
duty or responsibility to any Holders to determine whether any facts exist which
may require any adjustment of the Exercise Price or the number of shares of
Common Stock or other securities or property purchasable on exercise of the
Warrants, or with respect to the nature or extent of any such adjustment when
made, or with respect to the method employed in making such adjustment, or the
validity or value (or the kind or amount) of any Common Stock
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or other securities or property which may be purchasable on exercise of the
Warrants. The Warrant Agent shall not be responsible for any failure of
Holdings to make any cash payment or to issue, transfer or deliver any shares of
Common Stock or other securities or property upon the exercise of any Warrant.
Section 4.3. Statement on Warrants. Irrespective of any adjustment in
the number or kind of shares purchasable upon the exercise of the Warrants,
Warrants theretofore or thereafter issued may continue to express the same
number and kind of shares as are stated in the Warrants initially issuable
pursuant to this Agreement.
Section 4.4. Notice of Consolidation, Merger, Etc. In case at any
time after the date hereof and prior to 5:00 p.m., New York City time, on the
Expiration Date, there shall be any (i) consolidation or merger involving
Holdings or sale, transfer or other disposition of all or substantially all of
Holdings's property, assets or business (except a merger in which Holdings shall
be the surviving corporation and holders of Common Stock (or other securities or
property purchasable upon exercise of the Warrants) receive no consideration in
respect of their shares) or (ii) any other transaction contemplated by Section
4.1(h)(B) above, then in any one or more of such cases, Holdings shall cause to
be mailed to the Warrant Agent and each Holder of a Warrant, at the earliest
practicable time (and, in any event, not less than 20 calendar days before any
date set for definitive action), notice of the date on which such
reorganization, sale, consolidation, merger, dissolution, liquidation or winding
up shall take place, as the case may be. Such notice shall also set forth such
facts as shall indicate the effect of such action (to the extent such effect may
be known at the date of such notice) on the kind and amount of Common Stock and
other securities, money and other property deliverable upon exercise of the
Warrants. Such notice shall also specify the date as of which the holders of
record of the Common Stock or other securities or property issuable upon
exercise of the Warrants shall be entitled to exchange their shares for
securities, money or other property deliverable upon such reorganization, sale,
consolidation, merger, dissolution, liquidation or winding up, as the case may
be.
Section 4.5. Fractional Interests. If more than one Warrant shall be
presented for exercise in full at the same time by the same Holder, the number
of full shares of Common Stock which shall be issuable upon such exercise
thereof shall be computed on the basis of the aggregate number of shares of
Common Stock purchasable on exercise of the Warrants so presented. If any
fraction of a share of Common Stock would, except for the provisions of this
Section 4.5, be issuable on the exercise of any Warrant (or specified portion
thereof), Holdings shall pay an amount in cash calculated by it to be equal to
the then Current Market Value per share of Common Stock multiplied by such
fraction computed to the nearest whole cent.
ARTICLE V
LOSS OR MUTILATION
Upon receipt by Holdings and the Warrant Agent of evidence
satisfactory to them of the ownership and the loss, theft, destruction or
mutilation of any Warrant Certificate and of indemnity satisfactory to them and
(in the case of mutilation) upon surrender and cancellation thereof, then, in
the absence of notice to Holdings or the Warrant Agent that the Warrants are
presented thereby have been acquired by a bona fide purchaser, Holdings shall
execute and the Warrant Agent shall countersign and deliver to the registered
Holder of the lost, stolen, destroyed
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or mutilated Warrant Certificate, in exchange for or in lieu thereof, a new
Warrant Certificate of the same tenor and for like aggregate number of Warrants.
Upon the issuance of any new Warrant Certificate under this Article V, Holdings
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and other expenses
(including the fees and expenses of the Warrant Agent) in connection therewith.
Every new Warrant Certificate executed and delivered pursuant to this Article V
in lieu of any lost, stolen or destroyed Warrant Certificate shall constitute a
contractual obligation of Holdings, whether or not the allegedly lost, stolen or
destroyed Warrant Certificates shall be at any time enforceable by anyone, and
shall be entitled to the benefits of this Agreement equally and proportionately
with any and all other Warrant Certificates duly executed and delivered
hereunder. The provisions of this Article V are exclusive and shall preclude
(to the extent lawful) all other rights or remedies with respect to the
replacement of mutilated, lost, stolen, or destroyed Warrant Certificates.
ARTICLE VI
AUTHORIZATION AND RESERVATION
OF COMMON STOCK; PURCHASE OF WARRANTS
Section 6.1. Reservation of Authorized Common Stock. Holdings shall
at all times reserve and keep available for issue upon the exercise of Warrants
such number of its authorized but unissued shares of Common Stock or other
securities of Holdings deliverable upon exercise of Warrants as will be
sufficient to permit the exercise in full of all outstanding Warrants and will
cause appropriate evidence of ownership of such Common Stock or other securities
of Holdings to be delivered to the Warrant Agent upon its request for delivery
upon the exercise of Warrants, and all such shares of Common Stock will, at all
times, be duly approved for listing subject to official notice of issuance on
each securities exchange, interdealer quotation system or market, if any, on
which such Common Stock is then listed. Holdings covenants that all Common
Stock or other securities of Holdings that may be issued upon the exercise of
the Warrants will, upon issuance, be duly authorized, validly issued, fully paid
and nonassessable, and free from preemptive rights and all taxes, liens,
charges, encumbrances and security interests.
Section 6.2. Purchase of Warrants by Holdings. Holdings shall have
the right, except as limited by law, other agreement or herein, to purchase or
otherwise acquire Warrants at such times, in such manner and for such
consideration as it may deem appropriate. In the event Holdings shall purchase
or otherwise acquire Warrants, the related Warrant certificates shall thereupon
be delivered to the Warrant Agent and be cancelled by it and retired.
ARTICLE VII
WARRANT HOLDERS NOT DEEMED STOCKHOLDERS
Holdings and the Warrant Agent may deem and treat the registered
Holder(s) of the Warrant Certificates as the absolute owner(s) thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone), for the purpose of any exercise thereof and for all other purposes, and
neither Holdings nor the Warrant Agent shall be affected by any notice to the
contrary. Prior to the exercise of the Warrants, no Holder of a Warrant
Certificate, as such, shall be entitled to any rights of a stockholder of
Holdings, including, without limitation, the right
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to vote or to consent to any action of the stockholders, to receive dividends or
other distributions, to exercise any preemptive right or to receive any notice
of meetings of stockholders and, except as otherwise provided in this Agreement,
shall not be entitled to receive any notice of any proceedings of Holdings.
ARTICLE VIII
THE WARRANT AGENT
Section 8.1. Duties and Liabilities. The Warrant Agent hereby
accepts the agency established by this Agreement and agrees to perform the same
upon the terms and conditions herein set forth, by all of which Holdings and the
Holders of Warrants, by their acceptance thereof, shall be bound. The Warrant
Agent shall not, by countersigning Warrant Certificates or by any other act
hereunder, be deemed to make any representations as to the validity or
authorization of the Warrants or the Warrant Certificates (except as to its
countersignature thereon) or of any securities or other property delivered upon
exercise of any Warrant, or as to the accuracy of the computation of the number
or kind or amount of stock or other securities or other property deliverable
upon exercise of any Warrant. The Warrant Agent shall not be (a) liable for any
recital or statement of fact contained herein or in the Warrant Certificates of
for any action taken, suffered or omitted by it in good faith in the belief that
any Warrant Certificate or any other documents or any signatures are genuine or
properly authorized, (b) responsible for any failure on the part of Holdings to
comply with any of its covenants and obligations contained in this Agreement or
in the Warrant Certificates or (c) liable for any act or omission in connection
with this Agreement except for its own bad faith, negligence or willful
misconduct. The Warrant Agent is hereby authorized to accept instructions with
respect to the performance of its duties hereunder from the President, any Vice
President or the Secretary or Treasurer of Holdings and to apply to any such
officer for instructions (which instructions will be promptly given in writing
when requested) and the Warrant Agent shall not be liable for any action taken
or suffered to be taken by it in good faith in accordance with the instructions
of any such officer; however, in its discretion, the Warrant Agent may in lieu
thereof accept other evidence of such or may require such further or additional
evidence as it may deem reasonable. The Warrant Agent shall act solely as agent
of Holdings hereunder and its duties shall be determined solely by the
provisions hereof.
The Warrant Agent shall not be under any obligation or duty to
institute, appear in or defend any action, suit or legal proceeding in respect
hereof, unless first indemnified to its reasonable satisfaction, but this
provision shall not affect the power of the Warrant Agent to take such action as
the Warrant Agent may consider proper, whether with or without such indemnity.
The Warrant Agent shall promptly notify Holdings in writing of any claim made or
action, suit or proceeding instituted against it arising out of or in connection
with this Agreement.
Holdings will perform, execute, acknowledge and deliver or cause to be
delivered all such further acts, instruments and assurances as are consistent
with this Agreement and as may reasonably be required by the Warrant Agent in
order to enable it to carry out or perform its duties under this Agreement.
Section 8.2. Right to Consult Counsel. The Warrant Agent may at any
time consult with legal counsel (who may be legal counsel for Holdings), and the
opinion or advice of such counsel shall be full and complete authorization and
protection to the Warrant Agent and
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the Warrant Agent shall incur no liability or responsibility to Holdings or to
any Holder for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Section 8.3. Compensation; Indemnification. Holdings agrees promptly
to pay the Warrant Agent from time to time compensation for its services
hereunder as Holdings and the Warrant Agent may agree from time to time and to
reimburse it for reasonable expenses and counsel fees incurred in connection
with the execution and administration of this Agreement, and further agrees to
indemnify the Warrant Agent and save it harmless against any losses, liabilities
or expenses arising out of or in connection with the acceptance and
administration of this Agreement, including the costs and expenses of
investigating or defending any claim of such liability, except that Holdings
shall have no liability hereunder to the extent that any such loss, liability or
expense results from the Warrant Agent's own bad faith, negligence or willful
misconduct. The obligations of Holdings under this Section shall survive the
exercise and the expiration of the Warrants and the resignation or removal of
the Warrant Agent.
Section 8.4. No Restrictions on Actions. The Warrant Agent and any
stockholder, director, officer or employee of the Warrant Agent may buy, sell or
deal in any of the Warrants or other securities of Holdings or become
pecuniarily interested in transactions in which Holdings may be interested, or
contract with or lend money to Holdings or otherwise act as fully and freely as
though it were not the Warrant Agent under this Agreement. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity for Holdings or for
any other legal entity.
Section 8.5. Discharge or Removal; Replacement Warrant Agent. The
Warrant Agent may resign from its position as such and be discharged from all
further duties and liabilities hereunder (except liability arising as a result
of the Warrant Agent's own bad faith, negligence or willful misconduct), after
giving one month's prior written notice to Holdings. Holdings may remove the
Warrant Agent upon one month's written notice specifying the date when such
discharge shall take effect, and the Warrant Agent shall thereupon in like
manner be discharged from all further duties and liabilities hereunder, except
as aforesaid. Holdings shall cause to be mailed to each Holder of a Warrant a
copy of said notice of resignation or notice of removal, as the case may be.
Upon such designation or removal Holdings shall appoint in writing a new warrant
agent. If Holdings shall fail to make such appointment within a period of 30
calendar days after it has been notified in writing of such resignation by the
resigning Warrant Agent or after such removal, then the resigning Warrant Agent
or the Holder of any Warrant may apply to any court of competent jurisdiction
for the appointment of a new warrant agent. Pending appointment of a successor
to the original Warrant Agent, either by Holdings or by such a court, the duties
of the Warrant Agent shall be carried out by Holdings. Any new warrant agent,
whether appointed by Holdings or by such a court, shall be a bank or trust
company doing business under the laws of the United States or any state thereof,
in good standing and having a combined capital and surplus of not less than
$50,000,000. The combined capital and surplus of any such new warrant agent
shall be deemed to be the combined capital and surplus as set forth in the most
recent annual report of its condition published by such warrant agent prior to
its appointment; provided that such reports are published at least annually
pursuant to law or to the requirements of a federal or state supervising or
examining authority. After acceptance in writing of such appointment by the new
warrant agent, it shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; however, the original
Warrant Agent shall in all
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events deliver and transfer to the successor Warrant Agent all property, if any,
at the time held hereunder by the original Warrant Agent and if for any reason
it shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of Holdings and
shall be legally and validly executed and delivered by the resigning or removed
Warrant Agent. Not later than the effective date of any such appointment,
Holdings shall file notice thereof with the resigning or removed Warrant Agent
and shall forthwith cause a copy of such notice to be mailed to each Holder of a
Warrant. Failure to give any notice provided for in this Section 8.5, however,
or any defect therein, shall not affect the legality or validity of the
resignation of the Warrant Agent or the appointment of a new warrant agent, as
the case may be.
Section 8.6. Successor Warrant Agent. Any corporation into which the
Warrant Agent or any new warrant agent may be merged, or any corporation
resulting from any consolidation to which the Warrant Agent or any new warrant
agent shall be a party, shall be a successor Warrant Agent under this Agreement
without any further act; provided that such corporation would be eligible for
appointment as successor to the Warrant Agent under the provisions of Section
8.5 hereof. Any such successor Warrant Agent shall promptly cause notice of its
succession as Warrant Agent to be mailed to each Holder of a Warrant.
ARTICLE IX
REGISTRATION
Section 9.1. Effectiveness and Availability of Registration
Statement. Holdings shall cause to be filed pursuant to Rule 415 (or any
successor provision) under the Securities Act a shelf registration statement on
the appropriate form (the "Registration Statement") covering the issuance of the
Underlying Securities and shall use its best efforts to cause such Registration
Statement to become effective no later than __________________, 1997. Holdings
shall use its best efforts to maintain the effectiveness of the Registration
Statement until the earlier of (i) such time as all Warrants have been exercised
and (ii) _________, 2008. Holdings will furnish the Warrant Agent with current
prospectuses meeting the requirements of the Securities Act and the rules and
regulations of the Commission thereunder in sufficient quantity to permit the
Warrant Agent to deliver, at Holdings' expense, a prospectus to each Holder of a
Warrant upon the exercise thereof. Holdings shall promptly inform the Warrant
Agent of any change in the status of the effectiveness or availability of the
Registration Statement.
Section 9.2. Suspension. Notwithstanding the foregoing, during any
consecutive 365-day period, Holdings will have the ability to suspend
availability of the Registration Statement for up to two 15 consecutive day
periods (except for the 30 consecutive day period prior to the Expiration Date)
if Holdings' Board of Directors determines in good faith that there is a valid
purpose for the suspension and provides notice of such determination to the
Holders.
Section 9.3. Blue Sky. Holdings shall use its best efforts to
register or qualify the Underlying Securities under all applicable securities or
"blue sky" laws of all jurisdictions in the United States and Canada in which
any Holder of Warrants may or may be deemed to purchase Underlying Securities
upon the exercise of Warrants and shall use its best efforts to maintain such
registration or qualification through the earlier of the date upon which all
Warrants
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have been exercised and _______ ___, 2008; provided, however, that Holdings
shall not be required to qualify as a foreign corporation in any jurisdiction
where it would not otherwise be required to qualify but for this Section 9.3.
Section 9.4. Accuracy of Disclosure. Holdings represents and
warrants to each Holder and agrees for the benefit of each Holder that (i) the
Registration Statement and the documents incorporated by reference therein will
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein not misleading; and (ii) the
prospectus delivered to such Holder upon its exercise of Warrants and the
documents incorporated by reference therein will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
Section 9.5. Indemnity. Holdings hereby indemnifies each beneficial
owner of a Warrant (whether or not it is, at the time the indemnity provided for
in this Section 9.5 is sought, such a beneficial owner) against all losses,
damages or liabilities which such beneficial owner suffers as a result of any
breach of the representations, warranties or agreements contained in Section
9.4.
Section 9.6. Expenses. All expenses incident to Holdings's
performance of or compliance with its obligations under this Agreement will be
borne by Holdings, including without limitation: (i) all Commission, stock
exchange or National Association of Securities Dealers, Inc. registration and
filing fees, (ii) all fees and expenses incurred in connection with compliance
with state securities of "blue sky" laws, (iii) all expenses of any Persons
incurred by or on behalf of Holdings in preparing or assisting in preparing,
printing and distributing any registration statement, any prospectus, any
amendments or supplements thereto and other documents relating to the
performance of and compliance with this Agreement, (iv) the fees and
disbursements of the Warrant Agent, (v) the fees and disbursements of counsel
for Holdings and the Warrant Agent and (vi) the fees and disbursements of the
independent public accountants of Holdings, including the expenses of any
special audits or comfort letters required by or incident to such performance
and compliance.
Section 9.7. Additional Acts. If the issuance or sale of any Common
Stock or other securities issuable upon the exercise of the Warrants require
registration or approval of any governmental authority (other than the
registration requirements under the Securities Act), or the taking of any other
action under the laws of the United States of America or any political
subdivision thereof before such securities may be validly offered or sold in
compliance with such laws, then Holdings covenants that it will, in good faith
and as expeditiously as reasonably practicable, endeavor to secure and maintain
such registration or approval or to take such other action, as the case may be.
ARTICLE X
MISCELLANEOUS
Section 10.1. Money Deposited with the Warrant Agent. The Warrant
Agent shall not be required to pay interest on any moneys deposited pursuant to
the provisions of this Agreement except such as it shall agree in writing with
Holdings to pay thereon. Any moneys,
18
<PAGE>
securities or other property which at any time shall be deposited by Holdings or
on its behalf with the Warrant Agent pursuant to this Agreement shall be and are
hereby assigned, transferred and set over to the Warrant Agent in trust for the
purpose for which such moneys, securities or other property shall have been
deposited; but such moneys, securities or other property need not be segregated
from other funds, securities or other property except to the extent required by
law.
Section 10.2. Payment of Taxes. All Common Stock or other securities
issuable upon the exercise of Warrants shall be validly issued, fully paid and
nonassessable, and Holdings shall pay any taxes and other governmental charges
that may be imposed under the laws of the United States of America or any
political subdivision or taxing authority thereof or therein in respect of the
issue or delivery thereof or of other securities deliverable upon exercise of
Warrants (other than income taxes imposed on the Holders). Holdings shall not
be required, however, to pay any tax or other charge imposed in connection with
any transfer involved in the issue of any certificate for Common Stock or other
securities or property issuable upon the exercise of the Warrants or payment of
cash to any Person other than the Holder of a Warrant Certificate surrendered
upon the exercise of a Warrant and in case of such transfer or payment, the
Warrant Agent and Holdings shall not be required to issue any stock certificate
or pay any cash until such tax or charge has been paid or it has been
established to the Warrant Agent's and Holdings's satisfaction that no such tax
or charge is due.
Section 10.3. Merger, Consolidation or Sale of Assets of Holdings.
Holdings will not merge into or consolidate with any other Person, or sell or
otherwise transfer all or substantially all of its property, assets or business
to a successor of Holdings, unless the Person resulting from such merger or
consolidation, or such successor of Holdings, shall expressly assume, by
supplemental agreement satisfactory in form to the Warrant Agent and executed
and delivered to the Warrant Agent, the due and punctual performance and
observance of each and every covenant and condition of this Agreement to be
performed and observed by Holdings.
Section 10.4. Reports to Holders. Notwithstanding that Holdings may
not be required to remain subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, Holdings shall file with the Commission and provide
the Warrant Agent and the Holders with such annual reports and such information,
documents and other reports specified in Section 13 and 15(d) of the Exchange
Act, such information, documents and other reports to be so filed and provided
at the times specified for the filing of such information, documents and reports
under such Sections.
Section 10.5. Notices. (a) Except as otherwise provided in Section
10.5(b) hereof, any notice, demand or delivery authorized by this Agreement
shall be sufficiently given or made when mailed, if sent by first class mail,
postage prepaid, addressed to any Holder of a Warrant at such Holder's last
known address appearing on the register of Holdings maintained by the Warrant
Agent and to Holdings or the Warrant Agent as follows:
To Holdings:
Sterling Chemicals Holdings, Inc.
Eight Greenway Plaza, Suite 702
Houston, Texas 77046
Attention: __________________
19
<PAGE>
To the Warrant Agent:
KeyCorp Shareholder Services, Inc.
700 Louisiana Street
Suite 2620
Houston, Texas 77002
Attention: ____________________
or such other address as shall have been furnished to the party giving or making
such notice, demand or delivery. Any notice that is mailed in the manner herein
provided shall be conclusively presumed to have been duly given when mailed,
whether or not the Holder receives the notice.
(b) Any notice that is mailed in the manner herein provided shall be
conclusively presumed to have been duly given when mailed, whether or not the
Holder receives the notice. Notice may also be given by facsimile transmission
(effective when receipt is acknowledged) or by overnight delivery service
(effective the next business day).
Section 10.6. Governing Law. The laws of the State of New York
applicable to contracts to be performed entirely in that state shall govern this
Agreement.
Section 10.7. Binding Effect. This Agreement shall be binding upon
and inure to the benefit of Holdings and the Warrant Agent and their respective
successors and assigns, and the Holders from time to time of the Warrants.
Nothing in this Agreement is intended or shall be construed to confer upon any
Person, other than Holdings, the Warrant Agent and the Holders of the Warrants,
any right, remedy or claim under or by reason of this Agreement or any part
hereof.
Section 10.8. Counterparts. This Agreement may be executed manually
or by facsimile in any number of counterparts, each of which shall be deemed an
original, but all of which together constitute one and the same instrument.
Section 10.9. Amendments. The Warrant Agent may, without the consent
or concurrence of the Holders of the Warrants, by supplemental agreement or
otherwise, join with Holdings in making any changes or corrections in this
Agreement that (a) are required to correct any defective or inconsistent
provision or clerical omission or mistake or manifest error herein contained or
(b) add to the covenants and agreements of Holdings in this Agreement further
covenants and agreements of Holdings thereafter to be observed, or surrender any
rights or power reserved to or conferred upon Holdings in this Agreement;
provided that in either case such changes or corrections do not and will not
adversely affect, alter or change the rights, privilege or immunities of the
Holders of Warrants. Any amendment or supplement to this Agreement that has an
adverse effect on the interests of the Holders of the Warrants shall require the
written consent of the Holders of a majority of the then outstanding Warrants.
The consent of each Holder of the Warrants affected shall be required for any
amendment pursuant to which the number of Underlying Securities would be
decreased (other than pursuant to adjustments made in accordance with Article IV
hereof).
20
<PAGE>
Section 10.10. Headings. The descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning of construction of any of the provisions hereof.
Section 10.11. Common Stock Legend. In the event a Holder exercises
its Warrants at a time when the Registration Statement is not effective and
available pursuant to an exemption from the registration requirements of the
Securities Act, any Common Stock or other securities of Holdings issuable upon
exercise of such Warrants shall bear the following legend:
THE COMMON STOCK EVIDENCED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND
ACCORDINGLY MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (ii) AN
APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER. ANY SALE PURSUANT
TO CLAUSE (ii) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY SUCH
CERTIFICATIONS, LEGAL OPINIONS AND OTHER INFORMATION AS ARE REASONABLY
REQUIRED BY HOLDINGS AND THE WARRANT AGENT.
Section 10.12. Third Party Beneficiaries. The Holders shall be third
party beneficiaries to the agreements made hereunder between Holdings, on the
one hand, and the Warrant Agent, on the other hand, and each Holder shall have
the right to enforce such agreements directly to the extent it deems such
enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder.
21
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, as of the day and year first above written.
STERLING CHEMICALS HOLDINGS, INC.
By______________________
Name:
Title:
KEYCORP SHAREHOLDER SERVICES, INC.,
as Warrant Agent
By______________________
Name:
Title:
22
<PAGE>
EXHIBIT A
---------
FORM OF WARRANT CERTIFICATE
[THE WARRANTS EVIDENCED BY THIS CERTIFICATE WERE INITIALLY ISSUED AS PART OF AN
ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF ___% SENIOR DISCOUNT NOTES DUE 2008
OF STERLING CHEMICALS HOLDINGS, INC. (THE "DISCOUNT NOTES") AND WARRANTS. PRIOR
TO 5:00 P.M., NEW YORK CITY TIME, ON THE EARLIER OF (i) ________________, 1996
AND (ii) SUCH DATE AS THE UNDERWRITERS MAY, IN THEIR DISCRETION, DEEM
APPROPRIATE, THE WARRANTS EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED
OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER
WITH, THE DISCOUNT NOTES.]/*/
THE COMMON STOCK, PAR VALUE $.01 PER SHARE, OF HOLDINGS (THE "COMMON STOCK") FOR
WHICH THIS WARRANT IS EXERCISABLE MAY NOT BE OFFERED OR SOLD IN THE UNITED
STATES ABSENT REGISTRATION UNDER THE SECURITIES AND EXCHANGE ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. ACCORDINGLY, NO
HOLDER SHALL BE ENTITLED TO EXERCISE SUCH HOLDER'S WARRANTS AT ANY TIME UNLESS,
AT THE TIME OF EXERCISE, (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT
RELATING TO THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS
WARRANT HAS BEEN FILED WITH, AND DECLARED EFFECTIVE BY, THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION"), AND NO STOP ORDER SUSPENDING THE
EFFECTIVENESS OF SUCH REGISTRATION STATEMENT HAS BEEN ISSUED BY THE COMMISSION,
OR (ii) THE ISSUANCE OF SUCH SHARES IS PERMITTED PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
- -------------------
/*/ To be inserted on Warrants issued prior to the Separation Date.
A-1
<PAGE>
STERLING CHEMICALS HOLDINGS, INC.
No. ____ CUSIP No.___
______ Warrants
WARRANTS TO PURCHASE COMMON STOCK
This certifies that __________________, or its registered assigns, is
the owner of the number of Warrants set forth above, each of which represents
the right to purchase, after ____________ ___, 1997, from STERLING CHEMICALS
HOLDINGS, INC., a Delaware corporation ("Holdings"), _____ share(s) of Common
Stock, par value $.01 per share (the "Common Stock"), of Holdings (subject to
adjustment as provided in the Warrant Agreement hereinafter referred to) at the
purchase price (the "Exercise Price") of $.01 per share of Common Stock, upon
surrender hereof at the office of KeyCorp Shareholder Services, Inc. or to its
successor as the warrant agent under the Warrant Agreement hereinafter referred
to (any such warrant agent being herein call the "Warrant Agent"), with the
Subscription Form on the reverse hereof duly executed, with signature guaranteed
as therein specified and simultaneous payment in full (by wire transfer or by
certified or official bank or bank cashier's check payable to the order of
Holdings, or by the surrender of Warrants having an aggregate Spread (as defined
in the Warrant Agreement) equal to the Exercise Price of the Warrants being
exercised) of the purchase price for the share(s) as to which the Warrant(s)
represented by this Warrant Certificate are exercised, all subject to the terms
and conditions hereof and of the Warrant Agreement. Notwithstanding the
foregoing, Holdings shall have the right to not allow an exercise of any
Warrants in the event the Registration Statement is not effective and available
at the time Warrants are exercised, unless prior to the exercise of such
Warrants, the Holder thereof furnishes to the Warrant Agent and Holdings such
certifications, legal opinions or other information as either of them may
reasonably require to confirm that such exercise is being made pursuant to an
exemption from the registration requirements of the Securities Act.
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement dated as of __________ ___, 1996 (the "Warrant Agreement"),
between Holdings and KeyCorp Shareholder Services, Inc., as Warrant Agent, and
is subject to the terms and provisions contained therein, to all of which terms
and provision the Holder of this Warrant Certificate consents by acceptance
hereof. The Warrant Agreement is hereby incorporated herein by reference and
made a part hereof. Reference is hereby made to the Warrant Agreement for a
full description of the rights, limitations of rights, obligations, duties and
immunities thereunder of Holdings and the Holders of the Warrants. The summary
of the terms of the Warrant Agreement contained in this Warrant Certificate is
qualified in its entirety by express reference to the Warrant Agreement. All
terms used in this Warrant Certificate that are defined in the Warrant Agreement
shall have the meanings assigned to them in the Warrant Agreement.
Copies of the Warrant Agreement are on file at the office of the
Warrant Agent and may be obtained by writing to the Warrant Agent at the
following address:
A-2
<PAGE>
KeyCorp Shareholder Services, Inc.
700 Louisiana Street
Suite 2620
Houston, Texas 77002
Attention: __________________________
If Holdings merges or consolidates with or into, or sells all or
substantially all of its property and assets to, another Person solely for cash,
or in the event of the dissolution, liquidation or winding-up of Holdings, the
Holders of Warrants shall be entitled to receive distributions on the date of
such event on an equal basis with holders of Common Stock (or other securities
issuable upon exercise of the Warrants) as if the Warrants had been exercised
immediately prior to such event (less the Exercise Price).
The number of shares of Common Stock purchasable upon the exercise of
each Warrant is subject to adjustment as provided in the Warrant Agreement.
Except as stated in the immediately preceding paragraph, in the event Holdings
merges or consolidates with, or sells all or substantially all of its assets to,
another Person, each Warrant will, upon exercise, entitle the Holder thereof to
receive the number of shares of capital stock or other securities or the amount
of money and other property which the holder of a share of Common Stock (or
other securities or property issuable upon exercise of a Warrant) is entitled to
receive upon completion of such merger, consolidation or sale.
As to any final fraction of a share which the same Holder of one or
more Warrants would otherwise be entitled to purchase upon exercise thereof in
the same transaction, Holdings shall pay the cash value thereof determined as
provided in the Warrant Agreement.
All Common Stock or other securities issuable by Holdings upon the
exercise of Warrants shall be validly issued, fully-paid and nonassessable, and
Holdings shall pay all taxes and other governmental charges that may be imposed
under the laws of the United States of America or any political subdivision or
taxing authority thereof or therein in respect of the issue or delivery of such
shares or of other securities deliverable upon exercise of Warrants. Holdings
shall not be required, however, to pay any tax or other charge imposed in
connection with any transfer involved in the issue of any certificate for Common
Stock, and in such case Holdings shall not be required to issue or deliver any
stock certificate until such tax or other charge has been paid or it has been
established to the Warrant Agent's and Holdings' satisfaction that no tax or
other charge is due.
This Warrant Certificate and all rights hereunder are transferable by
the registered Holder hereof, in whole or in part, in accordance with the
provisions of the Warrant Agreement, on the register of Holdings maintained by
the Warrant Agent for such purpose at its office in New York, New York, upon
surrender of this Warrant Certificate duly endorsed, or accompanied by a written
instrument of transfer form satisfactory to Holdings and the Warrant Agent duly
executed, with signatures guaranteed as specified in the attached Form of
Assignment, by the registered Holder hereof or his attorney duly authorized in
writing and upon payment of any necessary transfer tax or other governmental
charge imposed upon such transfer. Upon any partial transfer, Holdings will
issue and the Warrant Agent will deliver to such Holder a new Warrant
Certificate or Certificates with respect to any portion not so transferred.
Each taker and Holder of this Warrant Certificate, by taking and holding the
same, consents and agrees that prior to the registration of transfer as provided
in the Warrant Agreement, Holdings and the Warrant Agent
A-3
<PAGE>
may treat the person in whose name the Warrants are registered as the absolute
owner hereof for any purpose and as the Person entitled to exercise the rights
represented hereby, any notice to the contrary notwithstanding.
This Warrant Certificate may be exchanged, in accordance with the
terms of the Warrant Agreement, at the office of the Warrant Agent maintained
for such purpose in New York, New York for Warrant Certificates representing the
same aggregate number of Warrants, each new Warrant Certificate to represent
such number of Warrants as the Holder hereof shall designate at the time of such
exchange.
Prior to the exercise of the Warrants represented hereby, the Holder
of this Warrant Certificate, as such, shall not be entitled to any rights of a
stockholder of Holdings, including, without limitation, the right to vote or to
consent to any action of the stockholders, to receive dividends or other
distributions, to exercise any preemptive right or to receive any notice of
meetings of stockholders, and shall not be entitled to receive any notice of any
proceedings of Holdings except as provided in the Warrant Agreement.
This Warrant Certificate shall be void and all rights evidenced hereby
shall cease on ___________ ___, 2008, unless sooner terminated by the
liquidation, dissolution or winding-up of Holdings or as otherwise provided in
the Warrant Agreement upon the consolidation or merger of Holdings with, or sale
of Holdings to, another Person.
A-4
<PAGE>
This Warrant Certificate shall not be valid for any purpose until it
shall have been countersigned by the Warrant Agent.
Dated: STERLING CHEMICALS HOLDINGS, INC.
By:___________________________________
Name:
Title:
Countersigned:
KEYCORP SHAREHOLDER SERVICES, INC.,
as Warrant Agent
By:__________________________________
Authorized Signatory
A-5
<PAGE>
FORM OF REVERSE OF WARRANT CERTIFICATE
SUBSCRIPTION FORM
(to be executed only upon exercise of Warrant)
To:
The undersigned irrevocably exercises [___________________] of the
Warrants represented by the Warrant Certificate for the purchase of ______
(subject to adjustment) share of Common Stock, par value $.01 per share, of
STERLING CHEMICALS HOLDINGS, INC. and herewith makes payment of $[___________]
(such payment being by wire transfer or by certified or official bank or bank
cashier's check payable to the order or at the direction of Sterling Chemicals
Holdings, Inc., or by the surrender of Warrants having an aggregate Spread (as
defined in the Warrant Agreement) equal to the Exercise Price of the Warrants
being exercised), all at the exercise price and on the terms and conditions
specified in the within Warrant Certificate and the Warrant Agreement therein
referred to, surrenders this Warrant Certificate and all right, title and
interest therein to and directs that the Common Stock deliverable upon the
exercise of such Warrants be registered or placed in the name and at the address
specified below and delivered thereto.
Dated:
_______________________________________
(Signature of Owner)
_______________________________________
(Street Address)
_______________________________________
(City) (State) (Zip) (Code)
Signature Guaranteed By/2/
---------------------------------------
- --------------------------------
/2/ The Holder's signature must be guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution"
as defined by Rule 17Ad-15 under the Exchange Act.
A-6
<PAGE>
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
A-7
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED the undersigned registered holder of the within
Warrant Certificate hereby sells, assigns, and transfers unto the Assignee(s)
named below (including the undersigned with respect to any Warrants constituting
a part of the Warrants evidenced by the within Warrant Certificate not being
assigned hereby) all of the right of the undersigned under the within Warrant
Certificate, with respect to the number of Warrants set forth below:
Name(s) of Assignee(s):_________________________________________________
Address:________________________________________________________________
No. of Warrants:________________________________________________________
Please insert social security or other identifying number of assignee(s):
and does hereby irrevocably constitute and appoints ________________________ the
undersigned's attorney to make such transfer on the books of
____________________ maintained for the purposes, with full power of
substitution in the premises.
Dated: -------------------------------------
(Signature of Owner)
-------------------------------------
(Street Address)
-------------------------------------
(City) (State) (Zip) (Code)
Signature Guaranteed By/1/
------------------------------------
- -------------------
/1/ The Holder's signature must be guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution"
as defined by Rule 17Ad-15 under the Exchange Act.
A-8
<PAGE>
STERLING CHEMICALS HOLDINGS, INC.
$[_______________]
[___]% SENIOR SECURED DISCOUNT NOTES DUE 2008
_________________
INDENTURE
Dated as of [_________ ___], 1996
_________________
FLEET NATIONAL BANK OF CONNECTICUT
Trustee
<PAGE>
<TABLE>
<CAPTION>
CROSS-REFERENCE TABLE
=====================
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<S> <C> <C>
310 (a)(1)............................................ 8.10
(a)(2)............................................ 8.10
(a)(3)............................................ N/A
(a)(4)............................................ N/A
(a)(5)............................................ 8.10
(b)............................................... 8.10
(c)............................................... N/A
311 (a)............................................... 8.11
(b)............................................... 8.11
(c)............................................... N/A
312 (a)............................................... 2.05
(b)............................................... 12.03
(c)............................................... 12.03
313 (a)............................................... 11.02
(b)(i)............................................ 11.02
(b)(2)............................................ 8.06
(c)............................................... 8.06; 11.02
(d)............................................... 8.06
314 (a)............................................... 8.03; 11.02
(b)............................................... 11.03
(c)(1)............................................ 12.04
(c)(2)............................................ 12.04
(c)(3)............................................ N/A
(d)...............................................11.02; 11.03
(e)............................................... 12.05
(f)............................................... N/A
315 (a)............................................... 8.01
(b)............................................... 8.05; 12.02
(c)............................................... 8.01
(d)............................................... 8.01
(e)............................................... 7.11
316 (a)(1)(A)......................................... 7.05
(a)(1)(B)......................................... 7.04
(a)(2)............................................ N/A
(b)............................................... 7.07
317 (a)(1)............................................ 7.08
(a)(2)............................................ 7.09
(b)............................................... 2.04
318 (a)............................................... 12.01
(b)............................................... N/A
(c)............................................... 12.01
</TABLE>
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
i
<PAGE>
TABLE OF CONTENTS
Page
PARTIES................................................................ 1
RECITALS OF HOLDINGS................................................... 1
ARTICLE I
DEFINITIONS AND INCORPORATION
BY REFERENCE
<TABLE>
<CAPTION>
<S> <C> <C>
Section 1.01. Definitions...................................... 1
Section 1.02. Other Definitions................................ 18
Section 1.03. Incorporation by Reference of Trust Indenture Act 18
Section 1.04. Rules of Construction............................ 19
ARTICLE II
THE DISCOUNT NOTES
Section 2.01. Form and Dating................................. 19
Section 2.02. Execution and Authentication.................... 19
Section 2.03. Registrar and Paying Agent...................... 20
Section 2.04. Paying Agent to Hold Money In Trust............. 20
Section 2.05. Lists of Holders of Discount Notes.............. 21
Section 2.06. Transfer and Exchange........................... 21
Section 2.07. Replacement Discount Notes...................... 21
Section 2.08. Outstanding Discount Notes...................... 22
Section 2.09. Temporary Discount Notes........................ 22
Section 2.10. Cancellation.................................... 22
Section 2.11. Defaulted Interest.............................. 23
Section 2.12. CUSIP Number.................................... 23
Section 2.13. Separability of Warrants; Legend................ 23
ARTICLE III
REDEMPTION
Section 3.01. Notices to Trustee.............................. 24
Section 3.02. Selection of Discount Notes to be Redeemed...... 24
Section 3.03. Notice of Redemption............................ 24
Section 3.04. Effect of Notice of Redemption.................. 25
Section 3.05. Deposit of Redemption Price..................... 25
Section 3.06. Discount Notes Redeemed in Part................. 25
</TABLE>
- -----------
Note: This Table of Contents shall not, for any reason, be deemed to be part of
the Indenture.
i
<PAGE>
<TABLE>
<CAPTION>
ARTICLE IV Page
CHANGE OF CONTROL
ARTICLE V
COVENANTS
<S> <C>
Section 5.01. Payment of Principal, Premium and Interest................. 27
Section 5.02. Maintenance of Office or Agency............................ 28
Section 5.03. SEC Reports................................................ 28
Section 5.04. Limitation On Debt......................................... 28
Section 5.05. Limitation On Restricted Payments.......................... 30
Section 5.06. Limitation On Restrictions On Distributions from Restricted
Subsidiaries............................................... 33
Section 5.07. Limitation On Sales of Assets and Subsidiary Stock......... 34
Section 5.08. Limitation On Transactions with Affiliates................. 36
Section 5.09. Limitation On Liens........................................ 37
Section 5.10. Limitation On Sale/Leaseback Transactions.................. 37
Section 5.11. Limitation On the Sale or Issuance of Capital Stock of
Restricted Subsidiaries.................................... 38
Section 5.12. Impairment of Security Interest............................ 38
Section 5.13. Amendments to Pledge Agreement............................. 38
Section 5.14. Compliance Certificates.................................... 38
Section 5.15. Further Instruments and Acts............................... 39
ARTICLE VI
SUCCESSORS
Section 6.01. When Holdings May Merge or Transfer Assets................. 39
Section 6.02. Successor Company Substituted.............................. 40
ARTICLE VII
DEFAULTS AND REMEDIES
Section 7.01. Events of Default.......................................... 40
Section 7.02. Acceleration............................................... 41
Section 7.03. Other Remedies............................................. 42
Section 7.04. Waiver of Past Defaults.................................... 42
Section 7.05. Control by Majority........................................ 42
Section 7.06. Limitation On Suits........................................ 43
Section 7.07. Unconditional Right of Holders of Discount Notes to Receive
Payment.................................................... 43
Section 7.08. Collection Suit by Trustee................................. 43
Section 7.09. Trustee May File Proofs of Claim........................... 43
</TABLE>
ii
<PAGE>
<TABLE>
Page
<S> <C> <C>
Section 7.10. Priorities................................................. 44
Section 7.11. Undertaking for Costs...................................... 44
Section 7.12. Waiver of Stay, Extension and Usury Laws................... 44
ARTICLE VIII
TRUSTEE
Section 8.01. Duties of Trustee.......................................... 45
Section 8.02. Rights of Trustee.......................................... 46
Section 8.03. Individual Rights of Trustee............................... 46
Section 8.04. Trustee's Disclaimer....................................... 46
Section 8.05. Notice of Default.......................................... 47
Section 8.06. Reports by Trustee to Holders of Discount Notes............ 47
Section 8.07. Compensation and Indemnity................................. 47
Section 8.08. Replacement of Trustee..................................... 48
Section 8.09. Successor Trustee by Merger, Etc........................... 49
Section 8.10. Eligibility; Disqualification.............................. 49
Section 8.11. Preferential Collection of Claims Against Holdings......... 49
ARTICLE IX
DISCHARGE OF INDENTURE; DEFEASANCE
Section 9.01. Discharge of Liability on Securities; Defeasance........... 49
Section 9.02. Conditions to Defeasance................................... 50
Section 9.03. Application of Trust Money................................. 51
Section 9.04. Repayment to Holdings...................................... 51
Section 9.05. Indemnity for Government Obligations....................... 52
Section 9.06. Reinstatement.............................................. 52
ARTICLE X
AMENDMENT, SUPPLEMENT AND WAIVER
Section 10.01. Without Consent of Holders of Discount Notes.............. 52
Section 10.02. With Consent of Holders of Discount Notes................. 53
Section 10.03. Compliance with Trust Indenture Act....................... 54
Section 10.04. Revocation and Effect of Consents and Waivers............. 54
Section 10.05. Notation On or Exchange of Discount Notes................. 55
Section 10.06. Trustee to Sign Amendments, Etc........................... 55
Section 10.07. Payment for Consents...................................... 55
ARTICLE XI
COLLATERAL AND SECURITY DOCUMENTS
Section 11.01. Collateral and Security Documents......................... 56
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
Section 11.02. Release of Collateral...................................... 56
Section 11.03. Recording, Certificates and Opinions....................... 56
Section 11.04. Authorization of Actions to Be Taken by the Trustee Under the
Security Documents......................................... 57
ARTICLE XII
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls............................... 57
Section 12.02. Notices.................................................... 57
Section 12.03. Communication by Holders of Discount Notes with Other
Holders of Discount Notes.................................. 58
Section 12.04. Certificate and Opinion as to Conditions Precedent......... 59
Section 12.05. Statements Required in Certificate or Opinion.............. 59
Section 12.06. Rules by Trustee and Agents................................ 59
Section 12.07. No Personal Liability of Directors, Officers, Employees,
Incorporators and Stockholders............................. 59
Section 12.08. Governing Law.............................................. 59
Section 12.09. No Adverse Interpretation of Other Agreements.............. 60
Section 12.10. Successors................................................. 60
Section 12.11. Severability............................................... 60
Section 12.12. Counterpart Originals...................................... 60
Section 12.13. Table of Consents, Headings, Etc........................... 60
</TABLE>
EXHIBIT A -- Form of Discount Note; Form of Trustee's Certificate of
Authentication
iv
<PAGE>
INDENTURE, dated as of [___________ ___], 1996, between Sterling
Chemicals Holdings, Inc. ("Holdings"), a corporation duly organized and
existing under the laws of the State of Delaware, and Fleet National Bank of
Connecticut, a [___________________] duly organized and existing under the
laws of the State of [____________], as trustee (the "Trustee").
RECITALS OF HOLDINGS
Holdings has duly authorized the execution and delivery of this
Indenture to provide for the issuance of up to $[___________________]
aggregate principal amount at maturity of Holdings' [____]% Senior Secured
Discount Notes Due 2008 (the "Discount Notes") issuable as provided in this
Indenture. All things necessary to make this Indenture a valid agreement of
Holdings, in accordance with its terms, have been done, and Holdings has done
all things necessary to make the Discount Notes, when executed by Holdings and
authenticated and delivered by the Trustee hereunder and duly issued by
Holdings, the valid obligations of Holdings as hereinafter provided.
Pursuant to the terms of that certain Underwriting Agreement, dated
as of [____________ ___], 1996 (the "Underwriting Agreement"), between
Holdings and Sterling Chemicals, Inc., ("Chemicals"), a [__________________]
corporation and a Wholly Owned Subsidiary (as defined below) of Holdings, on
the one hand, and CS First Boston Corporation and Chase Securities Inc., as
Underwriters (collectively the "Underwriters"), on the other hand, Holdings
initially shall issue and sell to the Underwriters Units (the "Units")
consisting of (i) the Discount Notes; and (ii) warrants (each, a "Warrant")
entitling the holders thereof to purchase an aggregate of [_________] shares
of common stock, par value $.01 per share, of Holdings of at a price of $.01
per share. The Discount Notes and Warrants included in each Unit shall become
separately transferable at the close of business upon the earlier of (i)
[__________ ___], 1996; and (ii) such date as the Underwriters may, in their
discretion, deem appropriate (the "Separation Date").
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Discount Notes by the Holders thereof, it is mutually agreed, for the equal
and proportionate benefit of all Holders of the Discount Notes, as follows:
ARTICLE I
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
"Accreted Value" means, (A) as of any date prior to [__________],
2001, an amount per $1,000 principal amount at maturity of Discount Notes that
is equal to the sum of (a) the initial offering price ($[________] per $1,000
principal amount of Discount Notes) of such Discount Notes and (b) the portion
of the excess of the principal amount of such Discount Note over such initial
offering price which shall have been amortized through such date, such amount
to be so amortized on a daily basis and compounded semi-annually on each
[_________
<PAGE>
___] and [_________ ___] at the rate of [____]% per annum from the Issue Date
through the date of determination computed on the basis of a 360-day year of
twelve 30-day months (the following table indicating the Accreted Value at the
semiannual compounding dates with respect to each $1,000 principal amount at
maturity of Discount Notes set forth below):
<TABLE>
<CAPTION>
Date Accreted
- ---- Value
------------
<C> <S>
[__________ ___], 1996.................................... $[_______]
[__________ ___], 1997.................................... $[_______]
[__________ ___], 1997.................................... $[_______]
[__________ ___], 1998.................................... $[_______]
[__________ ___], 1998.................................... $[_______]
[__________ ___], 1999.................................... $[_______]
[__________ ___], 1999.................................... $[_______]
[__________ ___], 2000.................................... $[_______]
[__________ ___], 2000.................................... $[_______]
[__________ ___], 2001.................................... $[_______]
[__________ ___], 2001.................................... $[_______]
</TABLE>
and (B) as of any date on or after [__________ ___], 2001, the principal
amount of each Discount Note.
"Affiliate" means, with respect to any specified Person, any other
Person, directly or indirectly, controlling or controlled by or under direct
or indirect common control with such specified Person. For the purposes of
this definition, "control" when used with respect to any Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. For purposes of Section 5.07 and Section 5.08
only, the term "Affiliate" shall also mean any beneficial owner (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act) of Capital Stock representing
10% or more of the total voting power of the Voting Stock (on a fully diluted
basis) of Holdings or of rights or warrants to purchase such Capital Stock
(whether or not currently exercisable) and any Person who would be an
Affiliate of any such beneficial owner in accordance with the first sentence
of this definition.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) of
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the
purposes of this definition as a "disposition") by Holdings or any of its
Restricted Subsidiaries, including any disposition by means of a merger,
consolidation or similar transaction, for gross proceeds in excess of $2.0
million, other than (i) a disposition by a Restricted Subsidiary to Holdings
or by Holdings or a Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) a
disposition of property or assets (other than shares of Capital Stock of a
Restricted
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Subsidiary and which do not constitute all or substantially all of the assets
of any division or line of business of Holdings or any Restricted Subsidiary)
at fair market value in the ordinary course of business, (iii) for purposes of
Section 5.07 only, a disposition that constitutes a Restricted Payment or a
Permitted Investment permitted pursuant to Section 5.05; (iv) the disposition
of all or substantially all of the assets of Holdings permitted pursuant to
Section 6.01; and (v) the disposition of assets in exchange for other assets
that satisfy the requirement for replacement assets pursuant to Section
5.07(a)(ii)(2).
"Attributable Debt" means, in respect of a Sale/Leaseback
Transaction, as at the time of determination, the present value (discounted at
the interest rate borne by the Discount Notes, compounded annually) of the
total obligations of the lessee for rental payments during the remaining term
of the lease included in such Sale/Leaseback Transaction (including any period
for which such lease has been extended).
"Average Life" means, as of the date of determination, with respect
to any Debt or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Debt or
redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (ii) the sum of all such payments.
"Bankruptcy Law" means title 11, U.S. Code, or any similar federal
or state law for the relief of debtors.
"Board of Directors" means the Board of Directors of Holdings or any
committee thereof duly authorized to act on behalf of such Board of Directors.
"Business Day" means each day which is not a Legal Holiday.
"Canadian Facility" means a revolving loan and letter of credit
facility for loans and letters of credit in Canadian dollars or U.S. dollars
to or for the account of Sterling Pulp Chemicals, Ltd., a Wholly Owned
Subsidiary of Holdings.
"Capital Lease Obligations" means, with respect to any Person, any
obligation which is required to be classified and accounted for as a capital
lease on the face of a balance sheet of such Person prepared in accordance
with GAAP; the amount of such obligation shall be the capitalized amount
thereof, determined in accordance with generally accepted accounting
principles; and the Stated Maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of
a penalty.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in such Person (however designated),
including any Preferred Stock, but excluding any debt securities convertible
into or exchangeable for such equity.
"Chemicals" has the meaning set forth in the second recital.
"Code" means the U.S. Internal Revenue Code of 1986, as amended.
"Collateral" has the meaning set forth in the Pledge Agreement.
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<PAGE>
"Collateral Agent" has the meaning set forth in the Intercreditor
Agreement.
"Commodity Agreement" means any commodity future contract, commodity
option or other similar agreement or arrangement entered into by Holdings or
any Restricted Subsidiary that is designed to protect Holdings or any
Restricted Subsidiary against fluctuations in the price of commodities used by
Holdings or a Restricted Subsidiary as raw materials in the ordinary course of
business.
"Consolidated Current Liabilities" means, as of the date of
determination, the aggregate amount of liabilities of Holdings and its
consolidated Subsidiaries which may properly be classified as current
liabilities (including taxes accrued as estimated), on a consolidated basis,
after eliminating (i) all intercompany items between Holdings and any
Subsidiary and (ii) all current maturities of long-term Debt, all as
determined in accordance with GAAP consistently applied.
"Consolidated EBITDA Coverage Ratio" means, as of any date of
determination, the ratio of (i) the aggregate amount of EBITDA for the period
of the most recent four consecutive fiscal quarters ending at least 45 days
prior to the date of such determination to (ii) Consolidated Interest Expense
for such four fiscal quarters; provided, however, that (1) if Holdings or any
Restricted Subsidiary has Incurred any Debt since the beginning of such period
that remains outstanding or if the transaction giving rise to the need to
calculate the Consolidated EBITDA Coverage Ratio is an Incurrence of Debt, or
both, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to such Debt as if such
Debt had been Incurred on the first day of such period and the discharge of
any other Debt repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Debt as if such discharge had occurred on the first day
of such period, (2) if since the beginning of such period Holdings or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to the EBITDA (if
negative), directly attributable thereto for such period, and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Debt of Holdings or
any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to Holdings and its continuing Restricted Subsidiaries
in connection with such Asset Dispositions for such period (or, if the Capital
Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense
for such period directly attributable to the Debt of such Restricted
Subsidiary to the extent Holdings and its continuing Restricted Subsidiaries
are no longer liable for such Debt after such sale), (3) if since the
beginning of such period Holdings or any Restricted Subsidiary (by merger or
otherwise) shall have made an Investment in any Restricted Subsidiary (or any
Person which becomes a Restricted Subsidiary) or an acquisition of assets,
including any acquisition of assets occurring in connection with a transaction
causing a calculation to be made hereunder, which constitutes all or
substantially all of an operating unit of a business, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the Incurrence of any Debt) as if such Investment or
acquisition occurred on the first day of such period, and (4) if since the
beginning of such period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into Holdings or any Restricted Subsidiary
since the beginning of such period) shall have made any Asset Disposition or
any Investment that would have required an adjustment pursuant to clause (2)
or (3) above if made by Holdings or a Restricted Subsidiary during such
period, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto as if
4
<PAGE>
such Asset Disposition or Investment occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to
an acquisition of assets, the amount of income or earnings relating thereto,
and the amount of Consolidated Interest Expense associated with any Debt
Incurred in connection therewith, the pro forma calculations shall be
determined in good faith by a responsible financial or accounting Officer of
Holdings. If any Debt bears a floating rate of interest and is being given
pro forma effect, the interest of such Debt shall be calculated as if the rate
in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Debt if such Interest Rate Agreement has a remaining term in excess of 12
months). For the purpose of calculating the Consolidated EBITDA Coverage
Ratio at any time until two years after the Issue Date in connection with the
Incurrence of Debt by any Restricted Subsidiary to finance the acquisition of
a business reasonably related to the business of Holdings and the Restricted
Subsidiaries, any non-cash interest expense on the Discount Notes shall be
excluded.
"Consolidated Interest Expense" means, for any period, the total
interest expense of Holdings and its consolidated Restricted Subsidiaries,
plus, to the extent not included in such interest expense: (i) interest
expense attributable to Capital Lease Obligations; (ii) amortization of debt
discount and debt issuance cost; (iii) capitalized interest; (iv) non-cash
interest payments; (v) commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing; (vi) net
costs under Interest Rate Agreements (including amortization of fees); (vii)
Preferred Stock dividends in respect of all Redeemable Stock of Holdings and
all Preferred Stock held by Persons other than Holdings or a Wholly Owned
Subsidiary; (viii) interest incurred in connection with Investments in
discontinued operations; (ix) interest actually paid by Holdings or any of its
consolidated Restricted Subsidiaries under any Guarantee of Debt or other
obligation of any other Person; and (x) the cash contributions to any employee
stock ownership plan or similar trust to the extent such contributions are
used by such plan or trust to pay interest or fees to any Person (other than
Holdings or any Restricted Subsidiary) in connection with Debt Incurred by
such plan or trust.
"Consolidated Net Income" means, for any period, the net income of
Holdings and its consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income (i) any net income of
any Person if such Person is not a Restricted Subsidiary, except that (A)
subject to the exclusion contained in clause (iv) below, Holdings' equity in
the net income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to Holdings or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to a Restricted Subsidiary, to the limitations
contained in clause (iii) below) and (B) Holdings' equity in a net loss of any
such Person for such period shall be included in determining such Consolidated
Net Income to the extent of any cash actually contributed by Holdings or a
Restricted Subsidiary to such Person during such period; (ii) any net income
(or loss) of any Person acquired by Holdings or a Subsidiary in a pooling of
interests transaction for any period prior to the date of such acquisition;
(iii) any net income of any Restricted Subsidiary to the extent such
Restricted Subsidiary is subject to restrictions, directly or indirectly, on
the payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to Holdings, except that (A) subject to
the exclusion contained in clause (iv) below, Holdings' equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Restricted Subsidiary during such period to Holdings or
another Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution to another Restricted
5
<PAGE>
Subsidiary, to the limitation contained in this clause) and (B) Holdings'
equity in a net loss of any such Restricted Subsidiary for such period shall
be included in determining such Consolidated Net Income; (iv) any gain or loss
realized upon the sale or other disposition of any assets of Holdings or its
consolidated subsidiaries (including pursuant to any sale-and-leaseback
arrangement) which is not sold or otherwise disposed of in the ordinary course
of business and any gain or loss realized upon the sale or other disposition
of any Capital Stock of any Person; (v) extraordinary gains or losses; and
(vi) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of Section 5.05 only, there
shall be excluded from Consolidated Net Income any dividends, repayments of
loans or advances or other transfers of assets from Unrestricted Subsidiaries
to Holdings or a Restricted Subsidiary to the extent such dividends,
repayments or transfers increase the amount of Restricted Payments permitted
pursuant to Section 5.05(a)(iv)(3)(E).
"Consolidated Net Worth" means, with respect to any Person, the
total of the amounts shown on the balance sheet of such Person and its
consolidated subsidiaries, determined on a consolidated basis in accordance
with GAAP, as of the end of the most recent fiscal quarter of such Person
ending at least 45 days prior to the taking of any action for the purpose of
which the determination is being made, as (i) the par or stated value of all
outstanding Capital Stock of such Person, plus (ii) paid-in capital or capital
surplus relating to such Capital Stock, plus (iii) any retained earnings or
earned surplus, less (A) any accumulated deficit, (B) any amounts attributable
to Redeemable Stock, and (C) any amounts attributable to Exchangeable Stock.
"Consolidated Net Tangible Assets" means, as of any date of
determination, the total amount of assets (less accumulated depreciation and
amortization, allowances for doubtful receivables, other applicable reserves
and other properly deductible items) which would appear on a consolidated
balance sheet of Holdings and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, and after deducting therefrom
Consolidated Current Liabilities and, to the extent otherwise included, the
amounts of: (i) minority interests in consolidated Subsidiaries held by
Persons other than Holdings or a Subsidiary; (ii) excess of cost over fair
value of assets of businesses acquired, as determined in good faith by the
Board of Directors; (iii) any revaluation or other write-up in book value of
assets subsequent to the Issue Date as a result of a change in the method of
valuation in accordance with GAAP consistently applied; (iv) unamortized debt
discount and expenses and other unamortized deferred charges, goodwill,
patents, trademarks, service marks, trade names, copyrights, licenses,
organization or developmental expenses and other intangible items; (v)
treasury stock; and (vi) cash set apart and held in a sinking or other
analogous fund established for the purpose of redemption or other retirement
of Capital Stock to the extent such obligation is not reflected in
Consolidated Current Liabilities.
"Corporate Trust Office of the Trustee" shall be at the address of
the Trustee specified in Section 12.02 or such other address as to which the
Trustee may give notice to Holdings.
"Credit Agreement" means that certain credit agreement, dated June
21, 1996, among Chemicals, as borrower, Texas Commerce Bank National
Association, as administrative agent, and the other lenders party thereto, and
their respective successors and assigns, as the same may be amended,
supplemented, waived and otherwise modified from time to time in accordance
with the terms thereof.
6
<PAGE>
"Currency Agreement" means, with respect to any Person, any foreign
exchange contract, currency swap agreement or other similar agreement to which
such Person is a party or a beneficiary.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"Debt" means, with respect to any Person, without duplication, (i)
the principal of and premium (if any) in respect of (A) indebtedness of such
Person for money borrowed and (B) indebtedness evidenced by notes, debentures,
bonds or other similar instruments for the payment of which such Person is
responsible or liable; (ii) all Capital Lease Obligations of such Person and
all Attributable Debt in respect of Sale/Leaseback Transactions entered into
by such Person; (iii) all obligations of such Person issued or assumed as the
deferred purchase price of property, all conditional sale obligations of such
Person and all obligations of such Person under any title retention agreement
(but excluding trade accounts payable arising in the ordinary course of
business); (iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit securing
obligations (other than obligations described in (i) through (iii) above)
entered into in the ordinary course of business of such Person to the extent
such letters of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (v) all Redeemable Stock of such Person, and, with respect
to any Subsidiary of such Person, all Preferred Stock other than pay-in-kind
dividends in the form of Preferred Stock (the amount of Debt represented
thereby shall equal the greater of its liquidation preference and the
redemption, repayment or other repurchase obligations with respect thereto,
but excluding any accrued dividends); (vi) all Hedging Obligations of such
Person; (vii) all obligations of the type referred to in clauses (i) through
(v) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee; and (viii) all obligations of the type referred to in clauses (i)
through (vi) of other Persons secured by any Lien on any property or asset of
such Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured. The amount of
Debt of any Person at any date shall be the outstanding balance of such date
of all unconditional obligations as described above and the maximum liability
upon the occurrence of the contingency giving rise to the obligation, of any
contingent obligations at such date; provided, however, that the amount
outstanding at any time of any Debt Incurred with original issue discount is
the face amount of such Debt less the remaining unamortized portion of the
original issue discount of such Debt at such time as determined in conformity
with GAAP.
"Default" means any event that is, or after notice or passage of
time or both would be, an Event of Default.
"Discount Notes" has the meaning set forth in the first recital.
"Discount Note Register" means the register of the Discount Notes
and the transfer and exchange of the Discount Notes as provided in Section
2.03 of this Indenture.
"EBITDA" means, for any period, the sum of Consolidated Net Income,
plus Consolidated Interest Expense plus the following to the extent deducted
in calculating such
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<PAGE>
Consolidated Net Income: (i) all income tax expense of Holdings; (ii)
depreciation expense; (iii) amortization expense; (iv) an amount equal to any
extraordinary gain or loss realized in connection with an Asset Disposition;
(v) the impact of accruals for periods prior to the Issue Date for the
Company's Stock Appreciation Rights Plan; and (vi) all other non-cash items
reducing such Consolidated Net Income (excluding any non-cash items to the
extent it represents an accrual of, or reserve for, cash disbursements for any
subsequent period) less all non-cash items increasing such Consolidated Net
Income (such amount calculated pursuant to this clause (vi) not to be less
than zero), in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation
and amortization of, a Subsidiary of Holdings shall be added to Consolidated
Net Income to compute EBITDA only to the extent (and in the same proportion)
that the net income of such Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted
at the date of determination to be dividended or otherwise paid to Holdings by
such Subsidiary without prior approval (that has not been obtained), pursuant
to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to
such Subsidiary or its stockholders.
"ESOP Loan Provisions" means the provisions of the Credit Agreement
pursuant to which lenders thereunder have committed to make ESOP loans
available to Chemicals.
"Equity Private Placement" means the private placement of shares of
common stock of STX Acquisition Corp. consummated immediately prior to the
Transaction, which shares will be converted into shares of common stock of
Holdings upon consummation of the Transaction.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as
amended.
"Exchangeable Stock" means any Capital Stock which is exchangeable
or convertible into another security (other than Capital Stock of Holdings
which is neither Exchangeable Stock nor Redeemable Stock).
"Fair Market Value" means, with respect to any asset or property,
the sale value that would be obtained in an arm's-length transaction between
an informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"Foreign Asset Sale" means an Asset Sale in respect of Capital Stock
or assets of a Foreign Subsidiary or a Restricted Subsidiary of the type
described in Section 936 of the Code to the extent that the proceeds of such
Asset Sale are received by a Person subject in respect of such proceeds to the
tax laws of a jurisdiction other than the United States or any state thereof
or the District of Columbia.
"Foreign Subsidiary" means a Restricted Subsidiary that is
incorporated in a jurisdiction other than the United States or a State thereof
or the District of Columbia and with respect to which more than 66-2/3% of any
of its sales, earnings or assets (determined on a consolidated basis in
accordance with GAAP) are located in, generated from or derived from
operations located in territories or jurisdictions outside the United States.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Issue Date, including those set forth
(i) in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public
8
<PAGE>
Accountants; (ii) statements and pronouncements of the Financial Accounting
Standards Board; (iii) in such other statements by such other entity as
approved by a significant segment of the accounting profession; and (iv) the
rules and regulations of the SEC governing the inclusion of financial
statements (including pro forma financial statements) in periodic reports
required to be filed pursuant to Section 13 of the Exchange Act, including
opinions and pronouncements in staff accounting bulletins and similar written
statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Debt or other obligation of any
Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or other obligation of such Person (whether
arising by virtue of partnership arrangements, or by agreement to keep-well,
to purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise); or (ii) entered into
for purposes of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business or guarantees of obligations of a Subsidiary in
the ordinary course of business if such obligations do not constitute Debt of
such Subsidiary. The term "Guarantee" used as a verb shall have a
corresponding meaning.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person pursuant to any Interest Rate Agreement, Currency
Agreement or Commodity Agreement.
"Holder" means the Person in whose name a Discount Note is
registered on the Discount Note Register.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Debt or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by
such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence"
when used as a noun shall have a correlative meaning. The accretion of
principal of a non-interest bearing or other discount security shall be deemed
to be the Incurrence of Debt.
"Indenture" means this Indenture, as amended, supplemented or
otherwise modified from time to time in accordance with the terms hereof.
"Independent Financial Advisor" means a reputable accounting,
appraisal or investment banking firm that, in the reasonable good faith
judgment of the Board of Directors of Holdings, is qualified to perform the
task for which such firm has been engaged and is independent with respect to
Holdings and its Affiliates.
"Intercreditor Agreement" means that certain Intercreditor
Agreement, dated as of [__________ __], 1996, between Texas Commerce Bank
National Association, as Administrative Agent, and the Trustee.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement or other financial agreement or arrangement
designed to protect Holdings or any Restricted Subsidiary against fluctuations
in interest rates.
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"Investment" means, with respect to any Person, any loan or advance
to, any acquisition of Capital Stock, equity interest, obligation or other
security of, or capital contribution or other investment in, or any other
credit extension to (including by way of Guarantee of any Debt of) such
Person. For purposes of the definition of "Unrestricted Subsidiary", the
definition of "Restricted Payment" and Section 5.05 of this Indenture, (i)
"Investment" shall include the portion (proportionate to Holdings' equity
interest in such Subsidiary) of the fair market value of the net assets of any
Subsidiary of Holdings at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that if such designation is made
in connection with the acquisition of such Subsidiary or the assets owned by
such Subsidiary, the "Investment" in such Subsidiary shall be deemed to be the
consideration paid in connection with such acquisition; provided, further,
however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, Holdings shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary equal to an amount (if positive)
equal to (x) Holdings' "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to Holdings's equity
interest in such Subsidiary) of the fair market value of the net assets of
such Subsidiary at the time of such redesignation; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors.
"Investment Grade Rating" means a rating of BBB- or higher by S&P
and Baa3 or higher by Moody's or the equivalent of such rating by S&P and
Moody's or by any other Rating Agencies selected as provided in the definition
of Rating Agency.
"Issue Date" means the date on which the Discount Notes are
originally issued, after giving effect to the Transaction.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized
by law, regulation or executive order to remain closed. If a payment date is
a Legal Holiday at a place of payment, payment may be made at that place on
the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
"Moody's" means Moody's Investor Service, Inc.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only
as and when received, but excluding any other consideration received in the
form of assumption by the acquiring Person of Debt or other obligations
relating to such properties or assets that are the subject of such Asset
Disposition or received in any other noncash form) therefrom, in each case net
of (i) all legal, title and recording expenses, commissions and other fees and
expenses incurred, and all Federal, state, provincial, foreign and local taxes
required to be accrued as a liability under GAAP, as a consequence of such
Asset Disposition; (ii) all payments made on any Debt which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of any
Lien upon or other security agreement of any kind with respect to such assets,
or which must by its terms, or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law be repaid out of the
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proceeds from such Asset Disposition; (iii) all distributions and other
payments required to be made to minority interest holders in Subsidiaries or
joint ventures as a result of such Asset Disposition; and (iv) the deduction
of appropriate amounts provided by the sellers as a reserve, in accordance
with GAAP, against any liabilities associated with the property or other
assets disposed in such Asset Disposition and retained by Holdings or any
Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds" means, with respect to any issuance or sale of
Capital Stock, the cash proceeds of such issuance or sale net of attorneys'
fees, accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-Convertible Capital Stock" means, with respect to any
corporation, any non-convertible Capital Stock of such corporation and any
Capital Stock of such corporation convertible solely into non-convertible
common stock of such corporation; provided, however, that Non-Convertible
Capital Stock shall not include any Redeemable Stock or Exchangeable Stock.
"Notes" means the [___]% Senior Subordinated Notes Due 2006 issued
pursuant to the terms of that certain Indenture, dated [________ __], 1996,
between Chemicals, as issuer, and [________], as trustee thereunder.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, Controller, Secretary or
any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of
Holdings by two Officers of Holdings, one of whom must be the principal
executive officer, principal financial officer, treasurer or principal
accounting officer of Holdings.
"Opinion of Counsel" means a written opinion from legal counsel, who
may be an employee of or counsel to Holdings or the Trustee.
"Permitted Holders" means (i) the purchasers in the Equity Private
Placement; (ii) any Person who on the date of issuance of the Discount Notes
is an officer, director, stockholder, employee or consultant of The Sterling
Group, Inc. or The Unicorn Group, L.L.C.; (iii) each of Frank J. Hevrdejs,
William C. Oehmig, J. Virgil Waggoner, Robert W. Roten and Gordon Cain; (iv)
any Permitted Transferee with respect to any Person covered by the preceding
clauses (i) through (iii) hereof; (v) the ESOP; or (vi) any savings or
investment plan sponsored by Chemicals or Holdings.
"Permitted Investment" means an Investment by Holdings or any
Restricted Subsidiary in (i) a Wholly Owned Subsidiary or a Person that will,
upon the making of such Investment, become a Wholly Owned Subsidiary; (ii)
Temporary Cash Investments; (iii) receivables owing to Holdings or any
Restricted Subsidiary if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade
terms; (iv) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to Holdings or any
Restricted Subsidiary or in satisfaction of judgments; (v) any Person to the
extent such Investment represents the non-cash portion of the
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consideration received for an Asset Disposition as permitted pursuant to
Section 5.07; (vi) Investments by Holdings or a Restricted Subsidiary in a
Person to the extent the consideration for such Investment consists of shares
of Capital Stock of Holdings (other than Redeemable Stock); (vii) payroll,
travel and similar advances to cover matters that are expected at the time of
such advances ultimately to be treated as expenses for accounting purposes and
that are made in the ordinary course of business; (viii) loans or advances to
employees or to a trust for the benefit of such employees that are made in the
ordinary course of business of Holdings or such Restricted Subsidiary; (ix)
the ESOP Loan; (x) the Permitted Loan; (xi) another Person if as a result of
such Investment such Person is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to, Holdings or a
Restricted Subsidiary; provided, however, that such Person's primary business
is reasonably related to the business of Holdings and its Restricted
Subsidiaries; and (xii) Investments in Unrestricted Subsidiaries or joint
ventures (whether in corporate or partnership form or otherwise), in either
case in entities engaged in businesses reasonably related to the business of
Holdings and its Restricted Subsidiaries, in an aggregate amount not to exceed
$10 million; provided, however, that the amount available for Investments
pursuant to this clause (xii) shall be reduced pursuant to Section
5.05(a)(iv)(3)(G).
"Permitted Liens" means, with respect to any Person, (i) pledges or
deposits by such Person under worker's compensation laws, unemployment
insurance laws or similar legislation, or good faith deposits in connection
with bids, tenders, contracts (other than for the payment of Debt) or leases
to which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits of cash or United States government
bonds to secure surety or appeal bonds to which such Person is a party, or
deposits as security for contested taxes or import duties or for the payment
of rent, in each case Incurred in the ordinary course of business; (ii) Liens
imposed by law, such as carriers', warehousemen's and mechanics' Liens, in
each case for sums not yet due or being contested in good faith by appropriate
proceedings or other Liens arising out of judgments or awards against such
Person with respect to which such Person shall then be proceeding with an
appeal or other proceedings for review; (iii) Liens for property taxes not yet
subject to penalties for non-payment or which are being contested in good
faith by appropriate proceedings; (iv) Liens in favor of issuers of surety
bonds or letters of credit issued pursuant to the request of and for the
account of such Person in the ordinary course of its business; provided,
however, that such letters of credit do not constitute Debt; (v) minor survey
exceptions, minor encumbrances, easements or reservations of, or rights of
others for, licenses, rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of real property or Liens incidental to the conduct of the business
of such Person or to the ownership of its properties which were not Incurred
in connection with Debt and which do not in the aggregate materially adversely
affect the value of said properties or materially impair their use in the
operation of the business of such Person; (vi) Liens securing Debt Incurred to
finance the construction, purchase or lease of, or repairs, improvements or
additions to, property of such Person; provided, however, that the Lien may
not extend to any other property owned by such Person or any of its
Subsidiaries at the time the Lien is Incurred, the Debt secured by the Lien
may not be Incurred more than 180 days after the later of the acquisition,
completion of construction, repair, improvement, addition or commencement of
full operation of the property subject to the Lien, the Debt secured by such
Lien shall have otherwise been permitted to be issued under the Discount Notes
Indenture, and the aggregate principal amount of Debt secured by such Liens
shall not exceed the lesser of cost or Fair Market Value of the assets or
property so acquired or constructed; (vii) Liens to secure Debt permitted
pursuant to Section 5.04(b)(i) and Section 5.04(b)(ii); (viii) Liens existing
on the Issue Date; (ix) Liens on property or shares of Capital Stock of
another Person at the time such other Person becomes a Subsidiary of such
Person;
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provided, however, that such Liens are not created, incurred or assumed in
connection with, or in contemplation of, such other Person becoming such a
Subsidiary; provided, further, however, that such Lien may not extend to any
other property owned by such Person or any of its Subsidiaries; (x) Liens on
property at the time such Person or any of its Subsidiaries acquires the
property, including any acquisition by means of a merger or consolidation with
or into such Person or a Subsidiary of such Person; provided, however, that
such Liens are not created, incurred or assumed in connection with, or in
contemplation of, such acquisition; provided, further, however, that the Liens
may not extend to any other property owned by such Person or any of its
Subsidiaries; (xi) Liens securing Debt or other obligations of a Subsidiary of
such Person owing to such Person or a Wholly Owned Subsidiary of such Person;
(xii) Liens securing Interest Rate Agreements and Currency Agreements so long
as such Interest Rate Agreements and Currency Agreements relate to Debt that
is, and is permitted to be under this Indenture, secured by a Lien on the same
property securing such Interest Rate Agreements and Currency Agreements;
(xiii) Liens created pursuant to the terms of the Pledge Agreement; and (xiv)
Liens to secure any Refinancing (or successive Refinancings) as a whole, or in
part, of any Debt secured by any Lien referred to in the foregoing clauses
(vi), (viii), (ix) and (x); provided, however, that (A) such new Lien shall be
limited to all or part of the same property that secured the original Lien
(plus improvements to or on such property), and (B) the Debt secured by such
Lien at such time is not increased to any amount greater than the sum of (1)
the outstanding principal amount or, if greater, committed amount of the Debt
described under clauses (vi), (viii), (ix) or (x) at the time the original
Lien became a Permitted Lien, and (2) an amount necessary to pay any fees and
expenses, including premiums, related to such refinancing, refunding,
extension, renewal or replacement. Notwithstanding the foregoing, the term
"Permitted Liens" shall not include any Lien described in clauses (vi), (ix)
or (x) above to the extent such Lien applies to any assets acquired directly
or indirectly from Net Available Cash pursuant to Section 5.07(a)(ii)(2) and
Section 5.07(a)(ii)(4).
"Permitted Loan" means the loan to Holdings by Chemicals, to be made
on the Issue Date, of up to $485 million, representing the proceeds of the
Notes Offering and amounts initially borrowed under the Term Loan Provisions
of the Credit Agreement net of repayment of existing Debt, purchase of certain
equity interests and payment of Transaction expenses; provided, however, that
such loan is subordinated in right of payment to the Discount Notes; and
provided, further, however, that such loan is discharged in full on or prior
to October 15, 1996 through the distribution from Chemicals to Holdings, in
the form of a dividend, of the receivable relating thereto.
"Permitted Transferee" means, with respect to any Person, (i) in the
case of an entity, any Affiliate of such Person; and (ii) in the case of an
individual, any person related by lineal or collateral consanguinity to such
individual or to the spouse of such individual (adopted persons shall be
considered the natural born child of their adoptive parents; lineal
consanguinity is the relationship that exists between persons of whom one is
descended (or ascended) in direct line from the other, as between son, father,
grandfather, great-grandfather; and collateral consanguinity is that
relationship that exists between persons who have the same ancestors, but do
not descend (or ascend) from the other, as between uncle and nephew, or cousin
and cousin), in each case to whom such Person has transferred Common Stock of
Holdings.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
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"Pledge Agreement" means that certain Pledge Agreement, dated as of
[_______ __], 1996, between Holdings and the Trustee.
"Preferred Stock" means, as applied to the Capital Stock of any
corporation, Capital Stock of any class or classes (however designated) which
is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Public Equity Offering" means an underwritten primary public
offering of common stock of Holdings pursuant to an effective registration
statement under the Securities Act.
"Public Market" means any time after (i) a Public Equity Offering
has been consummated; and (ii) at least 15% of the total issued and
outstanding common stock of Holdings has been distributed by means of an
effective registration statement under the Securities Act or sales pursuant to
Rule 144 under the Securities Act.
"Rating Agency" means S&P and Moody's, or if S&P or Moody's or both
shall not make a rating on the Discount Notes publicly available, a nationally
recognized statistical rating agency or agencies, as the case may be, selected
by Holdings (as certified by a resolution of the Board of Directors) which
shall be substituted for S&P or Moody's or both, as the case may be.
"Redeemable Stock" means any Capital Stock that by its terms or
otherwise is required to be redeemed on or prior to the Stated Maturity of the
Discount Notes or is redeemable at the option of a Holder thereof at any time
on or prior to the Stated Maturity of the Discount Notes.
"Refinance" means, with respect to any Debt, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Debt in exchange or replacement for, such indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Debt" means Debt that Refinances any Debt of Holdings
or any Restricted Subsidiary existing on the Issue Date or Incurred in
compliance with the Discount Notes Indenture including Debt that Refinances
Refinancing Debt; provided, however, that (i) such Refinancing Debt has a
Stated Maturity no earlier than the Stated Maturity of the Debt being
Refinanced; (ii) such Refinancing Debt has an Average Life at the time such
Refinancing Debt is Incurred that is equal to or greater than the Average Life
of the Debt being Refinanced; (iii) such Refinancing Debt has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or
if Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Debt being Refinanced; and (iv) with respect to
any Refinancing Debt of Debt other than Senior Debt, such Refinancing Debt
shall rank no more senior, and shall be at least as subordinated, in right of
payment to the Discount Notes as the Debt being so extended, renewed, refunded
or refinanced; provided, further, however, that Refinancing Debt shall not
include (x) Debt of a Subsidiary that Refinances Debt of Holdings, or (y) Debt
of Holdings or a Restricted Subsidiary that Refinances Debt of an Unrestricted
Subsidiary.
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"Responsible Officer" means, when used with respect to the Trustee,
any officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee
customarily performing functions similar to those performed by any of the
above designated officers.
"Restricted Subsidiary" means any Subsidiary of Holdings that is not
an Unrestricted Subsidiary.
"Revolving Credit Provisions" means the provisions of the Credit
Agreement pursuant to which lenders thereunder have committed to make
available to Chemicals, a revolving credit facility, including the Canadian
Facility.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby Holdings or a Restricted
Subsidiary transfers such property to a Person and Holdings or a Restricted
Subsidiary leases it from such Person.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"Security Documents" means, collectively, the Pledge Agreement and
the Intercreditor Agreement.
"Senior Debt" means (i) Debt of Holdings, whether outstanding on the
Issue Date or thereafter Incurred; and (ii) accrued and unpaid interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to Holdings whether or not such
interest is an allowable claim in any such proceeding) in respect of (A)
indebtedness of Holdings for money borrowed and (B) indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
Holdings is responsible or liable unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
provided that such obligations are subordinate in right of payment to the
Discount Notes; provided, however, that Senior Debt shall not include (1) any
obligation of Holdings to any Subsidiary, (2) any liability for Federal,
state, local or other taxes owed or owing by Holdings, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course
of business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Debt of Holdings (and any accrued and unpaid interest in
respect thereof) which is subordinate or junior in any respect to any other
Debt or other obligation of Holdings, (5) that portion of any Debt which at
the time of Incurrence is Incurred in violation of this Indenture, (6) Debt
owed, due, or guaranteed on behalf of, any director, officer or employee of
Holdings or any Subsidiary (including, without limitation, amounts owed for
compensation), and (7) Debt which when Incurred and without respect to any
election under Section 1111(b) of Title 11 United States Code, is without
recourse to Holdings.
"Separation Date" has the meaning set forth in the second recital.
"Significant Subsidiary" means any Restricted Subsidiary that would
be a "significant subsidiary" of Holdings as such term is defined in Rule 1-02
of Regulation S-X, promulgated by the SEC.
"S&P" means Standard & Poor's Ratings Group.
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"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Debt of Holdings (whether
outstanding on the Issue Date or thereafter Incurred) that is subordinate or
junior in right of payment to the Discount Notes.
"Subsidiary" means any corporation, association, partnership or
other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) Holdings; (ii) Holdings and one or
more Subsidiaries; or (iii) one or more Subsidiaries.
"Tangible Property" means all land, buildings, machinery and
equipment and leasehold interests and improvements which would be reflected on
a balance sheet of Holdings prepared in accordance with generally accepted
accounting principles, excluding (i) all rights, contracts and other
intangible assets of any nature whatsoever; and (ii) all inventories and other
current assets.
"Temporary Cash Investments" means any of the following: (i) any
investment in direct obligations of the United States of America or any agency
thereof or obligations guaranteed by the United States of America or any
agency thereof; (ii) investments in time deposit accounts, certificates of
deposit and money market deposits maturing within 270 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof or any foreign
country recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50,000,000
(or the foreign currency equivalent thereof) and has outstanding debt which is
rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule 436
under the Securities Act) or any money-market fund sponsored by a registered
broker dealer or mutual fund distributor; (iii) repurchase obligations with a
term of not more than 30 days for underlying securities of the types described
in clause (i) above entered into with a bank meeting the qualifications
described in clause (ii) above; (iv) investments in commercial paper, maturing
not more than 180 days after the date of acquisition, issued by a corporation
(other than an Affiliate of Holdings) organized and in existence under the
laws of the United States of America or any foreign country recognized by the
United States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher)
according to S&P; and (v) investments in securities with maturities of six
months or less from the date of acquisition issued or fully guaranteed by any
state, commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A" by
S&P or "A" by Moody's; (vi) participations (for a tenor of not more than 90
days) in loans to Persons having short-term credit ratings of at least "A-1"
and "P-1" by S&P and Moody's, respectively; (vii) with respect to any Foreign
Subsidiary organized in Canada, commercial paper of Canadian companies rated
R-1 High or the equivalent thereof by Dominion Bond Rating Services with
maturities of less than one year; and (viii) with respect to Foreign
Subsidiaries not organized in Canada, government obligations of another
country whose debt
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securities are rated by S&P and/or Moody's "A-1" or "P-1", or the equivalent
thereof (if a short-term debt rating is provided by either) or at least "AA"
or "AA2", or the equivalent thereof (if a long-term unsecured debt rating is
provided by either), in each case, with the maturities of less than 12 months.
"Term Loan Provisions" means the provisions of the Credit Agreement
pursuant to which lenders thereunder have committed to make term loans
available to Chemicals.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
77bbbb) as in effect on the date on which this Indenture is qualified under
the TIA.
"Transaction" means, collectively, the merger of STX Acquisition
Corp. with and into Chemicals pursuant to that certain Amended and Restated
Agreement and Plan of Merger, dated as of April 24, 1996, and the related
financings.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture,
and thereafter such term shall mean such successor serving hereunder.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.
"Unrestricted Subsidiary" means (i) any Subsidiary of Holdings that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below; and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Subsidiary of Holdings (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of
its Subsidiaries own any Capital Stock or Debt of, or holds any Lien on any
property of, Holdings or any other Subsidiary of Holdings that is not a
Subsidiary of the Subsidiary to be so designated; provided, however, that
either (A) the Subsidiary to be so designated has total assets of $1,000 or
less, or (B) if such Subsidiary has assets of greater than $1,000, such
designation would be permitted pursuant to Section 5.05; and provided,
further, however, that no (1) Subsidiary of Holdings that is a Restricted
Subsidiary on the Issue Date (other than a Restricted Subsidiary with total
assets of $1,000 or less on the Issue Date) may be designated an Unrestricted
Subsidiary, and (2) no Subsidiary holding, directly or indirectly, any assets
(other than assets totaling $1,000 or less which constituted the only assets
of a Restricted Subsidiary on the Issue Date) held by Holdings or a Restricted
Subsidiary on the Issue Date may be designated an Unrestricted Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation (x) if such Unrestricted Subsidiary at such time has Debt,
Holdings could Incur $1.00 of additional Debt pursuant to Section 5.04(a), and
(y) no Default shall have occurred and be continuing. Any such designation by
the Board of Directors shall be by Holdings to the Trustee by promptly filing
with the Trustee a copy of the board resolution giving effect to such
designation and an Officer's Certificate certifying that such designation
complied with the foregoing provisions.
"Units" has the meaning set forth in the second recital.
"Underwriters" has the meaning set forth in the second recital.
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"Voting Stock" of a corporation means all classes of Capital Stock
of such corporation then outstanding and normally entitled to vote in the
election of directors.
"Warrants" has the meaning set forth in the second recital.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the
Capital Stock of which (other than directors' qualifying shares) is owned by
Holdings or another Wholly Owned Subsidiary; provided, however, that a Foreign
Subsidiary shall be a Wholly Owned Subsidiary if more than 90% of the Capital
Stock and Voting Stock thereof is owned by Holdings or another Wholly Owned
Subsidiary.
Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Article/Section
- ---------- ---------------
<S> <C>
"Affiliate Transaction".. Section 5.08
"Change of Control"...... Article IV
"covenant defeasance".... Section 9.01
"Event of Default"....... Section 7.01
"legal defeasance"....... Section 9.01
"Paying Agent"........... Section 2.03
"parent corporation"..... Article IV
"Payment Default"........ Section 7.01
"Registrar".............. Section 2.03
"Restricted Payment"..... Section 5.05
"specified corporation".. Article IV
"Successor Company"...... Section 6.01
</TABLE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
(i) "indenture securities" means the Discount Notes;
(ii) "indenture security holder" means a Holder of a Discount
Note;
(iii) "indenture to be qualified" means this Indenture;
(iv) "indenture trustee" or "institutional trustee" means the
Trustee;
(v) "obligor" upon the Discount Notes means each of Holdings and
any successor obligor upon the Discount Notes.
All other terms used in this Indenture that are (i) defined by the
TIA; (ii) defined by TIA reference to another statute; or (iii) defined by SEC
rule under the TIA have the meanings so assigned to them.
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Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) the word "or" shall not be deemed to be exclusive;
(iv) words in the singular include the plural, and words in the
plural include the singular; and
(v) provisions apply to successive events and transactions.
ARTICLE II
THE DISCOUNT NOTES
Section 2.01. Form and Dating.
The Discount Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto, the terms of which are
incorporated in and made a part of this Indenture. The Discount Notes may
have such notations, legends or endorsements approved as to form by Holdings
and required, as applicable, by law, stock exchange rule, agreements to which
Holdings is subject and/or usage. Each Discount Note shall be dated the date
of its authentication. The Discount Notes shall be issuable only in
denominations of $1,000 and integral multiples thereof.
Section 2.02. Execution and Authentication.
Two Officers of Holdings shall sign the Discount Notes for Holdings
by manual or facsimile signature. Holdings' seal shall be reproduced on the
Discount Notes.
If an Officer whose signature is on a Discount Note no longer holds
that office at the time such Discount Note is authenticated such Discount Note
shall be valid nevertheless.
A Discount Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature of the Trustee shall be conclusive
evidence that a Discount Note has been authenticated in accordance with the
terms of this Indenture.
The Trustee, upon a written order of Holdings signed by two Officers
of Holdings, shall authenticate the Discount Notes for original issue up to an
aggregate principal amount stated in paragraph 4 of the Discount Notes. The
aggregate principal amount of Discount Notes outstanding at any time shall not
exceed the amount set forth therein except as provided in Section 2.07.
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The Trustee may appoint an authenticating agent acceptable to
Holdings to authenticate the Discount Notes. Unless limited by the terms of
such appointment, any such authenticating agent may authenticate the Discount
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such authenticating
agent of the Trustee. An authenticating agent has the same rights as an Agent
to deal with Holdings or an Affiliate of Holdings.
Section 2.03. Registrar and Paying Agent.
Holdings shall maintain (i) an office or agency where the Discount
Notes may be presented for registration of transfer or for exchange (including
any co-registrar, the "Registrar"); and (ii) an office or agency where the
Discount Notes may be presented for payment ("Paying Agent"). The Registrar
shall keep a register of the Holders of Discount Notes and of the transfer and
exchange of such Discount Notes (the "Discount Note Register"). Holdings may
appoint one or more co-registrars and one or more additional paying agents.
The term "Paying Agent" shall include any such additional paying agent.
Holdings may change any Paying Agent, Registrar or co-registrar without prior
notice to any Holder of a Discount Note. Holdings shall notify the Trustee
and the Trustee shall notify the Holders of the Discount Notes of the name and
address of any Agent not a party to this Indenture. Holdings or any of its
domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent,
Registrar or co-registrar. Holdings shall enter into an appropriate agency
agreement with any Agent not a party to this Indenture, which shall
incorporate the provisions of the TIA. Any such agency agreement shall
implement the provisions of this Indenture that relate to such Agent. If
Holdings fails to maintain a Registrar or Paying Agent, or fails to give the
foregoing notice, the Trustee shall act as such, as appropriate, and shall be
entitled to appropriate compensation in accordance with Section 8.07.
Holdings initially appoints the Trustee as Registrar, Paying Agent
and agent for service of notices and demands in connection with the Discount
Notes.
Section 2.04. Paying Agent to Hold Money In Trust.
On or prior to each due date of the principal of and interest on any
Discount Note, Holdings shall deposit with the Paying Agent a sum sufficient
to pay such principal and interest when so becoming due. Holdings shall
require each Paying Agent (other than the Trustee) to agree in writing that
the Paying Agent shall hold in trust for the benefit of the Holders of the
Discount Notes or the Trustee all money held by the Paying Agent for the
payment of principal of, premium, if any, and interest on the Discount Notes,
and shall notify the Trustee of any Default by Holdings in making any such
payment. While any such Default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. Holdings at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon
payment over to the Trustee, the Paying Agent (if other than Holdings) shall
have no further liability for the money delivered to the Trustee. If Holdings
acts as Paying Agent, it shall segregate and hold in a separate trust fund for
the benefit of the Holders of the Discount Notes all money held by it as
Paying Agent.
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Section 2.05. Lists of Holders of Discount Notes.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Holders of Discount Notes. If the Trustee is not the Registrar, Holdings
shall furnish to the Trustee at least three Business Days before each interest
payment date and at such other times as the Trustee may request in writing a
list in such form and as of such date as the Trustee may reasonably require of
the names and addresses of the Holders of Discount Notes, including the
aggregate principal amount of Discount Notes held by each such Holder of
Discount Notes.
Section 2.06. Transfer and Exchange.
Discount Notes shall be issued in registered form and shall be
transferable only upon the surrender of a Discount Note for registration of
transfer. When Discount Notes are presented to the Registrar with a request
to register the transfer or to exchange them for an equal principal amount of
Discount Notes of other denominations, the Registrar shall register the
transfer or make the exchange if its requirements for such transactions are
met; provided, however, that any Discount Note presented or surrendered for
registration of transfer or exchange shall be duly endorsed or accompanied by
a written instruction of transfer in form satisfactory to the Registrar and
the Trustee duly executed by the Holder thereof or by his attorney duly
authorized in writing. To permit registrations of transfer and exchanges,
Holdings shall issue and the Trustee shall authenticate Discount Notes at the
Registrar's request.
Neither Holdings nor the Registrar shall be required to (i) issue,
register the transfer of or exchange Discount Notes during a period beginning
at the opening of business on a Business Day 15 days before the day of any
selection of Discount Notes for redemption under Section 3.02; or (ii)
register the transfer of or exchange any Discount Note so selected for
redemption in whole or in part, except the unredeemed portion of any Discount
Note being redeemed in part.
No service charge shall be made to any Holder of a Discount Note for
any registration of transfer or exchange (except as otherwise expressly
permitted herein), but Holdings may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith.
Prior to due presentment to the Trustee for registration of the
transfer of any Discount Note, the Trustee, any Agent and Holdings may deem
and treat the Person in whose name any Discount Note is registered in the
Discount Note Register as the absolute owner of such Discount Note for the
purpose of receiving payment of principal of, premium, if any, and interest on
such Discount Note for all other purposes whatsoever, whether or not such
Discount Note is overdue, and none of the Trustee, any Agent nor Holdings
shall be affected by any notice to the contrary.
Section 2.07. Replacement Discount Notes.
If any mutilated Discount Note is surrendered to the Trustee, or
Holdings and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Discount Note, Holdings shall issue and the
Trustee shall authenticate a replacement Discount Note if Holdings' and the
Trustee's reasonable requirements for the replacements of Discount Notes are
met. If required by the Trustee or Holdings, an indemnity bond shall be
supplied by the Holder
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<PAGE>
that is sufficient in the judgment of the Trustee and Holdings to protect
Holdings, the Trustee, any Agent or any authenticating agent from any loss
which any of them may suffer if a Discount Note is replaced.
Every replacement Discount Note shall be an obligation of Holdings.
Section 2.08. Outstanding Discount Notes.
The Discount Notes outstanding at any time are all the Discount
Notes authenticated by the Trustee, except for those cancelled by it, those
delivered to it for cancellation and those described in this Section 2.08 as
not outstanding. A Discount Note does not cease to be outstanding because
Holdings, a Subsidiary of Holdings or an Affiliate of Holdings holds such
Discount Note.
If a Discount Note is replaced pursuant to Section 2.07, it shall
cease to be outstanding unless the Trustee receives proof satisfactory to it
that such replaced Discount Note is held by a bona fide purchaser. A
mutilated Discount Note ceases to be outstanding upon surrender of such
Discount Note and replacement thereof pursuant to Section 2.07.
If the Paying Agent segregates and holds in trust, in accordance
with this Indenture, on a redemption date or maturity date money sufficient to
pay all principal and interest payable on that date with respect to the
Discount Notes (or portions thereof) to be redeemed or maturing, as the case
may be, and the Paying Agent is not prohibited from paying such money to the
Holders of Discount Notes on that date pursuant to the terms of this
Indenture, then on and after that date such Discount Notes (or portions
thereof) shall cease to be outstanding and interest thereon shall cease to
accrue.
Section 2.09. Temporary Discount Notes.
Until definitive Discount Notes are ready for delivery, Holdings may
prepare and the Trustee shall authenticate temporary Discount Notes.
Temporary Discount Notes shall be substantially in the form of definitive
Discount Notes but may have such variations as Holdings and the Trustee
consider appropriate for temporary Discount Notes. Without unreasonable
delay, Holdings shall prepare and the Trustee shall authenticate definitive
Discount Notes in exchange for temporary Discount Notes. Until such exchange,
temporary Discount Notes shall be entitled to the same rights, benefits and
privileges as definitive Discount Notes.
Section 2.10. Cancellation.
Holdings at any time may deliver Discount Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Discount Notes surrendered to them for registration of transfer, exchange
or payment. The Trustee and no one else shall cancel all Discount Notes
surrendered for registration of transfer, exchange, payment, replacement or
cancellation, and shall destroy such cancelled Discount Notes (subject to the
record retention requirement of the Exchange Act), and, upon the request of
Holdings, deliver a certificate of such destruction to Holdings, unless
Holdings directs called Discount Notes to be returned to them. Holdings may
not issue new Discount Notes to replace Discount Notes it has redeemed paid or
delivered to the Trustee for cancellation.
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<PAGE>
Section 2.11. Defaulted Interest.
If Holdings defaults in a payment of interest on the Discount Notes,
Holdings shall pay such defaulted interest in any lawful manner. Holdings may
pay such defaulted interest to the Persons who are Holders of the Discount
Notes on a subsequent special record date, which date shall be at the earliest
practicable date but in all events at least five Business Days prior to the
payment date, in each case at the rate provided in the Discount Notes.
Holdings shall fix or cause to be fixed any such special record date and
payment date, and, at least 15 days prior to the special record date, Holdings
shall mail or cause to be mailed to each Holder of a Discount Note a notice
that states such special record date, such related payment date and the amount
of any such defaulted interest to be paid to Holders of the Discount Notes.
Section 2.12. CUSIP Number.
Holdings in issuing the Discount Notes may use a "CUSIP" number,
and, if Holdings shall do so, the Trustee shall use such CUSIP number in
notices of redemption or exchange as a convenience to Holders; provided,
--------
however, that any such notice may state that no representation is made as to
-------
the correctness or accuracy of the CUSIP number printed in such notice or on
the Discount Notes and that reliance may be placed only on the other
identification numbers printed on the Discount Notes. Holdings will notify
the Trustee of any change in a CUSIP number.
Section 2.13. Separability of Warrants; Legend.
The Discount Notes and the Warrants shall not be separately
transferable until the Separation Date, at which time the Discount Notes and
the Warrants shall become separately transferable. Prior to the Separation
Date, the Discount Notes shall be exchangeable and transferable only together
with Warrants, as Units comprising [_____] Warrants for every $1,000 principal
amount at maturity of Discount Notes.
All Discount Notes issued prior to the Separation Date shall have
printed on the face thereof the following legend:
THE DISCOUNT NOTES EVIDENCED BY THIS CERTIFICATE WERE INITIALLY ISSUED AS
PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF DISCOUNT NOTES AND
WARRANTS (EACH, A "WARRANT") ENTITLING THE HOLDERS THEREOF TO PURCHASE AN
AGGREGATE OF [____________] SHARES OF COMMON STOCK, PAR VALUE, $.01 PER
SHARE OF STERLING CHEMICALS HOLDINGS, INC., AT A PRICE OF $.01 PER SHARE.
PRIOR TO THE EARLIER OF (I) [_________ ___], 1996 AND (II) SUCH DATE AS
THE UNDERWRITERS MAY, IN THEIR DISCRETION, DEEM APPROPRIATE, THE DISCOUNT
NOTES EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED
SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH,
THE WARRANTS.
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ARTICLE III
REDEMPTION
Section 3.01. Notices to Trustee.
If Holdings elects to redeem Discount Notes pursuant to paragraph 5
of the Discount Notes, Holdings shall notify the Trustee in writing of the
redemption date, the principal amount of Securities to be redeemed and the
paragraph of the Discount Notes pursuant to which the redemption will occur.
Holdings shall give each notice to the Trustee provided for in this
Section 3.01 at least 60 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an
Officers' Certificate and an Opinion of Counsel from Holdings to the effect
that such redemption will comply with the conditions herein. If fewer than
all of the Discount Notes are to be redeemed, the record date relating to such
redemption shall be selected by Holdings and given to the Trustee, which
record date shall be less than 15 days after the date of notice to the
Trustee.
Section 3.02. Selection of Discount Notes to be Redeemed.
If fewer than all the Discount Notes are to be redeemed, the Trustee
shall select the Discount Notes to be redeemed pro rata or by lot or by a
method that the Trustee considers fair and appropriate. The Trustee shall
make the selection from outstanding Discount Notes not previously called for
redemption. The Trustee may select for redemption portions of the principal
of Discount Notes that have denominations larger than $1,000. Discount Notes
and portions of Discount Notes the Trustee selects shall be in amounts of
$1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply
to Discount Notes called for redemption also apply to portions of Discount
Notes called for redemption. The Trustee shall notify Holdings promptly of
the Discount Notes or portions of Discount Notes to be redeemed.
Section 3.03. Notice of Redemption.
Holdings shall at least 30 days but not more than 60 days before a
redemption date mail or cause to be mailed, by first class-mail, a notice to
redemption to each Holder Discount Notes of which are to be redeemed.
The notice shall identify the Discount Notes to be redeemed and
shall state:
(i) the redemption date;
(ii) the redemption price;
(iii) if any Discount Note is being redeemed in part, the portion
of the principal amount of such Discount Note to be redeemed, and that after
the redemption date upon surrender of such Discount Note, a new Discount Note
or Discount Notes in principal amount equal to the unredeemed portion shall be
issued;
(iv) the name and address of the Paying Agent;
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<PAGE>
(v) that Discount Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(vi) that, unless Holdings defaults in making such redemption
payment or the Paying Agent is prohibited from making such payment pursuant to
the terms of this Indenture, interest on Discount Notes called for redemption
ceases to accrue on and after the redemption date;
(vii) the paragraph of the Discount Notes and/or the Section of this
Indenture pursuant to which the Discount Notes called for redemption are being
redeemed; and
(viii) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed on the
Discount Notes.
At Holdings' request, the Trustee shall give the notice of
redemption in Holdings' name and at Holdings' expense. In such event, Holdings
shall provide the Trustee with the information required by this Section 3.03.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03,
Discount Notes called for redemption shall become due and payable on the
redemption date and at the redemption price stated in such notice of
redemption. Upon surrender to the Paying Agent, such Discount Notes shall be
paid at the redemption price stated in such notice of redemption, plus accrued
interest to the redemption date. Failure to give notice to a Holder of a
Discount Note or any defect in any notice shall not affect the validity of any
notice to any other Holder of a Discount Note.
Section 3.05. Deposit of Redemption Price.
On or prior to any redemption date, Holdings shall deposit with the
Paying Agent (or, if Holdings or a Subsidiary is the Paying Agent, shall
segregate and hold in trust) money sufficient to pay the redemption price of
and accrued interest on all Discount Notes to be redeemed on that date. The
Trustee or the Paying Agent shall promptly return to Holdings any money
deposited with the Trustee or the Paying Agent by Holdings in excess of the
amounts necessary to pay the redemption price of, and accrued interest on, all
Discount Notes to be redeemed on that date other than Discount Notes or
portions of Discount Notes called for redemption which have been delivered by
Holdings to the Trustee for cancellation.
Section 3.06. Discount Notes Redeemed in Part.
Upon surrender of a Discount Note that is redeemed in part, Holdings
shall issue and the Trustee shall authenticate for the Holder of the Discount
Notes (at the expense of Holdings) a new Discount Note equal in principal
amount to the unredeemed portion of the Discount Note surrendered.
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ARTICLE IV
CHANGE OF CONTROL
(a) Upon the occurrence of a Change of Control (as defined below),
each Holder of a Discount Note shall have the right to require Holdings to
repurchase such Holder's Discount Notes at a purchase price in cash equal to
101% of the Accreted Value thereof plus accrued and unpaid interest (if any)
to the date of repurchase (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date).
(b) The occurrence of any of the following events shall constitute
a "Change of Control" under this Indenture:
(i) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all shares that any 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 35% of the
total voting power of the Voting Stock of Holdings; provided that the
Permitted Holders "beneficially own" (as defined above), directly or
indirectly, in the aggregate a lesser percentage of the total voting
power of the Voting Stock of Holdings than such other Person and do not
have the right or ability by voting power, contract or otherwise to elect
or designate for election a majority of the Board of Directors of
Holdings (for the purposes of this clause (i), (A) such other Person
shall be deemed to beneficially own any Voting Stock of a corporation
(the "specified corporation") held by any other corporation (the "parent
corporation"), if such other Person "beneficially owns" (as defined
above), directly or indirectly, of more than 35% of the voting power of
the Voting Stock of such parent corporation and the Permitted Holders
"beneficially own" (as defined above), directly or indirectly, in the
aggregate a lesser percentage of the voting power of the Voting Stock of
such parent corporation and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a
majority of the board of directors of such parent corporation; and (B)
the Permitted Holders shall be deemed to beneficially own any Voting
Stock of a specified corporation held by any parent corporation so long
as the Permitted Holders beneficially own (as so defined), directly or
indirectly, in the aggregate a majority of the voting power of the Voting
Stock of the parent corporation);
(ii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors of
Holdings or Chemicals (together with any new directors whose election by
such Board of Directors or whose nomination for election by the
shareholders of Holdings or Chemicals, as the case may be, was approved
by a majority of the directors of Holdings or Chemicals, as the case may
be, 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 Board
of Directors of Holdings or Chemicals, as the case may be, then in
office;
(iii) the merger or consolidation of Holdings or Chemicals with
or into another Person or the merger of another Person (other than a
Permitted Holder) with or into Holdings or Chemicals, or the sale or
transfer in one or a series of transactions of all or
26
<PAGE>
substantially all the assets of Holdings or Chemicals to another Person
(other than a Permitted Holder), and, in the case only of any such merger
or consolidation, the securities of Holdings or Chemicals that are
outstanding immediately prior to such transaction and which represent
100% of the aggregate voting power of the Voting Stock of Holdings or
Chemicals are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving corporation that represent immediately after such transaction,
at least a majority of the aggregate voting power of the Voting Stock of
the surviving corporation; or
(iv) Holdings shall hold less than 100% of the Capital Stock of
Chemicals (other than Preferred Stock of Chemicals issued in accordance
with the terms of this Indenture) or less than 100% of the Voting Stock
of Chemicals.
(c) Within 30 days following any Change of Control, Holdings shall
mail a notice to each Holder with a copy to the Trustee stating: (i) that a
Change of Control has occurred and that such Holder has the right to require
Holdings to purchase such Holder's Discount Notes at a purchase price in cash
equal to 101% of the Accreted Value thereof plus accrued and unpaid interest,
if any, to the date of purchase (subject to the right of holders of record on
the relevant record date to receive interest on the relevant interest payment
date); (ii) the material circumstances and facts regarding such Change of
Control (including information with respect to pro forma historical income,
cash flow and capitalization, each after giving effect to such Change of
Control); (iii) the repurchase date (which shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed in the event of a
Change of Control); and (iv) the instructions determined by Holdings,
consistent with the covenant described hereunder, that a Holder must follow in
order to have its Discount Notes purchased.
(d) Holdings shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Discount Notes
pursuant to this Article IV. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of this Article
IV, Holdings shall comply with the applicable securities laws and regulations
and shall not be deemed to have breached its obligations under this Article IV
by virtue thereof.
ARTICLE V
COVENANTS
Section 5.01. Payment of Principal, Premium and Interest.
Holdings shall duly and punctually pay the principal of (and
premium, if any) and interest on the Discount Notes in accordance with the
terms of this Indenture and the Discount Notes.
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Section 5.02. Maintenance of Office or Agency.
Holdings shall maintain an office or agency (which may be an office
of the Trustee or an affiliate of the Trustee, Registrar or co-registrar)
where Discount Notes may be surrendered for registration of transfer or
exchange and where notices and demands to or upon Holdings in respect of the
Discount Notes and this Indenture may be served. Holdings shall give prompt
written notice to the Trustee of the location, and any change in such
location, of such office or agency. If at any time Holdings shall fail to
maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee.
Holdings also from time to time may designate one or more additional
offices or agencies where the Discount Notes may be presented or surrendered
for any or all such purposes and from time to time may rescind any such
designation; provided, however, that no such designation or rescission shall
in any manner relieve Holdings of its obligation to maintain an office or
agency for such purposes. Holdings shall give prompt written notice to the
Trustee of any such designation or rescission and of any change in the
location of any such other office or agency.
Section 5.03. SEC Reports.
So long as any of the Discount Notes remain outstanding, Holdings
shall cause copies of all quarterly and annual financial reports and of the
information, documents, and other reports (or copies of such portions of any
of the foregoing as the SEC may by rules and regulations prescribe) which
Holdings is required to file with the SEC pursuant to Section 13 or 15(d) of
the Exchange Act to be filed with the Trustee and mailed to the Holders at
their addresses appearing in the Discount Note Register maintained by the
Registrar, in each case, within 15 days of filing with the SEC. If Holdings
is not subject to the requirements of such Section 13 or 15(d) of the Exchange
Act, Holdings shall nevertheless continue to file with the SEC, in conformity
with Section 13 or Section 15(d) of the Exchange Act, and provide the Trustee
and Holders of Discount Notes with such annual and quarterly reports (without
exhibits in the case of documents provided to the Trustee and Holders of
Discount Notes) and such information, documents and other reports (or copies
of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) which are specified in Section 13 or Section 15(d) of
the Exchange Act. Holdings shall also comply with the provisions of TIA (S)
314(a).
Section 5.04. Limitation On Debt.
(a) Holdings shall not Incur, and shall not permit any Restricted
Subsidiary to Incur, directly or indirectly, any Debt unless the Consolidated
EBITDA Coverage Ratio at the date of such Incurrence exceeds 1.75 to 1.0 if
such Debt is Incurred on or prior to [_______ __], 1998, or 2.0 to 1.0 if such
Debt is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), Holdings and its
Restricted Subsidiaries may Incur the following Debt:
(i) Debt Incurred by Chemicals and its Restricted Subsidiaries
pursuant to the Revolving Credit Provisions of the Credit Agreement or
any other revolving credit facility which, when taken together with all
letters of credit and the principal amount of all other Debt Incurred
pursuant to this clause (i), does not exceed the greater of $100
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million and the sum of (x) 65% of the gross book value of the inventory
of Chemicals and its Restricted Subsidiaries and (y) 85% of the gross
book value of the accounts receivable of Chemicals and its Restricted
Subsidiaries;
(ii) Debt Incurred by Chemicals and its Restricted Subsidiaries
pursuant to the Term Loan Provisions of the Credit Agreement or any
indenture or term loan provisions of any other credit or loan agreement
which, when taken together with the principal amount of all other Debt
Incurred pursuant to this clause (ii), does not exceed $350 million
outstanding at any one time less the aggregate amount of all principal
repayments of any such Debt actually made after the Issue Date (other
than any such principal repayments made as a result of the Refinancing of
any such Debt);
(iii) Debt Incurred by Chemicals and its Restricted
Subsidiaries pursuant to the ESOP Loan Provisions of the Credit Agreement
in an aggregate principal amount not to exceed $6.5 million outstanding
at any one time less the aggregate amount of all principal repayments of
any such Debt actually made after the Issue Date (other than any such
principal repayments made as a result of the Refinancing of any such
Debt);
(iv) Debt of Holdings owed to and held by a Wholly Owned
Subsidiary; provided, however, that any subsequent issuance or transfer
of any Capital Stock that results in such Wholly Owned Subsidiary ceasing
to be a Wholly Owned Subsidiary or any transfer of such Debt (other than
to a Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Debt by Holdings;
(v) Debt of a Restricted Subsidiary Incurred and outstanding on
or prior to the date on which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by Holdings (other than Debt
Incurred in connection with, or to provide all or any portion of the
funds or credit support utilized to consummate, the transaction or series
of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by Holdings);
(vi) the Discount Notes and the Notes;
(vii) Debt outstanding on the Issue Date (other than Debt
described in clause (i), clause (ii), clause (iii), clause (iv), clause
(v) or clause (vi));
(viii) Refinancing Debt in respect of Debt Incurred pursuant
to paragraph (a) above or pursuant to clause (vi) or clause (vii) or this
clause (viii) of this paragraph (b);
(ix) Hedging Obligations; provided, that with respect to
Interest Rate Agreements and Currency Agreements (if such Currency
Agreements relate to Debt) only to the extent directly related to Debt
permitted to be Incurred by Holdings pursuant to this Indenture;
(x) the Permitted Loan; and
(xi) Debt in an aggregate principal amount which, together with
all other Debt of Holdings and the Restricted Subsidiaries then
outstanding (other than Debt
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permitted by clauses (i) through (ix) of this paragraph (b) or permitted
by paragraph (a) above) does not exceed $25 million.
For purposes of determining compliance with this paragraph (b), (i) in the
event that an item of Debt meets the criteria of more than one of the types of
Debt described in this paragraph (b), Holdings, in its sole discretion, shall
classify such item of Debt and only be required to include the amount and type
of such Debt in one of the clauses contained in this paragraph (b); and (ii)
an item of Debt may be divided and classified in more than one of the types of
debt contained in this paragraph (b).
(c) Notwithstanding the foregoing, Holdings shall not Incur any Debt
pursuant to the foregoing paragraph (b) if the proceeds thereof are used,
directly or indirectly, to Refinance any Subordinated Obligations unless such
Debt shall be subordinated to the Discount Notes to at least the same extent
as such Subordinated Obligations.
Section 5.05. Limitation On Restricted Payments.
(a) Holdings shall not, and shall not permit any Restricted
Subsidiary, directly or indirectly, to:
(i) declare or pay any dividend or make any distribution on or
in respect of its Capital Stock (including any payment in connection with
any merger or consolidation involving Holdings) or similar payment to the
direct or indirect holders of its Capital Stock (except dividends or
distributions payable solely in its Non-Convertible Capital Stock or in
options, warrants or other rights to purchase its Non-Convertible Capital
Stock and except dividends or distributions payable to Holdings or a
Restricted Subsidiary), and other than pro rata dividends or other
distributions made by a Restricted Subsidiary of Holdings that is not a
Wholly Owned Subsidiary to minority shareholders (or owners of an
equivalent interest in the case of a Restricted Subsidiary that is an
entity other than a corporation);
(ii) purchase, redeem or otherwise acquire or retire for value
any Capital Stock of Holdings, any direct or indirect parent of Holdings,
or a Restricted Subsidiary (other than such Capital Stock owned by
Holdings or any Wholly Owned Subsidiary);
(iii) purchase, repurchase, redeem, defease or otherwise
acquire or retire for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment, any Subordinated Obligations
(other than the purchase, repurchase or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due
within one year of the date of acquisition); or
(iv) make any Investment in any Person (other than a Permitted
Investment) (any such dividend, distribution, purchase, redemption,
repurchase, defeasance, other acquisition, retirement or Investment being
herein referred to as a "Restricted Payment"), if at the time Holdings or
such Restricted Subsidiary makes such Restricted Payment: (1) a Default
shall have occurred and be continuing (or would result therefrom); (2)
Holdings, after giving pro forma effect to such Restricted Payment, would
not be permitted to Incur an additional $1.00 of Debt pursuant to Section
5.04(a); or (3) the aggregate amount of such Restricted Payment and all
other Restricted Payments since the
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Issue Date would exceed the sum of: (A) 50% of the Consolidated Net
Income accrued during the period (treated as one accounting period) from
the beginning of the fiscal quarter during which the Discount Notes were
originally issued to the end of the most recent fiscal quarter ending at
least 45 days prior to the date of such Restricted Payment (or, in case
such Consolidated Net Income shall be a deficit, minus 100% of such
deficit); provided, however, that if the Discount Notes achieve an
Investment Grade Rating during any fiscal quarter, the percentage for
such fiscal quarter (and for any other fiscal quarter where, on the first
day of such fiscal quarter, the Discount Notes shall have an Investment
Grade Rating) will be 100% of Consolidated Net Income during such fiscal
quarter; provided, further, however, that if such Restricted Payment is
to be made in reliance upon an additional amount permitted pursuant to
the immediately preceding proviso, the Discount Notes must have an
Investment Grade Rating at the time such Restricted Payment is declared
or, if not declared, made; (B) the aggregate Net Cash Proceeds received
by Holdings from the issue or sale of its Capital Stock (other than
Redeemable Stock or Exchangeable Stock) subsequent to the Issue Date
(other than an issuance or sale to a Subsidiary or an employee stock
ownership plan or similar trust); (C) the aggregate Net Cash Proceeds
received by Holdings from the issue or sale of its Capital Stock (other
than Redeemable Stock or Exchangeable Stock) to an employee stock
ownership plan subsequent to the Issue Date; provided, however, that if
such employee stock ownership plan issues any Debt, such aggregate amount
shall be limited to an amount equal to any increase in the Consolidated
Net Worth of Holdings resulting from principal repayments made by such
employee stock ownership plan with respect to Debt issued by it to
finance the purchase of such Capital Stock; (D) the amount by which Debt
of Holdings is reduced on Holdings' balance sheet upon the conversion or
exchange (other than by a Subsidiary) subsequent to the Issue Date, of
any Debt of Holdings convertible or exchangeable for Capital Stock (other
than Redeemable Stock or Exchangeable Stock) of Holdings (less the amount
of any cash, or other property, distributed by Holdings upon such
conversion or exchange); (E) an amount equal to the sum of (x) the net
reduction in Investments in Unrestricted Subsidiaries resulting from
dividends, repayments of loans or advances or other transfers of assets,
in each case to Holdings or any Restricted Subsidiary from Unrestricted
Subsidiaries, and (y) the portion (proportionate to Holdings' equity
interest in such Subsidiary) of the fair market value of the net assets
of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that the foregoing
sum shall not exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made (and treated as a Restricted
Payment) by Holdings or any Restricted Subsidiary in such Unrestricted
Subsidiary; (F) to the extent not covered in sub-clauses (A) through (E)
of this clause (iv)(3), the aggregate net cash proceeds received after
the date of the Discount Notes Indenture by Holdings as capital
contributions (other than from any Restricted Subsidiaries); and (G) $5
million; provided, however, that, to the extent used, such $5 million
shall reduce the amount available for Investments pursuant to clause
(xii) of the definition of "Permitted Investments"; and provided,
further, however, that the amounts available under this sub-clause (G)
and under clause (xii) of the definition of "Permitted Investments" shall
in no event exceed $10 million in the aggregate.
(b) The provisions of the foregoing paragraph (a) shall not
prohibit:
(i) any purchase or redemption of Capital Stock or Subordinated
Obligations of Holdings made by exchange for, or out of the proceeds of
the substantially concurrent sale of, Capital Stock of Holdings (other
than Redeemable Stock or
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Exchangeable Stock of Holdings and other than Capital Stock issued or
sold to a Subsidiary or an employee stock ownership plan); provided;
however, that (1) such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments, and (2) the Net Cash
Proceeds from such sale shall be excluded from clause (iv)(3)(B) and
clause (iv)(3)(C) of paragraph (a) above;
(ii) any purchase, redemption, defeasance or other acquisition
or retirement for value of Subordinated Obligations of Holdings made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Debt of Holdings which is permitted to be Incurred pursuant to
Section 5.04; provided, however, that such purchase, redemption,
defeasance other acquisition or retirement for value shall be excluded in
the calculation of the amount of Restricted Payments;
(iii) any purchase or redemption of Subordinated Obligations
of Holdings from Net Available Cash to the extent permitted under Section
5.07; provided, however, that such purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments;
(iv) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would
have complied with this provision; provided, however, that at the time of
declaration of such dividend, no other Default shall have occurred and be
continuing (or would result therefrom); and provided, further, however,
that such dividend shall be included in the calculation of the amount of
Restricted Payments;
(v) repurchases of common stock of Holdings distributed to
participants and beneficiaries of the ESOP as required by and in
accordance with the ESOP and Section 409(h)(1)(B) of the Code and the
regulations thereunder; provided, however, that such amount shall be
excluded in the calculation of the amount of Restricted Payments;
(vi) payments to the ESOP on behalf of employees of Holdings or
its Subsidiaries; provided, however, that all such payments by Holdings
and its Subsidiaries may not exceed, during any fiscal year, 10% of the
aggregate compensation expense during such fiscal year attributable to
employees of Holdings and its Subsidiaries who are eligible to
participate in the ESOP; and
(vii) the repurchase, redemption, acquisition or retirement
for value of any Capital Stock of Holdings pursuant to any stockholder's
agreement, management equity subscription plan or agreement, stock option
plan or agreement or employee benefit plan in effect as of the Issue Date
or such employee plan or agreement or employee benefit plan as may be
adopted by Holdings or Chemicals from time to time; provided, however,
that the aggregate price paid for all Capital Stock repurchased,
redeemed, acquired or retired by or on behalf of Holdings or Chemicals
shall not exceed $5 million in any fiscal year; provided, further,
however, that such amount, to the extent related to the ESOP, shall be
excluded in the calculation of Restricted Payments.
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Section 5.06. Limitation On Restrictions On Distributions from Restricted
Subsidiaries.
Holdings shall not, and shall not permit any Restricted Subsidiary
to, create or permit to exist or become effective any consensual encumbrance
or restriction on the ability of any Restricted Subsidiary to:
(i) pay dividends or make any other distributions on its Capital
Stock or pay any Debt or other obligation owed to Holdings;
(ii) make any loans or advances to Holdings; or
(iii) transfer any of its property or assets to Holdings, except:
(1) any encumbrance or restriction pursuant to an agreement in
effect on the Issue Date or pursuant to the issuance of the Discount
Notes or the Notes;
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Debt Incurred by such
Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by Holdings (other than Debt Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by Holdings) and outstanding on
such date;
(3) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Debt Incurred pursuant to an agreement
referred to in clause (iii)(1) or clause (iii)(2) or contained in any
amendment to an agreement referred to in clause (iii)(1) or (iii)(2);
provided, however, that the encumbrances and restrictions contained in
any of such refinancing agreement or amendment are no less favorable to
the Holders than encumbrances and restrictions with respect to such
Restricted Subsidiary contained in such agreements;
(4) any such encumbrance or restriction consisting of customary
nonassignment provisions in leases governing leasehold interests to the
extent such provisions restrict the transfer of the lease or other
customary non-assignment provisions in contracts (other than contracts
that constitute Debt) entered into in the ordinary course of business to
the extent such provisions restrict the transfer of the assets subject to
such contracts;
(5) in the case of this clause (iii), restrictions contained in
security agreements or mortgages securing Debt of a Restricted Subsidiary
to the extent such restrictions restrict the transfer of the property
subject to such security agreements or mortgages;
(6) encumbrances or restrictions imposed by operation of
applicable law; and
(7) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or disposition
of all or substantially all
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the Capital Stock or assets of such Restricted Subsidiary pending the
closing of such sale or disposition.
Section 5.07. Limitation On Sales of Assets and Subsidiary Stock.
(a) Holdings shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, consummate any Asset Disposition,
unless:
(i) Holdings or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the
fair market value, as determined in good faith by the Board of Directors
(including as to the value of all non-cash consideration), of the shares
and assets subject to such Asset Disposition and at least 75% of the
consideration thereof received by Holdings or such Restricted Subsidiary
is in the form of cash or cash equivalents; and
(ii) an amount equal to 100% of the Net Available Cash from
such Asset Disposition is applied by Holdings (or such Restricted
Subsidiary, as the case may be):
(1) FIRST, to the extent Holdings elects (or is required
by the terms of any Senior Debt), to prepay, repay or purchase
Senior Debt or Debt (other than any Redeemable Stock) of a Wholly
Owned Subsidiary (in each case other than Debt owed to Holdings or
an Affiliate of Holdings) within 180 days from the later of the
date of such Asset Disposition or the receipt of such Net
Available Cash;
(2) SECOND, to the extent of the balance of such Net
Available Cash after application in accordance with clause (ii)(1)
above, at Holdings' election to the investment by Holdings, any
Wholly Owned Subsidiary or the Restricted Subsidiary making such
Asset Disposition in assets to replace the assets that were the
subject of such Asset Disposition or an asset that (as determined
by the Board of Directors) will be used in the business of
Holdings, the Wholly Owned Subsidiaries or the Restricted
Subsidiary making such Asset Disposition existing on the Issue
Date or in businesses reasonably related thereto, in each case
within the later of one year from the date of such Asset
Disposition or the receipt of such Net Available Cash;
(3) THIRD, to the extent of the balance of such Net
Available Cash after application and in accordance with clause
(ii)(1) and clause (ii)(2), to make an offer to purchase Discount
Notes (and any other Senior Debt designated by Holdings) pursuant
to and subject to the conditions contained in this Indenture; and
(4) FOURTH, to the extent of the balance of such Net
Available Cash after application in accordance with clause
(ii)(1), clause (ii)(2) and clause (ii)(3), to (A) the acquisition
by Holdings or any Wholly Owned Subsidiary or the Restricted
Subsidiary making such Asset Disposition of Tangible Property, or
(B) the prepayment, repayment or purchase of Debt (in either case
other than any Redeemable Stock) of Holdings or Debt of any
Restricted Subsidiary (in either case other than Debt owed to
Holdings or an Affiliate of Holdings), in
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each case within one year from the later of the receipt of such
Net Available Cash and the date the offer described in paragraph
(b) below is consummated;
provided, however, that in connection with any prepayment, repayment or
purchase of Debt pursuant to clause (ii)(1), clause (ii)(3) or clause (ii)(4)
of this paragraph (a), Holdings shall cause the related loan commitment (if
any) to be permanently reduced in an amount equal to the principal amount so
prepaid, repaid or purchased. Notwithstanding the foregoing provisions of
this paragraph, Holdings and its Restricted Subsidiaries shall not be required
to apply any Net Available Cash in accordance with this paragraph except to
the extent that the aggregate Net Available Cash from all Asset Dispositions
which are not applied in accordance with this paragraph exceeds $20 million.
Pending application of Net Available Cash pursuant to this paragraph, such Net
Available Cash shall be invested in Temporary Cash Investments.
For the purposes of this Section 5.07, the following are deemed to
be cash or cash equivalents: (x) the express assumption of Debt of Holdings
or any Restricted Subsidiary and the release of Holdings or such Restricted
Subsidiary from all liability on such Debt in connection with such Asset
Disposition, and (y) securities received by Holdings or any Restricted
Subsidiary from the transferee that are converted by Holdings or such
Restricted Subsidiary into cash within 90 days of the receipt of such
securities. The 75% limitation referred to in the previous paragraph shall
not apply to any Asset Disposition in which the cash portion of the
consideration received therefor, determined in accordance with the previous
sentence, is equal to or greater than what the after-tax proceeds would have
been had such Asset Disposition complied with such 75% limitation.
(b) In the event of an Asset Disposition that requires the purchase
of the Discount Notes (and other Senior Debt) pursuant to clause (a)(ii)(3)
above, Holdings will be required to purchase Discount Notes tendered pursuant
to an offer by Holdings for the Discount Notes (and other Senior Debt) at a
purchase price of 100% of the Accreted Value of each Discount Note on the date
of such offer (without premium) plus accrued but unpaid interest (or, in
respect of such other Senior Debt, such lesser price, if any, as may be
provided for by the terms of such Senior Debt) in accordance with the
procedures (including prorating in the event of oversubscription) set forth in
this Indenture. If the aggregate purchase price of Discount Notes (and any
other Senior Debt) tendered pursuant to such offer is less than the Net
Available Cash allotted to the purchase thereof, Holdings will be required to
apply the remaining Net Available Cash in accordance with clause (a)(ii)(4)
above. Holdings shall not be required to make such an offer to purchase
Discount Notes (and other Senior Debt) pursuant to this Section 5.07 if the
Net Available Cash available therefor is less than $10 million (which lesser
amount shall be carried forward for purposes of determining whether such an
offer is required with respect to any subsequent Asset Disposition).
To the extent that any or all of the Net Available Cash of any
Foreign Asset Sale is prohibited or delayed by applicable local law from being
repatriated to the United States, the portion of such Net Available Cash so
affected shall not be required to be applied at the time provided above, but
may be retained by the applicable Restricted Subsidiary (and invested in
accordance with the last sentence of the first paragraph of paragraph (a)
above) so long, but only so long, as the applicable local law will not permit
repatriation to the United States. Holdings shall agree to cause the
applicable Restricted Subsidiary to promptly take all actions required by the
applicable local law to permit such repatriation. Once such repatriation of
any of such affected Net Available Cash is permitted under the applicable
local law, such repatriation shall
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be immediately effected and such repatriated Net Available Cash will be
applied in the manner described in this Section 5.07.
(c) Holdings shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Discount Notes
pursuant to this Section 5.07. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this Section 5.07,
Holdings shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under this clause by
virtue thereof.
Section 5.08. Limitation On Transactions with Affiliates.
(a) Holdings shall not, and shall not permit any Restricted
Subsidiary to, conduct any business or enter into any transaction or series of
related transactions (including the purchase, sale, lease or exchange of any
property or the rendering of any service) with any Affiliate of Holdings (an
"Affiliate Transaction"), unless:
(i) the terms of such Affiliate Transaction are (1) set forth
in writing, and (2) as favorable to Holdings or such Restricted
Subsidiary as terms that would be obtainable at the time for a comparable
transaction or series of related transactions in arm's length dealings
with an unrelated third Person;
(ii) if such Affiliate Transaction involves an amount in excess
of $2.5 million, the disinterested members of the Board of Directors
have, by resolution, determined in good faith that such Affiliate
Transaction meets the criteria set forth in clause (i)(2) above; and
(iii) if such Affiliate Transaction involves an amount in
excess of $7.5 million, such Affiliate Transaction is determined by an
Independent Financial Advisor to be fair from a financial standpoint to
Holdings or its Restricted Subsidiary, as the case may be.
The foregoing requirements shall not be applicable to (x) contracts with Koch
Equities Inc. or its affiliates in the ordinary course of business on terms as
favorable to Holdings or the relevant Restricted Subsidiary as would be
obtainable at the time for a comparable transaction in arm's length dealings
with an unrelated third Person, or (y) any purchase or supply contracts in the
ordinary course of business on terms as favorable to Holdings or the relevant
Restricted Subsidiary as would be obtainable at the time for a comparable
transaction in arm's length dealings with an unrelated third Person; provided,
however, that the Board of Directors shall, not later than the 60th day after
the end of each six-month period following the Issue Date, have reviewed such
contracts and determined that such contracts meet the criteria set forth in
this sub-clause (y).
(b) The provisions of the foregoing paragraph (a) shall not
prohibit:
(i) any Restricted Payment or Permitted Investment permitted to
be paid pursuant to the covenant described in Section 5.05;
(ii) any issuance of securities, or other payments, awards or
grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements,
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stock options and stock ownership plans approved by the Board of
Directors of Chemicals or the board of directors of the relevant
Restricted Subsidiary;
(iii) loans or advances to employees in the ordinary course of
business in accordance with the past practices of Holdings or its
Subsidiaries and their predecessors, but in any event not to exceed $2
million in the aggregate outstanding at any one time;
(iv) the payment of reasonable and customary fees to directors
of Holdings and its Restricted Subsidiaries who are not employees of
Holdings or its Restricted Subsidiaries;
(v) any transaction between Holdings and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries;
(vi) one-time fees payable to The Sterling Group, Inc., and The
Unicorn Group L.L.C., in connection with the Transaction in an aggregate
amount not to exceed $8 million and $4 million, respectively; and
(vi) indemnification payments to directors and officers of
Holdings in accordance with applicable state laws.
Section 5.09. Limitation On Liens.
Holdings shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, Incur or permit to exist any Lien of any nature
whatsoever on any of its properties (including Capital Stock of a Restricted
Subsidiary) securing Debt of Holdings, whether owned at the Issue Date or
thereafter acquired, other than Permitted Liens, without effectively providing
that the Discount Notes shall be secured equally and ratably with (or prior
to) the obligations so secured for so long as such obligations are so secured;
provided, however, that Holdings may Incur other Liens to secure Debt as long
as the amount of outstanding Debt secured by Liens Incurred pursuant to this
proviso does not exceed 5% of Consolidated Net Tangible Assets, as determined
based on the consolidated balance sheet of Holdings as of the end of the most
recent fiscal quarter ending at least 45 days prior thereto.
Section 5.10. Limitation On Sale/Leaseback Transactions.
Holdings shall not, and shall not permit any Restricted Subsidiary
to, enter into any Sale/Leaseback Transaction with respect to any property,
unless:
(i) Holdings or such Restricted Subsidiary would be entitled to:
(1) Incur Debt in an amount equal to the Attributable Debt with respect
to such Sale/Leaseback Transaction pursuant to Section 5.04; and (2)
create a Lien on such property securing such Attributable Debt without
equally and ratably securing the Discount Notes pursuant to Section 5.09;
(ii) the net proceeds received by Holdings or any Restricted
Subsidiary in connection with such Sale/Leaseback Transaction are at
least equal to the fair value (as determined by the Board of Directors)
of such property; and
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(iii) Holdings applies the proceeds of such transaction in
accordance with Section 5.07.
Holdings hereby designates the Corporate Trust Office of the Trustee
as one such office or agency of Holdings in accordance with Section 2.03.
Section 5.11. Limitation On the Sale or Issuance of Capital Stock of
Restricted Subsidiaries.
Holdings shall not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of
any shares of its Capital Stock except:
(i) to Holdings or a Wholly Owned Subsidiary;
(ii) if, immediately after giving effect to such issuance, sale or
other disposition, such Restricted Subsidiary remains a Restricted Subsidiary;
or
(iii) if all shares of Capital Stock of such Restricted Subsidiary
are sold or otherwise disposed of, provided, however, that in connection with
any sale pursuant to this clause (iii), Holdings may retain no more than 10%
of the outstanding Capital Stock of the Restricted Subsidiary being sold as a
portion of the purchase price in connection with such sale.
In connection with any such sale or disposition of Capital Stock,
Holdings or any such Restricted Subsidiary shall comply with Section 5.07.
Section 5.12. Impairment of Security Interest.
Holdings shall not, and Holdings shall not permit any of its
Subsidiaries to, take or knowingly or negligently omit to take, any action
which action or omission might or would have the result of impairing or
adversely affecting the security interest with respect to the Collateral for
the benefit of the Trustee and the Holders of the Discount Notes, and Holdings
shall not, and shall not permit any of its Subsidiaries to, grant to any
Person other than the Collateral Agent, for the benefit of the Trustee and the
Holders of the Discount Notes and other beneficiaries described in the Pledge
Agreement, any interest whatsoever in any of the Collateral.
Section 5.13. Amendments to Pledge Agreement.
Holdings shall not, and Holdings shall not permit any of its
Subsidiaries to, amend, modify or supplement, or permit or consent to any
amendment, modification or supplement of, the Pledge Agreement in any way that
would be adverse to the Holders of the Discount Notes.
Section 5.14. Compliance Certificates.
Holdings shall deliver to the Trustee, within 120 days after the end
of each fiscal year, an Officers' Certificate stating that a review of the
activities of Holdings and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether Holdings has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such Officers' Certificate, that to the best of his or her knowledge
Holdings has kept, observed,
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performed and fulfilled each covenant contained in this Indenture and is not
in default in the performance or observance of any of the terms, provisions
and conditions of this Indenture (or, if a Default or Event of Default shall
have occurred, describing all such Defaults or Events of Default of which he
or she may have knowledge and what action each is taking or proposes to take
with respect thereto). Holdings shall also comply with TIA (S) 314(a)(4).
Section 5.15. Further Instruments and Acts.
Upon request of the Trustee, Holdings will execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purpose of this Indenture.
ARTICLE VI
SUCCESSORS
Section 6.01. When Holdings May Merge or Transfer Assets.
Holdings shall not consolidate with or merge with or into, or
convey, transfer or lease, in one transaction or a series of transactions, all
or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not Holdings) expressly assumes, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form acceptable
to the Trustee, all the obligations of Holdings under the Discount Notes, this
Indenture and the Pledge Agreement;
(ii) immediately after giving effect to such transaction (and
treating any Debt which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of Debt pursuant
to Section 5.04(a);
(iv) immediately after giving effect to such transaction, the
Successor Company shall have Consolidated Net Worth in an amount which is not
less than the Consolidated Net Worth of Holdings prior to such transaction
minus any costs incurred in connection with such transaction; and
(v) Holdings shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
terms of this Indenture.
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Section 6.02. Successor Company Substituted.
The Successor Company shall be the successor to Holdings and shall
succeed to, and be substituted for, and may exercise every right and power of,
Holdings under this Indenture, but the predecessor Person in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Discount Notes.
ARTICLE VII
DEFAULTS AND REMEDIES
Section 7.01. Events of Default.
Each of the following shall constitute an "Event of Default":
(i) Holdings defaults in any payment of interest on any Discount
Note when the same becomes due and payable, and such default continues
for a period of 30 days;
(ii) Holdings defaults in the payment of the principal of any
Discount Note when the same becomes due and payable at its Stated
Maturity, upon redemption, upon declaration, upon required repurchase or
otherwise;
(iii) Holdings fails to comply with Article VI;
(iv) the failure by Holdings to comply for 30 days after notice
with any of its obligations contained in Article IV, (other than a
failure to purchase Discount Notes), Section 5.03, Section 5.04, Section
5.05, Section 5.06, Section 5.07 (other than a failure to purchase
Discount Notes), Section 5.08, Section 5.09, Section 5.10, Section 5.11,
Section 5.12, Section 5.13 or Section 5.14.
(v) Holdings fails to comply with any of its agreements contained
in the Discount Notes or this Indenture (other than those referred to in
clause (i), clause (ii), clause (iii) or clause (iv) of this Section
7.01) and such failure continues for 60 days after the notice specified
in Section 8.05;
(vi) a default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced
any Debt for money borrowed by Holdings or any of its Subsidiaries (or
the payment of which is Guaranteed by Holdings or any of its
Subsidiaries) whether such Debt or Guarantee now exists, or is created
after the date of this Indenture, which default (1) is caused by failure
to pay principal of or premium, if any, or interest on such Debt prior to
the expiration of the grace period provided in such Debt on the date of
such default ("Payment Default"), or (2) results in the acceleration of
such Debt prior to its express maturity and, in each case, the principal
amount of any such Debt, together with the principal amount of any other
such Debt under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $10 million or more;
(vii) Holdings or any Significant Subsidiary of Holdings pursuant
to or within the meaning of Bankruptcy Law: (1) commences a voluntary
case, (2) consents to the
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entry of an order for relief against it in an involuntary case, (3)
consents to the appointment of a Custodian of it or for all or
substantially all of its property; or (4) makes a general assignment for
the benefit of its creditors;
(viii) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that: (1) is for relief against Holdings
or any Significant Subsidiary of Holdings in an involuntary case, (2)
appoints a Custodian of Holdings or any Significant Subsidiary of
Holdings or for all or substantially all of the property of Holdings or
any Significant Subsidiary of Holdings, or (3) orders the liquidation of
Holdings or any Significant Subsidiary of Holdings, and the order or
decree remains unstayed and in effect for 60 consecutive days.
(ix) any final non-appealable judgment or decree not covered by
insurance or as to which the insurance carrier has denied responsibility
for the payment of money in excess of $10 million is rendered against
Holdings or a Significant Subsidiary and is not discharged and there is a
period of 60 days following such judgment during which such judgment or
decree is not discharged, waived or the execution thereof stayed;
(x) the security interest under the Pledge Agreement shall, at any
time, cease to be in full force and effect for any reason other than the
satisfaction in full of all obligations under this Indenture and
discharge of this Indenture or any security interest created thereunder
shall be declared invalid or unenforceable or Holdings shall assert, in
any pleading in any court of competent jurisdiction, that such security
interest is invalid or unenforceable.
A Default under clause (iv) or clause (v) of this Section 7.01 is not an
Event of Default until the Trustee or the Holders of at least 25% in principal
amount of the Discount Notes notify Holdings of the Default and Holdings does
not cure such Default within the time specified after receipt of such notice.
The foregoing will constitute Events of Default whatever the reason for
any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body.
Holdings shall deliver to the Trustee, within 30 days after the
occurrence thereof, an Officers' Certificate of any Event of Default pursuant
to clause (iv), clause (v), clause (vi), clause (ix) or clause (x) and any
event which, with the giving of notice or the lapse of time, would become an
Event of Default, its status and what action Holdings is taking or proposes to
take in respect thereof.
Section 7.02. Acceleration.
If an Event of Default (other than an Event of Default specified in
clause (vii) or clause (viii) of Section 7.01) occurs and is continuing, the
Trustee by notice to Holdings, or the Holders of at least 25% in aggregate
principal amount of the then outstanding Discount Notes by written notice to
Holdings and the Trustee, may declare the Accreted Value of and accrued but
unpaid interest on all the Discount Notes to be due and payable (collectively,
the "Default Amount"). Upon such a declaration, the Default Amount shall be
due and payable immediately. Notwithstanding the foregoing, in the case of an
Event of Default specified in clause (vii) or
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clause (viii) of Section 7.01, all outstanding Discount Notes shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any of the Holders of the Discount Notes. The
Holders of a majority in aggregate principal amount of the then outstanding
Discount Notes by written notice to the Trustee may on behalf of all of the
Holders rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal, interest or premium that has become due
solely because of the acceleration) have been cured or waived.
Section 7.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Discount Notes or to enforce the performance of any
provision of the Discount Notes and this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Discount Notes or does not produce any such Discount Notes in the
proceeding. A delay or omission by the Trustee or any Holder of a Discount
Note in exercising any right or remedy accruing upon any Event of Default
shall not impair the right or remedy or constitute a waiver of or acquiescence
in such Event of Default. No remedy shall be exclusive of any other remedy.
All remedies shall be cumulative to the extent permitted by law.
Section 7.04. Waiver of Past Defaults.
Holders of a majority in aggregate principal amount of the Discount
Notes then outstanding by notice to the Trustee may on behalf of the Holders
of all of the Discount Notes waive an existing Default and its consequences,
except (i) a Default in the payment of the principal of, premium, if any, or
interest on, the Discount Notes; or (ii) a Default in respect of a provision
that under Section 10.02 cannot be amended without the consent of each Holder
affected thereby. Upon any such waiver, such Default shall cease to exist,
and any Event of Default arising therefrom shall be deemed to have been cured
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
Section 7.05. Control by Majority.
Holders of a majority in principal amount of the Discount Notes then
outstanding may direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the terms of this Indenture if, subject
to Section 8.01, the Trustee reasonably determines that such action, if taken,
would be unduly prejudicial to the rights of other Holders of Discount Notes
or may involve the Trustee in personal liability.
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Section 7.06. Limitation On Suits.
Except to enforce the right to receive payment of principal,
premium, if any, or interest when due, no Holder of a Discount Note may pursue
any remedy with respect to this Indenture or the Discount Notes, unless:
(i) such Holder has previously given the Trustee notice that an
Event of Default is continuing;
(ii) Holders of at least 25% in principal amount of the Discount
Notes then outstanding have requested the Trustee to pursue the remedy;
(iii) such Holders have offered the Trustee reasonable security
or indemnity against any loss, liability or expense;
(iv) the Trustee has not complied with such request within 60
days after the receipt thereof and the offer of security or indemnity;
and
(v) Holders of a majority in principal amount of the Discount
Notes then outstanding have not given the Trustee a direction
inconsistent with such request within such 60-day period.
A Holder of a Discount Note shall not use this Indenture to
prejudice the rights of another Holder of a Discount Note or to obtain a
preference or priority over another Holder of a Discount Note.
Section 7.07. Unconditional Right of Holders of Discount Notes to Receive
Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Discount Note to receive payment of principal, premium, if
any, and interest on such Discount Note, on or after the respective due dates
expressed in such Discount Note, or to bring suit for the enforcement of any
such payment on or after such respective dates, shall not be impaired or
affected without the consent of any such Holder of a Discount Note.
Section 7.08. Collection Suit by Trustee.
If an Event of Default specified in Section 7.01(a) or Section
7.01(b) occurs and is continuing, the Trustee may recover judgment in its own
name and as trustee of an express trust against Holdings for the entire amount
then due and owing, plus the amounts provided for in Section 8.07.
Section 7.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee and the Holders of the Discount Notes allowed in any judicial
proceedings relative to Holdings, Holdings' creditors or Holdings' property,
and, unless prohibited by law or applicable regulations, may vote on behalf of
the Holders of Discount Notes in any election of a trustee in bankruptcy or
other Person performing similar functions, and any Custodian in any such
judicial proceeding is hereby authorized by each Holder of a Discount Note to
make payments to the Trustee, and, in the event
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that the Trustee shall consent to the making of such payments directly to the
Holders of Discount Notes, to pay to the Trustee any amount due to it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and any other amounts due to Trustee under Section
8.07. Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a
Discount Note any plan of reorganization, arrangement, adjustment or
composition affecting the Discount Notes or the rights of any Holder of a Note
thereof, or to authorize the Trustee to vote in respect of the claim of any
Holder of a Discount Note in any such proceeding.
Section 7.10. Priorities.
If the Trustee collects any money pursuant to this Article VII, it
shall pay out the money in the following order:
(i) FIRST: to the payment of the Trustee's costs and expenses of
foreclosure under this Indenture and the Security Documents;
(ii) SECOND: to the Trustee for amounts due to it under Section
8.07;
(iii) THIRD: to Holders of Discount Notes for amounts due and
unpaid on the Discount Notes for principal, premium, if any, and
interest, ratably, without preference or priority of any kind, according
to the amounts due and payable on the Discount Notes for principal,
premium, if any, and interest, respectively; and
(iv) FOURTH: to Holdings.
The Trustee may fix a record date and payment date for any payment
to Holders of Discount Notes pursuant to this Section 7.10.
Section 7.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted
by it as a Trustee, a court in its discretion may require the filing by any
party litigant in the suit of an undertaking to pay the costs of the suit, and
the court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party
litigant. This Section 7.11 shall not apply to a suit by the Trustee, a suit
by a Holder of a Discount Note pursuant to Section 7.07, or a suit by Holders
of more than 10% in principal amount of the Discount Notes then outstanding.
Section 7.12. Waiver of Stay, Extension and Usury Laws.
Holdings (to the extent that it may lawfully do so) shall not at any
time insist upon, plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay, extension or usury law wherever enacted, now or at
any time hereafter in force, that may affect the covenants or the performance
of this Indenture; and Holdings (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and shall
not, by resort to any such law, hinder, delay or impede the execution of any
power herein granted to the Trustee, but shall suffer and permit the execution
of every such power as though no such law had been enacted.
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ARTICLE VIII
TRUSTEE
Section 8.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
Indenture.
(c) The Trustee shall not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct or bad faith, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section 8.01;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance
with a direction received by it pursuant to Section 7.05.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraph
(a), paragraph (b) and paragraph (c) of this Section 8.01.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if the Trustee shall have reasonable grounds to believe that
repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with Holdings.
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(g) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section 8.01 and to the provisions of the
TIA.
Section 8.02. Rights of Trustee.
(a) The Trustee may rely upon any document reasonably believed by it
to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in any such document.
(b) Before the Trustee acts or refrains from taking any act, the
Trustee may require an Officers' Certificate or an Opinions of Counsel or
both. The Trustee shall not be liable for any action taken or omitted to be
taken by it in good faith in reliance on such Officers' Certificate or such
Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent; provided, however, that any
such agent is appointed by the Trustee with due care.
(d) The Trustee shall not be liable for any action taken or omitted
to be taken by it in good faith which it reasonably believes to be authorized
or within its rights or powers conferred upon it by this Indenture; provided,
however, that the Trustee's conduct does not constitute negligence, willful
misconduct or bad faith.
(e) The Trustee may consult with counsel, and the advice or opinion
of counsel with respect to legal matters shall be full and complete
authorization and protection from liability in respect to any action taken,
omitted or suffered by the Trustee hereunder in good faith and in accordance
with the advice or opinion of such counsel.
Section 8.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledge of Discount Notes and may otherwise deal with Holdings or any
Affiliate of Holdings with the same rights as it would have if the Trustee
were not the Trustee hereunder. However, in the event the Trustee acquires any
conflicting interest it must eliminate such conflicting interest within 90
days, apply to the SEC for permission to continue as Trustee or resign. Any
Paying Agent, Registrar or co-registrar may do the same with like rights. The
Trustee shall at all times remain subject to Section 8.10 and Section 8.11.
Section 8.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validly or adequacy of this Indenture or the Discount Notes, it
shall not be accountable for Holdings' use of the proceeds of the Discount
Notes and it shall not be responsible for any statement contained herein or
any statement contained in the Discount Notes or any other document in
connection with the sale of the Discount Notes or pursuant to this Indenture
other than the Trustee's certificates of authentication.
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Section 8.05. Notice of Default.
If a Default occurs and is continuing and if such Default is known
to a Responsible Officer of the Trustee, the Trustee shall mail to each Holder
of a Discount Note a notice of such Default within 90 days (or such shorter
period as may be required by applicable law) after such Default occurs.
Except in the case of a Default in payment of principal of, premium, if any,
or interest on any Discount Note, the Trustee may withhold the notice if and
so long as a committee of its Responsible Officers in good faith determines
that withholding the notice is in the interests of the Holders of the Discount
Notes.
Section 8.06. Reports by Trustee to Holders of Discount Notes.
Within 60 days after each [_________ ___], 1996, beginning with
[_________ ___] following the date of this Indenture, the Trustee shall mail
to Holders of the Discount Notes a brief report dated as of such reporting
date that complies with TIA (S) 313(a). The Trustee also shall comply with
TIA (S) 313(b).
A copy of each report at the time of its mailing to the Holders of
Discount Notes shall be mailed to Holdings and filed with the SEC and each
stock exchange on which the Discount Notes may be listed. Holdings shall
promptly notify the Trustee upon the Discount Notes being listed on any stock
exchange and any delisting thereof.
Section 8.07. Compensation and Indemnity.
Holdings shall pay to the Trustee from time to time reasonable
compensation for the Trustee's acceptance of this Indenture and its services
hereunder. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. Holdings shall reimburse the
Trustee for all reasonable out-of-pocket expenses incurred or made by it in
the course of its services hereunder. Such expenses shall include the
reasonable compensation and expenses, disbursements and advances of the
Trustee's agents, counsel, accountants and experts.
Holdings shall indemnify the Trustee against any and all loss,
liability or reasonable expense incurred by it in connection with the
administration of this trust and the performance of its duties under this
Indenture, except any such loss, liability or expense attributable to the
negligence, willful misconduct or bad faith of the Trustee.
The Trustee shall notify Holdings promptly of any claim for which it
may seek indemnity. Failure by the Trustee to so notify Holdings shall not
relive Holdings of its obligations hereunder except to the extent that
Holdings may be materially prejudiced by such failure. Holdings shall defend
the claim and the Trustee shall cooperate in the defense of such claim. The
Trustee may have separate counsel and Holdings shall pay the reasonable fees
and expenses of such counsel. Holdings need not reimburse any expense or
indemnify against any loss, liability or expense incurred by the Trustee
through the Trustee's own negligence, willful misconduct or bad faith.
Holdings need not pay for any settlement made without its consent, which
consent shall not be unreasonably withheld.
Holdings' payment obligations under this Section 8.07 shall survive
the satisfaction and discharge of this Indenture.
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To secure Holdings' payment obligations under this Section 8.07, the
Trustee shall have a Lien prior to the Discount Notes on all money or property
held or collected by the Trustee, except such money or property that is held
by it in trust for the benefit of Holders of Discount Notes to pay principal
and interest on particular Discount Notes.
If the Trustee shall incur expenses after the occurrence of a
Default specified in Section 7.01(vii) or Section 7.01(viii), such expenses
(including the reasonable fees and expenses of its agents and counsel) are
intended to constitute expenses of administration under Bankruptcy Law.
Section 8.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 8.08.
The Trustee may resign at any time and be discharged from the trust
hereby created by so notifying Holdings in writing. The Holders of Discount
Notes of not less than a majority in principal amount of the Discount Notes
then outstanding may remove the Trustee by so notifying the Trustee and
Holdings in writing. Holdings shall remove the Trustee if:
(i) the Trustee fails to comply with Section 8.10;
(ii) the Trustee is adjudged bankrupt or insolvent;
(iii) a Custodian or other public officer takes charge of the
Trustee or its property; or
(iv) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), Holdings shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the then outstanding Discount
Notes may appoint a successor Trustee to replace the successor Trustee
appointed by Holdings.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, Holdings or the
Holders of Discount Notes of at least 10% in principal amount of the then
outstanding Discount Notes may petition any court of competent jurisdiction
for the appointment of a successor Trustee.
If the Trustee after written request by any Holder of a Discount
Note who has been a Holder of a Discount Note for at least six months fails to
comply with Section 8.10, such Holder of a Discount Note may petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
Any successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to Holdings. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all of the rights, powers and duties of the
Trustee under this Indenture. The successor Trustee shall mail a notice of its
succession
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to Holders of the Discount Note. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, subject to the
Lien provided for in Section 8.07. Notwithstanding replacement of the Trustee
pursuant to this Section 8.08, Holdings' obligations under Section 8.07 shall
continue for the benefit of the retiring Trustee.
Section 8.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business or assets
to, another corporation or banking association, the resulting, surviving or
transferee entity without any further act shall constitute the successor
Trustee; provided, however, that such entity shall be otherwise qualified and
eligible under this Article VIII.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated, and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of
the successor to the Trustee; and in all such cases such certificates shall
have the full force which it is anywhere in the Securities or in this
Indenture provided that the certificate of the Trustee shall have.
Section 8.10. Eligibility; Disqualification.
This Indenture at all times shall have a Trustee which satisfies the
requirements of TIA 310(a). Trustee shall be a corporation organized and
doing business under the laws of the United States of America or of any State
thereof authorized under such laws to exercise corporate trustee power, shall
be subject to supervision or examination by federal or state authority and
shall have a combined capital and surplus of at least $50 million as set forth
in its most recently published annual report of condition. The Trustee shall
be subject to TIA (S) 310(b).
Section 8.11. Preferential Collection of Claims Against Holdings.
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee which has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE IX
DISCHARGE OF INDENTURE; DEFEASANCE
Section 9.01. Discharge of Liability on Securities; Defeasance.
(a) When (i) Holdings delivers to the Trustee all outstanding
Discount Notes (other than Discount Notes replaced pursuant to Section 2.07)
for cancellation; or (i) all outstanding Discount Notes have become due and
payable, whether at maturity or as a result of the mailing of a notice of
redemption pursuant to Article III of this Indenture and Holdings irrevocably
deposits with the Trustee funds sufficient to pay at maturity or upon
redemption all
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outstanding Discount Notes including interest thereon to maturity or such
redemption date (other than Discount Notes replaced pursuant to Section 2.07),
and if in either case Holdings pays all other sums payable hereunder by
Holdings, then this Indenture shall, subject to Section 9.01(c), cease to be
of further effect. The Trustee shall acknowledge satisfaction and discharge
of this Indenture on demand of Holdings accompanied by an Officers'
Certificate and an Opinion of Counsel and at the cost and expense of Holdings.
(b) Subject to Section 9.01(c) and Section 9.02, Holdings at any
time may terminate (i) all of Holdings obligations under the Discount Notes
and this Indenture ("legal defeasance"); or (ii) its obligations under Article
IV, Section 5.02, Section 5.03, Section 5.04, Section 5.05, Section 5.06,
Section 5.07, Section 5.08, Section 5.09, Section 5.10, Section 5.11, Section
5.12, Section 5.13 and Section 5.14, Section 6.01(iii), Section 6.01(iv),
Section 7.01(iv), Section 7.01(vi), Section 7.01(vii) (with respect only to
Significant Subsidiaries), Section 7.01(viii) (with respect only to
Significant Subsidiaries) and Section 7.01(ix) ("covenant defeasance").
Holdings may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option.
If Holdings exercises its legal defeasance option, payment of the
Discount Notes may not be accelerated because of an Event of Default and the
Discount Notes will cease to be secured by the Collateral. If Holdings
exercises its covenant defeasance option, payment of the Discount Notes may
not be accelerated because of an Event of Default specified in Section 7.01
(iv), Section 7.01(vi), Section 7.01(vii) (with respect only to Significant
Subsidiaries), Section 7.01(viii) (with respect only to Significant
Subsidiaries), Section 7.01(ix) or the failure of Holdings to comply with
Article IV.
Upon satisfaction of the conditions set forth herein and at the
request of Holdings, the Trustee shall acknowledge in writing the discharge of
those obligations of Holdings terminated thereby.
(c) Notwithstanding clause (a) and clause (b) above, Holdings'
obligations contained in Section 2.03, Section 2.04, Section 2.05, Section
2.06, Section 2.07, Section 8.07, Section 8.08 and this Article IX shall
survive until the Discount Notes have been paid in full. Thereafter,
Holdings' obligations contained in Section 8.07, Section 9.04 and Section 9.05
shall survive.
Section 9.02. Conditions to Defeasance.
Holdings may exercise its legal defeasance option or its covenant
defeasance option only if:
(i) Holdings irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal, premium (if
any) and interest on the Discount Notes to maturity or redemption, as the
case may be;
(ii) Holdings delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all the Discount Notes to maturity or redemption, as the case may be;
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(iii) 123 days pass after the deposit is made and during the 123-
day period no Default specified in Section 7.01(vii), Section 7.01(viii)
with respect to Holdings occurs which is continuing at the end of the
period;
(iv) the deposit does not constitute a default under any other
agreement binding on Holdings;
(v) Holdings delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or
is qualified as, a regulated investment company under the U.S. Investment
Company Act of 1940, as amended;
(vi) in the case of the legal defeasance option, Holdings shall
have delivered to the Trustee an Opinion of Counsel in the United States
stating that (1) Holdings has received from, or there has been published
by, the Internal Revenue Service a ruling, or (2) since the date of this
Indenture there has been a change in the applicable U.S. Federal income
tax law, in either case to the effect that, and based thereon such
Opinion of Counsel shall confirm that, the Holders of Discount Notes will
not recognize income, gain or loss for U.S. Federal income tax purposes
as a result of such defeasance and will be subject to U.S. Federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance had not occurred:
(vii) in the case of the covenant defeasance option, Holdings
shall have delivered to the Trustee an Opinion of Counsel in the United
States to the effect that the Holders of Discount Notes will not
recognize income, gain or loss for U.S. Federal income tax purposes as a
result of such covenant defeasance and will be subject to U.S. Federal
income tax on the same amounts, in the same manner and at the same times
as would have been the case if such covenant defeasance had not occurred;
(viii) Holdings delivers to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent to
the defeasance and discharge of the Discount Notes as contemplated by
this Article IX have been complied with: and
Before or after a deposit, Holdings may make arrangements
satisfactory to the Trustee for the redemption of the Discount Notes at a
future date in accordance with Article III.
Section 9.03. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to this Article IX. The Trustee shall apply the
deposited money and the money from U.S. Government Obligations through the
Paying Agent and in accordance with this Indenture to the payment of principal
of, premium, if any, and interest on the Discount Notes.
Section 9.04. Repayment to Holdings.
The Trustee and the Paying Agent shall promptly turn over to
Holdings upon request any excess money or securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and
the Paying Agent shall pay to Holdings upon request any money held by them for
the payment of principal
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or interest that remains unclaimed for two years, and, thereafter, Holders of
Discount Notes entitled to the money shall look to Holdings for payment as
general creditors.
Section 9.05. Indemnity for Government Obligations.
Holdings shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against deposited U.S. Government
Obligations or the principal and interest received on such U.S. Government
Obligations.
Section 9.06. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with this Article IX by reason of any
legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, Holdings' obligations under this Indenture and the Discount Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
this Article IX until such time as the Trustee or Paying Agent is permitted to
apply all such money or U.S. Government Obligations in accordance with this
Article IX; provided, however, that, if Holdings has made any payment of
interest on or principal of any of the Discount Notes because of the
reinstatement of its obligations, Holdings shall be subrogated to the rights
of the Holders of such Discount Notes to receive such payment from the money
or U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE X
AMENDMENT, SUPPLEMENT AND WAIVER
Section 10.01. Without Consent of Holders of Discount Notes.
Holdings and the Trustee may amend or supplement this Indenture or
the Discount Notes without the consent of any Holder of a Discount Note:
(i) to cure any ambiguity, omission, defect or inconsistency;
(ii) to provide for the assumption of Holdings' obligations to the
Holders of the Discount Notes in the case of a merger or consolidation
pursuant to Article VI;
(iii) to provide for uncertificated Discount Notes in addition to
or in place of certificated Discount Notes (provided that the
uncertificated Discount Notes are issued in registered form for purposes
of Section 163(f) of the Code, or in a manner such that the
uncertificated Notes are described in Section 163(f)(2)(B) of the Code);
(iv) to add Guarantees with respect to the Discount Notes;
(v) to add to the covenants of Holdings and its Subsidiaries
hereunder for the benefit of the Holders of Discount Notes or to
surrender any right or power conferred upon Holdings;
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(vi) to make any change that would provide any additional rights
or benefits to the Holders of the Discount Notes or that does not
adversely affect the legal rights hereunder of any Holder of a Discount
Note; or
(vii) to comply with requirements of the SEC in order to effect
or maintain the qualification of this Indenture under the TIA.
Upon the request of Holdings accompanied by a resolution of the
Board of Directors of Holdings authorizing the execution of any such amended
or supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 10.06, the Trustee shall join with Holdings in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations which may be contained therein, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture which affects
its own rights, duties or immunities under this Indenture or otherwise.
After an amendment, supplement or waiver under this Section 10.01
becomes effective, Holdings shall mail to the Holders of Discount Notes
affected thereby a notice briefly describing any such amendment, supplement or
waiver. Any failure of Holdings to mail such notice, or any defect therein,
shall not in any way impair or affect the validity of any such amended or
supplement Indenture or waiver. Subject to Section 7.04 and Section 7.07, the
Holders of a majority in aggregate principal amount of the Discount Notes then
outstanding may waive compliance by Holdings in any particular instance with
any provision of this Indenture or the Discount Notes.
Section 10.02. With Consent of Holders of Discount Notes.
Holdings and the Trustee may amend or supplement this Indenture, the
Discount Notes or any amended or supplemental Indenture with the written
consent of the Holders of Discount Notes of at least a majority in aggregate
principal amount of the Discount Notes then outstanding, and any existing
Default and its consequences or compliance with any provision of this
Indenture or the Discount Notes may be waived with the consent of the Holders
of a majority in principal amount of the Discount Notes then outstanding.
However, without the consent of each Holder of a Discount Note affected, any
amendment supplement or waiver may not:
(i) reduce the amount of Discount Notes the Holders of which must
consent to an amendment;
(ii) reduce the rate of or extend the time for payment of interest
on any Discount Note;
(iii) reduce the principal of or extend the Stated Maturity of
any Discount Note (except that Holdings' obligations to make an offer to
repurchase the Discount Notes as a result of a Change of Control may be
waived or modified with the prior written consent of the Holders of a
majority in principal amount of the Discount Notes);
(iv) reduce the premium payable upon the redemption of any
Discount Note or change the time at which any Discount Note may be
redeemed in accordance with Article III;
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(v) make any Discount Notes payable in money other than that
stated in the Discount Note;
(vi) impair the right of any Holder of a Discount Note to receive
payment of principal of and interest on which Holder's Discount Notes on
or after the due dates therefor or to institute suit for the enforcement
of any payment on or with respect to such Holder's Discount Notes;
(vii) make any change in Section 7.04 or Section 7.07 or the
second sentence of this Section 10.02; or
(viii) make any change in any material provision of the Pledge
Agreement that adversely affects the interests of any Holder of a
Discount Note.
Upon the request of Holdings accompanied by a resolution of the
Board of Directors of Holdings authorizing the execution of any such amended
or supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory with the Trustee of the consent of the Holders of Discount Notes
as aforesaid and upon receipt by the Trustee of the documents described in
Section 10.06, the Trustee shall join with Holdings in the execution of such
amended or supplemental Indenture unless such amended or supplemental
Indenture affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its discretion, but
shall not be obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Discount
Notes under this Section 10.02 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 10.02
becomes effective, Holdings shall mail to the Holders of Discount Notes
affected thereby a notice briefly describing any such amendment, supplement or
waiver. Any failure of Holdings to mail such notice, or any defect therein,
shall not in any way impair or affect the validity of any such amended or
supplement Indenture or waiver. Subject to Section 7.04 and Section 7.07, the
Holders of a majority in aggregate principal amount of the Discount Notes then
outstanding may waive compliance by Holdings in any particular instance with
any provision of this Indenture or the Discount Notes.
Section 10.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Discount
Notes shall be set forth in an amended or supplemental Indenture that complies
with the TIA as then in effect.
Section 10.04. Revocation and Effect of Consents and Waivers.
Until an amendment, supplement or waiver becomes effective, a
consent to such amendment, supplement or waiver by a Holder of a Discount Note
is a continuing and bindings consent by the Holder of a Discount Note and
every subsequent Holder of a Discount Note or portion of a Discount Note that
evidences the same Debt as the consenting Holder's Discount Note, even if a
notation of the consent or waiver is not made on any Discount Note. However,
any such Holder of a Discount Note or subsequent Holder of a Discount Note may
revoke the
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consent as to its Discount Note if the Trustee receives written notice of
revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver shall become effective in
accordance with its terms and thereafter shall bind every Holder of a Discount
Note.
Holdings may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders of Discount Notes entitled to give
their consent or take any other action described above or required or
permitted to be taken pursuant to this Indenture. If a record date is fixed,
then notwithstanding the immediately preceding paragraph, such Persons which
were Holders of Discount Notes at such record date (or their duly designated
proxies), and only such Persons, shall be entitled to give such consent or to
revoke any consent previously given or to take any such action, whether or not
such Persons continue to be Holders of Discount Notes after such record date.
No such consent shall be valid or effective for more than 120 days after such
record date.
Section 10.05. Notation On or Exchange of Discount Notes.
If an amendment or supplement changes the terms of a Discount Note,
the Trustee may require the Holder of such Discount Note to Deliver such
Discount Note to the Trustee. The Trustee may place an appropriate notation
on the Discount Note regarding the changed terms and return it to the Holder
of such Discount Note. Alternatively, if Holdings or the Trustee so
determines, Holdings in exchange for such Discount Note shall issue and the
Trustee shall authenticate a new Discount Note that reflects such changed
terms. Failure to make the appropriate notation or to issue a new Discount
Note shall not affect the validity of such amendment or supplement.
Section 10.06. Trustee to Sign Amendments, Etc.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article X if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
Holdings shall not sign any amendment or supplemental Indenture until the
Board of Directors approves any such amendment or supplemental Indenture.
Section 10.07. Payment for Consents.
Holdings shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of any Discount Note for or
as an inducement to any consent, amendment, supplement or waiver with respect
to any term or provision of this Indenture or the Discount Notes, unless such
consideration is offered to be paid or agreed to be paid to all Holders of
Discount Notes that consent, waive or agree to amend or supplement in the time
frame set forth in the solicitation documents relating to any such consent,
waiver or agreement to amend or supplement.
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ARTICLE XI
COLLATERAL AND SECURITY DOCUMENTS
Section 11.01. Collateral and Security Documents.
(a) To secure the due and punctual payment of the principal of,
premium, if any, and interest on the Discount Notes when and as the same shall
become due and payable, whether on an interest payment date, at maturity, by
acceleration, repurchase, redemption or otherwise, and the performance of all
other obligations of Holdings to the Holders under this Indenture and the
Discount Notes, Holdings and the Trustee have entered into the Pledge
Agreement pursuant to which Holdings has granted to the Trustee for the
benefit of the Holders a security interest in the Collateral, which shall be a
second priority security interest pursuant to the provisions of Intercreditor
Agreement.
(b) Each Holder of a Discount Note, by accepting a Discount Note,
agrees to all of the terms and provisions of the Security Documents, as the
same may be amended from time to time pursuant to the provisions of the
Security Documents and this Indenture.
Section 11.02. Release of Collateral.
The Trustee, in its capacity as trustee for the Holders under this
Indenture and the Security Documents, will not at any time release any
Collateral from the security interest created by the Pledge Agreement unless
such release is in accordance with the provisions of this Indenture and the
Security Documents. To the extent applicable, Holdings shall cause (S) 314(d)
of the TIA relating to the release of property or securities from the security
interest pursuant hereto and the Security Documents to be complied with. Any
certificate or opinion required by (S) 314(d) of the TIA may be made by an
Officer of Holdings, except in cases which (S) 314(d) of the TIA requires that
such certificate or opinion be made by an independent person.
Section 11.03. Recording, Certificates and Opinions.
(a) Holdings will take or cause to be taken all action required to
perfect, maintain, preserve and protect the security interest in the
Collateral granted by this Indenture and the Pledge Agreement.
(b) Holdings shall deliver to the Trustee:
(i) promptly after the execution and delivery of this
Indenture, an Opinion of Counsel either stating that in the opinion of
such counsel the Indenture and the Security Documents (including
financing statements or other instruments) have been properly recorded
and filed so as to perfect and make effective the security interest
intended to be created for the benefit of the Holders of Discount Notes,
and reciting the details of such action, or stating that in the opinion
of such counsel no such action is necessary to perfect and make effective
such security interest; and
(ii) on or before [__________ __] of each year, an Opinion of
Counsel either stating that in the opinion of such counsel such action
has been taken with respect to the recording, filing, re-recording and
re-filing of the Indenture and the Security Documents (including
financing statements or other instruments) as is necessary to
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maintain the security interest intended to be created thereby for the
benefit of the Holders of Discount Notes, and reciting the details of
such action, or stating that in the opinion of such counsel no such
action is necessary to maintain such security interest.
(c) Holdings shall comply with TIA (S) 314(d), relating to, among
other matters, the release of Collateral from the Lien of the Security
Documents and Officers' Certificates or other documents regarding fair value
of the Collateral, to the extent such provisions are applicable. Any
certificate or opinion required by TIA (S) 314(d) may be executed and
delivered by an Officer of Holdings to the extent permitted by TIA (S) 314(d).
Section 11.04. Authorization of Actions to Be Taken by the Trustee Under the
Security Documents.
Subject to the provisions of the Security Documents, (i) the
Trustee, in its sole discretion and without the consent of the Holders, may
take all actions it deems necessary or appropriate in order to (x) enforce any
of the terms of the Security Documents, and (y) collect and receive any and
all amounts payable in respect of the obligations of Holdings; and (ii) the
Trustee may institute and maintain such suits and proceeding, as it may deem
expedient to prevent any impairment of the Collateral by any acts that may be
unlawful or in violation of this Indenture or the Security Documents, and such
suits and proceedings as the Trustee may deem expedient to preserve or protect
its interests and the interests of the Holders in the Collateral (including
the power to institute and maintain suits or proceedings to restrain the
enforcement of or compliance with any legislative or other governmental
enactment, rule or order that may be unconstitutional or otherwise invalid if
the enforcement of, or compliance with, such enactment, rule or order would
impair the security interest thereunder or be prejudicial to the interests of
the Holders or of the Trustee).
Section 11.05. Authorization of Receipt of Funds by the Trustee Under the
Security Documents.
The Trustee is authorized to receive any funds for the benefit of
Holders under the Security Documents, and to make further distributions of
such funds to the Holders in accordance with the provisions of this Indenture.
ARTICLE XII
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by TIA (S) 318(c), such imposed duties shall control.
Section 12.02. Notices.
Any notice or communication by Holdings or the Trustee to the other
is duly given if in writing and delivered in person or mailed by first class
mail (registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the other's address:
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If to Holdings:
Sterling Chemicals Holdings, Inc.
c/o The Sterling Group, Inc.
Eight Greenway Plaza, Suite 702
Houston, Texas 77046
Telecopier No.: [(___)___________]
Attention: T. Hunter Nelson
If to the Trustee:
Fleet National Bank of Connecticut
777 Main Street
Hartford, Connecticut 06115
Telecopier No: [(___)____________]
Attention: [_____________________]
Holdings or the Trustee, by notice each to the other may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders of
Discount Notes) shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; five Business Days after being
deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt acknowledged, if telecopied; and the next Business Day
after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery.
Any notice or communication to a Holder of a Discount Note shall be
mailed by first class mail, certified or registered, return receipt requested,
or by overnight air courier guaranteeing next day delivery to its address
shown on the Discount Note Register. Any notice or communication shall also
be so mailed to any Person described in TIA (S) 313(c), to the extent required
by the TIA. Failure to mail a notice or communication to a Holder of a
Discount Note or any defect in such notice shall not affect its sufficiency
with respect to other Holders of Discount Notes.
If a notice or communication is mailed in the manner set forth above
within the time prescribed, such notice or communication shall be deemed to be
duly given whether or not the addressee receives it.
If Holdings mails a notice or communication to Holders of Discount
Notes, it shall mail a copy to the Trustee and each Agent at the same time.
Section 12.03. Communication by Holders of Discount Notes with Other Holders
of Discount Notes.
Holders of Discount Notes pursuant to TIA (S) 312(b) may communicate
with other Holders of Discount Notes with respect to their rights under this
Indenture or the Discount Notes. Holdings, the Trustee, the Registrar, the
Paying Agent and any other Person shall have the protection of TIA (S) 312(c).
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Section 12.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by Holdings to the Trustee to take
any action under this Indenture, Holdings shall furnish to the Trustee:
(i) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(ii) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all conditions and covenants have been satisfied.
Section 12.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant contained in this Indenture shall include:
(i) a statement that the Person making such certificate or
opinion has read such condition or covenant;
(ii) a statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(iii) a statement that, in the opinion of such Person, he or she
has made such examination or investigation as is necessary to enable him
or her to express an informed opinion as to whether such condition or
covenant has been satisfied; and
(iv) a statement as to whether, in the opinion of such Person.
such condition or covenant has been satisfied.
Section 12.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting
of Holders of Discount Notes. The Registrar and Paying Agent may make
reasonable rules and set reasonable requirements for their functions.
Section 12.07. No Personal Liability of Directors, Officers, Employees,
Incorporators and Stockholders.
No director, officer, employee, incorporator or stockholder of
Holdings, as such, shall have any liability for any obligations of Holdings
under the Discount Notes or this Indenture or for any claim based on, in
respect of, or by reason of, such obligations. Each Holder of a Discount Note
by accepting a Discount Note waives and releases all such liability. Such
waiver and release form a part of the consideration for issuance of the
Discount Notes.
Section 12.08. Governing Law.
THIS INDENTURE AND THE DISCOUNT NOTES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
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STATE OF NEW YORK WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICT
OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION
WOULD BE REQUIRED THEREBY.
Section 12.09. No Adverse Interpretation of Other Agreements.
This Indenture may not he used to interpret another indenture, loan
or debt agreement of Holdings or its Subsidiaries. Any such indenture, loan
or debt agreement may not be used to interpret this Indenture.
Section 12.10. Successors.
All agreements of Holdings contained in this Indenture and the
Discount Notes shall bind Holdings and its successors. All agreements of the
Trustee in this Indenture shall bind the Trustee and its successors.
Section 12.11. Severability.
In case any provision of this Indenture or the Discount Notes shall
be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 12.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
such signed copy shall be deemed to be an original, and all of such signed
copies together shall represent one and the same agreement.
Section 12.13. Table of Consents, Headings, Etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience
only, and shall not, for any reason, be deemed to be part of this Indenture
and shall in no way modify or restrict any of the terms or provisions hereof.
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SIGNATURES
----------
DATED AS OF [________ __], 1996 STERLING CHEMICALS HOLDINGS, INC.
(SEAL) BY: __________________________
NAME:
TITLE:
ATTEST:
---------------------------
NAME:
TITLE:
DATED AS OF [________ __], 1996 FLEET NATIONAL BANK OF CONNECTICUT,
AS TRUSTEE
(SEAL) BY: __________________________
NAME:
TITLE:
ATTEST:
---------------------------
NAME:
TITLE:
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EXHIBIT A
[FORM OF FACE OF DISCOUNT NOTE]
[Separability Legend]
THE DISCOUNT NOTES EVIDENCED BY THIS CERTIFICATE WERE INITIALLY ISSUED AS
PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF DISCOUNT NOTES AND
WARRANTS (EACH, A "WARRANT") ENTITLING THE HOLDERS THEREOF TO PURCHASE AN
AGGREGATE OF [____________] SHARES OF COMMON STOCK, PAR VALUE, $.01 PER
SHARE OF STERLING CHEMICALS HOLDINGS, INC., AT A PRICE OF $.01 PER SHARE.
PRIOR TO THE EARLIER OF (i) [_________ ___], 1996 AND (ii) SUCH DATE AS
THE UNDERWRITERS MAY, IN THEIR DISCRETION, DEEM APPROPRIATE, THE DISCOUNT
NOTES EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED
SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH,
THE WARRANTS./*/
- ---------------------
/*/ This legend should only be added to Discount Notes issued prior to the
Separation Date.
A-1
<PAGE>
STERLING CHEMICALS HOLDINGS, INC.
No. [__________] Principal Amount $[__________]
CUSIP No. [__________]
[__]% Senior Secured Discount Notes Due 2008
STERLING CHEMICALS HOLDINGS, INC., a Delaware corporation, promises
to pay to [___________________________________], or registered assigns, the
principal sum of [_________] Dollars on [________ __], 2008.
Interest Payment Dates: [________] and [______].
Record Dates: [________] and [________].
Additional provisions of this Discount Note are set forth on the
reverse side of this Discount Note.
Dated: [________________]
[Seal] STERLING CHEMICALS HOLDINGS, INC.
By____________________________
Title:
By____________________________
Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
FLEET NATIONAL BANK OF CONNECTICUT,
as Trustee, certifies
that this is one of the
Discount Notes referred
to in the Discount Notes Indenture.
By __________________________________
Authorized Signatory
A-2
<PAGE>
[FORM OF REVERSE SIDE OF DISCOUNT NOTE]
[__]% Senior Secured Discount Notes Due 2008
1. Interest
STERLING CHEMICALS HOLDINGS, INC., a Delaware corporation (such
corporation, and its successors and assigns under the Discount Note Indenture
hereinafter referred to, being herein called "Holdings"), promises to pay
interest on the principal amount of this Discount Note at the rate per annum
shown above. Holdings will pay interest semi-annually on [____________] and
[__________] of each year, commencing [__________], 2002; provided, that no
interest shall accrue on the principal amount of this Discount Note prior to
[_________], 2001. Prior to [_______], 2001, this Discount Note will accrete
at the rate per annum shown above, compounded semi-annually. Interest on the
Discount Notes will accrue from the most recent date to which interest has
been paid, or, if no interest has been paid, from [__________], 2001.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. Holdings shall pay interest on overdue principal at the rate borne
by the Discount Notes.
2. Method of Payment
Holdings will pay interest on the Discount Notes (except defaulted
interest) to the Persons who are registered Holders of Discount Notes at the
close of business on the [__________] or [__________] next preceding the
interest payment date even if Discount Notes are cancelled after the record
date and on or before the interest payment date. Holders must surrender
Discount Notes to a Paying Agent to collect principal payments. Holdings
will pay principal and interest in money of the United States that at the
time of payment is legal tender for payment of public and private debts.
However, Holdings may pay principal and interest by check payable in such
money. It may mail an interest check to a Holder's registered address.
3. Paying Agent and Registrar
Initially, Fleet National Bank of Connecticut, a [national banking
association] (the "Trustee"), will act as Paying Agent and Registrar.
Holdings may appoint and change any Paying Agent, Registrar or co-registrar
without notice. Holdings or any of its domestically incorporated Wholly
Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. Discount Note Indenture
Holdings issued the Discount Notes under an Indenture dated as of
[__________], 1996 (the "Discount Notes Indenture"), between Holdings and the
Trustee. The terms of the Discount Notes include those stated in the
Discount Notes Indenture and those made part of the Discount Notes Indenture
by reference to the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
77bbbb) as in effect on the date of the Discount Notes Indenture (the "TIA").
Terms defined in the Discount Notes Indenture and not defined herein have the
meanings ascribed thereto in the Discount Notes Indenture. The Discount
A-3
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Notes are subject to all such terms, and Holders of Discount Notes are
referred to the Discount Notes Indenture and the TIA for a statement of those
terms.
The Discount Notes are senior secured obligations of Holdings
limited to $[___________] aggregate principal amount (subject to Section 2.07
of the Discount Notes Indenture). The Discount Notes Indenture imposes
certain limitations on the incurrence of additional indebtedness by Holdings
and certain of its subsidiaries, the payment of dividends on, and the
redemption of, capital stock of Holdings and certain of its Subsidiaries, the
making of Investments, restrictions on distributions from certain
Subsidiaries, the use of proceeds from the sale of assets and Subsidiary
stock and transactions with affiliates. The Discount Notes Indenture also
restricts the ability of Holdings to consolidate or merge with or into, or to
transfer all or substantially all its assets to, another person.
5. Optional Redemption
The Discount Notes will be redeemable, at Holdings' option, in
whole or in part, at any time and from time to time on or after [_________],
2001, upon not less than 30 nor more than 60 days' prior notice mailed by
first-class mail to each Holder's registered address, at the following
redemption prices (expressed in percentages of principal amount at maturity),
plus accrued interest to the redemption date (subject to the right of Holders
of record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on
or after [___________] of the years set forth below:
Redemption
Year Price
---- ----------
2001 . . . . . . . . [__]%
2002 . . . . . . . . [__]%
2003 . . . . . . . . [__]%
2004 . . . . . . . . [__]%
2005 . . . . . . . . [__]%
2006 and thereafter 100.00%
In addition, at any time and from time to time prior to
[___________], 1999, Holdings may redeem in the aggregate up to 35% of the
Accreted Value of the Discount Notes with the proceeds of one or more Public
Equity Offerings following which there is a Public Market, at a redemption
price (expressed as a percentage of Accreted Value on the redemption date) of
[__]%, plus accrued and unpaid interest, if any, to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided,
however, that at least $[__] million aggregate principal amount at maturity
of the Discount Notes must remain outstanding after each such redemption.
6. Notice of Redemption
Notice of redemption shall be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder of Discount Notes to
be redeemed at its registered address. Discount Notes in denominations
larger than $1,000 may be redeemed
A-4
<PAGE>
in part but only in whole multiples of $1,000. If money sufficient to pay
the redemption price of and accrued interest on all Discount Notes (or
portions thereof) to be redeemed on the redemption date is deposited with the
Paying Agent on or before the redemption date and certain other conditions
are satisfied, on and after such date interest ceases to accrue on such
Discount Notes (or such portions thereof) called for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Discount Notes will have
the right to cause Holdings to repurchase all or any part of the Discount
Notes of such Holder at a purchase price equal to 101% of the principal
amount of the Discount Notes to be repurchased plus accrued interest to the
date of repurchase (subject to the right of Holders of record on the relevant
record date to receive interest due on the interest payment date) as provided
in, and subject to the terms of, the Discount Notes Indenture.
8. Collateral
Holdings has granted a security interest in all of the Capital
Stock of Sterling Chemicals, Inc., a Wholly Owned Subsidiary of Holdings, to
the Trustee for the benefit of the Holders of Discount Notes pursuant to the
Discount Notes Indenture and the Pledge Agreement, which shall be a second
priority security interest pursuant to the terms of the Intercreditor
Agreement.
Each Holder of a Discount Notes, by accepting a Discount Notes,
shall be deemed to have agreed to all of the terms and provisions of the
Pledge Agreement and the Intercreditor Agreement, as the same may be amended
from time to time pursuant to the provisions thereof, the Discount Notes and
the Discount Notes Indenture.
9. Denominations; Transfer; Exchange
The Discount Notes are in registered form without coupons in
denominations of $1,000 and integral multiples of $1,000. Holders of
Discount Notes may transfer or exchange Discount Notes in accordance with the
Discount Notes Indenture. The Registrar may require a Holder of a Discount
Notes, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes and fees required by law or permitted by the
Discount Notes Indenture. The Registrar need not register the transfer of or
exchange any Discount Notes selected for redemption (except, in the case of a
Discount Notes to be redeemed in part, the portion of the Discount Notes not
to be redeemed) or any Discount Notes for a period of 15 days before a
selection of Discount Notes to be redeemed or 15 days before an interest
payment date.
10. Persons Deemed Owners
The registered Holder of this Discount Notes may be treated as the
sole owner of such Discount Notes for all purposes.
11. Unclaimed Money
Subject to applicable abandoned property law, if money for the
payment of principal or interest remains unclaimed for two years, the Trustee
or Paying Agent shall
A-5
<PAGE>
pay the money back to Holdings at its request unless an abandoned property
law designates another Person. After any such payment, Holders entitled to
the money must look only to Holdings and not to the Trustee for payment.
12. Discharge and Defeasance
Subject to certain conditions, Holdings at any time may terminate
some or all of its obligations under the Discount Notes and the Discount
Notes Indenture if Holdings deposits with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the
Discount Notes to redemption or maturity, as the case may be.
13. Amendment; Waiver
Subject to certain exceptions set forth in the Discount Notes
Indenture, (i) the Discount Notes Indenture or the Discount Notes may be
amended with the written consent of the Holders of at least a majority in
principal amount outstanding of the Discount Notes; and (ii) any default or
compliance with any provision may be waived with the written consent of the
Holders of a majority in principal amount of the Discount Notes then
outstanding. Subject to certain exceptions set forth in the Discount Notes
Indenture, without the consent of any Holder of a Discount Note and the
Trustee may amend the Discount Notes Indenture or the Discount Notes to cure
any ambiguity, omission, defect or inconsistency, or to comply with the
Discount Notes Indenture, or to provide for uncertificated Discount Notes, in
addition to or in place of certificated Discount Notes, or to add guarantees
with respect to the Discount Notes or add additional covenants or surrender
rights and powers conferred on Holdings, to make any change that would
provide additional rights or benefits to the Holders of Discount Notes or
that does not adversely affect the rights of any Holder of a Discount Note or
to comply with requirements of the SEC in connection with the qualification
of the Discount Notes Indenture under the TIA.
14. Defaults and Remedies
Under the Discount Notes Indenture, Events of Default include (i)
default for 30 days in payment of interest; (ii) default in payment of
principal on the Discount Notes at maturity, upon redemption, upon
declaration, upon required repurchase or otherwise; (iii) failure by Holdings
to comply with other covenants in the Discount Notes Indenture or the
Discount Notes, in certain cases subject to notice and lapse of time; (iv)
certain accelerations (including failure to pay within any grace period after
final maturity) of other Debt of Holdings or any of its Subsidiaries if the
amount accelerated (or so unpaid) aggregates $10 million or more; (v) certain
events of bankruptcy or insolvency with respect to the Company and its
Significant Subsidiaries; (vi) certain judgments or decrees for the payment
of money in excess of $10 million; and (vii) the security interest under the
Pledge Agreement shall, at any time, cease to be in full force and effect for
any reason or Holdings in certain circumstances shall assert that such
security interest is invalid or unenforceable. If an Event of Default occurs
and is continuing, the Trustee or the Holders of at least 25% in principal
amount of the Discount Notes may declare all the Discount Notes to be due and
payable immediately. Certain events of bankruptcy or insolvency are Events
of Default which will result in the Discount Notes being due and payable
immediately upon the occurrence of such Events of Default.
A-6
<PAGE>
Holders of Discount Notes may not enforce the Discount Notes
Indenture or the Discount Notes except as provided in the Discount Notes
Indenture. The Trustee may refuse to enforce the Discount Notes Indenture or
the Discount Notes unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of
the Discount Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of Discount Notes notice of any
continuing Default (except a Default in payment of principal or interest) if
it determines that withholding such notice is in the interest of the Holders
of Discount Notes.
15. Trustee Dealings with Holdings
Subject to certain limitations imposed by the TIA, the Trustee
under the Discount Notes Indenture, in its individual or any other capacity,
may become the owner or pledgee of Discount Notes and may otherwise deal with
and collect obligations owed to it by Holdings or its Affiliates and may
otherwise deal with Holdings or its Affiliates with the same rights it would
have if it were not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of Holdings
or the Trustee shall not have any liability for any obligations of Holdings
under the Discount Notes or the Discount Notes Indenture or for any claim
based on, in respect of or by reason of such obligations. By accepting a
Discount Note, each Holder of a Discount Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issue of the Discount Notes.
17. Authentication
This Discount Note shall not be valid until an authorized signatory
of the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the face of this Discount Note.
18. Abbreviations
Customary abbreviations may be used in the name of a Holder of a
Discount Note or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entireties), JT TEN (=joint tenants with rights of
survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A
(=Uniform Gift to Minors Act).
19. CUSIP Numbers
Pursuant to the recommendation promulgated by the Committee on
Uniform Security Identification Procedures Holdings has caused CUSIP numbers
to be printed on the Discount Notes and has directed the Trustee to use such
CUSIP numbers in notices of redemption as a convenience to Holders of
Discount Notes. No representation is made as to the accuracy of such numbers
either as printed on the Discount Notes or as contained in any notice of
redemption and reliance may be placed only on the other identification
numbers placed thereon.
A-7
<PAGE>
--------------------
Holdings will furnish to any Holder of a Discount Note upon written
request and without charge to such Holder of a Discount Note a copy of the
Discount Notes Indenture which contains the text of this Discount Note in
larger type. Requests may be made to:
Sterling Chemicals Holdings, Inc.
c/o The Sterling Group, Inc.
Eight Greenway Plaza, Suite 702
Houston, Texas 77046
Attention: T. Hunter Nelson
A-8
<PAGE>
ASSIGNMENT FORM
To assign this Discount Note, complete the form below:
I or we assign and transfer this Discount Note to:
[Print or type assignee's name, address and zip code]
[Insert assignee's soc. sec. or tax I.D. No. ]
and irremovably appoint [___________________] agent to transfer this
Discount Note on the books of Holdings. The agent may substitute another
to act for him.
===============================================================================
Date:__________________ Your Signature:______________________________________
===============================================================================
Sign exactly as your name appears on the face of this Discount Note.
A-9
<PAGE>
OPTION OF HOLDER OF DISCOUNT NOTE TO ELECT PURCHASE
If you elect to have this Discount Note purchased by Holdings
pursuant to Article IV or Section 5.07 of the Discount Note Indenture, check
the box:
[ ]
If you elect to have only part of this Discount Note purchased by
Holdings pursuant to Article IV or Section 5.07 of the Discount Note
Indenture, state the amount:
$[_______________]
Date:________________ Your Signature:______________________________________
(Sign exactly as your name
appears on the face of the
Discount Note)
Signature Guarantee:________________________________________________________
(Signature must be guaranteed by a member firm of the New
York Stock Exchange or a commercial bank or trust
company)
A-10
<PAGE>
================================================================================
STERLING CHEMICALS, INC.
$275,000,000
[___]% SENIOR SUBORDINATED NOTES DUE 2006
_________________
INDENTURE
Dated as of [_________ ___], 1996
_________________
FLEET NATIONAL BANK OF CONNECTICUT
Trustee
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<TABLE>
<CAPTION>
<S> <C>
310 (a)(1).............................................. 8.10
(a)(2).............................................. 8.10
(a)(3).............................................. N/A
(a)(4).............................................. N/A
(a)(5).............................................. 8.10
(b)................................................. 8.10
(c)................................................. N/A
311 (a)................................................. 8.11
(b)................................................. 8.11
(c)................................................. N/A
312 (a)................................................. 2.05
(b)................................................. 12.03
(c)................................................. 12.03
313 (a)................................................. 11.02
(b)(i).............................................. 11.02
(b)(2).............................................. 8.06
(c)................................................. 8.06; 11.02
(d)................................................. 8.06
314 (a)................................................. 8.03; 11.02
(b)................................................. 11.03
(c)(1).............................................. 12.04
(c)(2).............................................. 12.04
(c)(3).............................................. N/A
(d)................................................. 11.02; 11.03
(e)................................................. 12.05
(f)................................................. N/A
315 (a)................................................. 8.01
(b)................................................. 8.05; 12.02
(c)................................................. 8.01
(d)................................................. 8.01
(e)................................................. 7.11
316 (a)(1)(A)........................................... 7.05
(a)(1)(B)........................................... 7.04
(a)(2).............................................. N/A
(b)................................................. 7.07
317 (a)(1).............................................. 7.08
(a)(2).............................................. 7.09
(b)................................................. 2.04
318 (a)................................................. 12.01
(b)................................................. N/A
(c)................................................. 12.01
</TABLE>
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
i
<PAGE>
TABLE OF CONTENTS
Page
PARTIES........................................................ 1
RECITALS OF CHEMICALS.......................................... 1
ARTICLE I
DEFINITIONS AND INCORPORATION
BY REFERENCE
<TABLE>
<CAPTION>
<S> <C> <C>
Section 1.01. Definitions...................................... 1
Section 1.02. Other Definitions................................ 15
Section 1.03. Incorporation by Reference of Trust Indenture Act 16
Section 1.04. Rules of Construction............................ 16
ARTICLE II
THE NOTES
Section 2.01. Form and Dating.................................. 16
Section 2.02. Execution and Authentication..................... 17
Section 2.03. Registrar and Paying Agent....................... 17
Section 2.04. Paying Agent to Hold Money In Trust.............. 18
Section 2.05. Lists of Holders of Notes........................ 18
Section 2.06. Transfer and Exchange............................ 18
Section 2.07. Replacement Notes................................ 19
Section 2.08. Outstanding Notes................................ 19
Section 2.09. Temporary Notes.................................. 19
Section 2.10. Cancellation..................................... 20
Section 2.11. Defaulted Interest............................... 20
Section 2.12. CUSIP Number..................................... 20
ARTICLE III
REDEMPTION
Section 3.01. Notices to Trustee............................... 20
Section 3.02. Selection of Notes to be Redeemed................ 21
Section 3.03. Notice of Redemption............................. 21
Section 3.04. Effect of Notice of Redemption................... 22
Section 3.05. Deposit of Redemption Price...................... 22
Section 3.06. Notes Redeemed in Part........................... 22
</TABLE>
- --------------------
Note: This Table of Contents shall not, for any reason, be deemed to be part of
the Indenture.
i
<PAGE>
Page
ARTICLE IV
CHANGE OF CONTROL
ARTICLE V
COVENANTS
<TABLE>
<CAPTION>
<S> <C> <C>
Section 5.01. Payment of Principal, Premium and Interest.................24
Section 5.02. Maintenance of Office or Agency............................24
Section 5.03. SEC Reports................................................24
Section 5.04. Limitation On Debt.........................................25
Section 5.05. Limitation On Restricted Payments..........................26
Section 5.06. Limitation On Restrictions On Distributions
from Restricted Subsidiaries...............................30
Section 5.07. Limitation On Sales of Assets and Subsidiary Stock.........31
Section 5.08. Limitation On Transactions with Affiliates.................33
Section 5.09. Limitation On the Sale or Issuance of Capital Stock
of Restricted Subsidiaries.................................34
Section 5.10. Compliance Certificates....................................34
Section 5.11. Further Instruments and Acts...............................35
ARTICLE VI
SUCCESSORS
Section 6.01. When Chemicals May Merge or Transfer Assets................35
Section 6.02. Successor Company Substituted..............................36
ARTICLE VII
DEFAULTS AND REMEDIES
Section 7.01. Events of Default......................................... 36
Section 7.02. Acceleration.............................................. 37
Section 7.03. Other Remedies............................................ 38
Section 7.04. Waiver of Past Defaults................................... 38
Section 7.05. Control by Majority....................................... 38
Section 7.06. Limitation On Suits....................................... 38
Section 7.07. Unconditional Right of Holders of Notes to Receive Payment 39
Section 7.08. Collection Suit by Trustee................................ 39
Section 7.09. Trustee May File Proofs of Claim.......................... 39
Section 7.10. Priorities................................................ 39
Section 7.11. Undertaking for Costs..................................... 40
Section 7.12. Waiver of Stay, Extension and Usury Laws.................. 40
</TABLE>
ii
<PAGE>
ARTICLE VIII
TRUSTEE
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 8.01. Duties of Trustee.................................. 40
Section 8.02. Rights of Trustee.................................. 41
Section 8.03. Individual Rights of Trustee....................... 42
Section 8.04. Trustee's Disclaimer............................... 42
Section 8.05. Notice of Default.................................. 42
Section 8.06. Reports by Trustee to Holders of Notes............. 42
Section 8.07. Compensation and Indemnity......................... 43
Section 8.08. Replacement of Trustee............................. 44
Section 8.09. Successor Trustee by Merger, Etc................... 45
Section 8.10. Eligibility; Disqualification...................... 45
Section 8.11. Preferential Collection of Claims Against Chemicals 45
ARTICLE IX
DISCHARGE OF INDENTURE; DEFEASANCE
Section 9.01. Discharge of Liability on Securities; Defeasance... 45
Section 9.02. Conditions to Defeasance........................... 46
Section 9.03. Application of Trust Money......................... 47
Section 9.04. Repayment to Chemicals............................. 47
Section 9.05. Indemnity for Government Obligations............... 48
Section 9.06. Reinstatement...................................... 48
ARTICLE X
AMENDMENT, SUPPLEMENT AND WAIVER
Section 10.01. Without Consent of Holders of Notes............... 48
Section 10.02. With Consent of Holders of Notes.................. 49
Section 10.03. Compliance with Trust Indenture Act............... 50
Section 10.04. Revocation and Effect of Consents and Waivers..... 50
Section 10.05. Notation On or Exchange of Notes.................. 51
Section 10.06. Trustee to Sign Amendments, Etc................... 51
Section 10.07. Payment for Consents.............................. 51
ARTICLE XI
SUBORDINATION OF NOTES
Section 11.02. Payment Over of Proceeds Upon Dissolution, Etc.... 52
Section 11.03. No Payment When Senior Debt in Default............ 53
Section 11.04. Payment Permitted If No Default................... 54
Section 11.05. Subrogation to Rights of Holders of Senior Debt... 54
Section 11.06. Provisions Solely to Define Relative Rights....... 54
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
Page
Section 11.07. Trustee to Effectuate Subordination.............................. 55
Section 11.08. No Waiver of Subordination Provisions............................ 55
Section 11.09. Notice to Trustee................................................ 55
Section 11.10. Reliance on Judicial Order or Certificate of Liquidating Agent... 56
Section 11.11. Trustee Not Fiduciary for Holders of Senior Debt................. 56
Section 11.12. Rights of Trustee as Holder of Senior Debt; Preservation of
Trustee's Rights................................................. 56
Section 11.13. Article XI Applicable to Paying Agents........................... 57
ARTICLE XII
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls..................................... 57
Section 12.02. Notices.......................................................... 57
Section 12.03. Communication by Holders of Notes with Other Holders of Notes.... 58
Section 12.04. Certificate and Opinion as to Conditions Precedent............... 58
Section 12.05. Statements Required in Certificate or Opinion.................... 58
Section 12.06. Rules by Trustee and Agents...................................... 59
Section 12.07. No Personal Liability of Directors, Officers, Employees,
Incorporators and Stockholders................................... 59
Section 12.08. Governing Law.................................................... 59
Section 12.09. No Adverse Interpretation of Other Agreements.................... 59
Section 12.10. Successors....................................................... 59
Section 12.11. Severability..................................................... 59
Section 12.12. Counterpart Originals............................................ 60
Section 12.13. Table of Consents, Headings, Etc................................. 60
</TABLE>
EXHIBIT A -- Form of Note; Form of Trustee's Certificate of Authentication
iv
<PAGE>
INDENTURE, dated as of [___________ ___], 1996, between Sterling Chemicals,
Inc. ("Chemicals"), a corporation duly organized and existing under the laws of
---------
the State of Delaware, and Fleet National Bank of Connecticut, a
[___________________] duly organized and existing under the laws of the State of
[____________], as trustee (the "Trustee").
-------
RECITALS OF CHEMICALS
Chemicals has duly authorized the execution and delivery of this Indenture
to provide for the issuance of up to $275,000,000 aggregate principal amount of
Chemicals' [____]% Senior Subordinated Notes Due 2006 (the "Notes") issuable as
-----
provided in this Indenture. All things necessary to make this Indenture a valid
agreement of Chemicals, in accordance with its terms, have been done, and
Chemicals has done all things necessary to make the Notes, when executed by
Chemicals and authenticated and delivered by the Trustee hereunder and duly
issued by Chemicals, the valid obligations of Chemicals as hereinafter provided.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes by
the Holders thereof, it is mutually agreed, for the equal and proportionate
benefit of all Holders of the Notes, as follows:
ARTICLE I
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
"Affiliate" means with respect to any specified Person any other Person,
directly or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of Section 5.07 and Section 5.08 only, the term "Affiliate" shall also
mean any beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) of Capital Stock representing 10% or more of the total voting
power of the Voting Stock (on a fully diluted basis) of Chemicals or of rights
or warrants to purchase such Capital Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial
owner in accordance with the first sentence of this definition.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) of shares of Capital
Stock of a Restricted Subsidiary (other than directors' qualifying shares),
property or other assets (each referred to for
<PAGE>
the purposes of this definition as a "disposition") by Chemicals or any of its
Restricted Subsidiaries, including any disposition by means of a merger,
consolidation or similar transaction, for gross proceeds in excess of $2.0
million, other than (i) a disposition by a Restricted Subsidiary to Chemicals or
by Chemicals or a Restricted Subsidiary to a Wholly Owned Subsidiary; (ii) a
disposition of property or assets (other than shares of Capital Stock of a
Restricted Subsidiary and which do not constitute all or substantially all of
the assets of any division or line of business of Chemicals or any Restricted
Subsidiary) at fair market value in the ordinary course of business; (iii) for
purposes of Section 5.07 only, a disposition that constitutes a Restricted
Payment or a Permitted Investment permitted pursuant to Section 5.05; (iv) the
disposition of all or substantially all of the assets of Chemicals permitted
pursuant to Section 6.01; and (v) the disposition of assets in exchange for
other assets that satisfy the requirement for replacement assets pursuant to
Section 5.07(a)(ii)(2).
"Attributable Debt" means, in respect of a Sale/Leaseback Transaction, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Debt or Preferred Stock, the quotient obtained by dividing (i) the sum of the
products of numbers of years from the date of determination to the dates of each
successive scheduled principal payment of such Debt or redemption or similar
payment with respect to such Preferred Stock multiplied by the amount of such
payment, by (ii) the sum of all such payments.
"Bankruptcy Law" means title 11, U.S. Code, or any similar federal or state
law for the relief of debtors.
"Board of Directors" means the Board of Directors of Chemicals or any
committee thereof duly authorized to act on behalf of such Board of Directors.
"Business Day" means each day which is not a Legal Holiday.
"Canadian Facility" means a revolving loan and letter of credit facility for
loans and letters of credit in Canadian dollars or U.S. dollars to or for the
account of Sterling Pulp Chemicals, Ltd., a Wholly Owned Subsidiary of
Chemicals.
"Capital Lease Obligations" means with respect to any Person any obligation
which is required to be classified and accounted for as a capital lease on the
face of a balance sheet of such Person prepared in accordance with GAAP; the
amount of such obligation shall be the capitalized amount thereof, determined in
accordance with generally accepted accounting principles; and the Stated
Maturity thereof shall be the date of the last payment of rent or any other
amount due under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty.
"Capital Stock" means with respect to any Person any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in such Person (however designated), including any
Preferred Stock, but excluding any debt securities convertible into or
exchangeable for such equity.
2
<PAGE>
"Code" means the U.S. Internal Revenue Code of 1986, as amended.
"Commodity Agreement" means any commodity future contract, commodity option
or other similar agreement or arrangement entered into by Chemicals or any
Restricted Subsidiary that is designed to protect Chemicals or any Restricted
Subsidiary against fluctuations in the price of commodities used by Chemicals or
a Restricted Subsidiary as raw materials in the ordinary course of business.
"Consolidated EBITDA Coverage Ratio" means, as of any date of determination,
the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days prior to the
date of such determination to (ii) Consolidated Interest Expense for such four
fiscal quarters; provided, however, that (1) if Chemicals or any Restricted
Subsidiary has Incurred any Debt since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate the
Consolidated EBITDA Coverage Ratio is an Incurrence of Debt, or both, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Debt as if such Debt had been Incurred on
the first day of such period and the discharge of any other Debt repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new Debt
as if such discharge had occurred on the first day of such period, (2) if since
the beginning of such period Chemicals or any Restricted Subsidiary shall have
made any Asset Disposition, the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the assets
which are the subject of such Asset Disposition for such period, or increased by
an amount equal to the EBITDA (if negative), directly attributable thereto for
such period, and Consolidated Interest Expense for such period shall be reduced
by an amount equal to the Consolidated Interest Expense directly attributable to
any Debt of Chemicals or any Restricted Subsidiary repaid, repurchased, defeased
or otherwise discharged with respect to Chemicals and its continuing Restricted
Subsidiaries in connection with such Asset Dispositions for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Debt of such
Restricted Subsidiary to the extent Chemicals and its continuing Restricted
Subsidiaries are no longer liable for such Debt after such sale), (3) if since
the beginning of such period Chemicals or any Restricted Subsidiary (by merger
or otherwise) shall have made an Investment in any Restricted Subsidiary (or any
Person which becomes a Restricted Subsidiary) or an acquisition of assets,
including any acquisition of assets occurring in connection with a transaction
causing a calculation to be made hereunder, which constitutes all or
substantially all of an operating unit of a business, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the Incurrence of any Debt) as if such Investment or
acquisition occurred on the first day of such period, and (4) if since the
beginning of such period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into Chemicals or any Restricted Subsidiary
since the beginning of such period) shall have made any Asset Disposition or any
Investment that would have required an adjustment pursuant to clause (2) or (3)
above if made by Chemicals or a Restricted Subsidiary during such period, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Asset Disposition or Investment
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings relating thereto, and the amount of Consolidated Interest
Expense associated with any Debt Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting Officer of Chemicals. If any Debt bears a floating rate of interest
and is being given pro forma effect, the interest of such Debt shall be
calculated as if the rate in effect on the date of determination had been the
applicable
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rate for the entire period (taking into account any Interest Rate Agreement
applicable to such Debt if such Interest Rate Agreement has a remaining term in
excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of Chemicals and its consolidated Restricted Subsidiaries, plus, to the
extent not included in such interest expense, (i) interest expense attributable
to Capital Lease Obligations; (ii) amortization of debt discount and debt
issuance cost; (iii) capitalized interest; (iv) non-cash interest payments; (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing; (vi) net costs under Interest Rate
Agreements (including amortization of fees); (vii) Preferred Stock dividends in
respect of all Redeemable Stock of Chemicals and all Preferred Stock held by
Persons other than Chemicals or a Wholly Owned Subsidiary; (viii) interest
incurred in connection with Investments in discontinued operations; (ix)
interest actually paid by Chemicals or any of its Restricted Subsidiaries under
any Guarantee of Debt or other obligation of any other Person; and (x) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than Chemicals or any Restricted Subsidiary) in connection
with Debt Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of Chemicals
and its consolidated Subsidiaries; provided, however, that there shall not be
included in such Consolidated Net Income (i) any net income of any Person if
such Person is not a Restricted Subsidiary, except that (A) subject to the
exclusion contained in clause (iv) below, Chemicals' equity in the net income of
any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such Person
during such period to Chemicals or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other distribution to
a Restricted Subsidiary, to the limitations contained in clause (iii) below),
and (B) Chemicals' equity in a net loss of any such Person for such period shall
be included in determining such Consolidated Net Income to the extent of any
cash actually contributed by Chemicals or a Restricted Subsidiary to such Person
during such period; (ii) any net income (or loss) of any Person acquired by
Chemicals or a Subsidiary in a pooling of interests transaction for any period
prior to the date of such acquisition; (iii) any net income of any Restricted
Subsidiary to the extent such Restricted Subsidiary is subject to restrictions,
directly or indirectly, on the payment of dividends or the making of
distributions by such Restricted Subsidiary, directly or indirectly, to
Chemicals, except that (A) subject to the exclusion contained in clause (iv)
below, Chemicals' equity in the net income of any such Restricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted Subsidiary
during such period to Chemicals or another Restricted Subsidiary as a dividend
or other distribution (subject, in the case of a dividend or other distribution
to another Restricted Subsidiary, to the limitation contained in this clause),
and (B) Chemicals' equity in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net Income; (iv)
any gain or loss realized upon the sale or other disposition of any assets of
Chemicals or its consolidated Subsidiaries (including pursuant to any sale-and-
leaseback arrangement) which is not sold or otherwise disposed of in the
ordinary course of business and any gain or loss realized upon the sale or other
disposition of any Capital Stock of any Person; (v) extraordinary gains or
losses; and (vi) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of Section 5.05 only, there
shall be excluded from Consolidated Net Income any dividends, repayments of
loans or advances or other transfers of assets from Unrestricted Subsidiaries to
Chemicals or a Restricted Subsidiary to the
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extent such dividends, repayments or transfers increase the amount of Restricted
Payments permitted pursuant to Section 5.05(a)(iv)(3)(E).
"Consolidated Net Worth" means with respect to any Person the total of the
amounts shown on the balance sheet of such Person and its consolidated
subsidiaries, determined on a consolidated basis in accordance with GAAP, as of
the end of the most recent fiscal quarter of such Person ending at least 45 days
prior to the taking of any action for the purpose of which the determination is
being made, as (i) the par or stated value of all outstanding Capital Stock of
such Person, plus (ii) paid-in capital or capital surplus relating to such
Capital Stock, plus (iii) any retained earnings or earned surplus, less (A) any
accumulated deficit, (B) any amounts attributable to Redeemable Stock, and (C)
any amounts attributable to Exchangeable Stock.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 or such other address as to which the Trustee
may give notice to Chemicals.
"Credit Agreement" means that certain credit agreement, dated June 21, 1996,
among Chemicals, as borrower, Texas Commerce Bank National Association, as
administrative agent, and the other lenders party thereto, and their respective
successors and assigns, as the same may be amended, supplemented, waived and
otherwise modified from time to time in accordance with the terms thereof.
"Currency Agreement" means with respect to any Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
"Debt" means with respect to any Person, without duplication, (i) the
principal of and premium (if any) in respect of (A) indebtedness of such Person
for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is responsible or
liable; (ii) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by such Person;
(iii) all obligations of such Person issued or assumed as the deferred purchase
price of property, all conditional sale obligations of such Person and all
obligations of such Person under any title retention agreement (but excluding
trade accounts payable arising in the ordinary course of business); (iv) all
obligations of such Person for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in (i) through (iii) above) entered into in the ordinary
course of business of such Person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the third Business Day following receipt by such Person of a demand
for reimbursement following payment on the letter of credit); (v) all Redeemable
Stock of such Person and, with respect to any Subsidiary of such Person, all
Preferred Stock other than pay-in-kind dividends in the form of Preferred Stock
(the amount of Debt represented thereby shall equal the greater of its
liquidation preference and the redemption, repayment or other repurchase
obligations with respect thereto, but excluding any accrued dividends); (vi) all
Hedging Obligations of such Person; (vii) all obligations of the type referred
to in clauses (i) through (v) of other Persons and all dividends of other
Persons for the payment of which, in
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either case, such Person is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise, including by means of any Guarantee; and (viii)
all obligations of the type referred to in clauses (i) through (vi) of other
Persons secured by any Lien on any property or asset of such Person (whether or
not such obligation is assumed by such Person), the amount of such obligation
being deemed to be the lesser of the value of such property or assets or the
amount of the obligation so secured. The amount of Debt of any Person at any
date shall be the outstanding balance of such date of all unconditional
obligations as described above and the maximum liability upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations at
such date; provided, however, that the amount outstanding at any time of any
Debt Incurred with original issue discount is the face amount of such Debt less
the remaining unamortized portion of the original issue discount of such Debt at
such time as determined in conformity with GAAP.
"Default" means any event that is, after notice or with the passage of time
or both would be, an Event of Default.
"Designated Senior Debt" means the Debt under the Credit Agreement and any
bank credit facility refinancing such debt.
"EBITDA" means for any period the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (i) all income tax expense of
Chemicals; (ii) depreciation expense; (iii) amortization expense; (iv) an amount
equal to any extraordinary gain or loss realized in connection with an Asset
Disposition; (v) the impact of accruals for periods prior to the Issue Date for
the Company's Stock Appreciation Rights Plan; and (vi) all other non-cash items
reducing such Consolidated Net Income (excluding any non-cash item to the extent
it represents an accrual of, or reserve for, cash disbursements for any
subsequent period) less all non-cash items increasing such Consolidated Net
Income (such amount calculated pursuant to this clause (vi) not to be less than
zero), in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization of, a Subsidiary of Chemicals shall be added to Consolidated Net
Income to compute EBITDA only to the extent (and in the same proportion) that
the net income of such Subsidiary was included in calculating Consolidated Net
Income and only if a corresponding amount would be permitted at the date of
determination to be dividended or otherwise paid to Chemicals by such Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Subsidiary or
its stockholders.
"ESOP Loan Provisions" means the provisions of the Credit Agreement pursuant
to which lenders thereunder have committed to make ESOP loans available to
Chemicals.
"Equity Private Placement" means the private placement of shares of common
stock of STX Acquisition Corp. consummated immediately prior to the Transaction,
which shares will be converted into shares of common stock of Holdings upon
consummation of the Transaction.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.
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<PAGE>
"Exchangeable Stock" means any Capital Stock which is exchangeable or
convertible into another security (other than Capital Stock of Chemicals which
is neither Exchangeable Stock nor Redeemable Stock).
"Foreign Asset Sale" means an Asset Sale in respect of Capital Stock or
assets of a Foreign Subsidiary or a Restricted Subsidiary of the type described
in Section 936 of the Code to the extent that the proceeds of such Asset Sale
are received by a Person subject in respect of such proceeds to the tax laws of
a jurisdiction other than the United States or any state thereof or the District
of Columbia.
"Foreign Subsidiary" means a Restricted Subsidiary that is incorporated in a
jurisdiction other than the United States or a State thereof or the District of
Columbia and with respect to which more than 66-2/3% of any of its sales,
earnings or assets (determined on a consolidated basis in accordance with GAAP)
are located in, generated from or derived from operations located in territories
or jurisdictions outside the United States.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth (i) in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants; (ii) statements and
pronouncements of the Financial Accounting Standards Board; (iii) in such other
statements by such other entity as approved by a significant segment of the
accounting profession; and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt or other obligation of any Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt or other obligation of such Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise); or (ii) entered into for purposes of
assuring in any other manner the obligee of such Debt or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business or guarantees of obligations of a Subsidiary in the ordinary course of
business if such obligations do not constitute Debt of such Subsidiary. The
term "Guarantee" used as a verb shall have a corresponding meaning.
"Hedging Obligations" means with respect to any Person the obligations of
such Person pursuant to any Interest Rate Agreement, Currency Agreement or
Commodity Agreement.
"Holder" means the Person in whose name a Note is registered on the Note
Register.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Debt or Capital Stock of a Person existing at
the time such Person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary. The term
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<PAGE>
"Incurrence" when used as a noun shall have a correlative meaning. The
accretion of principal of a non-interest bearing or other discount security
shall be deemed to be the Incurrence of Debt.
"Indenture" means this Indenture, as amended, supplemented or otherwise
modified from time to time in accordance with the terms hereof.
"Independent Financial Advisor" means a reputable accounting, appraisal or
investment banking firm that, in the reasonable good faith judgment of the Board
of Directors of Chemicals, is qualified to perform the task for which such firm
has been engaged and is independent with respect to Chemicals and its
Affiliates.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect Chemicals or any Restricted Subsidiary against fluctuations in interest
rates.
"Investment" means with respect to any Person any loan or advance to, any
acquisition of Capital Stock, equity interest, obligation or other security of,
or capital contribution or other investment in, or any other credit extension to
(including by way of Guarantee of any Debt of), such Person. For purposes of the
definition of "Unrestricted Subsidiary", the definition of "Restricted Payment"
and Section 5.05 of this Indenture, (i) "Investment" shall include the portion
(proportionate to Chemicals' equity interest in such Subsidiary) of the fair
market value of the net assets of any Subsidiary of Chemicals at the time that
such Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that if such designation is made in connection with the acquisition of such
Subsidiary or the assets owned by such Subsidiary, the "Investment" in such
Subsidiary shall be deemed to be the consideration paid in connection with such
acquisition; provided, further, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, Chemicals shall be deemed to continue to
have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount
(if positive) equal to (x) Chemicals' "Investment" in such Subsidiary at the
time of such redesignation less (y) the portion (proportionate to Chemicals'
equity interest in such Subsidiary) of the fair market value of the net assets
of such Subsidiary at the time of such redesignation; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors.
"Investment Grade Rating" means a rating of BBB- or higher by S&P and Baa3
or higher by Moody's or the equivalent of such rating by S&P and Moody's or by
any other Rating Agencies selected as provided in the definition of Rating
Agency.
"Issue Date" means the date on which the Notes are originally issued, after
giving effect to the Transaction.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
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"Moody's" means Moody's Investor Service, Inc.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to such
properties or assets that are the subject of such Asset Disposition or received
in any other noncash form) therefrom, in each case net of (i) all legal, title
and recording expenses, commissions and other fees and expenses incurred, and
all Federal, state, provincial, foreign and local taxes required to be accrued
as a liability under GAAP, as a consequence of such Asset Disposition; (ii) all
payments made on any Debt which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms,
or in order to obtain a necessary consent to such Asset Disposition, or by
applicable law be repaid out of the proceeds from such Asset Disposition; (iii)
all distributions and other payments required to be made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Disposition;
and (iv) the deduction of appropriate amounts provided by the sellers as a
reserve, in accordance with GAAP, against any liabilities associated with the
property or other assets disposed in such Asset Disposition and retained by
Chemicals or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds" means with respect to any issuance or sale of Capital
Stock, the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-Convertible Capital Stock" means, with respect to any corporation, any
non-convertible Capital Stock of such corporation and any Capital Stock of such
corporation convertible solely into non-convertible common stock of such
corporation; provided, however, that Non-Convertible Capital Stock shall not
include any Redeemable Stock or Exchangeable Stock.
"Note Register" means the register of the Notes and the transfer and
exchange of the Notes as provided in Section 2.03 of this Indenture.
"Notes" has the meaning set forth in the first recital.
"Officer" means with respect to any Person the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, Controller, Secretary or any Vice-President of
such Person.
"Officers' Certificate" means a certificate signed on behalf of Chemicals by
two Officers of Chemicals, one of whom must be the principal executive officer,
principal financial officer, treasurer or principal accounting officer of
Chemicals.
"Opinion of Counsel" means a written opinion from legal counsel, who may be
an employee of or counsel to Chemicals or the Trustee.
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<PAGE>
"Permitted Dividend" means the distribution, on or prior to October 15,
1996, from Chemicals to Holdings, in the form of a dividend, of the receivable
relating to the Permitted Loan, which distribution results in the discharge in
full of the Permitted Loan.
"Permitted Holders" means (i) the purchasers in the Equity Private
Placement; (ii) any Person who on the date of issuance of the Notes is an
officer, director, stockholder, employee or consultant of The Sterling Group,
Inc., or The Unicorn Group, L.L.C.; (iii) each of Frank J. Hevrdejs, William C.
Oehmig, J. Virgil Waggoner, Robert W. Roten and Gordon Cain; (iv) any Permitted
Transferee with respect to any Person covered by the preceding clauses (i)
through (iii) hereof; (v) the ESOP; or (vi) any savings or investment plan
sponsored by Chemicals or Holdings.
"Permitted Investment" means an Investment by Chemicals or any Restricted
Subsidiary in (i) a Wholly Owned Subsidiary or a Person that will, upon the
making of such Investment, become a Wholly Owned Subsidiary; (ii) Temporary Cash
Investments; (iii) receivables owing to Chemicals or any Restricted Subsidiary
if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; (iv) stock, obligations
or securities received in settlement of debts created in the ordinary course of
business and owing to Chemicals or any Restricted Subsidiary or in satisfaction
of judgments; (v) any Person to the extent such Investment represents the non-
cash portion of the consideration received for an Asset Disposition as permitted
pursuant to Section 5.07; (vi) Investments by Chemicals or a Restricted
Subsidiary in a Person to the extent the consideration for such Investment
consists of shares of Capital Stock of Chemicals or Holdings (other than
Redeemable Stock of Chemicals); (vii) payroll, travel and similar advances to
cover matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the ordinary
course of business; (viii) loans or advances to employees or to a trust for the
benefit of such employees that are made in the ordinary course of business of
Chemicals or such Restricted Subsidiary; (ix) the ESOP Loan; (x) the Permitted
Loan; (xi) another Person if as a result of such Investment such Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to, Chemicals or a Restricted Subsidiary;
provided that such Person's primary business is reasonably related to the
business of Chemicals and its Restricted Subsidiaries; and (xii) Investments in
Unrestricted Subsidiaries or joint ventures (whether in corporate or partnership
form or otherwise), in either case in entities engaged in businesses reasonably
related to the business of Chemicals and its Restricted Subsidiaries, in an
aggregate amount not to exceed $10 million; provided, however, that the amount
available for Investments pursuant to this clause (xii) shall be reduced
pursuant to Section 5.05(a)(iv)(3)(G).
"Permitted Loan" means the loan to Holdings by Chemicals, to be made on the
Issue Date, of up to $485 million, representing the proceeds of the Notes
Offering and amounts initially borrowed under the Term Loan Provisions of the
Credit Agreement net of repayment of existing Debt, purchase of certain equity
interests and payment of Transaction expenses; provided, however, that such loan
is subordinated in right of payment to the Notes; and provided, further,
however, that such loan is discharged in full on or prior to October 15, 1996
through the Permitted Dividend.
"Permitted Transferee" means with respect to any Person (i) in the case of
an entity, any Affiliate of such Person; and (ii) in the case of an individual,
any person related by lineal or collateral consanguinity to such individual or
to the spouse of such individual (adopted persons shall be considered the
natural born child of their adoptive parents; lineal consanguinity
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is the relationship that exists between persons of whom one is descended (or
ascended) in direct line from the other, as between son, father, grandfather,
great-grandfather; and collateral consanguinity is that relationship that exists
between persons who have the same ancestors, but do not descend (or ascend) from
the other, as between uncle and nephew, or cousin and cousin), in each case to
whom such Person has transferred Common Stock of Holdings.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock" means, as applied to the Capital Stock of any corporation,
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Public Equity Offering" means an underwritten primary public offering of
common stock of Holdings pursuant to an effective registration statement under
the Securities Act.
"Public Market" means any time after (i) a Public Equity Offering has been
consummated; and (ii) at least 15% of the total issued and outstanding common
stock of Holdings has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.
"Rating Agency" means S&P and Moody's, or if S&P or Moody's or both shall
not make a rating on the Notes publicly available, a nationally recognized
statistical rating agency or agencies, as the case may be, selected by Chemicals
(as certified by a resolution of the Board of Directors) which shall be
substituted for S&P or Moody's or both, as the case may be.
"Redeemable Stock" means any Capital Stock that by its terms or otherwise is
required to be redeemed on or prior to the Stated Maturity of the Notes or is
redeemable at the option of a Holder thereof at any time on or prior to the
Stated Maturity of the Notes.
"Refinance" means, with respect to any Debt, to refinance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue other Debt in
exchange or replacement for, such indebtedness. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Debt" means Debt that Refinances any Debt of Chemicals or any
Restricted Subsidiary existing on the Issue Date or Incurred in compliance with
the Notes Indenture including Debt that Refinances Refinancing Debt; provided,
however, that (i) such Refinancing Debt has a Stated Maturity no earlier than
the Stated Maturity of the Debt being Refinanced; (ii) such Refinancing Debt has
an Average Life at the time such Refinancing Debt is Incurred that is equal to
or greater than the Average Life of the Debt being Refinanced; (iii) such
Refinancing Debt has an aggregate principal amount (or if Incurred with original
issue discount, an aggregate issue price) that is equal to or less than the
aggregate principal amount (or if Incurred with original issue discount, the
aggregate accreted value) then outstanding or committed (plus fees and expenses,
including any premium and defeasance costs) under the Debt being Refinanced; and
(iv) with respect to any Refinancing Debt of Debt other than Senior Debt, such
Refinancing Debt shall rank no more senior, and shall be at least as
subordinated, in right
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of payment to the Notes as the Debt being so extended, renewed, refunded or
refinanced; provided, further, however, that Refinancing Debt shall not include
(x) Debt of a Subsidiary that Refinances Debt of Chemicals, or (y) Debt of
Chemicals or a Restricted Subsidiary that Refinances Debt of an Unrestricted
Subsidiary.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Debt of Chemicals.
"Responsible Officer" means, when used with respect to the Trustee, any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers.
"Restricted Subsidiary" means any Subsidiary of Chemicals that is not an
Unrestricted Subsidiary.
"Revolving Credit Provisions" means the provisions of the Credit Agreement
pursuant to which lenders thereunder have committed to make available to
Chemicals, a revolving credit facility, including the Canadian Facility.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby Chemicals or a Restricted Subsidiary
transfers such property to a Person and Chemicals or a Restricted Subsidiary
leases it from such Person.
"SEC" means the U.S. Securities and Exchange Commission.
"Secured Debt" means any Debt of Chemicals secured by a Lien.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"Senior Debt" means (i) Debt of Chemicals, whether outstanding on the Issue
Date or thereafter Incurred; and (ii) accrued and unpaid interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to Chemicals whether or not such interest is an
allowable claim in any such proceeding) in respect of (A) indebtedness of
Chemicals for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which
Chemicals is responsible or liable unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are subordinate in right of payment to the Notes;
provided, however, that Senior Debt shall not include (1) any obligation of
Chemicals to Holdings or any subsidiary of Holdings, (2) any liability for
Federal, state, local or other taxes owed or owing by Chemicals, (3) any
accounts payable or other liability to trade creditors arising in the ordinary
course of business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Debt of Chemicals (and any accrued and unpaid interest in
respect thereof) which is subordinate or junior in any respect to any other Debt
or other obligation of Chemicals, (5) that portion of any Debt which at the time
of Incurrence is Incurred in violation of this Indenture, (6) Debt owed, due, or
guaranteed on behalf of, any director, officer or employee of Chemicals or any
Subsidiary (including, without limitation, amounts owed for compensation), and
(7) Debt which when Incurred and without respect to any election under Section
1111(b) of Title 11 United States Code, is without recourse to Chemicals.
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"Senior Subordinated Debt" means the Notes and any other Debt of Chemicals
that specifically provides that such Debt is to rank pari passu with the Notes
in right of payment and is not subordinated by its terms in right of payment to
any Debt or other obligation of Chemicals which is not Senior Debt.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" of Chemicals as such term is defined in Rule 1-02 of
Regulation S-X, promulgated by the SEC.
"S&P" means Standard & Poor's Ratings Group.
"Stated Maturity" means with respect to any security the date specified in
such security as the fixed date on which the principal of such security is due
and payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such security at the
option of the holder thereof upon the happening of any contingency unless such
contingency has occurred).
"Subordinated Obligation" means any Debt of Chemicals (whether outstanding
on the Issue Date or thereafter Incurred) that is subordinate or junior in right
of payment to the Notes.
"Subsidiary" means any corporation, association, partnership or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) Chemicals; (ii) Chemicals and one or more
Subsidiaries; or (iii) one or more Subsidiaries.
"Tangible Property" means all land, buildings, machinery and equipment and
leasehold interests and improvements which would be reflected on a balance sheet
of Chemicals prepared in accordance with generally accepted accounting
principles, excluding (i) all rights, contracts and other intangible assets of
any nature whatsoever; and (ii) all inventories and other current assets.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof;
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 270 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50,000,000 (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor; (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above; (iv)
investments in commercial paper, maturing not more than 180 days after the date
of acquisition, issued by a corporation (other than an Affiliate of Chemicals or
Holdings) organized and in existence under the laws of the United States of
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America or any foreign country recognized by the United States of America with a
rating at the time as of which any investment therein is made of "P-l" (or
higher) according to Moody's or "A-1" (or higher) according to S&P; (v)
investments in securities with maturities of six months or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States of America, or by any political subdivision or taxing
authority thereof, and rated at least "A" by S&P or "A" by Moody's; (vi)
participations (for a tenor of not more than 90 days) in loans to Persons having
short-term credit ratings of at least "A-1" and "P-1" by S&P and Moody's,
respectively; (vii) with respect to any Foreign Subsidiary organized in Canada,
commercial paper of Canadian companies rated R-1 High or the equivalent thereof
by Dominion Bond Rating Services with maturities of less than one year; and
(viii) with respect to Foreign Subsidiaries not organized in Canada, government
obligations of another country whose debt securities are rated by S&P and/or
Moody's "A-1" or "P-1", or the equivalent thereof (if a short-term debt rating
is provided by either) or at least "AA" or "AA2", or the equivalent thereof (if
a long-term unsecured debt rating is provided by either), in each case, with
maturities of less than 12 months.
"Term Loan Provisions" means the provisions of the Credit Agreement pursuant
to which lenders thereunder have committed to make term loans available to
Chemicals.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb)
as in effect on the date on which this Indenture is qualified under the TIA.
"Transaction" means, collectively, the merger of STX Acquisition Corp. Corp.
with and into Chemicals pursuant to that certain Amended and Restated Agreement
and Plan of Merger, dated as of April 24, 1996, and the related financings.
"Trustee" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture, and thereafter
such term shall mean such successor serving hereunder.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Unrestricted Subsidiary" means (i) any Subsidiary of Chemicals that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
Chemicals (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries own
any Capital Stock or Debt of, or holds any Lien on any property of, Chemicals or
any other Subsidiary of Chemicals that is not a Subsidiary of the Subsidiary to
be so designated; provided, however, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less, or (B) if such Subsidiary has
assets of greater than $1,000, such designation would be permitted pursuant to
Section 5.05; and provided, further, however, that (1) no Subsidiary of
Chemicals that is a Restricted Subsidiary on the Issue Date (other than a
Restricted Subsidiary with total assets of $1,000 or less on the Issue Date) may
be designated an Unrestricted Subsidiary, and (2) no Subsidiary holding,
directly or indirectly, any assets (other than assets totaling $1,000 or less
which constituted the only assets of a Restricted Subsidiary on the Issue Date)
held by Chemicals or a Restricted Subsidiary on the Issue Date may be designated
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an Unrestricted Subsidiary. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) if such Unrestricted
Subsidiary at such time has Debt, Chemicals could Incur $1.00 of additional Debt
pursuant to Section 5.04(a), and (y) no Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be by Chemicals
to the Trustee by promptly filing with the Trustee a copy of the board
resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Warrants" has the meaning set forth in the second recital.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by Chemicals
or another Wholly Owned Subsidiary; provided, however, that a Foreign Subsidiary
shall be a Wholly Owned Subsidiary if more than 90% of the Capital Stock and
Voting Stock thereof is owned by Chemicals or another Wholly Owned Subsidiary.
Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Article/Section
- ---- ---------------
<S> <C>
"Affiliate Transaction"....... Section 5.08
"blockage period"............. Section 11.03
"Change of Control"........... Article IV
"covenant defeasance"......... Section 9.01
"Default Amount".............. Section 7.02
"Event of Default"............ Section 7.01
"legal defeasance"............ Section 9.01
"Paying Agent"................ Section 2.03
"parent corporation".......... Article IV
"Payment Default"............. Section 7.01
"Proceeding".................. Section 11.02
"Registrar"................... Section 2.03
"Restricted Payment".......... Section 5.05
"Securities Payment".......... Section 11.02
"Senior Nonmonetary Default".. Section 11.03
"Senior Payment Default"...... Section 11.03
"specified corporation"....... Article IV
"Successor Company"........... Section 6.01
</TABLE>
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Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
(i) "indenture securities" means the Notes;
(ii) "indenture security holder" means a Holder of a Note;
(iii) "indenture to be qualified" means this Indenture;
(iv) "indenture trustee" or "institutional trustee" means the Trustee;
(v) "obligor" upon the Notes means each of Chemicals and any successor
obligor upon the Notes.
All other terms used in this Indenture that are (i) defined by the TIA; (ii)
defined by TIA reference to another statute; or (iii) defined by SEC rule under
the TIA have the meanings so assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(iii) the word "or" shall not be deemed to be exclusive;
(iv) words in the singular include the plural, and words in the plural
include the singular; and
(v) provisions apply to successive events and transactions.
ARTICLE II
THE NOTES
Section 2.01. Form and Dating.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto, the terms of which are
incorporated in and made a part of this Indenture. The Notes may have such
notations, legends or endorsements approved as to form by Chemicals and
required, as applicable, by law, stock exchange rule, agreements to which
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Chemicals is subject and/or usage. Each Note shall be dated the date of its
authentication. The Notes shall be issuable only in denominations of $1,000 and
integral multiples thereof.
Section 2.02. Execution and Authentication.
Two Officers of Chemicals shall sign the Notes for Chemicals by manual or
facsimile signature. Chemicals' seal shall be reproduced on the Notes.
If an Officer whose signature is on a Note no longer holds that office at
the time such Note is authenticated such Note shall be valid nevertheless.
A Note shall not be valid until authenticated by the manual signature of the
Trustee. The signature of the Trustee shall be conclusive evidence that a Note
has been authenticated in accordance with the terms of this Indenture.
The Trustee, upon a written order of Chemicals signed by two Officers of
Chemicals, shall authenticate the Notes for original issue up to an aggregate
principal amount stated in paragraph 4 of the Notes. The aggregate principal
amount of Notes outstanding at any time shall not exceed the amount set forth
therein except as provided in Section 2.07.
The Trustee may appoint an authenticating agent acceptable to Chemicals to
authenticate the Notes. Unless limited by the terms of such appointment, any
such authenticating agent may authenticate the Notes whenever the Trustee may do
so. Each reference in this Indenture to authentication by the Trustee includes
authentication by such authenticating agent of the Trustee. An authenticating
agent has the same rights as an Agent to deal with Chemicals or an Affiliate of
Chemicals.
Section 2.03. Registrar and Paying Agent.
Chemicals shall maintain (i) an office or agency where the Notes may be
presented for registration of transfer or for exchange (including any co-
registrar, the "Registrar"); and (ii) an office or agency where the Notes may be
presented for payment ("Paying Agent"). The Registrar shall keep a register of
the Holders of Notes and of the transfer and exchange of such Notes (the "Note
Register"). Chemicals may appoint one or more co-registrars and one or more
additional paying agents. The term "Paying Agent" shall include any such
additional paying agent. Chemicals may change any Paying Agent, Registrar or
co-registrar without prior notice to any Holder of a Note. Chemicals shall
notify the Trustee and the Trustee shall notify the Holders of the Notes of the
name and address of any Agent not a party to this Indenture. Chemicals or any
of its domestically incorporated Wholly Owned Subsidiaries may act as Paying
Agent, Registrar or co-registrar. Chemicals shall enter into an appropriate
agency agreement with any Agent not a party to this Indenture, which shall
incorporate the provisions of the TIA. Any such agency agreement shall
implement the provisions of this Indenture that relate to such Agent. If
Chemicals fails to maintain a Registrar or Paying Agent, or fails to give the
foregoing notice, the Trustee shall act as such, as appropriate, and shall be
entitled to appropriate compensation in accordance with Section 8.07.
Chemicals initially appoints the Trustee as Registrar, Paying Agent and
agent for service of notices and demands in connection with the Notes.
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Section 2.04. Paying Agent to Hold Money In Trust.
On or prior to each due date of the principal of and interest on any Note,
Chemicals shall deposit with the Paying Agent a sum sufficient to pay such
principal and interest when so becoming due. Chemicals shall require each
Paying Agent (other than the Trustee) to agree in writing that the Paying Agent
shall hold in trust for the benefit of the Holders of the Notes or the Trustee
all money held by the Paying Agent for the payment of principal of, premium, if
any, and interest on the Notes, and shall notify the Trustee of any Default by
Chemicals in making any such payment. While any such Default continues, the
Trustee may require a Paying Agent to pay all money held by it to the Trustee.
Chemicals at any time may require a Paying Agent to pay all money held by it to
the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than
Chemicals) shall have no further liability for the money delivered to the
Trustee. If Chemicals acts as Paying Agent, it shall segregate and hold in a
separate trust fund for the benefit of the Holders of the Notes all money held
by it as Paying Agent.
Section 2.05. Lists of Holders of Notes.
The Trustee shall preserve in as current a form as is reasonably practicable
the most recent list available to it of the names and addresses of the Holders
of Notes. If the Trustee is not the Registrar, Chemicals shall furnish to the
Trustee at least three Business days before each interest payment date and at
such other times as the Trustee may request in writing a list in such form and
as of such date as the Trustee may reasonably require of the names and addresses
of the Holders of Notes, including the aggregate principal amount of Notes held
by each such Holder of Notes.
Section 2.06. Transfer and Exchange.
Notes shall be issued in registered form and shall be transferable only upon
the surrender of a Note for registration of transfer. When Notes are presented
to the Registrar with a request to register the transfer or to exchange them for
an equal principal amount of Notes of other denominations, the Registrar shall
register the transfer or make the exchange if its requirements for such
transactions are met; provided, however, that any Note presented or surrendered
for registration of transfer or exchange shall be duly endorsed or accompanied
by a written instruction of transfer in form satisfactory to the Registrar and
the Trustee duly executed by the Holder thereof or by his attorney duly
authorized in writing. To permit registrations of transfer and exchanges,
Chemicals shall issue and the Trustee shall authenticate Notes at the
Registrar's request.
Neither Chemicals nor the Registrar shall be required to (i) issue, register
the transfer of or exchange Notes during a period beginning at the opening of
business on a Business Day 15 days before the day of any selection of Notes for
redemption under Section 3.02; or (ii) register the transfer of or exchange any
Note so selected for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part.
No service charge shall be made to any Holder of a Note for any registration
of transfer or exchange (except as otherwise expressly permitted herein), but
Chemicals may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith.
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Prior to due presentment to the Trustee for registration of the transfer of
any Note, the Trustee, any Agent and Chemicals may deem and treat the Person in
whose name any Note is registered in the Note Register as the absolute owner of
such Note for the purpose of receiving payment of principal of, premium, if any,
and interest on such Note for all other purposes whatsoever, whether or not such
Note is overdue, and none of the Trustee, any Agent nor Chemicals shall be
affected by any notice to the contrary.
Section 2.07. Replacement Notes.
If any mutilated Note is surrendered to the Trustee, or Chemicals and the
Trustee receive evidence to their satisfaction of the destruction, loss or theft
of any Note, Chemicals shall issue and the Trustee shall authenticate a
replacement Note if Chemicals' and the Trustee's reasonable requirements for the
replacements of Notes are met. If required by the Trustee or Chemicals, an
indemnity bond shall be supplied by the Holder that is sufficient in the
judgment of the Trustee and Chemicals to protect Chemicals, the Trustee, any
Agent or any authenticating agent from any loss which any of them may suffer if
a Note is replaced.
Every replacement Note shall be an obligation of Chemicals.
Section 2.08. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee, except for those cancelled by it, those delivered to it for
cancellation and those described in this Section 2.08 as not outstanding. A
Note does not cease to be outstanding because Chemicals, a Subsidiary of
Chemicals or an Affiliate of Chemicals holds such Note.
If a Note is replaced pursuant to Section 2.07, it shall cease to be
outstanding unless the Trustee receives proof satisfactory to it that such
replaced Note is held by a bona fide purchaser. A mutilated Note ceases to be
outstanding upon surrender of such Note and replacement thereof pursuant to
Section 2.07.
If the Paying Agent segregates and holds in trust, in accordance with this
Indenture, on a redemption date or maturity date money sufficient to pay all
principal and interest payable on that date with respect to the Notes (or
portions thereof) to be redeemed or maturing, as the case may be, and the Paying
Agent is not prohibited from paying such money to the Holders of Notes on that
date pursuant to the terms of this Indenture, then on and after that date such
Notes (or portions thereof) shall cease to be outstanding and interest thereon
shall cease to accrue.
Section 2.09. Temporary Notes.
Until definitive Notes are ready for delivery, Chemicals may prepare and the
Trustee shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of definitive Notes but may have such variations as
Chemicals and the Trustee consider appropriate for temporary Notes. Without
unreasonable delay, Chemicals shall prepare and the Trustee shall authenticate
definitive Notes in exchange for temporary Notes. Until such exchange,
temporary Notes shall be entitled to the same rights, benefits and privileges as
definitive Notes.
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<PAGE>
Section 2.10. Cancellation.
Chemicals at any time may deliver Notes to the Trustee for cancellation.
The Registrar and the Paying Agent shall forward to the Trustee any Notes
surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation, and shall destroy such
cancelled Notes (subject to the record retention requirement of the Exchange
Act), and, upon the request of Chemicals, deliver a certificate of such
destruction to Chemicals, unless Chemicals directs called Notes to be returned
to them. Chemicals may not issue new Notes to replace Notes it has redeemed
paid or delivered to the Trustee for cancellation.
Section 2.11. Defaulted Interest.
If Chemicals defaults in a payment of interest on the Notes, Chemicals shall
pay such defaulted interest in any lawful manner. Chemicals may pay such
defaulted interest to the Persons who are Holders of the Notes on a subsequent
special record date, which date shall be at the earliest practicable date but in
all events at least five Business Days prior to the payment date, in each case
at the rate provided in the Notes. Chemicals shall fix or cause to be fixed any
such special record date and payment date, and, at least 15 days prior to the
special record date, Chemicals shall mail or cause to be mailed to each Holder
of a Note a notice that states such special record date, such related payment
date and the amount of any such defaulted interest to be paid to Holders of the
Notes.
Section 2.12. CUSIP Number.
Chemicals in issuing the Notes may use a "CUSIP" number, and, if Chemicals
shall do so, the Trustee shall use such CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided, however, that any such notice
may state that no representation is made as to the correctness or accuracy of
the CUSIP number printed in such notice or on the Notes and that reliance may be
placed only on the other identification numbers printed on the Notes. Chemicals
will notify the Trustee of any change in a CUSIP number.
ARTICLE III
REDEMPTION
Section 3.01. Notices to Trustee.
If Chemicals elects to redeem Notes pursuant to paragraph 5 of the Notes,
Chemicals shall notify the Trustee in writing of the redemption date, the
principal amount of Securities to be redeemed and the paragraph of the Notes
pursuant to which the redemption will occur.
Chemicals shall give each notice to the Trustee provided for in this Section
3.01 at least 60 days before the redemption date unless the Trustee consents to
a shorter period. Such notice shall be accompanied by an Officers' Certificate
and an Opinion of Counsel from Chemicals to the effect that such redemption will
comply with the conditions herein. If fewer than all of the Notes are to be
redeemed, the record date relating to such redemption shall be
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<PAGE>
selected by Chemicals and given to the Trustee, which record date shall be less
than 15 days after the date of notice to the Trustee.
Section 3.02. Selection of Notes to be Redeemed.
If fewer than all the Notes are to be redeemed, the Trustee shall select the
Notes to be redeemed pro rata or by lot or by a method that the Trustee
considers fair and appropriate. The Trustee shall make the selection from
outstanding Notes not previously called for redemption. The Trustee may select
for redemption portions of the principal of Notes that have denominations larger
than $1,000. Notes and portions of Notes the Trustee selects shall be in
amounts of $1,000 or a whole multiple of $1,000. Provisions of this Indenture
that apply to Notes called for redemption also apply to portions of Notes called
for redemption. The Trustee shall notify Chemicals promptly of the Notes or
portions of Notes to be redeemed.
Section 3.03. Notice of Redemption.
Chemicals shall at least 30 days but not more than 60 days before a
redemption date mail or cause to be mailed, by first class-mail, a notice to
redemption to each Holder Notes of which are to be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(i) the redemption date;
(ii) the redemption price,
(iii) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed, and that after the redemption date upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion shall be issued;
(iv) the name and address of the Paying Agent;
(v) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(vi) that, unless Chemicals defaults in making such redemption payment or
the Paying Agent is prohibited from making such payment pursuant to the terms of
this Indenture, interest on Notes called for redemption ceases to accrue on and
after the redemption date;
(vii) the paragraph of the Notes and/or the Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(viii) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the Notes.
At Chemicals' request, the Trustee shall give the notice of redemption in
Chemicals' name and at Chemicals' expense. In such event, Chemicals shall
provide the Trustee with the information required by this Section 3.03.
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Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03, Notes
called for redemption shall become due and payable on the redemption date and at
the redemption price stated in such notice of redemption. Upon surrender to the
Paying Agent, such Notes shall be paid at the redemption price stated in such
notice of redemption, plus accrued interest to the redemption date. Failure to
give notice to a Holder of a Note or any defect in any notice shall not affect
the validity of any notice to any other Holder of a Note.
Section 3.05. Deposit of Redemption Price.
On or prior to any redemption date, Chemicals shall deposit with the Paying
Agent (or, if Chemicals or a Subsidiary is the Paying Agent, shall segregate and
hold in trust) money sufficient to pay the redemption price of and accrued
interest on all Notes to be redeemed on that date. The Trustee or the Paying
Agent shall promptly return to Chemicals any money deposited with the Trustee or
the Paying Agent by Chemicals in excess of the amounts necessary to pay the
redemption price of, and accrued interest on, all Notes to be redeemed on that
date other than Notes or portions of Notes called for redemption which have been
delivered by Chemicals to the Trustee for cancellation.
Section 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, Chemicals shall issue and
the Trustee shall authenticate for the Holder of the Notes (at the expense of
Chemicals) a new Note equal in principal amount to the unredeemed portion of the
Note surrendered.
ARTICLE IV
CHANGE OF CONTROL
(a) Upon the occurrence of a Change of Control (as defined below), each
Holder of a Note shall have the right to require Chemicals to repurchase such
Holder's Notes at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest (if any) to the date of repurchase
(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date).
(b) The occurrence of any of the following events shall constitute a "Change
of Control" under this Indenture:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act
except that a Person shall be deemed to have "beneficial ownership" of all
shares that any 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 35% of the total voting power of the Voting Stock of
Holdings; provided that the Permitted Holders "beneficially own" (as defined
above), directly or indirectly, in the aggregate a lesser percentage of the
total voting power of the Voting Stock of Holdings than such other Person and
do not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority
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of the Board of Directors of Holdings (for the purposes of this clause (i), (A)
such other Person shall be deemed to beneficially own any Voting Stock of a
corporation (the "specified corporation") held by any other corporation (the
"parent corporation"), if such other Person "beneficially owns" (as defined
above), directly or indirectly, more than 35% of the voting power of the Voting
Stock of such parent corporation and the Permitted Holders "beneficially own"
(as defined above), directly or indirectly, in the aggregate a lesser
percentage of the voting power of the Voting Stock of such parent corporation
and do not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the Board of Directors of such
parent corporation, and (B) the Permitted Holders shall be deemed to
beneficially own any Voting Stock of a specified corporation held by any parent
corporation so long as the Permitted Holders beneficially own (as so defined),
directly or indirectly, in the aggregate a majority of the voting power of the
Voting Stock of the parent corporation);
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of Holdings or
Chemicals (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of Holdings or
Chemicals, as the case may be, was approved by a majority of the directors of
Holdings or Chemicals, as the case may be, 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 Board of Directors of Holdings or Chemicals, as the case may
be, then in office;
(iii) the merger or consolidation of Holdings or Chemicals with or into
another Person or the merger of another Person (other than a Permitted Holder)
with or into Holdings or Chemicals, or the sale or transfer in one or a series
of transactions of all or substantially all the assets of Holdings or Chemicals
to another Person (other than a Permitted Holder), and, in the case only of any
such merger or consolidation, the securities of Holdings or Chemicals that are
outstanding immediately prior to such transaction and which represent 100% of
the aggregate voting power of the Voting Stock of Holdings or Chemicals are
changed into or exchanged for cash, securities or property, unless pursuant to
such transaction such securities are changed into or exchanged for, in addition
to any other consideration, securities of the surviving corporation that
represent immediately after such transaction, at least a majority of the
aggregate voting power of the Voting Stock of the surviving corporation; or
(iv) for so long as a holding company ownership structure is maintained over
Chemicals, Holdings shall hold less than a majority of the Capital Stock of
Chemicals (other than Preferred Stock of Chemicals issued in accordance with
the terms of this Indenture) or less than a majority of the Voting Stock of
Chemicals.
(c) Within 30 days following any Change of Control, Chemicals shall mail a
notice to each Holder with a copy to the Trustee stating: (i) that a Change of
Control has occurred and that such Holder has the right to require Chemicals to
purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of holders of record on the relevant record
date to receive interest on the relevant interest payment date); (ii) the
material circumstances and facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization, each after giving effect to such
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Change of Control); (iii) the repurchase date (which shall be no earlier than 30
days nor later than 60 days from the date such notice is mailed in the event of
a Change of Control); and (iv) the instructions determined by Chemicals,
consistent with the covenant described hereunder, that a Holder must follow in
order to have its Notes purchased.
(d) Chemicals shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this Article
IV. To the extent that the provisions of any securities laws or regulations
conflict with the provisions of this Article IV, Chemicals shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Article IV by virtue thereof.
ARTICLE V
COVENANTS
Section 5.01. Payment of Principal, Premium and Interest.
Chemicals shall duly and punctually pay the principal of (and premium, if
any) and interest on the Notes in accordance with the terms of this Indenture
and the Notes.
Section 5.02. Maintenance of Office or Agency.
Chemicals shall maintain an office or agency (which may be an office of the
Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon Chemicals in respect of the Notes and this Indenture may
be served. Chemicals shall give prompt written notice to the Trustee of the
location, and any change in such location, of such office or agency. If at any
time Chemicals shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
Chemicals also from time to time may designate one or more additional
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and from time to time may rescind any such designation;
provided, however, that no such designation or rescission shall in any manner
relieve Chemicals of its obligation to maintain an office or agency for such
purposes. Chemicals shall give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other
office or agency.
Section 5.03. SEC Reports.
So long as any of the Notes remain outstanding, Chemicals shall cause copies
of all quarterly and annual financial reports and of the information, documents,
and other reports (or copies of such portions of any of the foregoing as the SEC
may by rules and regulations prescribe) which Chemicals is required to file with
the SEC pursuant to Section 13 or 15(d) of the Exchange Act to be filed with the
Trustee and mailed to the Holders at their addresses appearing in the Note
Register maintained by the Registrar, in each case, within 15 days of filing
with the SEC. If Chemicals is not subject to the requirements of such Section
13 or 15(d) of the Exchange Act, Chemicals shall nevertheless continue to file
with the SEC, in conformity with
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Section 13 or Section 15(d) of the Exchange Act, and provide the Trustee and
Holders of Notes with such annual and quarterly reports (without exhibits in the
case of documents provided to the Trustee and Holders of Notes) and such
information, documents and other reports (or copies of such portions of any of
the foregoing as the SEC may by rules and regulations prescribe) which are
specified in Section 13 or Section 15(d) of the Exchange Act. Chemicals shall
also comply with the provisions of TIA (S) 314(a).
Section 5.04. Limitation On Debt.
(a) Chemicals shall not Incur, and shall not permit any Restricted
Subsidiary to Incur, directly or indirectly, any Debt unless the Consolidated
EBITDA Coverage Ratio at the date of such Incurrence exceeds 1.75 to 1.0 if such
Debt is Incurred on or prior to [_______ __], 1998, or 2.0 to 1.0 if such Debt
is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), Chemicals and its
Restricted Subsidiaries may Incur the following Debt:
(i) Debt Incurred pursuant to the Revolving Credit Provisions of the Credit
Agreement or any other revolving credit facility which, when taken together
with all letters of credit and the principal amount of all other Debt Incurred
pursuant to this clause (i), does not exceed the greater of $100 million and
the sum of (x) 65% of the gross book value of the inventory of Chemicals and
its Restricted Subsidiaries, and (y) 85% of the gross book value of the
accounts receivable of Chemicals and its Restricted Subsidiaries;
(ii) Debt Incurred pursuant to the Term Loan Provisions of the Credit
Agreement or any indenture or term loan provisions of any other credit or loan
agreement which, when taken together with the principal amount of all other
Debt Incurred pursuant to this clause (ii), does not exceed $350 million
outstanding at any one time less the aggregate amount of all principal
repayments of any such Debt actually made after the Issue Date (other than any
such principal repayments made as a result of the Refinancing of any such
Debt);
(iii) Debt Incurred pursuant to the ESOP Loan Provisions of the Credit
Agreement in an aggregate principal amount not to exceed $6.5 million
outstanding at any one time less the aggregate amount of all principal
repayments of any such Debt actually made after the Issue Date (other than any
such principal repayments made as a result of the Refinancing of any such
Debt);
(iv) Debt of Chemicals owed to and held by a Wholly Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of any Capital
Stock that results in such Wholly Owned Subsidiary ceasing to be a Wholly Owned
Subsidiary or any transfer of such Debt (other than to a Wholly Owned
Subsidiary) shall be deemed, in each case, to constitute the issuance of such
Debt by Chemicals;
(v) Debt of a Restricted Subsidiary incurred and outstanding on or prior to
the date on which such Restricted Subsidiary became a Restricted Subsidiary or
was acquired by Chemicals (other than Debt issued in connection with, or to
provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to which
such Restricted Subsidiary became a Restricted Subsidiary or was acquired by
Chemicals);
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(vi) the Notes;
(vii) Debt outstanding on the Issue Date (other than Debt described in
clause (i), clause (ii), clause (iii), clause (iv), clause (v) or clause (vi);
(viii) Refinancing Debt in respect of Debt Incurred pursuant to paragraph
(a) or pursuant to clause (vi) or clause (vii) or this clause (viii);
(ix) Hedging Obligations; provided, that with respect to Interest Rate
Agreements and Currency Agreements (if such Currency Agreements relate to
Debt), only to the extent directly related to Debt permitted to be incurred by
Chemicals pursuant to this Indenture; and
(x) Debt in an aggregate principal amount which, together with all other Debt
of Chemicals and the Restricted Subsidiaries then outstanding (other than Debt
permitted by clauses (i) through (ix) of this paragraph (b) or paragraph (a)
above) does not exceed $25 million.
For purposes of determining compliance with this paragraph (b), (i) in the event
that an item of Debt meets the criteria of more than one of the types of Debt
described in paragraph (b), Chemicals, in its sole discretion, will classify
such item of Debt and only be required to include the amount and type of such
Debt in one of the clauses of paragraph (b); and (ii) an item of Debt may be
divided and classified in more than one of the types of Debt in paragraph (b).
(c) Notwithstanding paragraph (a) and paragraph (b) above, Chemicals shall
not Incur any Debt if the proceeds thereof are used, directly or indirectly, to
repay, prepay, redeem, defease, retire, refund or refinance any Subordinated
Obligations unless such Debt shall be subordinated to the Notes to at least the
same extent as such Subordinated Obligations.
(d) Notwithstanding paragraph (a) and paragraph (b) above, (i) Chemicals
shall not Incur any Debt if such Debt is subordinated or junior in ranking to
any Senior Debt, unless such Debt is Senior Subordinated Debt or is expressly
subordinated in right of payment to Senior Subordinated Debt; and (ii) Chemicals
shall not issue any Secured Debt which is not Senior Debt unless
contemporaneously therewith effective provision is made to secure the Notes
equally and ratably with such Secured Debt for so long as such Secured Debt is
secured by a Lien.
Section 5.05. Limitation On Restricted Payments.
(a) Chemicals shall not, and shall not permit any Restricted Subsidiary,
directly or indirectly, to:
(i) declare or pay any dividend or make any distribution on or in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving Chemicals) or similar payment to the direct or indirect
holders of its Capital Stock (except dividends or distributions payable solely
in its Non-Convertible Capital Stock or in options, warrants or other rights to
purchase its Non-Convertible Capital Stock and except dividends or
distributions payable to Chemicals or a Restricted Subsidiary), and other than
pro rata dividends or other distributions made by a Restricted Subsidiary of
Chemicals that is not a Wholly Owned Subsidiary to minority shareholders (or
owners of
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an equivalent interest in the case of a Restricted Subsidiary that is an entity
other than a corporation);
(ii) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of Chemicals, any direct or indirect parent of Chemicals or a Restricted
Subsidiary (other than such Capital Stock owned by Chemicals or any Wholly
Owned Subsidiary);
(iii) purchase, repurchase, redeem, defease or otherwise acquire or retire
for value, prior to scheduled maturity, scheduled repayment or scheduled
sinking fund payment, any Subordinated Obligations (other than purchase,
repurchase or other acquisition of Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition);
or
(iv) make any Investment in any Person (other than a Permitted Investment)
(any such dividend, distribution, purchase, redemption, repurchase, defeasance,
other acquisition, retirement or Investment being herein referred to as a
"Restricted Payment"), if at the time Chemicals or such Restricted Subsidiary
makes such Restricted Payment: (1) a Default shall have occurred and be
continuing (or would result therefrom); (2) Chemicals, after giving pro forma
effect to such Restricted Payment, would not be permitted to Incur an
additional $1.00 of Debt pursuant to Section 5.04(a); or (3) the aggregate
amount of such Restricted Payment and all other Restricted Payments since the
Issue Date would exceed the sum of: (A) 50% of the Consolidated Net Income
accrued during the period (treated as one accounting period) from the beginning
of the fiscal quarter during which the Notes were originally issued to the end
of the most recent fiscal quarter ending at least 45 days prior to the date of
such Restricted Payment (or, in case such Consolidated Net Income shall be a
deficit, minus 100% of such deficit); provided, however, that if the Notes
achieve an Investment Grade Rating during any fiscal quarter, the percentage
for such fiscal quarter (and for any other fiscal quarter where, on the first
day of such fiscal quarter, the Notes shall have an Investment Grade Rating)
will be 100% of Consolidated Net Income during such fiscal quarter; provided,
further, however, that if such Restricted Payment is to be made in reliance
upon an additional amount permitted pursuant to the immediately preceding
proviso, the Notes must have an Investment Grade Rating at the time such
Restricted Payment is declared or, if not declared, made; (B) the aggregate Net
Cash Proceeds received by Chemicals from the issue or sale of its Capital Stock
(other than Redeemable Stock or Exchangeable Stock) subsequent to the Issue
Date (other than an issuance or sale to a Subsidiary or an employee stock
ownership plan or similar trust); (C) the aggregate Net Cash Proceeds received
by Chemicals from the issue or sale of its Capital Stock (other than Redeemable
Stock or Exchangeable Stock) to an employee stock ownership plan subsequent to
the Issue Date; provided, however, that if such employee stock ownership plan
issues any Debt, such aggregate amount shall be limited to an amount equal to
any increase in the Consolidated Net Worth of Chemicals resulting from
principal repayments made by such employee stock ownership plan with respect to
Debt issued by it to finance the purchase of such Capital Stock; (D) the amount
by which Debt of Chemicals is reduced on Chemicals' balance sheet upon the
conversion or exchange (other than by a Subsidiary) subsequent to the Issue
Date, of any Debt of Chemicals convertible or exchangeable for Capital Stock
(other than Redeemable Stock or Exchangeable Stock) of Chemicals (less the
amount of any cash, or other property, distributed by Chemicals upon such
conversion or exchange); (E) an amount equal to the sum of (x) the net
reduction in Investments in Unrestricted Subsidiaries resulting from
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dividends, repayments of loans or advances or other transfers of assets, in
each case to Chemicals or any Restricted Subsidiary from Unrestricted
Subsidiaries, and (y) the portion (proportionate to Chemicals' equity interest
in such Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated
a Restricted Subsidiary; provided, however, that the foregoing sum shall not
exceed, in the case of any Unrestricted Subsidiary, the amount of Investments
previously made (and treated as a Restricted Payment) by Chemicals or any
Restricted Subsidiary in such Unrestricted Subsidiary; (F) to the extent not
covered in sub-clauses (A) through (E) of this clause (iv)(3), the aggregate
net cash proceeds received after the date of the Notes Indenture by Chemicals
as capital contributions (other than from any of its Restricted Subsidiaries);
and (G) $5 million; provided, however, that, to the extent used, such $5
million shall reduce the amount available for Investments pursuant to clause
(xii) of the definition of "Permitted Investments"; and provided, further,
however, that the amounts available under this sub-clause (G) and under clause
(xii) of the definition of "Permitted Investments" shall in no event exceed $10
million in the aggregate.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any purchase or redemption of Capital Stock or Subordinated
Obligations of Chemicals made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of Chemicals (other than
Redeemable Stock or Exchangeable Stock of Chemicals and other than Capital
Stock of Chemicals issued or sold to a Subsidiary or an employee stock
ownership plan); provided, however, that (1) such purchase or redemption shall
be excluded in the calculation of the amount of Restricted Payments, and (2)
the Net Cash Proceeds from such sale shall be excluded from clause (iv)(3)(B)
and clause (iv)(3)(C) of paragraph (a) above;
(ii) any purchase, redemption, defeasance or other acquisition or retirement
for value of Subordinated Obligations of Chemicals made by exchange for, or out
of the proceeds of the substantially concurrent sale of, Debt of Chemicals
which is permitted to be Incurred pursuant to Section 5.04; provided, however,
-------- -------
that such purchase, redemption, defeasance or other acquisition or retirement
for value shall be excluded in the calculation of the amount of Restricted
Payments;
(iii)any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted under Section 5.07; provided, however,
that such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments;
(iv) dividends paid within 60 days after the date of declaration thereof if
at such date of declaration such dividend would have complied with this
provision; provided, however, that at the time of declaration of such dividend,
no other Default shall have occurred and be continuing (or would result
therefrom); and provided, further, however, that such dividend shall be
included in the calculation of the amount of Restricted Payments;
(v) the declaration or payment of any dividend on shares of Chemicals'
Common Stock so long as (1) Chemicals would be permitted immediately after
giving pro forma effect to such declaration or payment to Incur an additional
$1.00 of Debt pursuant to Section 5.04(a), (2) such declaration or payment is
made immediately prior to a date
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on which cash interest is required to be paid on the Discount Notes, and (3)
the full amount of such payment is applied by Holdings on such date as payment
of such cash interest on the Discount Notes; provided that such dividend shall
be included in the calculation of the amount of Restricted Payments;
(vi) payments to the ESOP on behalf of the employees of Holdings or its
Subsidiaries; provided, however, that all such payments by Chemicals and its
Subsidiaries may not exceed, during any fiscal year, 10% of the aggregate
compensation expense during such fiscal year attributable to employees of
Holdings and its Subsidiaries who are eligible to participate in the ESOP;
(vii) a payment to Holdings to pay its operating and administrative
expenses, including, without limitation, directors fees, legal and audit
expenses, SEC compliance expenses, and corporate franchise and other taxes, in
an amount not to exceed the greater of $2.0 million per fiscal year and 0.2% of
revenues of Chemicals for the preceding fiscal year; provided, however, that
such amount shall be excluded in the calculation of the amount of Restricted
Payments;
(viii)a payment by Chemicals to Holdings or to the ESOP or directly by
Chemicals to be used to repurchase common stock of Holdings distributed to
participants and beneficiaries of the ESOP as required by and in accordance
with the ESOP as in effect on the Issue Date and Section 409(h)(1)(B) of the
Code and the regulations thereunder; provided, however, that such amount shall
be excluded in the calculation of the amount of Restricted Payments;
(ix) a payment by Chemicals to Holdings or the ESOP, or directly by
Chemicals, to be used to repurchase, redeem, acquire or retire for value any
Capital Stock of Holdings pursuant to any stockholder's agreement, management
equity subscription plan or agreement, stock option plan or agreement or
employee benefit plan in effect as of the Issue Date or such employee plan or
agreement or employee benefit plan as may be adopted by Chemicals or Holdings
from time to time; provided, however, that the aggregate price paid for all
Capital Stock repurchased, redeemed, acquired or retired by Chemicals or on
behalf of Holdings or Chemicals shall not exceed $5 million in any fiscal year;
provided, further, however, that such amount, to the extent related to the
ESOP, shall be excluded in the calculation of Restricted Payments;
(x) a payment to Holdings pursuant to the tax sharing agreement as the same
may be amended from time to time in a manner not materially adverse to
Chemicals; provided, however, that such amount shall be excluded in the
calculation of the amount of Restricted Payments;
(xi) any payment to Holdings to permit Holdings to make payments for
advisory services owed pursuant to the engagement letter dated as of April 23,
1996, by and between STX Acquisition Corp. and The Sterling Group, Inc.;
provided, however, that such amount shall be excluded in the calculation of the
amount of Restricted Payments;
(xii) a payment to Holdings to permit Holdings to comply with the terms of
the Discount Notes Indenture relating to the application of proceeds from an
Asset Disposition (relating to the sale or disposition of property by
Chemicals) as defined in such
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Discount Notes Indenture; provided, however, that such amount shall be excluded
in the calculation of the amount of Restricted Payments; and
(xiii) the Permitted Dividend; provided, however, that such Permitted
Dividend shall be excluded in the calculation of the amount of Restricted
Payments.
Section 5.06. Limitation On Restrictions On Distributions from Restricted
Subsidiaries.
Chemicals shall not, and shall not permit any Restricted Subsidiary to,
create or permit to exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary to:
(i) pay dividends or make any other distributions on its Capital Stock or
pay any Debt or other obligation owed to Chemicals,
(ii) make any loans or advances to Chemicals or
(iii) transfer any of its property or assets to Chemicals, except:
(1) any encumbrance or restriction pursuant to an agreement in effect
on the Issue Date or pursuant to the issuance of the Notes;
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Debt Incurred by
such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by Chemicals (other than Debt
Incurred as consideration in, or to provide all or any portion of the
funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary or was acquired by Chemicals)
and outstanding on such date;
(3) any encumbrance or restriction pursuant to an agreement effecting
a Refinancing of Debt Incurred pursuant to an agreement referred to in
clause (iii)(1) or clause (iii)(2) or contained in any amendment to an
agreement referred to in clause (iii)(1) or clause (iii)(2); provided,
however, that the encumbrances and restrictions contained in any of such
refinancing agreement or amendment are no less favorable to the Holders
than encumbrances and restrictions with respect to such Restricted
Subsidiary contained in such agreements;
(4) any such encumbrance or restriction consisting of customary
nonassignment provisions in leases governing leasehold interests to the
extent such provisions restrict the transfer of the lease or other
customary non-assignment provisions in contracts (other than contracts
that constitute Debt) entered into the ordinary course of business to
the extent such provisions restrict the transfer of the assets subject
to such contracts;
(5) in the case of this clause (iii), restrictions contained in
security agreements or mortgages securing Debt of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such security agreements or mortgages;
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(6) encumbrances or restrictions imposed by operation of applicable
law; and
(7) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all
or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition.
Section 5.07. Limitation On Sales of Assets and Subsidiary Stock.
(a) Chemicals shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, consummate any Asset Disposition unless
(i) Chemicals or such Restricted Subsidiary receives consideration
at the time of such Asset Disposition at least equal to the fair market value,
as determined in good faith by the Board of Directors (including as to the
value of all non-cash consideration), of the shares and assets subject to such
Asset Disposition and at least 75% of the consideration thereof received by
Chemicals or such Restricted Subsidiary is in the form of cash or cash
equivalents, and
(ii) an amount equal to 100% of the Net Available Cash from such
Asset Disposition is applied by Chemicals (or such Restricted Subsidiary, as
the case may be):
(1) FIRST, to the extent Chemicals elects (or is required by the
terms of any Senior Debt), to prepay, repay or purchase Senior Debt or Debt
(other than any Redeemable Stock) of a Wholly Owned Subsidiary (in each case
other than Debt owed to Chemicals or an Affiliate of Chemicals or Holdings)
within 180 days from the later of the date of such Asset Disposition or the
receipt of such Net Available Cash;
(2) SECOND, to the extent of the balance of such Net Available
Cash after application in accordance with clause (ii)(1) above, at Chemicals'
election to the investment by Chemicals, any Wholly Owned Subsidiary or the
Restricted Subsidiary making such Asset Disposition in assets to replace the
assets that were the subject of such Asset Disposition or an asset that (as
determined by the Board of Directors) will be used in the business of
Chemicals, the Wholly Owned Subsidiaries or the Restricted Subsidiary making
such Asset Disposition existing on the date of original issuance of the Notes
or in businesses reasonably related thereto, in each case within the later of
one year from the date of such Asset Disposition or the receipt of such Net
Available Cash;
(3) THIRD, to the extent of the balance of such Net Available Cash
after application and in accordance with clause (ii)(1) and clause (ii)(2), to
make an offer to purchase Notes (and any other Senior Subordinated Debt of
Chemicals designated by Chemicals) pursuant to and subject to the conditions
contained in this Indenture; and
(4) FOURTH, to the extent of the balance of such Net Available
Cash after application in accordance with clause (ii)(1), clause (ii)(2) and
clause (ii)(3), to (A) the acquisition by Chemicals, any Wholly Owned
Subsidiary or the Restricted Subsidiary making such Asset Disposition of
Tangible Property, or (B) the prepayment, repayment or purchase of Debt (other
than any Redeemable Stock) of Chemicals or Debt of any Restricted Subsidiary
(in either case other than Debt owed to Chemicals or an Affiliate of
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Chemicals), in each case within one year from the later of the receipt of such
Net Available Cash and the date the offer described in paragraph (b) below is
consummated;
provided, however, that in connection with any prepayment, repayment or purchase
of Debt pursuant to clause (ii)(1), clause (ii)(3) or clause (ii)(4) of this
paragraph (a), Chemicals shall cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. Notwithstanding the foregoing provisions of this paragraph,
Chemicals and its Restricted Subsidiaries shall not be required to apply any Net
Available Cash in accordance with this paragraph except to the extent that the
aggregate Net Available Cash from all Asset Dispositions which are not applied
in accordance with this paragraph exceeds $20 million. Pending application of
Net Available Cash pursuant to this paragraph, such Net Available Cash shall be
invested in Temporary Cash Investments.
For the purposes of this Section 5.07, the following are deemed to be cash
or cash equivalents: (x) the express assumption of Debt of Chemicals or any
Restricted Subsidiary and the release of Chemicals or such Restricted Subsidiary
from all liability on such Debt in connection with such Asset Disposition, and
(y) securities received by Chemicals or any Restricted Subsidiary from the
transferee that are converted by Chemicals or such Restricted Subsidiary into
cash within 90 days of the receipt of such securities. The 75% limitation
referred to in the previous paragraph shall not apply to any Asset Disposition
in which the cash portion of the consideration received therefor, determined in
accordance with the previous sentence, is equal to or greater than what the
after-tax proceeds would have been had such Asset Disposition complied with such
75% limitation.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Subordinated Debt) pursuant to clause (a)(ii)(3) above,
Chemicals will be required to purchase Notes tendered pursuant to an offer by
Chemicals for the Notes (and other Senior Subordinated Debt) at a purchase price
of 100% of their principal amount (without premium) plus accrued but unpaid
interest (or, in respect of such other Senior Subordinated Debt, such lesser
price, if any, as may be provided for by the terms of such Senior Debt) in
accordance with the procedures (including prorating in the event of
oversubscription) set forth in this Indenture. If the aggregate purchase price
of Notes (and any other Senior Subordinated Debt) tendered pursuant to such
offer is less than the Net Available Cash allotted to the purchase thereof,
Chemicals will be required to apply the remaining Net Available Cash in
accordance with clause (a)(ii)(4) above. Chemicals shall not be required to make
such an offer to purchase Notes (and other Senior Subordinated Debt) pursuant to
this Section 5.07 if the Net Available Cash available therefor is less than $10
million (which lesser amount shall be carried forward for purposes of
determining whether such an offer is required with respect to any subsequent
Asset Disposition).
To the extent that any or all of the Net Available Cash of any Foreign Asset
Sale is prohibited or delayed by applicable local law from being repatriated to
the United States, the portion of such Net Available Cash so affected shall not
be required to be applied at the time provided above, but may be retained by the
applicable Restricted Subsidiary (and invested in accordance with the last
sentence of the first paragraph of paragraph (a) above) so long, but only so
long, as the applicable local law will not permit repatriation to the United
States. Chemicals shall agree to cause the applicable Restricted Subsidiary to
promptly take all actions required by the applicable local law to permit such
repatriation. Once such repatriation of any of such affected Net Available Cash
is permitted under the applicable local law, such repatriation shall
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be immediately effected and such repatriated Net Available Cash will be applied
in the manner described in this Section 5.07.
(c) Chemicals shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this Section
5.07. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section 5.07, Chemicals shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this clause by virtue thereof.
Section 5.08. Limitation On Transactions with Affiliates.
(a) Chemicals shall not, and shall not permit any Restricted Subsidiary to,
conduct any business or enter into any transaction or series of related
transactions (including the purchase, sale, lease or exchange of any property or
the rendering of any service) with any Affiliate of Holdings or Chemicals (an
"Affiliate Transaction") unless:
(i) the terms of such Affiliate Transaction are (1) set forth in writing,
and (2) as favorable to Chemicals or such Restricted Subsidiary as terms that
would be obtainable at the time for a comparable transaction or series of
related transactions in arm's length dealings with an unrelated third Person,
(ii) if such Affiliate Transaction involves an amount in excess of $2.5
million, the disinterested members of the Board of Directors have, by
resolution, determined in good faith that such Affiliate Transaction meets the
criteria set forth in clause (i)(2) above, and
(iii) if such Affiliate Transaction involves an amount in excess of $7.5
million, such Affiliate Transaction is determined by an Independent Financial
Advisor to be fair from a financial standpoint to Chemicals or its Restricted
Subsidiary, as the case may be.
The foregoing requirements shall not be applicable to (x) contracts with
Koch Equities Inc. or its affiliates in the ordinary course of business on terms
as favorable to Chemicals or the relevant Restricted Subsidiary as would be
obtainable at the time for a comparable transaction in arm's length dealings
with an unrelated third Person, or (y) any purchase or supply contracts in the
ordinary course of business on terms as favorable to Chemicals or the relevant
Restricted Subsidiary as would be obtainable at the time for a comparable
transaction in arm's length dealings with an unrelated third Person; provided,
however, that the Board of Directors shall, not later than the 60th day after
the end of each six-month period following the Issue Date, have reviewed such
contracts and determined that such contracts meet the criteria set forth in this
sub-clause (y).
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any Restricted Payment or Permitted Investment permitted to be paid
pursuant to the covenant described in Section 5.05;
(ii) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock
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options and stock ownership plans approved by the Board of Directors of
Chemicals or the board of directors of the relevant Restricted Subsidiary;
(iii) loans or advances to employees in the ordinary course of business,
but in any event not to exceed $2 million in the aggregate outstanding at any
one time;
(iv) the payment of reasonable and customary fees to directors of
Chemicals and its Restricted Subsidiaries who are not employees of Chemicals or
its Restricted Subsidiaries;
(v) any transaction between Chemicals and a Wholly Owned Subsidiary or
between Wholly Owned Subsidiaries;
(vi) one-time fees payable to the Sterling Group, Inc., and The Unicorn
Group L.L.C. in connection with the Transaction in an aggregate amount not to
exceed $8 million and $4 million, respectively; and
(vii) indemnification payments to directors and officers of Chemicals in
accordance with applicable state laws.
Section 5.09. Limitation On the Sale or Issuance of Capital Stock of Restricted
Subsidiaries.
Chemicals shall not sell or otherwise dispose of any shares of Capital Stock
of a Restricted Subsidiary, and shall not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell or otherwise dispose of any shares of
its Capital Stock except:
(i) to Chemicals or a Wholly Owned Subsidiary;
(ii) if, immediately after giving effect to such issuance, sale or other
disposition, such Restricted Subsidiary remains a Restricted Subsidiary; or
(iii) if all shares of Capital Stock of such Restricted Subsidiary are sold
or otherwise disposed of; provided, however, that in connection with any sale
pursuant to this clause (iii), Chemicals may retain no more than 10% of the
outstanding Capital Stock of the Restricted Subsidiary being sold as a portion
of the purchase price in connection with such sale.
In connection with any such sale or disposition of Capital Stock, Chemicals
or any such Restricted Subsidiary shall comply with Section 5.07.
Section 5.10. Compliance Certificates.
Chemicals shall deliver to the Trustee, within 120 days after the end of
each fiscal year, an Officers' Certificate stating that a review of the
activities of Chemicals and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether Chemicals has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such Officers' Certificate, that to the best of his or her knowledge
Chemicals has kept, observed, performed and fulfilled each covenant contained
in this Indenture and is not in default in the performance or observance of any
of the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
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Default of which he or she may have knowledge and what action each is taking or
proposes to take with respect thereto). Chemicals shall also comply with TIA
(S) 314(a)(4).
Section 5.11. Further Instruments and Acts.
Upon request of the Trustee, Chemicals will execute and deliver such further
instruments and do such further acts as may be reasonably necessary or proper to
carry out more effectively the purpose of this Indenture.
ARTICLE VI
SUCCESSORS
Section 6.01. When Chemicals May Merge or Transfer Assets.
Chemicals shall not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, all or
substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company")
shall be a Person organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor Company
(if not Chemicals) expressly assumes, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form acceptable to the Trustee, all
the obligations of Chemicals under the Notes and this Indenture;
(ii) immediately after giving effect to such transaction (and treating any
Debt which becomes an obligation of the Successor Company or any Subsidiary as a
result of such transaction as having been Incurred by such Successor Company or
such Subsidiary at the time of such transaction), no Default shall have occurred
and be continuing;
(iii) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Debt pursuant to Section
5.04(a);
(iv) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount which is not less than
the Consolidated Net Worth of Chemicals prior to such transaction minus any
costs incurred in connection with such transaction; and
(v) Chemicals shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the terms of this
Indenture.
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Section 6.02. Successor Company Substituted.
The Successor Company shall be the successor to Chemicals and shall succeed
to, and be substituted for, and may exercise every right and power of, Chemicals
under this Indenture, but the predecessor Person in the case of a conveyance,
transfer or lease shall not be released from the obligation to pay the principal
of and interest on the Notes.
ARTICLE VII
DEFAULTS AND REMEDIES
Section 7.01. Events of Default.
Each of the following shall constitute an "Event of Default":
(i) Chemicals defaults in any payment of interest on any Note when the
same becomes due and payable, whether or not such payment shall be prohibited by
Article XI, and such default continues for a period of 30 days;
(ii) Chemicals defaults in the payment of the principal of any Note when
the same becomes due and payable at its Stated Maturity, upon redemption, upon
declaration, upon required repurchase or otherwise, whether or not such payment
shall be prohibited by Article XI;
(iii) Chemicals fails to comply with Article VI;
(iv) Chemicals fails to comply for 30 days after notice with any of its
obligations contained in Article IV (other than a failure to purchase Notes),
Section 5.03, Section 5.04, Section 5.05, Section 5.06, Section 5.07 (other than
a failure to purchase Notes), Section 5.08, Section 5.09 or Section 5.10;
(v) Chemicals fails to comply with any of its agreements in the Notes or
this Indenture (other than those referred to in clause (i), clause (ii), clause
(iii) or clause (iv) of this Section 7.01) and such failure continues for 60
days after the notice specified in Section 8.05;
(vi) a default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any Debt for
money borrowed by Chemicals or any of its Subsidiaries (or the payment of which
is Guaranteed by Chemicals or any of its Subsidiaries) whether such Debt or
Guarantee now exists, or is created after the date of this Indenture, which
default (1) is caused by failure to pay principal of or premium, if any, or
interest on such Debt prior to the expiration of the grace period provided in
such Debt on the date of such default ("Payment Default"), or (2) results in the
acceleration of such Debt prior to its express maturity and, in each case, the
principal amount of any such Debt, together with the principal amount of any
other such Debt under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $10 million or more;
(vii) Chemicals or any Significant Subsidiary of Chemicals pursuant to or
within the meaning of Bankruptcy Law: (1) commences a voluntary case, (2)
consents to the entry of an order for relief against it in an involuntary case,
(3) consents to the appointment of
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a Custodian of it or for all or substantially all of its property; or (4) makes
a general assignment for the benefit of its creditors;
(viii) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (1) is for relief against Chemicals or any Significant
Subsidiary of Chemicals in an involuntary case, (2) appoints a Custodian of
Chemicals or any Significant Subsidiary of Chemicals or for all or substantially
all of the property of Chemicals or any Significant Subsidiary of Chemicals, or
(3) orders the liquidation of Chemicals or any Significant Subsidiary of
Chemicals, and the order or decree remains unstayed and in effect for 60
consecutive days.
(ix) any final non-appealable judgment or decree not covered by insurance
or as to which the insurance carrier has denied responsibility for the payment
of money in excess of $10 million is rendered against Chemicals or a Significant
Subsidiary and is not discharged and there is a period of 60 days following such
judgment during which such judgment or decree is not discharged, waived or the
execution thereof stayed.
A Default under clause (iv) or clause (v) is not an Event of Default until
the Trustee or the Holders of at least 25% in principal amount of the Notes
notify Chemicals of the Default and Chemicals does not cure such Default within
the time specified after receipt of such notice.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
Chemicals shall deliver to the Trustee, within 30 days after the occurrence
thereof, an Officers' Certificate of any Event of Default pursuant to clause
(iv), clause (v), clause (vi) or clause (ix) and any event which with the giving
of notice or the lapse of time would become an Event of Default, its status and
what action Chemicals is taking or proposes to take in respect thereof.
Section 7.02. Acceleration.
If an Event of Default (other than an Event of Default specified in clause
(vii) or clause (viii) of Section 7.01) occurs and is continuing, the Trustee by
notice to Chemicals, or the Holders of at least 25% in aggregate principal
amount of the then outstanding Notes by written notice to Chemicals and the
Trustee, may declare the principal of and accrued but unpaid interest on all the
Notes to be due and payable (collectively, the "Default Amount"). Upon such a
declaration, the Default Amount shall be due and payable immediately.
Notwithstanding the foregoing, in case of an Event of Default specified in
clause (vii) or clause (viii) of Section 7.01, all outstanding Notes shall ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Holders of the Notes. The Holders of a
majority in aggregate principal amount of the then outstanding Notes by written
notice to the Trustee may on behalf of all of the Holders rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal, interest or premium that has become due solely because of the
acceleration) have been cured or waived.
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Section 7.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal, premium, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes and this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of the
Notes or does not produce any such Notes in the proceeding. A delay or omission
by the Trustee or any Holder of a Note in exercising any right or remedy
accruing upon any Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in such Event of Default. No remedy
shall be exclusive of any other remedy. All remedies shall be cumulative to the
extent permitted by law.
Section 7.04. Waiver of Past Defaults.
Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive an existing Default and its consequences, except (i) a Default in
the payment of the principal of, premium, if any, or interest on, the Notes; or
(ii) a Default in respect of a provision that under Section 10.02 cannot be
amended without the consent of each Holder affected thereby. Upon any such
waiver, such Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.
Section 7.05. Control by Majority.
Holders of a majority in principal amount of the Notes then outstanding may
direct the time, method and place of conducting any proceeding for exercising
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee. However, the Trustee may refuse to follow any direction that
conflicts with law or the terms of this Indenture if, subject to Section 8.01,
the Trustee reasonably determines that such action, if taken, would be unduly
prejudicial to the rights of other Holders of Notes or may involve the Trustee
in personal liability.
Section 7.06. Limitation On Suits.
Except to enforce the right to receive payment of principal, premium, if
any, or interest when due, no Holder of a Note may pursue any remedy with
respect to this Indenture or the Notes, unless:
(i) such Holder has previously given the Trustee notice that an Event of
Default is continuing;
(ii) Holders of at least 25% in principal amount of the Notes then
outstanding have requested the Trustee to pursue the remedy;
(iii) such Holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense;
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(iv) the Trustee has not complied with such request within 60 days after
the receipt thereof and the offer of security or indemnity; and
(v) Holders of a majority in principal amount of the Notes then outstanding
have not given the Trustee a direction inconsistent with such request within
such 60-day period.
A Holder of a Note shall not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
Section 7.07. Unconditional Right of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, and interest
on such Note, on or after the respective due dates expressed in such Note, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of any such Holder
of a Note.
Section 7.08. Collection Suit by Trustee.
If an Event of Default specified in Section 7.01(a) or Section 7.01(b)
occurs and is continuing, the Trustee may recover judgment in its own name and
as trustee of an express trust against Chemicals for the entire amount then due
and owing, plus the amounts provided for in Section 8.07.
Section 7.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee and the
Holders of the Notes allowed in any judicial proceedings relative to Chemicals,
Chemicals' creditors or Chemicals' property, and, unless prohibited by law or
applicable regulations, may vote on behalf of the Holders of Notes in any
election of a trustee in bankruptcy or other Person performing similar
functions, and any Custodian in any such judicial proceeding is hereby
authorized by each Holder of a Note to make payments to the Trustee, and, in the
event that the Trustee shall consent to the making of such payments directly to
the Holders of Notes, to pay to the Trustee any amount due to it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and any other amounts due to Trustee under Section 8.07.
Nothing herein contained shall be deemed to authorize the Trustee to authorize
or consent to or accept or adopt on behalf of any Holder of a Note any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder of a Note thereof, or to authorize the Trustee to vote
in respect of the claim of any Holder of a Note in any such proceeding.
Section 7.10. Priorities.
If the Trustee collects any money pursuant to this Article VII, it shall pay
out the money in the following order:
(i) FIRST: to the Trustee for amounts due to it under Section 8.07;
(ii) SECOND: to holders of Senior Debt to the extent required by Article XI;
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(iii) THIRD: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium, if any, and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Notes for
principal, premium, if any, and interest, respectively; and
(iv) FOURTH: to Chemicals.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 7.10.
Section 7.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section 7.11
shall not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant
to Section 7.07, or a suit by Holders of more than 10% in principal amount of
the Notes then outstanding.
Section 7.12. Waiver of Stay, Extension and Usury Laws.
Chemicals (to the extent that it may lawfully do so) shall not at any time
insist upon, plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law wherever enacted, now or at any
time hereafter in force, that may affect the covenants or the performance of
this Indenture; and Chemicals (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and shall not, by
resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Trustee, but shall suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE VIII
TRUSTEE
Section 8.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture, and use
the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the express
provisions of this Indenture and the Trustee need perform only those duties
that are specifically set forth in this Indenture and no others; and
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(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture. However, the
Trustee shall examine the certificates and opinions to determine whether or not
they conform to the requirements Indenture.
(c) The Trustee shall not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct or bad
faith, except that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section 8.01;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with a direction
received by it pursuant to Section 7.05.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraph (a),
paragraph (b) and paragraph (c) of this Section 8.01.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur financial liability in the performance of
any of its duties hereunder or in the exercise of any of its rights or powers,
if the Trustee shall have reasonable grounds to believe that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it.
(f) The Trustee shall not be liable for interest on any money received by it
except as the Trustee may agree in writing with Chemicals.
(g) Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
(h) Every provision of this Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee shall be subject to the
provisions of this Section 8.01 and to the provisions of the TIA.
Section 8.02. Rights of Trustee.
(a) The Trustee may rely upon any document reasonably believed by it to be
genuine and to have been signed or presented by the proper Person. The Trustee
need not investigate any fact or matter stated in any such document.
(b) Before the Trustee acts or refrains from taking any act, the Trustee may
require an Officers' Certificate or an Opinions of Counsel or both. The Trustee
shall not be liable for any action taken or omitted to be taken by it in good
faith in reliance on such Officers' Certificate or such Opinion of Counsel.
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(c) The Trustee may act through agents and shall not be responsible for the
misconduct or negligence of any agent; provided, however, that any such agent is
appointed by the Trustee with due care.
(d) The Trustee shall not be liable for any action taken or omitted to be
taken by it in good faith which it reasonably believes to be authorized or
within its rights or powers conferred upon it by this Indenture; provided,
however, that the Trustee's conduct does not constitute negligence, willful
misconduct or bad faith.
(e) The Trustee may consult with counsel, and the advice or opinion of
counsel with respect to legal matters shall be full and complete authorization
and protection from liability in respect to any action taken, omitted or
suffered by the Trustee hereunder in good faith and in accordance with the
advice or opinion of such counsel.
Section 8.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or
pledge of Notes and may otherwise deal with Chemicals or any Affiliate of
Chemicals with the same rights as it would have if the Trustee were not the
Trustee hereunder. However, in the event the Trustee acquires any conflicting
interest it must eliminate such conflicting interest within 90 days, apply to
the SEC for permission to continue as Trustee or resign. Any Paying Agent,
Registrar or co-registrar may do the same with like rights. The Trustee shall
at all times remain subject to Section 8.10 and Section 8.11.
Section 8.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to
the validly or adequacy of this Indenture or the Notes, it shall not be
accountable for Chemicals' use of the proceeds of the Notes and it shall not be
responsible for any statement contained herein or any statement contained in the
Notes or any other document in connection with the sale of the Notes or pursuant
to this Indenture other than the Trustee's certificates of authentication.
Section 8.05. Notice of Default.
If a Default occurs and is continuing and if such Default is known to a
Responsible Officer of the Trustee, the Trustee shall mail to each Holder of a
Note a notice of such Default within 90 days (or such shorter period as may be
required by applicable law) after such Default occurs. Except in the case of a
Default in payment of principal of, premium, if any, or interest on any Note,
the Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interests of the Holders of the Notes.
Section 8.06. Reports by Trustee to Holders of Notes.
Within 60 days after each [_________ ___], 1996, beginning with [_________
___] following the date of this Indenture, the Trustee shall mail to Holders of
the Notes a brief report dated as of such reporting date that complies with TIA
(S) 313(a). The Trustee also shall comply with TIA (S) 313(b).
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A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to Chemicals and filed with the SEC and each stock exchange on
which the Notes may be listed. Chemicals shall promptly notify the Trustee upon
the Notes being listed on any stock exchange and any delisting thereof.
Section 8.07. Compensation and Indemnity.
Chemicals shall pay to the Trustee from time to time reasonable compensation
for the Trustee's acceptance of this Indenture and its services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. Chemicals shall reimburse the Trustee for all
reasonable out-of-pocket expenses incurred or made by it in the course of its
services hereunder. Such expenses shall include the reasonable compensation and
expenses, disbursements and advances of the Trustee's agents, counsel,
accountants and experts.
Chemicals shall indemnify the Trustee against any and all loss, liability or
reasonable expense incurred by it in connection with the administration of this
trust and the performance of its duties under this Indenture, except any such
loss, liability or expense attributable to the negligence, willful misconduct or
bad faith of the Trustee.
The Trustee shall notify Chemicals promptly of any claim for which it may
seek indemnity. Failure by the Trustee to so notify Chemicals shall not relive
Chemicals of its obligations hereunder except to the extent that Chemicals may
be materially prejudiced by such failure. Chemicals shall defend the claim and
the Trustee shall cooperate in the defense of such claim. The Trustee may have
separate counsel and Chemicals shall pay the reasonable fees and expenses of
such counsel. Chemicals need not reimburse any expense or indemnify against any
loss, liability or expense incurred by the Trustee through the Trustee's own
negligence, willful misconduct or bad faith. Chemicals need not pay for any
settlement made without its consent, which consent shall not be unreasonably
withheld.
Chemicals' payment obligations under this Section 8.07 shall survive the
satisfaction and discharge of this Indenture.
To secure Chemicals' payment obligations under this Section 8.07, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except such money or property that is held by it in
trust for the benefit of Holders of Notes to pay principal and interest on
particular Notes.
If the Trustee shall incur expenses after the occurrence of a Default
specified in Section 7.01(vii) or Section 7.01(viii), such expenses (including
the reasonable fees and expenses of its agents and counsel) are intended to
constitute expenses of administration under Bankruptcy Law.
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Section 8.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 8.08.
The Trustee may resign at any time and be discharged from the trust hereby
created by so notifying Chemicals in writing. The Holders of Notes of not less
than a majority in principal amount of the Notes then outstanding may remove the
Trustee by so notifying the Trustee and Chemicals in writing. Chemicals shall
remove the Trustee if:
(i) the Trustee fails to comply with Section 8.10;
(ii) the Trustee is adjudged bankrupt or insolvent;
(iii)a Custodian or other public officer takes charge of the Trustee
or its property; or
(iv) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office of
Trustee for any reason (the Trustee in such event being referred to herein as
the retiring Trustee), Chemicals shall promptly appoint a successor Trustee.
Within one year after the successor Trustee takes office, the Holders of a
majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by Chemicals.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, Chemicals or the
Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee after written request by any Holder of a Note who has been a
Holder of a Note for at least six months fails to comply with Section 8.10, such
Holder of a Note may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
Any successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to Chemicals. Thereupon, the resignation or removal
of the retiring Trustee shall become effective, and the successor Trustee shall
have all of the rights, powers and duties of the Trustee under this Indenture.
The successor Trustee shall mail a notice of its succession to Holders of the
Note. The retiring Trustee shall promptly transfer all property held by it as
Trustee to the successor Trustee, subject to the Lien provided for in Section
8.07. Notwithstanding replacement of the Trustee pursuant to this Section 8.08,
Chemicals' obligations under Section 8.07 shall continue for the benefit of the
retiring Trustee.
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Section 8.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or transfers all
or substantially all of its corporate trust business or assets to, another
corporation or banking association, the resulting, surviving or transferee
entity without any further act shall constitute the successor Trustee; provided,
however, that such entity shall be otherwise qualified and eligible under this
Article VIII.
In case at the time such successor or successors by merger, conversion or
consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not delivered,
any such successor to the Trustee may adopt the certificate of authentication of
any predecessor trustee, and deliver such Securities so authenticated, and in
case at that time any of the Securities shall not have been authenticated, any
successor to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor to the Trustee; and in
all such cases such certificates shall have the full force which it is anywhere
in the Securities or in this Indenture provided that the certificate of the
Trustee shall have.
Section 8.10. Eligibility; Disqualification.
This Indenture at all times shall have a Trustee which satisfies the
requirements of TIA 310(a). Trustee shall be a corporation organized and doing
business under the laws of the United States of America or of any State thereof
authorized under such laws to exercise corporate trustee power, shall be subject
to supervision or examination by federal or state authority and shall have a
combined capital and surplus of at least $50 million as set forth in its most
recently published annual report of condition. The Trustee shall be subject to
TIA (S) 310(b).
Section 8.11. Preferential Collection of Claims Against Chemicals.
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee which has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE IX
DISCHARGE OF INDENTURE; DEFEASANCE
Section 9.01. Discharge of Liability on Securities; Defeasance.
(a) When (i) Chemicals delivers to the Trustee all outstanding Notes (other
than Notes replaced pursuant to Section 2.07) for cancellation; or (i) all
outstanding Notes have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article III of this
Indenture and Chemicals irrevocably deposits with the Trustee funds sufficient
to pay at maturity or upon redemption all outstanding Notes including interest
thereon to maturity or such redemption date (other than Notes replaced pursuant
to Section 2.07), and if in either case Chemicals pays all other sums payable
hereunder by Chemicals, then this Indenture shall, subject to Section 9.01(c),
cease to be of further effect. The Trustee shall acknowledge satisfaction and
discharge of this Indenture on demand of Chemicals
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accompanied by an Officers' Certificate and an Opinion of Counsel and at the
cost and expense of Chemicals.
(b) Subject to Section 9.01(c) and Section 9.02, Chemicals at any time may
terminate (i) all of Chemicals obligations under the Notes and this Indenture
("legal defeasance"); or (ii) its obligations under Article IV, Section 5.02,
Section 5.03, Section 5.04, Section 5.05, Section 5.06, Section 5.07, Section
5.08, Section 5.09, Section 5.10, Section 5.11, Section 6.01(iii), Section
6.01(iv), Section 7.01(iv), Section 7.01(vi), Section 7.01(vii) (with respect
only to Significant Subsidiaries), Section 7.01(viii) (with respect only to
Significant Subsidiaries) and Section 7.01(ix) ("covenant defeasance").
Chemicals may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option.
If Chemicals exercises its legal defeasance option, payment of the Notes may
not be accelerated because of an Event of Default and the Notes will cease to be
secured by the Collateral. If Chemicals exercises its covenant defeasance
option, payment of the Notes may not be accelerated because of an Event of
Default specified in Section 7.01 (iv), Section 7.01(vi), Section 7.01(vii)
(with respect only to Significant Subsidiaries), Section 7.01(viii) (with
respect only to Significant Subsidiaries), Section 7.01(ix) or the failure of
Chemicals to comply with Article IV.
Upon satisfaction of the conditions set forth herein and at the request of
Chemicals, the Trustee shall acknowledge in writing the discharge of those
obligations of Chemicals terminated thereby.
(c) Notwithstanding clause (a) and clause (b) above, Chemicals' obligations
contained in Section 2.03, Section 2.04, Section 2.05, Section 2.06, Section
2.07, Section 8.07, Section 8.08 and this Article IX shall survive until the
Notes have been paid in full. Thereafter, Chemicals' obligations contained in
Section 8.07, Section 9.04 and Section 9.05 shall survive.
Section 9.02. Conditions to Defeasance.
Chemicals may exercise its legal defeasance option or its covenant
defeasance option only if:
(i) Chemicals irrevocably deposits in trust with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to maturity or redemption, as the case may be;
(ii) Chemicals delivers to the Trustee a certificate from a nationally
recognized firm of independent accountants expressing their opinion that the
payments of principal and interest when due and without reinvestment on the
deposited U.S. Government Obligations plus any deposited money without
investment will provide cash at such times and in such amounts as will be
sufficient to pay principal and interest when due on all the Notes to maturity
or redemption, as the case may be;
(iii) 123 days pass after the deposit is made and during the 123-day period
no Default specified in Section 7.01(vii), Section 7.01(viii) with respect to
Chemicals occurs which is continuing at the end of the period;
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(iv) the deposit does not constitute a default under any other agreement
binding on Chemicals and is not prohibited by Article XI;
(v) Chemicals delivers to the Trustee an Opinion of Counsel to the effect
that the trust resulting from the deposit does not constitute, or is qualified
as, a regulated investment company under the U.S. Investment Company Act of
1940, as amended;
(vi) in the case of the legal defeasance option, Chemicals shall have
delivered to the Trustee an Opinion of Counsel in the United States stating
that (1) Chemicals has received from, or there has been published by, the
Internal Revenue Service a ruling, or (2) since the date of this Indenture
there has been a change in the applicable U.S. Federal income tax law, in
either case to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Holders of Notes will not recognize income, gain or loss for
U.S. Federal income tax purposes as a result of such defeasance and will be
subject to U.S. Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance had not
occurred:
(vii) in the case of the covenant defeasance option, Chemicals shall have
delivered to the Trustee an Opinion of Counsel in the United States to the
effect that the Holders of Notes will not recognize income, gain or loss for
U.S. Federal income tax purposes as a result of such covenant defeasance and
will be subject to U.S. Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred;
(viii) Chemicals delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Notes as contemplated by this Article IX have
been complied with: and
Before or after a deposit, Chemicals may make arrangements satisfactory to
the Trustee for the redemption of the Notes at a future date in accordance with
Article III.
Section 9.03. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to this Article IX. The Trustee shall apply the
deposited money and the money from U.S. Government Obligations through the
Paying Agent and in accordance with this Indenture to the payment of principal
of, premium, if any, and interest on the Notes.
Section 9.04. Repayment to Chemicals.
The Trustee and the Paying Agent shall promptly turn over to Chemicals upon
request any excess money or securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the Paying
Agent shall pay to Chemicals upon request any money held by them for the payment
of principal or interest that remains unclaimed for two years, and, thereafter,
Holders of Notes entitled to the money shall look to Chemicals for payment as
general creditors.
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Section 9.05. Indemnity for Government Obligations.
Chemicals shall pay and indemnify the Trustee against any tax, fee or other
charge imposed on or assessed against deposited U.S. Government Obligations or
the principal and interest received on such U.S. Government Obligations.
Section 9.06. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with this Article IX by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application,
Chemicals' obligations under this Indenture and the Notes shall be revived and
reinstated as though no deposit had occurred pursuant to this Article IX until
such time as the Trustee or Paying Agent is permitted to apply all such money or
U.S. Government Obligations in accordance with this Article IX; provided,
however, that, if Chemicals has made any payment of interest on or principal of
any of the Notes because of the reinstatement of its obligations, Chemicals
shall be subrogated to the rights of the Holders of such Notes to receive such
payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent.
ARTICLE X
AMENDMENT, SUPPLEMENT AND WAIVER
Section 10.01. Without Consent of Holders of Notes.
Chemicals and the Trustee may amend or supplement this Indenture or the
Notes without the consent of any Holder of a Note:
(i) to cure any ambiguity, omission, defect or inconsistency;
(ii) to provide for the assumption of Chemicals' obligations to the Holders
of the Notes in the case of a merger or consolidation pursuant to Article VI;
(iii) to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner such
that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code);
(iv) to add guarantees with respect to the Notes;
(v) to add to the covenants of Chemicals and its Subsidiaries hereunder for
the benefit of the Holders of Notes or to surrender any right or power
conferred upon Chemicals;
(vi) to make any change that would provide any additional rights or benefits
to the Holders of the Notes or that does not adversely affect the legal rights
hereunder of any Holder of a Note; or
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(vii) to comply with requirements of the SEC in order to effect or maintain
the qualification of this Indenture under the TIA.
Upon the request of Chemicals accompanied by a resolution of the Board of
Directors of Chemicals authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 10.06, the Trustee shall join with Chemicals in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations which may be contained therein, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture which affects its
own rights, duties or immunities under this Indenture or otherwise.
After an amendment, supplement or waiver under this Section 10.01 becomes
effective, Chemicals shall mail to the Holders of Notes affected thereby a
notice briefly describing any such amendment, supplement or waiver. Any failure
of Chemicals to mail such notice, or any defect therein, shall not in any way
impair or affect the validity of any such amended or supplement Indenture or
waiver. Subject to Section 7.04 and Section 7.07, the Holders of a majority in
aggregate principal amount of the Notes then outstanding may waive compliance by
Chemicals in any particular instance with any provision of this Indenture or the
Notes.
Section 10.02. With Consent of Holders of Notes.
Chemicals and the Trustee may amend or supplement this Indenture, the Notes
or any amended or supplemental Indenture with the written consent of the Holders
of Notes of at least a majority in aggregate principal amount of the Notes then
outstanding, and any existing Default and its consequences or compliance with
any provision of this Indenture or the Notes may be waived with the consent of
the Holders of a majority in principal amount of the Notes then outstanding.
However, without the consent of each Holder of a Note affected, any amendment
supplement or waiver may not:
(i) reduce the amount of Notes the Holders of which must consent to an
amendment;
(ii) reduce the rate of or extend the time for payment of interest on any
Note;
(iii) reduce the principal of or extend the Stated Maturity of any Note;
(iv) reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed in accordance with Article III;
(v) make any Notes payable in money other than that stated in the Note
(except that Chemicals' obligations to make an offer to repurchase the Notes as
a result of a Change of Control may be waived or modified with the prior
written consent of the Holders of a majority in principal amount of the Notes);
(vi) make any change in Section 7.04 or Section 7.07 or the second sentence
of this Section 10.02; or
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(vii) make any change in any material provision of Article XI that
adversely affects the interests of any Holder of a Note.
Upon the request of Chemicals accompanied by a resolution of the Board of
Directors of Chemicals authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory with the Trustee of the consent of the Holders of Notes as
aforesaid and upon receipt by the Trustee of the documents described in Section
10.06, the Trustee shall join with Chemicals in the execution of such amended or
supplemental Indenture unless such amended or supplemental Indenture affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise, in
which case the Trustee may in its discretion, but shall not be obligated to,
enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes under this
Section 10.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 10.02 becomes
effective, Chemicals shall mail to the Holders of Notes affected thereby a
notice briefly describing any such amendment, supplement or waiver. Any failure
of Chemicals to mail such notice, or any defect therein, shall not in any way
impair or affect the validity of any such amended or supplement Indenture or
waiver. Subject to Section 7.04 and Section 7.07, the Holders of a majority in
aggregate principal amount of the Notes then outstanding may waive compliance by
Chemicals in any particular instance with any provision of this Indenture or the
Notes.
Section 10.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall be set
forth in an amended or supplemental Indenture that complies with the TIA as then
in effect.
Section 10.04. Revocation and Effect of Consents and Waivers.
Until an amendment, supplement or waiver becomes effective, a consent to
such amendment, supplement or waiver by a Holder of a Note is a continuing and
bindings consent by the Holder of a Note and every subsequent Holder of a Note
or portion of a Note that evidences the same Debt as the consenting Holder's
Note, even if a notation of the consent or waiver is not made on any Note.
However, any such Holder of a Note or subsequent Holder of a Note may revoke the
consent as to its Note if the Trustee receives written notice of revocation
before the date the waiver, supplement or amendment becomes effective. An
amendment, supplement or waiver shall become effective in accordance with its
terms and thereafter shall bind every Holder of a Note.
Chemicals may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders of Notes entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, such Persons which were Holders of Notes at
such record date (or their duly designated proxies), and only such Persons,
shall be entitled to give such consent or to revoke any consent previously given
or to take any
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such action, whether or not such Persons continue to be Holders of Notes after
such record date. No such consent shall be valid or effective for more than 120
days after such record date.
Section 10.05. Notation On or Exchange of Notes.
If an amendment or supplement changes the terms of a Note, the Trustee may
require the Holder of such Note to Deliver such Note to the Trustee. The
Trustee may place an appropriate notation on the Note regarding the changed
terms and return it to the Holder of such Note. Alternatively, if Chemicals or
the Trustee so determines, Chemicals in exchange for such Note shall issue and
the Trustee shall authenticate a new Note that reflects such changed terms.
Failure to make the appropriate notation or to issue a new Note shall not affect
the validity of such amendment or supplement.
Section 10.06. Trustee to Sign Amendments, Etc.
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article X if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. Chemicals
shall not sign any amendment or supplemental Indenture until the Board of
Directors approves any such amendment or supplemental Indenture.
Section 10.07. Payment for Consents.
Chemicals shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of any Note for or as an
inducement to any consent, amendment, supplement or waiver with respect to any
term or provision of this Indenture or the Notes, unless such consideration is
offered to be paid or agreed to be paid to all Holders of Notes that consent,
waive or agree to amend or supplement in the time frame set forth in the
solicitation documents relating to any such consent, waiver or agreement to
amend or supplement.
ARTICLE XI
SUBORDINATION OF NOTES
Section 11.01. Notes Subordinate to Senior Debt.
Chemicals covenants and agrees, and each Holder of a Note, by its acceptance
thereof, likewise covenants and agrees, that, to the extent and in the manner
herein-after set forth in this Article XI (subject to the provisions of Article
IX), the payment of the principal of and premium, if any) and interest on each
and all of the Notes are hereby expressly made subordinate and subject in right
of payment to the prior payment in full of all Senior Debt of Chemicals.
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Section 11.02. Payment Over of Proceeds Upon Dissolution, Etc.
In the event of (i) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relative to Chemicals or to its creditors, as such, or to
its assets; or (ii) any liquidation, dissolution or other winding up of
Chemicals, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy; or (iii) any assignment for the benefit of creditors
or any other marshalling of assets or liabilities of Chemicals, then and in any
such event specified in clause (i), clause (ii) or clause (iii) above (each such
event, if any, herein sometimes referred to as a "Proceeding") the holders of
Senior Debt of Chemicals will be first entitled to receive payment in full of
all amounts due or to become due on or in respect of all Senior Debt of
Chemicals, or provision shall be made for such payment, in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of such Senior
Debt, before the Holders of the Notes are entitled to receive any payment or
distribution of any kind or character, on account of principal of (or premium,
if any) or interest on or other obligations in respect of the Notes or on
account of any purchase or other acquisition of Notes by Chemicals (all such
payments, distributions, purchases and acquisitions herein referred to,
individually and collectively, as a "Securities Payment"), and to that end the
holders of Senior Debt of Chemicals shall be entitled to receive, for
application to the payment thereof, any Notes Payment which may be payable or
deliverable in respect of the Notes in any such Proceeding.
In the event that, notwithstanding the foregoing provisions of this Section
11.02, the Trustee receives payment or distribution of assets of Chemicals of
any kind or character, before all the Senior Debt of Chemicals is paid in full
in cash or cash equivalents, then and in such event, subject to Section 11.04,
such Notes Payment shall be paid over or delivered forthwith to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other
person making payment or distribution of assets of Chemicals for application to
the payment of all Senior Debt of Chemicals remaining unpaid, to the extent
necessary to pay the Senior Debt of Chemicals in full in cash or cash
equivalents, after giving effect to any concurrent payment or distribution to or
for the holders of Senior Debt of Chemicals.
For purposes of this Article XI only, the words "any payment or distribution
of any kind or character, whether in cash, property or securities" shall not be
deemed to include a payment or distribution of stock or securities of Chemicals
provided for by a plan of reorganization or readjustment authorized by an order
or decree of a court of competent jurisdiction in a reorganization proceeding
under any applicable bankruptcy law or of any other corporation provided for by
such plan of reorganization or readjustment which stock or securities are
subordinated in right of payment to all then outstanding Senior Debt of
Chemicals, to at least the same extent as the Notes are so subordinated as
provided in this Article XI; provided that (1) if a new corporation results from
such reorganization or readjustment, such corporation assumes any Senior Debt of
Chemicals not paid in full in cash or cash equivalents in connection with such
reorganization or readjustment; and (2) the rights of the holders of such Senior
Debt are not, without the consent of such holders, altered by such
reorganization or readjustment. The consolidation of Chemicals with, or the
merger of Chemicals into, another person or the liquidation or dissolution of
Chemicals following the conveyance or transfer of all or substantially all of
its properties and assets as an entirety to another person upon the terms and
conditions set forth in Article VI shall not be deemed a Proceeding for the
purposes of this Section 11.02 if the person formed by such consolidation or
into which Chemicals is merged or the person which acquires by conveyance or
transfer such properties and assets as an entirety, as the case may be,
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shall, as part of such consolidation, merger, conveyance or transfer, comply
with the conditions set forth in Article VI.
Section 11.03. No Payment When Senior Debt in Default.
In the event that any Senior Payment Default (as defined below) shall have
occurred and be continuing, then Chemicals may not make any Notes Payment unless
and until such Senior Payment Default shall have been cured or waived or shall
have ceased to exist or all amounts then due and payable in respect of
Designated Senior Debt shall have been paid in full, or provision shall have
been made for such payment, in cash or cash equivalents or otherwise in a manner
satisfactory to the holders of such Designated Senior Debt. The term "Senior
Payment Default" means any default in the payments of principal of (or premium,
if any) or interest on any Designated Senior Debt of Chemicals when due, whether
at the maturity thereof or by declaration or acceleration, call for redemption
or otherwise.
In the event that any Senior Nonmonetary Default (as defined below) shall
have occurred and be continuing, then, upon the receipt by Chemicals and the
Trustee of written notice of such Senior Nonmonetary Default from the
representatives of holders of the Designated Senior Debt to which such default
relates, Chemicals may not make any Notes Payment (other than payments
previously made pursuant to Article IX) for a period (the "blockage period")
commencing on the date Chemicals and Trustee receive such written notice and
ending on the earlier of (i) the 179th day after the date of such receipt of
such written notice; and (ii) the date, if any, on which the Designated Senior
Debt to which such default relates is discharged or such default is waived or
otherwise cured. In any event, not more than one blockage period may be
commenced during any period of 360 consecutive days and there shall be a period
of at least 181 consecutive days in each period of 360 consecutive days when no
blockage period is in effect. For all purposes of this paragraph, no Senior
Nonmonetary Default that existed or was continuing on the date of commencement
of any blockage period with respect to the Designated Senior Debt initiating
such blockage period will be, or can be, made the basis for the commencement of
a subsequent blockage period unless such default has been cured or waived for a
period of not less than 90 consecutive days. The term "Senior Nonmonetary
Default" means the occurrence or existence and continuance of any event of
default, or of any event which, after notice or lapse of time (or both), would
become an event of default, under the terms of any instrument pursuant to which
any Designated Senior Debt is outstanding, permitting (after notice or lapse of
time or both) one or more holders of such Senior Debt (or a trustee or agent on
behalf of the holders thereof) to declare such Senior Debt due and payable prior
to the date on which it should otherwise become due and payable, other than a
Senior Payment Default.
In the event that, notwithstanding the foregoing, Chemicals shall make any
Notes Payment to the Trustee or any Holder prohibited by the foregoing
provisions of this Section 11.03, then and in such event, subject to Section
11.04, such Notes Payment shall be paid over and delivered forthwith to the
holders of the Senior Debt of Chemicals remaining unpaid, to the extent
necessary to pay in full all the Senior Debt of Chemicals.
The provisions of this Section 11.03 shall not apply to any Notes Payment
with respect to which Section 11.02 would be applicable.
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Section 11.04. Payment Permitted If No Default.
Nothing contained in this Article XI or elsewhere in this Indenture or in
any of the Notes shall prevent (i) Chemicals, at any time except during the
pendency of any Proceeding referred to in Section 11.02 or under the conditions
described in Section 11.03, from making Notes Payments; or (ii) the application
by the Trustee of any money deposited with it hereunder to Notes Payments or the
retention of such Notes Payment by the Holders, if, at the time of such
application by the Trustee, it did not have knowledge that such Notes Payment
would have been prohibited by the provisions of this Article XI.
Section 11.05. Subrogation to Rights of Holders of Senior Debt.
Subject to the payment in full of all amounts due or to become due on or in
respect of Senior Debt of Chemicals, or the provision for such payment, in cash
or cash equivalents or otherwise in a manner satisfactory to the holders of
Senior Debt of Chemicals, the Holders of the Notes shall be subrogated (equally
and ratably with the holders of all Debt of Chemicals, if any, which by its
express terms is subordinated to Debt of Chemicals to substantially the same
extent as the Notes are subordinated to the Senior Debt of Chemicals and is
entitled to like rights of subrogation by reason of any payments or
distributions made to holders of such Senior Debt) to the rights of the holders
of such Senior Debt of Chemicals to receive payments and distributions of cash,
property and securities applicable to the Senior Debt of Chemicals until the
principal of (and premium, if any) and interest on the Notes shall be paid in
full. For purposes of such subrogation, no payments or distributions to the
holders of the Senior Debt of Chemicals of any cash, property or securities to
which the Holders of the Notes or the Trustee would be entitled except for the
provisions of this Article XI, and no payments over pursuant to the provisions
of this Article XI to the holders of Senior Debt of Chemicals by Holders of the
Notes or the Trustee, shall, as among Chemicals, its creditors other than
holders of Senior Debt and the Holders of the Notes, be deemed to be a payment
or distribution by Chemicals to or on account of the Senior Debt of Chemicals.
Section 11.06. Provisions Solely to Define Relative Rights.
The provisions of this Article XI are and are intended solely for the
purpose of defining the relative rights of the Holders of Notes on the one hand
and the holders of Senior Debt of Chemicals on the other hand. Nothing
contained in this Article XI or elsewhere in this Indenture or in the Notes is
intended to or shall (i) impair, as among Chemicals, its creditors other than
holders of Senior Debt and the Holders of the Notes, the obligation of
Chemicals, which is absolute and unconditional, to pay to the Holders of the
Notes the principal of (and premium, if any) and interest on the Notes as and
when the same shall become due and payable in accordance with their terms; or
(ii) affect the relative rights against Chemicals of the Holders of the Notes
and creditors of Chemicals other than the holders of Senior Debt; or (iii)
prevent the Trustee or the Holder of any Note from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture, subject
to the rights, if any, under this Article XI of the holders of Senior Debt of
Chemicals to receive cash, property and securities otherwise payable or
deliverable to the Trustee or such Holder.
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Section 11.07. Trustee to Effectuate Subordination.
Each Holder of a Note by such Holder's acceptance thereof authorizes and
directs the Trustee on such Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article XI and appoints the Trustee his attorney-in-fact for any and all such
purposes.
Section 11.08. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Debt of Chemicals to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of Chemicals or
by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by Chemicals with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Debt of Chemicals may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the Notes,
without incurring responsibility to the Holders of the Notes and without
impairing or releasing the subordination provided in this Article XI or the
obligations hereunder of the Holders of the Notes to the holders of Senior Debt,
do any one or more of the following: (i) change the manner, place or terms of
payment or extend the time of payment of, or renew, increase or alter, Senior
Debt, or otherwise amend or supplement in any manner Senior Debt or any
instrument evidencing the same or any agreement under which Senior Debt is
outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Debt; (iii) release any person
liable in any manner for the payment or collection of Senior Debt; and (iv)
exercise or refrain from exercising any rights against Chemicals and any other
person.
Section 11.09. Notice to Trustee.
Chemicals shall give prompt written notice to the Trustee of any fact known
to Chemicals which would prohibit the making of any payment to or by the Trustee
in respect of the Notes. Notwithstanding the provisions of this Article XI or
any other provision of this Indenture, the Trustee shall not be charged with
knowledge of the existence of any facts which could prohibit the making of any
payment to or by the Trustee in respect of the Notes, unless and until the
Trustee shall have received written notice thereof from Chemicals or a holder of
Senior Debt of Chemicals or from any trustee therefor; and, prior to the receipt
of any such written notice, the Trustee, subject to the provisions of Section
8.01, shall be entitled in all respects to assume that no such facts exist;
provided, however, that if the Trustee shall not have received the notice
provided for in this Section 11.09 at least two Business Days prior to the date
upon which by the terms hereof any money may became payable for any purpose
(including, without limitation, the payment of the principal of (and premium, if
any) or interest on any Note), then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive such
money and to apply the same to the purpose for which such money was received and
shall not be affected by any notice to the contrary which may be received by it
within two Business Days prior to such date.
Subject to the provisions of Section 8.01, the Trustee shall be entitled to
rely on the delivery to it of a written notice by a person representing himself
to be a holder of Senior
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Debt of Chemicals (or a trustee therefor) to establish that such notice has been
given by a holder of Senior Debt of Chemicals (or a trustee therefor). In the
event that the Trustee determines in good faith that further evidence is
required with respect to the right of any person as a holder of Senior Debt of
Chemicals to participate in any payment or distribution pursuant to this Article
XI, the Trustee may request each person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Senior Debt of Chemicals held by
such person, the extent to which such person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
person under this Article XI, and if such evidence is not furnished, the Trustee
may defer any payment to such person pending judicial determination as to the
right of such person to receive such payment.
Section 11.10. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets of Chemicals referred to in this
Article XI, the Trustee, subject to the provisions of Section 8.01, and the
Holders of the Notes shall be entitled to rely upon any order or decree entered
by any court of competent jurisdiction in which such Proceeding is pending, or a
certificate of the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee for the benefit of creditors, agent or other person making
such payment or distribution, delivered to the Trustee or to the Holders of
Notes, for the purpose of ascertaining the persons entitled to participate in
such payment or distribution, the holders of the Senior Debt of Chemicals and
other Debt of Chemicals, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
this Article XI.
Section 11.11. Trustee Not Fiduciary for Holders of Senior Debt.
The Trustee shall not be deemed to owe any fiduciary duty to the holders of
Senior Debt of Chemicals and shall not be liable to any such holders if it shall
in good faith mistakenly pay over or distribute to Holders of Notes or to
Chemicals or to any other person cash, property or securities to which any
holders of Senior Debt of Chemicals shall be entitled by virtue of this Article
XI or otherwise. With respect to the holders of Senior Debt of Chemicals, the
Trustee undertakes to perform or to observe only such of its covenants or
obligations as are specifically set forth in this Article XI and no implied
covenants or obligations with respect to holders of Senior Debt of Chemicals
shall be read into this Indenture against the Trustee.
Section 11.12. Rights of Trustee as Holder of Senior Debt; Preservation of
Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article XI with respect to any Senior Debt of Chemicals which
may at any time be held by it, to the same extent as any other holder of Senior
Debt of Chemicals, and nothing in this Indenture shall deprive the Trustee of
any of its rights as such holder.
Nothing in this Article XI shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 7.07.
56
<PAGE>
Section 11.13. Article XI Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by Chemicals and be then acting hereunder, the term "Trustee" as used
in this Article XI shall in such case (unless the context otherwise requires) be
construed as extending to and including such Paying Agent within its meaning as
fully for all intents and purposes as if such Paying Agent were named in this
Article XI in addition to or in place of the Trustee; provided, however, that
Section 11.12 shall not apply to Chemicals or any Affiliate of Chemicals if it
or such Affiliate acts as Paying Agent.
ARTICLE XII
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA (S) 318(c), such imposed duties shall control.
Section 12.02. Notices.
Any notice or communication by Chemicals or the Trustee to the other is duly
given if in writing and delivered in person or mailed by first class mail
(registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the other's address:
If to Chemicals:
Sterling Chemicals, Inc.
c/o The Sterling Group, Inc.
Eight Greenway Plaza, Suite 702
Houston, Texas 77046
Telecopier No.: [(___)___________]
Attention: T. Hunter Nelson
If to the Trustee:
Fleet National Bank of Connecticut
777 Main Street
Hartford, Connecticut 06115
Telecopier No: [(___)____________]
Attention: [_____________________]
Chemicals or the Trustee, by notice each to the other may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders of Notes)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back,
57
<PAGE>
if telexed; when receipt acknowledged, if telecopied; and the next Business Day
after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery.
Any notice or communication to a Holder of a Note shall be mailed by first
class mail, certified or registered, return receipt requested, or by overnight
air courier guaranteeing next day delivery to its address shown on the Note
Register. Any notice or communication shall also be so mailed to any Person
described in TIA (S) 313(c), to the extent required by the TIA. Failure to mail
a notice or communication to a Holder of a Note or any defect in such notice
shall not affect its sufficiency with respect to other Holders of Notes.
If a notice or communication is mailed in the manner set forth above within
the time prescribed, such notice or communication shall be deemed to be duly
given whether or not the addressee receives it.
If Chemicals mails a notice or communication to Holders of Notes, it shall
mail a copy to the Trustee and each Agent at the same time.
Section 12.03. Communication by Holders of Notes with Other Holders of Notes.
Holders of Notes pursuant to TIA (S) 312(b) may communicate with other
Holders of Notes with respect to their rights under this Indenture or the Notes.
Chemicals, the Trustee, the Registrar, the Paying Agent and any other Person
shall have the protection of TIA (S) 312(c).
Section 12.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by Chemicals to the Trustee to take any
action under this Indenture, Chemicals shall furnish to the Trustee:
(i) an Officers' Certificate in form and substance reasonably satisfactory
to the Trustee stating that, in the opinion of the signers, all conditions and
covenants, if any, provided for in this Indenture relating to the proposed
action have been satisfied; and
(ii) an Opinion of Counsel in form and substance reasonably satisfactory to
the Trustee stating that, in the opinion of such counsel, all conditions and
covenants have been satisfied.
Section 12.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant contained in this Indenture shall include:
(i) a statement that the Person making such certificate or opinion has read
such condition or covenant;
(ii) a statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(iii) a statement that, in the opinion of such Person, he or she has made
such examination or investigation as is necessary to enable him or her to
express an informed opinion as to whether such condition or covenant has been
satisfied; and
58
<PAGE>
(iv) a statement as to whether, in the opinion of such Person. such
condition or covenant has been satisfied.
Section 12.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders of Notes. The Registrar and Paying Agent may make reasonable rules and
set reasonable requirements for their functions.
Section 12.07. No Personal Liability of Directors, Officers, Employees,
Incorporators and Stockholders.
No director, officer, employee, incorporator or stockholder of Chemicals, as
such, shall have any liability for any obligations of Chemicals under the Notes
or this Indenture or for any claim based on, in respect of, or by reason of,
such obligations. Each Holder of a Note by accepting a Note waives and releases
all such liability. Such waiver and release form a part of the consideration for
issuance of the Notes.
Section 12.08. Governing Law.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICT OF LAW TO THE EXTENT THAT THE APPLICATION OF
THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
Section 12.09. No Adverse Interpretation of Other Agreements.
This Indenture may not he used to interpret another indenture, loan or debt
agreement of Chemicals or its Subsidiaries. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
Section 12.10. Successors.
All agreements of Chemicals contained in this Indenture and the Notes shall
bind Chemicals and its successors. All agreements of the Trustee in this
Indenture shall bind the Trustee and its successors.
Section 12.11. Severability.
In case any provision of this Indenture or the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
59
<PAGE>
Section 12.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each such
signed copy shall be deemed to be an original, and all of such signed copies
together shall represent one and the same agreement.
Section 12.13. Table of Consents, Headings, Etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience only, and
shall not, for any reason, be deemed to be part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
60
<PAGE>
SIGNATURES
----------
DATED AS OF [________ __], 1996 STERLING CHEMICALS, INC.
(SEAL) BY:__________________________
NAME:
TITLE:
ATTEST:
- --------------------------------
NAME:
TITLE:
DATED AS OF [________ __], 1996 FLEET NATIONAL BANK OF CONNECTICUT,
AS TRUSTEE
(SEAL) BY:__________________________
NAME:
TITLE:
ATTEST:
- --------------------------------
NAME:
TITLE:
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<PAGE>
EXHIBIT A
[FORM OF FACE OF NOTE]
--------------------
STERLING CHEMICALS, INC.
No. [__________] Principal Amount $[__________]
CUSIP No. [__________]
[__]% Senior Subordinated Notes Due 2006
STERLING CHEMICALS INC., a Delaware corporation, promises to pay to [
______________ ], or registered assigns, the principal sum of [_____] Dollars
on [___________], 2006.
Interest Payment Dates: [_________] and [________].
Record Dates: [_______] and [________].
Additional provisions of this Note are set forth on the reverse side of
this Note.
Dated: [_________]
[Seal] STERLING CHEMICALS, INC.
----
By _____________________________
Title:
By _____________________________
Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
FLEET NATIONAL BANK OF CONNECTICUT,
as Trustee, certifies
that this is one of the
Notes referred to in the
Notes Indenture.
By ________________________________
Authorized Signatory
A-1
<PAGE>
[FORM OF REVERSE SIDE OF NOTE]
----------------------------
[__]% Senior Subordinated Notes Due 2006
1. Interest
STERLING CHEMICALS, INC., a Delaware corporation (such corporation,
and its successors and assigns under the Notes Indenture hereinafter referred
to, being herein called "Chemicals"), promises to pay interest on the principal
amount of this Note at the rate per annum shown above. Chemicals will pay
interest semi-annually on [____________] and [__________] of each year,
commencing [__________], 1997. Interest on the Notes will accrue from the most
recent date to which interest has been paid, or, if no interest has been paid,
from [__________], 1996. Interest will be computed on the basis of a 360-day
year of twelve 30-day months. Chemicals shall pay interest on overdue principal
at the rate borne by the Notes.
2. Method of Payment
Chemicals will pay interest on the Notes (except defaulted interest)
to the Persons who are registered Holders of Notes at the close of business on
the [__________] or [__________] next preceding the interest payment date even
if Notes are cancelled after the record date and on or before the interest
payment date. Holders must surrender Notes to a Paying Agent to collect
principal payments. Chemicals will pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts. However, Chemicals may pay principal and interest by check
payable in such money. It may mail an interest check to a Holder's registered
address.
3. Paying Agent and Registrar
Initially, Fleet National Bank of Connecticut, a [national banking
association] (the "Trustee"), will act as Paying Agent and Registrar. Chemicals
may appoint and change any Paying Agent, Registrar or co-registrar without
notice. Chemicals or any of its domestically incorporated Wholly Owned
Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. Notes Indenture
Chemicals issued the Notes under an Indenture dated as of
[__________], 1996 (the "Notes Indenture"), between Chemicals and the Trustee.
The terms of the Notes include those stated in the Notes Indenture and those
made part of the Notes Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. (S)(S) 77aaa-77bbbb) as in effect on the date of the Notes Indenture
(the "TIA"). Terms defined in the Notes Indenture and not defined herein have
the meanings ascribed thereto in the Notes Indenture. The Notes are subject to
all such terms, and Holders of Notes are referred to the Notes Indenture and the
TIA for a statement of those terms.
The Notes are unsecured senior subordinated obligations of Chemicals
limited to $275,000,000 aggregate principal amount (subject to Section 2.07 of
the Notes
A-2
<PAGE>
Indenture). The Notes Indenture imposes certain limitations on the incurrence
of additional indebtedness by Chemicals and certain of its subsidiaries, the
payment of dividends on, and the redemption of, capital stock of Chemicals and
certain of its Subsidiaries, the making of Investments, restrictions on
distributions from certain Subsidiaries, the use of proceeds from the sale of
assets and Subsidiary stock and transactions with affiliates. The Notes
Indenture also restricts the ability of Chemicals to consolidate or merge with
or into, or to transfer all or substantially all its assets to, another person.
5. Optional Redemption
The Notes will be redeemable, at Chemicals' option, in whole or in
part, at any time and from time to time on or after [_________], 2001, upon not
less than 30 nor more than 60 days' prior notice mailed by first-class mail to
each Holder's registered address, at the following redemption prices (expressed
in percentages of principal amount at maturity), plus accrued interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on or after [___________] of the
years set forth below:
Redemption
Year Price
---- ----------
2001 . . . . . . . . [__]%
2002 . . . . . . . . [__]%
2003 . . . . . . . . [__]%
2004 . . . . . . . . 100.00%
In addition, at any time and from time to time prior to [___________],
1999, Chemicals may redeem in the aggregate up to 35% of the original principal
amount of the Notes with the proceeds of one or more Public Equity Offerings
following which there is a Public Market, at a redemption price (expressed as a
percentage of principal amount) of [__]%, plus accrued and unpaid interest, if
any, to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date); provided, however, that at least $[__] million aggregate principal amount
of the Notes must remain outstanding after each such redemption.
6. Notice of Redemption
Notice of redemption shall be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder of Notes to be redeemed
at its registered address. Notes in denominations larger than $1,000 may be
redeemed in part but only in whole multiples of $1,000. If money sufficient to
pay the redemption price of and accrued interest on all Notes (or portions
thereof) to be redeemed on the redemption date is deposited with the Paying
Agent on or before the redemption date and certain other conditions are
satisfied, on and after such date interest ceases to accrue on such Notes (or
such portions thereof) called for redemption.
A-3
<PAGE>
7. Put Provisions
Upon a Change of Control, any Holder of Notes will have the right to
cause Chemicals to repurchase all or any part of the Notes of such Holder at a
purchase price equal to 101% of the principal amount of the Notes to be
repurchased plus accrued interest to the date of repurchase (subject to the
right of Holders of record on the relevant record date to receive interest due
on the interest payment date) as provided in, and subject to the terms of, the
Notes Indenture.
8. Subordination
The Notes are subordinated to Senior Debt, as such term is defined in
the Indenture. To the extent provided in the Indenture, Senior Debt must be
paid before the Notes may be paid. Chemicals agrees, and each Holder of a Note
by accepting a Note agrees, to the subordination provisions contained in the
Indenture and authorizes the Trustee to give effect to such subordination
provisions and appoints the Trustee as attorney-in-fact for such purpose.
9. Denominations; Transfer; Exchange
The Notes are in registered form without coupons in denominations of
$1,000 and integral multiples of $1,000. Holders of Notes may transfer or
exchange Notes in accordance with the Notes Indenture. The Registrar may
require a Holder of a Note, among other things, to furnish appropriate
endorsements or transfer documents and to pay any taxes and fees required by law
or permitted by the Notes Indenture. The Registrar need not register the
transfer of or exchange any Note selected for redemption (except, in the case of
a Note to be redeemed in part, the portion of the Note not to be redeemed) or
any Notes for a period of 15 days before a selection of Notes to be redeemed or
15 days before an interest payment date.
10. Persons Deemed Owners
The registered Holder of this Note may be treated as the
sole owner of such Note for all purposes.
11. Unclaimed Money
Subject to applicable abandoned property law, if money for the
payment of principal or interest remains unclaimed for two years, the Trustee or
Paying Agent shall pay the money back to Chemicals at its request unless an
abandoned property law designates another Person. After any such payment,
Holders entitled to the money must look only to Chemicals and not to the Trustee
for payment.
12. Discharge and Defeasance
Subject to certain conditions, Chemicals at any time may terminate
some or all of its obligations under the Notes and the Notes Indenture if
Chemicals deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Notes to redemption or maturity, as the
case may be.
A-4
<PAGE>
13. Amendment; Waiver
Subject to certain exceptions set forth in the Notes Indenture, (i)
the Notes Indenture or the Notes may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the Notes; and
(ii) any default or compliance with any provision may be waived with the written
consent of the Holders of a majority in principal amount of the Notes then
outstanding. Subject to certain exceptions set forth in the Notes Indenture,
without the consent of any Holder of a Note and the Trustee may amend the Notes
Indenture or the Notes to cure any ambiguity, omission, defect or inconsistency,
or to comply with the Notes Indenture, or to provide for uncertificated Notes,
in addition to or in place of certificated Notes, or to add guarantees with
respect to the Notes or add additional covenants or surrender rights and powers
conferred on Chemicals, to make any change that would provide additional rights
or benefits to the Holders of Notes or that does not adversely affect the rights
of any Holder of a Note or to comply with requirements of the SEC in connection
with the qualification of the Notes Indenture under the TIA.
14. Defaults and Remedies
Under the Notes Indenture, Events of Default include (i) default for
30 days in payment of interest; (ii) default in payment of principal on the
Notes at maturity, upon redemption, upon declaration, upon required repurchase
or otherwise; (iii) failure by Chemicals to comply with other covenants in the
Notes Indenture or the Notes, in certain cases subject to notice and lapse of
time; (iv) certain accelerations (including failure to pay within any grace
period after final maturity) of other Debt of Chemicals or any of its
Subsidiaries if the amount accelerated (or so unpaid) aggregates $10 million or
more; (v) certain events of bankruptcy or insolvency with respect to the Company
and its Significant Subsidiaries; and (vi) certain judgments or decrees for the
payment of money in excess of $10 million. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the Notes may declare all the Notes to be due and payable immediately. Certain
events of bankruptcy or insolvency are Events of Default which will result in
the Notes being due and payable immediately upon the occurrence of such Events
of Default.
Holders of Notes may not enforce the Notes Indenture or the Notes
except as provided in the Notes Indenture. The Trustee may refuse to enforce
the Notes Indenture or the Notes unless it receives reasonable indemnity or
security. Subject to certain limitations, Holders of a majority in principal
amount of the Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of Notes notice of any continuing
Default (except a Default in payment of principal or interest) if it determines
that withholding such notice is in the interest of the Holders of Notes.
15. Trustee Dealings with Chemicals
Subject to certain limitations imposed by the TIA, the Trustee under
the Notes Indenture, in its individual or any other capacity, may become the
owner or pledgee of Notes and may otherwise deal with and collect obligations
owed to it by Chemicals or its Affiliates and may otherwise deal with Chemicals
or its Affiliates with the same rights it would have if it were not Trustee.
A-5
<PAGE>
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of Chemicals or
the Trustee shall not have any liability for any obligations of Chemicals under
the Notes or the Notes Indenture or for any claim based on, in respect of or by
reason of such obligations. By accepting a Note, each Holder of a Note waives
and releases all such liability. The waiver and release are part of the
consideration for the issue of the Notes.
17. Authentication
This Note shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the face of this Note.
18. Abbreviations
Customary abbreviations may be used in the name of a Holder of a Note
or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
19. CUSIP Numbers
Pursuant to the recommendation promulgated by the Committee on Uniform
Security Identification Procedures Chemicals has caused CUSIP numbers to be
printed on the Notes and has directed the Trustee to use such CUSIP numbers in
notices of redemption as a convenience to Holders of Notes. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
__________________________
Chemicals will furnish to any Holder of a Note upon written request
and without charge to such Holder of a Note a copy of the Notes Indenture which
contains the text of this Note in larger type. Requests may be made to:
Sterling Chemicals, Inc.
c/o The Sterling Group, Inc.
Eight Greenway Plaza, Suite 702
Houston, Texas 77046
Attention: T. Hunter Nelson
A-6
<PAGE>
===============================================================================
ASSIGNMENT FORM
To assign this Note, complete the form below:
I or we assign and transfer this Note to:
[Print or type assignee's name, address and zip code]
[Insert assignee's soc. sec. or tax I.D. No. ]
[S]
and irremovably appoint [___________________] agent to transfer this
Note on the books of Chemicals. The agent may substitute another to act
for him.
================================================================================
Date:____________________ Your Signature:______________________________________
================================================================================
Sign exactly as your name appears on the face of this Note.
A-7
<PAGE>
OPTION OF HOLDER OF NOTE TO ELECT PURCHASE
If you elect to have this Note purchased by Chemicals pursuant to
Article IV or Section 5.07 of the Notes Indenture, check the box:
[ ]
If you elect to have only part of this Note purchased by Chemicals
pursuant to Article IV or Section 5.07 of the Notes Indenture, state the amount:
$[ ]
Date:____________________ Your Signature:______________________________________
(Sign exactly as your name
appears on the face of the
Note)
Signature Guarantee:___________________________________________________________
(Signature must be guaranteed by a member firm of the New
York Stock Exchange or a commercial bank or trust company)
A-8
<PAGE>
STERLING CHEMICALS HOLDINGS, INC.
STOCKHOLDERS AGREEMENT
This Sterling Chemicals Holdings, Inc. Stockholders Agreement (the
"Agreement") is made and entered into by and among STX Acquisition Corp., a
Delaware corporation (the "Company"); the holders ("Holders") of common stock,
par value $0.01 per share ("Common Stock"), of the Company whose names appear on
the signature pages of this Agreement under the caption "Holders" or who have
executed a Subscription Agreement ("Subscription Agreement") to purchase Common
Stock to finance the Merger (as hereinafter defined); the respective spouses of
the Holders, if applicable; and the Sterling Chemicals, Inc. Employee Stock
Ownership Trust created pursuant to the Sterling Chemicals, Inc. Employee Stock
Ownership Plan (the "ESOT"). As used herein, the term "Company" refers to STX
Acquisition Corp. prior to the consummation of the Merger and, following the
Merger, to Sterling Chemicals Holdings, Inc., the surviving corporation in the
Merger.
1. Introduction. The Company and the Holders believe that it is in their
respective best interests to restrict transfers of the Common Stock with a view
to, among other things, (1) minimizing the likelihood of discord and deadlocks,
(2) avoiding defaults in or accelerations of payment obligations under material
agreements to which the Company is or may be a party, and (3) otherwise assuring
the orderly continuity of management, the non-attainment of any of which would
result in adverse consequences to the Company. The parties entering into this
Agreement do so in contemplation of the Merger described herein, and with the
knowledge that upon consummation of the Merger the rights and obligations of STX
Acquisition Corp. hereunder will be automatically assumed by Sterling Chemicals
Holdings, Inc. and all references herein to the "Company" will refer to Sterling
Chemicals Holdings, Inc. Accordingly, in consideration of the mutual promises
contained herein, and on the terms and subject to the conditions set forth
herein, the parties hereto hereby agree as follows:
2. Certain Definitions. As used in this Agreement:
2.1 The term "Acquisition Proposal" shall mean a bona fide written
proposal to a Holder or the ESOT for the acquisition of Stock by the person or
entity making such proposal.
2.2. The term "Affiliate" shall mean (1) any Other Permitted
Transferee of an individual Holder, (2) any inter-vivos trust whose principal
beneficiary is such individual Holder or any Other Permitted Transferee of such
individual Holder created during their respective lifetimes and not as a result
of death, (3) any family limited partnership in which an individual Holder is a
general or limited partner, and (4) the legal
<PAGE>
representative or guardian of such individual Holder or any Other Permitted
Transferee of such individual Holder appointed during their respective lifetimes
and not as a result of death.
2.3. The term "Board" shall mean the Board of Directors of the Company
and any duly authorized committee thereof. All determinations by the Board
required to be made by the Board pursuant to this Agreement shall be conclusive
and binding on the Company, the Holders and the ESOT.
2.4. The term "Control Disposition" shall mean a Disposition or a
series of Related Dispositions that would have the effect of transferring to any
transferee or group (as defined for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act")) of persons (a "Group") beneficial ownership (as
defined in Rule 13d-3 of the Exchange Act) of a number of shares of outstanding
Common Stock that, in the aggregate, exceeds (1) 15% of the outstanding shares
of Common Stock on a fully-diluted basis (after giving effect to any then
exercisable right to acquire shares of Common Stock) if, after giving effect to
such proposed transfer, the proposed transferee or Group will have beneficial
ownership, directly or indirectly, of 50% or more of the then outstanding shares
of Common Stock on a fully-diluted basis (after giving effect to any then
exercisable right to acquire shares of Common Stock); or (2) 40% of the then
outstanding shares of Common Stock on a fully-diluted basis (after giving effect
to any then exercisable right to acquire shares of Common Stock).
2.5. The term "Disposition" shall mean any direct or indirect
transfer, assignment, sale, gift, pledge, hypothecation, encumbrance or other
disposition of Stock (or any interest therein) or of all or part of the voting
power (other than the granting of a revocable proxy) associated with the Stock
(or any interest therein) whatsoever, or any other transfer of beneficial
ownership of Stock, whether voluntary or involuntary, including, without
limitation, any such disposition or transfer as a part of any liquidation of the
Holder's assets or any reorganization of a Holder pursuant to the United States
or any other bankruptcy law or other similar debtor relief laws. The term
"Disposition" shall include a Control Disposition, but shall not include a
transfer by Control Offerees (as defined in Section 5.2) pursuant to Section 5.2
and Dispositions permitted under Sections 6.10 and 6.13.
2.6. The term "Effective Date" shall mean the date of the closing of
the Merger.
2.7. The term "Eligible Offerees" shall mean the Company and (1) for
the purposes of Section 3.1, the ESOT and all Holders other than the Offeror;
(2) for the purposes of Sections 3.2 and 3.3, the ESOT and all Holders; and (3)
for the purposes of Section 3.4 and 3.5, the ESOT and all Holders other than the
Holder required to make the
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Offer; provided, however, that if the ESOT is the Offeror under any section
hereof, the only Eligible Offeree shall be the Company.
2.8 The term "Inducement Agreement" shall mean the Inducement
Agreement dated as of April 24, 1996 among Sterling Chemicals, Inc. and Frank J.
Hevrdejs, William C. Oehmig, J. Virgil Waggoner, Robert W. Roten and Gordon
Cain.
2.9. The term "Initial Public Offering" shall mean an underwritten
public offering of Common Stock pursuant to a registration statement filed under
the Securities Act of 1933, as amended (the "Securities Act"), after the Merger
wherein the aggregate net proceeds to the Company (after deducting all costs,
discounts, commissions and other expenses of the offering) to the Company are at
least $75,000,000; provided, however, that the term "Initial Public Offering"
shall not include any registration statement (1) relating to any capital stock
of the Company or options, warrants or other rights to acquire any such capital
stock issued or to be issued primarily to directors, officers or employees of
the Company, (2) relating to any employee benefit plan or interests therein, (3)
filed pursuant to Rule 145 under the Securities Act or any successor or similar
provision, (4) relating solely to any preferred stock or debt securities of the
Company, or (5) first filed prior to the Effective Date.
2.10. The term "Merger" shall mean the transactions contemplated in
the Agreement and Plan of Merger dated April 24, 1996, as amended, between STX
Acquisition Corp. and Sterling Chemicals, Inc., including the merger of STX
Acquisition Corp. with and into Sterling Chemicals, Inc., with the surviving
Delaware corporation to be known as Sterling Chemicals Holdings, Inc.
2.11. The term "Other Permitted Transferee" shall mean with respect
to any Holder who is a natural person:
(i) any person related by lineal or collateral consanguinity to such
Holder or to the spouse of such Holder;
(ii) the spouse of such Holder or of any person described in clause
(i) above; and
(iii) all persons related to those persons described in clause (i) or
clause (ii) by lineal or collateral consanguinity.
For purposes of this definition of Other Permitted Transferee (a) adopted
persons shall be considered the natural born child of their adoptive parents;
(b) lineal consanguinity is that relationship that exists between persons of
whom one is descended (or ascended) in a direct line from the other, as between
son, father, grandfather, great-grandfather; and (c) collateral consanguinity is
that relationship that exists between persons who have the same ancestors,
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but who do not descend (or ascend) from the other, as between uncle and nephew,
or cousin and cousin.
2.12. The term "Purchase Price" shall mean, subject to adjustment
pursuant to Section 4.6, (1) with respect to the purchase of the Shares Subject
to the Offer under Section 3.1, the price per share set forth in the Acquisition
Proposal; and (2) with respect to the purchase of shares of Common Stock that
are Shares Subject to the Offer under Sections 3.2 through 3.5, and the purchase
of the Common Stock purchased by a Divorced Holder or a Surviving Holder under
Sections 3.2 and 3.3, the most recent valuation of the Common Stock under the
ESOT before the making of the Offer (as defined in Sections 3.2 through 3.5).
If no valuation of the Common Stock has been made or is required to be made
under the ESOT, then for purposes of this Agreement, the Company nevertheless
shall determine such value in the manner then required under the ESOT; provided,
however that the Company may request a valuation under the ESOT at any time
irrespective of the date of the last valuation under the ESOT. Neither the
Company nor any director, officer or employee thereof shall have any liability
with respect to the valuation of any Stock bought or sold at the Purchase Price,
as determined pursuant to this Section 2.12, even though the Purchase Price as
so determined may be more or less than the actual fair market value thereof. In
the event that the per share fair market value of the Common Stock was last
determined under the ESOT more than six months prior to an Offer under Section
3.2 through 3.5, or the beginning of the 30-day option period under Sections 3.2
and 3.3, or in the event the first valuation of the Common Stock has not been
determined under the ESOT and any such Offer is made or the option period
commences six months or more after the Effective Date, any Holder owning 5% or
more of the issued and outstanding shares of Common Stock may request that a new
valuation of the Common Stock be determined under the ESOT for purposes of any
such Offer or option. The fair market value per share of Common Stock as of the
Effective Date and until the first valuation under the ESOT is made shall be the
price per share paid by the purchasers of Common Stock of the Company in
connection with the consummation of the Merger (adjusted for any stock split,
stock dividend or reorganization, including the Merger).
2.13. The term "Related Disposition" shall mean a Disposition or
series of Dispositions of Stock or rights to acquire Stock by the Company, the
ESOT and/or one or more Holders to any person or Group (1) within any 180-day
period or (2) pursuant to a common agreement or plan of disposition among the
sellers, whether written or oral.
2.14. The term "Required Voting Percentage" shall mean: (1) if no
Holder or the ESOT, together with the Affiliates of such Holder and any person
or entity controlling, controlled by or under common control with such Holder or
such Affiliates, owns, as of the date on which the vote is taken, 50% or more of
the outstanding shares of Common Stock subject to this Agreement, then the term
"Required Voting Percentage" shall mean, for the purposes of such vote, a
majority of the shares of Common Stock outstanding and subject to this Agreement
as of the date that such vote is taken, or (2) if any Holder or the ESOT,
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together with the Affiliates of such Holder and any person or entity
controlling, controlled by or under common control with such Holder or such
Affiliates, owns, as of the date on which the vote is taken, 50% or more of the
outstanding shares of Common Stock subject to this Agreement, then the term
"Required Voting Percentage" shall mean, for the purposes of such vote, 75% of
the shares of Common Stock outstanding and subject to this Agreement as of the
date that such vote is taken. As used herein, the term "control," including the
correlative terms "controlling," "controlled by," and "under common control
with," shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies (whether through ownership
of securities or any partnership or other ownership interest, by contract or
otherwise).
2.15. The term "Shares Subject to the Offer" shall mean (1) with
respect to an Offer under Section 3.1, all shares of Stock subject to the
Acquisition Proposal; (2) with respect to an Offer under Section 3.2, all shares
of Stock transferred to, retained by, or vested in the Divorced Spouse (as
defined therein) and not elected to be purchased by the Divorced Holder (as
defined therein) within the time limits specified therein; (3) with respect to
an Offer under Section 3.3, all shares of Stock vesting in or transferable to
any heir or legatee of the deceased spouse (other than the Surviving Holder) and
not elected to be purchased by the Surviving Holder (as defined therein) within
the time limits specified therein; and (4) with respect to an Offer under
Section 3.4 or 3.5, all shares of Stock owned by the Holder making such Offer.
2.16. The term "Stock" shall mean (1) all shares of Common Stock
owned by each Holder and the ESOT on the Effective Date; (2) all shares of
Common Stock hereafter issued by the Company to or acquired by any Holder or the
ESOT, whether in connection with a purchase, issuance, grant, stock split, stock
dividend, reorganization, warrant, option, convertible security, right to
acquire or otherwise; (3) all securities of the Company or any other corporation
or entity which any Holder or the ESOT acquires in respect of his, her or its
shares of Common Stock in connection with any exchange, merger, consolidation,
recapitalization, reorganization or other transaction to which the Company is a
party; and (4) all shares of Common Stock owned by any person or entity who
becomes subject to this Agreement pursuant to the terms of this Agreement;
provided, however, that the term "Stock" shall not include (a) shares of Common
Stock owned by any Holder (other than such shares held by a person who is a
party to the Inducement Agreement) on the Effective Date by virtue of a
"Rollover Election" made in connection with the Merger; (b) shares of Common
Stock distributed to any Holder by the ESOT; and (c) shares of Common Stock
distributed to any holder under the Sterling Chemicals, Inc. Amended and
Restated Employees' Stock Ownership Plan, as amended, or any trust created
pursuant thereto. All references herein to the Stock owned by a Holder include
the community interest or similar marital property interest, if any, of the
spouse of such Holder in such Stock.
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2.17. The Term "Tag-Along Agreement" shall mean the Tag-Along
Agreement attached as Exhibit B hereto.
3. General Rule. Neither any Holder nor the ESOT shall make any
Disposition of any Stock, directly or indirectly, through an Affiliate or
otherwise (regardless of the manner in which such Holder or the ESOT initially
acquired such Stock), without compliance with the provisions of this Agreement.
3.1. Acquisition Proposal. If a Holder or the ESOT desires, and is
permitted under Section 9, to make a Disposition of any Stock (except as
provided in Sections 3.2 through 3.5 or pursuant to the applicable provisions of
Section 6), such Disposition may be made only if an Acquisition Proposal is
received by such Holder or the ESOT with respect thereto, and then only in
compliance with this Agreement. Upon receipt of an Acquisition Proposal that
such Holder or the ESOT is permitted hereunder to accept and desires to accept,
such Holder or the ESOT (the "Offeror") shall offer ("Offer"), by giving written
notice to the Company, to sell the Shares Subject to the Offer to the Eligible
Offerees. Offers under this Section 3.1 shall (1) be sent by the Offeror to the
Company, which in turn shall deliver copies thereof to the Eligible Offerees
within five days after its receipt thereof, (2) state the consideration offered
for and the number of Shares Subject to the Offer, (3) contain a description and
copy of the Acquisition Proposal, and (4) be irrevocable for so long as any
Eligible Offeree has the right to purchase any Shares Subject to the Offer. In
addition, the Offeror shall provide to the Company all other information with
respect to the Acquisition Proposal and the proposed transferee reasonably
requested by the Company to evaluate the Acquisition Proposal and verify the
bona fide nature thereof.
3.2. Divorce of Holder. If the marital relationship of a Holder is
terminated by divorce, and pursuant to such divorce or any property settlement
in connection therewith, any Stock previously registered in the name of such
Holder (the "Divorced Holder") (or any interest therein) is transferred to,
retained by, or vested in the spouse of the Divorced Holder (the "Divorced
Spouse"), the Divorced Holder shall promptly notify the Company of such event.
The Divorced Holder shall have the option to purchase all or any portion of the
Divorced Holder's Stock (and the interests therein) transferred to, retained by,
or vested in the Divorced Spouse by virtue of the divorce decree or property
settlement or by operation of the community property or similar marital property
laws for the Purchase Price, and the Divorced Spouse shall be obligated to sell
such Stock (and interests therein) to the Divorced Holder for the Purchase
Price. The option must be exercised, and the purchase must be consummated,
within 30 days after the Stock (or interest therein) is transferred to, retained
by, or vested in the Divorced Spouse. The option shall be exercised by the
Divorced Holder giving written notice of exercise to the Divorced Spouse.
Within five days after the expiration of such 30-day period, the Divorced Holder
shall deliver written notice to the Company as to whether the Divorced Holder
has purchased all of the Stock (and all interests
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therein) so transferred to, retained by, or vested in the Divorced Spouse. If
such notice states that the Divorced Holder has not purchased all such Stock
(and all interests therein), or if no such notice is delivered to the Company
within such five-day period, the Divorced Spouse shall be deemed to have made an
irrevocable offer ("Offer") of all such Stock (and all interests therein) to the
Eligible Offerees. The Company shall, and is authorized by the Holders and their
respective spouses to, deliver, within five days after the Company's receipt of
such notice (if such notice is delivered within the time required) or evidence
satisfactory to it that all such Stock (and all interests therein) were not
purchased by the Divorced Holder within such 30-day period (if such notice is
not delivered within the time required), written notice of the Offer to the
Eligible Offerees stating that all such Stock (and all interests therein) are
Shares Subject to the Offer pursuant to this Section 3.2.
3.3. Death of Spouse. If the spouse of a Holder dies, and all or any
portion of the Stock registered in such name of such Holder (the "Surviving
Holder") vests in or is transferable to any heir or legatee of the deceased
spouse (the "Deceased Spouse") other than the Surviving Holder, the Surviving
Holder shall promptly notify the Company of such event. The Surviving Holder
shall have the option to purchase all or any portion of the Stock vesting in or
transferable to such heir or legatee for the Purchase Price, and such heir or
legatee and the estate of the Deceased Spouse shall be obligated to sell such
Stock to the Surviving Holder for the Purchase Price. The option must be
exercised, and the purchase must be consummated, within 30 days after the last
to occur of (1) the entry of an order of a probate or similar court having
jurisdiction over the estate of the Deceased Spouse (a) admitting to probate the
will of the Deceased Spouse or (b) determining the heirs of the Deceased Spouse
if the Deceased Spouse is determined to have died intestate, or (2) the
appointment of the executor, administrator or legal representative of the estate
of the Deceased Spouse. The option shall be exercised by the Surviving Holder
giving written notice of exercise to the executor, administrator or legal
representative of the Deceased Spouse's estate. Within five days after the
expiration of such 30-day period, the Surviving Holder shall deliver written
notice to the Company as to whether the Surviving Holder has purchased all of
the Stock vesting in or transferable to any such heir or legatee. If such
notice states that the Surviving Holder has not purchased all such Stock, or if
no such notice is delivered to the Company within such five-day period, all such
heirs and legatees shall be deemed to have made an irrevocable offer ("Offer")
of all such Stock to the Eligible Offerees. The Company shall, and is
authorized by the Holders and their respective spouses to, deliver, within five
days after the Company's receipt of such notice (if such notice is delivered
within the time required) or evidence satisfactory to it that all such Stock was
not purchased by the Surviving Holder within such 30-day period (if such notice
is not delivered within the time required), written notice of the Offer to the
Eligible Offerees stating that all such Stock are Shares Subject to the Offer
pursuant to this Section 3.3.
3.4. Bankruptcy. If any of the following occur:
(1) any Holder shall (a) voluntarily be adjudicated a bankrupt or
insolvent, (b) consent to or not contest the appointment of a receiver
or trustee for such Holder or all or any part of such Holder's
property, (c) file a petition seeking
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relief under the bankruptcy, rearrangement, reorganization or other
debtor relief laws of the United States, any state, or any other
competent jurisdiction, (d) make a general assignment for the benefit
of his or its creditors, or (e) become insolvent, or
(2) (a) (i) a petition is filed against a Holder seeking relief under the
bankruptcy, rearrangement, reorganization or other debtor relief laws
of the United States, any state, or any other competent jurisdiction,
or (ii) a court of competent jurisdiction enters an order, judgment or
decree appointing a receiver or trustee for a Holder or all or any
part of such Holder's property, and (b) such petition, order, judgment
or decree is not discharged or stayed and does not remain discharged
or stayed within a period of 60 days after its entry,
then such Holder shall promptly notify the Company of such event, and such event
shall be deemed an irrevocable offer ("Offer") of all Stock owned by such Holder
to the Eligible Offerees. The Company shall, and is authorized by the Holders
and their respective spouses to, deliver, within five days after the Company's
receipt of such notice (if such notice is delivered) or evidence satisfactory to
it that any such event occurred (if such notice is not delivered), written
notice of the Offer to the Eligible Offerees stating that all such Stock are
Shares Subject to the Offer pursuant to this Section 3.4.
3.5. Indirect Transaction. If a transaction involving a change of
ownership interest or voting power of a Holder is entered into for the purpose
or with the effect of avoiding the restrictions on the transferability of the
Stock provided herein, such transaction shall be deemed a Disposition by such
Holder, and such Holder shall offer ("Offer"), by giving written notice to the
Company, to sell all Shares Subject to the Offer to the Eligible Offerees for
the Purchase Price. Offers under this Section 3.5 shall (1) be sent by such
Holder to the Company, which in turn shall deliver copies thereof to the
Eligible Offerees within five days after its receipt thereof, (2) contain a
description of the transaction in reasonable detail, and (3) be irrevocable for
so long as any Eligible Offeree has the right to purchase any Shares Subject to
the Offer.
4. Procedures; Price.
4.1. ESOT. The ESOT, if an Eligible Offeree, acting through its
trustee (the "Trustee"), shall have the first right, for 10 days after its
receipt of an Offer made pursuant to Section 3.1, 3.2, 3.3, 3.4 or 3.5, to
accept the Offer for all or any portion of the Shares Subject to the Offer. The
ESOT shall accept the Offer for all Shares Subject to the Offer and shall
purchase all of the Shares Subject to the Offer if, in the judgment of the
Trustee, the ESOT has sufficient funds therefor and such acceptance or purchase
is permitted by law and the terms of the ESOT and is in the best interests of
the participants in and beneficiaries of the ESOT.
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4.2. Company. If the ESOT does not accept an Offer for all of the
Shares Subject to the Offer within the 10-day period specified in Section 4.1,
the ESOT shall give written notice thereof to the Company within five days after
the expiration of such 10-day period. The Company shall have the right, for 10
days after the receipt of such notice from the ESOT, to accept the Offer for all
or any portion of the remaining Shares Subject to the Offer. If the ESOT is the
Offeror, the Company shall have the first right, for 10 days after its receipt
of the Offer made by the ESOT, to accept the Offer for all or any portion of the
Shares Subject to the Offer. If the Company does not have sufficient surplus to
permit it lawfully to purchase all or any portion of the Shares Subject to the
Offer as to which the Company has accepted the Offer, the ESOT and the Holders,
promptly upon written request by the Company, shall take such action to vote
their respective shares of Common Stock to reduce the stated capital of the
Company to the extent permitted by law or to authorize such other actions as may
be necessary or appropriate to enable the Company, if possible, to lawfully
purchase such Shares Subject to the Offer.
4.3. Other Eligible Offerees. If the Company does not accept the
Offer with respect to all or any portion of the remaining Shares Subject to the
Offer within the 10-day period specified in Section 4.2, the Company shall give
written notice thereof to the other Eligible Offerees other than the ESOT. The
other Eligible Offerees shall have the right, for 30 days after the receipt of
such notice from the Company, to accept the Offer for all or any portion of the
remaining Shares Subject to the Offer in such proportions as they mutually
agree, or if they are unable to agree, then according to such reasonable
procedures as are determined by the Board.
4.4. Certain Effects of Offers. In the case of an Offer made under
Section 3.1, if the Eligible Offerees do not accept the Offer for all of the
Shares Subject to the Offer, the Offeror desiring to make the Disposition shall
be permitted, subject to compliance with Sections 5.1 and 9, at any time or
times within 30 days after the expiration of all rights of the Eligible Offerees
to accept such Offer, to make a Disposition of all (but not less than all) of
the Shares Subject to the Offer; provided, however, that no such Disposition
shall be made at a lower price or on more favorable terms or to any person other
than specified in the Acquisition Proposal; and provided further, that if such
Disposition is a Control Disposition, the Offeror must comply with Section 5.2
before making any such Disposition, and the 30-day period provided for in
Section 4.3 shall be extended by the Board for such time as it may determine to
be appropriate to permit compliance by the Offeror with Section 5.2. All Stock
transferred in accordance with the provisions of this Agreement to any Eligible
Offeree (other than the Company) or third party and all Stock that remains
undisposed of after compliance with the provisions of this Agreement shall
remain bound by and subject to the provisions of this Agreement.
4.5. Acceptance; Closing. Any Eligible Offeree who accepts the Offer
for all or any portion of the Shares Subject to the Offer shall evidence such
Eligible Offeree's acceptance or election by delivering to the Company a written
notice of intent to purchase
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such Shares Subject to the Offer. The Company, in turn, shall promptly give
written notice to any Holder, the ESOT or any other party required to sell the
Shares Subject to the Offer of its receipt of such notices (the "Receipt
Notice"). The purchase and sale of the Shares Subject to the Offer shall be
consummated at a closing held at the Company's principal office (unless
otherwise agreed) within 30 days after the delivery of the Receipt Notice. At
the closing, the purchasing Eligible Offeree(s) shall deliver payment of the
Purchase Price as provided in Section 4.6 to the transferor of the Stock or such
transferor's representative, and the transferor of the Stock or such
transferor's representative shall deliver to the purchasing Eligible Offeree(s)
(1) the certificate(s) representing the Shares Subject to the Offer duly
endorsed for transfer or accompanied by a duly executed stock power and (2)
evidence of good title to the Shares Subject to the Offer, the absence of any
liens, claims or other encumbrances with respect thereto, and such other matters
as are necessary for the proper transfer thereof to the purchasing Eligible
Offeree(s) on the stock transfer records of the Company.
4.6. Payment of Purchase Price. The Purchase Price of any Shares
Subject to the Offer purchased by any Eligible Offeree under Section 3.1 shall
be paid in such form as is set forth in the Acquisition Proposal; provided,
however, that if the party making the Acquisition Proposal has proposed to
acquire the Shares Subject to the Offer not wholly in cash, and an Eligible
Offeree desires to consummate a purchase of any Shares Subject to the Offer
pursuant to the terms hereof but wholly in cash, then, upon request by such
Eligible Offeree, the Board shall determine the per share cash value of the
Acquisition Proposal, and such amount shall be the cash price per share to be
paid to the Offeror by such Eligible Offeree. The Purchase Price of any Shares
Subject to the Offer purchased by any Eligible Offeree under Sections 3.2
through 3.5 shall be paid in the form of a cashier's check or such other form of
consideration acceptable to the purchasing Eligible Offerees.
5. Material Agreements; Control Dispositions.
5.1. Material Agreements. Notwithstanding anything herein to the
contrary (other than Section 13.4 with respect to the ESOT), neither the ESOT
nor any Holder shall make any Disposition (including, without limitation, a
Disposition pursuant to Section 3 or 6 (other than Section 6.10 or 6.13) which,
in the Company's reasonable judgment (as evidenced by a resolution of the
Board), would cause a material breach, default, event of default, or
acceleration of payments, or which would require the Company to make any
mandatory repurchase offer, mandatory repurchase, mandatory redemption, or
mandatory prepayment, under any loan agreement, note, indenture or other
agreement or instrument to which the Company is a party and under which the debt
or liability of the Company exceeds $1,000,000 ("Material Agreement"). Before
attempting to make any Disposition, the ESOT and each Holder desiring or
required to make the Disposition shall (1) give written notice (the "Notice") to
the Company describing the proposed Disposition and the proposed transferee in
reasonable detail and setting forth the number of shares of Stock as to which
the ESOT or such Holder desires to make a Disposition, and (2) provide
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such other information concerning the Disposition as the Company may reasonably
request. If, in the Company's reasonable judgment (as evidenced by a resolution
of the Board), the proposed Disposition would cause a material breach, default,
event of default, or acceleration of payments, or would require the Company to
make any mandatory repurchase offer, mandatory repurchase, mandatory redemption,
or mandatory prepayment, under any Material Agreement, then the Company, within
30 days after receipt of the Notice, shall give written notice to the ESOT or
such Holder of such determination, the proposed Disposition may not be made, and
any attempt to make such Disposition shall be null and void; provided, however,
that any such determination by the Company shall not prevent the ESOT or such
Holder from making a Disposition to other Eligible Offerees or third parties
upon compliance with all of the terms and conditions of this Agreement with
respect to such Disposition, including the terms and conditions of this Section
5.1. If the Company approves a proposed Disposition but any shares of Stock with
respect to which approval has been given are not actually transferred within 30
days after the date of such approval (or, if such Disposition is a Control
Disposition, as such 30-day period may be extended by the Board for purposes of
compliance with Section 5.2), then the provisions of this Agreement shall apply
to any subsequent transaction affecting such Stock (or any interest therein).
5.2. Control Dispositions. (a) Notwithstanding anything herein to the
contrary (other than Section 13.4 with respect to the ESOT), neither the ESOT
nor any Holder shall make or participate in any Control Disposition (other than
pursuant to Section 6.10) without first complying with Sections 3, 4, 5 and 9.
(b) Subject to the provisions of clause (c) of this Section 5.2, the
ESOT or any Holder desiring or required to make or participate in a Control
Disposition ("Control Offeror"), after complying with Sections 3, 4, 5.1 and 9,
shall give a written notice ("Control Disposition Offer") to all other holders
of Common Stock who are parties to this Agreement ("Control Offerees") (1)
describing the proposed Control Disposition and the proposed transferee in
reasonable detail and setting forth the number of shares of Stock as to which
the Control Offeror desires to make a Control Disposition and (2) providing each
Control Offeree, at the election of the Control Offeror, with the right to elect
(by written notice to the Company within ten (10) days after the receipt of the
Control Disposition Offer) to participate in the proposed Control Disposition on
a pro rata basis at the same price and on the same terms that the beneficial
ownership of the Control Offeror's Stock is to be transferred in the Control
Disposition.
(c) In the event that a Control Offeror shall be required pursuant to
clause (b) of this Section 5.2 to make a Control Disposition, and the Control
Disposition contemplated thereby would constitute a Proposed Transaction as
defined in Section 2.01 of the Tag-Along Agreement, requiring a transfer notice
pursuant to such Section to be delivered to the Beneficiaries of such agreement,
then the Control Disposition Offer shall also be delivered to such Beneficiaries
and shall constitute, and comply with the applicable requirements for, the
Transfer Notice pursuant to such Tag-Along Agreement, and such Beneficiaries
shall
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have the rights provided in the Tag-Along Agreement to participate in such
Control Disposition; provided that the provisions of the Tag-Along Agreement
governing the procedures, timing and other aspects of the rights of such
Beneficiaries shall govern with respect to the rights of such Beneficiaries and
with respect to the rights of the Control Offerees.
(d) The Company shall establish reasonable procedures, in addition to
those specified herein, to implement the provisions of this Section 5.2. No
Control Disposition may be made unless, contemporaneously therewith, the Control
Offerees receive the amounts to which they are entitled under this Section 5.2.
If the Control Disposition described in the Control Disposition Offer is not
consummated in the manner described in the Control Disposition Offer within 60
days after the delivery of the Control Disposition Offer, such Control
Disposition shall not be made and all of the provisions of this Agreement shall
apply to any subsequent transaction affecting the Stock or any interest therein.
6. Permitted Dispositions. The following Dispositions shall be permitted
without compliance with the provisions of Section 3 and 4; however, Sections 5
and 9 shall apply to the following Dispositions (other than Dispositions
pursuant to Sections 6.10 and 6.13 and, with respect to the ESOT, any
Dispositions pursuant to Sections 6.9 and 6.12):
6.1. between Holders;
6.2. by any Holder to the ESOT or the Company;
6.3. by any Holder to any wholly-owned subsidiary corporation or
limited liability company or parent corporation of such Holder, or from any
wholly-owned subsidiary corporation or limited liability company or parent
corporation of any Holder to such Holder;
6.4. by any individual Holder during such Holder's lifetime to any of
such Holder's Affiliates, provided that a Disposition to a Holder's spouse
under this Section 6.4 must be made during marriage and not incident to
divorce;
6.5. to any individual Holder during such Holder's lifetime by any of
such Holder's Affiliates; provided that a Disposition by a Holder's spouse
to such Holder under this Section 6.5 must be made during marriage and not
incident to divorce, and by any inter-vivos trust that is a Holder to any
individual that is a principal beneficiary of such trust or to any Other
Permitted Transferee of such individual;
6.6. upon the death of any individual Holder, to the estate,
beneficiaries, heirs or legatees of such Holder;
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<PAGE>
6.7. by The Sterling Group, Inc. ("Sterling") or any other entity
designated by the Company to any of their respective Associates, and by any
such Associate to any such entity or any Associates of such entity (the
term "Associate," as used herein, shall mean, with respect to any such
entity, (1) any entity controlling, controlled by, or under common control
with such entity, (2) any shareholder, partner, director, officer or
employee (and their respective Affiliates) of such entity, and (3) as to
Sterling, any consultants of Sterling (and their respective Affiliates));
6.8. by any Holder at the then current Purchase Price, or by any
direct or indirect majority-owned subsidiary of the Company for such
consideration, if any, as the Company shall approve, to any person who
becomes a director, officer or employee of the Company or a direct or
indirect majority-owned subsidiary of the Company after the Effective Date;
6.9. by any Holder or the ESOT to a bank or other financial
institution for the purpose of securing a loan to such Holder or the ESOT
to purchase Stock and the transfer of title to Stock to any such bank or
other financial institution required in connection therewith;
6.10. by the ESOT to participants in, and alternate payees and
beneficiaries of, the ESOT to the extent required by law and the provisions
of the ESOT;
6.11. to any entity organized under Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended ("Code"), or any successor
statute;
6.12. with the prior written consent of the Company, by any Holder
to a qualified retirement plan sponsored by such Holder ("Retirement Plan")
or any entity controlling, controlled by or under common control with such
Holder;
6.13. by any Retirement Plan to participants in, and alternate
payees and beneficiaries of, such Retirement Plan to the extent required by
law and the provisions of such Retirement Plan;
6.14. by William C. Oehmig or Frank J. Hevrdejs to any person
within one year after the Effective Date; provided, however, that in the
case of any Disposition in the form of a sale, (1) each such Disposition
shall be made in a transaction that is registered pursuant to or exempt
from the registration requirements of federal and applicable state
securities or blue sky laws; and (2) the Holder transferring such stock
shall cause each person to whom any such Disposition is made to represent
and warrant, for the benefit of such Holder and the Company, that (a) his
purchase of the Stock from such Holder is for his own account, is for
investment purposes, and is without a view to, or for offer or sale for the
Company or such Holder in connection with, the distribution of the Stock,
and (b) such person is not participating and does
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<PAGE>
not have a participation in any such distribution or the underwriting of
any such distribution;
6.15. by any Holder which is a partnership, corporation or limited
liability company to the equity owners of such Holder as a distribution
pursuant to law, the partnership agreement or charter of such Holder, or
the dissolution of such Holder;
6.16. by any Holder pursuant to such Holder's rights under any
registration rights agreement to which the Company is a party;
6.17. by any Holder that is an investment fund or account which is
managed by an investment advisor (i) to such investment advisor (or to an
affiliated investment advisor), or (ii) to any other investment fund or
account that is managed by such investment advisor (or is managed by an
affiliate of such investment advisor); or by any such investment advisor to
any affiliated investment advisor or to any investment account or fund of
which it is the manager;
6.18. by any Holder or the ESOT to any direct or indirect majority-
owned subsidiary of the Company;
6.19. by any direct or indirect majority-owned subsidiary of the
Company to any person or entity in connection with the acquisition (by
direct purchase, assumption, merger, reorganization or otherwise) by a
direct or indirect majority-owned subsidiary of the Company of assets
and/or capital stock or other equity interests from such person or entity
if the assets or capital stock or other equity interests to be acquired by
such direct or indirect majority-owned subsidiary of the Company in such
acquisition have a fair market value on the date of the closing of such
acquisition, in the sole judgment of the Company, equal to or in excess of
the then current Purchase Price of the Common Stock that is the subject of
the Disposition;
provided, however, that as a condition precedent to any such permitted
Disposition (other than a Disposition pursuant to Section 6.1, 6.2, 6.10, or
6.13), any person (including such person's spouse, if any) or entity (other than
the Company) intending to acquire the Stock to be disposed of shall, except as
otherwise provided in Section 8, become a party to this Agreement by executing
an Adoption Agreement, in the form attached as Exhibit A or in any other form
satisfactory to the Company (an "Adoption Agreement"), whereupon such person or
entity shall be deemed a "Holder" and shall have all of the rights and
obligations of a "Holder" under this Agreement, and such Stock shall be subject
to the provisions of this Agreement.
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<PAGE>
7. Tag-Along Agreement. By becoming a party to this Agreement, each
Holder automatically becomes a party to the Tag-Along Agreement as an "Obligor,"
as such term is defined therein.
8. Additional Parties. If required under this Agreement, or as
authorized by the Board, or upon the written approval of the holders of at least
the Required Voting Percentage, any person that acquires any Stock after the
Effective Date may become a party to this Agreement by executing an Adoption
Agreement, whereupon such person or entity shall be deemed a "Holder" and shall
have all of the rights and obligations of a "Holder" under this Agreement, and
such Stock shall be subject to the provisions of this Agreement.
9. Standstill Agreement; Securities Matters.
9.1. Standstill. If the Company is engaged in an underwritten public
offering of its securities, neither the ESOT nor any Holder which owns
beneficially 2.5% or more of the Common Stock (determined in accordance with the
last sentence of Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended) shall make any Disposition on a securities exchange or in the
over-the-counter or any other public trading market for whatever period of time
the Company (upon the recommendation of its underwriters) requests by written
notice given to each Holder and the ESOT; provided, however, that (1) such
request shall not be for a period extending longer than 180 days after the later
of (a) the effective date of the registration statement relating to such public
offering, or (b) the date of the underwriting agreement relating to such public
offering; (2) this Section 9.1 shall not limit any Holder's or the ESOT's right
to sell Stock pursuant to any demand or piggyback registration right that such
Holder or the ESOT may have pursuant to any registration rights or similar
agreement binding upon the Company; and (3) all Holders and the ESOT are subject
to the same request to restrict Dispositions. If an underwritten public
offering of securities giving rise to the obligations set forth in this Section
9.1 will result in the termination of this Agreement pursuant to Section 12,
then the provisions of this Section 9.1 shall survive the termination of this
Agreement for 180 days after the Initial Public Offering, after which such
provisions shall terminate.
9.2. Securities Laws. Neither the ESOT nor any Holder shall make any
Disposition if such action would constitute (1) a violation of the registration
requirements of any federal or state securities or blue sky laws, (2) a breach
of any condition to any exemption from registration of the Stock under any such
laws, or (3) a breach of any undertaking or agreement of such Holder or the ESOT
entered into pursuant to such laws or in connection with obtaining an exemption
thereunder. The Company shall not transfer any Stock on its stock transfer
records unless prior thereto the Holder or the ESOT provides the Company with an
unqualified written opinion of legal counsel, which counsel and opinion (in form
and substance) shall be reasonably satisfactory to the Company, to the effect
that the proposed Disposition is in compliance with this Section 9.2. Any
certificate representing shares of Stock shall bear appropriate legends
restricting the sale or other transfer of such
15
<PAGE>
Stock in accordance with applicable federal or state securities or blue sky laws
and in accordance with the provisions of this Agreement. The provisions of this
Section 9.2 shall survive the termination of this Agreement for the maximum
period permitted by applicable law.
10. Legend; Stop Transfer Instructions. The Company shall place a legend
on the reverse side of all certificates representing shares of Stock now owned
or hereafter acquired by the Holders, the ESOT or any transferee to provide
notice of the existence of this Agreement and its applicability to any
Disposition thereof. The legend shall be in substantially the following form:
BY THE TERMS OF THE STOCKHOLDERS AGREEMENT, CERTAIN RESTRICTIONS HAVE
BEEN PLACED UPON THE TRANSFERABILITY OF THE SHARES REPRESENTED BY THIS
CERTIFICATE. THE COMPANY WILL FURNISH A COPY OF SUCH AGREEMENT TO THE
RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO
THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.
The Company also shall place stop transfer instructions with respect to such
shares of Stock in the stock transfer records for such purpose.
11. Breach. Any Disposition or attempted Disposition in breach of this
Agreement shall be void and of no effect. Notwithstanding the foregoing, the
Company may treat any such voided Disposition as an Offer pursuant to Section
3.5. In such event, the date of the Offer shall be deemed to be the date that
the Company, after its receipt of evidence satisfactory to it that such voided
Disposition has occurred, gives written notice of such voided Disposition to the
Eligible Offerees. Section 6 also shall apply to such voided Disposition;
provided, however, that the time periods set forth therein shall begin to run as
of the date that the Company receives evidence satisfactory to it of such voided
Disposition. In connection with any such voided Disposition, the Company may
hold and refuse to transfer any Stock or certificate therefor tendered for
transfer, in addition and without prejudice to any and all other rights and
remedies which may be available to the Company, the Holders and the ESOT.
12. Termination. This Agreement shall terminate automatically upon (1)
the dissolution of the Company, (2) the occurrence of any event which reduces
the number of Holders to one in accordance with the terms hereof, (3) the
completion of an Initial Public Offering, (4) the written approval of the
holders of at least the Required Voting Percentage, or (5) the expiration of 10
years after the Effective Date; provided, however, that the provisions of
Section 9 shall survive such termination to the extent and for the periods set
forth therein, and provided further that the provisions of Section 5.2, insofar
as they pertain to Control Dispositions that also constitute a Proposed
Transaction as defined in Section 2.01
16
<PAGE>
of the Tag-Along Agreement, shall remain in force and effect for so long as the
Tag-Along Agreement remains in force and effect.
13. Miscellaneous Provisions.
13.1. Ultimate Disposition. If a Holder or the ESOT disposes of all
of such Holder's or the ESOT's Stock in accordance with this Agreement, such
Holder or the ESOT shall cease to be a party to this Agreement and the Tag-Along
Agreement and shall have no further rights or obligations hereunder or
thereunder.
13.2. Spouses. The spouses of the individual Holders, by their
execution of this Agreement, a Subscription Agreement or an Adoption Agreement,
(1) evidence that they are fully aware of, understand and fully consent and
agree to the provisions of this Agreement and its binding effect upon any
community property or similar marital property interests in the Stock that they
may now or hereafter own, and (2) agree that the termination of their marital
relationship with any individual Holder for any reason shall not have the effect
of removing any Stock otherwise subject to this Agreement from the coverage
hereof. Each individual Holder shall cause his or her spouse (and any
subsequent spouse) to execute and deliver, within thirty days after the request
of the Company, a counterpart of this Agreement or an Adoption Agreement, in the
form attached as Exhibit A or in any other form satisfactory to the Company.
13.3. Appointment of Company. Each Holder and such Holder's spouse,
if any, (1) appoint the Company as their agent and attorney to make the Offers
and take all actions required under Sections 3.2 through 3.5 and 11 and to
execute any required Adoption Agreement on their behalf, and (2) expressly bind
themselves to such Offers and the Company's execution of any such Adoption
Agreement without further action on their part. Such powers-of-attorney granted
herein are deemed to be coupled with an interest in the Stock and shall survive
the death, disability, bankruptcy or dissolution of such Holder or such Holder's
spouse, if any.
13.4. ESOT's Obligations. The obligations of the ESOT under this
Agreement shall be subject to compliance with the Code, the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), the rules and regulations
thereunder, and all other applicable laws, rules and regulations; provided,
however, that any Disposition of Stock to which the ESOT is a party shall be
based upon a "Purchase Price" pursuant to a valuation made by an independent
appraiser as provided for in Section 401(a)(28) of the Code. The ESOT is
intended to comply with ERISA and the Code, and this Agreement should not be
interpreted to prevent the ESOT from so complying.
13.5. Changes in Stock. If there is any change in the Stock by way
of stock split, reverse stock split, stock dividend, reclassification, merger,
consolidation, reorganization, recapitalization, or any other means, then all
appropriate adjustments to the
17
<PAGE>
provisions hereof shall be made so that the rights and obligations of the
parties hereto under this Agreement shall continue with respect to the Stock as
so changed.
13.6. Pledged Shares. If any Stock is pledged to a bank or other
financial institution as permitted by Section 6.9, and such Stock is to be sold
to Eligible Offeree(s), then the Holders and their spouses and the ESOT (if the
transferor of such Stock) authorize (1) such bank or other financial institution
to deliver certificates representing such shares to the Company against receipt
of the Purchase Price therefor, (2) the Eligible Offeree(s) to make payment of
the Purchase Price to such bank or other financial institution for application
to any debt secured by any such shares, and (3) such bank or other financial
institution to apply such Purchase Price so received to any such debt.
13.7. Notices and Other Communications. All notices, requests and
other communications required or permitted to be given to the Company, any
Holder or the spouse or legal representative of a Holder, or the ESOT in
connection herewith (1) must be in writing and (2) may be served either by (a)
depositing the same in the United States mail, full postage prepaid, certified
or registered with return receipt requested, (b) delivering the same by a
nationally recognized air courier service, full delivery cost paid, (c)
delivering the same in person, or (d) sending a telecopy of the same, confirmed
with a copy thereof delivered either by mail or air courier service or in person
as provided herein. Any such notice, request or other communication shall be
effective only if and when it is received by the addressee. For the purposes
hereof, the addresses of the parties hereto are as follows: (1) the Company -
Sterling Chemicals Holdings, Inc., 1200 Smith Street, Suite 1900, Houston, Texas
77002, Attention: President; and (2) the Holders, their spouses and legal
representatives and the ESOT -- the addresses shown on the stock transfer
records of the Company. Any party hereto may change its address for the
purposes hereof by giving written notice of such change of address to the
Company in the manner provided herein.
13.8. Entire Agreement. This Agreement constitutes the full
understanding of the parties and a complete and exclusive statement of the terms
and conditions of their agreement relating to the subject matter hereof and
supersedes all prior negotiations, understandings and agreements, whether
written or oral, between the parties, their affiliates, and their respective
principals, shareholders, directors, officers, employees, consultants and agents
with respect thereto.
13.9. Amendments and Waivers. No alteration, modification,
amendment, change or waiver of any provision of this Agreement shall be
effective or binding on any party hereto unless the same is in writing and is
executed by the Company and the holders of at least the Required Voting
Percentage at the time thereof; provided, however, that the Company may amend
this Agreement without the consent of any Holder or the ESOT to cure any
ambiguity or to cure, correct or supplement any defective provision contained
herein, or to make any other provision with respect to matters or questions
hereunder as the
18
<PAGE>
Company may deem necessary or advisable, provided that such action shall not
affect adversely the interests of any Holder or the ESOT.
13.10. Modification and Severability. If a court of competent
jurisdiction declares that any provision of this Agreement is illegal, invalid
or unenforceable, then such provision shall be modified automatically to the
extent necessary to make such provision fully legal, valid or enforceable. If
such court does not modify any such provision as contemplated herein, but
instead declares it to be wholly illegal, invalid or unenforceable, then such
provision shall be severed from this Agreement, this Agreement and the rights
and obligations of the parties hereto shall be construed as if this Agreement
did not contain such severed provision, and this Agreement otherwise shall
remain in full force and effect.
13.11. Enforceability. This Agreement shall be enforceable by and
against the Company, the Holders and their respective spouses, guardians, heirs,
legatees, executors, legal representatives, administrators, and permitted
successors and assignees.
13.12. No Third-Party Beneficiaries. No person or entity not a party
to this Agreement shall have any rights under this Agreement as a third-party
beneficiary or otherwise.
13.13. Remedies. Each Holder and the ESOT acknowledges that in the
event of any Disposition or attempted Disposition by such Holder or the ESOT in
breach of this Agreement, the other parties hereto (1) would be irreparably and
immediately harmed by such breach, (2) could not be made whole by monetary
damages, and (3) shall be entitled to temporary and permanent injunctions (or
their functional equivalents) to prevent any such breach and/or to compel
specific performance with this Agreement, in addition to all other remedies to
which such parties may be entitled at law or in equity.
13.14. Gender, Number and Person. As used herein, any reference to
(1) the masculine, feminine or neuter gender includes the other two genders, (2)
the singular or plural number includes the other number, and (3) a person or
third party includes both natural persons and entities.
13.15. Governing Law. This Agreement shall be governed by, construed
under, and enforced in accordance with the laws of the State of Delaware without
reference to the conflict-of-laws provisions thereof.
13.16. Multiple Counterparts. This Agreement may be executed by the
parties hereto in multiple counterparts, each of which shall be deemed an
original for all purposes, and all of which together shall constitute one and
the same instrument.
13.17. Employee Status. Each Holder, if an employee of the Company
or any of its direct or indirect subsidiaries, acknowledges and agrees that
neither the acquisition of
19
<PAGE>
Common Stock by such Holder nor the execution of this Agreement by the Company
or such Holder creates any obligation whatsoever by the Company or any of its
subsidiaries to continue such Holder's employment or otherwise affects the
Company's right, which the Holder hereby acknowledges, to terminate such
Holder's employment at will, with or without cause in the sole discretion of the
Company or any of its subsidiaries which is an employer of such Holder.
This Agreement is executed and delivered by the Company, each Holder and
spouse (if any), and the ESOT on the dates indicated below to be effective as of
the Effective Date.
COMPANY:
STX ACQUISITION CORP.
By:____________________________
Name:_______________________
Title:______________________
Date of execution: _______________, 1996
20
<PAGE>
HOLDERS
<TABLE>
<CAPTION>
//
<S> <C> <C>
Shares of
Common Stock Owned Date of
Name and Signature at Time of Execution Execution
------------------ --------------------- ---------
Individual:
- -----------
Holder:
- ------------------------------
- ------------------------------ ------------------- ---------
Spouse:
- ------------------------------
- ------------------------------ ------------------- ---------
Entity:
- -------
- ------------------------------ ------------------- ---------
By:___________________________
Name:_________________________
Title:________________________
Sterling Chemicals Holdings, Inc. Employee Stock Ownership Trust:
- -----------------------------------------------------------------
By:[__________________________]
solely in its capacity as
Trustee
By:___________________________ ___________________ _________
Name:_________________________
Title:________________________
//
</TABLE>
21
<PAGE>
EXHIBIT A
ADOPTION AGREEMENT
This Adoption Agreement ("Agreement") is executed by the person or entity
named as "Transferee" below pursuant to the terms of the Sterling Chemicals
Holdings, Inc. Stockholders Agreement dated as of _______________, 1996 (the
"Stockholders Agreement").
1. Acknowledgment. Transferee acknowledges that Transferee is acquiring
certain Stock, as defined in the Stockholders Agreement, of Sterling Chemicals
Holdings, Inc., a Delaware corporation ("Company"), subject to the terms and
conditions of the Stockholders Agreement.
2. Agreement. Transferee (1) agrees that Transferee and the Stock
acquired by Transferee shall be bound by and subject to the terms of the
Stockholders Agreement, and (2) adopts the Stockholders Agreement with the same
force and effect as if Transferee were originally a party thereto.
3. Notice. Any notice required or permitted by the Stockholders
Agreement shall be given to Transferee at the address listed below Transferee's
signature.
4. Joinder. The spouse of Transferee, if applicable, executes this
Agreement to acknowledge that it is fair and in such spouse's best interests and
to bind such spouse's community interest, if any, in the Stock to the terms of
the Stockholders Agreement.
This Agreement is executed by Transferee on ________________________.
TRANSFEREE: SPOUSE (if applicable):
_____________________ ______________________
Signature Signature
_____________________ ______________________
Print name Print name
_____________________
_____________________
Address
-1-
<PAGE>
Agreed to on behalf of itself and as attorney-in-fact for all Holders,
their respective spouses, and the ESOT pursuant to Section 12.3 of the
Stockholders Agreement on ____________________.
STERLING CHEMICALS HOLDINGS, INC.
By:______________________________
President
-2-
<PAGE>
STERLING CHEMICALS HOLDINGS, INC.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is made and entered into
by and among STX Acquisition Corp., a Delaware corporation, and the holders of
Qualified Registrable Securities (as defined herein) whose names appear on the
signature pages of this Agreement. As used herein, the term "Company" refers to
STX Acquisition Corp. prior to the consummation of the Merger (as defined
herein) and as the surviving corporation in the Merger, to be renamed Sterling
Chemicals Holdings, Inc. The parties entering into this Agreement do so in
contemplation of the Merger, and with the knowledge that upon consummation of
the Merger the rights and obligations of STX Acquisition Corp. hereunder will be
automatically assumed by Sterling Chemicals Holdings, Inc.
1. Certain Definitions. As used in this Agreement:
1.1. The term "Affiliate" shall mean any person or entity directly or
indirectly controlling, controlled by, or under common control with the Company.
As used in this definition, the term "control," including the correlative terms
"controlling," "controlled by," and "under common control with," shall mean
possession, directly or indirectly, of a majority of the outstanding voting
securities of such person or entity.
1.2. The term "Commission" shall mean the Securities and Exchange
Commission and any successor agency.
1.3. The term "Common Equity Securities" shall mean Common Stock, any
option, warrant or right to subscribe for, acquire or purchase Common Stock
(whether or not currently exercisable), and any security convertible into or
exchangeable for Common Stock (whether or not currently convertible or
exchangeable).
1.4. The term "Common Stock" shall mean any stock of any class of the
Company that has no preference in respect of dividends or amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding-up of
the Company and is not subject to redemption by the Company.
1.5. The term "Effective Date" shall mean the date of the closing of the
Merger.
<PAGE>
1.6. The term "Holder" shall mean (1) any party who is a signatory to
this Agreement and, at the time of determination of whether such party is a
"Holder," beneficially owns Qualified Registrable Securities, and (2) any party
who hereafter acquires Qualified Registrable Securities and, at the time of
determination of whether such party is a "Holder," holds Qualified Registrable
Securities of record and who is permitted to become, and has at such time
become, a party to this Agreement under Section 11.1 of this Agreement;
provided, however, that for purposes of Section 9, the term "Holder" shall
include any party that is a signatory to this Agreement or who becomes a
signatory to this Agreement and holds, at the time of determination of whether
such party is a "Holder," Common Equity Securities of record.
1.7. The term "Initial Public Offering" shall mean an underwritten
public offering of Common Stock pursuant to a registration statement filed under
the Securities Act, after the Merger wherein the aggregate net proceeds to the
Company and, if any, any selling stockholders included in such offering (after
deducting all costs, discounts, commissions and other expenses of the offering)
are at least $75,000,000.00; provided, however, that the term "Initial Public
Offering" shall not include any registration statement (1) relating to any
capital stock of the Company or options, warrants or other rights to acquire any
such capital stock issued or to be issued primarily to directors, officers or
employees of the Company, (2) relating to any employee benefit plan or interests
therein, (3) filed pursuant to Rule 145 under the Securities Act or any
successor or similar provision, (4) relating solely to any preferred stock or
debt securities of the Company, or (5) filed in connection with the Merger and
the related financing arrangements.
1.8. The term "Merger" shall mean the transactions contemplated by the
Amended and Restated Agreement and Plan of Merger dated as of April 24, 1996,
between STX Acquisition Corp. and Sterling Chemicals, Inc., including the merger
of STX Acquisition Corp. with and into Sterling Chemicals, Inc.
1.9. The term "Qualified Registrable Securities" shall mean any Common
Equity Securities of the Company. Any Holder of Qualified Registrable Securities
will be deemed to be the Holder of any Common Stock issuable upon the exercise,
conversion or exchange of such Qualified Registrable Securities, whether or not
such exercise, conversion or exchange is then permitted by the terms of such
Common Equity Securities or by applicable statutes, regulations or agreements.
Any Qualified Registrable Securities shall cease to be Qualified Registrable
Securities whenever (1) a registration statement with respect to such securities
becomes effective under the Securities Act and such securities have been
disposed of in accordance with such registration statement; (2) such securities
have ceased to be outstanding; (3) such securities have been sold pursuant to
Rule 144 or Rule 144A under the Securities Act or any successor or similar
provisions; or (4) at the time of determination of whether such securities are
Qualified Registrable Securities,
2
<PAGE>
such securities may be sold by the Holder thereof without registration under the
Securities Act and free of contractual restrictions with the Company, including
the provisions of Section 9.
1.10. The term "Qualified Registration" shall mean a registration
statement of the Company under the Securities Act on a form that permits the
sale of Qualified Registrable Securities (other than a registration statement
(1) on Form S-4 or S-8 or any successor or similar form, (2) in connection with
the Initial Public Offering (unless the Company, in its sole discretion,
consents to the secondary sale of shares in the Initial Public Offering), or
before (but not in connection with) the Initial Public Offering, (3) pursuant to
Section 3 in connection with a Demand Registration (as defined therein), (4)
relating to any capital stock of the Company or options, warrants or other
rights to acquire any such capital stock issued or to be issued primarily to
directors, officers or employees of the Company, (5) filed pursuant to Rule 145
under the Securities Act or any successor or similar provision, (6) relating to
any employee benefit plan or interests therein, (7) relating to preferred stock
or debt securities of the Company, or (8) filed in connection with the Merger
and the related financing arrangements).
1.11. The term "Required Voting Percentage" shall mean: (1) if no
Holder, together with the Family Affiliates (as defined herein) of such Holder
and any person or entity controlling, controlled by or under common control with
such Holder or such Family Affiliates, owns, as of the date on which the vote is
taken, 50% or more of the Shares Subject to this Agreement (as defined herein),
then the term "Required Voting Percentage" shall mean, for the purposes of such
vote, a majority of the Shares Subject to this Agreement determined as of the
date that such vote is taken; or (2) if any Holder, together with the Family
Affiliates of such Holder and any person or entity controlling, controlled by or
under common control with such Holder or such Family Affiliates, owns, as of the
date on which the vote is taken, 50% or more of the Shares Subject to this
Agreement, then the term "Required Voting Percentage" shall mean, for the
purposes of such vote, 75% of the Shares Subject to this Agreement determined as
of the date that such vote is taken. As used in this definition, (a) the term
"control," including the correlative terms "controlling," "controlled by," and
"under common control with," shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies
(whether through ownership of securities or any partnership or other ownership
interest, by contract or otherwise); (b) the term "Family Affiliate" shall mean
(i) all members of the immediate family of an individual Holder, including
parents, siblings, spouse and children (including those by adoption), (ii) the
parents, siblings, spouse and children (including those by adoption) of such
immediate family members, (iii) any trust whose principal beneficiary is such
individual Holder or one or more members of such immediate family, and (iv) the
legal representative or guardian of such individual Holder or of any such
immediate family members in the event that such individual Holder or any such
immediate family member is mentally incompetent; and (c) the term "Shares
Subject to this Agreement" shall mean the aggregate of all Qualified Registrable
Securities on a fully-diluted basis
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held by the Holders, the respective Family Affiliates of such Holders, and the
persons or entities controlling, controlled by or under common control with each
respective Holder and such Holder's respective Family Affiliates.
1.12. The term "Requisite Amount" shall mean (1) for the purposes of
Section 3, an amount of Qualified Registrable Securities proposed to be
registered under Section 3 pursuant to a Demand Registration (as defined herein)
which are expected to have an aggregate offering price of at least $50,000,000,
as determined in good faith by the Company in consultation with the Holders
making a Demand Request (as defined herein); and (2) for the purposes of Section
8, the aggregate amount of Qualified Registrable Securities and other securities
of the Company which, in the good faith opinion of the Company, are expected to
have an aggregate offering price of at least $50,000,000.
1.13. The term "Securities Act" shall mean the Securities Act of 1933,
as amended.
2. Piggyback Registrations.
2.1. Right to Piggyback Registration. After the Initial Public Offering
(or in the Initial Public Offering, if the Company, in its sole discretion,
permits the secondary sale of shares of Qualified Registrable Securities in the
Initial Public Offering), whenever the Company proposes to register any of its
Common Equity Securities in a Qualified Registration other than a Demand
Registration under Section 3, whether or not for sale for its own account, the
Company shall give prompt written notice (the "Piggyback Notice") to the Holders
of Qualified Registrable Securities of its intention to effect such Qualified
Registration. Upon written request of any Holder of Qualified Registrable
Securities made within 10 days after delivery of any Piggyback Notice (which
request shall specify the Qualified Registrable Securities requested to be
included in such Qualified Registration by such Holder), the Company shall,
subject to Sections 2.2 and 2.3, use its reasonable efforts to include in such
Qualified Registration all Qualified Registrable Securities that the Holders
have so requested be included in such Qualified Registration, to permit the
disposition by such Holders of such Qualified Registrable Securities; provided,
however, that (1) if, at any time after giving the Piggyback Notice and before
the effective date of the registration statement filed in connection with such
Qualified Registration, the Company determines for any reason not to register
such Common Equity Securities (other than the Qualified Registrable Securities
requested to be included therein pursuant to this Section 2), the Company, at
its election, may give written notice of such determination to all Holders of
Qualified Registrable Securities requesting the inclusion of their Qualified
Registrable Securities therein and, thereupon, shall be relieved of its
obligation to register any Qualified Registrable Securities in connection with
such registration (without prejudice, however, to the rights of the Holders
under Section 3 or the future rights of the Holders under this Section 2); (2)
if, at any time after giving the Piggyback Notice and before the effective date
of the
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registration statement filed in connection with such Qualified Registration, the
Company determines for any reason to delay such registration of the Common
Equity Securities (other than the Qualified Registrable Securities requested to
be included therein pursuant to this Section 2), the Company shall be permitted
to delay the registration of such Qualified Registrable Securities for the same
period as the delay in registering such other Common Equity Securities; and (3)
the Company shall not be required to effect any registration pursuant to this
Section 2.1 unless it shall have received reasonable assurances that the Holders
of any Qualified Registrable Securities included therein will pay any expenses
required to be paid by them as provided in Section 5. As used herein, the term
"Piggyback Registration" shall mean any registration of Qualified Registrable
Securities requested pursuant to this Section 2.1.
2.2. Priority on Piggyback Registrations. If a Piggyback Registration is
an underwritten offering and the managing underwriter thereof advises the
Company in writing that, in its opinion, the number of shares of Qualified
Registrable Securities requested or proposed to be included in such offering
exceeds the number that can be sold in such offering without materially
affecting the offering price of any such securities, the Company shall include
in such registration (1) first, to the extent that such securities of the
Company may be included in such registration without materially affecting the
offering price thereof, in the opinion of such managing underwriter, (a) if such
registration is initiated by the Company proposing to register any of its Common
Equity Securities, such Common Equity Securities proposed to be sold by the
Company and (b) the securities of the Company held by persons (other than the
Holders of Qualified Registrable Securities with respect to such Qualified
Registrable Securities) who otherwise have preferential registration rights to
include such securities in such Piggyback Registration in preference to the
Holders and which have been duly requested to be included in such Piggyback
Registration in accordance with the agreements with respect to such registration
rights between the Company and such holders; and (2) second, to the extent that
such Qualified Registrable Securities may be included in such Qualified
Registration without materially affecting the offering price of the securities
referred to in clause (1), in the opinion of such managing underwriter, the
Qualified Registrable Securities requested by the Holders to be included in such
Piggyback Registration pursuant to Section 2.1 and any other securities of the
Company held by persons other than the Holders having rights to participate in
such Piggyback Registration that are non-preferential to the Holders, pro rata
among all such holders on the basis of the total number of shares of securities
of the Company, including Qualified Registrable Securities, requested by each
such holder to be included therein.
2.3. Selection of Underwriters. Except as otherwise provided in any
registration rights agreement with respect to any other securities of the
Company, if any Piggyback Registration is an underwritten offering, the Company
shall have the sole right to select the managing underwriter or underwriters
thereof.
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3. Demand Registrations.
3.1. Right to Demand Registration. After the Initial Public Offering,
upon the written request ("Demand Request") of one or more Holders of Qualified
Registrable Securities requesting the Company to effect the registration of any
Qualified Registrable Securities of such Holder(s) under the Securities Act
(which request shall state the intended method of disposition of such Qualified
Registrable Securities by such Holder(s)), and such Qualified Registrable
Securities requested in the Demand Request to be included therein have, in the
good faith opinion of the Company, an aggregate fair market value of at least
$50,000,000, the Company shall promptly give the written notice required under
Section 3.2, and thereupon, subject to this Section 3 and Section 4 and as
expeditiously as reasonably practicable, shall file a registration statement
under the Securities Act relating to, and shall use its reasonable efforts to
effect, the registration ("Demand Registration") under the Securities Act of (1)
the Qualified Registrable Securities that the Company has been so requested to
register by the Holder(s), for disposition in accordance with the intended
method of disposition stated in the Demand Request, and (2) all other Qualified
Registrable Securities, the Holders of which have made a written request to the
Company for registration thereof as provided in Section 3.2, in each case to
permit the disposition by such Holders of such Qualified Registrable Securities.
3.2. Obligations of Company after Demand Request. Upon the receipt of a
Demand Request, the Company promptly shall give written notice of the proposed
Demand Registration and the intended method of disposition stated in the Demand
Request to all other Holders and all other persons having registration rights
under other agreements with respect to the Demand Registration and, subject to
the terms of this Section 3 and Section 4, shall include in such Demand
Registration all Qualified Registrable Securities of the Holders with respect to
which the Company has received written requests for inclusion therein (which
requests, to be effective, shall contain a consent to the intended method of
disposition included in the Demand Request) within 10 days after the delivery of
such notice.
3.3. Conditions to Company's Obligations under Demand Registration.
Notwithstanding the foregoing, the Company shall not be required to file a
registration statement for a Demand Registration under any of the following
circumstances:
3.3.1. within 120 days after the effective date of a
registration statement filed in connection with (a) the Initial Public Offering,
(b) an underwritten public offering of securities of the Company, or (c) a prior
Demand Registration;
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3.3.2. the Company promptly delivers written notice ("Delay
Notice") to the Holders making the Demand Request that it:
(1) (a) has determined (whether before or within 30 days after
receiving any Demand Request) to file a registration statement for an
underwritten public offering of Common Equity Securities as to which the Company
expects to receive net proceeds of at least $50,000,000 (after deducting all
costs, discounts, commissions and other expenses of the offering), or (b) has
initiated bona fide discussions with underwriters in preparation for a public
offering of its securities as to which it expects to receive net proceeds of at
least $50,000,000 (after deducting all costs, discounts, commissions and other
expenses of the offering) and its underwriters reasonably believe (as evidenced
by a letter to the Company) that such public offering would be materially
adversely affected by the Demand Registration so requested; provided, however,
that the Company may postpone the filing of a registration statement in
connection with a Demand Registration under this clause (1) no longer than (a)
180 days after the effective date of the registration statement to be filed by
the Company as stated in the Delay Notice, if such registration statement is
filed within 60 days after the date of delivery of the Delay Notice and becomes
effective within 120 days after the date of delivery of the Delay Notice, (b) 90
days after the date of delivery of the Delay Notice, if such registration
statement is filed within 60 days after the date of delivery of the Delay Notice
but does not become effective within such 120-day period, or (c) 60 days after
the date of delivery of the Delay Notice, if such registration statement is not
filed within 60 days after the date of delivery of the Delay Notice; and
provided further, that the Company may exercise the rights in this clause (1) no
more than once in any 24-month period; or
(2) is in possession of material information that it reasonably
deems advisable not to disclose in a registration statement; provided, however,
that the Company may postpone the filing of a registration statement in
connection with a Demand Registration under this clause (2) for so long as such
information continues to be material and non-public, but in no event longer than
90 days after the Demand Request or for more than an aggregate of 180 days
during any 18-month period;
3.3.3. the Company has effected four Demand Registrations
pursuant to this Section 3, which have been declared or ordered effective by the
Commission;
3.3.4. the Company determines, in good faith and after
consultation with the Holders making the Demand Request, that the Qualified
Registrable Securities proposed to be registered in the Demand Request are not
expected to have an aggregate offering price of at least the Requisite Amount;
or
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3.3.5. the Company promptly delivers written notice ("Prior
Registration Notice") to the Holders making the Demand Request that it has filed
and is using reasonable efforts to have declared effective, or at the time of
receipt of the Demand Request is required to file, or has delivered a Section
2.1 with respect to, a registration statement pursuant to (1) demand
registration rights granted to any person or entity (other than pursuant to this
Section 3) or (2) Section 2 ("Prior Registration Rights"); provided, however,
that the Company may postpone the filing of a registration statement pursuant to
a Demand Request for a period of no longer than (1) 180 days after the effective
date of the registration statement filed pursuant to the Prior Registration
Rights, if such registration statement was filed before the date of delivery of
the Prior Registration Notice or within 60 days thereafter and, in either case,
becomes effective within 90 days after the date of delivery of the Prior
Registration Notice; (2) 120 days after the date of delivery of the Prior
Registration Notice, if such registration statement was filed before the date of
delivery of the Prior Registration Notice or within 60 days thereafter but, in
either case, does not become effective within such 120-day period; or (3) 60
days after the date of delivery of the Prior Registration Notice, if such
registration statement was not filed before the date of delivery of the Prior
Registration Notice and is not filed within 60 days thereafter.
3.4. Priority on Demand Registrations. If the Demand Registration is an
underwritten offering and the managing underwriter thereof advises the Company
in writing that, in its opinion, the number of shares of Qualified Registrable
Securities and other securities of the Company requested to be included in such
offering exceeds the number that can be sold in such offering without materially
affecting the offering price of any such securities, the Company shall include
in such registration (1) first, the Qualified Registrable Securities requested
by the Holders to be included in the Demand Registration pursuant to Sections
3.1 and 3.2 and any other securities of the Company proposed to be sold by any
holders of securities of the Company having preferential registration rights to
participate with such Holders in such Demand Registration, pro rata among such
Holders and such other holders on the basis of the total number of shares of
securities of the Company, including Qualified Registrable Securities, requested
to be included in such Demand Registration; and (2) second, to the extent that
such securities of the Company may be included in such Demand Registration
without materially affecting the offering price of the Qualified Registrable
Securities and securities of the Company referred to in clause (1), in the
opinion of such managing underwriter, any other securities of the Company held
by persons having rights to participate in such Demand Registration that are
non-preferential to the Holders and such other holders and securities of the
Company to be issued or sold by the Company, in accordance with their agreements
with respect thereto.
3.5. Selection of Underwriters. If any Demand Registration is an
underwritten offering, the Company shall have the sole right to select, after
consultation with the Holders making
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the Demand Request, the managing underwriter or underwriters thereof, at least
one of which shall be of nationally recognized standing.
3.6 Clean-Up Demand. If, after an aggregate of four Demand
Registrations in compliance with this Section 3 have become effective, any
Holder shall not have sold all of its Qualified Registrable Securities due to
proration with other registration participants, then the Holders, acting by the
Required Voting Percentage, shall be entitled to one additional Demand Request
in which the Holders then holding Qualified Registrable Securities shall not be
subject to proration with any other holders of securities of the Company
entitled to participate in such registration; provided, however, that each such
Holder shall be subject to proration on the basis that the number of shares of
Qualified Registrable Securities requested to be included therein by such Holder
bears to the total number of shares of Qualified Registrable Securities
requested by all such Holders to be included therein.
3.7. Form. A Demand Registration shall be on such appropriate
registration form of the Commission for the disposition of the Qualified
Registrable Securities in an underwritten public offering as may be used and
selected by the Company. Except as provided in Section 4.4, a Demand
Registration shall not be deemed to have been effected unless it has become
effective; provided, however, that if, after a Demand Registration has become
effective, the offering of Qualified Registrable Securities pursuant thereto is
suspended, blocked by any stop order, injunction or other order of the
Commission or any other governmental agency or court, or withdrawn (except a
Demand Registration withdrawn under Section 4.4), such Demand Registration will
be deemed not to have been effected.
4. Registration Procedures. If and when the Company is required by this
Agreement to use its reasonable efforts to effect the registration of any
Qualified Registrable Securities:
4.1. Company's Actions. The Company shall, as soon as reasonably
practicable:
4.1.1. prepare and file with the Commission under the Securities
Act a registration statement with respect to such Qualified Registrable
Securities which shall state that the Qualified Registrable Securities are
covered thereby, and use its reasonable efforts to cause such registration
statement to become effective and to remain effective as provided herein;
provided, however, that the Company may discontinue any registration of
Qualified Registrable Securities being effected pursuant to Section 2 at any
time before the effective date of the registration statement relating thereto;
4.1.2. prepare and file with the Commission such amendments and
supplements, if any, to such registration statement and the prospectus used in
connection therewith
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as may be necessary to (1) keep such registration statement effective until the
earlier of (a) 90 days after the effectiveness thereof or (b) the completion of
the distribution under such registration statement, and (2) comply with the
provisions of the Securities Act applicable to it with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such registration statement;
4.1.3. furnish to each seller of such Qualified Registrable
Securities and each underwriter (if any) such number of copies of such
registration statement (including exhibits), each amendment and supplement
thereto, the prospectus included in such registration statement or filed with
the Commission (including each preliminary prospectus), and each amendment and
supplement thereto as such seller and underwriter may reasonably request to
facilitate the disposition of the Qualified Registrable Securities owned by such
seller and covered by such registration statement;
4.1.4. use its reasonable efforts to (1) register or qualify
such Qualified Registrable Securities under the securities or "blue sky" laws of
such jurisdictions as any seller of such Qualified Registrable Securities
representing more than 15% of the total number of shares of Qualified
Registrable Securities covered by such registration statement or the managing
underwriter (if any) may reasonably request; (2) keep such registrations or
qualifications in effect for so long as such registration statement is in
effect; and (3) take any and all other reasonable actions that may be necessary
or appropriate to enable each seller of Qualified Registrable Securities or
other securities of the Company covered by such registration statement and each
underwriter (if any) to consummate the disposition in such jurisdictions of the
relevant Qualified Registrable Securities and other securities of the Company;
provided, however, that the Company shall not be required to (a) qualify
generally to transact business as a foreign corporation in any jurisdiction
where it would not otherwise be required to qualify but for the requirements of
this Section 4.1; (b) subject itself to taxation in any such jurisdiction; (c)
consent to general service of process in any such jurisdiction; or (d) register
or qualify Qualified Registrable Securities or take any other action under the
securities or blue sky laws of any jurisdiction if, in the judgment of the Board
of Directors of the Company, the consequences of such registration,
qualification or other action would be unduly burdensome to the Company;
4.1.5. (1) at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, notify each seller of
Qualified Registrable Securities covered by a registration statement when it
becomes aware of the occurrence of any event as a result of which the prospectus
(as then amended or supplemented) contains any untrue statement of a material
fact or omits any fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and (2) at the
request of any such seller, as promptly as practicable thereafter, prepare in
sufficient quantities and furnish to such seller and each underwriter
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(if any) a reasonable number of copies of a prospectus supplemented or amended
so that, as thereafter delivered to the offerees or purchasers of such Qualified
Registrable Securities, such prospectus will not contain any untrue statement of
a material fact or omit to state any fact necessary to make the statements
therein, in the light of the circumstances then existing, not misleading;
4.1.6. comply with all applicable rules and regulations of the
Commission, and make generally available to its security holders, as soon as
reasonably practicable, an earnings statement covering the period of at least
twelve consecutive months beginning with the first day of the Company's first
calendar quarter after the effective date of the registration statement, which
earning statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
4.1.7. use its reasonable efforts to cause all such Qualified
Registrable Securities covered by such registration statement to be listed on
any securities exchange, if any, on which similar securities of the Company are
then listed, if the listing of such Qualified Registrable Securities is then
permitted under the rules of such exchange;
4.1.8. enter into and perform its obligations under customary
agreements relating to the registration, including an underwriting agreement in
customary form;
4.1.9. subject to the execution of confidentiality agreements
customary for transactions of this type, in form and substance satisfactory to
the Company, (1) make reasonably available for inspection by any seller of such
Qualified Registrable Securities, any underwriter (if any), the Representative
Counsel (as defined herein), and any legal counsel, accountant or other agent
retained by any such underwriter or Representative Counsel, all financial and
other records, relevant corporate documents, and properties of the Company, and
(2) cause the Company's directors, officers, employees, counsel and independent
public accountants to supply all information reasonably requested by, and to
respond to inquiries from, any such seller, underwriter, Representative Counsel,
legal counsel, attorney, accountant or agent in connection with such
registration statement, in each instance to the extent that such information is
reasonably necessary to satisfy any of its obligations under applicable law;
4.1.10. use its reasonable efforts to obtain an appropriate
opinion from counsel for the Company and a "cold comfort" letter from the
Company's independent public accountants, each in customary form and covering
such matters of the type customarily covered by opinions of counsel and cold
comfort letters in similar registrations; provided, however, that the failure to
obtain such opinion or letter, or the provision of any such opinion or letter in
a form not satisfactory to any seller whose Qualified Registrable Securities are
covered by such registration statement, notwithstanding the Company's reasonable
efforts, shall not give rise to any action, at law or in
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equity, for damages or injunctive or other relief, but rather shall only entitle
such seller to withdraw his Qualified Registrable Securities from such
registration statement pursuant to Section 4.4;
4.1.11. provide (1) each Holder of such Qualified Registrable
Securities, (2) each underwriter (which, for purposes of this Agreement, shall
include any person deemed to be an underwriter within the meaning of Section
2(11) of the Securities Act), if any, of the securities being sold, (3) counsel
of such underwriters, and (d) the Representative Counsel the opportunity to
participate in the preparation of such registration statement, each amendment or
supplement thereto, each prospectus included therein or filed with the
Commission, and each amendment or supplement thereto;
4.1.12. promptly notify each selling Holder of Qualified
Registrable Securities and each managing underwriter (if any) and, upon request
by any such person, confirm such advice in writing, (1) when such registration
statement, the prospectus or any prospectus supplement or post-effective
amendment has been filed, and, with respect to such registration statement or
any post-effective amendment thereto, when the same has become effective, (2) of
the issuance by the Commission of any stop order suspending the effectiveness of
such registration statement or the initiation of any proceeding for such
purpose, or (3) of the receipt by the Company of any notification with respect
to the suspension of the registration or qualification of such Qualified
Registrable Securities for sale in any jurisdiction or the initiation of any
proceeding for such purpose;
4.1.13. use its reasonable efforts to obtain the withdrawal of
any order suspending the effectiveness of such registration statement or any
post-effective amendment thereto; and
4.1.14. notify each Holder of such Qualified Registrable
Securities of any proposal by the Company to amend or waive any provision of
this Agreement pursuant to Sections 11.2 and 11.11, respectively, and any
amendment or waiver effected pursuant thereto, which notice shall contain the
text of the amendment or waiver proposed or effected.
4.2 Certain Agreements by Holders. Each Holder of Qualified Registrable
Securities covered by a registration statement hereunder, (1) upon receipt of a
notice from the Company of the occurrence of any event of the kind described in
Section 4.1.5, shall forthwith discontinue such Holder's disposition of
Qualified Registrable Securities pursuant to the registration statement covering
such Holder's Qualified Registrable Securities until such Holder receives the
copies of the supplemented or amended prospectus contemplated by Section 4.1.5,
and (2) if so directed by the Company, shall deliver to the Company, at the
Company's expense, all copies (other than permanent file copies) then in such
Holder's possession of the prospectus covering such
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Qualified Registrable Securities that was in effect at the time of receipt of
such notice. If the Company gives any such notice, the period mentioned in
Section 4.1.2 shall be extended by the number of days during the period from and
including the date of the giving of such notice to and including the date when
each Holder of any such Qualified Registrable Securities covered has received
the copies of the supplemented or amended prospectus contemplated by Section
4.1.5.
4.3. Representative Counsel. In connection with the preparation and
review pursuant to this Agreement of any registration statement, prospectus, or
amendment or supplement thereto, the sellers (including the participating
Holders, but excluding the Company) of a majority of the securities of the
Company included in such registration shall choose legal counsel
("Representative Counsel") who shall participate in the registration process on
behalf of all of such sellers, coordinate requests by such sellers for
information from the Company, and act as the liaison between such sellers or
their individual counsel, accountants and agents and the Company. The Company
shall establish reasonable procedures for the selection of the Representative
Counsel.
4.4. Withdrawal. If any Holder participating in a registration hereunder
disapproves of the terms of any offering, the sole remedy of such Holder shall
be, in its discretion, to withdraw such Holder's Qualified Registrable
Securities and other securities of the Company therefrom by giving written
notice to the Company and any managing underwriter (if any). The Holder's
Qualified Registrable Securities and other securities of the Company so
withdrawn from the offering also shall be withdrawn from registration. If the
Holders participating in such registration withdraw all Qualified Registrable
Securities from the offering, the Company may withdraw the registration, and if
such registration was commenced pursuant to a Demand Request, such registration
shall nevertheless be counted as a Demand Registration effected hereunder;
provided, however, that such registration shall not be so counted if a majority
of the Holders participating therein withdraw all Qualified Registrable
Securities from the offering solely as a result of the circumstances described
in Section 4.1.10.
4.5 Information. Upon written request by the Company, each seller of
Qualified Registrable Securities or other securities of the Company pursuant to
a registration hereunder shall furnish the Company with information regarding
such seller and the intended distribution of such seller's Qualified Registrable
Securities or other securities of the Company included in such registration for
the purpose of preparing the registration statement, to the extent that such
information is required to comply with applicable legal requirements.
5. Registration Expenses.
5.1. Responsibility for Payment. Regardless of whether any registration
pursuant to this Agreement becomes effective, all expenses incident to the
Company's performance of or
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compliance with this Agreement, including, without limitation, all registration
statement filing fees, National Association of Securities Dealers' fees, fees
and expenses of compliance with state securities or blue sky laws, printing and
engraving expenses and fees, and disbursements of counsel for the Company, the
Representative Counsel and the independent certified public accountants for the
Company, underwriters (if any) (excluding the discounts, commissions and
transfer taxes with respect thereto and the amounts to be paid by such
underwriters) and other persons retained by the Company (collectively,
"Registration Expenses"), shall be paid by the Company; provided, however, that
(1) if sellers whose Qualified Registrable Securities or other securities of the
Company are included in the registration are required to pay any Registration
Expenses as provided in Section 5.2, then each such seller shall pay such
Registration Expenses in proportion to (a) the number of shares of Qualified
Registrable Securities and other securities of the Company requested to be
registered by each such seller in such registration, if such registration
statement does not become effective, or (b) the number of shares of Qualified
Registrable Securities and other securities of such seller of the Company
included in such registration, if such registration statement becomes effective,
unless in either case another basis for sharing such Registration Expenses is
required under applicable laws, rules or regulations, in which case such other
method shall apply; and (2) each seller of Qualified Registrable Securities or
other securities of the Company shall pay any underwriting discounts and selling
commissions and transfer taxes applicable to the Qualified Registrable
Securities or other securities of the Company sold by such seller as aforesaid.
5.2. Legal Requirements. Notwithstanding the foregoing, each seller of
Qualified Registrable Securities or other securities of the Company pursuant to
a registration hereunder shall pay the Registration Expenses to the extent
required by applicable law.
6. Indemnification.
6.1. Indemnification by the Company. The Company shall indemnify and
hold harmless, with respect to any registration statement filed by it, to the
fullest extent permitted by law, each Holder who is a seller of Qualified
Registrable Securities covered by such registration statement, its officers,
directors, employees, agents and general or limited partners (and the directors,
officers, employees and agents thereof), and each other person, partnership,
trust, corporation, joint venture, unincorporated organization or government or
any department or agency thereof ("Person"), if any, who controls such Holder
within the meaning of the Securities Act (collectively, "Holder Indemnified
Parties") against all losses, claims, damages, liabilities and expenses, joint
or several, (including reasonable fees of counsel and any amounts paid in
settlement effected with the Company's consent, which consent shall not be
unreasonably withheld) to which any such Holder Indemnified Party may become
subject under the Securities Act, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions or proceedings,
whether commenced or threatened, in respect thereof) are caused by (1) any
untrue statement or alleged
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untrue statement of a material fact contained in any registration statement in
which such Qualified Registrable Securities were included as contemplated hereby
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
(2) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary, final or summary prospectus, together with the
documents incorporated by reference therein (as amended or supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto), or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or (3) any violation by the Company of any federal, state or common
law rule or regulation applicable to the Company and relating to action of or
inaction by the Company in connection with any such registration; and in each
such case, the Company shall reimburse each such Holder Indemnified Party for
any reasonable legal or any other expenses incurred by any of them in connection
with investigating or defending any such loss, claim, damage, liability,
expense, action or proceeding; provided, however, that the Company shall not be
liable to any such Holder Indemnified Party in any such case to the extent that
any such loss, claim, damage, liability or expense (or action or proceeding,
whether commenced or threatened, in respect thereof) arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement or amendment thereof or supplement
thereto or in any such preliminary, final or summary prospectus in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of any such Holder Indemnified Party relating to such Holder Indemnified
Party expressly for use in the preparation thereof; and provided further, that
the Company shall not be liable to any such Holder Indemnified Party with
respect to any preliminary prospectus to the extent that any such loss, claim,
damage, liability or expense of such Holder Indemnified Party results from the
fact that such Holder Indemnified Party sold Qualified Registrable Securities to
a person to whom there was not sent or given, at or before the written
confirmation of such sale, a copy of the prospectus (excluding documents
incorporated by reference) or of the prospectus as then amended or supplemented
(excluding documents incorporated by reference) if the Company has previously
furnished copies thereof to such Holder Indemnified Party in compliance with
Section 4 and the loss, claim, damage, liability or expense of such Holder
Indemnified Party results from an untrue statement or omission of a material
fact contained in such preliminary prospectus which was corrected in the
prospectus (or the prospectus as amended or supplemented). Such indemnity and
reimbursement of expenses obligations shall remain in full force and effect
regardless of any investigation made by or on behalf of the Holder Indemnified
Parties and shall survive the transfer of such securities by such Holder.
6.2. Indemnification by Holders. Each Holder of Qualified Registrable
Securities participating in any registration hereunder shall severally and not
jointly indemnify and hold harmless, to the fullest extent permitted by law, the
Company, its directors, officers, employees and
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agents, and each Person who controls the Company (within the meaning of the
Securities Act) (collectively, "Company Indemnified Parties") against all
losses, claims, damages, liabilities and expenses, joint or several (including
reasonable fees of counsel and any amounts paid in settlement effected with such
Holder's consent, which consent shall not be unreasonably withheld) to which any
Company Indemnified Party may become subject under the Securities Act, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions or proceedings, whether commenced or threatened, in respect
thereof) are caused by (1) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement in which such Holder's
Qualified Registrable Securities were included or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (2) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary, final or summary prospectus, together with the documents
incorporated by reference therein (as amended or supplemented if the Company
shall have filed with the Commission any amendment thereof or supplement
thereto), or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading to the extent, but only to the extent, in the cases described in
clauses (1) and (2), that such untrue statement or omission is contained in any
information furnished in writing by such Holder to the Company which relates to
such Holder and is expressly for use in the preparation thereof and if the
Company does not know, at the time such information is included in the
registration statement, prospectus, preliminary prospectus, amendment or
supplement, that such information is false or misleading, (3) any violation by
such Holder of any federal, state or common law, rule or regulation applicable
to such Holder and relating to action of or inaction by such Holder in
connection with any such registration, and (4) with respect to any preliminary
prospectus, the fact that such Holder sold Qualified Registrable Securities to a
person to whom there was not sent or given, at or before the written
confirmation of such sale, a copy of the prospectus (excluding documents
incorporated by reference) or of the prospectus as then amended or supplemented
(excluding documents incorporated by reference) if the Company has previously
furnished copies thereof to such Holder in compliance with Section 4 and the
loss, claim, damage, liability or expense of such Company Indemnified Party
results from an untrue statement or omission of a material fact contained in
such preliminary prospectus which was corrected in the prospectus (or the
prospectus as amended or supplemented); provided, however, that the aggregate
amount which any such Holder shall be required to pay pursuant to this Section
6.2 shall be limited to the dollar amount of proceeds received by such Holder
upon the sale of the Qualified Registrable Securities and other securities of
the Company (after deducting any underwriting commissions, discounts and
transfer taxes applicable thereto) pursuant to the registration statement giving
rise to such claim. Such indemnity obligation shall remain in full force and
effect regardless of any investigation made by or on behalf of the Company
Indemnified Parties (except as provided above) and shall survive the transfer of
such securities by such Holder.
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<PAGE>
6.3. Conduct of Indemnification Proceedings. Promptly after receipt by
an indemnified party under Section 6.1 or 6.2 of written notice of the
commencement of any action, suit, proceeding, investigation or threat thereof
made in writing with respect to which a claim for indemnification may be made
pursuant to this Section 6, such indemnified party shall, if a claim in respect
thereto is to be made against an indemnifying party, give written notice to the
indemnifying party of the threat or commencement thereof; provided, however,
that the failure so to notify the indemnifying party shall not relieve it from
any liability which it may have to any indemnified party except to the extent
that the indemnifying party is actually prejudiced by such failure to give
notice. If any such claim or action referred to under Section 6.1 or 6.2 is
brought against any indemnified party and it then notifies the indemnifying
party of the threat or commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other indemnifying party similarly notified, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party). After notice from the indemnifying party to such indemnified party of
its election so to assume the defense of any such claim or action, the
indemnifying party shall not be liable to such indemnified party under this
Section 6 for any legal expenses of counsel or any other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation unless the indemnifying party has failed
to assume the defense of such claim or action or to employ counsel reasonably
satisfactory to such indemnified party. The indemnifying party shall not be
required to indemnify the indemnified party with respect to any amounts paid in
settlement of any action, proceeding or investigation entered into without the
written consent of the indemnifying party, which consent shall not be
unreasonably withheld. No indemnifying party shall consent to the entry of any
judgment or enter into any settlement without the consent of the indemnified
party unless (1) such judgment or settlement does not impose any obligation or
liability upon the indemnified party other than the execution, delivery or
approval thereof, and (2) such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a full release and discharge from all liability in respect
of such claim for all persons that may be entitled to or obligated to provide
indemnification or contribution under this Section 6.
6.4. Additional Indemnification. Indemnification similar to that
specified in the preceding subsections of this Section 6 (with appropriate
modifications) shall be given by the Company and each seller of Qualified
Registrable Securities with respect to any required registration or
qualification of securities under any state securities or blue sky laws.
6.5. Contribution. If the indemnification provided for in this Section 6
is unavailable to or insufficient to hold harmless an indemnified party under
Section 6.1 or 6.2, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of the losses, claims,
damages, liabilities or expenses (or actions or proceedings in respect
17
<PAGE>
thereof) referred to in Section 6.1 or 6.2 in such proportion as is appropriate
to reflect the relative fault of the indemnifying party on the one hand and the
indemnified party on the other in connection with the statements, omissions,
actions or inactions which resulted in such losses, claims, damages, liabilities
or expenses. The relative fault of the indemnifying party and the indemnified
party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
indemnifying party or the indemnified party, any action or inaction by any such
party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement, omission, action or inaction.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or expenses (or actions or proceedings in respect
thereof) pursuant to this Section 6.5 shall be deemed to include any reasonable
legal or other expenses incurred by such indemnified party in connection with
investigating or defending any such action or claim (which shall be limited as
provided in Section 6.3 if the indemnifying party has assumed the defense of any
such action in accordance with the provisions thereof) which is the subject of
this Section 6.5. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Promptly after receipt by an indemnified party under this
Section 6.5 of written notice of the commencement of any action, suit,
proceeding, investigation or threat thereof made in writing with respect to
which a claim for contribution may be made against an indemnifying party under
this Section 6.5, such indemnified party shall, if a claim for contribution in
respect thereto is to be made against an indemnifying party, give written notice
to the indemnifying party in writing of the commencement thereof (if the notice
specified in Section 6.3 has not been given with respect to such action);
provided, however, that the failure to so notify the indemnifying party shall
not relieve it from any obligation to provide contribution which it may have to
any indemnified party under this Section 6.5 except to the extent that the
indemnifying party is actually prejudiced by the failure to give notice.
Notwithstanding anything in this Section 6.5 to the contrary, no indemnifying
party (other than the Company) shall be required pursuant to this Section 6.5 to
contribute any amount which exceeds the amount by which the dollar amount of the
proceeds received by such indemnifying party from the sale of Qualified
Registrable Securities and other securities of the Company (after deducting any
underwriting commissions, discounts and transfer taxes applicable thereto) in
the offering to which the losses, claims, damages, liabilities or expenses of
the indemnified parties relate exceeds the amount of any losses, claims,
damages, liabilities and expenses which such indemnifying party has otherwise
been required to pay as indemnity or contribution hereunder by reason of such
losses, claims, damages, liabilities or expenses.
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The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6.5 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
If indemnification is available under this Section 6, the indemnifying
parties shall indemnify each indemnified party to the fullest extent provided in
Sections 6.1 and 6.2, without regard to the relative fault of said indemnifying
party or indemnified party or any other equitable consideration provided for in
this Section 6.5. The provisions of this Section 6.5 shall be in addition to
any other rights to indemnification or contribution which any indemnified party
may have pursuant to law or contract, shall remain in full force and effect
regardless of any investigation made by or on behalf of any indemnified party,
and shall survive the transfer of securities by any such party.
6.6. Indemnification and Contribution of Underwriters. In connection
with any underwritten offering contemplated by this Agreement which includes
Qualified Registrable Securities, the Company and all sellers of Qualified
Registrable Securities included in any registration statement shall agree to
customary provisions for indemnification and contribution (consistent with the
other provisions of this Section 6) in respect of losses, claims, damages,
liabilities and expenses of the underwriters of such offering.
7. Participation in Underwritten Registrations. In the case of any
registration under Section 3, if the majority of the Holders of the Qualified
Registrable Securities to be included therein who made the Demand Request or the
Company determine to enter into an underwriting agreement in connection
therewith, or in the case of a registration under Section 2, if the Company
determines to enter into an underwriting agreement in connection therewith, (1)
all shares of Qualified Registrable Securities or other securities of the
Company to be included in such registration shall be subject to such
underwriting agreement, which shall be in customary form and contain such terms
as are customarily contained in such agreements, and (2) no person may
participate in any such registration unless such person (a) agrees to sell such
person's securities on the basis provided in such underwriting arrangement and
(b) completes and executes all questionnaires, powers-of-attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
8. Rights to Withdraw From Registration. If as a result of the proration
provisions of Sections 2.2 and 3.4, any Holder is not entitled to include all of
such Holder's Qualified Registrable Securities in a registration that such
Holder has requested to be included, then after the delivery to such Holder of
notice thereof from the Company, such Holder may elect to withdraw his request
to include such Holder's Qualified Registrable Securities in such registration
("Withdrawal Election"); provided, however, that a Withdrawal Election shall be
irrevocable and, after making a Withdrawal Election, a Holder shall no longer
have any right to include such Holder's Qualified Registrable
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<PAGE>
Securities in the registration as to which such Withdrawal Election was made. If
as a result of Withdrawal Elections (but after the Company has included in such
registration in place of such withdrawn Qualified Registrable Securities such
additional Qualified Registrable Securities or other securities of the Company
to be sold by the Company or held by other Holders or other sellers whose
Qualified Registrable Securities or other securities of the Company were
excluded as a result of the proration provisions of Sections 2 and 3), less than
the Requisite Amount of Qualified Registrable Securities and other securities of
the Company are requested to be included in a registration, the Company, in its
sole discretion, may give written notice to all Holders who have requested that
such Holders' Qualified Registrable Securities be included in a registration and
who have not made a Withdrawal Election that the Company has determined not to
proceed with such registration and, thereupon, shall be relieved of its
obligation to register any Qualified Registrable Securities in connection with
such abandoned registration (without prejudice, however, to the Holders' rights
to have Qualified Registrable Securities registered pursuant to Section 2 and
the Holders' rights to have Qualified Registrable Securities registered pursuant
to Section 3 in the future). Any such abandoned registration shall not be
counted as a Demand Registration for purposes of Section 3.3.3.
9. Limitations on Sale or Distribution of Other Securities. If requested
in writing by (1) the Company or (2) the managing underwriter (if any) of (a) a
registration in connection with the Initial Public Offering or (b) the first
underwritten registration contemplated by Section 2 or 3 declared effective
after the completion of the Initial Public Offering ("Subsequent Registration"),
each Holder hereby agrees not to effect any public offering, sale or
distribution (including any sale pursuant to Rule 144 under the Securities Act)
of any Qualified Registrable Securities or any other Common Equity Securities or
any other security of the Company (other than as part of such underwritten
public offering) within (i) 180 days after the effective date of a registration
statement filed in connection with the Initial Public Offering, and (ii) 90 days
after the effective date of the Subsequent Registration, if such Holder was
given the opportunity to include in the Subsequent Registration any Qualified
Registrable Securities or any other Common Equity Securities or any other
security of the Company held by such Holder. The Company, in its sole
discretion, may waive, as to any one or more Holders, the restrictions contained
in this Section 9 as they apply to a Subsequent Registration.
10. Termination. This Agreement and all rights and obligations of the
parties hereto under this Agreement shall terminate 10 years after the Effective
Date; provided, however, that the indemnification and contribution rights and
obligations shall not terminate and shall survive forever.
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11. Miscellaneous Provisions.
11.1. Subsequent Holders; After-Acquired Qualified Registrable
Securities.
11.1.1. The Company anticipates that there may be additional
issuances of Qualified Registrable Securities. Any purchaser of Qualified
Registrable Securities from the Company may become, with the consent of the
Company in its absolute discretion, a party to this Agreement by executing (and
causing such purchaser's spouse, if any, to execute) a counterpart of the
signature page of this Agreement, such signature(s) being evidence of such
purchaser's (and such spouse's) agreement to be bound by all of the provisions
of this Agreement. Once such purchaser (and such spouse, if any) has executed
this Agreement, the term "Holder" shall include such purchaser; the terms
"Qualified Registrable Securities" and "Common Equity Securities" shall include
the Qualified Registrable Securities and Common Equity Securities then held by
such purchaser; and the term "Holder" shall include such purchaser.
11.1.2. The terms "Qualified Registrable Securities" and
"Common Equity Securities" also shall include any Common Equity Securities
acquired by any Holder after the Effective Date so long as such Holder (and such
Holder's spouse, if any) has executed a counterpart of this Agreement.
11.1.3. Except with the consent of the Company, no rights
hereunder shall be assignable by any Holder, and such rights shall terminate
with respect to Qualified Registrable Securities of a Holder upon assignment of
such securities by a Holder; provided, however, that if a Holder is a party to
the Stockholders Agreement (as defined herein), then such Holder may assign such
rights to a transferee (other than a "Divorced Spouse," an heir or legatee of a
"Deceased Spouse" other than a "Surviving Holder," or any participant in or
alternate payee or beneficiary of any "Retirement Plan") acquiring any of such
Qualified Registrable Securities in a "Disposition" permitted under and in
compliance with the Sterling Chemicals Holdings, Inc. Stockholders Agreement
dated the date hereof, as the same may be amended hereafter ("Stockholders
Agreement"), among the Company and certain of its security holders, regardless
of any subsequent termination thereof. The terms "Divorced Spouse," "Deceased
Spouse," "Surviving Holder," "Retirement Plan" and "Disposition" shall have the
meanings set forth in the Stockholders Agreement, as in effect on the date
hereof. To enjoy the benefits of this Agreement, any such permitted transferee
must become (1) a record holder of such Qualified Registrable Securities and (2)
a party hereto within 60 days after such transfer (unless waived in writing by
the Company) by executing (and causing such transferee's spouse, if any, to
execute) a counterpart of this Agreement and such permitted transferee. Any such
permitted transferee who meets such conditions shall become, for the purposes
hereof, a "Holder."
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11.1.4. Notwithstanding the foregoing, no rights hereunder
shall inure to the benefit of, or be exercisable by, any transferee or assignee
acquiring Qualified Registrable Securities in a public sale or public
distribution.
11.2. Changes in Outstanding Securities. The provisions of this
Agreement regarding Common Equity Securities, Qualified Registrable Securities
and Requisite Amount shall apply to securities of the Company or any successor
or assignee of the Company (whether by merger, consolidation, sale of assets or
otherwise) that may be issued in respect of, or by reason of any stock issuance,
stock dividend, stock split, reverse stock split, combination, recapitalization,
reclassification, merger, consolidation or otherwise. Upon the occurrence of any
of such events, the definitions of Common Equity Securities, Qualified
Registrable Securities and Requisite Amount shall be appropriately modified by
the Board of Directors of the Company.
11.3. Exchange Act Registration. The Company may withdraw any
registration pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), with respect to any securities of the Company at
any time that it is permitted to do so under the Exchange Act.
11.4. Spouse. The spouses of the individual Holders, by their
execution of this Agreement, (1) evidence that they are fully aware of,
understand and fully consent and agree to the provisions of this Agreement and
its binding effect upon any community property or similar marital property
interests in the Qualified Registrable Securities or other securities of the
Company they may now or hereafter own, and (2) agree that the termination of
their marital relationship with any individual Holder for any reason shall not
have the effect of removing any Qualified Registrable Securities or other
securities of the Company otherwise subject to this Agreement from the coverage
hereof. Each individual Holder shall cause his or her spouse (and any subsequent
spouse) to execute and deliver, upon the request of the Company, a counterpart
of this Agreement.
11.5. Employee Matters. Each Holder, if an employee of the Company or
any of its subsidiaries, acknowledges and agrees that neither the acquisition of
securities of the Company by such Holder nor the execution of this Agreement by
the Company or such Holder creates any obligation whatsoever by the Company or
any of its subsidiaries to continue such Holder's employment or otherwise
affects the Company's right to terminate such Holder's employment at will, with
or without cause in the sole discretion of the Company or any of its
subsidiaries which is an employer of such Holder.
11.6. ESOT's Obligations. Notwithstanding anything to the contrary
herein, the obligations of the Sterling Chemicals Holdings, Inc. Employee Stock
Ownership Trust created pursuant to the Sterling Chemicals Holdings, Inc.
Employee Stock Ownership Plan (the "ESOT")
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shall be subject to compliance with the Internal Revenue Code of 1986, as
amended ("Code"), the Employee Retirement Income Security Act, as amended, the
rules and regulations thereunder, and all other applicable laws, rules and
regulations; provided, however, that any disposition of Common Equity Securities
to which the ESOT is a party shall be based upon a "Purchase Price" pursuant to
a valuation made by an independent appraiser as provided for in Section
401(a)(28) of the Code.
11.7. Inspection. For so long as this Agreement shall be in effect,
this Agreement and a complete list of the names and addresses of all of the
Holders of Qualified Registrable Securities shall be made available for
inspection and copying on any business day by any Holder of Qualified
Registrable Securities at the offices of the Company at the address thereof set
forth in Section 11.9.
11.8. Conflict with Other Agreements. If any provision of this Agreement
conflicts with any registration rights provision of any other agreement to which
the Company is or may become a party, the registration rights provision of such
other agreement shall control to the extent of such conflict.
11.9. Notices and Other Communications. All notices, requests and other
communications required or permitted to be given to the Company or any Holder in
connection herewith (1) must be in writing and (2) may be served either by (a)
depositing the same in the United States mail, full postage prepaid, certified
or registered with return receipt requested, (b) delivering the same by a
nationally recognized air courier service, full delivery cost paid, (c)
delivering the same in person, or (d) sending a telecopy of the same, confirmed
with a copy thereof delivered either by mail or air courier service or in person
as provided herein. Any such notice, request or other communication shall be
effective only if and when it is received by the addressee. For the purposes
hereof, the addresses of the parties hereto are as follows: (1) the Company --
Sterling Chemicals Holdings, Inc., 1200 Smith Street, Suite 1900, Houston, Texas
77002, Attention: President; and (2) the Holders -- the addresses shown on the
stock transfer records of the Company. Any party hereto may change its address
for the purposes hereof by giving written notice of such change of address to
the Company in the manner provided herein.
11.10 Entire Agreement. This Agreement constitutes the full
understanding of the parties and a complete and exclusive statement of the terms
and conditions of their agreement relating to the subject matter hereof and
supersedes all prior negotiations, understandings and agreements, whether
written or oral, between the parties, their affiliates, and their respective
principals, shareholders, directors, officers, employees, consultants and agents
with respect thereto.
11.11 Amendments and Waivers. Except as otherwise provided herein, no
alteration, modification, amendment, change or waiver of any provision of this
Agreement shall be
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effective or binding on any party hereto unless the same is in writing and is
executed by the Company and the Holders of at least the Required Voting
Percentage at the time thereof; provided, however, that the Company may amend
this Agreement without the consent of the any Holder to cure any ambiguity or to
cure, correct or supplement any defective provision contained herein, or to make
any other provision with respect to matters or questions hereunder as the
Company may deem necessary or advisable, provided that such action shall not
affect adversely the interests of any Holder.
11.12 Modification and Severability. If a court of competent
jurisdiction declares that any provision of this Agreement is illegal, invalid
or unenforceable, then such provision shall be modified automatically to the
extent necessary to make such provision fully legal, valid or enforceable. If
such court does not modify any such provision as contemplated herein, but
instead declares it to be wholly illegal, invalid or unenforceable, then such
provision shall be severed from this Agreement, this Agreement and the rights
and obligations of the parties hereto shall be construed as if this Agreement
did not contain such severed provision, and this Agreement otherwise shall
remain in full force and effect.
11.13 Enforceability. This Agreement shall be enforceable by and
against the Company, the Holders and their respective spouses, guardians, heirs,
legatees, executors, legal representatives, administrators, and permitted
successors and assignees.
11.14 No Third-Party Beneficiaries. No person or entity not a party to
this Agreement shall have rights under this Agreement as a third-party
beneficiary or otherwise.
11.15 Remedies. Each party hereto acknowledges that in the event of any
breach of this Agreement by such party, the other parties hereto (1) would be
irreparably and immediately harmed by such breach, (2) could not be made whole
by monetary damages, and (3) shall be entitled to temporary and permanent
injunctions (or their functional equivalents) to prevent any such breach and/or
to compel specific performance with this Agreement, in addition to all other
remedies to which such parties may be entitled at law or in equity. The remedies
of each party hereto under this Agreement shall be cumulative of each other and
of the remedies available at law or in equity. Any party's full or partial
exercise of any such remedy shall not preclude any subsequent exercise by such
party of the same or any other remedy.
11.16 Governing Law. This Agreement shall be governed by, construed
under, and enforce in accordance with the laws of the State of Delaware without
reference to the conflict-of-laws provisions thereof.
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11.17 Multiple Counterparts. This Agreement may be executed by the
parties hereto in multiple counterparts, each of which shall be deemed an
original for all purposes, and all of which together shall constitute one and
the same instrument.
This Agreement is executed and delivered by the parties hereto and their
respective spouses (if any) on the dates indicated below to be effective as of
the Effective Date.
COMPANY:
STERLING CHEMICALS HOLDINGS, INC.
By:________________________________
Name:___________________________
Title:__________________________
Date of execution: , 1996
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HOLDERS
Shares of
Common Stock Owned Date of
Name and Signature at Time of Execution Execution
------------------ -------------------- ---------
Individual:
- ----------
_____________________________ ____________________ _________
_____________________________
_____________________________ ____________________ _________
_____________________________
Spouse
Entity:
- ------
_____________________________ ____________________ _________
By:__________________________
Name:________________________
Title:_______________________
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Draft 7/26/96
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") is entered into as of the ___ day
of August, 1996, by and among the stockholders named on the signature pages
hereto (each a "Stockholder and collectively, the "Stockholders") and STX
Acquisition Corp. (the "Company"), to be renamed "Sterling Chemicals Holdings,
Inc." ("Holdings") after the Merger (as defined below).
WHEREAS, the Stockholders are purchasers in that certain private placement
(the "Equity Private Placement") of common stock, par value $.01 per share, of
the Company ("Company Common Stock"); and
WHEREAS, pursuant to that certain Amended and Restated Agreement and Plan
of Merger dated as of April 24, 1996, between the Company and Sterling
Chemicals, Inc., pursuant to which the Company will merge with and into Sterling
Chemicals, Inc. (the "Merger") and the Stockholders will receive common stock,
par value $.01 per share, of Holdings ("Holdings Common Stock") for shares of
Company Common Stock purchased in the Equity Private Placement.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, covenant and agree as follows:
1. Effectiveness of the Agreement. This Agreement has been entered into
in connection with the Equity Private Placement to become effective upon the
consummation of the Merger and shall become effective as of the date of the
Merger.
2. Board of Directors.
(a) Composition. The parties acknowledge and agree that the Board of
Directors of Holdings (the "Board"), upon consummation of the Merger, shall at
all times consist of seven directors, of which two members will be designated as
follows:
(i) The Clipper Designee. The "Clipper Investors" shall mean Clipper
Capital Associates, L.P., Clipper Equity Partners I, L.P.,
Clipper/Merchant Partners, L.P., Clipper/European Re, L.P.,
Clipper/Merban, L.P., CS First Boston Merchant Investments 1995/96,
L.P., certain accredited investors who enter into agreements with
Clipper Capital Associates, L.P. under which such partnership acts as
a nominee with respect to Holdings Common Stock purchased on behalf of
such individuals and those employees of CS First Boston Corporation
who enter into subscription agreements with the Company. Clipper
Equity Partners I, L.P., or if it ceases to hold Holdings Common
Stock, the remaining Clipper Investors shall be entitled to designate
one individual (the "Clipper Designee") as a director nominee to serve
as a Director on the Board. Such designation shall be made annually,
subject to interim designations to fill any vacancy with respect to
the Clipper Designee pursuant hereto, by written notice to Holdings
signed by Clipper Equity Partners I, L.P., or if it ceases to hold
<PAGE>
Holdings Common Stock, the remaining Clipper Investors. Clipper
Equity Partners I, L.P., or if it ceases to hold Holdings Common
Stock, the remaining Clipper Investors, shall have the right to
designate the Clipper Designee so long as the Clipper Investors own an
aggregate of 5% or more of the outstanding Holdings Common Stock. In
addition, for so long as the Clipper Investors own an aggregate of 5%
or more of the outstanding Holdings Common Stock, Clipper Equity
Partners I, L.P., or if it ceases to hold Holdings Common Stock, the
remaining Clipper Investors shall have the right to designate from
time to time an observer who shall have the right to attend meetings
of the Board and to receive information delivered to the Board, at the
expense of the Clipper Investors.
(ii) Koch Industries, Inc. Designee. Koch Equities Inc. (in its capacity as
a Stockholder, "Koch") shall be entitled to designate one individual
(the "Koch Designee" and with the TSG Designees, the Unicorn Designee
and the Clipper Designee, the "Designees") as a director nominee to
serve as a Director on the Board. Such designation shall be made
annually, subject to interim designations to fill any vacancy with
respect to the Koch Designee pursuant hereto, by written notice to
Holdings signed by Koch. Koch shall have the right to designate the
Koch Designee so long as Koch owns an aggregate of 5% or more of the
outstanding Holdings Common Stock.
(b) Replacement of Designees. Whenever any Designee nominated hereunder
(and thereafter elected) ceases to serve on the Board (whether by reason of
death, resignation, removal or otherwise), the party who designated such
director nominee shall be entitled to designate a successor director nominee to
fill the vacancy thereby created with such successor designation being made in
accordance with the provisions of Section 2(a) and the rights and limits set
forth therein.
3. Voting.
(a) Election of Designees. Holdings shall recommend the slate of designees
in Section 2 hereof for election by the Stockholders. Each of the Stockholders
agrees to vote all shares of Holdings Common Stock or other Holdings securities
with voting rights held by such party for the slate of Designees or any
replacement director to the Board designated in accordance with Section 2
hereof.
(b) Removal of Designees. Each Stockholder agrees that such Stockholder
shall not vote any of the securities of Holdings beneficially owned by such
Stockholder for the removal of any Designee without the prior written approval
of the party who designated such Designee as
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provided in Section 2 hereof. If at any time one of the designating parties
described in Section 2 notifies Holdings of its desire to have removed one or
more of the their respective Designees, each Stockholder agrees that such
Stockholder shall, at each meeting of stockholders of Holdings (or by written
consent of the holders of shares of voting securities of Holdings without a
meeting), vote all of the securities of Holdings beneficially owned by it for
the removal of such director.
(c) Vacancies. If any group entitled to designate a nominee or nominees
for director pursuant to Section 2 this Agreement chooses not to designate a
nominee or nominees for director, such directorship or directorships shall
remain vacant unless such vacancy results in less than the minimum number of
directors required by law or by the charter or bylaws of Holdings as then in
effect, in which case such vacancy shall be filled by an individual elected by a
majority of the directors then serving.
4. Certain Restrictions on Sale of Holdings Common Stock.
(a) Each certificate for shares of Holdings Common Stock owned by
any Stockholder shall bear the following legend:
The shares represented by this certificate are subject to the terms and
conditions of a Voting Agreement, copy of which is on file with the
Secretary of Sterling Chemicals Holdings, Inc., and are held and may be
sold, assigned, transferred or otherwise disposed of only in accordance
with such agreement.
5. Representations and Warranties.
(a) Each party hereto hereby represents and warrants, severally and not
jointly, to each other party hereto as follows:
(i) Such party has all necessary power and authority to execute
and deliver this Agreement and, upon consummation of the Merger, to
consummate the transactions contemplated hereby.
(ii) Assuming this Agreement has been duly and validly authorized,
executed and delivered by the other parties hereto, upon consummation
of the Merger, this Agreement will constitute a valid and binding
agreement of such party, enforceable in accordance with its terms.
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(iii) Neither the execution and delivery of this Agreement nor the
consummation by such party of the of the transactions contemplated
hereby will conflict with or constitute a violation of or default
under any contract, commitment, agreement, arrangement or restriction
of any kind to which such party is a party or by which such party is
bound.
6. Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state thereof having jurisdiction (this being in addition to any
other remedy to which they are entitled at law or in equity), and each party
hereto agrees to waive in any action for such enforcement the defense that a
remedy at law would be adequate.
7. Agreement Binding on Certain Transferees. Prior to any transfer of
shares of Holdings Common Stock by any Stockholder (including pursuant to the
terms of the Stockholders Agreement and other than pursuant to (i) a bona fide
public offering of such shares or (ii) a sale of such shares pursuant to Rule
144 under the Securities Act of 1933 , as amended), the transferee of such
shares must agree in writing to become bound by the terms of this Agreement.
For purposes of this Agreement, all references to Stockholders shall be deemed
to refer to the Stockholders and all direct and indirect transferees thereof so
required to become bound.
8. Term of Agreement. The provisions of this Agreement shall continue in
effect until the earliest to occur of (i) ten years from the date hereof, or
(ii) the mutual agreement of the parties hereto to an earlier date.
9. Irrevocable Proxy. Each of the Stockholders (other than the recipient
of the Proxy) hereby grants an irrevocable proxy to Clipper Capital Associates,
L.P., on behalf of the Clipper Investors, and to Koch to vote all shares of
Holdings Common Stock presently or at any future time owned beneficially or of
record by such Stockholder which the Stockholder is entitled to vote, and to
represent and otherwise act as such Stockholder could act, in the same manner
and with the same effect as if such Stockholder were personally present, at any
annual, special or other meeting of the stockholders of Holdings, and at any
adjournment thereof (a "Meeting"), or pursuant to any written consent in lieu of
meeting or otherwise; provided, however, that any such vote or consent in lieu
thereof or any other action so taken shall be solely for the purposes of
electing or removing the Clipper Designee and the Koch Designee as provided in
Section 3(a) and (b), respectively,
10. Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted successors and
assigns.
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11. Amendments. Except as otherwise specifically provided herein, this
Agreement shall not be amended other than by an instrument in writing signed by
all of the parties hereto.
12. Notices. Any notice of communication shall be sufficiently given if
given in writing addressed as indicated on the signature pages hereto. Notice
shall be deemed given when transmitted by telex or telecopier, delivered to the
telegraph or cable office or personally delivered or, in the case of a mailed
notice, three business days after the date deposited in the United States mails.
Each party by written notice to the other may designate additional or different
addresses for subsequent notices or communications.
13. Counterparts. This Agreement may be executed in counterparts, each of
which when executed shall be deemed an original, but all of which together shall
constitute one and the same agreement.
14. Entire Agreement. The parties acknowledge that there are no other
written agreements, contracts, covenants, promises, representations, warranties,
inducements or understandings between them, with respect to the voting
agreements contained herein.
15. Governing Law. THE LAWS OF THE JURISDICTION IN WHICH HOLDINGS IS
INCORPORATED, THE STATE OF DELAWARE, SHALL GOVERN THIS AGREEMENT WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under their respective seals, as of the day and year first written
above.
STX ACQUISITION CORP
Eight Green way Plaza
Suite 702
Houston, Texas 77046
By:_________________________
Name:
Title:
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STOCKHOLDERS:
INDIVIDUAL STOCKHOLDERS:
--------------------------------------
Name:
Address:
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Name:
Address:
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Name:
Address:
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Name:
Address:
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Name:
Address:
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Name:
Address:
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--------------------------------------
Name:
Address:
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Name:
Address:
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Name:
Address:
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Name:
Address:
ENTITY STOCKHOLDERS:
Entity Name:
Address:
By____________________________________
Name of Authorized Signatory:
Title:
Entity Name:
Address:
By____________________________________
Name of Authorized Signatory:
Title:
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Entity Name:
Address:
By____________________________________
Name of Authorized Signatory:
Title:
Entity Name:
Address:
By____________________________________
Name of Authorized Signatory:
Title:
Entity Name:
Address:
By____________________________________
Name of Authorized Signatory:
Title:
Entity Name:
Address:
By____________________________________
Name of Authorized Signatory:
Title:
8
<PAGE>
Entity Name:
Address:
By____________________________________
Name of Authorized Signatory:
Title:
9
<PAGE>
EXHIBIT A
TAG-ALONG AGREEMENT
-------------------
THIS TAG-ALONG AGREEMENT dated as of ____________, 1996 is by the
undersigned (the "Obligors") in favor of and for the benefit of the
Beneficiaries (as hereinafter defined).
PRELIMINARY STATEMENTS
1. Effective as of the date hereof, STX Acquisition Corp., a Delaware
corporation ("Newco"), merged (the "Merger") into Sterling Chemicals,
Inc., a Delaware corporation (the "Company"), pursuant to that certain
Agreement and Plan of Merger between Newco and the Company dated as of
April 24, 1996 (the "Merger Agreement").
2. Pursuant to the Merger Agreement, certain of the stockholders of the
Company retained all or a portion of the shares of common stock, par
value $0.01 per share, of the Company ("Company Common Stock") held by
them immediately prior to the Merger rather than have such shares
converted into cash in connection with the Merger (such retained shares
of Company Common Stock being herein called the "Rollover Shares").
3. Pursuant to the Merger Agreement, the outstanding shares of common stock,
par value $0.01 per share, of Newco ("Newco Common Stock") were converted
into shares of Company Common Stock. Each of the Obligors (i) was the
owner of shares of Newco Common Stock and (ii) as a result of the
conversion of those shares into Company Common Stock as aforesaid, is now
the owner of the number of shares of Company Common Stock set forth below
such Obligor's name on the signature pages hereof.
4. This Agreement is being entered into pursuant to Section 8.02(d) of the
Merger Agreement.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each Obligor, severally with
respect to itself only, hereby agrees as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
------------------------------
Section 1.01. Certain Defined Terms. Capitalized terms used in this
Agreement shall have the following respective meanings, except as otherwise
provided herein or as the context shall otherwise require:
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with such Person. The term
"control" (including, with correlative meaning, the terms "controlling",
"controlled by" and "under common control with") means the possession,
directly or indirectly,
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of the power to direct or cause direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Agreement" means this Tag-Along Agreement, as the same may hereafter be
amended, modified or restated and in effect from time to time.
"Beneficiaries" means each Person (other than any Obligor) who retained
Rollover Shares in connection with the Merger, including such Person's
permitted assigns.
"Company" has the meaning specified in the Preliminary Statements of this
Agreement.
"Company Common Stock" has the meaning specified in the Preliminary
Statements of this Agreement.
"Disputants" has the meaning specified in Section 4.02(a).
"Maximum Amount" has the meaning specified in Section 2.01(b).
"Merger" has the meaning specified in the Preliminary Statements of this
Agreement.
"Merger Agreement" has the meaning specified in the Preliminary
Statements of this Agreement.
"Newco" has the meaning specified in the Preliminary Statements of this
Agreement.
"Newco Common Stock" has the meaning specified in the Preliminary
Statements of this Agreement.
"Obligors" has the meaning specified in the introductory paragraph of
this Agreement.
"Participating Beneficiary" has the meaning specified in Section 2.01(d).
"Person" means any individual, firm, corporation, trust, association,
company, limited liability company, joint stock company, partnership, joint
venture, governmental authority or other entity or enterprise.
"Proposed Transaction" has the meaning specified in Section 2.01(a).
"Purchaser" has the meaning specified in Section 2.01(b).
"Restricted Shares" means the shares of Company Common Stock into which
the shares of Newco Common Stock owned by the Obligors have been converted
pursuant to the Merger.
"Rollover Shares" has the meaning specified in the Preliminary Statements
of this Agreement.
"Sellers" has the meaning specified in Section 2.01(a).
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"Tag-Along Notice" has the meaning specified in Section 2.01(c).
"Transfer" means, with respect to the Restricted Shares of any Obligor,
any direct or indirect sale, assignment or other disposition of such
Restricted Shares by such Obligor; provided, however, that such term shall
not include any sale, assignment or other disposition by such Obligor:
(a) to one or more other Obligors or to the Company;
(b) to any Affiliate of such Obligor;
(c) if such Obligor is a natural person, to (i) a guardian of the estate
of such Obligor or (ii) an inter vivos trust primarily for the
benefit of such Obligor and/or such Obligor's immediate family;
(d) if such Obligor is a natural person, to an executor, administrator or
guardian of the estate of such Obligor or to the heirs, distributees
or legatees of such Obligor under the will of such Obligor or
pursuant to the laws of descent and distribution;
(e) to a Person who acquires such Restricted Shares by operation of law
(including pursuant to a property settlement agreement, plan or
arrangement approved or ordered by any court);
(f) pursuant to a gift or charitable contribution;
(g) pursuant to a public distribution registered under the Securities Act
of 1933, as amended (the "Securities Act"), or a sale on the open
market through a "brokers' transaction (as that term is defined in
subsection (g) of Rule 144 promulgated under the Securities Act);
(h) pursuant to Rule 144 promulgated under the Securities Act;
(i) pursuant to a mortgage, pledge or other encumbrance;
(j) pursuant to bankruptcy or insolvency proceedings or any judicial
order, legal process, execution or attachment;
(k) pursuant to a tender or exchange offer or a merger, consolidation or
other similar transaction open to all stockholders of the Company on
a pro rata basis at the same price per share and on the same economic
terms; or
(l) if shares of Company Common Stock are listed on any national
securities exchange or reported on The Nasdaq Stock Market, in a
transaction where the purchase price per Restricted Share being
transferred is less than or equal to the then-current market price
per share.
"Transfer Notice" has the meaning specified in Section 2.01(a).
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Section 1.02. Interpretation. In this Agreement, unless a clear
contrary intention appears:
(a) the words "hereof," "herein" and "hereunder" and words of similar
import refer to this Agreement as a whole and not to any particular provision
of this Agreement;
(b) reference to any gender includes each other gender and the neuter;
(c) all terms defined in the singular shall have the same meanings in the
plural and vice versa;
(d) reference to any Person includes such Person's heirs, executors,
personal representatives, administrators, successors and assigns; provided,
however, that nothing contained in this clause (d) is intended to authorize
any assignment not otherwise permitted by this Agreement;
(e) reference to a Person in a particular capacity excludes such Person
in any other capacity or individually;
(f) all references to Articles and Sections shall be deemed to be
references to the Articles and Sections of this Agreement;
(g) the word "including" (and with correlative meaning "include") means
including, without limiting the generality of any description preceding such
term;
(h) with respect to the determination of any period of time, the word
"from" means "from and including" and the words "to" and "until" each means
"to but excluding";
(i) the captions and headings contained in this Agreement shall not be
considered or given any effect in construing the provisions hereof if any
question of intent should arise;
(j) where any provision of this Agreement refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provision
shall be applicable whether such action is taken directly or indirectly by
such Person; and
(k) no provision of this Agreement shall be interpreted or construed
against any Person solely because that Person or its legal representative
drafted such provision.
ARTICLE II
TAG-ALONG RIGHTS
----------------
Section 2.01. Tag-Along Rights. (a) In the event that, at any time
during the term of this Agreement, any Obligor acting alone or two or more of
the Obligors acting in concert (the "Sellers", whether one or more) propose to
Transfer, in a single transaction or series of related transactions, Restricted
Shares representing in the aggregate 51% or more of all of the shares of Company
Common Stock then issued and outstanding (on a fully-diluted basis), the Sellers
shall give, or cause to be given, written notice (a "Transfer Notice") to the
Beneficiaries of such proposed Transfer (a "Proposed Transaction"). For
purposes of this Agreement, two or more Obligors will be deemed
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to be acting in concert when they act jointly or on a coordinated basis pursuant
to any express or tacit agreement, arrangement or understanding.
(b) Each Transfer Notice shall (i) specify the total number of Restricted
Shares proposed to be disposed of in the Proposed Transaction (the "Maximum
Amount"), (ii) specify the proposed purchase price for such Restricted Shares,
(iii) describe the portion of such purchase price payable at the closing of such
Proposed Transaction, (iv) describe the amount and any terms of any delayed
payment of such purchase price, (v) describe the security (if any) for any such
deferred payment and (vi) identify the prospective purchaser of the Restricted
Shares proposed to be disposed of in the Proposed Transaction (the "Purchaser").
(c) Each Beneficiary shall have the right to participate in the Proposed
Transaction described in a Transfer Notice on a pro rata basis and at the same
price per share and on the same economic terms and conditions applicable to the
Sellers, but only if such Beneficiary gives the Sellers written notice of such
Beneficiary's desire to so participate within 15 days after receipt of the
applicable Transfer Notice by such Beneficiary (a "Tag-Along Notice"). The
failure of any Beneficiary to provide the Sellers with a Tag-Along Notice within
such 15-day period shall be deemed for all purposes of this Agreement to be an
irrevocable election by such Beneficiary to not participate in the relevant
Proposed Transaction. Each Tag-Along Notice shall (A) specify the number of
Rollover Shares owned by the relevant Beneficiary which such Beneficiary desires
to include in relevant Proposed Transaction (the "Participating Shares"), (B)
contain an irrevocable agreement of such Beneficiary to sell the Participating
Shares to the Purchaser pursuant to the terms of the Transfer Notice and this
Agreement and (C) contain a representation of such Beneficiary to the effect
that the agreement referred to in the foregoing clause (B) constitutes a legal,
valid and binding obligation of such Beneficiary, enforceable against such
Beneficiary in accordance with its terms.
(d) If any Beneficiary shall have given a Tag-Along notice in accordance
with paragraph (c) above (a "Participating Beneficiary"), the Sellers shall not
Transfer any Restricted Shares to the Purchaser as contemplated by the relevant
Transfer Notice unless each Participating Beneficiary is permitted to include in
the Proposed Transaction, on terms no less favorable than those applicable to
the Sellers, that number of Rollover Shares then owned by such Participating
Beneficiary determined by multiplying (i) the number of Participating Shares of
such Participating Beneficiary by (ii) a fraction having a numerator equal to
the Maximum Amount and a denominator equal to the total number of Restricted
Shares then owned by the Sellers providing such Transfer Notice.
Section 2.02. Terms of Transfer of Rollover Shares. Any transfer of
Rollover Shares pursuant to Section 2.01 shall be made at the same price per
share and on the same terms and conditions as are set forth in the applicable
Transfer Notice and such transfer shall be closed concurrently with the Transfer
to the Purchaser of the Restricted Shares described in the Transfer Notice.
Section 2.03. Costs and Expenses. All reasonable costs and expenses
incurred in connection with any transfer made pursuant to Section 2.01,
including all costs and disbursements, finders' fees or brokerage commissions
and the fees and disbursements of a single counsel representing all shares of
Company Common Stock to be transferred in connection therewith, shall
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be allocated pro rata among the Sellers and the Participating Beneficiaries
based on the number of shares of Company Common Stock sold by each of them.
Section 2.04. Application to Transferees. Any transferee that acquires
any Restricted Shares pursuant to clause (a), (b), (c), (d), (e) or (f) of the
definition herein of Transfer (other than pursuant to a gift or charitable
contribution to non-profit organization exempt under Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended) shall take such Restricted Shares
subject to the terms and conditions of this Agreement. All other transferees of
any Restricted Shares shall take such Restricted Shares free from the terms of
this Agreement.
ARTICLE III
TERMINATION
-----------
Section 3.01. Termination. This Agreement shall terminate with respect
to any Beneficiary in the event that such Beneficiary delivers a Tag-Along
Notice to any Seller and thereafter defaults on its obligation to transfer any
Rollover Shares which such Beneficiary has elected to transfer at the closing of
the Proposed Transaction described in the applicable Transfer Notice. This
Agreement shall automatically terminate with respect to all Beneficiaries on the
fifth anniversary of the date of this Agreement.
Section 3.02. Effect of Termination. In the event of any termination
of this Agreement, this Agreement shall become void and there shall be no
liability on the part of any Obligor hereunder; provided, however, that nothing
herein shall relieve any Obligor for liability for any willful breach hereof
prior to such termination.
ARTICLE IV
MISCELLANEOUS
-------------
Section 4.01. Notices. Any and all notices, requests or other
communications hereunder shall be given in writing and delivered by: (a)
regular, overnight or registered or certified mail (return receipt requested),
with first class postage prepaid; (b) hand delivery; (c) facsimile transmission;
or (d) overnight courier service, to the Parties at the following addresses or
facsimile numbers:
(i) if to any Obligor, to the address set forth below such Obligor's
name on the signature pages hereof; and
(ii) if to the Beneficiaries, to the names and addresses of the
Beneficiaries as they appear on the stock transfer records of the Company,
or at such other address or number as shall be designated in a notice by any
Obligor to the Beneficiaries, given in accordance with this Section 4.01.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given (A) in the case of a notice sent by regular mail,
three business days after it is duly deposited in the mails, (B) in the case
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of a notice sent by registered or certified mail, on the date receipted for (or
refused) on the return receipt, (C) in the case of a notice delivered by hand,
when personally delivered, (D) in the case of a notice sent by facsimile, upon
transmission subject to telephone confirmation of receipt, and (E) in the case
of a notice sent by overnight mail or overnight courier service, the date
delivered at the designated address.
Section 4.02. Dispute Resolution. (a) In the event of any dispute
between the Obligors (or any of them), on the one hand, and any Beneficiaries
(or any of them), on the other hand, with respect to any matter covered by this
Agreement (including whether the provisions of this Agreement have been complied
with), the applicable Obligors and Beneficiaries (the "Disputants") shall first
use their best efforts to resolve such dispute between themselves. If the
Disputants are unable to resolve the dispute within 15 days, such dispute shall
be submitted to mediation in accordance with the Commercial Mediation Rules of
the American Arbitration Association. The Disputants will jointly appoint a
mutually acceptable mediator, seeking assistance in such regard from the
American Arbitration Association if they are unable to agree upon such
appointment within ten days following the 15-day period referred to above. Upon
appointment of the mediator, the Disputants agree to participate in good faith
in the mediation and negotiations relating thereto for 20 days. If the
Disputants are not successful in resolving the dispute through mediation within
such 20-day period, either Disputant may submit the dispute to arbitration in
accordance with the following provisions of this Section 4.02. The fees and
expenses of the mediator shall be borne by the non-prevailing party or, in the
event there is no clear prevailing party, as the mediator deems appropriate.
(b) To submit a dispute to arbitration as contemplated by paragraph (a)
above, a Disputant must give written notice to the other Disputant, in which
event the dispute shall be settled by arbitration in accordance with the
Expedited Procedures of the Commercial Arbitration Rules of the American
Arbitration Association except as otherwise provided below. The arbitrators
shall have sole discretion with regard to the admissibility of evidence. Each
Disputant shall have the right to be represented by counsel. All rulings of the
arbitrators shall be in writing, shall be determined by at least a majority of
their number and shall be delivered to the Disputants. The fees and expenses of
the arbitrators shall be borne by the non-prevailing Disputant or, in the event
there is no clear prevailing Disputant, as the arbitrators deem appropriate.
(c) In the event there is any disputed question of law involved in any
arbitration proceeding hereunder, such as the proper legal interpretation of any
provision of this Agreement, the arbitrators shall make separate and distinct
findings of all facts material to the disputed question of law to be decided
and, on the basis of the facts so found, express their conclusion of the
question of law. The facts so found shall be conclusive and binding on the
Disputants, but any legal conclusion reached by the arbitrators from such facts
may be submitted by either Disputant to the courts of the State of Delaware for
final determination by initiation of a civil action in the manner provided by
law, and the Obligors and the Beneficiaries hereby consent and submit themselves
to the jurisdiction of such courts for such purpose. Such action, to be valid,
must be commenced within 20 days after receipt of the arbitrators' decision. If
no civil action is commenced within such 20-day period, the legal conclusion
reached by the arbitrators shall be conclusive and binding on the Disputants.
Any such civil action shall be submitted, heard and determined solely on the
basis of the facts found by the arbitrators. Neither of the Disputants shall,
or shall be entitled to, submit any additional or different facts for
consideration by the court. In the event any civil action is commenced under
this paragraph (c), the party who prevails or substantially prevails (as
determined by the court) in such
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civil action shall be entitled to recover from the other party all of its fees
and expenses, including reasonable attorney's fees and court costs, incurred in
connection with such action and on appeal.
(d) Except as limited by paragraph (c) above, the Disputants agree that
judgment upon the award rendered by the arbitrators may be entered in any court
of competent jurisdiction, and the Disputants hereby consent and submit
themselves to the jurisdiction of the courts of the State of Delaware for
purposes of the enforcement of any arbitration award. In the event legal
proceedings are commenced to enforce the rights awarded in any arbitration
proceeding hereunder, the party who prevails or substantially prevails (as
determined by the court) in such legal proceeding shall be entitled to recover
from the other party all of its fees and expenses, including reasonable
attorneys' fees and costs of court, incurred in connection with such legal
proceeding and on appeal.
(e) All arbitration and mediation conferences and hearings pursuant to
this Section 4.02 shall be conducted in Wilmington, Delaware or at such other
place as the Disputants may mutually agree.
Section 4.03. Benefit and Burden. This Agreement shall inure to the
benefit of and shall be binding upon, the Obligors and the Beneficiaries and
their respective executors, personal representatives, administrators,
successors, heirs, distributees, devisees, legatees and permitted assigns.
Section 4.04. No Third Party Rights. Nothing in this Agreement shall be
deemed to create any right in any creditor or other Person other than the
Obligors and the Beneficiaries and their respective heirs, executors,
administrators, personal representatives and permitted assigns, and this
Agreement shall not be construed in any respect to be a contract in whole or in
part for the benefit of any other Person.
Section 4.05. Assignments. Neither this Agreement nor any right,
interest or obligation hereunder may be assigned (i) by any Obligor, without the
prior written consent of the Beneficiaries or (ii) by any Beneficiary, except in
connection with the transfer of Rollover Shares to such assignee.
Section 4.06. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same document.
Section 4.07. Governing Law. THIS AGREEMENT AND THE RIGHTS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW
PRINCIPLES THEREOF.
Section 4.08. Entire Agreement. This Agreement sets forth all of the
promises, agreements, conditions, understandings, warranties and representations
between the Parties with respect to the subject matter of this Agreement, and
supersedes all prior agreements, arrangements and understandings between the
Parties (whether written, oral or otherwise) with respect to the subject matter
hereof. There are no promises, agreements, conditions, understandings,
warranties or representations, oral or written, express or implied, between the
Parties concerning the subject matter hereof except as set forth herein.
A-viii
<PAGE>
IN WITNESS WHEREOF, the Obligors have executed this Agreement as of the
date first above written.
OBLIGORS:
By:_________________________________
Printed Name:_______________________
Title:______________________________
Number of Restricted Shares:________
Address:
____________________________________
____________________________________
____________________________________
Telephone Number:___________________
Facsimile Number:___________________
____________________________________
Spouse (if applicable)
A-ix
<PAGE>
INTERCREDITOR AGREEMENT
This Intercreditor Agreement dated as of _______, 1996, (this
"Agreement") is made by and between TEXAS COMMERCE BANK NATIONAL ASSOCIATION
("TCB"), as administrative agent (the "Administrative Agent") under that certain
Credit Agreement dated as of June 21, 1996 (the "Credit Agreement"), among STX
Chemicals Corp., TCB, as an Issuing Bank and as Administrative Agent, Credit
Suisse, as an Issuing Bank and as Documentation Agent (the "Documentation
Agent"), and each of the other financial institutions who are or become a party
thereto (each individually called a "Lender" and collectively called the
"Lenders"), and FLEET NATIONAL BANK OF CONNECTICUT, as Trustee (together with
any successors or assigns, the "Trustee") on behalf of the holders of ___%
Senior Secured Discount Notes Due 2008 (the "Discount Notes") issued pursuant
to that certain Indenture, dated as of _______, 1996 (the "Indenture") between
Fleet and STX Acquisition Corp., which will be renamed Sterling Chemicals
Holdings, Inc. upon the consummation of the Merger, all as further described
below.
INTRODUCTORY STATEMENT
STX Acquisition Corp. desires to acquire Sterling Chemicals, Inc.
("SCI"), a Delaware corporation (the "Acquisition") pursuant to an Agreement and
Plan of Merger, between STX Acquisition Corp. and SCI dated as of April 24,
1996, as amended by that certain letter agreement dated as of June 11, 1996 (the
"Merger Agreement"). Upon the terms and subject to the conditions set forth in
the Merger Agreement, STX Acquisition Corp. shall be merged with and into SCI
(the "Merger"). From and after the time that the Merger occurs, the separate
corporate existence of STX Acquisition Corp. shall cease and SCI shall continue
as the surviving corporation and shall succeed to and assume all the rights and
obligations of STX Acquisition Corp. in accordance with the General Corporation
Law of the State of Delaware. STX Acquisition Corp. has formed STX Chemicals
Corp. (the "Company") for the purpose of acquiring all of the assets and
liabilities of SCI prior to or simultaneously with the Merger (the "Asset
Conveyance"). Upon the consummation of the Merger, SCI shall be renamed
Sterling Chemicals Holdings, Inc. ("Holdco"), and the Company shall be renamed
Sterling Chemicals, Inc.
The Acquisition and Merger will be financed, in part, with the
proceeds of the Discount Notes, which will provide proceeds of up to
$100,000,000. In addition, pursuant to the Credit Agreement, the Lenders have
agreed to provide credit facilities in the amount of up to $456,500,000 to be
used (i) to finance a portion of the Acquisition, Merger and Asset Conveyance,
(ii) to refinance existing indebtedness of SCI and to assume the obligations
under the certain outstanding letters of credit issued for the account of SCI,
(iii) to finance ongoing working capital requirements, and (iv) to finance fees
and expenses relating to the financing of the Acquisition, Merger and Asset
Conveyance.
One of the conditions of the making of the initial loans and letters
of credit under the Credit Agreement and to the Administrative Agent, the
Issuing Banks and the Lenders consenting to the granting of a second Lien in the
Collateral as security for the Discount Notes is that the security interests in
the Collateral under the Lender Pledge Agreement be senior to the security
interests in the Collateral under the Discount Note Pledge Agreement, in the
manner and to the extent provided in this Agreement.
The Administrative Agent and the Trustee desire to enter into this
Agreement concerning the various loans, credits and other liabilities (actual or
contingent) for which each of the Company and Holdco is or shall
<PAGE>
be obligated, and the respective rights of the Administrative Agent, on behalf
of the Issuing Banks and the Lenders, and the Trustee, on behalf of the Holders,
with respect to the Collateral.
In order to induce (a) the Lenders to make the initial loans, (b) the
Issuing Banks and the Lenders to issue the initial letters of credit under the
Credit Agreement and (c) the Administrative Agent, the Issuing Banks and the
Lenders to consent to the granting of a second priority security interest in the
Collateral as security for the Discount Notes and for purposes of satisfying
certain conditions precedent under the Credit Agreement, the Administrative
Agent and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Terms Defined Above and in the Introductory Statement.
As used in this Agreement, the following terms shall have the respective
meanings indicated in the opening paragraph hereof and in the Introductory
Statement hereto:
"Acquisition"
"Administrative Agent"
"Agreement"
"Asset Conveyance"
"Company"
"Credit Agreement"
"Discount Notes"
"Documentation Agent"
"Holdco"
"Indenture"
"Lender(s)"
"Merger"
"Merger Agreement"
"SCI"
"TCB"
"Trustee"
Section 1.02 Credit Agreement Definitions. All capitalized terms
which are used but not defined herein shall have the same meaning as in the
Credit Agreement.
Section 1.03 Other Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:
"Collateral" shall mean, collectively, (i) the Stock, (ii) any
certificates or instruments, if any, representing the Stock, (iii) all dividends
(cash, stock or otherwise), cash, instruments, rights to subscribe, purchase or
sell and all other rights and property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Stock,
(iv) all replacements, additions to and substitutions for any of the property
referred to in this definition, including, without limitation, claims against
third parties, (v) the proceeds, interest, profits and other income of or on any
of the property referred to in this definition,
2
<PAGE>
(vi) all books and records relating to any of the property referred to in this
definition, and (vii) all other assets, rights and interests relating to any of
the property referred to in this definition.
"Discount Note Documents" shall mean the Discount Notes, the
Indenture, and the Discount Note Pledge Agreement.
"Discount Note Liabilities" shall mean the "Obligations", contingent
or otherwise, of Holdco to the Trustee for the benefit of the Holders, defined
in Section ____ of the Discount Note Pledge Agreement (including interest, as
provided in the discount Notes, after the filing of a petition initiating any
Insolvency Proceeding in respect of Holdco), fees, expenses or otherwise, and
including the secured claim of the Trustee in respect of the Collateral in any
such Insolvency Proceeding.
"Discount Note Pledge Agreement" shall mean the "Pledge Agreement" as
defined in the Indenture.
"Holder" shall have the meaning ascribed to such term in the
Indenture.
"Insolvency Proceeding" with respect to any Person, shall mean any
proceeding for the purposes of dissolution, winding up, liquidation, arrangement
or reorganization of such Person or its successors or assigns, whether in
bankruptcy, insolvency, arrangement, reorganization or receivership proceedings
or upon an assignment for the benefit of creditors or any other marshaling of
the assets and liabilities of such Person or its successors or assigns.
"Lender Liabilities" shall mean the "Obligations", contingent or
otherwise, of the Company, Holdco, and the Guarantors to the Administrative
Agent, the Issuing Banks and the Lenders defined in Section 2.02 of the Lender
Pledge Agreement (including interest, as provided in the Credit Agreement and
the Lender Notes, after the filing of a petition initiating any Insolvency
Proceeding in respect of Holdco, the Company, or any of its Subsidiaries,
whether or not such interest is an allowable claim in any such proceeding),
fees, expenses or otherwise.
"Lender Note" shall mean any of the promissory notes executed by the
Company in favor of a Lender pursuant to the Credit Agreement.
"Lender Pledge Agreement" shall mean the Security Agreement (Pledge)
dated as of the Effective Date executed by Holdco granting to the Administrative
Agent a first priority security interest in the Collateral, as security for the
Lender Liabilities.
"Lien Priority" shall mean with respect to any Lien of the
Administrative Agent or the Trustee in the Collateral, the order of priority of
such Lien as specified in Section 2.01.
"Loan Documents" shall mean the Financing Documents and the Discount
Note Documents.
"Party" shall mean any signatory to this Agreement.
"Stock" shall mean ___ shares constituting 100% of the common stock of
the Company, registered in the name of STX Acquisition Corp. on the books of the
Company, as represented by Certificate No. _____.
3
<PAGE>
Section 1.04. Singular and Plural. All definitions herein (whether
set forth herein directly or by reference to definitions in other documents)
shall be equally applicable to both the singular and the plural forms of the
terms defined.
Section 1.05. Miscellaneous. The words "hereof", "herein" or
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. Article and section references are to articles and sections of this
Agreement unless otherwise specified. The term "including" shall mean
"including, without limitation".
ARTICLE 2
LIEN PRIORITY
Section 2.01. Agreement to Subordinate. The Trustee hereby agrees
that the security interests of the Trustee and the Holders in the Collateral are
and shall be subordinate in priority of lien to the security interests of the
Administrative Agent, the Issuing Banks and the Lenders in the Collateral.
Section 2.02. Priority of Liens. Irrespective of the order of
recording of financing statements, security agreements or other instruments, and
irrespective of the descriptions of Collateral contained in the Loan Documents,
including any financing statements, the Administrative Agent and the Trustee
agree that their respective security interests in the Collateral shall be
governed by the Lien Priority, which shall be controlling in the event of any
conflict between this agreement and any of the Loan Documents.
ARTICLE 3
ACTIONS OF THE PARTIES
Section 3.01. Limitation on Certain Actions by Trustee. So long as
the Lender Liabilities remain outstanding, the Trustee will not enforce any of
its rights or exercise any of its remedies as a lienholder in the Collateral.
For the purposes of this Agreement, the Lender Liabilities shall be deemed to
remain outstanding until (a) all Letters of Credit have expired or terminated,
(b) all of the Commitments have terminated, and (iii) the Administrative Agent,
the Issuing Banks, and the Lenders have received indefeasible payment of the
Lender Liabilities in cash.
ARTICLE 4
ENFORCEMENT OF PRIORITIES
Section 4.01. Agent. For the sole purpose of perfecting the
Trustee's security interest in the Stock, the Administrative Agent shall
maintain possession of the Stock as agent for the Trustee. Nothing herein shall
impose upon the Administrative Agent any duty or liability to the Trustee or the
Holders other than the duties expressly described in this Section 4.01. Upon the
indefeasible payment in full in cash of all of the Lender Liabilities, the
Administrative Agent will deliver possession of the Stock to the Trustee unless
the Trustee has previously given the Administrative Agent written notice that
the Discount Note Liabilities have been indefeasibly paid in full. In no event
shall the Administrative Agent have any liability to the Trustee or the Holders
except for liability resulting solely from the Administrative Agent's gross
negligence or willful misconduct.
4
<PAGE>
Section 4.02. In Furtherance of Subordination. The Trustee agrees as
follows:
(a) The Administrative Agent is hereby authorized to demand specific
performance of this Agreement, whether or not either of the Company or Holdco
shall have complied with any of the provisions hereof applicable to it, at any
time when the Trustee shall have failed to comply with any of the provisions of
this Agreement applicable to it. The Trustee hereby irrevocably waives any
defense based on the adequacy of a remedy at law, which might be asserted as a
bar to such remedy of specific performance.
(b) This Agreement shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of any of the Lender Liabilities is
rescinded or must otherwise be returned by the Administrative Agent, any Issuing
Bank or any Lender upon the insolvency, bankruptcy or reorganization of Holdco,
the Company, or any Guarantor or otherwise, all as though such payment had not
been made.
ARTICLE 5
MISCELLANEOUS
Section 5.01. Further Assurances. The Trustee will, at its expense
and at any time and from time to time, promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
desirable, or that the Administrative Agent may reasonably request, in order to
protect any right or interest granted or purported to be granted hereby or to
enable the Administrative Agent, the Issuing Banks and the Lenders to exercise
and enforce their rights and remedies hereunder.
Section 5.02. Defenses Similar to Suretyship Defenses. All rights
and interests of the Administrative Agent, the Issuing Banks and the Lenders
hereunder, and all agreements and obligations of the Trustee under this
Agreement, shall remain in full force and effect irrespective of:
(a) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Lender Liabilities, or any other amendment or
waiver of or any consent to departure from the Lender Notes, the Credit
Agreement, or any other Financing Document;
(b) any exchange, release or non-perfection of any Collateral, or any
release, amendment or waiver of or consent to departure from any guaranty, for
all or any of the Lender Liabilities;
(c) any failure, omission, delay or lack on the part of the
Administrative Agent, the Issuing Banks or the Lenders to enforce, assert or
exercise any right, power or remedy conferred on any of them in any of the
Financing Documents or this Agreement or the inability of the Administrative
Agent, the Issuing Banks or the Lenders to enforce any provision of the
Financing Documents or this Agreement; or
(d) the failure of the Administrative Agent to give notice to the
Trustee of any act or omission of Holdco, the Company, or any Guarantor in
regard to the Financing Documents.
5
<PAGE>
Section 5.03. Waiver. The Trustee waives promptness, diligence,
notice of acceptance and any other notice with respect to any of the Lender
Liabilities and this Agreement and any requirement (other than as expressly
provided in Section 4.01 hereof) that the Administrative Agent, the Issuing
Banks or the Lenders protect, secure, perfect or insure any security interest or
other Lien or any property subject thereto or exhaust any right or take any
action against the Company, Holdco, any Guarantor or any other Person or any
collateral securing the Lender Liabilities.
Section 5.04. Amendments, Etc. No amendment or waiver of any
provision of this Agreement nor consent to any departure by any Party shall in
any event be effective unless the same shall be in writing and signed by each
Party, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
Section 5.05. Addresses for Notices. All demands, notices and other
communications provided for hereunder shall be in writing and, if to the
Trustee, mailed or sent by telecopy or delivered to it, addressed to it as
follows:
Fleet National Bank of Connecticut
________________________________
________________________________
Telephone:____________________
Telefax: _____________________
Attention:____________________
and if to the Administrative Agent, the Issuing Banks or the Lenders, mailed,
sent or delivered to such party or parties, addressed to it or them at the
address of the Administrative Agent, the Issuing Banks or the Lenders (as the
case may be) specified in the Credit Agreement, or as to any party at such other
address as shall be designated by such party in a written notice to the other
parties complying as to delivery with the terms of this Section. All such
demands, notices and other communications shall be effective, when mailed, two
business days after deposit in the mails, postage prepaid, when sent by
telecopy, when receipt is acknowledged by the receiving equipment (or at the
opening of the next business day if receipt is after normal business hours), or
when delivered, as the case may be, addressed as aforesaid.
Section 5.06. No Waiver; Remedies. No failure on the part of any
Party to exercise, and no delay in exercising, any right hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
Section 5.07. Continuing Agreement. This Agreement is a continuing
agreement and shall (i) remain in full force and effect until the Lender
Liabilities shall have been indefeasibly paid in full in cash, (ii) be binding
upon the Parties and their successors and assigns, and (iii) inure to the
benefit of and be en forceable by the Parties and their respective successors,
transferees and assigns.
Section 5.08. Governing Law; Entire Agreement. This Agreement shall
be governed by, and construed in accordance with, the laws of the State of New
York except as otherwise preempted by
6
<PAGE>
applicable federal law. This Agreement constitutes the entire agreement and
understanding among the Parties with respect to the subject matter hereof and
supersede any prior agreements, written or oral, with respect thereto.
Section 5.09. Counterparts. This Agreement may be executed in any
number of counterparts, and it is not necessary that the signatures of all
Parties be contained on any one counterpart hereof; each counterpart will be
deemed to be an original, and all together shall constitute one and the same
document.
Section 5.10. No Third Party Beneficiary. This Agreement is solely
for the benefit of the Parties, the Issuing Banks, the Lenders and the Holders
(and their permitted assignees). No other Person shall be deemed to be a third
party beneficiary of this Agreement.
Section 5.11. Headings. The headings of the articles and sections of
this Agreement are inserted for purposes of convenience only and shall not be
construed to affect the meaning or construction of any of the provisions hereof.
Section 5.12. Severability. If any of the provisions in this
Agreement shall, for any reason, be held invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement and shall not invalidate the Lien Priority
set forth in this Agreement.
IN WITNESS WHEREOF, the Administrative Agent and the Trustee each has
caused this Agreement to be duly executed and delivered as of the date first
above written.
ADMINISTRATIVE
AGENT: TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By:________________________
Name:
Title:
TRUSTEE: FLEET NATIONAL BANK OF CONNECTICUT,
as Trustee
By:________________________
Name:
Title:
7
<PAGE>
SECURITY AGREEMENT
(Pledge)
Between
STERLING CHEMICALS HOLDINGS, INC.
and
FLEET NATIONAL BANK OF CONNECTICUT,
as Trustee
_______________, 1996
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made as of _____________, 1996,
between STERLING CHEMICALS HOLDINGS, INC., a Delaware corporation with principal
offices at _________________ ("Pledgor"), and FLEET NATIONAL BANK OF
CONNECTICUT, a ____________________, with offices at
______________________________ ("Secured Party") for itself, and on behalf of
each Holder (as defined below).
RECITALS
A. Reference is made to the ___% Senior Secured Discount Notes Due 2008
("Discount Notes") issued pursuant to that certain Indenture, dated as of
__________, 1996 ("Indenture") between Pledgor and Secured Party. For purposes
of this Agreement "Holder" means each Person (as defined in the Indenture) in
whose name a Discount Note is registered on the Discount Note Register (as
defined in the Indenture).
B. Reference is also made to the Credit Agreement, dated June 21, 1996,
among Pledgor, the Lenders, the Issuing Banks, the Administrative Agent and the
Documentation Agent (all as defined in such Credit Agreement).
C. Pursuant to the Indenture, the Pledgor has agreed to enter into this
Security Agreement.
D. Therefore, in order to comply with the terms and conditions of the
Indenture and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Pledgor hereby agrees with Secured
Party as follows:
ARTICLE 1.
SECURITY INTEREST
-----------------
Section 1.01 Pledge. Pledgor hereby pledges, assigns, and grants to
Secured Party a security interest in and right of set-off against the assets
referred to in Section 1.02 (the "Collateral") to secure the prompt payment and
performance of the "Obligations" (as defined in Section 2.02) and the
performance by Pledgor of this Agreement.
Section 1.02 Collateral. The Collateral consists of the following types
or items of property:
<PAGE>
(a) The securities described or referred to in Exhibit A attached
hereto and made a part hereof.
(b) (i) the certificates or instruments, if any, representing such
securities, (ii) all dividends (cash, stock or otherwise), cash,
instruments, rights to subscribe, purchase or sell and all other rights and
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such securities, (iii) all
replacements, additions to and substitutions for any of the property
referred to in this Section 1.02, including, without limitation, claims
against third parties, (iv) the proceeds, interest, profits and other
income of or on any of the property referred to in this Section 1.02, and
(v) all books and records relating to any of the property referred to in
this Section 1.02.
Section 1.03 Transfer of Collateral. All certificates or instruments
representing or evidencing the Pledged Securities shall be delivered to and held
pursuant hereto by Secured Party or a Person designated by Secured Party and
shall be in suitable form for transfer by delivery, or shall be accompanied by
duly executed instruments of transfer or assignment in blank, or (in the case of
either certificated or uncertificated securities) Secured Party shall have been
provided with (a) evidence that entries have been made on the books of a
clearing corporation to effect the pledge of the Pledged Securities to Secured
Party, as provided in, and in accordance with, Section 8.320 of the Code, or (b)
evidence that a financial intermediary has identified the Pledged Securities as
having been pledged to Secured Party, as provided in, and in accordance with,
Section 8.313(1)(d) of the Code, or (c) evidence that the Pledged Securities
have been otherwise transferred to Secured Party in accordance with Section
8.313(1) of the Code, all in form and substance satisfactory to Secured Party.
After the occurrence and continuance of an Event of Default, Secured Party shall
have the right, at any time in its discretion and without notice to Pledgor, to
transfer to or to register in the name of Secured Party or any of its nominees
any or all of the Pledged Securities, subject only to the revocable rights
specified in Section 6.06, and to exchange certificates or instruments
representing or evidencing Pledged Securities for certificates or instruments of
smaller or larger denominations.
ARTICLE 2.
DEFINITIONS
Section 2.01 Terms Defined Herein or in the Credit Agreement. As used in
this Agreement, the terms defined herein shall have the meanings respectively
assigned to them. Other capitalized terms which are defined in the Credit
Agreement but which are not defined herein shall have the same meanings as
defined in the Credit Agreement, as in effect on the date of this Agreement.
2
<PAGE>
Section 2.02 Certain Definitions. As used in this Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"Agreement" means this Security Agreement, as the same may from time
to time be amended or supplemented.
"Code" means the Uniform Commercial Code as presently in effect in the
State of New York; provided that, if by reason of mandatory provisions of
law, the perfection or the effect of perfection or nonperfection of the
assignment and security interest in any Collateral is governed by the
Uniform Commercial Code or similar legislation as in effect in a
jurisdiction other than New York, "Code" means the Uniform Commercial Code
or similar legislation as in effect in such other jurisdiction for purposes
of the provisions hereof relating to such perfection or effect of
perfection or nonperfection. Unless otherwise indicated by the context
herein, all uncapitalized terms which are defined in the Code shall have
their respective meanings as used in Articles 8 and 9 of the Code.
"Event of Default" means any event specified in Section 6.01.
"Obligations" means: (a) The payment and performance of all amounts
owing or to be owing by Pledgor to the Trustee and the Holders with respect
to or in connection with the Discount Notes, including without limitation,
the due and punctual payment of the principal of, premium, if any, and
interest on the Discount Notes, when and as the same shall become due and
payable, whether on an interest payment date, at maturity, by acceleration,
repurchase, redemption, or otherwise and the payment and performance of all
other obligations of Pledgor to the Trustee and the Holders, and any and
all renewals, extensions for any period, rearrangements, replacements,
substitutions, increases and/or modifications of any or all of the Discount
Notes;
(b) The unpaid principal of and accrued interest on (including
interest accruing on or after the filing of any petition in bankruptcy, or
the commencement of any insolvency, reorganization or like proceeding,
relating to the Borrower, whether or not a claim for post-filing or post-
petition is allowed in such proceeding) the Discount Notes;
(c) The performance by Pledgor of all the terms, agreements and
obligations of Pledgor pursuant to this Agreement;
(d) The obligation of the Pledgor to otherwise reimburse Secured Party
or any Holder whether on account of fees, indemnities, costs, taxes and
expenses or otherwise; and
3
<PAGE>
(e) Any and all other sums payable to Secured Party or any Holder
under or in respect of the Indenture.
"Pledged Securities" means all of the securities and other property
(whether or not the same constitutes a "security" under the Code) referred
to in Section 1.02 and all additional securities (as that term is defined
in the Code), if any, constituting Collateral under this Agreement.
"Senior Secured Obligations" means the Obligations as defined in the
Security Agreement dated _________, 1996 between Pledgor and Texas Commerce
Bank National Association, as Pledgee.
ARTICLE 3.
Representations and Warranties
In order to induce Secured Party to accept this Agreement, Pledgor
represents and warrants to Secured Party (which representations and warranties
will survive the creation and payment of the Obligations) that:
Section 3.01 Corporate Existence. The Pledgor is a corporation duly
organized, legally existing and in good standing under the laws of the State of
Delaware.
Section 3.02 Corporate Power and Authorization. The Pledgor is duly
authorized and empowered to execute, deliver and perform this Agreement, and all
corporate action on the Pledgor's part requisite for the due execution, delivery
and performance of this Agreement has been duly and effectively taken.
Section 3.03 Binding Obligations. This Agreement constitutes a legal,
valid, and binding obligation of the Pledgor, and, upon execution and delivery
to the Trustee, for itself and on behalf of the Holders, will be enforceable in
accordance with its terms, except that enforcement may be subject to any
applicable bankruptcy, insolvency or similar laws generally affecting the
enforcement of creditors' rights and subject to the availability of equitable
remedies.
Section 3.04 No Legal Bar or Resultant Lien. This Agreement does not and
will not violate or create a default under any provisions of the articles or
certificate of incorporation or bylaws of the Pledgor, or any contract,
agreement, instrument or Governmental Requirement to which the Pledgor is
subject (other than those violations and defaults that would not affect the
Pledgor's use of such Property or those permitted by this Agreement), or result
in the creation or imposition of any Lien upon any Property of the Pledgor.
4
<PAGE>
Section 3.05 Litigation. As of the Effective Date, there is no action,
suit or proceeding, or any governmental investigation or any arbitration, in
each case pending or, to the knowledge of the Pledgor, threatened against the
Pledgor, before any court or arbitrator or any Governmental Authority which
challenges the validity or enforceability of this Agreement.
Section 3.06 Ownership of Collateral: Incumbrances. Pledgor is the legal
and beneficial owner of the Collateral free and clear of any adverse claim,
lien, security interest, option or other charge or encumbrance except for the
security interest created by this Agreement and except for Liens securing the
Senior Secured Obligations, and Pledgor has full right, power and authority to
pledge, assign and grant a security interest in the Collateral to Secured Party.
Section 3.07 No Required Consent. No authorization, consent, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for (i) the due execution, delivery and performance
by Pledgor of this Agreement, (ii) the grant by Pledgor of the security interest
granted by this Agreement, (iii) the perfection of such security interest or
(iv) the exercise by Secured Party of its rights and remedies under this
Agreement.
Section 3.08 Pledged Securities. The Pledged Securities have been duly
authorized and validly issued, and are fully paid and non-assessable.
Section 3.09 Priority Security Interest. The pledge of Pledged Securities
(together with physical delivery of the certificates representing the Pledged
Securities) pursuant to this Agreement creates a valid and perfected security
interest in the Collateral, subject only to the security interest securing the
Senior Secured Obligations, enforceable against Pledgor and all third parties
and securing payment of the Obligations (except that enforcement may be subject
to any applicable bankruptcy, insolvency or similar laws generally affecting the
enforcement of creditors' rights and subject to the availability.of equitable
remedies).
Section 3.10 Collateral. The delivery at any time by Pledgor to Secured
Party of additional Collateral or of additional descriptions of Collateral shall
constitute a representation and warranty by Pledgor to Secured Party hereunder
that the representations and warranties of this Article 3 are correct insofar as
they would pertain to such Collateral or the descriptions thereof.
Section 3.11 Investment Company Act. As of the Effective Date, the
Pledgor is not an "investment company" or a company "controlled" by an
"investment company" that is incorporated in or organized under the laws of the
United States or any "State" as those terms are defined in the Investment
Company Act of 1940, as amended. The execution and delivery by the Pledgor of
this Agreement and its performance of the obligations provided for herein, will
not result in a violation of the Investment Company Act of 1940, as amended.
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ARTICLE 4.
Covenants and Agreements
Pledgor will at all times comply with the covenants and agreements
contained in this Article 4, from the date hereof and for so long as any part of
the Obligations are outstanding.
Section 4.01 Sale, Disposition or Encumbrance of Collateral. Pledgor will
not in any way encumber any of the Collateral (or permit or suffer any of the
Collateral to be encumbered) or sell, pledge, assign, lend or otherwise dispose
of or transfer any of the Collateral to or in favor of any Person other than
Secured Party and to secure the Senior Secured Obligations.
Section 4.02 Records and Information. Pledgor shall keep accurate and
complete records of the Collateral (including proceeds, payments, distributions,
income and profits). Pledgor shall permit Secured Party to have access to,
examine, audit, make extracts from and inspect without hindrance or delay
Pledgor's records and files with respect to the Collateral as often and all at
such reasonable times during normal business hours as may be reasonably
requested by Secured Party. Pledgor will promptly provide written notice to
Secured Party of all information which in any way relates to or affects the
filing of any financing statement or other public notices or recordings, or the
delivery and possession of items of Collateral for the purpose of perfecting a
security interest in the Collateral. Pledgor will also promptly furnish such
information as Secured Party may from time to time reasonably request regarding
the Collateral. The Pledgor will keep proper books of record and account in
accordance with GAAP.
Section 4.03 Reimbursement of Expenses. Pledgor agrees to indemnify and
hold Secured Party and each Holder harmless from and against and covenants to
defend Secured Party and each Holder against any and all losses, damages,
claims, costs, penalties, liabilities and expenses, including, without
limitation, court costs and reasonable attorneys' fees, reasonably incurred
because of, incident to, or with respect to the Collateral (including, without
limitation, any exercise of rights or remedies in connection therewith). All
amounts for which Pledgor is liable pursuant to this Section 4.04 shall be due
and payable by Pledgor to Secured Party or such Holder upon demand. If Pledgor
fails to make such payment upon demand (or if demand is not made due to an
injunction or stay arising from bankruptcy or other proceedings) and Secured
Party or any Holder pays such amount, the same shall be due and payable by
Pledgor to Secured Party or such Holder, plus interest thereon from the date
that is five (5) days following Secured Party's or such Holder's demand (or from
the date that is five (5) days following Secured Party's or such Holder's
payment if demand is not made due to such proceedings) at the rate per annum
equal to the Base Rate.
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Section 4.04 Stock Powers. Pledgor shall furnish to Secured Party such
stock powers and other instruments as may be required by Secured Party to assure
the transferability of the Collateral pursuant to Section 6.02 when and as often
as may be requested by Secured Party.
Section 4.05 Voting and Other Consensual Rights. Except to the extent
otherwise provided in subsection 6.06(d), Pledgor shall be entitled to exercise
any and all voting and other consensual rights pertaining to the Collateral or
any part thereof for any purpose not inconsistent with the terms of this
Agreement.
Section 4.06 Pledged Securities Percentage. The Pledged Securities will
at all times constitute 100% of the issued and outstanding shares of capital
stock of the issuer thereof.
Section 4.07 Conduct of Business and Maintenance of Existence. The
Pledgor will preserve, renew and keep in full force and effect its corporate
existence and its rights, privileges and franchises necessary or desirable in
the normal conduct of its business.
Section 4.08 Non-Consolidation, Etc. The Pledgor shall be operated at all
times in such a manner that its assets and liabilities may not be substantively
consolidated with those of any other Person in the event of the bankruptcy or
insolvency of such Person. In this regard, the Pledgor shall:
(a) not become involved in the day-to-day management of any other
Person, except as contemplated herein and matters necessarily incident
thereto;
(b) not (i) consolidate or merge with or into any other Person or (ii)
sell, lease or otherwise transfer, directly or indirectly, all or
substantially all of its assets to any other Person;
(c) engage only in investments in Limited Liability Interests, as
defined herein and matters necessarily incident thereto;
(d) maintain corporate records and books of account separate from each
of its Subsidiaries;
(e) maintain its assets separately from the assets of any other Person
(including through maintenance of a separate bank account);
(f) not guarantee the obligations of any other Person, or advance
funds (other than through purchases of Limited Liability Interests) for the
payment of expenses or otherwise, to any Affiliate (other than employees,
officers, and directors);
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(g) conduct all business correspondence of the Pledgor and other
communications in the Pledgor's own name and on the Pledgor's own
stationery;
(h) maintain separate financial statements;
(i) not act as agent of the Company or any of its Subsidiaries in any
capacity;
(j) maintain a board of directors that is separate from and
independent of the boards of directors of all other Persons;
(k) maintain, and cause its Subsidiaries to maintain, the requisite
legal formalities in order that the Pledgor and its Subsidiaries may each
be treated as a legally separate entity from other Persons; and
(l) engage in transactions with the Company and its Subsidiaries only
on terms and conditions comparable to arm's-length transactions with
Persons that are not Affiliates of the Pledgor.
Section 4.09 Further Assurances. The Pledgor will cure promptly any
defects in the execution and delivery of this Agreement. The Pledgor at its own
expense, as promptly as practical, will execute and deliver to the Trustee upon
request all such instruments and take all such action in order fully to
effectuate the purposes of this Agreement.
Section 4.10 Reporting Covenant. So long as any Discount Notes remain
unpaid or outstanding, the Pledgor will furnish to the Trustee promptly after
the occurrence of any event or circumstance concerning or changing any of the
Collateral that would have a Material Adverse Effect, notice of such event or
circumstance in reasonable detail.
ARTICLE 5.
Rights, Duties, and Powers of Secured Party
The following rights, duties and powers of Secured Party are applicable
irrespective of whether an Event of Default occurs and is continuing:
Section 5.01 Discharge Encumbrances. Secured Party may, at its option,
discharge any taxes, liens, security interests or other encumbrances at any time
levied or placed on the Collateral, if Pledgor fails to discharge same within
thirty (30) days after written notice thereof shall have been given to Pledgor
by Secured Party; provided, however, notwithstanding the foregoing, (a) after
the occurrence and during
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the continuance of an Event of Default, Secured Party may, at its option,
discharge any such encumbrance, and (b) in any event, Secured Party may, at its
option, discharge any such encumbrance at any time if failure to do so would
have a material adverse effect on all or any part of the Collateral. Pledgor
agrees to reimburse Secured Party upon demand for any payment so made, plus
interest thereon from the date of Secured Party's demand at the Base Rate.
Section 5.02 Transfer of Collateral. Subject to the provisions of the
Indenture, Secured Party may transfer its position as Trustee, and upon any such
transfer Secured Party may transfer its interest in any or all of the Collateral
and shall be fully discharged thereafter from all liability therefor. Any
successor Trustee shall be vested with all rights, powers and remedies of
Secured Party hereunder.
Section 5.03 Cumulative and Other Rights. The rights, powers and remedies
of Secured Party hereunder are in addition to all rights, powers and remedies
given by law or in equity. The exercise by Secured Party of any one or more of
the rights, powers and remedies herein shall not be construed as a waiver of any
other rights, powers and remedies, including, without limitation, any other
rights of set-off.
Section 5.04 Disclaimer of Certain Duties. (a) The powers conferred upon
Secured Party by this Agreement are to protect its interest in the Collateral
and shall not impose any duty upon Secured Party or any Holder to exercise any
such powers. Pledgor hereby agrees that Secured Party shall not be liable for,
nor shall the indebtedness evidenced by the Obligations be diminished by,
Secured Party's delay or failure to collect upon, foreclose, sell, take
possession of or otherwise obtain value for the Collateral.
(b) Secured Party shall be under no duty whatsoever to make or give any
presentment, notice of dishonor, protest, demand for performance, notice of non-
performance, notice of intent to accelerate, notice of acceleration, or other
notice or demand in connection with any Collateral or the Obligations, or to
take any steps necessary to preserve any rights against any Person. Pledgor
waives any right of marshaling in respect of any and all Collateral, and waives
any right to require Secured Party or any Holder to proceed against any other
Person, exhaust any Collateral or enforce any other remedy which Secured Party
or any Holder now has or may hereafter have against any other Person.
Section 5.05 Other Security. Pledgor authorizes Secured Party, without
notice or demand and without any reservation of rights against Pledgor and
without affecting Pledgor's liability hereunder, from time to time to (x) take
and hold from other Persons other property, other than the Collateral, as
security for the Obligations, and exchange, enforce, waive and release any or
all of the Collateral and (y) apply the Collateral in the manner permitted by
this Agreement.
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Section 5.06 Custody and Preservation of the Collateral. Secured Party
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which comparable secured parties accord
comparable collateral, it being understood and agreed, however, that neither
Secured Party nor any Holder shall have responsibility for (i) ascertaining or
taking action with respect to calls, conversions, exchanges, maturities, tenders
or other matters relative to any Collateral, whether or not Secured Party has or
is deemed to have knowledge of such matters, or (ii) taking any necessary steps
to preserve rights against Persons or entities with- respect to any Collateral.
Section 5.07 Waivers. The Pledgor waives diligence, presentment, protest,
demand for payment, and notice of default or nonpayment, notice of intention to
accelerate maturity, and notice of acceleration of maturity to or upon the
Pledgor with respect to the Obligations. This Agreement shall remain in full
force and effect and be binding in accordance with and to the extent of its
terms upon the Pledgor and its successors and assigns, and shall inure to the
benefit of the Trustee and the Holders, and their respective successors,
indorsees, transferees, and assigns, until all the Obligations shall have been
satisfied by payment in full.
ARTICLE 6.
Events of Default
Section 6.01 Events. It shall constitute an Event of Default under this
Agreement if an Event of Default occurs and is continuing under the Indenture.
Section 6.02 Remedies. Upon the occurrence and during the continuance of
any Event of Default, Secured Party, in accordance with the terms of the
Indenture, shall take any or all of the following actions without notice (except
where expressly required below) or demand to Pledgor:
(a) Sell, in one or more sales and in one or more parcels, or
otherwise dispose of any or all of the Collateral in any commercially
reasonable manner as Secured Party may elect, in a public or private
transaction, at any location as deemed reasonable by Secured Party for cash
or for future delivery at such price as Secured Party may deem fair, and
(unless prohibited by the Code, as adopted in any applicable jurisdiction)
Secured Party or any Holder may be the purchaser of any or all Collateral
so sold and may apply upon the purchase price therefor any Obligations
secured hereby. Any such sale or transfer by Secured Party either to
itself or to any other Person shall be absolutely free from any claim of
right by Pledgor, including any equity or right of redemption, stay or
appraisal which Pledgor has or may have under any rule of law, regulation
or statute now existing or hereafter adopted. Upon any such
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sale or transfer, Secured Party shall have the right to deliver, assign and
transfer to the purchaser or transferee thereof the Collateral so sold or
transferred. If Secured Party deems it advisable to do so, it may restrict
the bidders or purchasers of any such sale or transfer to Persons or
entities who will represent and agree that they are purchasing the
Collateral for their own account and not with the view to the distribution
or resale of any of the Collateral. Secured Party may, at its discretion,
provide for a public sale, and any such public sale shall be held at such
time or times within ordinary business hours and at such place or places as
Secured Party may fix in the notice of such sale. Secured Party shall not
be obligated to make any sale pursuant to any such notice. Secured Party
may, without notice or publication, adjourn any public or private sale by
announcement at any time and place fixed for such sale, and such sale may
be made at any time or place to which the same may be so adjourned. In the
event any sale or transfer hereunder is not completed or is defective in
the opinion of Secured Party, such sale or transfer shall not exhaust the
rights of Secured Party hereunder, and Secured Party shall have the right
to cause one or more subsequent sales or transfers to be made hereunder.
If only part of the Collateral is sold or transferred such that the
Obligations remain outstanding (in whole or in part), Secured Party's
rights and remedies hereunder shall not be exhausted, waived or modified,
and Secured Party is specifically empowered to make one or more successive
sales or transfers until all the Collateral shall be sold or transferred
and all the Obligations are paid. In the event that Secured Party elects
not to sell the Collateral, Secured Party retains its rights to dispose of
or utilize the Collateral or any part or parts thereof in any manner
authorized or permitted by law or in equity, and to apply the proceeds of
the same towards payment of the Obligations. Each and every method of
disposition of the Collateral described in this subsection or in subsection
(d) shall constitute disposition in a commercially reasonable manner.
(b) Apply proceeds of the disposition of the Collateral to the
Obligations in any manner elected by Secured Party and permitted by the
Code or otherwise permitted by law or in equity. Such application may
include, without limitation, the reasonable attorneys' fees and legal
expenses incurred by Secured Party and the Holders.
(c) Appoint any Person as agent to perform any act or acts necessary
or incident to any sale or transfer by Secured Party of the Collateral.
(d) Receive, change the address for delivery, open and dispose of
mail addressed to Pledgor, and to execute, assign and endorse negotiable
and other instruments for the payment of money, documents of title or other
evidences of payment, shipment or storage but only in respect of the
Collateral on behalf of and in the name of Pledgor.
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(e) Exercise all other rights and remedies permitted by law or in
equity.
Section 6.03 Attorney-in-Fact. Pledgor hereby irrevocably appoints
Secured Party as Pledgor's attorney-in-fact, with full authority in the place
and stead of Pledgor and in the name of Pledgor or otherwise, from time to time
in Secured Party's discretion upon the occurrence and during the continuance of
an Event of Default, but at Pledgor's cost and expense and without notice to
Pledgor, to take any action and to execute any assignment, certificate,
financing statement, stock power, notification, document or instrument which
Secured Party may deem necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation, to receive, endorse and collect all
instruments made payable to Pledgor representing any dividend, interest payment
or other distribution in respect of the Collateral or any part thereof and to
give full discharge for the same.
Section 6.04 Reasonable Notice. If any applicable provision of any law
requires Secured Party or any Holder to give reasonable notice of any sale or
disposition or other action, Pledgor hereby agrees that five days' prior written
notice shall constitute reasonable notice thereof. Such notice, in the case of
public sale, shall state the time and place fixed for such sale and, in the case
of private sale, the time after which such sale is to be made.
Section 6.05 Pledged Securities. Upon the occurrence and during the
continuance of an Event of Default:
(a) All rights of Pledgor to receive the dividends and interest
payments which it would otherwise be authorized to receive and retain
pursuant to this Agreement shall cease, and all such rights shall thereupon
become vested in Secured Party who shall thereupon have the sole right to
receive and hold as Collateral such dividends and interest payments, but
Secured Party shall have no duty to receive and hold such dividends and
interest payments and shall not be responsible for any failure to do so or
delay in so doing.
(b) All dividends and interest payments which are received by Pledgor
contrary to the provisions of this Section 6.05 shall be received in trust
for the benefit of Secured Party, shall be segregated from other funds of
Pledgor and shall be forthwith paid over to Secured Party as Collateral in
the same form as so received (with any necessary indorsement).
(c) Secured Party may exercise any and all rights of conversion,
exchange, subscription or any other rights, privileges or options
pertaining to any of the Pledged Securities as if it were the absolute
owner thereof, including, without limitation, the right to exchange at its
discretion, any and all of the Pledged Securities upon the merger,
consolidation, reorganization, recapitalization or other readjustment of
any issuer of such Pledged Securities
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or upon the exercise by any such issuer or Secured Party of any right,
privilege or option pertaining to any of the Pledged Securities, and in
connection therewith, to deposit and deliver any and all of the Pledged
Securities with any committee, depository, transfer agent, registrar or
other designated agency upon such terms and conditions as it may determine,
all without liability except to account for property actually received by
it, but Secured Party shall have no duty to exercise any of the aforesaid
rights, privileges or options and shall not be responsible for any failure
to do so or delay in so doing.
(d) If the issuer of any Pledged Securities is the subject of
bankruptcy, insolvency, receivership, custodianship or other proceedings
under the supervision of any court or governmental agency or
instrumentality, then all rights of Pledgor to exercise the voting and
other consensual rights which Pledgor would otherwise be entitled to
exercise pursuant to Section 4.07 with respect to the Pledged Securities
issued by such issuer shall cease, and all such rights shall thereupon
become vested in Secured Party who shall thereupon have the sole right to
exercise such voting and other consensual rights, but Secured Party shall
have no duty to exercise any such voting or other consensual rights and
shall not be responsible for any failure to do so or delay in so doing.
Section 6.06 Non-judicial Enforcement. Secured Party may enforce its
rights hereunder without prior judicial process or judicial hearing, and to the
extent permitted by law Pledgor expressly waives any and all legal rights which
might otherwise require Secured Party to enforce its rights by judicial process.
ARTICLE 7.
Miscellaneous Provisions
Section 7.01 Notices. Any notice required or permitted to be given under
or in connection with this Agreement shall be given in accordance with the
notice provisions of the Indenture.
Section 7.02 Amendments and Waivers. Secured Party's acceptance of
partial or delinquent payments or any forbearance, failure or delay by Secured
Party in exercising any right, power or remedy hereunder shall not be deemed a
waiver of any obligation of Pledgor, or of any right, power or remedy of Secured
Party; and no partial exercise of any right, power or remedy shall preclude any
other or further exercise thereof. Secured Party may remedy any Event of
Default hereunder or in connection with the Obligations without waiving the
Event of Default so remedied. Pledgor hereby agrees that if Secured Party
agrees to a waiver of any provision hereunder, or an exchange of or release of
the Collateral, or the addition or release of any other Person, any such action
shall not constitute a waiver of any of Secured
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Party's other rights or of Pledgors obligations hereunder. This Agreement may
be amended only by an instrument in writing executed jointly by Pledgor and
Secured Party and may be supplemented only by documents delivered or to be
delivered in accordance with the express terms hereof.
Section 7.03 Copy as Financing Statement. A photocopy or other
reproduction of this Agreement may be delivered by Pledgor or Secured Party to
any financial intermediary or other third party for the purpose of transferring
or perfecting any or all of the Pledged Securities to Secured Party or its
designee or assignee.
Section 7.04 Possession of Collateral. Secured Party shall be deemed to
have possession of any Collateral in transit to it or set apart for it (or, in
either case, to or for any of its agents, affiliates or correspondents).
Section 7.05 Redelivery of Collateral. If any sale or transfer of
Collateral by Secured Party results in full satisfaction of the Obligations, and
after such sale or transfer and discharge there remains a surplus of proceeds,
Secured Party will deliver to Pledgor such excess proceeds in a commercially
reasonable time; provided, however, that neither Secured Party nor any Lender
shall have any liability for any interest, cost or expense in connection with
any delay in delivering such proceeds to Pledgor.
Section 7.06 Governing Law; Jurisdiction. This Agreement and the security
interest granted hereby shall be construed in accordance with and governed by
the laws of the State of New York (except to the extent that the laws of any
other jurisdiction govern the perfection and priority of the security interests
granted hereby).
Section 7.07 Continuing Security Agreement.
(a) Except as may be expressly applicable pursuant to Section 9.505
of the Code, no action taken or omission to act by Secured Party or the
Holders hereunder, including, without limitation, any exercise of voting or
consensual rights pursuant to Section 4.05 or any other action taken or
inaction pursuant to Section 6.02, shall be deemed to constitute a
retention of the Collateral in satisfaction of the Obligations or otherwise
to be in full satisfaction of the Obligations, and the Obligations shall
remain in full force and effect, until Secured Party and the Lenders shall
have applied payments of collections from Collateral toward the Obligations
or until such subsequent time as is hereinafter provided in subsection (b)
below.
(b) To the extent that any payments on the Obligations or proceeds of
the Collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law
or equitable cause, then to such extent the Obligations so satisfied shall
be revived and
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continue as if such payment or proceeds had not been received by Secured
Party or the Holders, and Secured Party's and the Holders' security
interests, rights, powers and remedies hereunder shall continue in full
force and effect. In such event, this Agreement shall bc automatically
reinstated if it shall theretofore have been terminated pursuant to Section
7.08.
Section 7.08 Termination. The grant of a security interest hereunder and
all of Secured Party's and the Holders' rights, powers and remedies in
connection therewith shall remain in full force and effect until Secured Party
has (i) retransferred and delivered all Collateral in its possession to Pledgor,
and (ii) executed a written release or termination statement and reassigned to
Pledgor without recourse or warranty any remaining Collateral and all rights
conveyed hereby. Upon (i) the complete payment of the Obligations and (ii) the
compliance by Pledgor with all covenants and agreements hereof, Secured Party,
at the written request and expense of Pledgor, will release, reassign and
transfer the Collateral to Pledgor and declare this Agreement to be of no
further force or effect. Notwithstanding the foregoing, the reimbursement and
indemnification provisions of Section 4.03 and the provisions of subsection
7.07(b) shall survive the termination of this Agreement.
Section 7.09 Invalidity. In the event that one or more of the provisions
contained in this Agreement shall, for any reason, be held invalid, illegal or
unenforceable in any respect (i) Pledgor agrees that such invalidity, illegality
or unenforceability shall not affect any other provision of this Agreement, and
(ii) Pledgor and Secured Party (acting on behalf of and at the direction of the
Holders) will negotiate in good faith to amend such provision so as to be legal,
valid and enforceable.
Section 7.10 Counterparts, Effectiveness. This Agreement may be executed
in two or more counterparts. Each counterpart is deemed an original, but all
such counterparts taken together constitute one and the same instrument. This
Agreement becomes effective upon the execution hereof by Pledgor and delivery of
the same to Secured Party or the Holders, and it is not necessary for Secured
Party or any Holder to execute any acceptance hereof or otherwise signify or
express its acceptance hereof.
PLEDGOR: STERLING CHEMICALS HOLDINGS, INC.
- --------
By:_____________________________
Name:
Title:
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EXHIBIT A
PLEDGED SECURITIES
------------------
_______ shares of the common stock of Sterling Chemicals, Inc. a Delaware
corporation (the "Company"), registered in the name of Sterling Chemical
Holdings, Inc. on the books of the Company, as represented by Certificate No.
________.
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EXHIBIT 5.1
ANDREWS & KURTH L.L.P.
4200 TEXAS COMMERCE TOWER
HOUSTON, TEXAS 77002
August 12, 1996
Board of Directors of each of
STX Acquisition Corp.
STX Chemicals Corp.
Eight Greenway Plaza
Houston, Texas 77046
Ladies and Gentlemen:
We have acted as counsel to STX Acquisition Corp. ("STX Acquisition") and
STX Chemicals Corp. ("Chemicals") in connection with the Registration Statement
on Form S-1 (the "Registration Statement") relating to registration under the
Securities Act of 1933, as amended, of the offering and sale by Chemicals of
$275,000,000 principal amount of Senior Subordinated Notes Due 2006 (the
"Notes") and by STX Acquisition of Units consisting of Senior Secured Discount
Notes Due 2008 (the "Discount Notes") and Warrants ("Warrants") to purchase
Common Stock of the surviving corporation in the merger (the "Merger) of STX
Acquisition with and into Sterling Chemicals, Inc., which surviving corporation
will be renamed Sterling Chemicals Holdings, Inc. ("Holdings").
As the basis for the opinion hereinafter expressed, we have examined such
statutes, regulations, corporate records and documents, certificates of
corporate and public officials and other instruments as we have deemed necessary
or advisable for the purposes of this opinion. In such examination, we have
assumed the authenticity of all documents submitted to us as originals and the
conformity with the original documents of all documents submitted to us as
copies.
Based on the foregoing and on such legal considerations as we deem
relevant, we are of the opinion that:
(1) the Notes have been duly and validly authorized by all necessary
corporate action, and assuming (a) due execution and delivery of the
indenture governing the Notes and the qualification thereof under the Trust
Indenture Act of 1939, as amended, (b) due execution and authentication of
the Notes as specified in the indenture governing the Notes and (c)
delivery of the Notes against payment therefor, the Notes will constitute
valid and legally binding obligations of Chemicals, subject to any
applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other laws of general applicability relating to or affecting
creditors' rights and to general equitable principles.
<PAGE>
(2) the Discount Notes have been duly and validly authorized by all
necessary corporate action, and assuming (a) due execution and delivery of
the indenture governing the Discount Notes and the qualification thereof
under the Trust Indenture Act of 1939, as amended, (b) due execution and
authentication of the Discount Notes as specified in the indenture
governing the Discount Notes, (c) delivery of the Discount Notes against
payment therefor and (d) consummation of the Merger, the Discount Notes
will constitute valid and legally binding obligations of Holdings, subject
to any applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws of general applicability relating
to or affecting creditors' rights and to general equitable principles.
(3) the Warrants have been duly and validly authorized by all
necessary corporate action pursuant to the terms of the Warrant Agreement
and, assuming consummation of the Merger, when issued in accordance with
the Warrant Agreement, will be validly issued, outstanding and binding
obligations of Holdings, entitled to the benefits of the Warrant Agreement,
subject to any applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws of general applicability relating
to or affecting creditors' rights and to general equitable principles.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of the firm name under the heading "Legal
Matters" in the Registration Statement.
Very truly yours,
/s/ ANDREWS & KURTH L.L.P.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-04343 of STX Acquisition Corp. and STX Chemicals Corp. on Form S-1 of our
reports dated May 20, 1996, appearing in the Prospectus, which is part of such
Registration Statement and to the reference to us under the heading "Experts"
in such Prospectus.
DELOITTE & TOUCHE LLP
Houston, Texas
August 12, 1996
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EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 of our
report dated October 25, 1995, on our audits of the consolidated financial
statements of Sterling Chemicals, Inc., as of September 30, 1994 and 1995 and
for each of the three years in the period ended September 30, 1995. We also
consent to the reference to our Firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Houston, Texas
August 12, 1996
