<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 2, 1997
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------
STERLING CHEMICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
2869 76-0502785
DELAWARE (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
(STATE OR OTHER CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
JURISDICTION OF
INCORPORATION OR
ORGANIZATION)
1200 SMITH STREET, SUITE 1900 F. MAXWELL EVANS
HOUSTON, TEXAS 77002-4312 VICE PRESIDENT, GENERAL COUNSEL AND
(713) 650-3700 SECRETARY
(ADDRESS, INCLUDING ZIP CODE AND 1200 SMITH STREET, SUITE 1900
TELEPHONE NUMBER, INCLUDING HOUSTON, TEXAS 77002-4312
AREA CODE, OF REGISTRANT'S PRINCIPAL (713) 650-3700
EXECUTIVE OFFICE) (NAME, ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR
SERVICE)
COPY TO:
WILLIAM N. FINNEGAN, IV
ANDREWS & KURTH L.L.P.
4200 TEXAS COMMERCE TOWER
HOUSTON, TEXAS 77002-3090
(713) 220-4200
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable following the effectiveness of this
Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER SHARE (1) PRICE(1) FEE(1)
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<S> <C> <C> <C> <C>
11 1/4% Senior
Subordinated
Notes due 2007, Series
A..................... $150,000,000 100% $150,000,000 $45,455
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</TABLE>
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of determining the registration fee.
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 MAY 2, 1997
PROSPECTUS
STERLING CHEMICALS, INC.
OFFER TO EXCHANGE
$1,000 PRINCIPAL AMOUNT OF 11 1/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
FOR EACH $1,000 PRINCIPAL AMOUNT OF OUTSTANDING
11 1/4% SENIOR SUBORDINATED NOTES DUE 2007
($150,000,000 IN AGGREGATE PRINCIPAL AMOUNT OUTSTANDING)
-----------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED
-----------
Sterling Chemicals, Inc., a Delaware corporation ("Sterling"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying Letter of Transmittal, to exchange $1,000 principal amount of
its 11 1/4% Senior Subordinated Notes, Due 2007, Series A (the "Exchange
Notes"), in a transaction registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration Statement (as
defined herein) of which this Prospectus constitutes a part, for each $1,000
principal amount of the outstanding 11 1/4% Senior Subordinated Notes due 2007
(the "Old Notes"), of which $150,000,000 aggregate principal amount is
outstanding (the "Exchange Offer"). The Exchange Notes and the Old Notes are
sometimes referred to herein collectively as the "Notes."
Sterling will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the date
the Exchange Offer expires, which will be , 1997 unless the
Exchange Offer is extended (the "Expiration Date"). Tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date. The Exchange Offer is not conditioned upon any minimum principal amount
of Old Notes being tendered for exchange. However, the Exchange Offer is
subject to certain conditions that may be waived by Sterling and to the terms
and provisions of the Registration Rights Agreement (as defined herein). See
"The Exchange Offer." Series A Notes may be tendered only in denominations of
$1,000 and integral multiples thereof. Sterling has agreed to pay the expenses
of the Exchange Offer. There will be no cash proceeds to Sterling from the
Exchange Offer. See "Use of Proceeds."
The Exchange Notes will be obligations of Sterling entitled to the benefits
of the indenture relating to the Notes (the "Indenture"). The form and terms of
the Exchange Notes are identical in all material respects to the form and terms
of the Old Notes except that (i) the Exchange Notes will be issued in a
transaction registered under the Securities Act and (ii) holders of Exchange
Notes will not be entitled to certain rights of holders under the Registration
Rights Agreement. Following the Exchange Offer, any holders of Old Notes will
continue to be subject to the existing restrictions on transfer thereof and, as
a general matter, Sterling will not have any further obligation to such holders
to provide for registration under the Securities Act of the Old Notes held by
them. To the extent that Old Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered and tendered but unaccepted Old
Notes could be adversely affected. See "The Exchange Offer--Purpose and Effect
of the Exchange Offer."
(continued on next page)
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-----------
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
The Old Notes were sold by Sterling on April 7, 1997, to Credit Suisse First
Boston Corporation and Chase Securities Inc. (the "Initial Purchasers") in
transactions not registered under the Securities Act in reliance upon the
exemption provided in Section 4(2) of the Securities Act (the "Offering"). The
Initial Purchasers placed the Old Notes with qualified institutional buyers
(as defined in Rule 144A under the Securities Act) ("Qualified Institutional
Buyers" or "QIBs"), and with a limited number of institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act) ("Institutional Accredited Investors"), each of whom agreed to comply
with certain transfer restrictions and other restrictions. Accordingly, the
Old Notes may not be reoffered, resold or otherwise transferred in the United
States unless such transaction is registered under the Securities Act or an
applicable exemption from the registration requirements of the Securities Act
is available. The Exchange Notes are being offered hereby in order to satisfy
the obligations of Sterling under the Registration Rights Agreement.
The Exchange Notes will bear interest at a rate of 11 1/4% per annum,
payable semi-annually on April 1 and October 1 of each year, commencing
October 1, 1997. Holders of Exchange Notes of record on September 15, 1997,
will receive on October 1, 1997, an interest payment in an amount equal to (x)
the accrued interest on such Exchange Notes from the date of issuance thereof
to October 1, 1997, plus (y) the accrued interest on the previously held Old
Notes from the date of issuance of such Old Notes (April 7, 1997) to the date
of exchange thereof. Interest will not be paid on Old Notes that are accepted
for exchange. The Notes mature on April 1, 2007.
Old Notes were initially represented by a single, global Old Note (the "Old
Global Note") in registered form, registered in the name of Cede & Co., as
nominee for The Depository Trust Company ("DTC" or the "Depositary"), as
depositary. The Exchange Notes exchanged for Old Notes represented by the Old
Global Note will be initially represented by a single, global Exchange Note
(the "Exchange Global Note") in registered form, registered in the name of the
Depositary. See "Description of the Notes--Book-Entry, Delivery and Form."
References herein to "Global Note" shall be references to the Old Global Note
and the Exchange Global Note.
Based on an interpretation of the Securities Act by the staff of the
Securities and Exchange Commission (the "SEC"), Exchange Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by a holder thereof (other than (i) a broker-
dealer who purchased such Old Notes directly from Sterling for resale pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii)
a person that is an "affiliate" (within the meaning of Rule 405 of the
Securities Act) of Sterling), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the holder
is acquiring the Exchange Notes in its ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Old Notes
wishing to accept the Exchange Offer must represent to Sterling that such
conditions have been met.
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must agree that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Old Notes where such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. Sterling has agreed that, for a period
of 180 days after the Expiration Date, it will make this Prospectus available
to any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
Prior to the Exchange Offer, there has been no public market for the Old
Notes or the Exchange Notes. Sterling does not intend to apply for listing of
the Exchange Notes on any securities exchange or for quotation through The
Nasdaq Stock Market. There can be no assurance that an active market for the
Exchange Notes will develop. To the extent that a market for the Exchange
Notes does develop, future trading prices of the Exchange
ii
<PAGE>
Notes will depend on many factors, including, among other things, prevailing
interest rates, and the market for similar securities as well as Sterling's
results of operations and its financial condition. See "Risk Factors".
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY STERLING. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF STERLING SINCE THE DATE HEREOF.
iii
<PAGE>
AVAILABLE INFORMATION
Sterling has filed with the SEC a registration statement (the "Registration
Statement") under the Securities Act on Form S-4 (Reg. No. 333- ) with
respect to the Exchange Notes 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 below.
Sterling is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy and information statements and other
information with the SEC. All such information and items or information
omitted from this Prospectus but contained in the Registration Statement can
be obtained by mail from the Public Reference Section of the SEC, at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, such reports, proxy and information statements and other information
can be inspected and copied at the public reference facility referenced above
and at the SEC's regional offices at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300,
New York, New York 10048. The SEC maintains a web site (http:www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants, such as Sterling, that file electronically with the
SEC. In addition, at any time when the Company is not subject to Sections 13
or 15(d) of the Exchange Act, Sterling has agreed to (i) file with the SEC and
provide to each Holder such annual reports and such information, documents and
other reports specified in such Sections of the Exchange Act, and (ii) make
available to any Holder or prospective purchaser of the Old Notes copies of
the information required by Rule 144A(d)(4) under the Securities Act.
iv
<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. Investors should carefully consider the
information set forth under "Risk Factors."
Prior to August 21, 1996, the operations of Sterling were conducted by
Sterling Chemicals Holdings, Inc., a Delaware corporation organized in 1986
("Holdings"), with its principal executive offices in Houston, Texas. On August
21, 1996, STX Acquisition Corp., 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"), was merged with and into Holdings (the "Merger"). In
connection with the Merger, Holdings completed debt and equity transactions
resulting in a recapitalization of Holdings and all of the assets of Holdings
were transferred to Sterling, a wholly owned subsidiary of Holdings (such
transactions, including the Merger, are referred to herein as the "1996
Recapitalization"). As a result of the 1996 Recapitalization, Holdings was
reorganized into a holding company whose only material asset is the capital
stock of Sterling. Holdings, Sterling and its subsidiaries are collectively
referred to herein as the "Company."
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" and "Disclosure Regarding Forward-Looking
Statements."
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, pulp chemicals used in paper manufacturing and, as a
result of a recent acquisition, acrylic fibers used in the manufacture of
textiles, carpeting, outdoor furniture and other products. 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, sodium chlorate and acrylic fibers. Other products manufactured by
the Company include methanol, plasticizers, tertiary butylamine ("TBA"), 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 and one plant in
Valdosta, Georgia (the "Valdosta Plant"), which began production in December of
1996. Sterling believes that the Company's 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. The Company manufactures all
of its acrylic fibers at a single facility located near Pensacola, Florida (the
"Santa Rosa Plant").
In January 1997, the Company acquired substantially all of the assets of
Cytec Industries Inc. and its subsidiaries (collectively, "Cytec") related to
the development, manufacture, marketing, sale and distribution of acrylic
fibers, including, but not limited to, the Santa Rosa Plant (the "AFB" and such
acquisition, including the incurrence of Senior Debt related thereto, the "AFB
Acquisition"). Consideration for the AFB Acquisition totalled approximately
$100 million plus the assumption of associated liabilities. The AFB generated
revenues of approximately $139 million in the fiscal year ended December 31,
1996 (which was prior to the acquisition of the AFB by the Company). The AFB is
owned and operated by two wholly owned subsidiaries of Sterling (collectively,
"Sterling Fibers"), and is one of only two acrylic fibers manufacturers in the
United States. Under a supply agreement assumed by Sterling Fibers in
connection with the AFB Acquisition, Cytec will supply the Santa Rosa Plant's
requirements for acrylonitrile, the primary raw material for acrylic fibers,
until February 28,
1
<PAGE>
2002. The Company has used the purchase method to account for the acquisition,
and operating results of the AFB have been included with those of the Company
beginning February 1, 1997.
In recent years, the Company has pursued a strategy of growth and product
diversification, beginning in 1992 with the acquisition of its pulp chemicals
business. In 1995, the Company began a three-year, $200 million capacity
expansion and upgrade program, which has been substantially completed. Through
this program, the Company 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 expanded its sodium chlorate production capacity by 110,000 tons, or
30%, by constructing the Valdosta Plant, which came on stream in December 1996.
The AFB Acquisition further increases the diversity of the Company's product
mix and reduces the Company's sensitivity to economic cycles. The AFB
Acquisition is also consistent with the Company's stated strategy of acquiring
chemical businesses whose products provide further upstream or downstream
integration from the Company's base businesses. Sterling Fibers will ultimately
provide integrated downstream demand for the Company's acrylonitrile
production, although Sterling Fibers will purchase its acrylonitrile
requirements for the Santa Rosa Plant from Cytec until February 28, 2002.
Through its acquisition strategy, the Company seeks to capitalize on the
continuing secular growth in global demand for its key products, while reducing
its sensitivity to the cyclical nature of the markets for any particular
product.
The following table sets forth the total revenues for the Company by its
primary products (other than acrylic fibers).
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER
SEPTEMBER 30, 31,
---------------- ---------
1994 1995 1996 1995 1996
---- ------ ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Petrochemicals:
Styrene............................................ $288 $ 467 $323 $ 74 $ 77
Acrylonitrile...................................... 138 251 159 45 26
Acetic acid........................................ 76 94 65 13 9
Other.............................................. 76 74 86 21 32
---- ------ ---- ---- ----
578 886 633 153 144
Pulp Chemicals....................................... 123 144 157 39 43
---- ------ ---- ---- ----
Total............................................ $701 $1,030 $790 $192 $187
==== ====== ==== ==== ====
</TABLE>
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, which
represents approximately 12% of total North American capacity. In fiscal 1996,
the styrene unit generated revenues of approximately $323 million, which
represented approximately 41% 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 1996, the acrylonitrile unit
generated revenues of approximately $159 million, which represented
approximately 20% 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
2
<PAGE>
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 1996, the acetic acid unit generated revenues of
approximately $65 million, which represented approximately 8% of the Company's
total revenues.
Sodium Chlorate. Upon completion of the Valdosta Plant, the Company became
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 Canadian sodium chlorate plants have an aggregate annual rated
production capacity of 350,000 tons. The Valdosta Plant increased the Company's
total annual capacity by 30% to approximately 460,000 tons, which represents
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 1996, the Company's pulp chemicals business generated
revenues of $157 million, which represented approximately 20% of the Company's
total revenues.
Acrylic Fibers. The Company is the second largest producer of acrylic fibers
in North America. The Santa Rosa Plant has an annual rated production capacity
of 184 million pounds, which represents approximately 31% of total North
American capacity. Sterling Fibers' products are segregated into three product
classes: (i) regular textiles, which are produced for general apparel, non-
woven and home furnishing applications; (ii) specialty textiles, which are
produced for consumer and industrial textile applications; and (iii) technical
fibers, which are produced for speciality technical applications, such as
processing aids for friction material products, reinforcing fiber for gaskets
and fibers to form specialty papers and non-wovens. In addition, Sterling
Fibers licenses its acrylic fibers manufacturing technology to producers
worldwide. Approximately 17% of the world's current acrylic fibers capacity is
based on Sterling Fibers' technology. The AFB generated revenues of
approximately $139 million in fiscal year ended December 31, 1996 (which was
prior to the acquisition of the AFB by the Company).
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, (iv)
continue to build strong industry partnerships in petrochemicals through
securing long-term supply contracts with key customers (v) focus on niche
specialty textile and technical fiber product lines, (vi) expand fiber
technology licensing opportunities and (vii) pursue a focused acquisition
strategy, targeting chemical businesses and assets (such as the AFB) which
would strengthen the Company's existing market positions, provide upstream or
downstream integration or produce complementary chemical products, reducing the
overall sensitivity of the Company to economic cycles and pricing fluctuations
and stabilizing the cash flow of the Company. The Company's ability to pursue
its acquisition strategy may be materially limited by the terms of its debt
instruments and by its results of operations. See "Risk Factors--Ability to
Complete Acquisitions" and "Business--Business Strategy."
3
<PAGE>
RECENT DEVELOPMENTS
The Company completed construction of the Valdosta Plant, a 110,000 ton per
year sodium chlorate plant, in December of 1996. The Valdosta Plant, which cost
approximately $55 million, increased the Company's total annual sodium chlorate
capacity by more than 30% to nearly 460,000 tons. Valdosta, Georgia was
selected because of its proximity to existing customers that are currently
being supplied from the Company's Canadian plants, and its proximity to
reliable, competitively priced electricity, the most important variable in
sodium chlorate production costs. The Valdosta Plant is intended to meet the
growing market demand from the pulp and paper industry in the Southeastern
United States.
On January 31, 1997, the Company acquired the AFB, including the Santa Rosa
Plant. The AFB recorded sales of approximately $139 million in the fiscal year
ended December 31, 1996 (which was prior to the acquisition of the AFB by the
Company) and is one of two acrylic fibers manufacturers in the United States.
The proceeds of the Offering were used to prepay outstanding indebtedness
under the Term Loans. See "Private Placement." In connection with such
prepayment, Sterling and the requisite lenders under the Senior Credit
Agreements effected certain amendments (collectively, the "Amendments") to the
Senior Credit Agreements (as hereinafter defined). Among other things, the
Amendments (i) permitted and provided for the issuance of the Notes, (ii)
adjusted the method of the application of voluntary prepayments to allow the
proceeds of the Offering to be applied in a manner that significantly reduced
required principal payments, particularly over the next three years, (iii)
amended certain financial covenants to make them somewhat less restrictive,
including amendments to the Leverage Ratio, Interest Coverage Ratio and Fixed
Charge Coverage Ratio covenants (each as defined in the Senior Credit
Agreements), (iv) increased the commitment under the Revolver (as hereinafter
defined) by $25 million to $125 million, and (v) included a new financial
covenant with respect to the maintenance of a specified Senior Debt Leverage
Ratio (as defined in the Amendments).
4
<PAGE>
SUMMARY OF TERMS OF EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $150,000,000 aggregate
principal amount of Exchange Notes for up to an equal aggregate principal
amount of Old Notes. The Exchange Notes will be obligations of Sterling
entitled to the benefits of the Indenture. The form and terms of the Exchange
Notes are identical in all material respects to the form and terms of the Old
Notes, except that (i) the offering of the Exchange Notes has been registered
under the Securities Act, (ii) the Exchange Notes will not be subject to
transfer restrictions and (iii) certain provisions relating to an increase in
the stated interest rate on the Old Notes provided for under certain
circumstances will be eliminated. See "Description of the Notes."
Registration Rights The Old Notes were sold by Sterling on April 7,
Agreement.................. 1997 to the Initial Purchasers pursuant to a
Purchase Agreement, dated April 1, 1997 (the
"Purchase Agreement"). Pursuant to the Purchase
Agreement, Sterling and the Initial Purchasers
entered into the Registration Rights Agreement
which, among other things, grants the holders of
the Old Notes certain exchange and registration
rights. The Exchange Offer is intended to satisfy
certain obligations of Sterling under the
Registration Rights Agreement.
The Exchange Offer.......... $1,000 principal amount of Exchange Notes will be
issued in exchange for each $1,000 principal
amount of Old Notes validly tendered and accepted
pursuant to the Exchange Offer. As of the date
hereof, $150,000,000 in aggregate principal
amount of Old Notes are outstanding. Sterling
will issue the Exchange Notes to tendering
holders of Old Notes promptly following the
Expiration Date.
The terms of the Exchange Notes are identical in
all material respects to the Old Notes except for
certain transfer restrictions and registration
rights relating to the Old Notes and except that
the Old Notes provide that if, by October 4,
1997, (i) the Exchange Offer has not been
consummated, or (ii) a shelf registration
statement has not been declared effective, the
interest rate on the Old Notes will increase by
0.50% per annum from and including October 4,
1997 until but excluding the date of the
consummation of the Exchange Offer.
In addition, to comply with the securities laws
of certain states of the United States, it may be
necessary to qualify for sale or register
thereunder the Exchange Notes prior to offering
or selling such Exchange Notes. Sterling has
agreed, pursuant to the Registration Rights
Agreement, subject to certain limitations
specified therein, to register or qualify the
Exchange Notes for offer or sale under the
securities laws of such states as any holder
reasonably requests in writing. Unless a holder
so requests, Sterling does not intend to register
or qualify the offer or sale of the Exchange
Notes in any such jurisdiction.
Resale...................... Based on existing interpretations of the
Securities Act by the staff of the SEC set forth
in several no-action letters to third parties,
and subject to the immediately following
sentence, Sterling believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold
and otherwise transferred by a holder thereof
(other than (i) a broker-dealer who
5
<PAGE>
purchased such Old Notes directly from Sterling
for resale pursuant to Rule 144A or any other
available exemption under the Securities Act or
(ii) a person that is an "affiliate" (within the
meaning of Rule 405 of the Securities Act) of
Sterling), without compliance with the
registration and prospectus delivery provisions
of the Securities Act, provided that the holder
is acquiring the Exchange Notes in its ordinary
course of business and is not participating, and
has no arrangement or understanding with any
person to participate, in the distribution of the
Exchange Notes. However, any purchaser of Notes
who is an affiliate of Sterling or who intends to
participate in the Exchange Offer for the purpose
of distributing the Exchange Notes, or any
broker-dealer who purchased the Old Notes from
Sterling to resell pursuant to Rule 144A or any
other available exemption under the Securities
Act, (i) will not be able to rely on the
interpretations by the staff of the SEC set forth
in the above-mentioned no-action letters, (ii)
will not be able to tender its Old Notes in the
Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any sale
or transfer of the Notes unless such sale or
transfer is made pursuant to an exemption from
such requirements. Sterling does not intend to
seek its own no-action letter and there is no
assurance that the staff of the SEC would make a
similar determination with respect to the
Exchange Notes as it has in such no-action
letters to third parties. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer"
and "Plan of Distribution." Each broker-dealer
that receives Exchange Notes for its own account
pursuant to the Exchange Offer
must acknowledge that it will deliver a
prospectus in connection with any resale of such
Exchange Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to
time, may be used by a broker-dealer in
connection with resales of Exchange Notes
received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a
result of market-making activities or other
trading activities. Sterling has agreed that, for
a period of 180 days after the Expiration Date,
it will make this Prospectus available to any
broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
Expiration Date............. 5:00 p.m., New York City time, on ,
1997, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer
is extended. See "The Exchange Offer--Expiration
Date; Extensions; Amendments."
Accrued Interest on the
Exchange Notes and the Old
Notes...................... The Exchange Notes will bear interest at a rate
of 11 1/4% per annum, payable semi-annually on
April 1 and October 1 of each year, commencing
October 1, 1997. Holders of Exchange Notes of
record
6
<PAGE>
on September 15, 1997, will receive on October 1,
1997, an interest payment in an amount equal to
(x) the accrued interest on such Exchange Notes
from the date of issuance thereof to October 1,
1997, plus (y) the accrued interest on the
previously held Old Notes from the date of
issuance of such Old Notes (April 7, 1997) to the
date of exchange thereof. Interest will not be
paid on Old Notes that are accepted for exchange.
The Notes mature on April 1, 2007.
Conditions to the Exchange Sterling may terminate the Exchange Offer if it
Offer...................... determines that its ability to proceed with the
Exchange Offer could be materially impaired due
to the occurrence of certain conditions. Sterling
does not expect any of such conditions to occur,
although there can be no assurance that such
conditions will not occur. Holders of Old Notes
will have certain rights against Sterling under
the Registration Rights Agreement should Sterling
fail to consummate the Exchange Offer. See "The
Exchange Offer--Conditions to the Exchange Offer"
and "Description of the Notes--Registered
Exchange Offer; Registration Rights."
Procedures for Tendering Each holder of Old Notes wishing to accept the
Old Notes.................. Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile,
together with the Old Notes to be exchanged and
any other required documentation, to Fleet
National Bank, as Exchange Agent, at the address
set forth herein and therein or effect a tender
of Old Notes pursuant to the procedures for book-
entry transfer as provided for herein and
therein. By executing the Letter of Transmittal,
each holder will represent to Sterling that,
among other things, the Exchange Notes acquired
pursuant to the Exchange Offer are being acquired
in the ordinary course of business of the person
receiving such Exchange Notes, whether or not
such person is the holder, that neither the
holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes and that neither the holder nor any such
other person is an "affiliate," as defined in
Rule 405 under the Securities Act, of Sterling.
See "The Exchange Offer--Procedures for
Tendering."
Following the consummation of the Exchange Offer,
holders of Old Notes not tendered as a general
matter will not have any further registration
rights, and the Old Notes will continue to be
subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the
Old Notes could be adversely affected. See "The
Exchange Offer--Consequences of Failure to
Exchange."
Special Procedures for
Beneficial Owners..........
Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
7
<PAGE>
nominee and who wishes to tender in the Exchange
Offer should contact such registered holder
promptly and instruct such registered holder to
tender on his behalf. If such beneficial owner
wishes to tender on his own behalf, such beneficial
owner must, prior to completing and executing the
Letter of Transmittal and delivering his Old Notes,
either make appropriate arrangements to register
ownership of the Old Notes in such holder's name or
obtain a properly completed bond power from the
registered holder or endorsed certificates
representing the Old Notes to be tendered. The
transfer of record ownership may take considerable
time, and completion of such transfer prior to the
Expiration Date may not be possible. See "The
Exchange Offer--Procedures for Tendering."
Guaranteed Delivery Holders of Old Notes who wish to tender their Old
Procedures............... Notes and whose Old Notes are not immediately
available, or who cannot deliver their Old Notes
(or complete the procedure for book-entry transfer)
and deliver a properly completed Letter of
Transmittal and any other documents required by the
Letter of Transmittal to the Exchange Agent prior
to the Expiration Date may tender their Old Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights......... Tenders of Old Notes may be withdrawn at any time
prior to the Expiration Date by furnishing a
written or facsimile transmission notice of
withdrawal to the Exchange Agent containing the
information set forth in "The Exchange Offer--
Withdrawal of Tenders."
Acceptance of Old Notes
and Delivery of Exchange
Notes....................
Subject to certain conditions (as summarized above
in "Termination of the Exchange Offer" and
described more fully in "The Exchange
Offer--Termination"), Sterling will accept for
exchange any and all Old Notes that are properly
tendered in the Exchange Offer prior to the
Expiration Date. See "The Exchange Offer--
Procedures for Tendering." The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
Exchange Agent............ Fleet National Bank, the Trustee under the
Indenture, is serving as exchange agent (the
"Exchange Agent") in connection with the Exchange
Offer. The mailing address of the Exchange Agent is
Fleet National Bank, Corporate Trust Operations, CT
OP T06D, P.O. Box 1440, Hartford, Connecticut
06143, the address for deliveries by overnight
courier is Fleet National Bank, Corporate Trust
Operations, CT OP T06D, 1 Talcott Plaza, Hartford,
Connecticut 06103, and the address for hand
deliveries is Fleet National Bank, Corporate Trust
Department Customer Service Window, 5th Floor, 1
Talcott Plaza, Hartford, Connecticut 06106. For
assistance and requests for additional copies of
this Prospectus, the Letter of Transmittal or the
Notice of Guaranteed Delivery, the telephone number
for the Exchange Agent is (860) 986-1271, and the
facsimile number for the Exchange Agent is (860)
986-7908. All
8
<PAGE>
communications should be directed to the
attention of Patricia Williams.
Effect on Holders of Old Holders of Old Notes who do not tender their Old
Notes....................... Notes in the Exchange Offer will continue to hold
their Old Notes and will be entitled to all the
rights and limitations applicable thereto under
the Indenture. All untendered, and tendered but
unaccepted, Old Notes will continue to be subject
to the restrictions on transfer provided for in
the Old Notes and the Indenture. To the extent
that Old Notes are tendered and accepted in the
Exchange Offer, the trading market, if any, for
the Old Notes could be adversely affected. See
"Risk Factors--Consequences of Exchange and
Failure to Exchange."
See "The Exchange Offer"for more detailed information concerning the terms of
the Exchange Offer.
9
<PAGE>
SUMMARY OF TERMS OF EXCHANGE NOTES
Securities Offered.......... $150,000,000 aggregate principal amount of 11
1/4% Senior Subordinated Notes Due 2007, Series
A.
Maturity Date............... April 1, 2007.
Interest Payment Dates...... April 1 and October 1 of each year, commencing
October 1, 1997.
Optional Redemption......... The Exchange Notes will be redeemable at the
option of Sterling, in whole or in part, at any
time on or after April 1, 2002, at the redemption
prices set forth herein, plus accrued and unpaid
interest, if any, to the applicable redemption
date. In addition, Sterling may, at its option,
redeem prior to April 1, 2000, up to 35% of the
original principal amount of the Exchange Notes
at 111.25% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the
applicable redemption date, with the net proceeds
of one or more Public Equity Offerings. See
"Description of the Notes--Optional Redemption."
Ranking..................... The Exchange Notes will be unsecured senior
subordinated obligations of Sterling, ranking
subordinate in right of payment to all existing
and future Senior Debt (as defined) of Sterling
(including borrowings under the Senior Credit
Agreements), pari passu in right of payment with
all existing and future senior subordinated
indebtedness of Sterling (including its 11 3/4%
Senior Subordinated Notes Due 2006 (the "Existing
Subordinated Notes")) and senior in right of
payment to all existing and future subordinated
indebtedness of Sterling. As of December 31,
1996, on a pro forma basis after giving effect to
the AFB Acquistion and the Offering and the
application of the estimated proceeds therefrom
as described under "Use of Proceeds," Senior Debt
would have been $287.6 million and senior
subordinated indebtedness (including the Notes)
would have been $425 million. Sterling has not
issued, and does not have any firm arrangements
to issue, any significant Debt (as defined) that
would be subordinate to the Notes. In addition,
the holders of the Exchange Notes will
effectively rank junior to all creditors of
Sterling's subsidiaries, including trade
creditors. See "Description of the Notes--
Ranking."
Change of Control........... Upon the occurrence of a Change of Control,
holders of the Exchange Notes will have the right
to require Sterling to purchase their Exchange
Notes, in whole or in part, at a purchase price
equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if
any, to the date of purchase. There can be no
assurance that Sterling will be able to raise
sufficient funds to meet this obligation should
it arise. See "Description of the Notes--Change
of Control."
Certain Covenants........... The Indenture (as hereinafter defined) contains
certain covenants that, among other things, limit
the ability of Sterling to pay
10
<PAGE>
dividends or make certain other restricted
payments, incur additional indebtedness, engage
in transactions with affiliates, incur liens and
engage in asset sales. The Indenture also
restricts Sterling's 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 Company will not receive any proceeds from
the Exchange Offer.
Denominations............... The Exchange Notes will be issued in
denominations of $1,000 and any integral multiple
thereof.
RISK FACTORS
Prior to making an investment decision, prospective investors should consider
all of the information set forth in this Prospectus and should evaluate the
considerations set forth in "Risk Factors."
11
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA AND OTHER INFORMATION
The summary historical consolidated financial information set forth below has
been derived from previously published consolidated financial statements of
Holdings and Sterling, 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, 1996
has been derived from audited consolidated financial statements of Holdings,
(ii) as of September 30, 1996 and for the period from May 14, 1996 (date of
incorporation) to September 30, 1996 has been derived from the audited
consolidated financial statements of Sterling, (iii) as of December 31, 1995
and for the three-month period then ended has been derived from the unaudited
consolidated financial statements of Holdings and (iv) as of December 31, 1996
and for the three-month period then ended has been derived from unaudited
consolidated financial statements of Holdings and Sterling. In the opinion of
management the unaudited consolidated financial statements of Holdings and
Sterling have been prepared on a basis consistent with the audited consolidated
financial statements of Holdings and Sterling 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 results to be expected for the full year.
<TABLE>
<CAPTION>
HOLDINGS
THREE MONTHS STERLING
HOLDINGS STERLING ENDED THREE MONTHS
YEAR ENDED SEPTEMBER 30, MAY 14 TO DECEMBER 31, ENDED
---------------------------------------- SEPTEMBER 30, -------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996(A) 1995 1996 1996
------ ------ ------ -------- ------ ------------- ------ ------ ------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $430.5 $518.8 $700.8 $1,030.2 $790.4 $83.4 $191.5 $186.9 $186.9
Cost of goods sold...... 402.6 477.9 606.9 758.6 679.0 83.0 162.1 171.8 171.8
------ ------ ------ -------- ------ ----- ------ ------ ------
Gross profit........... 27.9 40.9 93.9 271.6 111.4 0.4 29.4 15.1 15.1
Selling, general and
administrative
expenses............... 10.3 25.5 24.4 31.7 31.7 3.4 7.8 6.5 6.1
SAR program expense
(benefit).............. -- -- 21.8 (2.8) 8.6 -- 0.2 -- --
Merger related expenses. -- -- -- -- 3.6 -- -- -- --
Write-off of assets..... -- -- -- -- 3.7 -- -- -- --
------ ------ ------ -------- ------ ----- ------ ------ ------
Income (loss) from
operations............ 17.6 15.4 47.7 242.7 63.8 (3.0) 21.4 8.6 9.0
Interest and debt
related expenses, net
of interest income..... 8.4 22.4 22.1 14.6 13.4 1.6 1.6 18.6 14.8
Other (income) expense.. -- -- (2.6) -- -- (5.2) -- (0.3) (2.1)
------ ------ ------ -------- ------ ----- ------ ------ ------
Income (loss) before
taxes and
extraordinary item.... 9.2 (7.0) 28.2 228.1 50.4 0.6 19.8 (9.7) (3.7)
Provision (benefit) for
income taxes........... 4.7 (1.6) 9.1 75.0 16.9 0.4 7.0 (2.5) (.5)
------ ------ ------ -------- ------ ----- ------ ------ ------
Income (loss) before
extraordinary item and
change in accounting
principle............. 4.5 (5.4) 19.1 153.1 33.5 0.2 12.8 (7.2) (3.2)
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) (1.9) -- -- -- --
------ ------ ------ -------- ------ ----- ------ ------ ------
Net income (loss)...... $ (5.9) $ (5.4) $ 19.1 $ 150.0 $ 31.6 $ 0.2 $ 12.8 $ (7.2) $ (3.2)
====== ====== ====== ======== ====== ===== ====== ====== ======
PER SHARE DATA (B)(C):
Income (loss) before
extraordinary item and
change in accounting
principle.............. $ 0.08 $(0.10) $ 0.34 $ 2.76 $ 0.66 $(0.68) $ 0.23
Cumulative effect of
change in accounting
for post-retirement
benefits other than
pensions............... (0.19) -- -- -- -- -- --
Extraordinary item, loss
on early extinguishment
of debt, net of tax.... -- -- -- (0.06) (0.04) -- --
------ ------ ------ -------- ------ ------ ------
Net income (loss)...... $(0.11) $(0.10) $ 0.34 $ 2.70 $ 0.62 $(0.68) $ 0.23
====== ====== ====== ======== ====== ====== ======
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
HOLDINGS
THREE MONTHS STERLING
HOLDINGS STERLING ENDED THREE MONTHS
YEAR ENDED SEPTEMBER 30, MAY 14 TO DECEMBER 31, ENDED
----------------------------------- SEPTEMBER 30, -------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996(A) 1995 1996 1996
------ ------ ------ ------ ------- ------------- ------ ------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (d).............. $ 41.0 $ 52.5 $108.6 $281.4 $ 121.2 $ 1.5 $ 32.1 $ 19.2 $ 19.6
Depreciation and
amortization (e)....... 23.4 37.1 39.1 41.5 41.5 4.5 10.5 10.6 10.6
Capital expenditures.... 16.0 12.2 12.3 54.0 96.0 6.4 20.4 18.5 18.5
OPERATING DATA:
Revenues:
Styrene................ $ 151 $ 144 $ 288 $ 467 $ 323 $ 35 $ 74 $ 77 $ 77
Acrylonitrile.......... 137 124 138 251 159 21 45 26 26
Acetic acid............ 66 64 76 94 65 4 13 9 9
Sodium chlorate........ 9 81 83 102 112 13 28 31 31
Annual capacity at
period end (MMlbs):
Styrene................ 1,500 1,500 1,500 1,500 1,700 1,700 1,500 1,700 1,700
Acrylonitrile.......... 700 700 700 740 740 740 740 740 740
Acetic acid............ 600 600 600 600 800 800 600 800 800
Sodium chlorate (000
tons)................. 340 340 340 350 350 350 350 350 350
Sales volume (MMlbs):
Styrene................ 1,213 1,191 1,460 1,433 1,685 188 398 408 408
Acrylonitrile.......... 573 528 668 739 661 103 146 113 113
Acetic acid............ 620 578 599 635 516 80 62 191 191
Sodium chlorate (000
tons)................. 26 248 294 336 330 37 86 85 85
<CAPTION>
HOLDINGS HOLDINGS
SEPTEMBER 30, STERLING DECEMBER 31, STERLING
----------------------------------- SEPTEMBER 30, -------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996 1995 1996 1996
------ ------ ------ ------ ------- ------------- ------ ------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 56.8 $ 31.0 $ 20.8 $ 74.6 $ 76.9 $ 77.3 $ 68.0 $ 67.1 $ 72.0
Net property, plant and
equipment.............. 343.8 314.3 291.1 309.1 365.8 365.8 318.2 374.4 374.4
Total assets............ 608.5 546.8 580.9 609.9 689.7 685.5 611.2 714.6 713.7
Total long-term debt
(including current
portion)............... 326.5 291.9 226.4 121.4 726.3 631.5 113.6 730.1 634.6
Stockholders' equity
(deficiency in assets). 87.3 70.3 89.7 239.3 (272.4) (184.3) 250.1 (281.0) (188.3)
</TABLE>
- -------
(a) Sterling was organized on May 14, 1996; however, prior to August 21, 1996
Sterling had no operating activities other than those related to the 1996
Recapitalization.
(b) The per share data presented applies to Holdings only. Because all shares
of Sterling's common stock are owned by Holdings, per share data for
Sterling would not be meaningful and has therefore not been presented.
(c) Due to the effect of the Merger on the number of outstanding shares of the
common stock of Holdings, per share information for the years ended
September 30, 1995 and 1996 and the three months ended December 31, 1996
may not be comparable. Weighted average shares outstanding for the years
ended September 30, 1995 and 1996 and the three months ended December 31,
1995 and 1996 were 55,674,000, 50,700,000, 55,674,000 and 10,608,000,
respectively.
(d) 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 and certain merger expenses and
write-offs of assets. See footnote (e). The SAR program was terminated in
connection with the Merger. 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.
(e) 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 CONSOLIDATED FINANCIAL DATA
The pro forma consolidated statements of operations data presented below for
the year ended September 30, 1996 and the three months ended December 31, 1996
have been derived from the unaudited pro forma financial statements included
elsewhere herein, and give effect to the 1996 Recapitalization, the AFB
Acquisition and the Offering and the application of the proceeds therefrom as
if they had occurred on October 1, 1995. The pro forma consolidated balance
sheet data at December 31, 1996 presented below has been derived from the
unaudited pro forma consolidated balance sheet of Sterling included elsewhere
herein and give effect to the AFB Acquisition and the Offering and the
application of the proceeds therefrom as if they had occurred on December 31,
1996.
The summary pro forma financial data do not necessarily represent what
Sterling's financial position and results of operations would have been if the
1996 Recapitalization, the AFB Acquisition and the Offering and the application
of the proceeds therefrom had actually been completed as of the dates indicated
and are not intended to project Sterling's 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
Sterling, the pro forma financial statements of Sterling, "Selected
Consolidated 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 1996 Recapitalization as a
recapitalization. Accordingly, the historical basis of Sterling's assets and
liabilities has not been impacted by those transactions.
<TABLE>
<CAPTION>
STERLING
STERLING PRO FORMA FOR THE
PRO FORMA FOR THE THREE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1996
------------------ -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $927.0 $ 219.7
Cost of goods sold........................ 789.1 202.8
------ -------
Gross profit............................ 137.9 16.9
Selling, general and administrative
expenses................................. 52.4 7.8
Merger related expenses................... 3.6 --
Write-off of assets....................... 3.7 --
Interest and debt related expenses, net of
interest and other income................ 67.2 15.5
------ -------
Income (loss) before taxes.............. 11.0 (6.4)
Provision (benefit) for income taxes...... 3.8 (1.4)
------ -------
Income (loss)........................... $ 7.2 $ (5.0)
====== =======
OTHER DATA:
EBITDA.................................... $140.8 $ 21.0
Capital expenditures...................... 101.3 19.6
Depreciation and amortization............. 46.8 11.9
Cash interest expense, net (including
capitalized interest).................... 73.7 18.4
Ratio of EBITDA to interest expense
(including capitalized interest)......... 1.8x 1.1x
Ratio of EBITDA to cash interest expense
(including capitalized interest)......... 1.9x 1.1x
Ratio of earnings to fixed charges........ 1.1x --
Deficiency of earnings to cover fixed
charges.................................. -- $ 8.6
BALANCE SHEET DATA:
Working capital........................... $ 111.9
Net property, plant and equipment......... 447.2
Total assets.............................. 829.8
Long-term debt (including current
maturities).............................. 715.6
Deficiency in assets...................... (173.5)
</TABLE>
14
<PAGE>
RISK FACTORS
The following factors should be considered carefully, together with the
other information contained in this Prospectus, before making an investment in
the securities offered hereby.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. Sterling does not
currently anticipate that it will register the Old Notes under the Securities
Act. In addition, upon the consummation of the Exchange Offer holders of Old
Notes which remain outstanding will not be entitled to any rights to have such
Old Notes registered under the Securities Act or to any similar rights under
the Registration Rights Agreement. To the extent that Old Notes are tendered
and accepted in the Exchange Offer, a holder's ability to sell untendered, or
tendered but unaccepted, Old Notes could be adversely affected. The Old Notes
provide that if, by October 4, 1997, (i) the Exchange Offer has not been
consummated, or (ii) a shelf registration statement has not been declared
effective, the interest rate on the Old Notes will increase by 0.50% per annum
from and including October 4, 1997 until but excluding the date on which the
Exchange Offer is consummated or a shelf registration statement is declared
effective.
HIGH FINANCIAL LEVERAGE
If the AFB Acquisition and the Offering and the application of the proceeds
therefrom had occurred on December 31, 1996, on a pro forma basis Sterling
would have had consolidated indebtedness of approximately $715.6 million. If
the 1996 Recapitalization, the AFB Acquisition and the Offering and the
application of the proceeds therefrom had occurred as of October 1, 1995, on a
pro forma basis for the three months ended December 31, 1996, Sterling would
have had a deficiency of earnings to cover fixed charges of $8.6 million. The
Company's high degree of leverage could have important consequences, 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 restricted; (ii) a substantial
portion of cash flow from operations will be dedicated to cover cash interest
requirements ($73.7 million and $18.4 million, respectively, for the fiscal
year ended September 30, 1996 and the three months ended December 31, 1996, on
a pro forma basis as if the 1996 Recapitalization, the AFB Acquisition and the
Offering and the application of the proceeds therefrom had occurred on October
1, 1995), thereby limiting 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 businesses or the economy generally. As
of December 31, 1996, on a pro forma basis the Company's total indebtedness as
a percentage of total capitalization would have been 132%. Any inability of
the Company to service its obligations under the Notes or its other debt
instruments could have a significant adverse effect on the market value and
marketability of the Notes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Debt Structure."
SUBSTANTIAL RESTRICTIONS AND COVENANTS
The Indenture and the Company's other existing debt instruments contain
numerous financial and operating covenants, including, without limitation,
restrictions on the Company's ability to incur indebtedness, pay dividends,
create liens, sell assets, engage in certain mergers and acquisitions and
refinance existing indebtedness, as well as obligations of the Company to
maintain certain financial ratios. See "Description of Other Indebtedness."
These covenants may limit the Company's ability to further pursue its
acquisition strategy. In the event of certain changes of control, Sterling
will be required to offer to purchase all of its outstanding Notes and
Existing Subordinated Notes, and Holdings will be required to offer to
purchase all of its outstanding
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13 1/2% Senior Secured Discount Notes due 2008 (the "Discount Notes"), in each
case subject to certain conditions, at a price equal to 101% of the principal
amount thereof, with respect to the Notes and Existing Subordinated Notes, and
101% of the Accreted Value (as defined in the indenture for the Discount Notes
(the "Discount Notes Indenture")), with respect to the Discount Notes, plus
accrued and unpaid interest, if any. There can be no assurance that Sterling
or Holdings will be able to raise sufficient funds to meet their respective
obligations in connection with such a change of control. The ability of
Sterling and Holdings to comply with the covenants and other terms of their
respective debt instruments, to make cash payments with respect to the Notes,
the Existing Subordinated Notes and the Discount Notes and to satisfy other
debt obligations will depend on the future performance of the Company. In the
event the Company fails to comply with the various covenants contained in the
Senior Credit Agreements, the Indenture or the Existing Indentures (as
hereinafter defined), 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 the Indenture or any of the Existing Indentures is an event of
default under the Senior Credit Agreements and vice versa. The Senior Credit
Agreements prohibit the repayment, purchase, redemption, defeasance or other
payment of any of the principal of the Notes, the Existing Subordinated Notes
or the Discount Notes at any time prior to their stated maturity. See
"Description of the Notes" and "Description of Other Indebtedness."
SUBORDINATION; RANKING
The Notes are general unsecured obligations of Sterling and are subordinated
in right of payment to all Senior Debt, including all indebtedness of Sterling
under the Senior Credit Agreements, and pari passu with all existing and
future senior subordinated indebtedness of Sterling, including the Existing
Subordinated Notes. In addition, the holders of the Notes effectively rank
junior to all creditors of Sterling's subsidiaries, including trade creditors.
As of December 31, 1996, after giving pro forma effect to the AFB Acquisition
and the Offering and the application of the proceeds therefrom, approximately
$287.6 million of Senior Debt and approximately $425 million of senior
subordinated indebtedness (including the Notes) would have been outstanding.
The Indenture permits Sterling to incur additional Senior Debt, provided
certain conditions are met, and Sterling expects from time to time to incur
additional Senior Debt. In addition, the Indenture permits Senior Debt to be
secured. By reason of the subordination provisions of the Indenture, in the
event of the insolvency, liquidation, reorganization, dissolution or other
winding-up of Sterling, 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."
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 only raw material for the Company's
petrochemical and pulp chemical products which is produced by the Company is
methanol, which is used in the production of acetic acid. The major raw
materials used by the Company in the production of its petrochemical products
are all commodity chemicals 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.
Although no assurances can be given, the Company believes that it will
continue to secure adequate supplies of all its raw materials at acceptable
prices. The primary raw material for acrylic fibers is acrylonitrile, which is
currently produced by the Company. However, as part of the AFB Acquisition,
the Company assumed an existing acrylonitrile supply agreement, which expires
February 28, 2002, pursuant to which Sterling Fibers will purchase all of the
Santa Rosa Plant's requirements for acrylonitrile from Cytec. Upon the
expiration of such supply contract, the Company expects to supply all of
Sterling Fibers' acrylonitrile requirements from the Texas City Plant.
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CYCLICAL MARKETS FOR PRODUCTS; CAPACITY INCREASES ON KEY PETROCHEMICAL
PRODUCTS
The prices of the Company's petrochemical and pulp chemical products have
been cyclical and sensitive to overall supply relative to demand and the level
of general business activity. Large global capacity additions of styrene and
acrylonitrile are projected to be completed in fiscal years 1997 and 1998. For
styrene, approximately 7.2 billion pounds of new capacity is expected and, for
acrylonitrile, approximately 940 million pounds of new capacity is expected.
Sterling believes that these announced global capacity additions in styrene
and acrylonitrile will result in overcapacity for these markets in fiscal
years 1997 and 1998. The resulting impact on prices and margins began to
affect the Company's results of operations negatively in the last half of
fiscal 1996.
HIGHLY COMPETITIVE INDUSTRY
The industries in which the Company operates are 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 competitiveness of Sterling Fibers with respect to its
specialty textiles and technical fibers products (which are its higher margin
products) is maintained, to a significant extent, through the exclusive
ownership or use of certain product and manufacturing technology. If
competitors of Sterling Fibers gain access to the use of similar technology,
or render such technology obsolete through the introduction of superior
technology, the financial condition of Sterling Fibers would be materially
affected in an adverse manner.
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, 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 the Texas City Plant would
not have a material adverse effect on the Company's financial condition and
results of operations.
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. The financing for such acquisitions will likely affect the Company's
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. Based on the Company's pro forma results of operations for
the four quarters ended December 31, 1996, the restrictions contained in the
Indenture and the Existing Indentures currently operate to prevent the Company
from incurring any additional debt other than debt incurred under the Revolver
or pursuant to certain limited "baskets" and other exceptions. The Company
may, however, consummate additional acquisitions if the pro forma effect of
such an acquisition has a sufficient positive impact on certain financial
ratios under the Indenture and the Existing Indentures. Under limited
circumstances, the Company may also make additional acquisitions through the
incurrence of debt in Unrestricted Subsidiaries (as defined). In addition, the
Senior Credit Agreements further limit the Company's ability to incur
additional debt to finance such acquisitions.
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ENVIRONMENTAL AND SAFETY MATTERS
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. The
Company believes that its 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 on-site or off-site 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."
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. See "Business--Industry Overview--Pulp
Chemicals." 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 not an outright ban on chlorine-containing
compounds, regulations restricting AOX or chlorine derivatives in bleach plant
effluent should favor the use of chlorine dioxide, and 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. Sterling is not aware of any other
laws or regulations existing in North America which would restrict the use of
chlorine dioxide.
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 and
plasticizers production under long-term contracts with single customers. These
contracts are intended to provide some stability if demand for or prices of
these 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 1996, a significant portion of the
Company's production from the Texas City Plant was dedicated to multi-year
contracts with Monsanto Company ("Monsanto"), Bayer Corporation ("Bayer"), BP
Chemicals, Inc. ("BP") and BASF Corporation ("BASF"). 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. The Company and BP have recently
renewed their styrene sales and purchase agreement on substantially the same
terms but at approximately half the original volumes. During fiscal 1996, the
Company delivered approximately 10% of its styrene
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production to BP pursuant to this agreement. See "Business--Sales and
Marketing" and "Business--Contracts."
FOREIGN OPERATIONS, COUNTRY RISKS AND EXCHANGE RATE FLUCTUATIONS
Approximately 20% of the Company's fiscal 1996 revenues were derived from
its Canadian-based pulp chemical business and approximately 34% were derived
from export sales. Approximately 25% of the AFB's revenues were derived from
export sales in the fiscal year ended December 31, 1996. 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 chemical 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 laws, currency exchange and capital repatriation
laws and other relevant laws. While Sterling 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 interpretations
thereof, the Company may suffer adverse tax and financial consequences.
A portion of the Company's expenses and sales are denominated in Canadian
dollars and, accordingly, the Company's revenues, cash flows and earnings may
be affected by fluctuations in the exchange rate between the United States
dollar and the Canadian dollar, which may also have adverse tax consequences.
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 United
States 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 United States 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.
ABSENCE OF MARKET FOR THE EXCHANGE NOTES
There is no existing trading market for the Exchange Notes and there can be
no assurance regarding the future development of such a market for the
Exchange Notes, the ability of holders of the Exchange Notes to sell their
Exchange Notes or the price at which such holders may be able to sell their
Exchange Notes. If a market for the Exchange Notes does develop, future
trading prices will depend on many factors, including, among other things,
prevailing interest rates, the operating results of the Company, and the
market for similar securities. Sterling does not intend to apply for listing
of the Exchange Notes on any securities exchange or for quotation through The
Nasdaq Stock Market.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). All statements other than
statements of historical facts included in this Prospectus, including without
limitation the statements under "Prospectus Summary," "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the cyclical nature of the Company's industry, current
and future industry conditions and the potential effects of such matters on
the Company's business strategy, results of operations and financial position,
are forward-looking statements. Although Sterling believes that the
expectations reflected in the forward-looking statements contained herein are
reasonable, no assurance can be given that such expectations will prove to
have been correct. Certain important factors that could cause actual results
to differ materially from expectations ("Cautionary Statements") are stated
herein in conjunction with the forward-looking statements or are included
under "Risk Factors" or elsewhere in this Prospectus. All written and oral
forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by the Cautionary
Statements.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by Sterling on April 7, 1997, to the Initial
Purchasers pursuant to a Purchase Agreement, dated April 1, 1997, between
Sterling and the Initial Purchasers (the "Purchase Agreement"). The Initial
Purchasers subsequently resold all of the Old Notes to Qualified Institutional
Buyers and with a limited number of Institutional Accredited Investors, each
of whom agreed to comply with certain transfer restrictions and other
conditions. As a condition to the purchase of the Old Notes by the Initial
Purchasers, Sterling entered into a registration rights agreement with the
Initial Purchasers (the "Registration Rights Agreement"), which requires,
among other things, that promptly following the issuance and sale of the Old
Notes, Sterling file with the SEC the Registration Statement with respect to
the Exchange Notes, use its best efforts to cause the Registration Statement
to become effective under the Securities Act and, upon the effectiveness of
the Registration Statement, offer to the holders of the Old Notes the
opportunity to exchange their Old Notes for a like principal amount of
Exchange Notes, which will be issued without a restrictive legend and may be
reoffered and resold by the holder without restrictions or limitations under
the Securities Act subject to certain exceptions described below. A copy of
the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The term "holder"
with respect to the Exchange Offer means any person in whose name Old Notes
are registered on Sterling's books or any other person who has obtained a
properly completed bond power from the registered holder or any person whose
Old Notes are held of record by the Depositary who desires to deliver such Old
Notes by book-entry transfer of the Depositary. The Old Notes provide that if,
by October 4, 1997, (i) the Exchange Offer has not been consummated, or (ii) a
shelf registration statement has not been declared effective, the interest
rate on the Old Notes will increase by 0.50% per annum from and including
October 4, 1997 until but excluding the date the Exchange Offer is consummated
or a shelf registration statement is declared effective.
Based on existing interpretations of the Securities Act by the staff of the
SEC set forth in several no-action letters to third parties, and subject to
the immediately following sentence, Sterling believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by a holder thereof (other than
(i) a broker-dealer who purchased such Old Notes directly from Sterling for
resale pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is an "affiliate" (within the meaning of
Rule 405 of the Securities Act) of Sterling), without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that the holder is acquiring the Exchange Notes in its ordinary
course of business and is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes. However, any purchaser of Old Notes who is an affiliate of
Sterling or who intends to participate in the Exchange Offer for the purpose
of distributing the Exchange Notes, or any broker-dealer who purchased the Old
Notes from Sterling to resell pursuant to Rule 144A or any other available
exemption under the Securities Act, (i) will not be able to rely on the
interpretations by the staff of the SEC set forth in the above-mentioned no-
action letters, (ii) will not be able to tender its Old Notes in the Exchange
Offer and (iii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer of
the Old Notes unless such sale or transfer is made pursuant to an exemption
from such requirements. Accordingly, any holder who tenders in the Exchange
Offer with the intention to participate, or for the purpose of participating,
in a distribution of the Exchange Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. See "Plan of Distribution."
As a result of the filing and effectiveness of the Registration Statement of
which this Prospectus is a part, Sterling will not be required to pay an
increased interest rate on the Old Notes. Following the consummation of the
Exchange Offer, holders of Old Notes not tendered will not have any further
registration rights except in certain limited circumstances requiring the
filing of a Shelf Registration Statement (as defined herein), and the Old
Notes will continue to be subject to certain restrictions on transfer. See
"Description of the Notes-- Registered Exchange Offer; Registration Rights."
Accordingly, the liquidity of the market for the Old Notes could be adversely
affected.
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TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, Sterling will accept all Old Notes properly
tendered and not withdrawn prior to 5:00 p.m. New York City time, on the
Expiration Date. After authentication of the Exchange Notes by the Trustee or
an authenticating agent, Sterling will issue and deliver $1,000 principal
amount of Exchange Notes in exchange for each $1,000 principal amount of
outstanding Old Notes accepted in the Exchange Offer. Holders may tender some
or all of their Old Notes pursuant to the Exchange Offer in denominations of
$1,000 and integral multiples thereof.
Each holder of Old Notes (other than certain specified holders) who wishes
to exchange Old Notes for Exchange Notes in the Exchange Offer will be
required to represent that (i) it is not an affiliate of Sterling, (ii) any
Exchange Notes to be received by it were acquired in the ordinary course of
its business and (iii) it has no arrangement or understanding with any person
to participate in the distribution (within the meaning of the Securities Act)
of the Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes. See "Plan of Distribution."
The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Old Notes except that the offering of
the Exchange Notes has been registered under the Securities Act, and the
Exchange Notes will therefore not be subject to transfer restrictions,
registration rights and certain provisions relating to an increase in the
stated interest rate on the Old Notes under certain circumstances. The
Exchange Notes will evidence the same debt as the Old Notes. The Exchange
Notes will be issued under and entitled to the benefits of the Indenture.
As of the date of this Prospectus, $150,000,000 aggregate principal amount
of the Old Notes is outstanding. In connection with the issuance of the Old
Notes, Sterling arranged for the Series A Notes to be issued and transferable
in book-entry form through the facilities of the Depositary, acting as
depositary. The Exchange Notes will also be issuable and transferable in book-
entry form through the Depositary.
This Prospectus, together with the accompanying Letter of Transmittal, is
initially being sent to all registered holders as of the close of business on
, 1997. Sterling intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act, and the rules
and regulations of the SEC thereunder, including Rule 14e-1, to the extent
applicable. The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered, and holders of the Old Notes do
not have any appraisal or dissenters' rights under the General Corporation Law
of the State of Delaware or under the Indenture in connection with the
Exchange Offer. Sterling shall be deemed to have accepted validly tendered Old
Notes when, as and if Sterling has given oral or written notice thereof to the
Exchange Agent. See "-- Exchange Agent." The Exchange Agent will act as agent
for the tendering holders for the purpose of receiving Exchange Notes from
Sterling and delivering Exchange Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, at Sterling's
cost, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. Sterling will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "--Solicitation of Tenders, Fees and Expenses."
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NEITHER THE BOARD OF DIRECTORS OF STERLING NOR STERLING MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE
OFFER. MOREOVER, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION.
HOLDERS OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT
TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD NOTES TO TENDER
AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING
WITH THEIR ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND
REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1997, unless Sterling, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date to
which the Exchange Offer is extended. Sterling may extend the Exchange Offer
at any time and from time to time by giving oral or written notice to the
Exchange Agent and by timely public announcement.
Sterling expressly reserves the right, in its sole discretion (i) to delay
acceptance of any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer and to refuse to accept Old Notes not previously accepted, if
any of the conditions set forth herein under "--Termination" shall have
occurred and shall not have been waived by Sterling (if permitted to be waived
by Sterling), by giving oral or written notice of such delay, extension or
termination to the Exchange Agent and (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written
notice thereof by Sterling to the registered holders of the Old Notes. If the
Exchange Offer is amended in a manner determined by Sterling to constitute a
material change, Sterling will promptly disclose such amendment in a manner
reasonably calculated to inform the holders of such amendment and Sterling
will extend the Exchange Offer to the extent required by law.
Without limiting the manner in which Sterling may choose to make public
announcements of any delay in acceptance, extension, termination or amendment
of the Exchange Offer, Sterling shall have no obligation to publish, advise,
or otherwise communicate any such public announcement, other than by making a
timely release thereof to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate of 11 1/4% per annum,
payable semi-annually on April 1 and October 1 of each year, commencing
October 1, 1997. Holders of Exchange Notes of record on September 15, 1997,
will receive on October 1, 1997, an interest payment in an amount equal to (x)
the accrued interest on such Exchange notes from the date of issuance thereof
to October 1, 1997, plus (y) the accrued interest on the previously held Old
Notes from the date of issuance of such Old Notes (April 7, 1997) to the date
of exchange thereof. Interest will not be paid on Old Notes that are accepted
for exhange. The Notes mature on April 1, 2007.
PROCEDURES FOR TENDERING
Each holder of Old Notes wishing to accept the Exchange Offer must complete,
sign and date the Letter of Transmittal, or a facsimile thereof, in accordance
with the instructions contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such facsimile, together with the Old
Notes to be exchanged and any other required documentation, to Fleet National
Bank, as Exchange Agent, at the address set forth herein and therein or effect
a tender of Old Notes pursuant to the procedures for book-entry transfer as
provided for herein and therein. By executing the Letter of Transmittal, each
holder will represent to Sterling that, among other things, the Exchange Notes
acquired pursuant to the Exchange Offer are being acquired in the ordinary
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course of business of the person receiving such Exchange Notes, whether or not
such person is the holder, that neither the holder nor any such other person
has any arrangement or understanding with any person to participate in the
distribution of such Exchange Notes and that neither the holder nor any such
other person is an "affiliate," as defined in Rule 405 under the Securities
Act, of Sterling.
Any financial institution that is a participant in the Depositary's Book-
Entry Transfer Facility system may make book-entry delivery of the Old Notes
by causing the Depositary to transfer such Old Notes into the Exchange Agent's
account in accordance with the Depositary's procedure for such transfer.
Although delivery of Old Notes may be effected through book-entry transfer
into the Exchange Agent's account at the Depositary, the Letter of Transmittal
(or facsimile thereof), with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
Exchange Agent at its address set forth herein under "--Exchange Agent" prior
to 5:00 p.m., New York City time, on the Expiration Date. DELIVERY OF
DOCUMENTS TO THE DEPOSITARY IN ACCORDANCE WITH ITS PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Only a holder may tender its Old Notes in the Exchange Offer. To tender in
the Exchange Offer, a holder must complete, sign and date the Letter of
Transmittal or a facsimile thereof, have the signatures thereof guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Old Notes (unless
such tender is being effected pursuant to the procedure for book-entry
transfer) and any other required documents, to the Exchange Agent, prior to
5:00 p.m., New York City time, on the Expiration Date.
The tender by a holder will constitute an agreement between such holder,
Sterling and the Exchange Agent in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal. If less than
all of the Old Notes are tendered, a tendering holder should fill in the
amount of Old Notes being tendered in the appropriate box on the Letter of
Transmittal. The entire amount of Old Notes delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated.
THE LETTER OF TRANSMITTAL WILL INCLUDE REPRESENTATIONS TO STERLING THAT,
AMONG OTHER THINGS, (1) THE EXCHANGE NOTES ACQUIRED PURSUANT TO THE EXCHANGE
OFFER ARE BEING ACQUIRED IN THE ORDINARY COURSE OF BUSINESS OF THE PERSON
RECEIVING SUCH EXCHANGE NOTES (WHETHER OR NOT SUCH PERSON IS THE HOLDER), (2)
NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS ENGAGED IN, INTENDS TO ENGAGE
IN OR HAS ANY ARRANGEMENT
OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE DISTRIBUTION OF SUCH
EXCHANGE NOTES, (3) NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS AN
"AFFILIATE," AS DEFINED IN RULE 405 UNDER THE SECURITIES ACT, OF STERLING AND
(4) IF THE TENDERING HOLDER IS A BROKER OR DEALER (AS DEFINED IN THE EXCHANGE
ACT) (A) IT ACQUIRED THE OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-
MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND (B) IT HAS NOT ENTERED INTO
ANY ARRANGEMENT OR UNDERSTANDING WITH STERLING OR ANY "AFFILIATE" THEREOF
(WITHIN THE MEANING OF RULE 405 UNDER THE SECURITIES ACT) TO DISTRIBUTE THE
EXCHANGE NOTES TO BE RECEIVED IN THE EXCHANGE OFFER. IN THE CASE OF A BROKER-
DEALER THAT RECEIVES EXCHANGE NOTES FOR ITS OWN ACCOUNT IN EXCHANGE FOR OLD
NOTES WHICH WERE ACQUIRED BY IT AS A RESULT OF MARKET-MAKING OR OTHER TRADING
ACTIVITIES, THE LETTER OF TRANSMITTAL WILL ALSO INCLUDE AN ACKNOWLEDGMENT THAT
THE BROKER-DEALER WILL DELIVER A COPY OF THIS PROSPECTUS IN CONNECTION WITH
THE RESALE BY IT OF EXCHANGE NOTES RECEIVED PURSUANT TO THE EXCHANGE OFFER;
HOWEVER, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH HOLDER WILL
NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE
SECURITIES ACT. SEE "PLAN OF DISTRIBUTION."
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDERS. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE DELIVERY TO THE EXCHANGE AGENT PRIOR TO
24
<PAGE>
THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO
STERLING. HOLDERS MAY ALSO REQUEST THAT THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES EFFECT SUCH TENDER FOR HOLDERS,
IN EACH CASE AS SET FORTH HEREIN AND IN THE LETTER OF TRANSMITTAL.
Any beneficial owner whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such
owner's name or obtain a properly completed bond power from the registered
holder. The transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, 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" within the meaning of
Rule 17Ad-15 under the Exchange Act (each an "Eligible Institution"), unless
the Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" of the Letter of Transmittal
or (ii) for the account of an Eligible Institution. If the Letter of
Transmittal is signed by a person other than the registered holder listed
therein, such Old Notes must be endorsed or accompanied by appropriate bond
powers which authorize such person to tender the Old Notes on behalf of the
registered holder, in either case signed as the name of the registered holder
or holders appears on the Old Notes. If the Letter of Transmittal or any Old
Notes or bond powers are signed or endorsed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, such persons should
so indicate when signing, and unless waived by Sterling, evidence satisfactory
to Sterling of their authority to so act must be submitted with such Letter of
Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be
determined by Sterling in its sole discretion, which determination will be
final and binding. Sterling reserves the absolute right to reject any and all
Old Notes not properly tendered or any Old Notes Sterling's acceptance of
which would, in the opinion of counsel for Sterling, be unlawful. Sterling
also reserves the absolute right to waive any irregularities or conditions of
tender as to particular Old Notes. Sterling's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as Sterling shall determine. Although Sterling intends
to notify holders of defects or irregularities with respect to tenders of Old
Notes, neither Sterling, the Exchange Agent nor any other person shall be
under any duty to give notification of defects or irregularities with respect
to tenders of Old Notes, nor shall any of them incur any liability for failure
to give such notification. Tenders of Old Notes will not be deemed to have
been made until such irregularities have been cured or waived. Any Old Notes
received by the Exchange Agent that Sterling determines are not properly
tendered or the tender of which is otherwise rejected by Sterling and as to
which the defects or irregularities have not been cured or waived by Sterling
will be returned by the Exchange Agent to the tendering holder unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, Sterling reserves the right in its sole discretion (a) to
purchase or make offers for any Old Notes that remain outstanding subsequent
to the Expiration Date, or, as set forth under "--Termination," terminate the
Exchange Offer and (b) to the extent permitted by applicable law, to purchase
Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers may differ from the terms
of the Exchange Offer.
25
<PAGE>
BOOK-ENTRY TRANSFER
Sterling understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the Old
Notes at the DTC (the "Book-Entry Transfer Facility") for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Old Notes by causing such
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account with respect to the Old Notes in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. ALTHOUGH DELIVERY OF OLD
NOTES MAY BE EFFECTED THROUGH BOOK-ENTRY TRANSFER INTO THE EXCHANGE AGENT'S
ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY, AN APPROPRIATE LETTER OF
TRANSMITTAL PROPERLY COMPLETED AND DULY EXECUTED WITH ANY REQUIRED SIGNATURE
GUARANTEE AND ALL OTHER REQUIRED DOCUMENTS MUST IN EACH CASE BE TRANSMITTED TO
AND RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT AT ITS ADDRESS SET FORTH BELOW
ON OR PRIOR TO THE EXPIRATION DATE, OR, IF THE GUARANTEED DELIVERY PROCEDURES
DESCRIBED BELOW ARE COMPLIED WITH, WITHIN THE TIME PERIOD PROVIDED UNDER SUCH
PROCEDURES. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter
of Transmittal or any other required documents to the Exchange Agent prior to
the Expiration Date, or who cannot complete the procedure for book-entry
transfer on a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmittal, mail or hand delivery)
setting forth the name and address of the holder, the certificate number or
numbers of such holder's Old Notes and the principal amount of such Old
Notes tendered, stating that the tender is being made thereby, and
guaranteeing that, within three New York Stock Exchange ("NYSE") trading
days after the Expiration Date, the Letter of Transmittal (or facsimile
thereof), together with the certificate(s) representing the Old Notes to be
tendered in proper form for transfer (or confirmation of a book-entry
transfer into the Exchange Agent's account at the Depositary of Old Notes
delivered electronically) and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Old Notes in proper form for transfer (or confirmation of a book-
entry transfer into the Exchange Agent's account at the Depositary of Old
Notes delivered electronically) and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within three NYSE
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be received by the Exchange Agent at its address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to
be withdrawn (including the certificate number or
26
<PAGE>
numbers and principal amount of such Old Notes or, in the case of Old Notes
transferred by book-entry transfer, the name and number of the account at the
Depositary to be credited), (iii) be signed by the Depositor in the same
manner as the original signature on the Letter of Transmittal by which such
Old Notes were tendered (including any required signature guarantee) or be
accompanied by documents of transfer sufficient to permit the Trustee with
respect to the Old Notes to register the transfer of such Old Notes into the
name of the Depositor withdrawing the tender and (iv) specify the name in
which any such Old Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such withdrawal notices will be determined by Sterling,
whose determination shall be final and binding on all parties. Any Old Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer, and no Exchange Notes will be issued with respect thereto
unless the Old Notes so withdrawn are validly retendered. Any Old Notes that
have been tendered but are not accepted for exchange will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, Sterling will not be
required to accept for exchange, or to exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes if, in Sterling's judgment, any of the
following conditions has occurred or exists or has not been satisfied: (i)
that the Exchange Offer, or the making of any exchange by a holder, violates
applicable law or any applicable interpretation of the staff of the SEC, (ii)
that any action or proceeding shall have been instituted or threatened in any
court or by or before any governmental agency or body with respect to the
Exchange Offer, (iii) that there has been adopted or enacted any law, statute,
rule or regulation that can reasonably be expected to impair the ability of
Sterling to proceed with the Exchange Offer, (iv) that there has been declared
by United States federal or Texas or New York state authorities a banking
moratorium; and (v) that trading on the New York Stock Exchange or generally
in the United States over-the-counter market has been suspended by order of
the SEC or any other governmental agency.
If Sterling determines that it may terminate the Exchange Offer for any of
the reasons set forth above, Sterling may (i) refuse to accept any Old Notes
and return any Old Notes that have been tendered to the holders thereof, (ii)
extend the Exchange Offer and retain all Old Notes tendered prior to the
Expiration Date of the Exchange Offer, subject to the rights of such holders
of tendered Old Notes to withdraw their tendered Old Notes or (iii) waive such
termination event with respect to the Exchange Offer and accept all properly
tendered Old Notes that have not been withdrawn. If such waiver constitutes a
material change in the Exchange Offer, Sterling will disclose such change by
means of a supplement to this Prospectus that will be distributed to each
registered holder, and Sterling will extend the Exchange Offer for a period of
five to ten business days, depending upon the significance of the waiver and
the manner of disclosure to the registered holders, if the Exchange Offer
would otherwise expire during such period.
27
<PAGE>
EXCHANGE AGENT
Fleet National Bank, the Trustee under the Indenture, has been appointed as
Exchange Agent for the Exchange Offer. In such capacity, the Exchange Agent
has no fiduciary duties and will be acting solely on the basis of directions
of Sterling. Requests for assistance and requests for additional copies of
this Prospectus or of the Letter of Transmittal should be directed to the
Exchange Agent addressed as follows:
By Mail: Fleet National Bank
Corporate Trust Operations
CT OP T06D
P.O. Box 1440
Hartford, Connecticut 06143
Attention: Patricia Williams
By Overnight Courier: Fleet National Bank
Corporate Trust Operations
CT OP T06D
1 Talcott Plaza
Hartford, Connecticut 06103
Attention: Patricia Williams
By Hand Delivery: Fleet National Bank
Corporate Trust Department
Customer Service Window
1 Talcott Plaza, 5th Floor
Hartford, Connecticut 06106
Attention: Patricia Williams
Facsimile Transmission: (860) 986-7908
Attention: Patricia
Williams
Information or Confirmation by Telephone: (860) 986-1271
Delivery to an address or facsimile number other than those listed above will
not constitute a valid delivery.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by Sterling. The principal solicitation pursuant to the Exchange Offer
is being made by mail. Additional solicitations may be made by officers and
regular employees of Sterling and its affiliates in person, by telegraph,
telephone or telecopier.
Sterling has not retained any dealer-manager in connection with the Exchange
Offer and will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. Sterling will, however, pay the
Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket costs and
expenses in connection therewith and will indemnify the Exchange Agent for all
losses and claims incurred by it as a result of the Exchange Offer. Sterling
may also pay brokerage houses and other custodians, nominees and fiduciaries
the reasonable out-of-pocket expenses incurred by them in forwarding copies of
this Prospectus, Letters of Transmittal and related documents to the
beneficial owners of the Old Notes and in handling or forwarding tenders for
exchange.
The expenses to be incurred in connection with the Exchange Offer, including
fees and expenses of the Exchange Agent and Trustee and accounting and legal
fees and printing costs, will be paid by Sterling.
Sterling will pay all transfer taxes, if any, applicable to the exchange of
Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered holder of the Old
Notes tendered, or if tendered Old Notes are registered in the name of any
28
<PAGE>
person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed by Sterling directly to such
tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, as reflected in Sterling's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by Sterling as a result of the consummation of the Exchange Offer.
The expenses of the Exchange Offer will be amortized by Sterling over the term
of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Old Notes
are urged to consult their financial and tax advisors in making their own
decisions as to what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer,
Sterling will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of the Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes and will be entitled to
all the rights, and subject to the limitations applicable thereto, under the
Indenture and the Registration Rights Agreement, except for any such rights
under the Registration Rights Agreement that by their terms terminate or cease
to have further effect as a result of the making of this Exchange Offer. See
"Description of the Notes." All untendered Old Notes will continue to be
subject to the restrictions on transfer set forth in the Indenture. The Old
Notes may not be offered, resold, pledged or otherwise transferred, prior to
the date that is two years after the later of April 7, 1997 and the last date
on which Sterling or any "affiliate" (within the meaning of Rule 144 of the
Securities Act) of Sterling was the owner of such Old Note except (i) to
Sterling, (ii) pursuant to a registration statement which has been declared
effective under the Securities Act, (iii) to Qualified Institutional Buyers in
reliance upon the exemption from the registration requirements of the
Securities Act provided by Rule 144A, (iv) to Institutional Accredited
Investors in transactions exempt from the registration requirements of the
Securities Act, (v) in transactions complying with the provisions of
Regulation S under the Securities Act or (vi) pursuant to any other available
exemption from the registration requirements under the Securities Act. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, the
liquidity of the trading market for untendered Old Notes could be adversely
affected.
Sterling may in the future seek to acquire untendered Old Notes in the open
market or through privately negotiated transactions, through subsequent
exchange offers or otherwise. Sterling intends to make any such acquisitions
of Old Notes in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the SEC thereunder, including Rule l4e-1,
to the extent applicable. Sterling has no present plan to acquire any Old
Notes that are not tendered in the Exchange Offer or to file a registration
statement to permit resales of any Old Notes that are not tendered pursuant to
the Exchange Offer.
29
<PAGE>
USE OF PROCEEDS
Sterling will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, Sterling will receive in exchange Old
Notes in like principal amount, the terms of which are identical in all
material respects to the Exchange Notes except that the offering of the
Exchange Notes has been registered under the Securities Act, and the Exchange
Notes will therefore not be subject to transfer restrictions, registration
rights and certain provisions relating to an increase in the stated interest
rate on the Old Notes provided for under certain circumstances. The Old Notes
surrendered in exchange for Exchange Notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the Exchange Notes will not
result in a change in the indebtedness of Sterling.
CAPITALIZATION
The following table sets forth (i) the consolidated historical
capitalization of Sterling and (ii) the unaudited consolidated historical
capitalization of Sterling as adjusted to give effect to the AFB Acquisition
and the Offering and the application of the proceeds therefrom as if they had
occurred on December 31, 1996. See "Pro Forma Consolidated Financial
Statements and Other Information" and Sterling's unaudited consolidated
financial statements and the related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Long-term debt:
Revolver.................................................. $ 3.0 $ 3.0
Term Loans................................................ 347.5 278.5
ESOP Term Loan............................................ 6.1 6.1
Notes..................................................... -- 150.0
Existing Subordinated Notes............................... 275.0 275.0
Note payable to Holdings.................................. 3.0 3.0
------- ------
Total long-term debt(a)..................................... 634.6 715.6
Common Stock held by New ESOP............................... 6.5 7.2
Less: Unearned compensation............................... (6.1) (6.8)
Stockholder's equity:
Common stock.............................................. -- --
Additional paid-in capital................................ (165.3) (146.0)
Retained earnings (deficit)............................... (3.0) (7.5)
Accumulated translation adjustment........................ (20.0) (20.0)
------- ------
Total stockholder's equity (deficiency in assets)....... (188.3) (173.5)
------- ------
Total capitalization........................................ $ 446.7 $542.5
======= ======
</TABLE>
- --------
(a) Includes pro forma current maturities of approximately $3.0 million.
30
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The summary historical consolidated financial information set forth below
has been derived from previously published consolidated financial statements
of Holdings and Sterling, 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, 1996 has been derived from audited consolidated financial
statements of Holdings, (ii) as of September 30, 1996 and for the period from
May 14, 1996 (date of incorporation) to September 30, 1996 has been derived
from the audited consolidated financial statements of Sterling, (iii) as of
December 31, 1995 and for the three-month period then ended has been derived
from the unaudited consolidated financial statements of Holdings and (iv) as
of December 31, 1996 and for the three-month period then ended has been
derived from unaudited consolidated financial statements of Holdings and
Sterling. In the opinion of management the unaudited consolidated financial
statements of Holdings and Sterling have been prepared on a basis consistent
with the audited consolidated financial statements of Holdings and Sterling
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 results to be expected for the
full year.
<TABLE>
<CAPTION>
HOLDINGS
THREE MONTHS STERLING
HOLDINGS STERLING ENDED THREE MONTHS
YEAR ENDED SEPTEMBER 30, MAY 14 TO DECEMBER 31, ENDED
---------------------------------------- SEPTEMBER 30, -------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996(A) 1995 1996 1996
------ ------ ------ -------- ------ ------------- ------ ------ ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $430.5 $518.8 $700.8 $1,030.2 $790.4 $ 83.4 $191.5 $186.9 $186.9
Cost of goods sold...... 402.6 477.9 606.9 758.6 679.0 83.0 162.1 171.8 171.8
------ ------ ------ -------- ------ ------ ------ ------ ------
Gross profit........... 27.9 40.9 93.9 271.6 111.4 0.4 29.4 15.1 15.1
Selling, general and
administrative
expenses............... 10.3 25.5 24.4 31.7 31.7 3.4 7.8 6.5 6.1
SAR program expense
(benefit).............. -- -- 21.8 (2.8) 8.6 -- 0.2 -- --
Merger related expenses. -- -- -- -- 3.6 -- -- -- --
Write-off of assets..... -- -- -- -- 3.7 -- -- -- --
------ ------ ------ -------- ------ ------ ------ ------ ------
Income from operations. 17.6 15.4 47.7 242.7 63.8 (3.0) 21.4 8.6 9.0
Interest and debt
related expenses, net
of interest income..... 8.4 22.4 22.1 14.6 13.4 1.6 1.6 18.6 14.8
Other (income) expense.. -- -- (2.6) -- -- (5.2) -- (0.3) (2.1)
------ ------ ------ -------- ------ ------ ------ ------ ------
Income (loss) before
taxes and
extraordinary item.... 9.2 (7.0) 28.2 228.1 50.4 0.6 19.8 (9.7) (3.7)
Provision (benefit) for
income taxes........... 4.7 (1.6) 9.1 75.0 16.9 0.4 7.0 (2.5) (0.5)
------ ------ ------ -------- ------ ------ ------ ------ ------
Income (loss) before
extraordinary item and
change in accounting
principle............. 4.5 (5.4) 19.1 153.1 33.5 0.2 12.8 (7.2) (3.2)
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) (1.9) -- -- -- --
------ ------ ------ -------- ------ ------ ------ ------ ------
Net income............. $ (5.9) $ (5.4) $ 19.1 $ 150.0 $ 31.6 $ 0.2 $ 12.8 $ (7.2) $ (3.2)
====== ====== ====== ======== ====== ====== ====== ====== ======
PER SHARE DATA(B)(C):
Income (loss) before
extraordinary item and
change in accounting
principle............. $ 0.08 $(0.10) $ 0.34 $ 2.76 $ 0.66 $(0.68) $ 0.23
Cumulative effect of
change in accounting
for post-retirement
benefits other than
pensions.............. (0.19) -- -- -- -- -- --
Extraordinary item,
loss on early
extinguishment of
debt, net of tax...... -- -- -- (0.06) (0.04) -- --
------ ------ ------ -------- ------ ------ ------
Net income (loss)...... $(0.11) $(0.10) $ 0.34 $ 2.70 $ 0.62 $(0.68) $ 0.23
====== ====== ====== ======== ====== ====== ======
OTHER DATA:
EBITDA (d)............. $ 41.0 $ 52.5 $108.6 $ 281.4 $121.2 $ 1.5 $ 32.1 $ 19.2 $ 19.6
Depreciation and
amortization (e)...... 23.4 37.1 39.1 41.5 41.5 4.5 10.5 10.6 10.6
Capital expenditures... 16.0 12.2 12.3 54.0 96.0 6.4 20.4 18.5 18.5
Ratio of earnings to
fixed charges (f)..... 1.8x -- 2.1x 12.6x 3.4x 1.2x 7.6x -- --
Deficiency of earnings
to cover fixed
charges............... -- 7.3 -- -- -- -- -- 11.9 5.9
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
HOLDINGS
THREE MONTHS STERLING
HOLDINGS STERLING ENDED THREE MONTHS
YEAR ENDED SEPTEMBER 30, MAY 14 TO DECEMBER 31, ENDED
---------------------------------- SEPTEMBER 30, ------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996(A) 1995 1996 1996
------ ------ ------ ------ ------ ------------- ------ ------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Styrene................ $ 151 $ 144 $ 288 $ 467 $ 323 $ 35 $ 74 $ 77 $ 77
Acrylonitrile.......... 137 124 138 251 159 21 45 26 26
Acetic acid............ 66 64 76 94 65 4 13 9 9
Sodium chlorate........ 9 81 83 102 112 13 28 31 31
Annual capacity at
period end (MMlbs):
Styrene................ 1,500 1,500 1,500 1,500 1,700 1,700 1,500 1,700 1,700
Acrylonitrile.......... 700 700 700 740 740 740 740 740 740
Acetic acid............ 600 600 600 600 800 800 600 800 800
Sodium chlorate (000
tons)................. 340 340 340 350 350 350 350 350 350
Sales volume (MMlbs):
Styrene................ 1,213 1,191 1,460 1,433 1,685 188 398 408 408
Acrylonitrile.......... 573 528 668 739 661 103 146 113 113
Acetic acid............ 620 578 599 635 516 80 62 191 191
Sodium chlorate (000
tons)................. 26 248 294 336 330 37 86 85 85
</TABLE>
<TABLE>
<CAPTION>
HOLDINGS HOLDINGS
SEPTEMBER 30, STERLING DECEMBER 31, STERLING
----------------------------------- SEPTEMBER 30, -------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996 1995 1996 1996
------ ------ ------ ------ ------- ------------- ------ ------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 56.8 $ 31.0 $ 20.8 $ 74.6 $ 76.9 $ 77.3 $ 68.0 $ 67.1 $ 72.0
Net property, plant and
equipment.............. 343.8 314.3 291.1 309.1 365.8 365.8 318.2 374.4 374.4
Total assets............ 608.5 546.8 580.9 609.9 689.7 685.5 611.2 714.6 713.7
Total long-term debt
(including current
portion)............... 326.5 291.9 226.4 121.4 726.3 631.5 113.6 730.1 634.6
Stockholders' equity
(deficiency in assets). 87.3 70.3 89.7 239.3 (272.4) (184.3) 250.1 (281.0) (188.3)
</TABLE>
- -------
(a) Sterling was organized on May 14, 1996; however, prior to August 21, 1996
Sterling had no operating activities other than those related to the 1996
Recapitalization.
(b) The per share data presented applies to Holdings only. Because all shares
of Sterling's common stock are owned by Holdings, per share data for
Sterling would not be meaningful and has therefore not been presented.
(c) Due to the effect of the Merger on the number of outstanding shares of the
common stock of Holdings, per share information for the years ended
September 30, 1995 and 1996 and the three months ended December 31, 1996
may not be comparable. Weighted average shares outstanding for the years
ended September 30, 1995 and 1996 and the three months ended December 31,
1995 and 1996 were 55,674,000, 50,700,000, 55,674,000 and 10,608,000,
respectively.
(d) EBITDA represents income from operations before taking into consideration
depreciation and amortization and the impact of accruals for the Company's
SAR program and certain merger expenses and write-offs of assets. See
footnote (e). The SAR program was terminated in connection with the
Merger. 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.
(e) Depreciation and amortization expense included herein excludes the
amortization of deferred debt financing costs which is included in
interest expense.
(f) 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.
32
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION
The unaudited pro forma consolidated statements of operations presented
below for the year ended September 30, 1996 and for the three month period
ended December 31, 1996, have been derived from the consolidated financial
statements of Sterling included elsewhere herein and from the unaudited
financial information of the AFB and give effect to the 1996 Recapitalization,
the AFB Acquisition and the Offering and the application of the proceeds
thereof as if they had occurred on October 1, 1995. The unaudited pro forma
consolidated balance sheet as of December 31, 1996 has been derived from the
consolidated balance sheet included elsewhere herein and from the audited
balance sheet of the AFB and gives effect to the AFB Acquisition and the
Offering and the application of the proceeds thereof as if they had occurred
on December 31, 1996. The unaudited pro forma consolidated financial data do
not necessarily represent what Sterling's financial position or results of
operations would have been if the 1996 Recapitalization, the AFB Acquisition
and the Offering and the application of the proceeds thereof had actually been
completed as of the date indicated and are not intended to project Sterling's
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 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 1996 Recapitalization as a
recapitalization. Accordingly, the historical basis of Sterling's assets and
liabilities has not been impacted by those transactions.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
STERLING STERLING
MAY 14 TO 1996 BEFORE AFB
SEPTEMBER 30, RECAPITALIZATION PRO FORMA AFB PRO FORMA STERLING
1996(1) ADJUSTMENTS ADJUSTMENTS HISTORICAL ADJUSTMENTS PRO FORMA
------------- ---------------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $83.4 $707.1 (a) $790.5 $136.5 $927.0
Cost of goods sold...... 83.0 596.0 (a) 679.0 113.5 (3.4)(d) 789.1
----- ------- ------ ------ ----- ------
Gross profit........... 0.4 111.1 111.5 23.0 3.4 137.9
----- ------- ------ ------ ----- ------
Expenses
Selling, general and
administrative
expenses............. 3.4 36.9 (a) 40.3 15.4 (3.3)(e) 52.4
Merger related
expenses............. 3.6 (a) 3.6 3.6
Write-off of assets... 3.7 (a) 3.7 3.7
----- ------- ------ ------ ----- ------
Total expenses....... 3.4 44.2 47.6 15.4 (3.3) 59.7
----- ------- ------ ------ ----- ------
Income (loss) from
operations.......... (3.0) 66.9 63.9 7.6 6.7 78.2
Interest and debt
related expenses....... 1.6 59.7(b) 61.3 11.1 (f) 72.4
Interest income from
parent................. (5.2) (5.2) (5.2)
----- ------- ------ ------ ----- ------
Income before income
taxes and extraordinary
item................... 0.6 7.2 7.8 7.6 (4.4) 11.0
Provision for income
taxes.................. 0.4 2.3(c) 2.7 1.1 (g) 3.8
----- ------- ------ ------ ----- ------
Income before
extraordinary item..... $ 0.2 $ 4.9 $ 5.1 $ 7.6 $(5.5) $ 7.2
===== ======= ====== ====== ===== ======
OTHER DATA:
EBITDA................ $ 1.5 $ 119.7 $121.2 $ 16.3 $ 3.3 $140.8
Capital expenditures.. 6.4 89.6 96.0 5.3 101.3
Depreciation and amor-
tization............. 4.5 37.0 41.5 8.7 (3.4) 46.8
Cash interest expense,
net (including capi-
talized interest).... 62.1 73.7
Ratio of EBITDA to in-
terest expense (in-
cluding capitalized
interest)............ 1.9x 1.8x
Ratio of EBITDA to
cash interest expense
(including capital-
ized interest)....... 2.0x 1.9x
Ratio of earnings to
fixed charges........ 1.1x 1.1x
</TABLE>
- -------
(1) Sterling was organized on May 14, 1996; however, prior to August 21, 1996
Sterling had no operating activities other than those related to the
Merger.
33
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
STERLING AFB PRO FORMA STERLING
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues.......................... $186.9 $32.8 $219.7
Cost of goods sold................ 171.8 31.5 (0.5)(d) 202.8
------ ----- ----- ------
Gross profit.................. 15.1 1.3 0.5 16.9
------ ----- ----- ------
Selling, general and
administrative expenses.......... 6.1 2.7 (1.0)(e) 7.8
------ ----- ----- ------
Income (loss) from operations. 9.0 (1.4) 1.5 9.1
------ ----- ----- ------
Interest and debt related
expenses......................... 14.8 2.8 (f) 17.6
Interest income from parent....... (2.1) (2.1)
------ ----- ----- ------
Income (loss) before income taxes. (3.7) (1.4) (1.3) (6.4)
Provision (benefit) for income
taxes............................ (0.5) (0.9)(g) (1.4)
------ ----- ----- ------
Net income (loss)................. $ (3.2) $(1.4) $(0.4) $ (5.0)
====== ===== ===== ======
OTHER DATA:
EBITDA.......................... $ 19.6 $ 0.4 $ 1.0 $ 21.0
Capital expenditures............ 18.5 1.1 19.6
Depreciation and amortization .. 10.6 1.8 (0.5) 11.9
Cash interest expense, net (in-
cluding capitalized interest).. 15.5 18.4
Ratio of EBITDA to interest
expense (including capitalized
interest)...................... 1.2x 1.1x
Ratio of EBITDA to cash interest
expense (including capitalized
interest)...................... 1.3x 1.1x
Deficiency of earnings to cover
fixed charges.................. $ 5.9 $ 8.6
</TABLE>
34
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
STERLING AFB PRO FORMA STERLING
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
ASSETS
------
<S> <C> <C> <C> <C>
Current Assets:
Cash................................. $ 2.5 $ 0.3 $ 1.6 (h) $ 2.6
(1.8)(j)
Accounts receivable.................. 138.1 22.5 160.6
Inventories.......................... 67.8 17.8 85.6
Prepaid expenses..................... 9.2 0.2 9.4
Deferred income tax benefit.......... 5.1 0.9 (0.9)(h) 5.1
------- ----- ------ -------
Total current assets............... 222.7 41.7 (1.1) 263.3
------- ----- ------ -------
Property, plant & equipment, net....... 374.4 (1.9) 74.7 (h) 447.2
Other assets........................... 116.6 12.3 (11.8)(h) 119.3
2.9 (i)
4.0 (h)
1.8 (j)
(6.5)(j)
------- ----- ------ -------
Total assets....................... $ 713.7 $52.1 $ 64.0 $ 829.8
======= ===== ====== =======
<CAPTION>
LIABILITIES AND STOCKHOLDER'S
EQUITY (DEFICIENCY IN ASSETS)
-----------------------------
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable..................... $ 72.8 $ 8.3 $ 81.1
Accrued liabilities.................. 62.5 4.8 67.3
Current maturities of long-term debt. 15.4 0.9 (i) 3.0
(13.3)(j)
------- ----- ------ -------
Total current liabilities.......... $ 150.7 $13.1 $(12.4) $ 151.4
------- ----- ------ -------
Long-term debt......................... 619.2 80.1 (i) 712.6
150.0 (j)
(136.7)(j)
Deferred income tax liability.......... 48.7 (2.0)(j) 46.7
Deferred credits and other liabilities. 83.0 9.2 92.2
Common stock held by ESOP.............. 6.5 0.7 (k) 7.2
Less: Unearned compensation............ (6.1) (0.7)(h) (6.8)
Stockholder's equity (deficiency in
assets):
Common stock, $0.01 par value........ -- --
Additional paid-in capital........... (165.3) 20.0 (h) (146.0)
(0.7)(k)
Retained earnings.................... (3.0) (4.5)(j) (7.5)
Accumulated translation adjustment... (20.0) (20.0)
Net investment by parent............. 29.8 (29.8)(h) --
------- ----- ------ -------
Total stockholder's equity
(deficiency in assets)............ (188.3) 29.8 (15.0) (173.5)
------- ----- ------ -------
Total liabilities and
stockholder's equity (deficiency
in assets)...................... $ 713.7 $52.1 $ 64.0 $ 829.8
======= ===== ====== =======
</TABLE>
35
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN MILLIONS)
(a) Represents adjustments to reflect operating activity of Holdings relating
to the assets which were transferred to Sterling as part of the 1996
Recapitalization between October 1, 1995 and the 1996 Recapitalization.
(b) Represents adjustments to reflect interest expense related to the Original
Credit Agreement and the Existing Subordinated Notes from October 1, 1995
through the 1996 Recapitalization.
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, 1996
------------------
<S> <C>
Interest expense on the Original Credit Agreement..... $29.8
Interest expense on the Existing Subordinated Notes... 32.3
-----
Pro forma cash interest expense (including
capitalized interest).............................. 62.1
Amortization of deferred financing costs.............. 3.3
-----
Pro forma interest expense.......................... 65.4
Less: Interest expense recorded....................... (1.6)
Capitalized interest................................ (4.1)
-----
Pro forma adjustment................................ $59.7
=====
</TABLE>
(c) Represents the adjustments necessary to tax effect the pro forma
adjustments and other operating results at a 35% statutory rate.
(d) Reflects the adjustment to depreciation resulting from the purchase price
allocation for the AFB Acquisition, which has been accounted for using the
purchase method of accounting.
(e) Reflects the elimination of corporate overhead allocations from Cytec, net
of the additional costs of the Company to replace the services provided by
Cytec.
(f) Represents net adjustments to interest expense as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1996
------------- ------------
<S> <C> <C>
Interest expense on the New Credit Agreement
(assumes 8.3% interest rate)................. $ 6.7 $1.7
Interest expense on the Notes (11.25% interest
rate)........................................ 16.9 4.2
Interest expense reduction upon the partial
prepayment under the Senior Credit Agreements
(assumes 8.0% interest rate)................. (12.0) (3.1)
Net decrease in amortization of deferred
financing costs.............................. (0.5) --
----- ----
$11.1 $2.8
===== ====
</TABLE>
(g) Represents the adjustments necessary to tax effect the AFB Acquisition and
the pro forma adjustments at a 35% statutory rate.
36
<PAGE>
(h) Represents estimated adjustments necessary to record the AFB Acquisition:
<TABLE>
<S> <C>
Sources of Funds
Cash from Holdings................................................. $10.0
Series A Preferred Stock of Holdings contributed to Sterling(1).... 10.0
------
Total Capital contribution from Holdings......................... 20.0
Borrowings under the New Credit Agreement.......................... 81.0
Excess cash........................................................ (1.9)
------
Total sources.................................................... $99.1
======
Uses of Funds
Cash paid to Cytec................................................. $83.4
Series A Preferred Stock of Holdings issued to Cytec(1)............ 10.0
Loan to the ESOP(2)................................................ 0.7
Transaction Costs.................................................. 5.0
------
$99.1
======
Consideration Paid:
Cash to Cytec...................................................... $ 83.4
Series A Preferred Stock to Cytec(1)............................... 10.0
Transaction costs.................................................. 2.1
------
Total consideration................................................ 95.5
Less: AFB equity................................................... (29.8)
------
Net Adjustment..................................................... $ 65.7
======
Allocation of Adjustment:
Property, plant and equipment, net................................. $ 74.7
Deferred income tax asset, current................................. (0.9)
Deferred income tax asset, noncurrent.............................. (11.8)
Cash retained by Cytec............................................. (0.3)
Other assets....................................................... 4.0
------
$ 65.7
======
</TABLE>
(1) Represents the contribution of 100,000 shares of Holdings'
Series A Preferred Stock to Sterling (par value $.01 and
liquidation preferences of $100 per share) which was
subsequently issued to Cytec as part of the AFB
Acquisition.
(2) Represents unearned compensation expense related to
Holdings Common Stock held by the New ESOP.
(i) Represents borrowings of $81 million under the New Credit Agreement to
complete the AFB Acquisition and related deferred financing costs of $2.9
million.
(j) Represents the incurrence of $150 million in Debt pursuant to the
Offering, the prepayment of $150 million of Senior Debt under the Senior
Credit Agreements and the related deferred financing costs of $1.8
million. Debt issuance costs of $6.5 million ($4.5 million net of tax)
related to the Senior Debt prepaid have been written off.
(k) Represents the proceeds from the purchase of an estimated .058 million
shares of Holdings Common Stock (as hereinafter defined) by the New ESOP
(as hereinafter defined) in connection with the AFB Acquisition. Holdings
Common Stock held by the New ESOP has been classified outside of permanent
equity because, under certain conditions, participants can require
Sterling to purchase for cash common stock distributed to them by the New
ESOP.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist in an understanding of the
Company's historical financial position and results of operations for each
year of the three-year period ended September 30, 1996 and the unaudited
three-month periods ended December 31, 1996 and 1995. The Company's historical
financial statements and notes thereto included elsewhere in this Prospectus
contain detailed information that should be referred to in conjunction with
the following discussion.
THE MERGER
Prior to August 21, 1996, the operations of Sterling were conducted by
Holdings. On August 21, 1996, STX Acquisition Corp., a Delaware corporation
formed in April 1996 by an investor group led by TSG and Unicorn, was merged
with and into Holdings. In connection with the Merger, Holdings was
recapitalized and all of the assets of Holdings were transferred to Sterling,
a wholly-owned subsidiary of Holdings. As a result, Holdings was reorganized
into a holding company whose only material asset is the capital stock of
Sterling. Holdings' only material liability is its obligation to repay the
Discount Notes, which were issued in connection with the Merger. Sterling and
its subsidiaries own substantially all of the consolidated operating assets
and are obligated for substantially all liabilities of the Company other than
the Discount Notes. The Merger and related financings were accounted for as a
recapitalization, with no change in the basis of the assets and liabilities of
Sterling. Other than the additional interest expense associated with the
Discount Notes, the results of operations for the Company are the same as
those for Sterling. Accordingly, the discussion that follows is applicable to
both entities, except as specifically noted. A separate discussion of the
results of operations for Sterling would not, in the opinion of Sterling,
provide any additional meaningful information.
The Merger was financed by the proceeds of bank term loans to Sterling of
$356.5 million, including an employee stock ownership plan term loan of $6.5
million, and amounts drawn against the Revolver of $6.4 million, each pursuant
to a new credit agreement (the "Original Credit Agreement"), an offering by
Sterling of $275.0 million of Existing Subordinated Notes, an offering by
Holdings of $191.8 million (initial proceeds of $100 million) representing
191,751 Units, with each unit consisting of one Discount Note and one warrant
to purchase three shares of the common stock, par value $.01 per share, of
Holdings ("Holdings Common Stock") for $0.01 per share beginning in August
1997 (each, a "Warrant"), a private placement of approximately $70.7 million
of Holdings Common Stock (the "Equity Private Placement"), and cash on hand of
$10.3 million. These proceeds were used to purchase Holdings's pre-Merger
common stock other than shares retained by pre-Merger stockholders of Holdings
($608.3 million), purchase other equity interests--primarily SARs ($14.6
million), repay debt outstanding prior to the Merger ($142.7 million), loan
monies to Sterling's newly formed employee stock ownership plan (the "New
ESOP") ($6.5 million) and pay fees and expenses ($46.8 million).
THE AFB ACQUISITION
In December 1996, the Company and Cytec entered into a purchase agreement
relating to the purchase by the Company of the AFB (the "AFB Purchase
Agreement"). The transaction closed on January 31, 1997, resulting in the
acquisition by the Company of the Santa Rosa Plant. The AFB recorded sales of
$139 million in the fiscal year ended December 31, 1996 (which was prior to
the acquisition of the AFB by the Company) and is one of two acrylic fibers
manufacturers in the United States. Cytec will supply acrylonitrile to
Sterling Fibers pursuant to a supply agreement assumed by Sterling Fibers in
connection with the AFB Acquisition that expires February 28, 2002. This
acquisition was financed through (i) the incurrence of $81 million of term
debt under a new Credit Agreement with substantially the same lenders as those
under the Original Credit Agreement (the "New Credit Agreement" and, together
with the Original Credit Agreement, the "Senior Credit Agreements"), the
issuance of $10 million (liquidation value) of Series A "pay in kind"
preferred stock of Holdings to Cytec and the sale of 833,334 shares of
Holdings Common Stock for $10 million pursuant to a private placement. The
Company also agreed to make certain annual payments to Cytec for three years,
each calculated as the positive amount, if any, equal to the excess of (a) 25%
of the excess of EBITDA for the applicable year over $20 million
38
<PAGE>
over (b) the amount of certain indemnification payments made under the AFB
Purchase Agreement. EBITDA for any year is increased if the Company fails to
make at least $5,666,667 in capital expenditures in connection with the AFB
during such year or makes certain sales of assets of the AFB in excess of
$500,000. The Company has used the purchase method to account for the
acquisition, and operating results of the AFB have been included with those of
the Company beginning February 1, 1997.
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 raw materials, and the level of
general worldwide 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
overcapacity and declining prices and margins. Large global capacity additions
of styrene and acrylonitrile are projected to be completed during fiscal years
1997 and 1998. For styrene, approximately 7.2 billion pounds of new capacity
is expected, and for acrylonitrile, approximately 940 million pounds of new
capacity is expected. Sterling believes that these announced global capacity
additions in styrene and acrylonitrile will result in overcapacity for these
markets in fiscal years 1997 and 1998. The resulting impact on prices and
margins began to negatively affect the Company's results in the last half of
fiscal 1996. Demand growth is generally driven by new applications and the
substitution of petrochemical-based plastics and fibers for materials, such as
metals, paper, glass, wood and cotton. Demand from the Far East, particularly
China, tends to have a disproportionate impact on the global markets for
styrene and acrylonitrile due to both volume and volatility of the region's
demand. Although direct sales to China were approximately only 1% of total
revenues in fiscal 1996, much of the Company's Far Eastern petrochemical
product demand is ultimately driven by Chinese demand for downstream products.
In fiscal 1996, the Company's export sales to the Far East and total export
sales were approximately 22% and 34%, respectively, of its total sales.
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 quarter of fiscal 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.
Average styrene prices declined by over 41% from fiscal 1995 to fiscal 1996,
primarily as a result of weaker market conditions in the Far East.
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 and ABS (as hereinafter defined) resins,
particularly in China, increased demand for acrylonitrile. However, Sterling
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. Average acrylonitrile sales prices declined 29%
from fiscal 1995 to fiscal 1996 as a result of weaker market conditions in the
Far East.
The Company primarily sells its petrochemical products pursuant to multi-
year contracts and high volume spot transactions in both the domestic and
export markets. This long-term, high volume focus allows the
39
<PAGE>
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 have historically been subject to different market
dynamics, including timing differences in their respective cyclical upturns
and downturns. In addition, the Company believes that the AFB Acquisition
further increases the diversity of the Company's product mix and reduces the
Company's sensitivity to economic cycles. Despite the above-described
diversification, however, prolonged or severe softness in the market for any
of its principal products, particularly styrene and acrylonitrile, will
adversely affect the Company. Although earnings from styrene and acrylonitrile
are expected to be significantly impacted by the global petrochemical capacity
increases in fiscal years 1997 and 1998, this impact should be partially
offset by the pulp chemical business which is expected to benefit from growing
demand for generators and sodium chlorate and the 30% increase in the
Company's sodium chlorate capacity as a result of completion of the Valdosta
Plant. There can be no assurance, however, that such favorable results in the
pulp chemical business will be realized.
In addition, the Company markets substantial volumes of petrochemicals
(approximately 50%, 54% and 51% of total sales volumes in fiscal years 1996,
1995 and 1994, respectively) and generates substantial revenues (approximately
36%, 30% and 32% of total revenues in fiscal years 1996, 1995 and 1994,
respectively) under conversion agreements. Under these agreements, the
customer furnishes raw materials that the Company processes in exchange for a
fee designed to cover its fixed and variable costs of production. The
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. Sterling believes that the Company's
conversion agreements help insulate the Company to some extent from the
effects of declining markets and increases 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.
RESULTS OF OPERATIONS
The following table sets forth revenues, gross profit and operating income
for the Company's primary product groups (other than acrylic fibers) for the
years ended September 30, 1994, 1995 and 1996 and the three months ended
December 31, 1995 and 1996.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER
SEPTEMBER 30, 31,
---------------- ---------
1994 1995 1996 1995 1996
---- ------ ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
REVENUES:
Petrochemicals...................................... $578 $ 886 $633 $153 $144
Pulp Chemicals...................................... 123 144 157 39 43
---- ------ ---- ---- ----
$701 $1,030 $790 $192 $187
==== ====== ==== ==== ====
GROSS PROFIT:
Petrochemicals...................................... $ 58 $ 225 $ 53 $ 15 $ --
Pulp Chemicals...................................... 36 47 58 14 15
---- ------ ---- ---- ----
$ 94 $ 272 $111 $ 29 $ 15
==== ====== ==== ==== ====
OPERATING INCOME:
Petrochemicals...................................... $ 37 $ 212 $ 31 $ 11 $ (2)
Pulp Chemicals...................................... 11 31 36 11 11
---- ------ ---- ---- ----
$ 48 $ 243 $ 67 $ 22 $ 9
==== ====== ==== ==== ====
</TABLE>
40
<PAGE>
As previously discussed, prior to August 21, 1996, the operations of
Sterling were conducted by Holdings. After August 21, 1996, the results of
operations of Sterling are the same as those of the Company except for the
additional interest expense associated with the Discount Notes of Holdings.
Accordingly, for purposes of the following comparisons, the information for
periods subsequent to August 21, 1996 is that of Sterling and the information
for prior periods is that of Holdings.
COMPARISON OF THE THREE MONTH PERIODS ENDED DECEMBER 31, 1996 AND DECEMBER 31,
1995
Revenues
Revenues for the first three months of fiscal 1997 were approximately $187
million compared to revenues of approximately $192 million for the first three
months of fiscal 1996, a decrease of approximately 3%. The decrease in
consolidated revenues for the first fiscal quarter of 1997 compared to the
same period in fiscal 1996 was due to a decrease in revenues in the Company's
petrochemical business, as the pulp chemical business recorded increased
revenues and earnings. Styrene and acrylonitrile, two of the Company's major
petrochemical products, experienced moderately lower sales prices and
significantly lower margins during the quarter compared to the same period a
year ago.
Petrochemicals
For the first three months of fiscal 1997, the Company's revenues from its
petrochemical business decreased about 6% to approximately $144 million when
compared to the first three months of fiscal 1996. This decrease in revenues
resulted primarily from decreases in styrene and acrylonitrile average sales
prices compared to the same period a year ago.
Styrene. Styrene revenues in the first three months of fiscal 1997 increased
nearly 3% to approximately $77 million compared to the same period of fiscal
1996. Styrene sales prices decreased moderately from the same fiscal 1996
period because of weaker market conditions, particularly in the export market.
Average sales prices for the first three months of fiscal 1997 decreased by
approximately 2% from the same period a year ago. Sales volumes in the first
three months of fiscal 1997 increased by approximately 3% over the same period
last year. The price of styrene's major raw materials, benzene and ethylene,
were substantially higher during the first three months of fiscal 1997
compared to the same period in fiscal 1996. Benzene prices were approximately
31% higher, while ethylene prices were approximately 20% higher. These price
escalations contributed significantly to the decline in styrene margins as
market conditions did not allow for styrene price increases to compensate for
these rising costs.
Acrylonitrile. Acrylonitrile revenues in the first three months of fiscal
1997 decreased approximately 43% to $26 million compared to the corresponding
period in fiscal 1996. The decrease in revenues resulted from a decrease of
approximately 26% in average sales prices and a decrease in sales volumes of
approximately 23%. Reduced exports of acrylonitrile derivatives to the Far
East market (primarily acrylic fiber and ABS resins) resulted in the lower
acrylonitrile sales volumes and prices. The prices of propylene and ammonia,
which are the major raw materials used to make acrylonitrile, were
approximately 9% and 22% higher, respectively, in the first three months of
fiscal 1997 than in the corresponding period in fiscal 1996. These increases
helped contribute to the decline in acrylonitrile margins.
Methanol. In August 1996, the Company completed construction of a world-
scale, 150 million gallon per year methanol unit at the Texas City Plant as
part of its capital program. During the demonstration period, problems in the
unit's reformer burners developed. The burners were replaced during a three
week shutdown in October 1996 and the methanol unit resumed production at
projected capacities in late October 1996. Methanol revenues in the first
three months of fiscal 1997 were approximately $14 million with sales volume
of 30.5 million gallons. The unit was under construction during the
corresponding period of 1996.
Other Petrochemical Products. Revenues from the Company's other
petrochemical products (including acetic acid, plasticizers, TBA and sodium
cyanide) during the first three months of fiscal 1997 decreased approximately
18% to $27 million compared to the same period for fiscal 1996. The decrease
in revenue reflects
41
<PAGE>
a 25% decrease in sodium cyanide revenues as a result of lower demand, and a
31% decrease in acetic acid revenues resulting from a procedural change in the
billings to BP. Prior to the startup of the Company's methanol unit, methanol
used in the production of acetic acid was billed to BP as part of the total
cost of production. The decreases in sodium cyanide and acetic acid were
partially offset by a 13% increase in plasticizers revenue reflecting the
higher demand for these products.
Pulp Chemicals
Revenues from the Company's pulp chemical business for the first three
months of fiscal 1997 increased by approximately 11% to $43 million compared
to the first three months of fiscal 1996. The increase in revenues resulted
primarily from an increase in sodium chlorate average sales prices of
approximately 5%. Sales volume decreased approximately 1% from the same period
a year ago. Sodium chlorate experienced higher average sales prices and
margins as a result of improved demand due to increased chlorine dioxide
utilization in pulp bleaching. Royalty revenues in the first three months of
fiscal 1997 from installed generator technology were essentially unchanged
from the first three months of fiscal 1996.
Selling, General and Administrative Expenses
Selling, general, and administrative ("SG&A") expenses (including SAR
expense) for the first three months of fiscal 1997 were $6.1 million compared
to $8.0 million in the first three months of fiscal 1996. The difference is
due primarily to a decrease of $0.4 million in employee profit sharing and SAR
payments when compared to the same period last year and lower corporate
development cost of approximately $1.0 million. The first quarter of 1996
reflected expenditures incurred by the Company under the direction of the
Special Committee of the Board of Directors of Holdings in exploring the
Company's strategic alternatives, which ultimately led to the Merger.
Income from Operations
Income from operations for the first three months of fiscal 1997 decreased
approximately 58% to $9.0 million compared to the corresponding period in
fiscal 1996. Operating earnings (loss) from the Company's petrochemical
business decreased to ($2.5) million for the first three months of fiscal 1997
from $10.7 million during the same period in fiscal 1996. The decrease in
earnings resulted primarily from significantly lower margins for styrene and
acrylonitrile in the fiscal 1997 period. Operating income for the pulp
chemical business in the first three months of fiscal 1997 was $11.1 million
compared to $10.7 million for the first three months of fiscal 1996. The
increase was attributable to improved profitability of sodium chlorate. The
Company completed construction of its 110,000 ton sodium chlorate facility in
Valdosta, Georgia in December 1996 and began shipments in early January 1997.
Interest and Debt Related Expense
Interest and debt related expenses for the first three months of fiscal 1997
were $14.8 million compared to $1.6 million in the same period last year. This
increase is primarily due to the additional debt incurred in the 1996
Recapitalization.
Provision for Income Taxes
The effective tax rate decreased from 35% in the first quarter of fiscal
1996 to 14% in the first quarter of fiscal 1997. This change reflects the
effect of the permanent differences between book income and taxable income on
the effective tax rate, which is magnified by the lower projected earnings for
fiscal 1997 compared to fiscal 1996. Additionally, varying tax rates from
different taxing jurisdictions in which the Company operates has further
impacted the effective tax rate.
42
<PAGE>
Net Income
A net loss of $3.2 million was recorded for the first three months of fiscal
1997 compared to net income of $12.8 million for the first three months of
fiscal 1996. Earnings from the Company's pulp chemical business improved
primarily as a result of higher sodium chlorate sales prices and margins.
Earnings were significantly impacted by the increase in interest expense to
$14.8 million in the first quarter of 1997 compared to $1.6 million in the
same period last year.
COMPARISON OF FISCAL 1996 TO FISCAL 1995
Revenues
Revenues for fiscal 1996 were $790 million compared to revenues of $1.03
billion for fiscal 1995, a decrease of 23%. The decrease in revenues resulted
primarily from lower average sales prices for styrene and acrylonitrile and
lower acrylonitrile and acetic acid sales volumes, which was partially offset
by increased revenues in the pulp chemical business as a result of higher
average sodium chlorate sales prices.
Petrochemicals
For fiscal 1996, the Company's revenues from its petrochemical business
decreased 29% to $633 million when compared to fiscal 1995, primarily as a
result of decreases in styrene and acrylonitrile average sales prices and
lower acrylonitrile and acetic acid sales volumes.
Styrene. Styrene revenues for fiscal 1996 decreased due to average sales
prices decreasing by approximately 41%, primarily as a result of weaker market
conditions in the Far East. Fiscal 1996 sales volumes increased by
approximately 18% over fiscal 1995 when two planned shutdowns for scheduled
maintenance restricted production. The second planned shutdown also included
modernization of the styrene unit's control instrumentation with state-of-the-
art distributive control systems. The modernization project completed in
fiscal 1995 increased the Company's annual styrene production capacity to 1.7
billion pounds. The prices of styrene's major raw materials, benzene and
ethylene, were substantially lower during fiscal 1996 compared to fiscal 1995.
Benzene prices were approximately 17% lower, while ethylene prices were
approximately 25% lower. These decreases offset some of the decrease in
selling prices discussed above, but styrene margins still declined
substantially.
Acrylonitrile. Acrylonitrile revenues for fiscal 1996 decreased as a result
of a decline of approximately 29% in average sales prices and approximately
11% in sales volumes. Reduced imports of acrylonitrile derivatives by the Far
East market (primarily acrylic fiber and ABS resins) resulted in lower
acrylonitrile average sales prices and sales volumes. The Company's
acrylonitrile unit operated at a reduced rate in 1996 due to an extended
shutdown for most of March 1996 for scheduled maintenance and installation of
the first phase of state-of-the-art distributive control systems. A second
phase of distributive controls was installed in October 1996. The new
distributive control systems are expected to 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 23% and 22% lower, respectively, in fiscal 1996 than in fiscal
1995. These decreases helped to offset some of the lower average selling
prices discussed above, but margins still declined substantially.
Acetic Acid. Acetic acid revenues in fiscal 1996 decreased primarily as a
result of a 19% decrease in sales volumes related to a shutdown of the acetic
acid unit to expand the unit by nearly 200 million pounds annually and for
installation of new distributive control systems. The expansion of the acetic
acid unit and the related construction of the partial oxidation unit by
Praxair Hydrogen Supply, Inc. ("Praxair") at the Texas City Plant were
completed in June 1996. The partial oxidation unit supplies raw materials to
the Company's acetic acid unit.
43
<PAGE>
Other Petrochemical Products. Revenues during fiscal 1996 from the Company's
other petrochemical products (excluding lactic acid revenues) increased
approximately 30%, primarily as a result of 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 unit 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 fiscal 1996 increased
by approximately 9% to $157 million compared to fiscal 1995, primarily as a
result of an increase in sodium chlorate average sales prices of approximately
8%, partially offset by an approximately 2% decrease in sales volumes. Sodium
chlorate experienced higher sales prices as a result of improved demand due to
increased chlorine dioxide utilization in pulp bleaching. Royalty revenues in
fiscal 1996 from installed generator technology were $19 million, the same as
fiscal 1995. In addition, the Company received ten generator contracts
including all eight contracts that were awarded in North America during fiscal
1996.
Selling, General and Administrative Expenses
SG&A expenses (including SAR expense) for fiscal 1996 totaled $40 million,
compared to $29 million in fiscal 1995. This increase was related to an
increase in SAR expense which was paid as a part of the 1996 Recapitalization.
Income from Operations
Income from operations for fiscal 1996 was $67 million (including merger-
related expenses of $3.6 million but excluding the write-off of assets of $3.7
million), consisting of $31 million from petrochemical operations and $36
million from pulp chemical operations. This amount represented an
approximately 72% decrease from fiscal 1995, primarily as a result of weakness
in the markets for styrene and acrylonitrile discussed above, which resulted
in significantly lower margins during fiscal 1996 compared to the 1995 fiscal
year. This weakness was partially offset by higher operating income from the
pulp chemical business and other petrochemical products. In addition, the
Company incurred approximately $2 million in start-up expenses during fiscal
1996 in connection with construction of the methanol unit.
Interest and Debt Related Expenses
Interest expense for fiscal 1996 decreased $1 million compared to fiscal
1995 primarily due to lower outstanding debt for most of fiscal 1996. The
Company's average interest rate per annum increased to 10% on September 30,
1996 from 7% on September 30, 1995 primarily due to the financing in August
1996 related to the 1996 Merger Transaction.
Provision for Income Taxes
Provision for income taxes for fiscal 1996 was $17 million, with an
effective tax rate of 34%, compared to $75 million, with an effective tax rate
of 33% for fiscal 1995. The decrease in the provision was primarily the result
of the significant decrease in the Company's pre-tax income to $50 million for
fiscal 1996 from $228 million in fiscal 1995.
Extraordinary Item
The extraordinary item of $1.9 million relates to the loss on early
extinguishment of debt of $3.0 million (net of taxes of $1.1 million)
resulting from the 1996 Recapitalization.
44
<PAGE>
Net Income
Due to the factors described above, net income for fiscal 1996 was $32
million compared to $150 million for 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 fiscal 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.
Styrene. Styrene revenues increased in fiscal 1995 compared to fiscal 1994
primarily because of a 64% increase in average sales prices. The styrene unit
operated at a slightly higher rate than in fiscal 1994, in spite of two
planned shutdowns for maintenance and catalyst replacement during fiscal 1995
compared to no shutdowns in the prior year. The second planned shutdown, which
occurred in the fourth quarter of fiscal 1995, also included modernization of
the styrene unit's control instrumentation with state-of-the-art distributive
control systems. The average prices for styrene's primary raw materials,
benzene and ethylene, increased approximately 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 increased primarily
due to an increase of approximately 70% in average sales prices, peaking at
unprecedented levels in the third quarter of fiscal 1995, and an increase of
approximately 11% in sales volumes. Acrylonitrile revenues from export sales
constituted approximately 93% of the Company's total acrylonitrile revenues
and approximately 81% of its acrylonitrile production for fiscal 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, while 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 increased 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, TBA and sodium cyanide decreased 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) an approximately 14% increase in sodium
45
<PAGE>
chlorate sales volumes, due to the substitution of chlorine dioxide for
elemental chlorine in the bleaching process, and (ii) an approximately 7%
increase in average selling prices. Royalty revenues from installed generator
technology increased by approximately 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 fiscal 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.
Selling, General and Administrative Expenses
The Company's SG&A expenses (including SAR expense) 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 an approximately 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 an approximately 406% 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 a 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 pre-tax income of $228 million for fiscal 1995 from
$28 million in fiscal 1994, which was largely the result of higher earnings
from the petrochemical business.
Net Income
Due to the factors described above, net income for fiscal 1995 was $150
million compared to $19 million for fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
Debt Structure. On August 21, 1996, the Company completed the 1996
Recapitalization, significantly increasing the Company's leverage and cash
requirements for debt service. At December 31, 1996, long-term debt (including
current maturities) was $634.6 million.
The Company's ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions and general corporate
purposes, should it need to do so, will be affected by the covenants in its
various debt agreements and by cash requirements for debt service. The Senior
Credit Agreements, the Indenture, the indenture governing the Existing
Subordinated Notes (the "Existing Subordinated Notes Indenture") and the
indenture governing the Discount Notes (the "Discount Notes Indenture" and,
together with the Existing Subordinated Notes Indenture, the "Existing
Indentures") contain numerous financial and operational covenants,
46
<PAGE>
including, without limitation, restrictions on the Company's ability to incur
indebtedness, pay dividends, create liens, sell assets, engage in mergers and
acquisitions and refinance existing indebtedness, as well as the obligation of
the Company to maintain certain financial ratios. The Offering was permitted
under the Existing Indentures as a Refinancing of Debt outstanding under the
Senior Credit Agreements. At the time of the AFB Acquisition, the Company
negotiated an amendment to the Original Credit Agreement to permit the AFB
Acquisition and to make certain financial covenants, including the Leverage
Ratio covenant applicable through the end of fiscal 1997, somewhat less
restrictive. The Amendments to the Senior Credit Agreements, which became
effective upon consummation of the Offering and the partial repayment of the
Term Loans with the proceeds thereof and were made retroactive to March 31,
1997, further relaxed certain of the financial covenants therein, including
the Leverage Ratio covenant, among other things. See "Description of Other
Indebtedness." Such modifications did not, however, lessen the restrictions
under the Indenture and the Existing Indentures on the Company's ability to
incur additional debt. Based on the Company's pro forma results of operations
for the four quarters ended December 31, 1996, these restrictions currently
operate to prevent the Company from incurring any additional debt other than
debt incurred under the Revolver or pursuant to certain limited "baskets" and
other exceptions. The Company may, however, consummate additional acquisitions
under the Existing Indentures if the pro forma effect of such an acquisition
has a sufficient positive impact on certain financial ratios. The Senior
Credit Agreements also require that certain amounts of Excess Cash Flow (as
defined therein) be used to prepay amounts outstanding under the Term Loans.
The first such mandatory prepayment is not required to be made until January
1998.
The Company's ability to comply with the terms of its various debt
agreements (including its ability to comply with such covenants) and to meet
its debt service obligations will depend on the future performance of the
Company. Sterling was in compliance with its financial covenants in effect as
of March 31, 1997.
The Company intends to meet its liquidity needs for operating activities and
capital expenditures (other than acquisitions) through internally generated
funds and, to the extent necessary, borrowings under the Revolver. As of March
31, 1997, Sterling had drawn approximately $21.6 million under the Revolver
and issued approximately $1 million in letters of credit under the Revolver,
thereby reducing the available commitment under the Revolver at such time to
approximately $77.4 million (compared to an available commitment thereunder as
of December 31, 1996 of $96 million). As part of the Amendments, on April 7,
1997, the total commitment under the Revolver was increased by $25 million to
$125 million. The Company believes that such sources of funds will be
sufficient to permit the Company to meet its liquidity needs during fiscal
1997.
The Senior Credit Agreements, the Indenture and the Existing Subordinated
Notes Indenture contain provisions which restrict the payment of advances,
loans and dividends from Sterling to Holdings. The most restrictive of those
covenants limits such payments during fiscal 1997 to approximately $1.6
million plus any amounts due to Holdings from Sterling under the intercompany
tax sharing agreement. Such restriction is not expected to limit Holdings's
ability to meet its obligations in fiscal 1997.
Working Capital. Working capital of the Company was $67 million at December
31, 1996, down from $77 million at September 30, 1996. This decrease was the
result of the following changes:
<TABLE>
<CAPTION>
CURRENT ASSETS CURRENT LIABILITIES
-------------- -------------------
(In Millions) (In Millions)
<S> <C> <C> <C>
Cash and cash equivalents $ (3) Accounts payable $ (7)
Inventories 14 Accrued liabilities (9)
Accounts receivable (2) Current portion long-term debt (3)
---- ----
Total $ 9 Total $(19)
==== ====
</TABLE>
( )--Decrease in assets, increase in liabilities.
47
<PAGE>
Lower acrylonitrile sales volumes and increased raw material prices resulted
in a $14 million increase in inventories. The higher raw material prices
contributed to a $7 million increase in accounts payable. Interest accrued on
the Existing Subordinated Notes resulted in a $9 million increase in accrued
liabilities. Cash and cash equivalents decreased $3 million primarily as a
result of expenditures in the first three months of fiscal 1997 in connection
with the Company's three-year $200 million capital program.
Cash Flow. Net cash provided from operations was $64 million for fiscal
1996, a decrease of $128 million compared to fiscal 1995. This decrease
primarily resulted from decreased earnings during fiscal 1996. Net cash flow
used in investing activities was $96 million in fiscal 1996 compared to $54
million in fiscal 1995. The increase was primarily due to additional
expenditures made as a part of the Company's three-year capital spending
program. Net cash flow provided by financing activities was $7 million in
fiscal 1996 compared to net cash flow used of $109 million in fiscal 1995. In
fiscal 1995, net cash flow used in financing activities primarily resulted
from utilizing cash flow from operations to reduce long-term debt. Net cash
provided by operations was $12.9 million during the first three months of
fiscal 1997 compared to $2.4 million for the corresponding period in fiscal
1996. The increase was primarily attributable to prepaid revenues in the
petrochemical business along with working capital changes partially offset by
higher payments for interest and lower earnings.
Capital Expenditures. In fiscal 1995, the Company initiated its three-year,
$200 million capital spending program, which has been substantially completed.
Capital expenditures for fiscal 1996 were $96 million compared to $54 million
in fiscal 1995. The fiscal 1996 capital expenditures were primarily for the
expansion of the acetic acid unit, construction of the methanol unit and
construction of the Valdosta Plant. The fiscal 1995 capital expenditures were
primarily for plant instrumentation modernization and process improvements,
the acetic acid expansion, and construction of the methanol unit and the new
sodium chlorate plant. The acetic acid expansion was completed in June 1996,
the methanol unit was completed in August 1996 and the Valdosta, Georgia plant
came on stream in December 1996.
The Company's capital expenditures for the first three months of fiscal 1997
were $18.5 million compared to $20.4 million in the same period last year. The
capital expenditures in the first three months of fiscal 1997 were primarily
for the construction of the Valdosta Plant, along with the distributive
control system installation at the Company's acrylonitrile unit. During the
remainder of fiscal 1997, the Company expects to make an additional $21.5
million of capital expenditures primarily for process modernization in styrene
and acrylonitrile and routine safety, environmental and replacement capital in
the Company's petrochemical, pulp chemical and fibers businesses. The Company
expects to fund its fiscal 1997 petrochemical business capital expenditures
from operating cash flow and the Revolver, as needed.
The Company's capital expenditures for environmentally-related prevention,
containment and process improvements were $2 million and $3 million for fiscal
years 1996 and 1995, respectively. Sterling does not anticipate a material
increase in these types of expenses during fiscal 1997. During both fiscal
years, the Company did not incur any other infrequent or non-recurring
material environmental expenditures which were required under existing
environmental regulations. See "Risk Factors--Environmental and Safety
Matters" and "Business--Environmental and Safety Matters."
The Company routinely incurs expenses associated with hazardous substance
management and pollution prevention 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 $47 million and $45 million for fiscal
years 1996 and 1995, respectively. Sterling does not anticipate a material
increase in these types of expenses during fiscal 1997. Sterling considers
these types of environmental expenditures normal operating expenses and
includes them in cost of goods sold.
Acquisitions. Part of the Company's business strategy is to 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. As
previously
48
<PAGE>
discussed, the Company's ability to consummate acquisitions may be limited by
restrictions in its debt agreements, results of operations and industry
conditions. See "Risk Factors--Ability to Complete Acquisitions." Sterling
currently intends, if such acquisition opportunities arise, to seek any
necessary approval from its existing lenders and obtain additional financing
(through the use of Unrestricted Subsidiaries or otherwise), as necessary, to
consummate such acquisitions, although there can be no assurance that it will
be successful in obtaining such approval or obtaining such additional
financing.
Foreign Exchange. The Company enters into forward foreign exchange contracts
to reduce risk due to Canadian dollar exchange rate movements. The Company
does not engage in currency speculation. The forward foreign exchange
contracts have varying maturities with none exceeding 18 months. The Company
makes net settlements of United States dollars for Canadian dollars at rates
agreed to at the inception of the contracts. The Company had a notional amount
of approximately $30 million and $26 million of forward foreign exchange
contracts outstanding to buy Canadian dollars at September 30, 1996 and 1995,
respectively. The deferred gain on these forward foreign exchange contracts at
September 30, 1996 and 1995 was immaterial.
ACCOUNTING CHANGES
The Financial Accounting Standards Board 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" in March 1995. This
statement establishes new accounting standards for measuring the impairment of
long-lived assets and when to recognize such an impairment. The Company
adopted this Statement in the first quarter of fiscal 1997. The adoption of
this Statement did not have a material adverse effect on the Company's
financial position, results of operations or cash flows.
The Financial Accounting Standards Board issued SFAS No. 123, "Accounting for
Stock-Based Compensation" in October 1995. Under SFAS No. 123, companies are
permitted to either adopt this new standard and record expenses for stock
options and other stock-based employee compensation plans based on their fair
value at date of grant, or continue to apply its current accounting policy
under Accounting Principles Board ("APB") Opinion No. 25 and increase its
footnote disclosure. In the first quarter of fiscal 1997, the Company elected
to continue to apply APB Opinion No. 25, and will increase its footnote
disclosure to include the pro-forma impact on net income and earnings per
share of the application of the fair value based method of accounting.
The Financial Accounting Standards Board issued Statement No. 128, "Earnings
Per Share," ("SFAS No. 128") in February 1997. SFAS No. 128, which is
effective for periods ending after December 15, 1997, establishes standards
for computing and presenting earnings per share ("EPS"). SFAS No. 128 replaces
the presentation of primary EPS previously prescribed by Accounting Principles
Board Opinion No. 15 ("APB No. 15") with a presentation of basic EPS, which is
computed by dividing income available to common stockholders by the weighted-
average number of common shares outstanding for the period. SFAS No. 128 also
requires dual presentation of basic and diluted EPS. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB No. 15. Pro forma basic and
diluted EPS for all historical periods presented, assuming that SFAS No. 128
was effective at the beginning of each such historical period, would not be
materially different from what has been presented using APB No. 15.
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BUSINESS
OVERVIEW
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, pulp chemicals used in paper manufacturing and
acrylic fibers used in the manufacture of textiles, carpeting, outdoor
furniture and other products. 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, sodium
chlorate and acrylic fibers. Other products manufactured by the Company
include methanol, plasticizers, TBA, sodium cyanide and sodium chlorite. The
Company manufactures all of its petrochemicals at 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 and the Valdosta
Plant, which began production in December of 1996. Sterling believes that the
Company's pulp chemical plants benefit from their proximity to key customers
in the pulp industry and their access to competitively priced electricity,
which is the most significant production cost in sodium chlorate
manufacturing. The Company manufactures all of its acrylic fibers at the Santa
Rosa Plant.
In January 1997, the Company completed the AFB Acquisition, the
consideration for which totalled approximately $100 million plus the
assumption of certain associated liabilities. The AFB generated revenues of
approximately $139 million in the fiscal year ended December 31, 1996 (which
was prior to the acquisition of the AFB by the Company) and is one of only two
acrylic fibers manufacturers in the United States. The Company used the
purchase method to account for the AFB Acquisition, and operating results of
the AFB have been included with those of the Company beginning February 1,
1997.
In recent years, the Company has pursued a strategy of growth and product
diversification, beginning in 1992 with the acquisition of its pulp chemicals
business. In 1995, the Company began a three-year, $200 million capacity
expansion and upgrade program, which has been substantially completed. Through
this program, the Company has 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 expanded its sodium chlorate production capacity by 110,000 tons,
or 30%, by constructing a new facility, the Valdosta Plant, which came on
stream in December 1996. The AFB Acquisition further increases the diversity
of the Company's product mix and reduces the Company's sensitivity to economic
cycles. The AFB Acquisition is also consistent with the Company's stated
strategy of acquiring businesses whose products provide further upstream or
downstream integration from the Company's base businesses. Sterling Fibers
will ultimately represent integrated downstream demand for the Company's
acrylonitrile production, although Sterling Fibers will purchase its
acrylonitrile requirements from Cytec until February 28, 2002. Through its
acquisition strategy, the Company seeks to capitalize on the continuing
secular growth in global demand for its key products, while reducing its
sensitivity to the cyclical nature of the markets for any particular product.
RECENT DEVELOPMENTS
The Company completed construction of a 110,000 ton per year sodium chlorate
plant in December of 1996. The Valdosta Plant, which cost approximately $55
million, increased the Company's total annual sodium chlorate capacity by more
than 30% to nearly 460,000 tons. Valdosta, Georgia was selected because of its
proximity to existing customers which are currently being supplied from the
Company's Canadian plants, and its proximity to reliable, competitively priced
electricity, the most important variable in sodium chlorate production costs.
The Valdosta Plant is intended to meet the growing market demand from the pulp
and paper industry in the Southeastern United States.
On January 31, 1997, the Company acquired the AFB, including the Santa Rosa
Plant. The AFB recorded sales of approximately $139 million in the fiscal year
ended December 31, 1996 (which was prior to the
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acquisition of the AFB by the Company) and is one of only two acrylic fibers
manufacturers in the United States. See "--Overview."
The proceeds of the Offering were used to prepay outstanding indebtedness
under the Term Loans. See "Private Placement." In connection with such
prepayment, Sterling and the requisite lenders under the Senior Credit
Agreements effected the Amendments. Among other things, the Amendments (i)
permitted and provided for the issuance of the Notes, (ii) adjusted the method
of the application of voluntary prepayments to allow the proceeds of the
Offering to be applied in a manner that significantly reduced required
principal payments, particularly over the next three years, (iii) amended
certain financial covenants to make them somewhat less restrictive, including
amendments to the Leverage Ratio, Interest Coverage Ratio and Fixed Charge
Coverage Ratio covenants, (iv) increased the commitment under the Revolver by
$25 million to $125 million, and (v) included a new financial covenant with
respect to the maintenance of a specified Senior Debt Leverage Ratio.
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 has
substantially completed an upgrading and modernization program at 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 included a significant capital expenditure 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 has substantially
completed significant capacity expansions in its petrochemicals business,
including the expansion of its acetic acid unit and construction of a new
methanol plant. The acetic 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 constructed a world-scale 150
million gallon methanol facility, which began production in October 1996.
Capital investment was shared equally by the Company and BP. The Company is
entitled to 60% of the methanol production and BP is entitled to the remaining
40% of production. Approximately one-half of the total methanol production is
used as a raw material in the Company's acetic acid unit, replacing methanol
previously purchased from third parties. The Company believes that both its
acetic acid expansion and new methanol plant construction were 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 growth in North
American demand for sodium chlorate derivatives in pulp bleaching
applications. To this end, the Company recently completed a new 110,000 ton
per year sodium chlorate plant
which began production in late 1996. The Valdosta Plant increases 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
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high quality products and superior customer service to maintain these long-
term relationships and has implemented management practices to ensure
continuous improvement in these areas. During fiscal 1996, approximately 20%
of the Company's styrene and 40% of acrylonitrile sales volumes were
manufactured under long-term conversion agreements and 100% of its acetic
acid, plasticizers and TBA volumes were 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.
Focus on Niche Specialty Textile and Technical Fiber Product Lines. The
Company intends to emphasize specialty textile applications which provide
higher margins and growth opportunities, and intends to reduce the level of
sales of regular textile fibers to the less stable export market. The Company
is also focusing on expanding established global applications for its
technical fibers products as well as developing new engineering applications
therefor.
Expand Fiber Technology Licensing Opportunities. The Company aims to
capitalize on demand for acrylic fibers manufacturing technology which the
Company believes will arise as developing countries increase acrylic fibers
production capacity. Sterling Fibers licenses its acrylic fibers manufacturing
technology to producers worldwide and approximately 17% of the world's current
acrylic fibers capacity is based on Sterling Fibers' technology.
Pursue a Focused Acquisition Strategy. The Company plans to continue to
pursue its 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 that provide upstream or downstream integration from the
Company's base businesses, enhancing the Company's manufacturing
position within a product chain (such as the AFB, to which the
Company will supply acrylonitrile after the expiration of the current
supply agreement with Cytec); or
. Products that 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.
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
Indenture, the Existing Indentures and the Senior Credit Agreements
substantially limit the Company's ability to incur additional debt to finance
such acquisitions unless certain financial ratios are maintained. See "Risk
Factors--Ability to Complete Acquisitions." Based on the Company's results of
operations for the four quarters ended December 31, 1996, the restrictions
under the Existing Indentures currently operate to prevent the Company from
incurring any additional debt other than debt incurred under the Revolver or
pursuant to certain limited "baskets" and other exceptions. The Company may,
however, consummate additional acquisitions if the pro forma effect of such an
acquisition has a sufficient positive impact on certain financial ratios under
the Existing Indentures. Under limited circumstances, the Company may also
make additional acquisitions under the Existing Indentures through the
incurrence of debt in Unrestricted Subsidiaries. The Indenture and the
Existing Indentures 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" and "Description of Other Indebtedness." 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.
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PRODUCT SUMMARY
The Company's principal products and their primary end uses and raw
materials are set forth below.
<TABLE>
<CAPTION>
COMPANY PRODUCT INTERMEDIATE PRODUCTS PRIMARY END PRODUCTS RAW MATERIALS
--------------- --------------------- -------------------- -------------
<C> <C> <S> <C>
Petrochemicals:
Styrene Polystyrene
ABS/SAN resins Building products, boat Ethylene and Benzene
Styrene butadiene and automotive
latex components, disposable
Polyester resins cups and trays,
packaging and
containers, housewares,
tires, audio and video
cassettes, luggage,
children's toys, paper
coating, appliance parts
and carpet backing
Acrylonitrile Acrylic fibers Apparel, furnishings, Ammonia, Air and
ABS/SAN resins upholstery, household Propylene
appliances, carpet,
plastics for automotive
parts using ABS and SAN
polymers
Acetic Acid Vinyl acetate monomer Adhesives, cigarette Methanol and Carbon
filters and surface Monoxide
coatings
Methanol Acetic acid Adhesives, cigarette Natural Gas
MTBE filters and surface
Formaldehyde coatings, gasoline
oxygenate and octane
enhancer, plywood
adhesives
Plasticizers Polyvinyl chloride Flexible plastics such Alpha-Olefins, Carbon
(PVC) as shower curtains and Monoxide, Hydrogen,
liners, floor coverings, Orthoxylene and Air
cable insulation,
upholstery and plastic
molding
TBA NA Pesticides, solvents, Isobutylene and the
pharmaceuticals and acrylonitrile by-product
synthetic rubber Hydrogen Cyanide ("HCN")
Sodium Cyanide NA Electroplating and Sodium Hydroxide and by-
precious metals recovery product HCN
Pulp Chemicals:
Sodium Chlorate Chlorine dioxide Bleaching agent for pulp Salt, Water and
production, Electricity
downstream products
include high quality
office and coated papers
Sodium Chlorite Chlorine dioxide Antimicrobial agent for Sodium Chlorate and
municipal water Hydrochloric Acid
treatment, disinfectant
for fresh produce
Chlorine Dioxide NA Chlorine dioxide for use NA
Generators in the bleaching of pulp
Acrylic Fibers:
Regular Textile NA Apparel, fleece, Acrylonitrile, Vinyl
hosiery, industrial and Acetate, Sodium
sweaters Thiocyanate, Sodium
Bisulfate and Finish Oil
Specialty Textile NA High-end hosiery, pile Acrylonitrile, Vinyl
fabrics and outdoor Acetate, Sodium
furniture Thiocyanate, Sodium
Bisulfate and Finish Oil
Technical NA Friction materials Acrylonitrile, Vinyl
(brake linings), Acetate, Sodium
gaskets, specialty Thiocyanate, Sodium
papers and non-wovens Bisulfate and Finish Oil
</TABLE>
PRODUCTS
Petrochemicals
Styrene. The Company manufactures styrene from ethylene and benzene. Styrene
is principally used in the manufacture of intermediate products such as
polystyrene, acrylonitrile butadiene styrene ("ABS") resins, synthetic
rubbers, SBLatex, unsaturated polyester resins and styrene acrylonitrile
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 coating, appliance parts
and carpet backing.
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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, which represents
approximately 12% of total North American capacity. The Company sold
approximately 20% of its styrene sales volumes pursuant to long-term
conversion contracts during fiscal 1996. Approximately 40% of the Company's
styrene sales volumes were exported in fiscal 1996, principally to the Far
East, either directly or pursuant to arrangements with large international
trading companies.
Acrylonitrile. The Company manufactures acrylonitrile by propylene
ammoxidation. Acrylonitrile is used primarily in the manufacture of
intermediate products such as acrylic fiber and ABS resins. The principal end
uses for acrylonitrile include apparel, furnishings, upholstery, household
appliances, carpets and plastics for automotive parts. 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 and is also burned as
fuel.
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 sold approximately 40% of its acrylonitrile sales
volumes pursuant to long-term conversion agreements during fiscal 1996.
Approximately 60% of the Company's acrylonitrile production in fiscal 1996 was
exported, principally to the Far East, either directly or pursuant to
arrangements with large international trading companies.
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 nearly
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.
Methanol. In August 1996, the Company completed construction of a world-
scale, 150 million gallon per year methanol unit at the Texas City Plant as
part of its capital program. Capital investment in the unit and production
capacity are shared by the Company and BP. Approximately 50% of the methanol
production is used as a raw material in the Company's acetic acid unit,
replacing methanol that was previously purchased from third parties. The
remaining methanol is available for the merchant market and for BP's worldwide
acetic acid business. The methanol unit was constructed at significantly less
than normal replacement cost because available equipment already at the Texas
City Plant was refurbished and used in the project.
In a project related to the expanded acetic acid capacity, Praxair has
constructed a new partial oxidation unit at the 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 June 1996. The Company's synthesis gas reformer, which was previously being
used to provide feedstock to the acetic acid and plasticizers units at the
Texas City Plant, is currently being used in the methanol unit.
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 plasticizers production to BASF through 1999. The Company's
plasticizers 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
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to Flexsys America L.P. ("Flexsys") pursuant to a long-term conversion
agreement. The Company's capacity for TBA is currently 21 million pounds per
year.
Sodium Cyanide. At the Texas City Plant, the Company operates a sodium
cyanide unit which is owned by E.I. du Pont de Nemours and Company ("DuPont").
The Company and DuPont have an agreement whereby the Company receives a fee
for operating the facility. The facility uses, as a raw material, hydrogen
cyanide by-product generated by the Company's acrylonitrile manufacturing
process. The capacity of this unit is 100 million pounds per year.
Pulp Chemicals
Sodium Chlorate. Sodium chlorate is used primarily in the production of
chlorine dioxide which is used chiefly by pulp and paper manufacturers as a
bleaching chemical 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. Sodium chlorate is also used 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 65% 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 Plant, the Company became the second largest
producer of sodium chlorate in North America. The Company's four Canadian
sodium chlorate plants have an aggregate annual rated production capacity of
350,000 tons. The Valdosta Plant increased the Company's total annual capacity
by 30% to nearly 460,000 tons, representing 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 its proximity 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 United States.
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. The Company has supplied approximately two-thirds of all existing
modern pulp mill generators worldwide.
The research and development group of ERCO 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 and licensing of
chlorine dioxide generators. 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
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<PAGE>
for fresh produce. The Company has a rated annual capacity of approximately
3,500 tons, which represents approximately 40% of total North American
capacity.
Acrylic Fibers
Sterling Fibers is the second largest producer of acrylic fibers in North
America. The Santa Rosa Plant has an annual rated production capacity of 184
million pounds, which represents approximately 31% of total North American
capacity. Sterling Fibers' acrylic fibers process employs aqueous suspension
polymerization via a redox catalyst system, continuous polymer purification
and dissolving using sodium thiocyanate as the solvent, web spinning in a
sodium thiocyanate bath and continuous steaming of tow and dry cutter blending
for staple manufacture.
Regular Textile Fibers. Regular textile products are those targeted for
general apparel, non-woven and home furnishing applications. Regular textiles
are commodity fibers whose sales are primarily driven by price and service
rather than product characteristics. Approximately 62% of the AFB's sales
revenue is generated from regular textiles.
Specialty Textile Fibers. Specialty textile fibers are those targeted for
specific applications or end uses. Specialty products are higher margin
products and account for approximately 31% of the AFB's sales revenue. The
following specialty fibers are currently produced by Sterling Fibers:
. Producer Colored Fiber ("PCF")--Sterling Fibers produces dyed fibers
in a wide range of customized end-use applications such as blankets,
craft, home furnishing, industrial knit outerwear, pile and sweaters.
Color match for individual color shades are made according to
customer need.
. MicroSupreme(R) microfiber--MicroSupreme microdenier acrylic fibers
were developed by the AFB and introduced in 1993 to offer soft, high
fashion fibers in natural and PCF colors for applications in high
performance outdoor and sportswear, fashion ladies apparel, ladies
and men's hosiery, thermal underwear and ladies tights. MicroSupreme
was the first acrylic microfiber manufactured and introduced in North
America.
. Pigmented Fiber--Cylight(R) pigmented acrylic fibers were introduced
in 1994 and offer superior resistance to sunlight. Approximately 15
color shades are offered for outdoor furniture, beach umbrellas,
awnings, marine upholstery, sail covers and bimini tops.
. Light Stable Fiber--Cylight natural light stable acrylic fibers were
introduced in 1994 and offer superior resistance to sunlight. This
product services the market for outdoor furniture, awnings, sail
covers and bimini tops.
. Anti-Microbial Fiber--Acrylic fibers incorporating an anti-microbial
ingredient supplied by a third party were developed and introduced in
1994 and 1995. Sterling Fibers' anti-microbial fiber is Cystar AF.
Cystar AF is used in non-woven, woven and knitted fabrics for linens,
wipes and clothing.
Technical Fibers. Technical fibers are specially engineered for industrial,
non-textile uses. Technical fibers account for 7% of the AFB's sales revenue
and have higher margins than textile fibers. The primary use of technical
fibers is as a processing aid in the manufacture of brake pads. Current small
volume areas with significant future potential include specialty papers, bag
filtration and gaskets.
INDUSTRY OVERVIEW
Petrochemicals
Styrene. According to Chemical Marketing Associates, Inc. ("CMAI"), the
total North American capacity for styrene is currently 14.4 billion pounds per
year. The Company's rated capacity of 1.7 billion pounds per year represents
approximately 12% of the North American capacity.
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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 quarter of fiscal 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.
Average styrene prices declined by over 41% from fiscal 1995 to fiscal 1996,
primarily as a result of weaker market conditions in the Far East.
According to CMAI, the North American styrene industry operated at
approximately a 98% utilization rate in calendar 1995, and approximately 93%
in calendar 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 Sterling believes that approximately
7.2 billion pounds of capacity will be added by competitors in the next two
fiscal years, including an estimated 4.5 billion pounds in calendar 1997 and
2.7 billion pounds in calendar 1998. The Company expects that prices for
styrene will continue at current depressed levels until global demand for
styrene increases sufficiently to absorb such additional production capacity.
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 and ABS resins, particularly in China,
increased demand for acrylonitrile. However, Sterling 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. Average acrylonitrile sales prices declined 29% from fiscal 1995
to fiscal 1996 as a result of weaker market conditions in the Far East.
According to CMAI, the North American acrylonitrile industry operated at
approximately a 97% utilization rate in calendar 1995 and approximately 93% in
calendar 1996. Sterling believes that during fiscal years 1997 and 1998,
global industry capacity will increase by approximately 940 million pounds or
9%. As a result of the increased global industry capacity in fiscal years 1997
and 1998, industry utilization rates may decline and price competition may
increase during this period.
Acetic Acid. According to CMAI, the total domestic capacity for acetic acid
production is approximately 4.9 billion pounds per year, with the Company's
current rated capacity of approximately 800 million pounds per year
representing approximately 16% of the total domestic capacity.
Methanol. The Company completed construction of a world-scale, 150 million
gallon per year methanol unit at the Texas City Plant in August 1996. Capital
investment in the unit and production capacity is shared by the Company and
BP. Approximately 50% of the methanol production is used as a raw material in
the Company's acetic acid unit. The remaining methanol production is available
for the merchant market and for BP's worldwide acetic acid business.
Plasticizers. The Company's capacity for plasticizers is 280 million pounds
per year. The Company has an agreement with BASF pursuant to which the Company
will sell all of its plasticizers production to BASF through 1999.
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TBA. The Company operates a TBA production unit with a capacity of 21
million pounds per year. Sterling believes that currently there are only three
TBA production units in the world: those operated by the Company (21 million
pounds capacity), Nitto Chemical Industries Co., Ltd. (3.3 million pounds
capacity) and BASF (13 million pounds capacity).
Sodium Cyanide. The Company operates a sodium cyanide unit at its Texas City
Plant which is owned by DuPont. The capacity of this unit is 100 million
pounds per year.
Pulp Chemicals
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 significant capacity expansion during 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 chlorine dioxide, sodium chlorate's primary
derivative, for elemental chlorine in bleaching applications. Chlorine dioxide
is a powerful and highly selective oxidizing agent suitable for pulp
bleaching. It has 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 primarily
by environmental concerns. Through the end of 1995, approximately 80% to 85%
of Canadian bleach plant capacity and approximately 60% to 65% of United
States bleach plant capacity has been converted to chlorine dioxide. The EPA
has published draft regulations known as "Cluster Rules" which, if adopted,
are likely to mandate the elimination of elemental chlorine usage in bleaching
applications, resulting in increased substitution of chlorine dioxide for
elemental chlorine by the North American pulp and paper industry. There is no
assurance that the EPA will adopt the Cluster Rules in the near future or at
all.
Acrylic Fibers
The majority of acrylic fibers are manufactured in apparel goods with the
remaining fibers being knit, woven, flocked or needle punched into various
home furnishings, industrial fabrics and other consumer applications.
Historically, demand for acrylic fibers has changed on consumer preference for
acrylic fibers versus substitute fibers, changing fashion trends and consumer
disposable income. The current trend with North American fiber producers is to
produce for relatively stable end-use niches.
Initially, as synthetic fibers were developed, they were broadly marketed
toward a variety of end uses. Today, most substitution has already taken place
and acrylic fibers have secured their own well-defined end uses, largely in
specialty applications. Developments in product characteristics, such as
ability to wick away moisture,
accept true dye colors, resist fading, drape effectively, provide softness and
accept anti-microbial properties give acrylic fibers a competitive advantage
over cotton, wool and other synthetic fibers in certain applications. As a
result, it is anticipated that incremental growth in acrylic fibers volumes
will result primarily from demand for specialty products rather than market
share taken from interfiber competition in the regular textile market.
Currently, demand growth for acrylic fibers is out-pacing all other
synthetic fibers with the exception of polyester. According to PCI Fibers &
Raw Materials, acrylic fibers world mill demand is expected to increase from
5.5 billion pounds in 1994 to 8.3 billion pounds in 2005, a compound annual
growth rate of 3.9%.
There are currently only two manufacturers of acrylic fibers in North
America, Sterling Fibers and Monsanto. In general, Sterling Fibers and
Monsanto have different customers and focus on different markets, with
Sterling Fibers focusing on the higher margin niche applications. Because of
high capital costs required to build a new acrylic fiber plant, Sterling
believes that it is unlikely that any new acrylic fibers plants will be
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constructed in North America in the near future. In 1995, the AFB, Monsanto
and imports comprised 31%, 53% and 16%, respectively, of North American
demand.
The United States currently imposes import tariffs on acrylic fibers of 5-
9%. According to the most recent General Agreement on Tariffs and Trade
treaties, these tariffs will be in place at a rate of 4-8% through 2004.
Nevertheless, Western European shipments of high quality fibers have become an
increasingly prominent fixture in total imports due largely to the demand for
fibers not produced in the United States. Imports from Mexico, once a
significant supplier to the United States, now account for only 5-6% of total
imports. The volume of imported acrylic fibers is expected to be around 40-50
million pounds per year over the next few years.
SALES AND MARKETING
The Company primarily sells its petrochemical products pursuant to multi-
year contracts and spot transactions in both the domestic and export markets
through its commercial organization and sales force. 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,
acrylonitrile and methanol, 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. This long-term,
high volume focus allows the Company to maintain relatively low selling,
general and administrative expenses related to the marketing of its
petrochemical products. The Company competes 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.
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 that 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.
Sterling believes that the 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.
The Company sells sodium chlorate primarily in Canada and the United States
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.
Sterling Fibers currently markets its fibers to North American customers
through internal sales staff and to international customers through non-
affiliated agents. The sales effort is closely coordinated with and supported
by Sterling Fibers' Technical Support and Customer Service groups. Working in
tandem, these groups facilitate sales and product development by strengthening
the interface between Sterling Fibers and its customer base. This approach
provides Sterling Fibers with insight into customer needs for new and existing
products and equipment compatibility issues. A coordinated approach between
research personnel and the sales force also allows Sterling Fibers to utilize
a pull-through marketing strategy. Researchers and sales staff work together
to develop new specialty applications for acrylic fibers. The sales staff then
market the sample products to the ultimate seller of an acrylic fiber product
such as a mass retailer to create a demand for the end product. Once the
market demand
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is established, the textile manufacturers (Sterling Fibers' customers) receive
orders for additional specialty fiber products.
CONTRACTS
The Company's key multi-year contracts and conversion agreements, which
collectively accounted for 30% of the Company's fiscal 1996 revenues are
described below:
Styrene-Bayer. The Company and Bayer, a subsidiary of Bayer AG, are
currently operating under a conversion agreement effective through December
21, 2000. Under this agreement, the Company provides Bayer, subject to
specified minimum and maximum quantities, 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 assign the agreement (subject to the Company's consent) to a
third-party purchaser of the business. During fiscal 1996, the Company
delivered approximately 10% of its styrene production pursuant to this
agreement.
Styrene-BP. Effective April 1, 1994, the Company and BP entered into a
styrene sales and purchase agreement. The initial term of the agreement
expired in December 1996. The Company and BP negotiated an extension of
this agreement on substantially the same terms but at approximately half of
the original volume, which extension expires June 30, 1999. During fiscal
1996, the Company delivered approximately 10% of its styrene production to
BP pursuant to this agreement.
Acrylonitrile-Monsanto. The Company and Monsanto entered into a multi-
year conversion agreement effective January 1, 1994, which superseded 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 1996, the Company delivered approximately 25% of
its acrylonitrile production to Monsanto pursuant to this agreement.
Acrylonitrile-BP. 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 1996, the Company
delivered approximately 15% of its acrylonitrile production to BP pursuant
to this agreement. The acrylonitrile reactor in which BP invested capital
incorporates certain BP technological improvements under a separate license
agreement. The Company has the right to incorporate these and any future
improvements into its other existing acrylonitrile reactors. BP has a first
security interest in the third reactor and related equipment and in the
first acrylonitrile produced in the three reactor units 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. An agreement with BP that has been in effect since August
1986 currently 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 reimburses the Company for
operating costs. 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.
Methanol-BP. In fiscal 1996, the Company entered into a long-term
production and sales agreement with BP, under which BP contributed a
significant portion of the capital expenditures required for the
reconstruction and capacity increase of the Company's idle methanol
production facility and obtained the right to receive a substantial portion
of the Company's methanol production. During fiscal 1996, the Company
delivered a substantial portion of its methanol production to BP pursuant
to this agreement. The initial term of this agreement expires July 31,
2016. The output of the methanol facility is marketed by BP to the
Company's acetic acid unit, the merchant market and BP's worldwide acetic
acid business.
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Plasticizers-BASF. A product sales agreement has been in effect with BASF
since August 1, 1986, pursuant to which the Company sells all of its
plasticizers production to BASF. The agreement expires at the end of 1999.
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.
No individual customer of the Company's petrochemical or pulp chemical
business accounted for more than 10% of the Company's revenues in fiscal 1996.
In connection with the AFB Acquisition, the Company assumed an existing
supply contract for acrylonitrile pursuant to which Sterling Fibers purchases
its requirement for acrylonitrile from Cytec. Upon the expiration of such
supply contract on February 28, 2002, the Company expects to supply all of
Sterling Fibers' acrylonitrile requirements from the Texas City Plant.
RAW MATERIALS FOR PRODUCTS 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 only raw material for the Company's
petrochemical and pulp chemical products which is produced by the Company is
methanol, which is used in the production of acetic acid. Although Sterling
believes that the Company will continue to be able to secure adequate supplies
of its raw materials at acceptable prices to meet its requirements, there can
be no assurance that it will be able to do so.
Petrochemicals
Styrene. Styrene is a clear liquid that the Company manufactures from
ethylene and benzene. The Company's conversion agreements require that other
parties furnish the Company with the ethylene and/or benzene necessary to
fulfill its conversion obligations. Approximately 20% of the Company's fiscal
1996 benzene and ethylene requirements 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 1996 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. If
various customers for whom the Company now manufactures acrylonitrile under
conversion arrangements were to cease furnishing their own raw materials and
seek only to purchase acrylonitrile from the Company, the Company's
requirements for purchased propylene and ammonia could significantly increase.
Sterling believes that both ammonia and propylene will, for the foreseeable
future, remain in adequate supply to meet demand.
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Hydrogen cyanide is a by-product of the acrylonitrile manufacturing process
and is used by the Company as a raw material for the production of TBA and
sodium cyanide and is also burned as fuel.
Acetic Acid. Acetic acid is manufactured by the Company primarily from
carbon monoxide and methanol. The acetic acid unit's methanol needs are
supplied by the Company's methanol unit. In a project related to the expanded
acetic acid capacity, Praxair constructed a partial oxidation unit at the
Texas City Plant in fiscal 1996 that supplies carbon monoxide to the Company
for production of acetic acid.
Methanol. The Company produces methanol by steam reforming of natural gas to
form synthesis gas. The synthesis gas is then converted to methanol under
elevated pressures in the presence of a catalyst. The Company obtains its
natural gas under various supply contracts and believes that adequate supplies
will be available for the Company's needs in the foreseeable future.
Plasticizers. The Company manufactures plasticizers using a series of
processes. Primary raw materials are alpha-olefins and orthoxylene, which are
supplied by BASF under its long-term contract with the Company which expires
at the end of 1999. Sterling believes that adequate supplies of raw materials
will be available for the Company's needs in the foreseeable future.
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 in this process. Flexsys supplies the isobutylene, sulfuric
acid and caustic soda under its long-term conversion agreement with the
Company. Sterling believes that supplies of these raw materials will remain
adequate for the Company's needs in the foreseeable future.
Sodium Cyanide. Sodium cyanide is manufactured from the Company's by-product
hydrogen cyanide and caustic soda. DuPont supplies the caustic soda for sodium
cyanide under its long-term contract with the Company.
Pulp Chemicals
Sodium Chlorate. 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 65% 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. On average, the
Company's electrical power costs are believed to be competitive with other
producers in the areas in which it operates.
The Company also purchases sodium chloride for use in the manufacture of
sodium chlorate. Sodium chloride is purchased under requirements contracts
with major suppliers. Sterling believes that sodium chloride will be available
for the Company's needs for the foreseeable future.
Acrylic Fibers
Acrylonitrile is the most significant raw material used in the production of
acrylic fibers representing approximately 73% of total materials cost and
approximately 47% of the total cash cost of production. Pursuant to its supply
agreement with Cytec, Sterling Fibers will purchase all of its acrylonitrile
requirements from Cytec until February 28, 2002, after which the Company
expects to supply such acrylonitrile requirements from the Texas City Plant.
Sterling believes that all raw materials used in the production of acrylic
fibers will be readily available for its needs for the foreseeable future.
TECHNOLOGY AND LICENSING
Petrochemicals
In 1986, Monsanto granted the Company a nonexclusive, irrevocable and
perpetual right and license to use Monsanto's technology and other technology
Monsanto acquired through third-party licenses in effect at the time
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of the acquisition of the Texas City Plant. These licenses are used in the
production of styrene, acrylonitrile, methanol, TBA, acetic acid and
plasticizers. During fiscal 1991, BP Chemicals Ltd. ("BPCL") purchased the
acetic acid technology from Monsanto (subject to the above licenses).
BPCL has granted to the Company a nonexclusive, perpetual, royalty-free
license (except in the case of a breach of the related production agreement)
to use BPCL's acrylonitrile technology at the Texas City Plant as part of the
acrylonitrile expansion project. The Company and BPCL have agreed to cross-
license any technology or improvements relating to the manufacture of
acrylonitrile at the Texas City Plant.
Sterling 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
United States operations, it does monitor new technology developments and,
when Sterling believes it is necessary, it will seek to obtain licenses for
process improvements.
Pulp Chemicals
The Company produces sodium chlorate using state-of-the-art metal cell
technology. The principal technology business of the Company is the design,
sale and technical service of custom-built patented chlorine dioxide
generators. The ERCO engineering group is involved in the technical support of
the Company's sales and marketing group through joint calling efforts which
define the scope of a project as well as producing technical schedules and
cost estimates. The Company performs detailed design of chlorine dioxide
generators which are then fabricated by contractors. Plant installation,
instrumentation testing and generator start-up are supervised by a joint
engineering/technical service team of the Company. Prior to 1996, the Company
was involved in a number of patent disputes with Akzo Nobel, N.V. regarding
chlorine dioxide technology. In 1996, the parties reached a settlement of such
disputes that allows licensees of both the Company and Akzo Nobel, N.V. to
operate their chlorine dioxide generators within the broadest range of
operating conditions, subject to cross licensing and payment of royalties.
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
chlorine dioxide, including improvement of quality and reduction of quantity
of pulp mill effluents and treatment of municipal water supplies.
Acrylic Fibers
Sterling Fibers licenses its acrylic fibers manufacturing technology to
producers worldwide. The Company expects to capitalize on increasing demand
for this technology as developing countries seek to increase acrylic fibers
production capacity. Approximately 17% of the world's current acrylic fibers
capacity is based on Sterling Fibers' technology. The AFB first licensed its
acrylic fibers technology in 1957 to Japan Exlan. The licensing to Japan Exlan
resulted in a plant located in Saidaijii, Japan which has followed a growth
pattern similar to that of the AFB. In 1967 and 1990, respectively, Japan
Exlan sub-licensed the AFB's acrylic fibers technology to companies in South
Korea and Thailand. In addition, the AFB licensed technology for use in two
plants operating in China. In 1996, the AFB licensed its technology to a
company in China for a new acrylic fibers plant. To date, the AFB has
generated $7.7 million in revenue from the sale of technology licenses to
three Asian facilities.
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
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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 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 BP Chemicals Inc., Cytec Industries Inc., E.I. du Pont de
Nemours and Company and Monsanto Company
Acetic Acid Hoechst Celanese Corporation, Eastman Chemical Company and
Millennium Chemicals
Plasticizers Exxon Corporation, Aristech Chemicals and Eastman Chemical
Company
TBA BASF Corporation and Nitto Chemical Industry Co., Ltd.
Sodium Chlorate Akzo Nobel N.V., CXY Chemicals Ltd. and Kerr-McGee
Corporation
Sodium Chlorite Vulcan Chemicals (a subsidiary of Vulcan Materials Co.)
Acrylic Fibers Monsanto Company
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 fiscal 1996, the Company's export sales were approximately
34% 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.
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 or 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
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community. These programs are part of the Company's commitment to Responsible
Care initiatives of the Chemical Manufacturers Association and Canadian
Chemical Producers Association.
During fiscal 1996, the Company was recognized as a 33/50 Environmental
Champion by the Environmental Protection Agency ("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 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 1995 reporting year, the final
year of the 33/50 program, the Company achieved a 71% reduction in the
targeted chemicals, including a 95% reduction in hydrogen cyanide emissions by
converting this by-product into sodium cyanide, an 83% reduction in benzene
emissions primarily by constructing a major wastewater treatment facility, a
66% reduction in toluene and orthoxylene and a 13% reduction in chromium and
nickel compounds. In addition to these improvements, the Company has recently
completed an extensive review of the overall environmental condition at the
Texas City Plant and has initiated a groundwater monitoring program. 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. Accordingly, the Company could be required from time to time to make
expenditures to upgrade its wastewater collection, pretreatment or disposal
systems at its various plants.
Production of chemical products involves the use, storage, transportation
and disposal of materials that may be classified as hazardous or toxic under
applicable laws. Sterling 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.
While there can be no assurances as to what an administrative agency may
require with respect to future remedial activities at the Texas City Plant,
the Company believes that available information and current site conditions do
not warrant material remedial actions. Adverse administrative agency
determinations, however, could result in material environmental expenditures.
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 Merger constituted such a change of control. Accordingly,
any future claims the Company may have against Monsanto will necessarily need
to 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.
In connection with the Company's purchase of the pulp chemical business in
1992, the seller, Tenneco Canada, Inc. ("Tenneco"), 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 Tenneco
obligations
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have been assigned to Albright & Wilson UK Ltd. ("Albright & Wilson") as a
result of the sale by Tenneco of certain assets to Albright & Wilson.
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'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 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. Sterling believes that the
Company 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 EPA 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 (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, regulations 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
a ban of chlorine dioxide in the bleaching process will yield no measurable
environmental or public health benefit. In the event such a regulation was
implemented, the Company would seek to sell its products to customers in other
markets. Sterling is not aware of any other laws or regulations currently in
place in North America 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 1994 and modified in fiscal 1996 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
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 authorize new federal
permit requirements and provisions governing toxic and criteria air
contaminants. 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.
In connection with the AFB Acquisition, the Company assumed substantially
all environmental and safety liabilities associated with the historic
operations of the AFB. Prior to the AFB Acquisition, the Company conducted
extensive environmental and safety investigations and believes that there are
no material
66
<PAGE>
environmental or safety liabilities associated with the AFB. As previously
discussed and as is typically the case with existing industrial facilities,
unknown environmental or safety issues could later arise or be identified
which could result in material costs to the Company.
Sterling believes that the Company is in compliance in all material respects
with applicable environmental laws. However, there can be no assurance that
past practices or future operations will not result in material claims or
regulatory action or require material environmental expenditures.
EMPLOYEES
As of March 1, 1997, the Company had approximately 1,500 employees,
including approximately 300 at its facilities in Canada and approximately 300
in connection with the AFB. Approximately 50% 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 a new labor agreement in May 1996 which
is subject to renegotiation in April 1999. The new agreement increases the
flexibility of work rules which Sterling 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 Buckingham agreements were negotiated in November 1994 and are
subject to renegotiation in November 1997. Sterling believes that the
Company's relationship with its employees is good.
INSURANCE
The Company currently maintains $500 million of coverage for property damage
to the 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 effect 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 and $150
million of combined coverage for property damage and resulting business
interruption for its acrylic fibers operations. The Company also maintains
other insurance coverages for various risks associated with its businesses.
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 trucks, rail cars, 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 acetic acid unit, three plasticizer
units (oxo-alcohol, phthalic anhydride and linear phthalate esters) and the
methanol unit. Carbon monoxide and hydrogen are utilized as feedstocks in the
oxo-alcohol manufacturing process and carbon monoxide and methanol are
utilized as feedstocks to produce
67
<PAGE>
acetic acid. As described in "--Recent Developments," a new partial oxidation
unit was constructed by Praxair at the Texas City Plant to supply carbon
monoxide and hydrogen to the Company. The synthesis gas reformer is now used
in the methanol unit. 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 ethyl benzene
and styrene units. Although the styrene unit is independent of the rest of the
Texas City Plant from a feedstock and by-product standpoint, it is the
cornerstone of the Texas City Plant'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 Texas City Plant'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.
The Company owns or leases all of the real property which comprise the Texas
City Plant and all of the facilities and equipment located there, other than
the sodium cyanide unit which is owned by DuPont, a cogeneration facility
owned by a joint venture between the Company and Praxair Energy Resources,
Inc. and the new partial oxidation unit constructed at the site by Praxair.
Following the expiration of its ten-year lease with BP on July 31, 1996, legal
title to the acetic acid unit reverted 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 and leases several
storage facilities in the United States and Korea.
The Company's pulp chemical business includes four manufacturing plants in
Canada and one in Valdosta, Georgia. The Buckingham, Quebec and Vancouver,
British Columbia sites are approximately 20 acres each and are owned by the
Company. The Thunder Bay, Ontario and Grande Prairie, Alberta sites are leased
by the Company. The Valdosta Plant is leased from the Valdosta-Lowndes County
Industrial Authority. The Company also leases approximately 325 rail cars.
Headquarters for the Canadian operations is located in Toronto in an
approximately 50,000 square foot single story office building owned by the
Company. The building is situated on 6.56 acres owned by the Company and
serves as the headquarters for the pulp chemical business and its respective
laboratories.
The Company owns all of the real property which comprises the Santa Rosa
Plant and owns or leases all of the facilities and equipment located there.
The Santa Rosa Plant is located on 1,100 acres near Pensacola in Santa Rosa
County, Florida. The west side of the Santa Rosa Plant site borders Escambia
Bay with the remaining property bordered by industrial and residential areas.
Selection of the Santa Rosa Plant site was based on proximity to raw materials
and the textile industry as well as good water quality and quantity.
Approximately 60 acres of the site are devoted to the Santa Rosa Plant, with
12 acres under roof. Land devoted to environmental control consists of five
acres for a deep well pretreatment and injection facility, 25 acres for weak
wastewater lagoons, 80 acres for weak wastewater spray irrigation and an
additional 80 acres authorized by permit and 16 acres for active landfill
operation. The remainder of the property is primarily marshland.
LEGAL PROCEEDINGS
Ammonia Release Lawsuits. 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. Since the release,
approximately 49 lawsuits and interventions, involving approximately six
thousand plaintiffs, have been filed against the Company in Galveston and
Harris Counties seeking an unspecified amount of money for alleged damages
from the ammonia release. Many of these lawsuits were filed in April and early
May 1996, presumably in anticipation of the expiration of the two-year statute
of limitations applicable to this release. The largest of these lawsuits is
Lilly Gordon, et al. v. Sterling Chemicals, Inc.; Cause No. 95-36592; In the
281st Judicial District Court of Harris County, Texas ("Gordon"), which
includes approximately 5,700 plaintiffs and
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<PAGE>
intervenors. Approximately two thousand six hundred of the Gordon plaintiffs
agreed to submit their damage claims to binding arbitration. Each of the
plaintiffs who agreed to participate in the arbitration waived any right of
recovery for punitive or exemplary damages. Pursuant to the agreement to
arbitrate, a two-week evidentiary proceeding was conducted in July 1996 before
a three judge panel which will make a determination of the amount of damages.
Currently, the Company anticipates that the results of this arbitration will
be rendered during the third quarter of fiscal 1997. The Company continues to
vigorously defend the claims of the plaintiffs who did not participate in the
July 1996 arbitration.
Other Lawsuits. The Company is subject to various other claims and legal
actions that arise in the ordinary course of its business.
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<PAGE>
MANAGEMENT
The following list sets forth the names, ages and positions held by the
executive officers and directors of the Sterling. Each of such individuals
holds the same respective positions with respect to Holdings. For purposes of
"Management," "Certain Relationships and Related Transactions" and "Principal
Stockholders," the term "Company" means (i) with respect to periods prior to
August 21, 1996, Sterling Chemicals Holdings, Inc. (then known as Sterling
Chemicals, Inc.), and (ii) with respect to periods from and after August 21,
1996, Sterling Chemicals, Inc. (formerly known as STX Chemicals Corp.). The
periods during which such persons have served in such capacities are indicated
in the description of business experience of such persons below.
<TABLE>
<CAPTION>
NAME AND AGE AGE POSITION WITH THE COMPANY
------------ --- -------------------------
<S> <C> <C>
Frank P. Diassi............. 64 Chairman of the Board of Directors
Robert W. Roten(1).......... 62 President, Chief Executive Officer and Director
Jim P. Wise................. 53 Vice President--Finance and Chief Financial
Officer
Richard K. Crump............ 51 Vice President--Strategic Planning
Robert N. Bannon............ 52 Vice President--Operations, President--
Petrochemicals Division
F. Maxwell Evans............ 52 Vice President, General Counsel and Secretary
Robert O. McAlister......... 57 Vice President--Human Resources and
Administration
Stewart H. Yonts............ 51 Treasurer
J. Virgil Waggoner(1)(2).... 69 Vice Chairman of the Board of Directors
Allan R. Dragone(3)(4)...... 71 Director
John L. Garcia(4)........... 40 Director
Frank J. Hevrdejs(3)(4)..... 51 Director
Hunter Nelson(2)............ 44 Director
George B. Gregory(1)(2)..... 34 Director
Robert B. Calhoun(3)(4)..... 54 Director
</TABLE>
- --------
(1) Member of Environmental, Health and Safety Committee
(2) Member of the Audit Committee
(3) Member of Compensation Committee
(4) Member of Finance Committee
Frank P. Diassi. Mr. Diassi is currently Managing General Partner of
Unicorn, a private financial organization. He organized Unicorn in 1981 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 as a director of Mail-Well, Inc.
("Mail-Well"), an envelope manufacturer and commercial printer, and several
private companies. Mr. Diassi became Chairman of the Board of Directors of the
Company in August 1996.
Robert W. Roten. Mr. Roten spent the first 25 years of his career with
Monsanto 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, and became President and Chief
Executive Officer in August 1996.
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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.
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. Effective December 1, 1996, Mr. Crump became Vice
President--Strategic Planning, assuming responsibility for strategic planning
for the Company, which includes acquisition and merger activity.
Robert N. Bannon. Mr. Bannon was employed by Monsanto for 15 years, most
recently as Manager, Strategic Operations--Sales. He became a director in the
Company's Commercial Department in August 1986. Mr. Bannon served as Director
of Manufacturing for the Company from October 1989 until October 1991 and as
Vice President--Operations since October 1991. Mr. Bannon was also President
of Sterling Pulp Chemicals, Ltd. from August 1992 through November 1996.
Effective December 1, 1996, Mr. Bannon became President of the Company's
Petrochemicals Division, assuming responsibility for petrochemical operations
at the Texas City Plant. Mr. Bannon is also a director of Mainland Bank in
Texas City, Texas.
F. Maxwell Evans. Mr. Evans joined the law firm of Bracewell & Patterson,
L.L.P. 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 Petroleos de Venezuela, S.A., 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 is Vice Chairman of the Company's Board of
Directors. Mr. Waggoner served as President and Chief Executive Officer of the
Company from 1986 until his retirement in August 1996. From 1950 to 1980, Mr.
Waggoner was employed by Monsanto, 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, a commodity chemical 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 since July 1983 and February 1994, respectively. He
is currently President and Chief Executive Officer of JVW Investments, Ltd., a
private company.
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
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<PAGE>
a director of 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.
John L. Garcia. Mr. Garcia has been a Managing Director and Head of the
Global Chemical Investment Banking Group with Credit Suisse First Boston
Corporation since 1994 and prior thereto was a Managing Director with Wertheim
Schroder & Co. Inc. Mr. Garcia also serves as a director of Acetex
Corporation.
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 director of Mail-Well, Purina Mills, Inc.
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. 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 other private companies.
George B. Gregory. Mr. Gregory is employed by Koch Capital Services, Inc.
("Koch Capital"), a wholly owned subsidiary of Koch Industries, Inc. ("Koch
Industries"), and currently serves as chief financial officer of Koch Chemical
Company. Prior to joining Koch Capital in June 1995, Mr. Gregory worked as a
consultant for Monitor Company and as a chemist for DuPont.
Robert B. Calhoun. 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 Credit Suisse First Boston Corporation. Mr. Calhoun is also a
director of Avondale Incorporated and Interstate Bakeries Corporation.
COMPENSATION OF DIRECTORS
Fees payable to non-employee directors of the Company are $10,000 per year
plus an attendance fee of $1,000 for each meeting of the Board and $700 for
each meeting of a committee thereof (with the Chairman of each such committee
receiving an additional $700 per meeting). In addition, the Vice Chairman of
the Board of Directors of the Company receives an additional $10,000 per year
fee. Members of the Board of Directors who were employees of the Company or
its subsidiaries do not receive a fee for their services as directors. All
directors are reimbursed for travel expenses for their services as directors.
In addition, the Board of Directors expects to establish a plan pursuant to
which the non-employee directors will be granted options to purchase Holdings
Common Stock.
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<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
Set forth below is information regarding compensation arrangements and
benefits paid or made available to (i) the Chief Executive Officer and (ii)
the four most highly compensated executive officers of the Company
(collectively, the "Named Executive Officers") for the three fiscal years
ended September 30, 1996. Compensation during such fiscal years included
participation in certain stock option, SAR and other benefit plans sponsored
by the Company or its subsidiaries which were terminated in connection with
the Merger.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM COMPENSATION
COMPENSATION(1) AWARDS
----------------- -----------------------
RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL SALARY BONUS STOCK UNDERLYING COMPENSATION
POSITION YEAR ($)(2) ($)(3) AWARD(S) OPTIONS/SARS ($)(4)
------------------ ---- -------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert W. Roten......... 1996 $205,000 $105,313 $ -0- -0- $ 9,403
President and Chief 1995 205,000 266,394 -0- 20,000/-0- 9,364
Executive Officer(5) 1994 177,500 71,579 -0- -0- 8,817
J. Virgil Waggoner...... 1996 297,917 200,372 -0- -0- 101,549(6)
President and Chief 1995 325,000 506,851 -0- -0- 9,675
Executive Officer(5) 1994 279,166 134,987 -0- -0- 1,916
Robert N. Bannon........ 1996 180,000 92,469 -0- -0- 8,462
Vice President-- 1995 180,000 233,906 -0- 15,000/-0- 9,045
Operations, 1994 152,500 61,353 -0- -0- 7,561
President--
Petrochemicals Division
Richard K. Crump........ 1996 180,000 92,469 -0- -0- 8,462
Vice President-- 1995 180,000 233,906 -0- 15,000/-0- 9,045
Strategic Planning 1994 152,500 61,353 -0- -0- 7,561
Jim P. Wise............. 1996 180,000 92,469 -0- -0- 204,255(7)
Vice President--Finance 1995 180,000 413,906(8) 186,975 12,500/-0- 1,620
and Chief Financial 1994 3,409 -0- -0- -0- 31
Officer
F. Maxwell Evans........ 1996 153,500 56,345 -0- -0- 7,415
Vice President, General 1995 148,334 149,417 -0- 10,000/-0- 8,010
Counsel and Secretary 1994 142,500 43,718 -0- -0- 6,391
</TABLE>
- --------
(1) 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 the
relevant fiscal year in the Summary Compensation Table.
(2) Includes amounts deferred under the Company's 401(k) Savings and
Investment Plan.
(3) Paid pursuant to the Company's Profit Sharing Plan.
(4) For fiscal year 1996, All Other Compensation includes matching
contributions paid by the Company pursuant to the Company's 401(k) Savings
and Investment Plan, as follows: Mr. Roten, $7,558, Mr. Waggoner, $8,438,
Mr. Bannon, $6,842, Mr. Crump, $6,842, Mr. Wise, $4,388 and Mr. Evans,
$6,033; and premiums for group term life insurance paid by the Company as
follows: Mr. Roten, $1,845, Mr. Waggoner, $2,492, Mr. Bannon, $1,620, Mr.
Crump, $1,620, Mr. Wise, $1,620 and Mr. Evans, $1,382.
(5) Upon consummation of the Merger, Mr. Roten succeeded Mr. Waggoner as
President and Chief Executive Officer. Prior to the Merger, Mr. Roten was
Executive Vice President and Chief Operating Officer.
(6) Includes $90,619 compensation for unused vacation time paid upon Mr.
Waggoner's resignation as an officer of the Company.
(7) Includes $198,247 paid upon consummation of the Merger pursuant to a
change of control provision of Mr. Wise's employment agreement. Such
agreement was terminated in connection with the Merger.
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<PAGE>
(8) 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 restricted Common Stock awarded to Mr. Wise. The fair market
value of such restricted Common Stock was $8.13 per share.
Option/SAR Grants in Last Fiscal Year. There were no stock option or SAR
grants in fiscal 1996.
Aggregate Option/SAR Exercises in Fiscal 1996 and Year-end Option/SAR
Values. The following table provides information on SAR exercises in fiscal
1996 by the Named Executive Officers. Upon consummation of the Merger, each
outstanding option to acquire Company Common Stock was canceled, each
outstanding SAR was converted into the right to receive a cash payment equal
to the excess, if any, of $12.00 over the base price provided for in such SAR
and the Company's existing stock option and SAR plans were terminated.
Accordingly, there were no stock options or SARs outstanding at September 30,
1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS/SARS AT SEPTEMBER THE-MONEY OPTIONS/SARS AT
SHARES 30, 1996(#) SEPTEMBER 30, 1996($)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert W. Roten......... -0- $ -0- -- -- -- --
J. Virgil Waggoner...... -0- -0- -- -- -- --
Robert N. Bannon........ 131,250 1,050,000 -- -- -- --
Richard K. Crump........ -0- -0- -- -- -- --
Jim P. Wise............. -0- -0- -- -- -- --
F. Maxwell Evans........ 118,130 945,040 -- -- -- --
</TABLE>
- --------
(1) The amounts indicated in the column entitled "Value Realized ($)"
represent the amount paid to the holder of the SARs upon consummation of
the Merger.
Pension Plans.
The Company maintains 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 the 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, Inc. Retirement Plan, the Company recognizes Tenneco, Inc.
Retirement Plan years of service offset by any vested benefit under that plan.
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<PAGE>
The following table ("Table A") illustrates the aggregate of the annual
normal retirement benefits payable under the Pension Plan, the Equalization
Plan (as hereinafter defined) and the Supplemental Plan (as hereinafter
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, the
Equalization Plan and the 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: Robert W. Roten--35 years; J. Virgil Waggoner--40
years; Richard K. Crump--10 years; Robert N. Bannon--25 years; Jim P. Wise--2
years; and F. Maxwell Evans--4 years. Mr. Waggoner was originally hired by
Monsanto prior to April 1, 1986, and retired as an employee of the Company in
connection with the Merger. Accordingly, Mr. Waggoner's pension benefits
commenced on September 1, 1996 and are based upon 40 years of service and 1.4%
of his Average Earnings.
Pension Benefit Equalization Plan. The Company maintains 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 maintains the Sterling
Chemicals, Inc. Supplemental Employee Retirement Plan (the "Supplemental
Plan"). The Supplemental Plan also provides
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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
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. 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, 1996, total retirement benefits under the Equalization Plan
and/or the Supplemental Plan payable to Messrs. Roten, Crump, Bannon, Wise and
Evans will be $86,098, $53,616, $85,389, $30,847 and $31,731 per year,
respectively, reduced by the value of the benefits payable under the Pension
Plan, which are $62,148, $44,680, $69,105, $25,706 and $30,609 per year,
respectively. Mr. Waggoner's actual benefits paid under the Equalization Plan
and/or the Supplemental Plan are $134,758, reduced by actual benefits under
the Pension Plan of $71,341.
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, which
supersedes and replaces all prior termination pay plans (collectively, the
"Prior Plans"). The Consolidated Termination Pay Plan was amended and restated
on May 20, 1996 and further amended on August 19, 1996 (as amended, the
"Consolidated Plan"). With the exception of Mr. Waggoner, each of the Named
Executive Officers is covered by the Consolidated Plan.
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
the Company 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,
including the Named Executive Officers), 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 pre-Merger employee stock ownership plan (the "Old ESOP"), the
Company's Amended and Restated Savings and Investment 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.
Assuming that Messrs. Roten, Crump, Bannon, Wise and Evans were entitled to
receive payments under the Consolidated Plan as of September 30, 1996, and
assuming projected profit sharing amounts of zero for the Termination Pay
Period, such payments would have totaled $615,000, $540,000, $540,000,
$540,000 and $466,500, respectively.
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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
Holdings 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 Holdings, or (ii) individuals who were
members of the Board of Director of Holdings immediately prior to a meeting of
the stockholders of Holdings involving a contest for the election of directors
do not constitute a majority of the Board of Directors of Holdings immediately
following such election unless the election of such new directors was
recommended to the stockholders by management of Holdings, 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 Merger constituted a "change of control"
under the Consolidated Plan. No payments are currently expected to be made
under such plan in connection with the Merger.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Merger, STX Acquisition Corp., Sterling and TSG
entered into an agreement (the "Consulting Agreement") pursuant to which TSG
provided consulting and advisory services, including the organization of STX
Acquisition Corp. and Sterling, structuring and financing of the Merger,
arrangements for outside consulting services, advice with respect to employee
benefit and compensation arrangements and other matters, and STX Acquisition
Corp. agreed to indemnify TSG against liabilities relating to their services.
In addition, Unicorn provided similar services to STX Acquisition Corp. and
Sterling in connection with the Merger. Upon consummation of the Merger, the
Company paid TSG and Unicorn one-time transaction fees of approximately $8
million and $4 million, respectively, for these services and reimbursed TSG and
Unicorn for their expenses. In addition, the Consulting Agreement provides that
if the Company determines prior to April 23, 1998 to dispose of or acquire any
assets or businesses or to offer its securities for sale or to raise any debt
or equity financing, the Company will retain TSG as a consultant with respect
to the transaction, provided that TSG's fees are competitive and the Company
and TSG mutually agree on the terms of the engagement. TSG will not receive a
fee in connection with the Offering. The Company paid TSG a one-time
transaction fee of approximately $1.1 million in connection with the AFB
Acquisition. The transaction fees received by TSG are consistent with fees
which TSG has received in other transactions for which it has provided similar
consulting and advisory services, but were not negotiated on an arm's length
basis. Frank J. Hevrdejs and Hunter Nelson, each a director of the Company and
stockholder of Holdings and a party to the Voting Agreement (as hereinafter
defined), and William C. Oehmig and Susan O. Rheney, each a stockholder of
Holdings and a party to the Voting Agreement, are the principals of TSG. Frank
P. Diassi, Chairman of the Board of Directors, a stockholder of Holdings and a
party to the Voting Agreement, is the Managing General Partner of Unicorn. See
"Principal Stockholders."
Also in connection with the 1996 Recapitalization, Credit Suisse First Boston
Corporation served as managing underwriter and provided certain financial
advisory services to STX Acquisition Corp. and Sterling, for which such firm
received underwriting discounts and commissions and financial advisory fees
totaling approximately $17 million. In addition, Credit Suisse First Boston
Corporation acted as an Initial Purchaser for the Offering, for which such firm
received underwriting discounts not in excess of customery amounts. John L.
Garcia, a director of the Company and stockholder of Holdings, is a Managing
Director of Credit Suisse First Boston Corporation.
In addition, at the closing of the 1996 Recapitalization, a Voting Agreement
(the "Voting Agreement") was entered into among Frank J. Hevrdejs, Frank P.
Diassi, William C. Oehmig, Hunter Nelson, Susan O. Rheney (Trustee of The
Rheney Living Trust), Koch Capital, The Clipper Group (as hereinafter defined),
FSI No. 2 Corporation (a wholly owned subsidiary of Fayez Sarofim & Co.),
Olympus Growth Fund II, L.P. and Olympus Executive Fund, L.P. The Voting
Agreement provides for each of such parties to vote any shares of Holdings
Common Stock owned or subsequently acquired by such parties in favor of a
nominee to the Board of Directors of Holdings to be selected by each of Koch
Capital and The Clipper Group. The rights of Koch Capital and The Clipper Group
to select a nominee under the Voting Agreement are terminated in the event
their
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ownership of Holdings Common Stock represents less than 5% of the total
outstanding shares of Holdings Common Stock. George B. Gregory is the current
designee of Koch Capital and Robert B. Calhoun is the current designee of The
Clipper Group. See "Principal Stockholders."
Mr. Gordon A. Cain, Chairman of the Company's Board of Directors prior to
the Merger, was the founder of TSG and was a principal and a stockholder
thereof until December 1993. 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. Mr. Cain and William A. McMinn, a
director of the Company prior to the Merger, 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. Messrs. Cain
and McMinn, along with Mr. J. Virgil Waggoner, Vice-Chairman of the Company's
Board of Directors, Robert W. Roten, Chief Executive Officer and a director of
the Company, and Richard K. Crump, a Vice-President of the Company, have
previously co-invested with principals of TSG in several transactions.
Since October 1, 1991, the Company and certain affiliates of Koch Industries
have had ongoing commercial relationships in the ordinary course of business,
including, from time to time, supply of raw materials or sales of
petrochemicals. For the fiscal year ended September 30, 1996, (i) product
sales to and raw material purchases from Koch Chemical Company, an indirect
wholly owned subsidiary of Koch Industries, and (ii) payments to John Zink
Company, an indirect wholly owned subsidiary of Koch Industries, in
consideration for certain contracting and construction services performed at
the Texas City Plant, each represented less than 1% of the Company's revenues.
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PRINCIPAL STOCKHOLDERS
All of the issued and outstanding capital stock of Sterling is owned by
Holdings. The following table sets forth certain information regarding the
beneficial ownership of Holdings Common Stock as of April 30, 1997, by (i)
each person known by the Company to be the beneficial owner of more than 5% of
the outstanding shares of Holdings Common Stock, (ii) each director of the
Company, (iii) each Named Executive Officer and (iv) all of the directors and
executive officers as a group. In addition, employees of the Company,
including certain of the Company's executive officers, own an aggregate of
1,157,643 shares of Holdings Common Stock through the Old ESOP, which
represents 9.6% of the outstanding Holdings Common Stock. These shares are
held of record by Merrill Lynch & Co. Incorporated ("Merrill Lynch"), as
trustee, who disclaims beneficial ownership of such shares, and are allocated
to the account of each employee who has sole voting power of his respective
Old ESOP shares. In connection with the 1996 Recapitalization, the Old ESOP
was terminated and the Old ESOP shares are expected to be distributed to the
respective employees during the third quarter of fiscal 1997. Employees of the
Company, including the Company's executive officers, also own an aggregate of
541,670 shares of Holdings Common Stock through the New ESOP, established in
connection with the 1996 Recapitalization, which represents 4.5% of the
outstanding shares of Holdings Common Stock. The New ESOP shares have not yet
been allocated to the accounts of individual employees, although the initial
allocation is expected to occur during the third quarter of fiscal 1997 with
an effective date of December 31, 1996. Upon such allocation, such employees
will share voting power of their respective allocated New ESOP shares with the
plan administrator of the New ESOP. 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>
COMMON STOCK
------------------------
NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES PERCENT
- --------------------------------------- --------- -------
<S> <C> <C>
Frank P. Diassi....................................... 594,772(2)(3) 5.0%
J. Virgil Waggoner.................................... 411,306(4) 3.4
Robert B. Calhoun..................................... 1,852,110(5) 15.5
Allan R. Dragone...................................... 22,035 *
John L. Garcia........................................ 32,137(6) *
George B. Gregory..................................... 1,101,726(7) 9.2
Frank J. Hevrdejs..................................... 818,118(2) 6.8
Hunter Nelson......................................... 57,741(2) *
Robert W. Roten....................................... 161,633(8) 1.3
Robert N. Bannon...................................... 24,905(9) *
Richard K. Crump...................................... 41,195(10) *
Jim P. Wise........................................... 8,814 *
F. Maxwell Evans...................................... 6,938(11) *
Clipper Capital Associates, Inc....................... 1,776,210(2)(12) 14.8
Koch Capital Services, Inc............................ 1,101,726(2)(13) 9.2
FSI No. 2 Corporation................................. 622,053(2)(14) 5.2
Olympus Growth Fund II, L.P........................... 615,383(2)(15) 5.1
Olympus Executive Fund, L.P........................... 6,670(2)(15) *
All executive officers and directors of the Company as
a group (15 persons)................................. 5,163,149(16) 43.1
</TABLE>
- --------
* Less than 1%
(1) Unless otherwise noted, the mailing address of each such beneficial owner
is 1200 Smith Street, Suite 1900, Houston, Texas 77002-4312.
(2) Each of such stockholders is a party to the Voting Agreement. See "Certain
Relationships and Related Transactions." Other parties to the Voting
Agreement include William C. Oehmig, who beneficially owns 343,047 shares
of Holdings Common Stock, and the Rheney Living Trust (Susan O. Rheney and
Clarke
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Rheney, Trustees), which beneficially owns 45,909 shares of Holdings Common
Stock. The parties to the Voting Agreement may be deemed to be members of a
"group" within the meaning of Rule 13d-5(b)(1) under the Exchange Act, and
accordingly may be deemed to have beneficial ownership of all of the shares
of Common Stock subject to the Voting Agreement. An aggregate of 6,257,751
shares of Common Stock, representing 52.3% of the outstanding Common Stock,
are subject to the Voting Agreement. However, each party to the Voting
Agreement expressly disclaims membership in such group and beneficial
ownership of such shares of Common Stock, other than shares identified
herein as beneficially owned by such party.
(3) Includes 20,000 shares held as Trustee of the Gabrielle Diassi Trust and
40,000 shares held as Trustee of the Diassi Children's Trust.
(4) Represents shares owned by the Waggoner Investment Partnership, Ltd., a
family limited partnership of which Mr. Waggoner is the managing general
partner and a limited partner and of which Mr. Waggoner's wife is both a
general partner and a limited partner. Mr. Waggoner disclaims beneficial
ownership of the Holdings Common Stock owned by such partnership except to
the extent of his pecuniary interest therein.
(5) Mr. Calhoun is the sole stockholder of Clipper and Curacao, and as such
may be deemed to have beneficial ownership of shares of Common Stock
beneficially owned by Clipper Associates, Clipper I, Clipper II, Clipper
III and Clipper IV, each of which is defined and discussed below in
footnote (11). In addition, Mr. Calhoun may be deemed to have beneficial
ownership of shares of Common Stock beneficially owned by CS First Boston
Merchant Investments 1995/96, L.P. ("CSFB Investments"), a Delaware
limited partnership principally engaged in making investments. CSFB
Investments may be deemed to directly beneficially own 75,900 shares of
Common Stock.
(6) Held by Clipper Associates under a nominee agreement pursuant to which
Clipper Associates exercises sole voting and dispositive power with
respect to such shares.
(7) Represents shares held by Koch Capital, a wholly owned subsidiary of Koch
Industries, with respect to which, as Chief Financial Officer of the
chemical group of Koch Capital, Mr. Gregory may be deemed to have
beneficial ownership. Mr. Gregory disclaims beneficial ownership of such
shares.
(8) Includes 36,806 shares over which Mr. Roten has sole voting power held by
Merrill Lynch, as Trustee of the Old ESOP, and allocated to Mr. Roten's
account.
(9) Includes 21,727 shares over which Mr. Bannon has sole voting power held by
Merrill Lynch, as Trustee of the Old ESOP, and allocated to Mr. Bannon's
account.
(10) Includes 7,478 shares over which Mr. Crump has sole voting power held by
Merrill Lynch, as Trustee of the Old ESOP, and allocated to Mr. Crump's
account.
(11) Includes 1,704 shares over which Mr. Evans has sole voting power held by
Merrill Lynch, as Trustee of the Old ESOP, and allocated to Mr. Evans'
account.
(12) Clipper Capital Associates, Inc. ("Clipper") may be deemed to be the
beneficial owner of such shares of Common Stock by virtue of its
relationship with entities that have beneficial ownership of such shares
as discussed herein. Clipper and its affiliated entities described herein
are collectively referred to as "The Clipper Group." Clipper is the sole
general partner of Clipper Capital Associates, L.P. ("Clipper
Associates"), and is a Delaware corporation principally engaged in
holding investments, formed for the purpose of serving as general partner
of Clipper Associates. The mailing address of Clipper is 11 Madison
Avenue, 26th Floor, New York, NY 10010.
Clipper Associates is a Delaware limited partnership principally engaged in
making investments, directly or indirectly through other entities and is
the sole general partner of Clipper Equity Partners I, L.P. ("Clipper I")
and Clipper/Merchant Partners, L.P. ("Clipper II"), with sole voting and
dispositive power with respect to the securities held by such partnerships.
Each of Clipper I and Clipper II is a Delaware limited partnership,
principally engaged in making investments. Clipper Associates may be deemed
to directly beneficially own 2,390 shares of Common Stock and indirectly
beneficially own 198,222 shares of Common Stock by virtue of its status as
nominee under certain nominee agreements, pursuant to which it exercises
sole voting and dispositive power with respect to such shares. Clipper I
may be deemed to directly beneficially own 427,033 shares of Common Stock.
Clipper II may be deemed to directly beneficially own 492,711 shares of
Common Stock.
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Each of Clipper/Merban, L.P. ("Clipper III") and Clipper/European Re, L.P.
("Clipper IV") is a Delaware limited partnership, principally engaged in
making investments. Clipper Associates is the sole investment general
partner of Clipper III and Clipper IV, having sole voting and dispositive
power with respect to securities held by such partnerships. Clipper III may
be deemed to directly beneficially own 569,381 shares of Common Stock.
Clipper IV may be deemed to directly beneficially own 284,695 shares of
Common Stock. Clipper Curacao, Inc. ("Curacao"), a corporation organized
under the laws of the British Virgin Islands, is the sole administrative
general partner of Clipper III and Clipper IV, responsible for the
administrative functions of such partnerships.
(13) Such shares are directly beneficially owned by Koch Capital, but may be
deemed to be beneficially owned by Koch Industries, of which Koch Capital
is a wholly owned subsidiary. The mailing address of Koch Industries and
Koch Capital is 4111 East 37th Street North, Wichita, KS 67220.
(14) Such shares are directly beneficially owned by FSI No. 2 Corporation, but
may be deemed to be beneficially owned by Fayez Sarofim & Co., of which
FSI No. 2 Corporation is a wholly owned subsidiary. The majority owner of
Fayez Sarofim & Co. is Fayez Sarofim. The mailing address of Fayez
Sarofim, Fayez Sarofim & Co. and FSI No. 2 Corporation is Two Houston
Center, Suite 2907, Houston, TX 77010.
(15) Olympus Growth and Olympus Executive are Delaware limited partnerships
principally engaged in making investments. OGP II, L.P., a Delaware
limited partnership ("OGP") is the sole general partner of Olympus
Growth, OEF, L.P., a Delaware limited partnership ("OEF"), is the sole
general partner of Olympus Executive. The three general partners of both
OGP and OEF are LJM, L.L.C. ("LJM"), RSM, L.L.C. ("RSM") and Conroy,
L.L.C. ("Conroy"); each of which is a Delaware limited liability company.
The majority owner of LJM is Louis J. Mischianti. The majority owner of
RSM is Robert S. Morris. The majority owner of Conroy is James A. Conroy.
The mailing address of Olympus Growth, Olympus Executive, OGP, OEF, LJM,
RSM, Conroy and Messrs. Mischianti, Morris and Conroy is Metro Center,
One Station Place, Stanford, Connecticut 06902.
(16) Includes 67,715 shares held by Merrill Lynch, as Trustee of the Old ESOP,
and allocated to the accounts of certain of such officers and directors.
DESCRIPTION OF OTHER INDEBTEDNESS
TERM LOANS, REVOLVER AND ESOP LOANS
In connection with the 1996 Recapitalization, Sterling entered into the
Original Credit Agreement with Texas Commerce Bank National Association, as
agent bank for a syndicate of lenders, and Credit Suisse First Boston and
Chase Securities Inc. as co-arrangers. Funding under the Original Credit
Agreement occurred August 21, 1996, upon the consummation of the Merger. The
Original Credit Agreement provides for facilities consisting of a six and one-
half year revolving credit facility providing for up to $100 million (subject
to a monthly borrowing base calculation) in revolving loans (the "Revolver"),
a term loan facility consisting of a $200 million Tranche A term loan due
March 31, 2003 and a $150 million Tranche B term loan due September 30, 2004
(the "Original Term Loans"), and a $6.5 million ESOP Term Loan due September
30, 2000 (the "ESOP Loan").
In connection with the AFB Acquisition, Sterling entered into the New Credit
Agreement with Texas Commerce Bank National Association, as agent bank for a
syndicate of lenders, and Credit Suisse First Boston and Chase Securities Inc.
as co-arrangers. Funding under the New Credit Agreement occurred January 31,
1997, upon the consummation of the AFB Acquisition. The New Credit Agreement
provides for a term loan facility consisting of a $31 million Tranche A term
loan due March 31, 2003 and a $50 million Tranche B term loan due September
30, 2004 (the "New Term Loans" and, together with the Original Term Loans, the
"Term Loans").
The Term Loans, the ESOP Loan and the Revolver borrowings bear interest, at
Sterling's option, at an annual rate of either the Eurodollar Rate or the Base
Rate plus an Applicable Margin ranging from 0% to 3%, depending upon the
Company's leverage ratio. The "Base Rate" is equal to the greater of the Prime
Rate as announced from time to time by the agent bank, the "Federal Funds
Effective Rate" plus 1/2% or the "Base CD
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Rate" plus 1% (as such terms are defined in the Senior Credit Agreements). The
Original Credit Agreement also requires Sterling to pay a commitment fee in the
amounts of 3/8% or 1/2% of the unused commitment under the Revolver depending
on the Company's Leverage Ratio (as defined in the Original Credit Agreement).
The Original Credit Agreement requires the principal amount of the Original
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 (as defined in the Original Credit
Agreement). The New Credit Agreement requires the principal amount of the New
Term Loans to be amortized in quarterly installments beginning with the fiscal
quarter ending June 30, 1997, plus additional mandatory prepayments based upon
consolidated Excess Cash Flow (as defined in the New Credit Agreement). The
ESOP Loan is amortized in 16 equal quarterly installments during its four-year
term. Advances under the Revolver are subject to a borrowing base consisting of
85% of eligible accounts receivable and 65% of eligible inventory with an
inventory cap of 50% of the borrowing base.
Sterling's obligations under the Senior Credit Agreements are secured by a
first priority lien on the capital stock of Sterling's domestic subsidiaries,
65% of the capital stock of its foreign subsidiaries and substantially all of
the domestic assets of Sterling, including without limitation, accounts
receivable, inventory, intangibles and fixed assets and assignments of certain
material leases, licenses and contracts. In addition, the Senior Credit
Agreements are secured by a pledge by Holdings of all of the capital stock of
Sterling. The Senior Credit Agreements are cross-defaulted to each other, to
the Existing Indentures and the Indenture.
The Senior Credit Agreements contain numerous financial and operating
covenants, including, without limitation, restrictions on Sterling's ability to
incur indebtedness, pay dividends, create liens, sell assets, engage in mergers
and acquisitions and refinance existing indebtedness. The Senior Credit
Agreements also require Sterling to satisfy certain financial covenants and
tests. In addition, the Senior Credit Agreements include various circumstances
that will constitute, upon occurrence and subject in certain cases to notice
and grace periods, an event of default thereunder.
As of March 31, 1997, Sterling had drawn approximately $21.6 million under
the Revolver and issued approximately $1 million in letters of credit under the
Revolver, thereby reducing the available commitment under the Revolver at such
time to approximately $77.4 million (compared to an available commitment
thereunder as of December 31, 1996 of $96 million). Available credit under the
Revolver for loans and letters of credit is subject to a monthly borrowing base
and at December 31, 1996, on a pro forma basis, the borrowing base did not
limit such available credit. After giving effect to the AFB Acquisition and the
Offering and the application of the proceeds therefrom, at December 31, 1996,
on a pro forma basis, Sterling would have had indebtedness of $278.5 million
under the Term Loans and $6.1 million under the ESOP Loan.
The proceeds of the Offering were used to prepay outstanding indebtedness
under the Term Loans. See "Private Placement." In connection with such
prepayment, Sterling and the requisite lenders under the Senior Credit
Agreements effected the Amendments. Among other things, the Amendments (i)
permitted and provided for the issuance of the Notes, (ii) adjusted the method
of the application of voluntary prepayments to allow the proceeds of the
Offering to be applied in a manner that significantly reduced required
principal payments, particularly over the next three years, (iii) amended
certain financial covenants to make them somewhat less restrictive, including
amendments to the Leverage Ratio, Interest Coverage Ratio and Fixed Charge
Coverage Ratio covenants, (iv) increased the commitment under the Revolver by
$25 million to $125 million, and (v) included a new financial covenant with
respect to the maintenance of a specified Senior Debt Leverage Ratio.
EXISTING SUBORDINATED NOTES
As part of the 1996 Recapitalization, Sterling also issued $275 million in
aggregate principal amount of Existing Subordinated Notes maturing on August
15, 2006. The following description of the Existing Subordinated Notes is
qualified in its entirety by reference to the Existing Subordinated Notes
Indenture, a form of which has been filed by Sterling with the Securities and
Exchange Commission (the "SEC"). See "Available Information."
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The Existing Subordinated Notes bear interest at the annual rate of 11 3/4%,
payable semi-annually on February 15 and August 15 of each year commencing
February 15, 1997. The Existing Subordinated Notes may not be redeemed by
Sterling prior to August 15, 2001, and from thereon through August 15, 2004,
the Existing Subordinated Notes may be redeemed at a premium varying between
105.875% to 101.958%. Subsequent to August 15, 2004, Sterling may redeem the
Existing Subordinated Notes at their face value plus accrued interest. Prior
to August 15, 1999, Sterling may redeem in the aggregate up to 35% of the
original principal amount of the Existing Subordinated Notes with the proceeds
of one or more public equity offerings following which there is a public
market. Such redemptions may be made at a redemption price of 111 3/4% of the
face value plus accrued interest to the redemption date. After such
redemption, at least $178.8 million aggregate principal amount of the Existing
Subordinated Notes must remain outstanding.
The Existing Subordinated Notes are unsecured senior subordinated
obligations of Sterling, are subordinated to all Senior Debt of Sterling and
are senior in right of payment with, or pari passu with, all existing and
future subordinated indebtedness of the Company. The Notes rank pari passu
with the Existing Subordinated Notes.
The Existing Subordinated Notes Indenture contains numerous financial and
operating covenants, including, without limitation, restrictions on Sterling's
ability to incur indebtedness, pay dividends, create liens, sell assets,
engage in mergers and acquisitions and refinance existing indebtedness, which
are substantially similar to the covenants contained in the Indenture. In
addition, the Existing Subordinated Notes Indenture includes various
circumstances that will constitute, upon occurrence and subject in certain
cases to notice and grace periods, an event of default thereunder.
DESCRIPTION OF THE NOTES
The Exchange Notes will be issued, and the Old Notes were issued, pursuant
to the Indenture (the "Indenture") between Sterling and Fleet National Bank,
as trustee (the "Trustee"). The following is a summary of material provisions
of the 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 Indenture (including provisions made part of the 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." Copies of the proposed form of
Indenture and Registration Rights Agreement are available as set forth under
"Available Information."
GENERAL
The Exchange Notes will be issued solely in exchange for an equal principal
amount of Old Notes pursuant to the Exchange Offer. The form and terms of the
Exchange Notes will be identical in all material respects to the form and
terms of the Old Notes except that the offering of the Exchange Notes has been
registered under the Securities Act, and the Exchange Notes will therefore not
be subject to transfer restrictions, registration rights and certain
provisions relating to an increase in the stated interest rate on the Old
Notes under certain circumstances. See"--Registered Exchange Offer;
Registration Rights." The Notes are subject to the terms stated in the
Indenture, as supplemented, a copy of which has been filed as an exhibit to
the Registration Statement, and holders of the Notes are referred thereto for
a statement of those terms. The statements and definitions of terms under this
caption relating to the Notes and the Indenture described below are summaries
and do not purport to be complete. Such summaries make use of certain terms
defined in the Indenture and are qualified in their entirety by express
reference to the Indenture. Certain terms used herein are defined below under
"--Certain Definitions."
The Old Notes and the Exchange Notes will constitute a single series of debt
securities under the Indenture. If the Exchange Offer is consummated, holders
of Old Notes who do not exchange their Old Notes for Exchange Notes will vote
together with holders of the Exchange Notes for all relevant purposes under
the Indenture. In that regard, the Indenture requires that certain actions by
the holders thereunder (including acceleration following
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an Event of Default) must be taken, and certain rights must be exercised, by
specified minimum percentages of the aggregate principal amount of the
outstanding securities issued under the Indenture. In determining whether
holders of the requisite percentage in principal amount have given any notice,
consent or waiver or taken any other action permitted under the Indenture, any
Old Notes that remain outstanding after the Exchange Offer will be aggregated
with the Exchange Notes, and the holders of such Old Notes and the Exchange
Notes will vote together as a single series for all such purposes.
Accordingly, all references herein to specified percentages in aggregate
principal amount of the outstanding Notes shall be deemed to mean, at any time
after the Exchange Offer is consummated, such percentages in aggregate
principal amount of the Old Notes and the Exchange Notes then outstanding.
The Notes are senior subordinated unsecured obligations of Sterling, are
limited to $150,000,000 aggregate principal amount and will mature on April 1,
2007. The Notes bear interest at 11 1/4% per annum from April 7, 1997 or from
the most recent date to which interest has been paid as provided for, payable
semi-annually on April 1 and October 1 of each year, commencing October 1,
1997, to each Person in whose name a Note is registered at the close of
business on the preceding March 15 or September 15, as the case may be.
Principal of and premium, if any, and interest on the Notes is payable, and
the transfer of Notes is registrable, at the office or the agency maintained
by Sterling in the City of New York. In addition, payment of interest may, at
the option of Sterling, be made by check mailed to the address of the Person
entitled thereto as it appears in the Note Register. Interest is computed on
the basis of a 360-day year of twelve 30-day months.
The Notes are 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 Sterling 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 are not redeemable
at the option of Sterling prior to April 1, 2002. Thereafter, the Notes will
be redeemable, at Sterling's 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 April 1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2002........................................................... 105.625%
2003........................................................... 103.750%
2004........................................................... 101.875%
2005........................................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to April 1, 2000,
Sterling 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 111.25% 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 $97,500,000 aggregate principal amount of the
Notes must remain outstanding after each such redemption.
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis unless otherwise required by
law or regulation, 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
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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 constitutes senior subordinated
unsecured obligations of Sterling. The payment of the principal of and
premium, if any, and interest on the Notes is subordinate in right of payment,
as set forth in the Indenture, to the prior payment in full in cash or cash
equivalents of all existing and future Senior Debt of Sterling, including
Sterling's obligations under the Credit Agreements, and ranks pari passu in
right of payment with all existing and future senior subordinated indebtedness
of Sterling (including the Existing Subordinated Notes). The Notes are senior
in all respects to any subordinated indebtedness of Sterling. As of December
31, 1996, after giving effect to the AFB Acquisition and the Offering and the
application of the net proceeds therefrom, the aggregate principal amount of
outstanding Senior Debt of Sterling would have been approximately $287.6
million and the aggregate principal amount of senior subordinated indebtedness
of Sterling (including the Notes) would have been approximately $425 million,
and Sterling would have had no subordinated indebtedness. Although the
Indenture contains limitations on the amount of additional Debt that Sterling
may incur, under certain circumstances the amount of such Debt could be
substantial and, in any case, such Debt may be Senior Debt. Sterling has
agreed in the 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 Sterling 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 Sterling,
including holders of the Notes, even though such obligations will not
constitute Senior Debt. The Notes, therefore, are effectively subordinated to
creditors (including trade creditors) and preferred stockholders (if any) of
subsidiaries of Sterling. Although the Indenture limits the incurrence of Debt
and preferred stock of certain of Sterling's subsidiaries, such limitation is
subject to a number of significant qualifications. Moreover, the Indenture
does not impose any limitation on the incurrence by such subsidiaries of
liabilities that are not considered Debt under the Indenture. See "--Certain
Covenants--Limitation on Debt" and "--Certain Covenants--Limitation on
Restrictions on Distributions from Restricted Subsidiaries."
Sterling 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, Sterling may pay the Notes without
regard to the foregoing if Sterling 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, Sterling may
not pay the Notes for a period (a "Payment Blockage Period") commencing upon
the receipt by the Trustee (with a copy to Sterling) of written notice (a
"Blockage Notice") of such default from the Representative of the holders of
such Designated Senior Debt specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated (a) by written notice to the Trustee and
Sterling from the Person or Persons who gave such Blockage Notice, (b) because
the default giving rise to such Blockage Notice is no longer continuing or (c)
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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, Sterling 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 Sterling upon a total or
partial liquidation or dissolution or reorganization of or similar proceeding
relating to Sterling 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 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,
Sterling 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 Indenture, in the
event of insolvency, creditors of Sterling who are holders of Senior Debt may
recover more, ratably, than the Holders, and creditors of Sterling 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."
BOOK-ENTRY, DELIVERY AND FORM
The Old Notes were initially issued in the form of the Old Global Note
except as described below. Upon issuance, the Old Global Note was deposited
with, or on behalf of, the Depositary and registered in the name of Cede &
Co., as nominee of the Depositary. Except as set forth below, the Old Global
Note may be transferred, in whole and not in part, only to the Depositary or
another nominee of the Depositary.
The Old Notes, to the extent validly tendered and accepted and directed by
their holders in their Letters of Transmittal, will be exchanged through book-
entry electronic transfer for the Exchange Global Note in definitive, fully
registered form, without coupons, registered in the name of Cede & Co., as
nominee of the Depositary. Investors may hold their beneficial interests in
the Global Note directly through the Depositary if they have an account with
the Depositary or indirectly through organizations which have accounts with
the Depositary.
Old Notes that were (i) originally issued to institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act) that are not qualified institutional buyers or (ii) issued as described
below under "--Certificated Notes" were issued in definitive form. Upon the
transfer of a Note in definitive form, such Note will, unless the Global Note
has previously been exchanged for Notes in definitive form, be exchanged for
an interest in the Global Note representing the principal amount of Notes
being transferred.
The Depositary has advised Sterling as follows: The Depositary is a limited-
purpose trust company and organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary was created to hold securities of institutions that have accounts
with the Depositary ("participants") and to facilitate the clearance
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and settlement of securities transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. The Depositary's participants include securities brokers and
dealers (which may include the Initial Purchasers), banks, trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's book-entry system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, whether directly or indirectly.
Upon the issuance of the Global Note, the Depositary will credit, on its
book-entry registration and transfer system, the principal amount of the Notes
represented by such Global Note to the accounts of participants. The accounts
to be credited shall be designated by the Initial Purchasers of such Notes.
Ownership of beneficial interests in the Global Note will be limited to
participants or persons that may hold interest through participants. Ownership
of beneficial interests in the Global Note will be shown on, and the transfer
of those ownership interests will be effected only through, records maintained
by the Depositary (with respect to participants' interests) and such
participants (with respect to the owners of beneficial interests in the Global
Note other than participants). The laws of some jurisdictions may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to transfer or
pledge beneficial interests in the Global Note.
So long as the Depositary, or its nominee, is the registered holder and
owner of the Global Note, the Depositary or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related Notes for
all purposes of such Notes and the Indenture. Except as set forth below,
owners of beneficial interests in the Global Note will not be entitled to have
the Notes represented by the Global Note registered in their names, will not
receive or be entitled to receive physical delivery of certificated Notes in
definitive form and will not be considered to be the owners or holders of any
Notes under the Global Note. Sterling understands that under existing industry
practice, in the event an owner of a beneficial interest in the Global Note
desires to take any action that the Depositary, as the holder of the Global
Note, is entitled to take, the Depositary would authorize the participants to
take such action, and that the participants would authorize beneficial owners
owning through such participants to take such action or would otherwise act
upon the instructions of beneficial owners owning through them.
Payment of principal of and interest on Notes represented by the Global Note
registered in the name of and held by the Depositary or its nominee will be
made to the Depositary or its nominee, as the case may be, as the registered
owner and holder of the Global Note.
Sterling expects that the Depositary or its nominee, upon receipt of any
payment of principal of or interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the Depositary or its nominee. Sterling also expects
that payments by participants to owners of beneficial interests in the Global
Note held through such participants will be governed by standing instructions
and customary practices and will be the responsibility of such participants.
Sterling will not have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in the Global Note for any Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests or for
any other aspect of the relationship between the Depositary and its
participants or the relationship between such participants and the owners of
beneficial interests in the Global Note owning through such participants.
Unless and until it is exchanged in whole or in part for certificated Notes
in definitive form, the Global Note may not be transferred except as a whole
by the Depositary to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary.
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depositary, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor Sterling
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will have any responsibility for the performance by the Depositary or its
participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
CERTIFICATED NOTES
The Notes represented by the Global Note are exchangeable for certificated
Notes in definitive form of like tenor as such Notes in denominations of U.S.
$1,000 and integral multiples thereof if (i) the Depositary notifies the
Company that it is unwilling or unable to continue as Depositary for the
Global Note or if at any time the Depositary ceases to be a clearing agency
registered under the Exchange Act, (ii) the Company in its discretion at any
time determines not to have all of the Notes represented by the Global Note or
(iii) a default entitling the holders of the Notes to accelerate the maturity
thereof has occurred and is continuing. Any Note that is exchangeable pursuant
to the preceding sentence is exchangeable for certificated Notes issuable in
authorized denominations and registered in such names as the Depositary shall
direct. Subject to the foregoing, the Global Note is not exchangeable, except
for a Global Note of the same aggregate denomination to be registered in the
name of the Depositary or its nominee. In addition, such certificates will
bear the legend referred to under "Transfer Restrictions" (unless Sterling
determines otherwise in accordance with applicable law) subject, with respect
to such Notes, to the provisions of such legend.
REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, Sterling has agreed that it
will, at its cost, (i) within 45 days after the date of original issue of the
Old Notes, file the Registration Statement with the SEC with respect to the
Exchange Offer to exchange the Old Notes for Exchange Notes of Sterling, which
will have terms substantially identical in all material respects to the Old
Notes (except that the Exchange Notes will not contain terms with respect to
transfer restrictions) and (ii) use its best efforts to cause the Registration
Statement to be declared effective under the Securities Act within 150 days
after the date of original issue of the Old Notes. Upon the effectiveness of
the Registration Statement, Sterling will offer the Exchange Notes in exchange
for surrender of the Old Notes. Sterling will keep the Exchange Offer open for
not less than 30 days (or longer if required by applicable law) after the date
notice of the Exchange Offer is mailed to the holders of the Old Notes. For
each Old Note surrendered to Sterling pursuant to the Exchange Offer, the
holder of such Old Note will receive an Exchange Note having a principal
amount equal to that of the surrendered Old Note. Interest on each Exchange
Note will accrue from the last interest payment date on which interest was
paid on the Old Note surrendered in exchange thereof or, if no interest has
been paid on such Old Note, from the date of its original issue. Under
existing SEC interpretations, Sterling believes that the Exchange Notes would
be freely transferable by holders other than affiliates of Sterling after the
Exchange Offer without further registration under the Securities Act if the
holder of the Exchange Notes represents that it is acquiring the Exchange
Notes in the ordinary course of its business, that it has no arrangement or
understanding with any person to participate in the distribution of the
Exchange Notes and that it is not an affiliate of Sterling, as such terms are
interpreted by the SEC; provided, however, that broker-dealers ("Participating
Broker-Dealers") receiving Exchange Notes in the Exchange Offer will have a
prospectus delivery requirement with respect to resales of such Exchange
Notes. The SEC has taken the position that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to Exchange Notes
(other than a resale of an unsold allotment from the original sale of the Old
Notes) with this Prospectus. Under the Registration Rights Agreement, Sterling
is required to allow Participating Broker-Dealers and other persons, if any,
with similar prospectus and delivery requirements to use this Prospectus in
connection with the resale of such Exchange Notes.
A holder of Old Notes (other than certain specified holders) who wishes to
exchange such Old Notes for Exchange Notes in the Exchange Offer will be
required to represent that any Exchange Notes to be received by it will be
acquired in the ordinary course of its business and that at the time of the
commencement of the Exchange Offer it has no arrangement or understanding with
any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes and that it is not an "affiliate" of
Sterling, as defined
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in Rule 405 of the Securities Act, or if it is an affiliate, it will comply
with the registration and prospectus delivery requirements of the Securities
Act to the extent applicable.
In the event that applicable interpretations of the staff of the SEC do not
permit Sterling to effect the Exchange Offer, or if for any other reason, the
Exchange Offer is not consummated within 180 days of the date of original
issue of the Old Notes, or if the Initial Purchasers so request with respect
to Old Notes not eligible to be exchanged for Exchange Notes in the Exchange
Offer, or if any holder of Old Notes is not eligible to participate in the
Exchange Offer or does not receive freely tradeable Exchange Notes in the
Exchange Offer, Sterling will, at its cost, (a) as promptly as practicable,
file a shelf registration statement (the "Shelf Registration Statement") with
the SEC covering resales of the Old Notes or the Exchange Notes, as the case
may be, (b) use its best efforts to cause the Shelf Registration Statement to
be declared effective under the Securities Act and (c) keep the Shelf
Registration Statement effective until the earlier of (i) the time when the
Notes covered by the Shelf Registration Statement can be sold pursuant to Rule
144 without any limitations under clauses (c), (e), (f) and (h) of Rule 144
and (ii) three years from the Issue Date. Sterling will, in the event a Shelf
Registration Statement is filed, among other things, provide to each holder
for whom such Shelf Registration Statement was filed copies of the prospectus
which is part of the Shelf Registration Statement, notify each such holder
when the Shelf Registration Statement has become effective and take certain
other actions as are required to permit unrestricted resales of the Old Notes
or the Exchange Notes, as the case may be. A holder selling such Old Notes or
Exchange Notes pursuant to the Shelf Registration Statement generally would be
required to be named as a selling security holder in the related prospectus
and to deliver a prospectus to purchasers, will be subject to certain of the
civil liability provisions under the Securities Act in connection with such
sales and will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such
holder (including certain indemnification obligations).
If (i) on or prior to May 22, 1997, neither the Registration Statement nor
the Shelf Registration Statement has been filed with the SEC; (ii) on or prior
to October 4, 1997, neither the Exchange Offer is consummated nor the Shelf
Registration Statement is declared effective; or (iii) after the Registration
Statement or the Shelf Registration Statement is declared effective, such
Registration Statement thereafter ceases to be effective or usable (subject to
certain exceptions) in connection with resales of Old Notes or Exchange Notes
in accordance with and during the periods specified in the Registration Rights
Agreement (each such event referred to in clause (i) through (iii) being
herein called a "Registration Default"), interest will accrue on the Notes at
the rate of 11 3/4% per annum from and including the date on which any such
Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured. At all other times, the Notes will bear
interest at the rate set forth on the cover page hereof.
Pursuant to the Registration Rights Agreement, if Sterling effects the
Exchange Offer, it will be entitled to close the Exchange Offer 30 days after
the commencement thereof provided that it has accepted all Old Notes
theretofore validly tendered in accordance with the terms of the Exchange
Offer.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration
Statement.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder shall have the right
to require Sterling 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 Indenture:
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(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, however, 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), 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
Sterling (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of Holdings
or Sterling, as the case may be, was approved by a majority of the
directors of Holdings or Sterling, 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
Sterling, as the case may be, then in office;
(iii) the merger or consolidation of Holdings or Sterling with or into
another Person or the merger of another Person (other than a Permitted
Holder) with or into Holdings or Sterling, or the sale or transfer in one
or a series of transactions of all or substantially all the assets of
Holdings or Sterling to another Person (other than a Permitted Holder) and,
in the case only of any such merger or consolidation, the securities of
Holdings or Sterling that are outstanding immediately prior to such
transaction and which represent 100% of the aggregate voting power of the
Voting Stock of Holdings or Sterling 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 Sterling, Holdings shall hold less than a majority of the Capital
Stock of Sterling (other than Preferred Stock of Sterling issued in
accordance with the terms of the Indenture) or less than a majority of the
Voting Stock of Sterling.
Within 30 days following any Change of Control, Sterling 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 Sterling 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,
without limitation, 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 Sterling consistent with the Indenture, that a Holder must
follow in order to have its Notes repurchased.
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Sterling 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,
Sterling 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
Sterling and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that Sterling or Holdings would decide to do so in the future. The provisions
of the 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 Sterling's 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 Sterling to
purchase their Notes.
The Credit Agreements generally will prohibit Sterling from purchasing any
Notes, and will also provide that the occurrence of certain change of control
events with respect to Sterling would constitute a default thereunder. In the
event a Change of Control occurs at a time when Sterling is prohibited from
purchasing any Notes, Sterling could seek the consent of its lenders to the
purchase of Notes or could attempt to refinancing the borrowings that contain
such prohibition. If Sterling does not obtain such a consent or repay such
borrowings, Sterling will remain prohibited from purchasing any Notes. In such
case, Sterling's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture which would, in turn, constitute a default
under the Credit Agreements. In such circumstances, the subordination
provisions in the Indenture would likely restrict payment to the Holders of
Notes.
Upon consummation of the Offering, Sterling will not have any Debt that is
pari passu with the Notes that contain any change of control provisions other
than the Existing Subordinated Notes. Future indebtedness of Sterling 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 Sterling 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 Sterling. Finally, Sterling's ability
to pay cash to the holders of Notes following the occurrence of a Change of
Control may be limited by Sterling's 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 Indenture relating to
Sterling'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 Sterling and,
thus, removal of incumbent management.
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CERTAIN COVENANTS
The Indenture will contain certain covenants, including among others the
ones summarized below:
Limitation on Debt. (a) Sterling shall not, 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 August 15, 1998 or 2.0 to 1.0
if such Debt is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), Sterling and its Restricted
Subsidiaries may Incur the following Debt: (1) Debt Incurred pursuant to the
Revolving Credit Provisions of the Credit Agreements 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 Sterling and its Restricted Subsidiaries, and (ii)
85% of the gross book value of the accounts receivable of Sterling 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
Provisions of the Credit Agreements 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 Sterling 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 Sterling; (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 Sterling (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 Sterling); (6) the Existing Subordinated 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, however, 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 Sterling pursuant to the Indenture; and (10)
Debt in an aggregate principal amount which, together with all other Debt of
Sterling 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, Sterling 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) Sterling 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)
Sterling 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), Sterling, in its
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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) Sterling 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 Sterling) 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 Sterling or a Restricted Subsidiary), and other than
pro rata dividends or other distributions made by a Restricted Subsidiary of
Sterling 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 Sterling, any direct or
indirect parent of Sterling or a Restricted Subsidiary (other than such
Capital Stock owned by Sterling 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 Sterling or such Restricted Subsidiary
makes such Restricted Payment: (1) a Default shall have occurred and be
continuing (or would result therefrom); (2) Sterling, 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 Existing
Subordinated 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; and 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 Sterling 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 Sterling
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 Sterling 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 Sterling is reduced on Sterling's balance sheet upon
the conversion or exchange (other than by a Subsidiary) subsequent to the
Issue Date, of any Debt of Sterling convertible or exchangeable for Capital
Stock (other than Redeemable Stock or Exchangeable Stock) of Sterling (less
the amount of any cash, or other property, distributed by Sterling 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 Sterling or any Restricted Subsidiary from Unrestricted
Subsidiaries, and (ii) the portion (proportionate to Sterling's 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
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Subsidiary, the amount of Investments previously made (and treated as a
Restricted Payment) by Sterling 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
Existing Subordinated Notes Indenture by Sterling 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 (xi) 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
Sterling made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of Sterling (other than Redeemable Stock or
Exchangeable Stock of Sterling and other than Capital Stock of Sterling 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 Sterling made by exchange
for, or out of the proceeds of the substantially concurrent sale of, Debt of
Sterling 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 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 Sterling's Common Stock so long as (x)
Sterling 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, however, that such dividend shall be included in the calculation of
the amount of Restricted Payments; (vi) payments to the New ESOP on behalf of
the employees of Holdings or its Subsidiaries; provided, however, that all
such payments by Sterling 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 New 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 Sterling 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 Sterling to Holdings or to the New
ESOP or directly by Sterling to be used to repurchase Holdings Common Stock
distributed to participants and beneficiaries of the New ESOP as required by
and in accordance with the New 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 Sterling to Holdings or the New ESOP,
or directly by Sterling, 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
Sterling or Holdings from time to time; provided, however, that the aggregate
price paid for all Capital Stock repurchased, redeemed, acquired or retired by
Sterling or on behalf of Holdings or Sterling shall not exceed $5 million in
any fiscal year; and provided, further, however, that such amount, to the
extent related to the New ESOP, shall be excluded in the calculation of
Restricted Payments; (x) a payment to
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Holdings pursuant to the tax sharing agreement as the same may be amended from
time to time in a manner not materially adverse to Sterling; 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 TSG;
provided, however, that such amount shall be excluded in the calculation of
the amount of Restricted Payments; and (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 Sterling) as defined in such Discount Notes
Indenture; provided, however, that such amount shall be excluded in the
calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
Sterling 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 Sterling, (ii) make any loans or advances to Sterling or
(iii) transfer any of its property or assets to Sterling, 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 Incurred by such Restricted Subsidiary on or prior to the
date on which such Restricted Subsidiary was acquired by Sterling (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 Sterling) 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 non-assignment 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, (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) Sterling shall not,
and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) Sterling 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 85% of the
consideration thereof received by Sterling 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 Sterling (or such
Restricted Subsidiary, as the case may be) (A) first, to the extent Sterling
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 Sterling or an
Affiliate of Sterling 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 Sterling's election to the
investment by Sterling, 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 Sterling, the Wholly
Owned Subsidiaries or the Restricted Subsidiary making such Asset Disposition
existing on the date of original
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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 Sterling designated by Sterling) pursuant to and subject
to the conditions contained in the 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 Sterling, 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 Sterling or Debt of any Restricted Subsidiary
(in either case other than Debt owed to Sterling or an Affiliate of Sterling),
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,
Sterling 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,
Sterling 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 Sterling or any
Restricted Subsidiary and the release of Sterling or such Restricted
Subsidiary from all liability on such Debt in connection with such Asset
Disposition and (y) securities received by Sterling or any Restricted
Subsidiary from the transferee that are converted by Sterling or such
Restricted Subsidiary into cash within 90 days of the receipt of such
securities. The 85% 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 85% 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, Sterling will be required to purchase Notes tendered pursuant to an
offer by Sterling 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 Subordinated Debt) in accordance with the procedures (including
prorating in the event of oversubscription) set forth in the 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, Sterling will be required to apply the remaining Net
Available Cash in accordance with clause (a)(ii)(D) above. Sterling 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. Sterling 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) Sterling 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
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covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, Sterling 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) Sterling 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 Sterling (an "Affiliate
Transaction") unless (i) the terms of such Affiliate Transaction are (A) set
forth in writing and (B) as favorable to Sterling 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 Sterling or its Restricted Subsidiary, as the case
may be. The foregoing requirements shall not be applicable to (x) contracts
with Koch Capital Services, Inc. or its affiliates in the ordinary course of
business on terms as favorable to Sterling 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
Sterling 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 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 Sterling 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 Sterling and its Restricted Subsidiaries who are not employees
of Sterling or its Restricted Subsidiaries, (v) any transaction between
Sterling and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries,
and (vi) indemnification payments to directors and officers of Sterling in
accordance with applicable state laws.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. Sterling 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 Sterling 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), Sterling 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, Sterling or any such Restricted
Subsidiary shall comply with the covenant described under "--Limitation on
Sales of Assets and Subsidiary Stock" above.
SEC Reports. Notwithstanding that Sterling may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act. Sterling 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, including, without
limitation, Forms 8-K, 10-Q and 10-K, 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.
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MERGER AND CONSOLIDATION
Sterling 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 Sterling) expressly
assumes by a supplemental indenture, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of Sterling under the
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 "--Certain Covenants--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 Sterling
immediately prior to such transaction minus any costs incurred in connection
with the transaction, and (v) Sterling 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
Indenture.
The Successor Company shall be the successor to Sterling and shall succeed
to, and be substituted for, and may exercise every right and power of,
Sterling under the 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 Indenture as (i) 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, (ii) 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, (iii) the failure by Sterling to comply with its obligations
under "--Merger and Consolidation," (iv) the failure by Sterling 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," (v) the failure by Sterling to comply
with any of its agreements in the Notes or the Indenture (other than those
referred to in (i), (ii), (iii) or (iv) above) and such failure continues for
60 days after the notice specified below, (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 Sterling or any of its
Subsidiaries (or the payment of which is Guaranteed by Sterling or any of its
Subsidiaries) whether such Debt or Guarantee now exists, or is created after
the date of the Indenture, which default (a) 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(b) 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) certain events of
bankruptcy or insolvency of Sterling or any Significant Subsidiary or (viii)
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 Sterling 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 (v) is not an
Event of Default until the Trustee or the Holders of at least 25% in principal
amount of the Notes notify Sterling of the Default and Sterling does not cure
such Default within the time specified after receipt of such notice.
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If an Event of Default (other than certain events of bankruptcy, insolvency
or reorganization of Sterling) 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 Sterling 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 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
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 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 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 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, Sterling 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.
Sterling 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 Sterling is taking or proposes to take
in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the 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
Indenture that would adversely affect the Holders.
Without the consent of any holder of the Notes, Sterling and the Trustee may
amend or supplement the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor
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corporation of the obligations of Sterling under the 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 Sterling
and its Subsidiaries for the benefit of the Holders or to surrender any right
or power conferred upon Sterling, 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 Indenture under the Trust
Indenture Act of 1939.
The consent of the Holders is not necessary under the 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 Indenture becomes effective, Sterling 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 are issued in registered form and will be transferred only upon
the surrender of the Notes being transferred for registration of transfer.
Sterling 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
Sterling at any time may terminate all its obligations under the Notes and
the 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.
Sterling at any time may terminate its obligations under the covenants
described under "--Certain Covenants" and "--Change of Control" above, 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").
Sterling may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If Sterling exercises its legal
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default with respect thereto. If Sterling exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clauses (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "--Defaults" above or the failure of
Sterling to comply with "--Change of Control" above.
In order to exercise either defeasance option, Sterling 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 is the Trustee under the Indenture and has been
appointed by Sterling as Registrar and Paying Agent with regard to the Notes.
Fleet National Bank also serves as Trustee under the Existing Indentures.
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The Holders of a majority in principal amount of the outstanding Notes 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 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 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 Indenture.
GOVERNING LAW
The 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 provisions described under "--Certain
Covenants--Limitation on Transactions with Affiliates" 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
Sterling 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 Sterling 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 Sterling or by Sterling 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 Sterling 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 Sterling 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
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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 Sterling 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 United States dollars to or for the
account of Sterling Pulp Chemicals, Ltd., a Wholly Owned Subsidiary of
Sterling.
"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 (limited in amount to underlying
exposure, and not for speculative purposes) entered into by Sterling or any
Restricted Subsidiary that is designed to protect Sterling or any Restricted
Subsidiary against fluctuations in the price of commodities used by Sterling
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 (a) if Sterling 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, (b) if since the beginning of such period Sterling 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 Sterling or
any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to Sterling 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 Sterling and its continuing Restricted Subsidiaries
are no longer liable for such Debt after such sale), (c) if since the
beginning of such period Sterling 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
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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 (d) if since the beginning of such period any
Person (that subsequently became a Restricted Subsidiary or was merged with or
into Sterling 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 (b) or (c) above if made by Sterling
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 Sterling. 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 Sterling 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 Sterling and
all Preferred Stock of Restricted Subsidiaries held by Persons other than
Sterling or a Wholly Owned Subsidiary, (viii) interest incurred in connection
with Investments in discontinued operations, (ix) interest actually paid by
Sterling 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 Sterling 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 Sterling
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, Sterling's 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 Sterling 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) Sterling's 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 Sterling or a Restricted Subsidiary
to such Person during such period, (ii) any net income (or loss) of any Person
acquired by Sterling 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 Sterling, except that (a) subject to the exclusion contained in clause (iv)
below, Sterling'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 Sterling 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) Sterling'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 Sterling 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
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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 Sterling 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 Agreements" means (i) the agreement dated June 21, 1996 among
Sterling, Texas Commerce Bank National Association, as administrative agent,
and the other lenders party thereto, and their respective successors and
assigns, and (ii) the agreement dated January 31, 1997 among Sterling, Texas
Commerce Bank National Association, as administrative agent, and the other
lenders party thereto, and their respective successors and assigns, in case,
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 (limited in
amount to underlying exposure, and not for speculative purposes) 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
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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 Agreements 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: (i) all income tax expense of
Sterling; (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 Sterling 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 Sterling 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 Agreements
pursuant to which lenders thereunder have committed to make ESOP loans
available to Sterling.
"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 Sterling which
is neither Exchangeable Stock nor Redeemable Stock).
"Existing Subordinated Notes" means $275,000,000 in original principal
amount of Sterling's 11 3/4 Senior Subordinated Notes Due 2006 issued on
August 21, 1996.
"Foreign Asset Sale" means an Asset Disposition 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 Disposition 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.
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"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 (limited in amount to underlying exposure, and not for speculative
purposes).
"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 Sterling, is qualified to perform the task for which
such firm has been engaged and is independent with respect to Sterling and its
Affiliates.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement (limited in
amount to underlying exposure, and not for speculative purposes) designed to
protect Sterling 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--Limitation on
Restricted Payments," (i) "Investment" shall include the portion
(proportionate to Sterling's equity interest in such Subsidiary) of the fair
market value of the net assets of any Subsidiary of Sterling 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; and provided, further, however, that upon a redesignation of
such Subsidiary as a Restricted Subsidiary, Sterling shall be deemed to
continue to have a permanent "Investment" in an Unrestricted Subsidiary equal
to an amount (if positive) equal to (x) Sterling's "Investment" in such
Subsidiary at the time of such redesignation less (y) the portion
(proportionate to Sterling'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.
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"Issue Date" means the date on which the Notes are originally issued.
"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 Sterling 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 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 TSG 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 New ESOP or
(vi) any savings or investment plan sponsored by Sterling or Holdings.
"Permitted Investment" means an Investment by Sterling 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 Sterling 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 Sterling 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 Sterling or a Restricted Subsidiary in a Person to the extent
the consideration for such Investment consists of shares of Capital Stock of
Sterling or Holdings (other than Redeemable Stock of Sterling), (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 Sterling or such Restricted Subsidiary, (ix)
the ESOP Loan,
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(x) 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, Sterling or a Restricted Subsidiary; provided, however, that
such Person's primary business is reasonably related to the business of
Sterling and its Restricted Subsidiaries, and (xi) 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 Sterling 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 (xi) shall be reduced in
accordance with clause (a)(3)(G) under "--Certain Covenants--Limitation on
Restricted Payments."
"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.
"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 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
Sterling (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 Sterling or any
Restricted Subsidiary existing on the Issue Date or Incurred in compliance
with the 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
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aggregate accredited 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; and provided, further, however,
that Refinancing Debt shall not include (a) Debt of a Subsidiary that
Refinances Debt of Sterling or (b) Debt of Sterling 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 Sterling.
"Restricted Subsidiary" means any Subsidiary of Sterling that is not an
Unrestricted Subsidiary.
"Revolving Credit Provisions" means the provisions of the Credit Agreements
pursuant to which lenders thereunder have committed to make available to
Sterling a revolving credit facility, including the Canadian Facility.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby Sterling or a Restricted Subsidiary
transfers such property to a Person and Sterling or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Debt" means any Debt of Sterling secured by a Lien.
"Senior Debt" means (i) Debt of Sterling, 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 Sterling whether or not such interest is an
allowable claim in any such proceeding) in respect of (a) indebtedness of
Sterling for money borrowed and (b) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which
Sterling 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 Sterling to Holdings or any subsidiary of Holdings, (2) any
liability for Federal, state, local or other taxes owed or owing by Sterling,
(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 Sterling (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 Sterling, (5) that portion of
any Debt which at the time of Incurrence is Incurred in violation of the
Indenture, (6) Debt owed, due or guaranteed on behalf of any director, officer
or employee of Sterling 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 Sterling.
"Senior Subordinated Debt" means the Notes, the Existing Subordinated Notes
and any other Debt of Sterling 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 Sterling
which is not Senior Debt.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" of Sterling 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).
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"Subordinated Obligation" means any Debt of Sterling (whether outstanding on
the 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) Sterling, (ii) Sterling 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 Sterling 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 million (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 Sterling 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 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 Agreements
pursuant to which lenders thereunder have committed to make term loans
available to Sterling.
"Trustee" means the party named as such in the 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.
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"Unrestricted Subsidiary" means (i) any Subsidiary of Sterling 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 Sterling (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, Sterling
or any other Subsidiary of Sterling 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 Sterling
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 Sterling 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, Sterling 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 Sterling 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 Sterling
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 Sterling or another Wholly Owned
Subsidiary.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the principal United States federal
income tax consequences of the acquisition, ownership and disposition of the
Notes to initial beneficial owners of the Notes who are U.S. Holders (as
defined below) and the principal U.S. federal income and estate tax
consequences of the acquisition, ownership and disposition of the Notes to
initial beneficial owners of the Notes who are Non-U.S. Holders (as defined
below). This discussion is based on currently existing provisions of the Code,
existing and proposed Treasury regulations promulgated thereunder and
administrative and judicial interpretations thereof, all as in effect or
proposed on the date hereof and all of which are subject to change, possibly
with retroactive effect, or different interpretations. It does not include any
description of the tax laws of any state, local or foreign government that may
be applicable to the Notes or beneficial owners thereof. This discussion does
not address the tax consequences to subsequent beneficial owners of the Notes,
and is limited to beneficial owners who hold the Notes as capital assets
within the meaning of section 1221 of the Code. This discussion also does not
address the tax consequences to Non-U.S. Holders that are subject to U.S.
federal income or estate tax on a net basis on income realized with respect to
a Note because such income is effectively connected with the conduct of a U.S.
trade or business. Such holders are generally taxed in a similar manner to
U.S. Holders; however, certain special rules apply. Moreover, this discussion
is for general information only, and does not address all of the U.S. federal
income tax consequences that may be relevant to particular initial beneficial
owners in light of their personal circumstances, or to certain types of
initial beneficial owners (such as certain financial institutions, insurance
companies, tax-exempt entities, dealers in securities, persons who have hedged
the risk of owning a Note or U.S. Holders that have a functional currency
other than the U.S. dollar).
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF THE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL TAX LAWS
OR ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND ANY CHANGES (OR PROPOSED CHANGES)
IN APPLICABLE TAX LAWS OR INTERPRETATIONS THEREOF.
U.S. FEDERAL INCOME TAXATION OF U.S. HOLDERS
Payments of Interest
In general, interest on a Note will be taxable to a beneficial owner who or
which is (i) a citizen or resident of the United States, (ii) a corporation
created or organized under the laws of the United States or any State thereof
(including the District of Columbia) or (iii) a person otherwise subject to
U.S. federal income taxation on its worldwide income (a "U.S. Holder") as
ordinary income at the time it is (actually or constructively) received or
accrued, depending on the beneficial owner's method of accounting for U.S.
federal income tax purposes.
Exchange Offer
The exchange of Old Notes for the Exchange Notes pursuant to the Exchange
Offer will not be treated as an "exchange" for U.S. federal income tax
purposes because the Exchange Notes will not be considered to differ
materially in kind or extent from the Old Notes. As a result, there will be no
U.S. federal income tax consequences to beneficial owners exchanging the Old
Notes for the Exchange Notes pursuant to the Exchange Offer. Sterling is
obligated to pay additional interest to the beneficial owners of Old Notes
under certain circumstances described under "Description of the Notes--
Registered Exchange Offer; Registration Rights." The Company believes that any
such payments should be treated as an "incidental contingency" for purposes of
the original issue discount rules because the potential amount of any such
payments, if required to be made, is expected to be insignificant relative to
the total expected amount of remaining payments on the Notes, and accordingly
should be taxable to the beneficial owners in the manner described in the
preceding paragraph but should not otherwise impact the federal income tax
consequences to beneficial owners of the Notes.
112
<PAGE>
Sale, Exchange or Retirement of the Notes
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of a Note , a U.S. Holder will generally recognize taxable gain or
loss equal to the difference between the sum of cash plus the fair market
value of all other property received on such disposition (except to the extent
such cash or property is attributable to accrued but unpaid interest, which
will be taxable as ordinary income) and such beneficial owner's adjusted tax
basis in the Note. A U.S. Holder's adjusted tax basis in a Note generally will
equal the cost of the Note to such holder, less any principal payments
received by such holder.
Gain or loss recognized on the disposition of a Note generally will be
capital gain or loss, and will be long-term capital gain or loss if, at the
time of such disposition, the U.S. Holder's holding period for the Note is
more than one year.
U.S. TAXATION OF NON-U.S. HOLDERS
Under present U.S. federal income and estate tax law and subject to the
discussion of backup withholding below:
(i) payments of principal and interest on the Notes by Sterling or any
agent of Sterling to any beneficial owner of a Note that is not a U.S.
Holder (a "Non-U.S. Holder") will not be subject to U.S. federal
withholding tax, provided that in the case of interest (a)(1) the Non-U.S.
Holder does not actually or constructively own 10 percent or more of the
total combined voting power of all classes of stock of Sterling entitled to
vote, (2) the Non-U.S. Holder is not a controlled foreign corporation that
is related to Sterling through stock ownership, (3) the Non-U.S. Holder is
not a bank described in Section 881 (c)(3)(A) of the Code, and (4) either
(A) the beneficial owner of the Notes certifies to Sterling or its agent on
Internal Revenue Service ("IRS") Form W-8 (or a suitable substitute form),
under penalties of perjury, that it is not a "U.S. person" (as defined in
the Code) and provides its name and address, or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") and holds the Notes on behalf of the beneficial owner
certifies to Sterling or its agent under penalties of perjury that such
statement has been received from the beneficial owner by it or by a
financial institution between it and the beneficial owner and furnishes the
payor with a copy thereof or (b) the Non-U.S. Holder is entitled to the
benefits of an income tax treaty under which interest on the Notes is
exempt from U.S. withholding tax and provides a properly executed IRS Form
1001 claiming the exemption;
(ii) the exchange of Old Notes for the Exchange Notes pursuant to the
Exchange Offer will not be treated as an "exchange" for U.S. federal income
tax purposes because the Exchange Notes will not be considered to differ
materially in kind or extent from the Old Notes. As a result, there will be
no U.S. federal income tax consequences to beneficial owners exchanging the
Old Notes for the Exchange Notes pursuant to the Exchange Offer;
(iii) a Non-U.S. Holder will not be subject to U.S. federal withholding
tax on gain realized on the sale, exchange or redemption of a Note, unless
the Non-U.S. Holder is an individual who is present in the United States
for a period or periods aggregating 183 or more days in the taxable year of
the disposition and certain other conditions are met; and
(iv) Notes held at the time of death (or theretofore transferred subject
to certain retained rights or powers) by an individual who at the time of
death is a Non-U.S. Holder will not be included in such holder's gross
estate for U.S. federal estate tax purposes provided that the individual
does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of Sterling entitled to vote or hold
the Notes in connection with a U.S. trade or business.
113
<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING
For each calendar year in which the Notes are outstanding, Sterling is
required to provide the IRS with certain information, including the beneficial
owner's name, address and taxpayer identification number, the aggregate amount
of interest paid to that beneficial owner during the calendar year and the
amount of tax withheld, if any. This obligation, however, does not apply with
respect to certain payments to U.S. Holders, including corporations, tax-
exempt organizations, qualified pension and profit sharing trusts and
individual retirement accounts, provided that they establish entitlement to an
exemption.
In the event that a U.S. Holder subject to the reporting requirements
described above fails to supply its correct taxpayer identification number in
the manner required by applicable law or underreports its tax liability,
Sterling, its agents or paying agents or a broker may be required to "backup"
withhold a tax equal to 31% of each payment of interest and principal (and
premium, if any) on the Notes. This backup withholding is not an additional
tax and may be credited against the U.S. Holder's U.S. federal income tax
liability, provided that the required information is furnished to the IRS.
Under current Treasury regulations, backup withholding and information
reporting will not apply to payments made by Sterling or any agent thereof (in
its capacity as such) to a Non-U.S. Holder of a Note if such holder has
provided the required certification that it is not a U.S. person as set forth
in clause (4) in the first paragraph under "U.S. Taxation of Non-U.S.
Holders", or has otherwise established an exemption (provided that neither
Sterling nor its agent has actual knowledge that the holder is a U.S. person
or that the conditions of any exemption are not in fact satisfied).
Payment of the proceeds from the sale of a Note to or through a foreign
office of a broker will not be subject to information reporting or backup
withholding, except that if the broker is a U.S. person, a controlled foreign
corporation for U.S. federal income tax purposes or a foreign person 50
percent or more of whose gross income from all sources for the three-year
period ending with the close of its taxable year preceding the payment was
effectively connected with a U.S. trade or business, information reporting may
apply to such payments. Payment of the proceeds from a sale of a Note to or
through the U.S. office of a broker subject to information reporting and
backup withholding unless the holder or beneficial owner certifies as to its
taxpayer identification number or otherwise establishes an exemption from
information reporting and backup withholding.
PROPOSED REGULATIONS
The IRS has issued proposed regulations relating to withholding, backup
withholding and information reporting that, if adopted in their current form,
would, among other things, unify current certification procedures and forms
and clarify certain reliance standards. The regulations are proposed to be
effective for payments made after December 31, 1997 but provide that
certificates issued on or before the date that is 60 days after the proposed
regulations are made final will continue to be valid until they expire. The
proposed regulations, however, may be subject to change prior to their
adoption in final form.
114
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for Old
Notes where such Old Notes were acquired as a result of market-making
activities or other trading activities. Sterling has agreed that, for a period
of 180 days after the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any such broker-dealer for use in
connection with any such resale.
Sterling will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commission or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of 180 days after the Expiration Date Sterling will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the
Letter of Transmittal. Sterling has agreed to pay all expenses incident to the
Exchange Offer (including the expenses of one counsel for the holders of the
Notes) other than commissions or concessions of any brokers or dealers and
will indemnify the holders of the Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
Based on existing interpretations of the Securities Act by the staff of the
SEC set forth in several no-action letters to third parties, and subject to
the immediately following sentence, Sterling believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by a holder thereof (other than
(i) a broker-dealer who purchased such Old Notes directly from Sterling for
resale pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is an "affiliate" (within the meaning of
Rule 405 of the Securities Act) of Sterling), without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that the holder is acquiring the Exchange Notes in its ordinary
course of business and is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes. Accordingly, any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of participating, in a
distribution of the Exchange Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction.
There currently is no market for the Notes. Sterling does not intend to
apply for a listing of the Notes on any Securities Exchange or for quotation
through the Nasdaq Stock Market. Although the Initial Purchasers have informed
Sterling that they currently intend to make a market in the Exchange Notes,
they 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 Exchange
Notes.
115
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes offered hereby will
be passed upon for Sterling by Andrews & Kurth L.L.P., Houston, Texas.
EXPERTS
The consolidated balance sheets of Holdings and Sterling as of September 30,
1996 and the related consolidated statements of operations, changes in
stockholders' equity (deficiency in assets) and cash flows of Holdings for the
year ended September 30, 1996 and of Sterling for the period from May 14, 1996
(date of incorporation) to September 30, 1996, 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 the Company as of September 30, 1995 and
the consolidated statements of operations, changes in stockholders' equity and
cash flows for each of the two years in the period ended September 30, 1995,
have been audited by Coopers & Lybrand L.L.P., independent accountants, as
stated in their report included herein, and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
116
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Reports of Independent Accountants....................................... F-2
Sterling Chemicals Holdings, Inc. Consolidated Statements of Operations
for the fiscal years ended September 30, 1996, 1995 and 1994............ F-5
Sterling Chemicals Holdings, Inc. Consolidated Balance Sheets as of
September 30, 1996 and 1995............................................. F-6
Sterling Chemicals Holdings, Inc. Consolidated Statements of Changes in
Stockholders' Equity (Deficiency in Assets) for the fiscal years ended
September 30, 1996, 1995 and 1994....................................... F-7
Sterling Chemicals Holdings, Inc. Consolidated Statements of Cash Flows
for the fiscal years ended September 30, 1996, 1995 and 1994............ F-8
Sterling Chemicals, Inc. Consolidated Statement of Operations for the
period from May 14, 1996 to September 30, 1996.......................... F-9
Sterling Chemicals, Inc. Consolidated Balance Sheet as of September 30,
1996.................................................................... F-10
Sterling Chemicals, Inc. Consolidated Statement of Changes in
Stockholder's Equity (Deficiency in Assets) for the period from May 14,
1996 to September 30, 1996.............................................. F-11
Sterling Chemicals, Inc. Consolidated Statement of Cash Flows for the
period from May 14, 1996 to September 30, 1996.......................... F-12
Notes to Consolidated Financial Statements............................... F-13
Sterling Chemicals Holdings, Inc. Condensed Consolidated Balance Sheets
as of December 31, 1996 and September 30, 1996.......................... F-33
Sterling Chemicals Holdings, Inc. Condensed Consolidated Statements of
Operations for the Three Months Ended December 31, 1996 and 1995........ F-34
Sterling Chemicals Holdings, Inc. Condensed Consolidated Statements of
Cash Flows for the Three Months Ended December 31, 1996 and 1995........ F-35
Sterling Chemicals, Inc. Condensed Consolidated Balance Sheets as of
December 31, 1996 and September 30, 1996................................ F-37
Sterling Chemicals, Inc. Condensed Consolidated Statement of Operations
for the Three Months Ended December 31, 1996............................ F-38
Sterling Chemicals, Inc. Condensed Consolidated Statement of Cash Flows
for the Three Months Ended December 31, 1996............................ F-39
Notes to Condensed Consolidated Financial Statements..................... F-41
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Sterling Chemicals Holdings,
Inc.
We have audited the consolidated balance sheet of Sterling Chemicals
Holdings, Inc. and subsidiaries as of September 30, 1996, and the related
consolidated statements of operations, changes in stockholders' equity
(deficiency in assets) and cash flows for the year then ended. 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 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 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 audit provides 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 Holdings, Inc. and subsidiaries as of September 30, 1996 and the
consolidated results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
December 6, 1996
Houston, Texas
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of Sterling Chemicals, Inc.
We have audited the consolidated balance sheet of Sterling Chemicals, Inc.
and subsidiaries as of September 30, 1996, and the related consolidated
statements of operations, changes in stockholder's equity (deficiency in
assets) and cash flows for the period from May 14, 1996 (date of
incorporation) to September 30, 1996. 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 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 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 audit provides 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. and subsidiaries as of September 30, 1996 and the consolidated
results of their operations and their cash flows for the period from May 14,
1996 (date of incorporation) to September 30, 1996 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
December 6, 1996
Houston, Texas
F-3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Sterling Chemicals Holdings,
Inc.
We have audited the consolidated balance sheet of Sterling Chemicals
Holdings, Inc. (formerly Sterling Chemicals, Inc.) and subsidiaries as of
September 30, 1995, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of two 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 Holdings, Inc. and subsidiaries as of September 30, 1995 and the
consolidated results of their operations and their cash flows for each of two
years in the period ended September 30, 1995, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
October 25, 1995
Houston, Texas
F-4
<PAGE>
STERLING CHEMICALS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1996 1995 1994
-------------- ---------------- --------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues....................... $ 790,465 $ 1,030,198 $ 700,840
Cost of goods sold............. 679,039 758,580 606,916
-------------- ---------------- --------------
Gross profit................... 111,426 271,618 93,924
Selling, general and
administrative expenses....... 40,305 28,856 46,150
Merger related expenses........ 3,633 -- --
Write-off of assets............ 3,706 -- --
Interest and debt related
expenses, net of interest
income........................ 13,380 14,604 22,126
Gain on sale of assets......... -- -- (2,606)
-------------- ---------------- --------------
Income before taxes and
extraordinary item............ 50,402 228,158 28,254
Provision for income taxes..... 16,898 75,005 9,122
-------------- ---------------- --------------
Income before extraordinary
item.......................... 33,504 153,153 19,132
Extraordinary item, loss on
early extinguishment of debt,
net of tax
(Note 3)...................... 1,900 3,104 --
-------------- ---------------- --------------
Net income..................... $ 31,604 $ 150,049 $ 19,132
============== ================ ==============
Per share data:
Income before extraordinary
item........................ $ .66 $ 2.76 $ .34
Extraordinary item........... .04 .06 --
-------------- ---------------- --------------
Net income per share......... $ .62 $ 2.70 $ .34
============== ================ ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
STERLING CHEMICALS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1996 1995
--------- --------
(AMOUNTS IN
THOUSANDS
ASSETS EXCEPT PER SHARE
------ DATA)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 5,609 $ 30,882
Accounts receivable..................................... 133,399 112,102
Inventories............................................. 53,720 67,867
Prepaid expenses........................................ 9,076 3,878
Deferred income tax benefit............................. 7,214 5,622
--------- --------
Total current assets.................................. 209,018 220,351
Property, plant and equipment, net........................ 365,765 309,084
Other assets.............................................. 114,901 80,504
--------- --------
Total assets.......................................... $ 689,684 $609,939
========= ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
-----------------------------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable........................................ $ 66,562 $ 72,016
Accrued liabilities..................................... 53,898 55,858
Current portion of long-term debt....................... 11,625 17,857
--------- --------
Total current liabilities............................. 132,085 145,731
Long-term debt............................................ 714,632 103,581
Deferred income tax liability............................. 46,933 40,297
Deferred credits and other liabilities.................... 68,473 81,012
Common stock held by ESOP................................. 6,500 --
Less: unearned compensation............................... (6,500) --
Commitments and contingencies (Note 7)
Stockholders' equity (Deficiency in assets):
Common stock, $.01 par value, 20,000 shares authorized,
10,599 shares issued and outstanding at September 30,
1996; 150,000 shares authorized, 60,327 shares issued,
55,674 shares outstanding at September 30, 1995........ 106 603
Additional paid-in capital.............................. (560,077) 33,269
Retained earnings....................................... 306,656 275,052
Pension adjustment...................................... -- (1,556)
Accumulated translation adjustment...................... (19,124) (17,307)
Deferred compensation................................... -- (129)
--------- --------
(272,439) 289,932
Treasury stock, at cost, 4,653 shares at September 30,
1995................................................... -- (50,614)
--------- --------
Total stockholders' equity (deficiency in assets)..... (272,439) 239,318
--------- --------
Total liabilities and stockholders' equity (deficiency
in assets)........................................... $ 689,684 $609,939
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
STERLING CHEMICALS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ACCUMULATED
--------------- PAID-IN RETAINED PENSION TRANSLATION DEFERRED TREASURY
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT COMPENSATION STOCK
------- ------ ---------- -------- ---------- ----------- ------------ --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
Net income.............. -- -- -- 31,604 -- -- -- --
Redemption of common
stock.................. (50,690) (507) (616,892) -- -- -- -- --
Common stock issued in
Transaction............ 5,349 54 64,084 -- -- -- -- --
Employee stock purchase. 250 2 3,000 -- -- -- -- --
Stock warrants.......... -- -- 6,900 -- -- -- -- --
Translation adjustment.. -- -- -- -- -- (1,817) -- --
Treasury stock
transactions........... (4,637) (46) (50,438) -- -- -- -- 50,614
Amortization of deferred
compensation........... -- -- -- -- -- -- 129 --
Pension adjustment...... -- -- -- -- 1,556 -- -- --
------- ---- --------- -------- ------- -------- ----- --------
Balance, September 30,
1996................... 10,599 $106 $(560,077) $306,656 $ -- $(19,124) $ -- $ --
======= ==== ========= ======== ======= ======== ===== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
STERLING CHEMICALS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1996 1995 1994
--------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers.............. $ 874,253 $1,159,192 $ 709,026
Miscellaneous cash receipts............... 17,758 14,007 10,618
Cash paid to suppliers and employees...... (804,414) (893,324) (614,856)
Interest paid............................. (9,492) (14,811) (20,443)
Interest received......................... 1,114 2,540 60
Income taxes paid......................... (15,618) (75,766) (9,156)
--------- ---------- ---------
Net cash provided by operating activities... 63,601 191,838 75,249
Cash flows from investing activities:
Capital expenditures...................... (95,957) (53,962) (12,343)
Proceeds from sale of assets.............. -- -- 2,606
--------- ---------- ---------
Net cash used in investing activities....... (95,957) (53,962) (9,737)
Cash flows from financing activities:
Proceeds from long-term debt.............. 800,350 217,000 --
Repayment of long-term debt............... (196,285) (322,282) (65,517)
Redemption of common stock................ (616,160) -- --
Purchase of other equity interests........ (14,587) -- --
Issuance of common stock.................. 64,040 -- --
Sale of warrants.......................... 6,900 -- --
Debt issuance costs....................... (33,070) -- --
Other merger fees......................... (3,709) -- --
Other..................................... (289) (3,735) 643
--------- ---------- ---------
Net cash provided by (used in) financing
activities................................. 7,190 (109,017) (64,874)
Effect of U.S./Canadian exchange rate on
cash....................................... (107) 10 23
--------- ---------- ---------
Net increase (decrease) in cash and cash
equivalents................................ (25,273) 28,869 661
Cash and cash equivalents--beginning of
year....................................... 30,882 2,013 1,352
--------- ---------- ---------
Cash and cash equivalents--end of year...... $ 5,609 $ 30,882 $ 2,013
========= ========== =========
Reconciliation of net income to cash
provided by operating activities:
Net income................................ $ 31,604 $ 150,049 $ 19,132
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 42,702 43,033 40,953
Loss (gain) on disposal/write off of
assets................................... 3,706 -- (2,606)
Extraordinary item........................ 1,900 3,104 --
Deferred tax expense (benefit)............ 4,172 4,280 (4,817)
Accrued compensation including SARs....... 8,984 (2,638) 21,941
Merger related expenses................... 3,633 -- --
Discount notes amortization............... 1,656 -- --
Other..................................... (3,766) 1,058 1,426
Change in assets/liabilities:
Accounts receivable....................... (18,297) 22,540 (52,304)
Inventories............................... 14,147 1,921 (9,493)
Prepaid expenses.......................... (5,173) (1,183) 2,649
Other assets.............................. (8,900) (4,075) (1,437)
Accounts payable.......................... (5,454) (4,117) 34,083
Accrued liabilities....................... (7,018) (21,447) 17,604
Other liabilities......................... (295) (687) 8,118
--------- ---------- ---------
Net cash provided by operating activities... $ 63,601 $ 191,838 $ 75,249
========= ========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
STERLING CHEMICALS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MAY 14, 1996
(DATE OF INCEPTION)
TO SEPTEMBER 30, 1996/1/
--------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revenues.......................................... $83,410
Cost of goods sold................................ 83,047
-------
Gross profit...................................... 363
Selling, general and administrative expenses...... 3,426
Interest and debt related expenses................ 1,615
Interest income from parent....................... (5,236)
-------
Income before taxes............................... 558
Provision for income taxes........................ 384
-------
Net Income........................................ $ 174
=======
</TABLE>
- --------
/1/See Note 1 of Notes to Consolidated Financial Statements for a discussion
of merger activities and related financing. Prior to August 21, 1996,
Chemicals had no operating activities, other than those related to merger
activities.
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE>
STERLING CHEMICALS, INC.
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
(DOLLARS IN
ASSETS THOUSANDS EXCEPT
------ PER SHARE DATA)
<S> <C>
Current assets:
Cash and cash equivalents................................... $ 5,581
Accounts receivable......................................... 135,635
Inventories................................................. 53,720
Prepaid expenses............................................ 9,076
Deferred income tax benefit................................. 7,214
---------
Total current assets...................................... 211,226
Property, plant and equipment, net............................ 365,765
Other assets.................................................. 108,460
---------
Total assets.............................................. $ 685,451
=========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)
-----------------------------------------------------------
<S> <C>
Current liabilities:
Accounts payable............................................ $ 66,562
Accrued liabilities......................................... 55,740
Current portion of long-term debt........................... 11,625
---------
Total current liabilities................................. 133,927
Long-term debt................................................ 619,875
Deferred income tax liability................................. 47,478
Deferred credits and other liabilities........................ 68,473
Commitments and contingencies (Note 7)
Stockholder's equity (deficiency in assets):
Common stock, $.01 par value................................ --
Additional paid-in capital.................................. (165,352)
Retained earnings........................................... 174
Accumulated translation adjustment.......................... (19,124)
---------
Total stockholder's equity (deficiency in assets)......... (184,302)
---------
Total liabilities and stockholder's equity (deficiency in
assets).................................................. $ 685,451
=========
</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 (DEFICIENCY IN ASSETS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ACCUMULATED
------------- PAID-IN RETAINED PENSION TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT
------ ------ ---------- -------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, May 14, 1996... -- $ -- $ -- $ -- $ -- $ --
Common stock issued..... 1 -- 1 -- -- --
Capital transfer, net... -- -- (165,353) -- (1,556) (20,194)
Net income.............. -- -- -- 174 -- --
Pension adjustment...... -- -- -- -- 1,556 --
Translation adjustment.. -- -- -- -- -- 1,070
--- ---- --------- ----- ------- --------
Balance, September 30,
1996................... 1 $ -- $(165,352) $ 174 $ -- $(19,124)
=== ==== ========= ===== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-11
<PAGE>
STERLING CHEMICALS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
MAY 14, 1996
(DATE OF INCEPTION)
TO SEPTEMBER 30, 1996(1)
------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cash flows from operating activities:
Cash received from customers........................ $ 102,900
Miscellaneous cash receipts......................... 1,749
Cash paid to suppliers and employees................ (92,800)
Interest paid....................................... (3,129)
Interest received................................... 474
Income taxes paid................................... (4,950)
---------
Net cash provided by operating activities............. 4,244
Cash flows from investing activities:
Capital expenditures................................ (6,398)
---------
Net cash used in investing activities................. (6,398)
Cash flows from financing activities:
Proceeds from long-term debt........................ 637,900
Debt issuance costs................................. (27,939)
Distribution from parent............................ (609,961)
Repayment of long-term debt......................... (6,400)
Distribution to parent.............................. 14,165
---------
Net cash provided by financing activities............. 7,765
Effect of U.S./Canadian exchange rate on cash......... (30)
---------
Net increase in cash and cash equivalents............. 5,581
Cash and cash equivalents--beginning of period........ --
---------
Cash and cash equivalents--end of year................ $ 5,581
=========
Reconciliation of Net Income to Cash Provided by
Operating Activities Net income...................... $ 174
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 4,801
Deferred tax expense................................ 1,457
Other............................................... (511)
Change in assets/liabilities:
Accounts receivable................................. 164
Inventories......................................... (468)
Prepaid expenses.................................... (2,428)
Other assets........................................ 784
Accounts payable.................................... 7,025
Accrued liabilities................................. (4,460)
Other liabilities................................... (2,294)
---------
Net cash provided by operating activities............. $ 4,244
=========
</TABLE>
- --------
(1) See Note 1 of Notes to Consolidated Financial Statements for a discussion
of merger activities and related financing. Prior to August 21, 1996,
Chemicals had no operating activities, other than those related to merger
activities.
The accompanying notes are an integral part of the consolidated financial
statements.
F-12
<PAGE>
STERLING CHEMICALS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. MERGER ACTIVITIES
Sterling Chemicals, Inc. (prior to the Merger, "Sterling") and STX
Acquisition Corp. ("STX Acquisition"), 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"), entered into an Amended and Restated
Agreement and Plan of Merger dated April 24, 1996 (the "Merger Agreement"). On
August 20, 1996, the Merger Agreement was approved by a majority of the shares
outstanding, and on August 21, 1996, STX Acquisition merged with and into
Sterling, changing its name to Sterling Chemicals Holdings, Inc. ("Holdings"),
and continuing as the surviving corporation (the "Merger"). In connection with
the Merger, Holdings transferred all of its operating assets and liabilities
(excluding the Discount Notes) to a wholly owned subsidiary, STX Chemicals
Corp., which at the time of the Merger, changed its name to Sterling
Chemicals, Inc. and continued as the surviving company (after the Merger,
"Chemicals"). Holdings has no direct subsidiaries other than Chemicals. As
used in these notes, the term "Company" refers to Sterling and its
subsidiaries prior to the consummation of the Merger and, following the
Merger, to Holdings and its subsidiaries, including Chemicals. Unless
otherwise noted all amounts herein are those of the Company.
Each share of the Company's common stock outstanding immediately prior to
the Merger was converted (at the election of the holder thereof) into either
$12.00 cash or the right to retain shares of the Company's common stock
("Rollover Shares"), with the aggregate number of Rollover Shares limited to
5.0 million. As a result of the Merger, on August 21, 1996, the former STX
Acquisition stockholders held approximately 5.3 million shares (49%),
stockholders with Rollover Shares held approximately 5.0 million shares (46%)
and the Company's newly formed ESOP held approximately 542,000 shares (5%) of
the Company's outstanding common stock.
The Merger was financed by the proceeds of bank term loans of $356.5
million, including an ESOP term loan of $6.5 million, amounts drawn against a
revolving credit facility of $6.4 million, an offering of $275.0 million
Subordinated Notes, an offering of $191.8 million (initial proceeds of $100
million) representing 191,751 Units, with each unit consisting of one Discount
Note and one Warrant to purchase three shares of Holding's common stock for
$0.01 per share beginning in August 1997, equity raised by STX Acquisition of
approximately $70.7 million, and cash on hand of $10.3 million. These proceeds
were used to redeem Sterling's common stock other than Rollover Shares ($608.3
million), purchase other equity interests--primarily stock appreciation rights
("SARs") ($14.6 million), repay debt outstanding prior to the Merger ($142.7
million), loan monies to the new ESOP ($6.5 million) and pay fees and expenses
($46.8 million).
The Company has accounted for the Merger and related financing as a series
of debt and equity transactions representing a recapitalization. Accordingly,
the historical basis of the Company's assets and liabilities have not been
impacted by the Merger and related financing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company operates petrochemical facilities in Texas City, Texas, and pulp
chemical facilities throughout Canada. Construction of a new sodium chlorate
plant is nearing completion in Valdosta, Georgia. The significant accounting
policies of the Company are described below.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all wholly
owned and majority-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated. The Company's investment in a
cogeneration joint venture of a 50% equity interest is accounted for under the
equity method with the Company's share of earnings from the joint venture
recorded as a reduction of cost of goods sold.
F-13
<PAGE>
STERLING CHEMICALS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CASH EQUIVALENTS
The Company considers all investments purchased with a remaining 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 1996, 1995
and 1994 was $4.1 million, $1.0 million and $145,000, 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 fiscal 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
effective interest method and are included in other assets.
INCOME TAXES
Deferred income taxes are recorded to reflect the tax effect of the
temporary differences between the financial reporting basis and the tax basis
of the Company's assets and liabilities at enacted rates.
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
F-14
<PAGE>
STERLING CHEMICALS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
shared profit arrangements are estimated and accrued monthly. Deferred credits
are amortized over the life of the contract which gave rise to them. The
Company also generates revenues from the construction and sale of chlorine
dioxide generators which are recognized using the percentage of completion
method. 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.
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.
EARNINGS PER SHARE
Income per share for fiscal years 1996, 1995 and 1994 has been computed
using a weighted average shares outstanding of 50,700,000, 55,674,000, and
55,606,000, respectively. The weighted average shares outstanding used in the
computation of earnings per share are net of the shares held by the ESOP that
are not allocated to the employees.
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.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
In preparing disclosures about the fair value of financial instruments, the
Company has assumed that the carrying amount approximates fair value for cash
and cash equivalents, receivables, short-term borrowings, accounts payable and
certain accrued expenses because of the short maturities of those instruments.
The fair values of long-term debt instruments are estimated based upon quoted
market values (if applicable), or on the current interest rates available to
the Company for debt with similar terms and remaining maturities. Considerable
judgment is required in developing these estimates and, accordingly, no
assurance can be given that the estimated values presented herein are
indicative of the amounts that would be realized in a free market exchange.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported periods. Actual results could differ from these estimates.
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.
F-15
<PAGE>
STERLING CHEMICALS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1996 1995
--------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Inventories:
Finished products........................................ $ 31,868 $ 44,802
Raw materials............................................ 9,499 16,506
--------- --------
Inventories at FIFO cost................................... 41,367 61,308
--------- --------
Inventories under exchange agreements.................... 722 (4,783)
Stores and supplies...................................... 11,631 11,342
--------- --------
$ 53,720 $ 67,867
========= ========
Property, plant and equipment:
Land..................................................... $ 11,720 $ 11,775
Buildings................................................ 27,448 26,955
Plant and equipment...................................... 468,647 422,479
Construction in progress................................. 85,490 49,782
Less: accumulated depreciation........................... (227,540) (201,907)
--------- --------
$ 365,765 $309,084
========= ========
Other assets:
Patents and technology, net.............................. $ 34,902 $ 40,971
Estimated insurance recoveries........................... 15,600 10,315
Intangible pension asset................................. -- 3,733
Deferred catalyst........................................ 8,288 4,357
Debt issue costs......................................... 34,025 3,370
Other.................................................... 22,086 17,758
--------- --------
$ 114,901 $ 80,504
========= ========
Accrued liabilities:
Repairs.................................................. $ 11,417 $ 9,021
Income taxes............................................. 1,190 2,250
Interest................................................. 3,869 574
Estimated contract adjustments........................... -- 1,536
Property taxes........................................... 6,772 6,179
Litigation contingency................................... -- 6,000
Accrued compensation..................................... 5,646 10,019
Other.................................................... 25,004 20,279
--------- --------
$ 53,898 $ 55,858
========= ========
Deferred credits and other liabilities:
Deferred revenue......................................... $ 17,720 $ 21,969
Accrued postretirement benefits.......................... 27,143 24,722
Additional minimum pension liability..................... -- 6,127
Accrued compensation..................................... -- 2,922
Litigation contingency................................... 16,000 10,315
Other.................................................... 7,610 14,957
--------- --------
$ 68,473 $ 81,012
========= ========
</TABLE>
F-16
<PAGE>
STERLING CHEMICALS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1996 1995
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Revolving credit facilities................................. $ -- $ 902
Term loans.................................................. 350,000 120,536
ESOP term loan.............................................. 6,500 --
Subordinated notes.......................................... 275,000 --
Discount notes.............................................. 94,757 --
-------- --------
Total debt outstanding.................................... 726,257 121,438
======== ========
Less:
Current maturities........................................ (11,625) (17,857)
-------- --------
Total long-term debt........................................ $714,632 $103,581
======== ========
</TABLE>
TERM LOANS, REVOLVER AND ESOP LOANS
In connection with the Merger financing, Chemicals entered into a credit
agreement (the "Credit Agreement") with Texas Commerce Bank National
Association, as agent bank for a syndicate of lenders, and Credit Suisse and
Chase Securities, Inc. as co-arrangers. Funding under the Credit Agreement
occurred August 21, 1996, upon the consummation of the Merger. The Credit
Agreement provides for facilities consisting of a six and one-half year
revolving credit facility providing for up to $100 million (subject to a
monthly borrowing base calculation) in revolving loans (the "Revolver"), a
term loan facility consisting of a six and one-half year $200 million Tranche
A term loan and an eight-year $150 million Tranche B term loan (the "Term
Loans"), and a four-year $6.5 million ESOP Term Loan (the "ESOP Loan").
The Term Loans, the ESOP Loan and the Revolver borrowings bear interest, at
Chemicals' option, at an annual rate of either the Eurodollar Rate or the Base
Rate plus an Applicable Margin ranging from 0% to 3%, depending upon the
Company's leverage ratio. The Base Rate is equal to the greater of the Prime
Rate as announced from time to time by the agent bank, the Federal Funds Rate
plus 1/2%, or the Base CD Rate plus 1%. The Credit Agreement also requires
Chemicals to pay a commitment fee in the amounts of 3/8% or 1/2% of the unused
commitment under the Revolver depending on the Company's leverage ratio (as
defined in the Credit Agreement).
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 (as defined in the Credit Agreement). The ESOP
Loan will be amortized in 16 equal quarterly installments of $406,250 during
its four-year term. Advances under the Revolver will be subject to a borrowing
base consisting of 85% of eligible accounts receivable and 65% of eligible
inventory with an inventory cap of 50% of the borrowing base.
Chemicals' obligations under the Credit Agreement are 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 Agreement is
secured by a pledge by Holdings of all of the capital stock of Chemicals.
F-17
<PAGE>
STERLING CHEMICALS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. As a
result of weaker than expected market conditions in styrene and acrylonitrile
during the first quarter of fiscal 1997 and costs that were expensed related
to the Merger in the fourth quarter of fiscal 1996, the Company may not be in
compliance with its leverage ratio under the Credit Agreement as of the end of
the first quarter of fiscal 1997. The Company intends to obtain a waiver to
correct any noncompliance. The Company expects to be in compliance with all
other coverage ratios under the Credit Agreement as of December 31, 1996, but
there can be no assurance in this regard nor can there be any assurance that
the requisite waiver will be obtained with respect to the leverage ratio
covenant. In addition, the Credit Agreement includes various circumstances
that will constitute, upon occurrence and subject in certain cases to notice
and grace periods, an event of default thereunder.
At September 30, 1996, Chemicals had indebtedness of $350 million under the
Term Loans and $6.5 million under the ESOP Loan. Additionally, the Company had
$470,000 in letters of credit under the Revolver, thereby reducing the
available commitment to $99.5 million. Available credit under the Revolver for
loans and letters of credit is subject to a monthly borrowing base and at
September 30, 1996, the borrowing base did not limit such available credit.
At September 30, 1995, indebtedness under former credit agreements dated
April 1995 totaled $120.5 million in term loans and $902,000 drawn against a
$150 million revolving credit facility and a Cdn $20 million revolving credit
facility. All amounts outstanding under these agreements were repaid in the
current year as part of the Merger financing and such agreements were
terminated and replaced with the new Credit Agreement upon consummation of the
Merger financing. Interest under the former credit agreements was based on the
Base Rate (the greater of the Prime Rate or the Federal Funds Rate plus 1/2%)
or the Eurodollar Rate (the Eurodollar Interbank Rate plus a margin ranging
from 0.65% to 1 1/4%). The variable rate on the term loan under the former
credit agreements was fixed at approximately 7% per annum with an interest
swap agreement.
On September 28, 1995, Chemicals entered into a seven-year credit agreement
(the "Chlorate Plant Credit Agreement") to finance the construction of the
Georgia sodium chlorate plant. The borrowing margins under the Chlorate Plant
Credit Agreement were similar to those contained in the former credit
agreements. During fiscal 1996, Chemicals borrowed $39 million under this
agreement to finance the construction of the Georgia sodium chlorate plant.
The entire amount was repaid as a part of the Merger financing.
In connection with arranging the Credit Agreement, the Company incurred fees
of approximately $16 million which are being amortized over the term of the
loans under the effective interest method. Unamortized debt issue costs
related to the retired loans of approximately $3 million, before tax effect of
$1.1 million, were expensed in August 1996 and recorded as an extraordinary
loss from early extinguishment of debt.
DISCOUNT NOTES AND SUBORDINATED NOTES
As part of the Merger financing, Chemicals also issued $275 million in
aggregate principal amount of senior subordinated notes (the "Subordinated
Notes") maturing on August 15, 2006 and Holdings issued $191.8 million ($100
million initial proceeds) representing 191,751 Units, with each Unit
consisting of one 13 1/2% senior subordinated discount note due 2008 (the
"Discount Notes") and one warrant to purchase three shares of Holding's common
stock for $.01 per share (the "Warrants").
The Subordinated Notes bear interest at the annual rate of 11 3/4%, payable
semi-annually on February 15 and August 15 of each year commencing February
15, 1997. The Discount Notes will accrete interest until
F-18
<PAGE>
STERLING CHEMICALS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
August 15, 2001, with no interest payable in cash until February 15, 2002 at
an annual rate of 13 1/2%. Commencing in 2002, interest will be payable semi-
annually on February 15 and August 15 of each year until maturity.
The Subordinated Notes may not be redeemed by Chemicals prior to August 15,
2001, and from thereon through August 15, 2004, the Subordinated Notes may be
redeemed at a premium varying between 105.875% to 101.958%. Subsequent to
August 15, 2004, Chemicals may redeem the Subordinated Notes at their face
value plus accrued interest. Prior to August 15, 1999, Chemicals may redeem in
the aggregate up to 35% of the original principal amount of the Subordinated
Notes with the proceeds of one or more public equity offerings following which
there is a public market. Such redemptions may be made at a redemption price
of 111 3/4% of the face value plus accrued interest to the redemption date.
After such redemption, at least $178.8 million aggregate principal amount of
the Subordinated Notes must remain outstanding.
The Discount Notes may not be redeemed by Holdings prior to August 15, 2001,
and from thereon through August 15, 2006, the Discount Notes may be redeemed
at a premium varying between 106.75% to 101.35%. Subsequent to August 15,
2006, the Company may redeem the Discount Notes at their Accreted Value (as
defined in the indenture) plus accrued interest. Prior to August 15, 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. Such redemptions may be made at a
redemption price of 113 1/2% of the face value plus accrued interest to the
redemption date. After such redemption, at least $124.6 million aggregate
principal amount of the Discount Notes must remain outstanding.
The indentures for both Subordinated Notes and Discount Notes contain
numerous financial and operating covenants, including, but not limited to,
restrictions on Chemicals' or Holdings' ability to incur indebtedness, pay
dividends, create liens, sell assets, engage in mergers and acquisitions, and
refinance existing indebtedness. In addition, the indentures includes various
circumstances that will constitute, upon occurrence and subject in certain
cases to notice and grace periods, an event of default thereunder.
The Credit Agreement and the indenture for the Subordinated Notes contain
provisions which restrict the payment of advances, loans and dividends from
Chemicals to Holdings. The most restrictive of the covenants limits such
payments during fiscal 1997 to approximately $1.6 million, plus any amounts
due to Holdings from Chemicals under the intercompany tax sharing agreement.
As of September 30, 1996, Chemicals had a deficiency in net assets of $184.3
million.
DEBT MATURITIES
The estimated remaining principal payments on the outstanding Term Loans,
Revolver, and ESOP Loan are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, PRINCIPAL PAYMENTS
------------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
1997............................................. $ 11,625
1998............................................. 26,625
1999............................................. 26,625
2000............................................. 31,625
2001............................................. 40,000
Thereafter....................................... 220,000
--------
Total Term Loans, Revolver and ESOP Loan......... $356,500
========
</TABLE>
F-19
<PAGE>
STERLING CHEMICALS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. 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,
------------------------
1996 1995 1994
------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Provision for federal income tax at the statutory
rate................................................ $17,641 $79,855 $9,772
Foreign sales corporation............................ (700) (7,991) --
State and foreign income taxes....................... 1,529 2,862 90
Estimated income tax settlement and other............ (1,572) 279 (740)
------- ------- ------
Effective tax provision.............................. $16,898 $75,005 $9,122
======= ======= ======
</TABLE>
The provision (benefit) for income taxes is composed of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
From operations:
Current federal..................................... $12,084 $67,393 $18,618
Deferred federal.................................... (3,249) 1,075 (7,809)
Deferred foreign.................................... 7,421 3,489 (1,687)
Current state....................................... 642 2,947 --
Deferred state...................................... 101 --
------- ------- -------
Total tax provision................................... $16,898 $75,005 $ 9,122
======= ======= =======
</TABLE>
The components of the Company's deferred income tax assets and liabilities
are summarized below:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Assets:
Accrued liabilities.......................................... $10,348 $10,475
Accrued postretirement cost.................................. 9,544 8,719
Tax loss and credit carryforward and other................... 5,817 7,470
------- -------
Total deferred tax assets...................................... 25,709 26,664
------- -------
Less: current deferred income tax benefit...................... 7,214 5,622
------- -------
Noncurrent deferred tax assets................................. $18,495 $21,042
======= =======
Liabilities:
Property, plant and equipment................................ $61,304 $57,466
Accrued pension cost......................................... 2,525 2,471
Other........................................................ 1,599 1,402
------- -------
Total deferred tax liabilities................................. $65,428 $61,339
------- -------
Net deferred tax liability..................................... $46,933 $40,297
======= =======
</TABLE>
F-20
<PAGE>
STERLING CHEMICALS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has approximately Cdn. $13.2 million in Canadian tax loss
carryforwards which will expire from 1999 through 2001 and approximately Cdn.
$15.1 million in Canadian tax credit carryforwards which will expire from 2000
through 2004.
6. 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, the Company recorded a liability of $6.1 million, an intangible asset of
$3.7 million, which is included with other assets, and a reduction of
stockholders' equity of $1.6 million, net of deferred tax of $838,000. There
were no additional pension liabilities to recognize at September 30, 1996.
The components of pension expense for the years ended September 30, 1996,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
Service cost (for benefits earned during the period).... $3,664 $3,288 $3,386
Interest cost on projected benefit obligation........... 5,044 4,471 3,891
Actual return on plan assets and contributions.......... (6,001) (5,825) 617
Deferral of asset gain (loss)........................... 1,050 1,909 (3,997)
Net amortization of unrecognized amounts................ 926 871 848
------ ------ ------
Pension expense......................................... $4,683 $4,714 $4,745
====== ====== ======
</TABLE>
Assumptions used in determining the projected benefit obligation and pension
cost for the periods were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
----------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rates................................................ 7.75% 7.5% 8.0%
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>
F-21
<PAGE>
STERLING CHEMICALS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------- -----------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BEENFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of
benefits based on service to
date and present pay levels:
Vested benefit obligation.... $52,053 $ 525 $26,222 $21,743
Non-vested benefit
obligation.................. 2,064 2 1,029 1,293
Accumulated benefit
obligation.................. 54,117 527 27,251 23,036
Plan assets at fair value.... 65,443 -- 33,540 21,134
Plan assets in excess of
(less than) accumulated
benefit obligation.......... 11,326 (527) 6,289 (1,902)
Additional amounts related to
projected salary increases.. 16,568 177 16,431 658
Plan assets less than total
projected benefit
obligation.................. (5,242) (704) (10,142) (2,560)
Unrecognized net (gain) loss
resulting from plan
experience and changes in
actuarial assumptions....... 3,688 (107) 5,995 2,579
Unrecognized prior service
cost........................ 3,376 -- 2 3,689
Unrecognized transition
obligation.................. 2,486 7 2,716 156
Prepaid (accrued) pension
cost before additional
minimum liability........... 4,308 (804) (1,429) 3,864
Additional minimum liability. -- -- -- (6,127)
Total prepaid (accrued)
pension obligation.......... $ 4,308 $(804) $(1,429) $(2,263)
</TABLE>
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 covered by
collective bargaining agreements. All of the Company's employees are eligible
for postretirement life insurance. Postretirement health care benefits for
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
plans stipulate 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. The
components of postretirement benefits cost other than pensions for the years
ended September 30, 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost (for benefits earned during the period).... $ 1,155 $ 1,084 $ 1,064
Interest cost on projected benefit obligation........... 1,985 1,835 1,688
Amortization of plan amendments......................... 243 29 29
------- ------- -------
$ 3,383 $ 2,948 $ 2,781
======= ======= =======
</TABLE>
F-22
<PAGE>
STERLING CHEMICALS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Actuarial assumptions used to determine fiscal years 1996, 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 1996, exclusive of demographic changes,
decreasing gradually to 5.5% by the year 2028.
These trend rates reflect current cost performance and the Company'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 $1.5 million and would increase annual
aggregate service and interest costs by $187,000.
The following sets forth the plan's funded status reconciled with amounts
reported in the Company's consolidated balance sheet at September 30, 1996 and
1995.
Accumulated postretirement benefit obligation (APBO):
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Retirees.............................................. $ 7,896 $ 7,315
Fully eligible active plan participants............... 8,301 7,690
Other active plan participants........................ 12,906 11,956
----------- -----------
Total APBO.......................................... 29,103 26,961
Plan assets at fair value............................. -- --
Unrecognized loss..................................... (1,737) (1,987)
Unrecognized prior service cost....................... (223) (252)
----------- -----------
Accrued postretirement benefit liability.............. $ 27,143 $ 24,722
=========== ===========
</TABLE>
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 PURCHASE PLAN 250,000 SHARES
In fiscal 1996, the Company established the 1996 Employee Stock Purchase
Plan. This plan authorized up to 250,000 shares of common stock to be issued
to key employees and management at an issue price of $12 per share. This plan
became effective as of September 19, 1996 and terminated on September 30,
1996. All authorized shares were issued by the end of fiscal 1996.
EMPLOYEE STOCK OWNERSHIP TRUST
The original Employee Stock Ownership Trust ("old 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 (the "Savings
Plan"). The Company's contribution to the old ESOT was 60% of the
participant's Savings Plan contributions to the extent that such participant's
contributions did not exceed 7.5% of the employee's eligible earnings. The
Company's contributions were subject to a 20% per year vesting schedule
commencing after one year of service. The Company's contributions to the old
ESOT for the years ended September 30, 1996, 1995 and 1994 were $1.7 million
per year.
F-23
<PAGE>
STERLING CHEMICALS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
An application for determination has been filed with the Internal Revenue
Service to terminate the old ESOT and distribute assets to participants.
In connection with the Merger, a new Employee Stock Ownership Trust ("new
ESOT") was established which will cover substantially all employees. The new
ESOT primarily invests in shares of Holdings' common stock and has borrowed
$6.5 million from Chemicals pursuant to the Chemicals ESOP Loan to purchase
approximately 542,000 shares of Holdings' common stock. As more fully
described in Note 4, the ESOP Loan is payable in 16 quarterly installments
during the period beginning December 31, 1996 and ending September 30, 2000.
The shares of Holdings' common stock purchased by the ESOT has been pledged as
security for the ESOP Loan and such shares will be released and allocated to
the ESOT participants' account as the ESOP Loan is discharged. Until the ESOP
Loan is paid in full, contributions to the ESOT will be used to pay the
outstanding principal and interest on the ESOP Loan. Allocations will be made
annually to participants.
SAVINGS AND INVESTMENT PLAN
The Savings Plan covers substantially all employees, including executive
officers. The Savings Plan is qualified under Section 401(k) of the Internal
Revenue Code (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 "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.
PROFIT SHARING PLANS
The Company is currently planning the establishment of new profit sharing
plans for the benefit of salaried and hourly employees meeting certain
eligibility requirements. Under the Company's previous profit sharing plans,
expense for the years ended September 30, 1996, 1995 and 1994 was $2.8
million, $13.0 million and $3.8 million, respectively.
OMNIBUS STOCK AND INCENTIVE PLAN
The Company had an Omnibus Stock and Incentive Plan ("Omnibus Plan"), under
which the Company could 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 were determined by
the Compensation Committee of the Board of Directors. Upon a change of control
of the Company, all awards granted under the plan were to become fully vested
and all performance based awards were to 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. At September 30, 1995,
263,000 shares had been issued.
In fiscal 1993, the Company granted SARs to certain key employees and
directors. Total expense (benefit) is determined based on 3.6 million 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, 1996,
1995 and 1994 of 8.5 million, $(2.8) million and $21.8 million, respectively,
and paid $8.3 million in October 1994, $5.8 million in September 1995 and
$13.8 million in August 1996 pursuant to the SARs, as amended. The expense
(benefit) for the SARs is included in selling, general and administrative
expenses in the Company's income statement.
F-24
<PAGE>
STERLING CHEMICALS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 were
exercisable from the third through the tenth anniversary of the date of the
grant. All existing stock options were terminated in connection with the
Merger.
Upon consummation of the Merger, the Omnibus Plan was terminated. However,
the Company is expected to establish a new stock option plan.
7. 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, 1996 are as follows:
fiscal 1997--$2.5 million; fiscal 1998--$2.4 million; fiscal 1999--$2.2
million; fiscal 2000--$2.1 million; fiscal 2001--$1.3 million; and $4.9
million thereafter. Rent expense for fiscal years 1996, 1995 and 1994 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 or disposal systems or other matters.
The Company routinely incurs expenses associated with hazardous substance
management and pollution prevention 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 $47 million and $45 million for fiscal
years 1996 and 1995, respectively. The Company does not anticipate a material
increase in these types of expenses during fiscal 1997. The Company considers
these types of environmental expenditures normal operating expenses and
includes them in cost of goods sold.
At its Texas City Plant, the Company has reduced emissions of targeted
chemicals 71% from 1987 levels under the EPA's voluntary 33/50 program. These
reductions included a 95% reduction in hydrogen cyanide emissions and an 83%
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.
F-25
<PAGE>
STERLING CHEMICALS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's sodium chlorate market is sensitive to potential environmental
regulations. 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 not an outright ban
on chlorine-containing compounds, regulations 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 Plant. In the lawsuit, the Company requested 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, the trial court granted the Company's motion for
summary judgment establishing that as a matter of law, no enforceable contract
or agreement ever existed between the Company and the defendants. The court's
order of summary judgment also moots the defendants' counterclaim against the
Company for damages resulting from breach of the alleged contract. The
defendants have appealed from that judgment. The Company and the defendants
have filed their principal briefs before the Court of Appeals, but oral
argument has not been set and the Court of Appeals has not rendered any
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.
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
Plant ruptured, spraying sulfuric acid on an employee of Marine Fueling
Service, Inc. ("Marine Fueling"). The plaintiffs' claims against the Company
in this lawsuit have been settled. The Company, however, remains a defendant
in the lawsuit by virtue of a maritime law cross-claim asserted by Marine
Fueling against the Company and the other defendants in the lawsuit for
recovery of a portion of the settlement money Marine Fueling previously paid
to the plaintiffs. The amount sought in Marine Fueling's claim against the
Company is not a material amount.
F-26
<PAGE>
STERLING CHEMICALS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AMMONIA RELEASE LAWSUITS: 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. A total of 52 lawsuits and
interventions, involving approximately five thousand five hundred plaintiffs,
have been filed against the Company seeking an unspecified amount of money for
alleged damages from the ammonia release. Many of these lawsuits were filed in
April and early May 1996, presumably in anticipation of the expiration of the
two-year statute of limitations applicable to this release.
Approximately two thousand six hundred of the plaintiffs agreed to submit
their damage claims to binding arbitration. Each of the plaintiffs who agreed
to participate in the arbitration waived any right of recovery for punitive or
exemplary damages. Pursuant to the agreement to arbitrate, a two-week
evidentiary proceeding was conducted in July 1996 before a three judge panel
which will make a determination of the amount of damages. Currently, the
Company anticipates that the results of this arbitration will be rendered in
early February 1997.
The Company continues to vigorously defend the claims of the approximately
two thousand nine hundred plaintiffs who did not participate in the July 1996
arbitration.
OTHER LAWSUITS. The Company is subject to various other claims and legal
actions that arise in the ordinary course of its business.
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 the Company'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 the Company's judgments. Based on the foregoing as of September
30, 1996, the Company has accrued approximately $16.0 million 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 $15.6 million. In addition, the Company estimates that at
present, the reasonably possible range of loss is from $0 to $44.8 million.
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 remains in the discovery stage 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 adverse effect on the
financial position, results of operations, or cash flows of the Company.
F-27
<PAGE>
STERLING CHEMICALS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. SEGMENT AND GEOGRAPHIC INFORMATION:
Sales to individual customers constituting 10% or more of total revenues and
sales by geographic region were as follows (there were no sales to individual
customers constituting 10% or more of total revenues in fiscal 1996):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Major Customers:
British Petroleum plc and subsidiaries........ * $169,944 $103,637
Mitsubishi International Corporation.......... * $129,812 $ 69,920
Export Sales:
Export revenues............................... $267,153 $534,067 $324,930
Percentage of total revenues.................. 34% 52% 46%
Export revenues (as a percent of total exports)
by geographical area:
Asia............................................ 66% 64% 80%
Europe.......................................... 34% 36% 16%
Other........................................... -- -- 4%
</TABLE>
- --------
*Does not comprise 10% of total revenue for 1996 and, therefore, not reported.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1996 1995 1994
-------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Geographic Segment Information:
Revenues:
United States.................................. $633,754 $ 886,247 $578,295
Canada......................................... 156,711 143,951 122,545
-------- ---------- --------
Total........................................ $790,465 $1,030,198 $700,840
Income before taxes and extraordinary item:
United States.................................. $ 27,540 $ 210,320 $ 27,106
Canada......................................... 22,862 17,838 1,148
-------- ---------- --------
Total........................................ $ 50,402 $ 228,158 $ 28,254
Net Income:
United States.................................. $ 18,330 $ 140,382 $ 17,979
Canada......................................... 13,274 9,667 1,153
-------- ---------- --------
Total........................................ $ 31,604 $ 150,049 $ 19,132
Assets:
United States.................................. $457,273 $ 405,324 $376,594
Canada......................................... 232,411 204,615 204,331
-------- ---------- --------
Total........................................ $689,684 $ 609,939 $580,925
Selling, general and administrative expenses:
United States.................................. $ 14,570 $ 14,535 $ 10,232
Canada......................................... 17,195 17,088 14,075
SARs........................................... 8,540 (2,767) 21,843
-------- ---------- --------
Total........................................ $ 40,305 $ 28,856 $ 46,150
</TABLE>
F-28
<PAGE>
STERLING CHEMICALS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. 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 enters into forward foreign exchange contracts to reduce risk
due to Canadian dollar exchange rate movements. The Company does not engage in
currency speculation. The Company had a notional amount of approximately $30
million and $26 million of forward foreign exchange contracts outstanding to
buy Canadian dollars at September 30, 1996 and 1995, respectively. The
deferred gain on these forward foreign exchange contracts at September 30,
1996 and 1995 was immaterial.
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. The Company 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 Ratings Group or P1 by Moody's Investor
Services, Inc., loan participation 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 million will be invested with any
single bank, financial institution, or U.S. corporation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At September 30, 1996, the fair market value of all of the Company's
financial instruments approximated the book value, except as stated below.
<TABLE>
<CAPTION>
BOOK VALUE FAIR VALUE
---------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Discount Notes...................................... $94,757 $121,302
Subordinated Notes.................................. 275,000 289,273
</TABLE>
The fair values of the Discount Notes and the Subordinated Notes are based
on quoted market prices.
F-29
<PAGE>
STERLING CHEMICALS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. RELATED PARTY TRANSACTIONS
In connection with the Merger, the Company paid TSG and Unicorn one-time
transaction fees of approximately $8.4 million and $4.4 million, respectively.
Investment banking fees of approximately $3.3 million were paid to Lazard
Freres & Company ("Lazard"). A member of the former Board of Directors is a
Limited Managing Director of Lazard. However, the Board member agreed not to
receive any compensation from Lazard related to the Merger.
Also in connection with the Merger, CS First Boston Corporation served as
managing underwriter for the Public Offering and provided certain financial
advisory services to STX Acquisition and Chemicals, for which such firm
received underwriting discounts and commissions and financial advisory fees
totaling approximately $20 million. John L. Garcia, a director and stockholder
of the Company, is a Managing Director of CS First Boston Corporation.
Koch Capital Services, Inc. formerly known as Koch Equities, Inc., a
subsidiary of Koch Industries, Inc. ("Koch Industries"), owns approximately 9%
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 fiscal 1996,
sales to and purchases from Koch Industries and its affiliates represented
less than 1% of the Company's revenues.
F-30
<PAGE>
STERLING CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Except as modified below, the Notes to the Company's Consolidated Financial
Statements are incorporated herein by reference insofar as they relate to
Chemicals.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH FLOWS
On August 21, 1996, Holdings transferred all of its operating assets and
liabilities (net $422.8 million) to Chemicals. At the same time, Chemicals
transferred $610 million in cash to Holdings.
INCOME TAXES
Chemicals is included in the consolidated Federal tax return filed by its
parent, Holdings. A tax sharing agreement between Holdings and Chemicals
defines the computation of Chemicals' obligations to Holdings. Chemicals'
provision for income taxes is computed as if Chemicals and its subsidiaries
file their annual tax return on a separate company basis. Deferred income
taxes are recorded to reflect the tax effect of the temporary differences
between the financial reporting basis and the tax basis of Chemicals' assets
and liabilities at enacted rates.
EARNINGS PER SHARE
All issued and outstanding shares of Chemicals are held by Holdings, and
accordingly, earnings per share are not computed.
2. INCOME TAXES
A reconciliation of federal statutory income taxes to Chemicals' effective
tax provision (benefit) before extraordinary item follows:
<TABLE>
<CAPTION>
PERIOD FROM MAY 14, 1996
TO SEPTEMBER 30, 1996
------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Provision for federal income tax at the
statutory rate................................ $ 195
Foreign sales corporation...................... (116)
State and foreign income taxes................. 115
Other.......................................... 190
-----
Effective tax provision........................ $ 384
=====
</TABLE>
The provision (benefit) for income taxes is composed of the following:
<TABLE>
<CAPTION>
PERIOD FROM MAY 14, 1996
TO SEPTEMBER 30, 1996
------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
From operations:
Current federal................................ $(1,001)
Deferred federal............................... 1,457
Deferred foreign............................... 90
Current state.................................. (162)
-------
Total tax provision.......................... $ 384
=======
</TABLE>
F-31
<PAGE>
STERLING CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of Chemicals' deferred income tax assets and liabilities are
summarized below:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Assets
Accrued liabilities.................................... $ 9,803
Accrued postretirement cost............................ 9,544
Tax loss and credit carryforward and other............. 5,817
-------
Total deferred tax assets............................ 25,164
-------
Less: current deferred income tax benefit................ 7,214
-------
Noncurrent deferred tax assets........................... $17,950
=======
Liabilities:
Property, plant and equipment.......................... $61,304
Accrued pension cost................................... 2,525
Other.................................................. 1,599
-------
Total deferred tax liabilities....................... $65,428
=======
Net deferred tax liability............................... $47,478
=======
</TABLE>
Chemicals has approximately Cdn. $13.2 million in Canadian tax loss
carryforwards which will expire from 1999 through 2001 and approximately Cdn.
$15.1 million in Canadian tax credit carryforwards which will expire from 2000
through 2004.
F-32
<PAGE>
STERLING CHEMICALS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1996
ASSETS ------------ -------------
(IN THOUSANDS
EXCEPT SHARE DATA)
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 2,598 $ 5,609
Accounts receivable................................ 130,623 133,399
Inventories........................................ 67,805 53,720
Prepaid expenses................................... 11,647 10,226
Deferred income taxes.............................. 5,132 6,064
--------- ---------
Total current assets............................. 217,805 209,018
Property, plant and equipment, net................... 374,387 365,765
Other assets......................................... 122,452 114,901
--------- ---------
Total assets..................................... $ 714,644 $ 689,684
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
Current liabilities:
Accounts payable................................... $ 72,823 $ 66,562
Accrued liabilities................................ 62,495 53,898
Current portion of long-term debt.................. 15,375 11,625
--------- ---------
Total current liabilities........................ 150,693 132,085
Long-term debt....................................... 714,721 714,632
Deferred income taxes................................ 46,805 46,933
Deferred credits and other liabilities............... 83,067 68,473
Common stock held by ESOP............................ 6,500 6,500
Less: unearned compensation.......................... (6,094) (6,500)
Commitments and contingencies
Stockholders' equity (deficiency in assets):
Common stock, $.01 par value, 20,000,000 shares
authorized, 10,599,000 shares issued, 10,555,000
outstanding at December 31, 1996 and 10,599,000
shares issued and outstanding at September 30,
1996.............................................. 106 106
Additional paid-in capital......................... (560,077) (560,077)
Retained earnings.................................. 299,458 306,656
Accumulated translation adjustment................. (20,008) (19,124)
--------- ---------
(280,521) (272,439)
Treasury stock, at cost, 44,000 shares at December
31, 1996.......................................... (527) --
--------- ---------
Total stockholders' equity (deficiency in
assets)......................................... (281,048) (272,439)
--------- ---------
Total liabilities and stockholders' equity
(deficiency in assets)........................ $ 714,644 $ 689,684
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-33
<PAGE>
STERLING CHEMICALS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------
1996 1995
--------- ---------
(IN THOUSANDS
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Revenues............................................. $ 186,926 $ 191,542
Cost of goods sold................................... 171,843 162,147
--------- ---------
Gross profit......................................... 15,083 29,395
Selling, general and administrative expenses......... 6,435 8,021
Other income......................................... (309) --
Interest and debt related expenses, net of interest
income.............................................. 18,624 1,609
--------- ---------
Income (loss) before income taxes.................... (9,667) 19,765
Provision (Benefit) for income taxes................. (2,469) 6,978
--------- ---------
Net income (loss).................................. $ (7,198) $ 12,787
========= =========
Per share data:
Net income (loss) per share........................ $ (0.68) $ 0.23
Weighted average shares outstanding................ 10,608 55,674
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-34
<PAGE>
STERLING CHEMICALS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers............................ $ 205,361 $ 204,137
Miscellaneous cash receipts............................. 6,590 3,086
Cash paid to suppliers and employees.................... (192,576) (202,734)
Interest paid........................................... (5,754) (1,741)
Interest received....................................... 100 374
Income taxes paid....................................... (793) (750)
--------- ---------
Net cash provided by operating activities................. 12,928 2,372
--------- ---------
Cash flows from investing activities:
Capital expenditures.................................... (18,456) (20,370)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt............................ 9,600 2,000
Repayment of long-term debt............................. (9,506) (8,929)
Issuance of common stock................................ 3,000 --
Purchase of treasury stock.............................. (527) --
Other................................................... -- (288)
--------- ---------
Net cash provided by (used in) financing activities....... 2,567 (7,217)
--------- ---------
Effect of exchange rate on cash........................... (50) (48)
--------- ---------
Net decrease in cash and cash equivalents................. (3,011) (25,263)
Cash and cash equivalents--beginning of period............ 5,609 30,882
--------- ---------
Cash and cash equivalents--end of period.................. $ 2,598 $ 5,619
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-35
<PAGE>
STERLING CHEMICALS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(UNAUDITED)
RECONCILIATION OF NET INCOME (LOSS) TO CASH
PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss).................................... $ (7,198) $ 12,787
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization...................... 11,502 10,712
Loss on disposal of assets......................... -- 140
Deferred tax expense............................... 919 1,574
Accrued compensation............................... -- 231
Unearned compensation.............................. 406 --
Discount note amortization......................... 3,745 --
Change in:
Accounts receivable................................ (1,410) (27,243)
Inventories........................................ (14,129) 8,232
Prepaid expenses................................... (1,507) 677
Other assets....................................... (6,087) (98)
Accounts payable................................... 6,571 (17,440)
Accrued liabilities................................ 8,845 6,019
Other liabilities.................................. 11,271 6,781
--------- ---------
Net cash provided by operating activities............ $ 12,928 $ 2,372
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-36
<PAGE>
STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1996
ASSETS ------------ -------------
(IN THOUSANDS EXCEPT PER
SHARE DATA)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 2,484 $ 5,581
Accounts receivable............................... 138,087 135,635
Inventories....................................... 67,805 53,720
Prepaid expenses.................................. 9,205 10,226
Deferred income taxes............................. 5,132 6,064
--------- ---------
Total current assets............................ 222,713 211,226
Property, plant and equipment, net.................. 374,387 365,765
Other assets........................................ 116,617 108,460
--------- ---------
Total assets.................................. $ 713,717 $ 685,451
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)
Current liabilities:
Accounts payable.................................. $ 72,823 $ 66,562
Accrued liabilities............................... 62,495 55,740
Current portion of long-term debt................. 15,375 11,625
--------- ---------
Total current liabilities....................... 150,693 133,927
Long-term debt...................................... 619,219 619,875
Deferred income taxes............................... 48,696 47,478
Deferred credits and other liabilities.............. 83,067 68,473
Common stock held by ESOP........................... 6,500 6,500
Less: unearned compensation......................... (6,094) (6,500)
Commitments and contingencies
Stockholder's equity (deficiency in assets):
Common stock, $.01 par value...................... -- --
Additional paid-in capital........................ (165,352) (165,352)
Retained earnings (deficit)....................... (3,004) 174
Accumulated translation adjustment................ (20,008) (19,124)
--------- ---------
Total stockholder's equity (deficiency in
assets)........................................ (188,364) (184,302)
--------- ---------
Total liabilities and stockholder's equity
(deficiency in assets)....................... $ 713,717 $ 685,451
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-37
<PAGE>
STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1996(1)
------------------
(IN THOUSANDS)
<S> <C>
Revenues............................................... $186,926
Cost of goods sold..................................... 171,843
--------
Gross profit........................................... 15,083
Selling, general and administrative expenses........... 6,080
Other income........................................... (309)
Interest and debt related expenses..................... 14,801
Interest income from parent............................ (1,788)
--------
Loss before income taxes............................... (3,701)
Benefit for income taxes............................... (523)
--------
Net Loss............................................... $ (3,178)
========
</TABLE>
- --------
(1) See Note 1 of Notes to Condensed Consolidated Financial Statements for a
discussion of merger activities and related financing. Prior to August 21,
1996, Chemicals had no operating activities other than those related to
merger activities.
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-38
<PAGE>
STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1996
------------------
(IN THOUSANDS)
<S> <C>
Cash flows from operating activities:
Cash received from customers......................... $ 205,361
Miscellaneous cash receipts.......................... 6,501
Cash paid to suppliers and employees................. (193,100)
Interest paid........................................ (5,754)
Interest received.................................... 100
Income taxes paid.................................... (793)
---------
Net cash provided by operating activities.............. 12,315
---------
Cash flows from investing activities:
Capital expenditures................................. (18,456)
---------
Cash flows from financing activities:
Proceeds from long-term debt......................... 9,600
Repayment of long-term debt.......................... (9,506)
Advances from parent................................. 3,000
Net cash provided by financing activities.............. 3,094
---------
Effect of exchange rate on cash........................ (50)
---------
Net decrease in cash and cash equivalents.............. (3,097)
Cash and cash equivalents--beginning of period......... 5,581
---------
Cash and cash equivalents--end of period............... $ 2,484
=========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-39
<PAGE>
STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS--(CONTINUED)
(UNAUDITED)
RECONCILIATION OF NET LOSS TO CASH
PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1996(1)
------------------
(IN THOUSANDS)
<S> <C>
Net loss............................................. $ (3,178)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization...................... 11,422
Deferred tax expense............................... 2,265
Unearned compensation.............................. 406
Change in:
Accounts receivable................................ (3,637)
Inventories........................................ (14,129)
Prepaid expenses................................... 935
Other assets....................................... (6,614)
Accounts payable................................... 6,571
Accrued liabilities................................ 7,003
Other liabilities.................................. 11,271
--------
Net cash provided by operating activities............ $ 12,315
========
</TABLE>
- --------
(1) See Note 1 of Notes to Condensed Consolidated Financial Statements for a
discussion of merger activities and related financing. Prior to August 21,
1996, Chemicals had no operating activities other than those related to
merger activities.
The accompanying notes are an integral part of the condensed consolidated
financial statements
F-40
<PAGE>
STERLING CHEMICALS HOLDINGS, INC.
STERLING CHEMICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)
1. Merger Activities
Sterling Chemicals, Inc. (prior to the Merger, "Sterling") and STX
Acquisition Corp. ("STX Acquisition"), 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"), entered into an Amended and Restated
Agreement and Plan of Merger dated April 24, 1996 (the "Merger Agreement"). On
August 20, 1996, the Merger Agreement was approved by a majority of the shares
outstanding, and on August 21, 1996, STX Acquisition merged with and into
Sterling, changing its name to Sterling Chemicals Holdings, Inc. ("Holdings"),
and continuing as the surviving corporation (the "Merger"). In connection with
the Merger, Holdings transferred all of its operating assets and liabilities
(excluding the Discount Notes) to a wholly owned subsidiary, STX Chemicals
Corp., which at the time of the Merger changed its name to Sterling Chemicals,
Inc. (after the Merger, "Chemicals"). Holdings has no direct subsidiaries
other than Chemicals. As used herein, the term "Company" refers to Sterling
and its subsidiaries prior to the consummation of the Merger and, following
the Merger, to Holdings and its subsidiaries, including Chemicals.
Each share of the Company's common stock outstanding immediately prior to
the Merger was converted (at the election of the holder thereof) into either
$12.00 cash or the right to retain shares of the Company's common stock
("Rollover Shares"), with the aggregate number of Rollover Shares limited to
5.0 million. As a result of the Merger, on August 21, 1996, the former STX
Acquisition stockholders held approximately 5.3 million shares (49%),
stockholders with Rollover Shares held approximately 5.0 million shares (46%)
and the Company's newly formed ESOP held approximately 542,000 shares (5%) of
the Company's outstanding common stock.
The Merger was financed by the proceeds of bank term loans of $356.5
million, including an ESOP term loan of $6.5 million, amounts drawn against a
revolving credit facility of $6.4 million each pursuant to a new credit
agreement (the "Credit Agreement"), an offering of $275.0 million Subordinated
Notes, an offering of $191.8 million (initial proceeds of $100 million)
representing 191,751 Units, with each unit consisting of one Discount Note and
one Warrant to purchase three shares of Holdings' common stock for $0.01 per
share beginning in August 1997, equity raised by STX Acquisition of
approximately $70.7 million, and cash on hand of $10.3 million. These proceeds
were used to redeem Sterling's common stock other than Rollover Shares ($608.3
million), purchase other equity interests--primarily stock appreciation rights
("SARs") ($14.6 million), repay debt outstanding prior to the Merger ($142.7
million), loan monies to the new ESOP ($6.5 million) and pay fees and expenses
($46.8 million).
The Company has accounted for the Merger and related financing as a series
of debt and equity transactions representing a recapitalization. Accordingly,
the historical basis of the Company's assets and liabilities have not been
impacted by the Merger and related financing.
2. 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 the Company and Chemicals as of
December 31, 1996 and their consolidated results of operations for the
applicable three-month periods ended December 31, 1996 and 1995 and
consolidated cash flows for the applicable three-month periods ended December
31, 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.
F-41
<PAGE>
STERLING CHEMICALS HOLDINGS, INC.
STERLING CHEMICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The accompanying unaudited condensed consolidated financial statements should
be, and are assumed to have been, read in conjunction with the annual
consolidated financial statements and notes included in the Prospectus. The
condensed consolidated balance sheets as of September 30, 1996 included herein
have been derived from the audited consolidated balance sheets as of September
30, 1996 included in the Prospectus.
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>
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ -------------
<S> <C> <C>
Finished products.............................. $48,282 $31,868
Raw materials.................................. 11,436 9,499
------- -------
Inventories at FIFO cost..................... 59,718 41,367
Inventories under exchange agreements.......... (3,519) 722
Stores and supplies............................ 11,606 11,631
------- -------
$67,805 $53,720
======= =======
</TABLE>
4. Long-Term Debt:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ -------------
<S> <C> <C>
Revolving credit facilities.................... $ 3,000 $ --
Term loans..................................... 347,500 350,000
ESOP term loan................................. 6,094 6,500
Subordinated notes............................. 275,000 275,000
Discount notes payable by Holdings............. 98,502 94,757
-------- --------
Total debt outstanding....................... 730,096 726,257
Less:
Current maturities........................... (15,375) (11,625)
-------- --------
Total long-term debt........................... $714,721 $714,632
======== ========
</TABLE>
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, acrylonitrile, and
methanol, 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.
F-42
<PAGE>
STERLING CHEMICALS HOLDINGS, INC.
STERLING CHEMICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 related to production,
transportation and disposal of materials classified as hazardous or toxic.
LEGAL PROCEEDINGS
HUNTSMAN LAWSUIT: This lawsuit was settled in January 1997 by mutual
agreement of the parties with no financial impact to the Company.
AMMONIA RELEASE LAWSUITS: A description of the ammonia release lawsuit is
found under "Legal Proceedings" in Note 7 of the "Notes to Consolidated
Financial Statements" of the Annual Report and is incorporated by reference.
As discussed therein, approximately 2,600 of the plaintiffs agreed to submit
their damage claims to binding arbitration. Each of the plaintiffs who agreed
to participate in the arbitration waived any right of recovery for punitive or
exemplary damages. Pursuant to the agreement to arbitrate, a two-week
evidentiary proceeding was conducted in July 1996 before a three-judge panel
which will make a determination of the amount of damages. Currently, the
Company anticipates that the results of the arbitration will be rendered in
the second fiscal quarter of 1997.
The Company continues to vigorously defend the claims of the plaintiffs who
did not participate in the July 1996 arbitration.
The following ammonia lawsuit was settled in December 1996 with no financial
impact to the Company: Feliciana Cantu, et al v. Sterling Chemicals, Inc.;
Cause No. 664459; In the County Civil Court at Law No. 4 of Harris County,
Texas.
OTHER LAWSUITS: The Company is subject to various other claims and legal
actions that arise in the ordinary course of its business.
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 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. 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
December 31, 1996, the Company has accrued approximately $21.3 million as its
estimate of aggregate contingent liability for these matters, and has also
recorded aggregate receivables from its insurers of approximately $20.6
million. At December 31, 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 $44.8 million. The Company believes that it
is insured for this additional reasonably possible loss, except for a portion
which is not material.
F-43
<PAGE>
STERLING CHEMICALS HOLDINGS, INC.
STERLING CHEMICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 adopted this Statement in the first quarter of
fiscal 1997. The adoption of this Statement did not have a material adverse
effect on the Company's financial position, results of operations, or cash
flows.
The Financial Accounting Standards Board issued SFAS No. 123, "Accounting
for Stock-Based Compensation" in October 1995. Under SFAS No. 123, companies
are permitted to either adopt this new standard and record expenses for stock
options and other stock-based employee compensation plans based on their fair
value at date of grant, or continue to apply its current accounting policy
under Accounting Principles Board ("APB") Opinion No. 25 and increase its
footnote disclosure. In the first quarter of fiscal 1997, the Company elected
to continue to apply APB Opinion No. 25, and will increase its footnote
disclosure to include the pro-forma impact on net income and earnings per
share of the application of the fair value based method of accounting.
7. Recent Developments:
In December 1996, the Company signed a definitive agreement with Cytec
Industries Inc. ("Cytec") relating to the purchase by the Company of Cytec's
acrylic fibers business (the "AFB"). The transaction closed on January 31,
1997, resulting in the acquisition of Cytec's acrylic fibers plant located
near Pensacola, Florida by the Company. The AFB recorded sales of
approximately $140 million in 1996 and is one of two acrylic fibers
manufacturers in the United States. Cytec will supply acrylonitrile to the AFB
through the continuation of a five-year supply agreement. This acquisition was
financed through the incurrence of $81 million of term debt under a new
Chemicals Credit Facility, the issuance of $10 million (liquidation value) of
"pay in kind" preferred stock to Cytec, and the sale of $10 million of
additional Holdings' common stock in a private placement. The Company will use
the purchase method to account for the acquisition, and operating results of
the AFB will be included with those of the Company beginning February 1, 1997.
The Company intends to focus on its acquisitions strategy, targeting
chemical businesses and assets which will strengthen the Company's existing
market positions, provide upstream or downstream integration, or produce
complementary chemical products. The Company's ability to complete
acquisitions requiring the incurrence of additional debt and other capital
investment will be subject to various limitations contained in the Company's
debt instruments.
8. Employee Benefits:
In January 1997, the Board of Directors, upon recommendation of the
Compensation Committee, approved the establishment of a Profit Sharing Plan,
designed to benefit all qualified employees, a Stock Option Plan, which would
grant stock options to key employees and directors, and a Bonus Plan, which is
expected to provide for bonuses to certain key employees based on the
Company's annual financial performance. The number of shares of common stock
to be available under the Stock Option Plan will be established in connection
with its final implementation.
F-44
<PAGE>
STERLING CHEMICALS HOLDINGS, INC.
STERLING CHEMICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. Weighted Average Shares:
The weighted average shares outstanding used in the calculation of earnings
per share is calculated below:
<TABLE>
<S> <C>
Total shares issued at September 30, 1996................... 11,141,000
Shares held by ESOP......................................... 542,000
----------
Total shares issued less ESOP............................... 10,599,000
Weighted average effect of:
44,000 treasury shares acquired........................... (2,000)
34,000 shares held by ESOP released for allocation to
employees................................................ 11,000
----------
Weighted average shares outstanding for quarter ended
December 31, 1996.......................................... 10,608,000(1)
</TABLE>
- --------
(1) Weighted average shares outstanding excludes warrants equal to 575,000
shares which were antidilutive for the three-month period ending December
31, 1996.
F-45
<PAGE>
- --------------------------------------------------------------------------------
ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE
AGENT AS FOLLOWS:
By Mail:
FLEET NATIONAL BANK
Corporate Trust Operations
CT OP T06D
P.O. Box 1440
Hartford, Connecticut 06143
Attention: Patricia Williams
By Overnight Courier:
FLEET NATIONAL BANK
Corporate Trust Operations
CT OP T06D
1 Talcott Plaza
Hartford, Connecticut 06103
Attention: Patricia Williams
By Hand:
FLEET NATIONAL BANK
Corporate Trust Department
Customer Service Window, 5th Floor
1 Talcott Plaza
Hartford, Connecticut 06106
Attention: Patricia Williams
By Facsimile Transmission:
(860) 986-7908
Attention: Patricia Williams
For Information or Confirmation by Telephone:
(860) 986-1271
(Originals of all documents submitted by facsimile should be sent promptly by
hand, overnight delivery, or registered or certified mail.)
----------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION 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 STERLING OR ANY INITIAL PURCHASER. 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
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE SUCH DATE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STERLING CHEMICALS, INC.
$150,000,000
11 1/4% SENIOR SUBORDINATED
NOTES DUE 2007, SERIES A
----------------
PROSPECTUS
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... iv
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 15
Disclosure Regarding Forward-Looking Statements........................... 20
The Exchange Offer........................................................ 21
Use of Proceeds........................................................... 30
Capitalization............................................................ 30
Selected Consolidated Financial Data...................................... 31
Pro Forma Consolidated Financial Statements and Other Information......... 33
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 38
Business.................................................................. 50
Management................................................................ 70
Certain Relationships and Related Transactions............................ 77
Principal Stockholders.................................................... 79
Description of Other Indebtedness......................................... 81
Description of the Notes.................................................. 83
Certain Federal Income Tax Consequences................................... 112
Plan of Distribution...................................................... 115
Legal Matters............................................................. 116
Experts................................................................... 116
Index to Financial Statements............................................. F-1
</TABLE>
----------------
, 1997
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of Section 145 of the General Corporation Law of the State of
Delaware empowers a corporation to 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 (other than an action by or in the right of the corporation) 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, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he 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.
Subsection (b) of Section 145 empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted
in any of the capacities set forth above, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that 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 upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of
any action, suit or proceeding inferred to in subsections (a) and (b) of
Section 145 or in the 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; that indemnification
provided for by Section 145 shall not be deemed exclusive of any other rights
to which the indemnified party may be entitled; that indemnification provided
by Section 145 shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of such person's heirs, executors and
administrators; and empowers the corporation to purchase and maintain
insurance on behalf of a director or officer of the corporation against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liabilities under Section 145.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a certificate of incorporation may contain a provision
eliminating or limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation 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 General Corporation Law, or
(iv) for any transaction from which the director derived an improper personal
benefit.
Article VII of Sterling's Certificate of Incorporation states that:
"No director (including any advisory director) of the Corporation
shall be liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its
II-1
<PAGE>
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 General Corporation Law of the State of
Delaware or (iv) for any transaction from which the director derived
an improper personal benefit."
Article VIII of Sterling's Certificate of Incorporation and Article VI of
Sterling's Bylaws further provide that Sterling shall indemnify its officers
and directors to the fullest extent permitted by the General Corporation Law of
the State of Delaware. Pursuant to such provision, Sterling has entered into
agreements with its officers and directors which provide for indemnification of
such persons.
ITEM 21. EXHIBITS
The following is a complete list of Exhibits filed as part of, or incorporated
by reference into, this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
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 --Restated Certificate of Incorporation of Sterling Chemicals
Holdings, Inc., incorporated by reference from Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996.
3.2 --Certificate of Incorporation of Sterling Chemicals, Inc., as
amended, incorporated by reference from Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended September 30,
1996.
3.3 --Restated Bylaws of Sterling Chemicals Holdings, Inc., incorporated
by reference from Exhibit 3.3 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1996.
3.4 --Bylaws of Sterling Chemicals, Inc., incorporated by reference from
Exhibit 3.4 to the Registration Statement on Form S-1 of STX
Acquisition Corp. and STX Chemicals Corp. (Registration No. 333-
04343).
4.1 --Form of Warrant Agreement, incorporated by reference from Exhibit
4.4 to the Registration Statement on Form S-1 of STX Acquisition
Corp. and STX Chemicals Corp. (Registration No. 333-04343).
4.2 --Form of Indenture governing the 13% Senior Secured Discount Notes
Due 2008 of the Company, incorporated by reference from Exhibit 4.5
to the Registration Statement on Form S-1 of STX Acquisition Corp.
and STX Chemicals Corp. (Registration No. 333-04343).
4.3 --Form of Indenture governing the 11% Senior Subordinated Notes Due
2006 of Sterling Chemicals, Inc. (formerly known as STX Chemicals
Corp.), incorporated by reference from Exhibit 4.7 to the
Registration Statement on Form S-1 of STX Acquisition Corp. and STX
Chemicals Corp. (Registration No. 333-04343).
4.4 --Credit Agreement among Sterling Chemicals, Inc. (formerly known as
STX Chemicals Corp.), 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.
4.5 --Stockholders Agreement, incorporated by reference from Exhibit 4.10
to the Registration Statement on Form S-1 of STX Acquisition Corp.
and STX Chemicals Corp. (Registration No. 333-04343).
4.6 --Registration Rights Agreement, incorporated by reference from
Exhibit 4.11 to the Registration Statement on Form S-1 of STX
Acquisition Corp. and STX Chemicals Corp. (Registration No. 333-
04343).
4.7 --Voting Agreement, incorporated by reference from Exhibit 4.12 to the
Registration Statement on Form S-1 of STX Acquisition Corp. and STX
Chemicals Corp. (Registration No. 333-04343).
4.8 --Tag-Along Agreement, incorporated by reference from Exhibit 4.13 to
the Registration Statement on Form S-1 of STX Acquisition Corp. and
STX Chemicals Corp. (Registration No. 333-04343).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.9 --Intercreditor Agreement, incorporated by reference from Exhibit
4.14 to the Registration Statement on Form S-1 of STX Acquisition
Corp. and STX Chemicals Corp. (Registration No. 333-04343).
4.10 --Security Agreement (Pledge) between STX Acquisition Corp. and Texas
Commerce Bank incorporated by reference from Exhibit 4.15 to the
Registration Statement on Form S-1 of STX Acquisition Corp. and STX
Chemicals Corp. (Registration No. 333-04343).
4.11 --Amendment No. 1 to the Sterling Chemicals, Inc. Credit Agreement,
incorporated by reference from Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended December
31, 1996.
4.12 --Second Amendment and Supplement to Security Agreement (Pledgee)
between Sterling Chemicals Holdings, Inc. and Texas Commerce Bank
N.A., incorporated by reference from Exhibit 4.2 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended December
31, 1996.
*4.13 --Indenture among Sterling Chemicals, Inc., and Fleet National Bank,
Trustee, with respect to the 11 1/4% Senior Subordinated Notes Due
2007 (including form of 11 1/4% Senior Subordinated Note Due 2007).
**4.14 --Form of 11 1/4% Senior Subordinated Note Due 2007, Series A.
*4.15 --Registration Rights Agreement, dated as of April 1, 1997, among
Sterling Chemicals, Inc., as issuer, and Credit Suisse First Boston
Corporation and Chase Securities Inc.
*4.16 --Amendment No. 2 to the Sterling Chemicals, Inc. Credit Agreement.
*5.1 --Opinion of Andrews & Kurth L.L.P. as to the legality of the
securities being registered.
+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.
10.2(a) --Supplement to the Sterling Chemicals, Inc. Salaried Employee's
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.
10.2(b) --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.
10.3 --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.
10.3(a) --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.
10.3(b) --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.
10.3(c) --Sterling Chemicals, Inc. Amended and Restated Hourly Paid
Employees' Pension Plan (Effective as of May 1, 1996) incorporated
by reference from Exhibit 10.3(c) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1996.
10.4 --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.
10.4(a) --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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.4(b) --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.
10.5 --Sterling Chemicals, Inc. Pension Benefit Equalization Plan,
incorporated by reference from Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (Registration No. 33-24020).
10.6 --Sterling Chemicals Employee Stock Ownership Plan (ESOP)
incorporated by reference from Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the fiscal year ended Sptember 30, 1996.
10.7 --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.
10.7(a) --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.
+10.8 --Styrene Monomer Conversion Contract dated November 3, 1995,
between Monsanto Company (subsequently assigned to Bayer
Corporation, a subsidiary of Bayer AG) and the Company, incororated
by reference from Exhibit 10.13 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1995.
+10.9 --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.
+10.10 --Production Agreement dated April 15, 1988 between BP Chemicals
Americas Inc. and the Company and First and Second Amendment
thereto, incorporated by reference from Exhibit 10.21 to the
Company's Registration Statement on Form S-1 (Registration No.
24020).
+10.11 --Agreement dated May 2, 1988, between E.I. du Pont de Nemours and
Company and the Company, incorporated by reference from Exhibit
10.22 to the Company's Registration Statement on Form S-1
(Registration No. 33-24020).
10.12 --License Agreement dated April 15, 1988, between BP Chemicals
Americas Inc. and the Company, incorporated by reference from
Exhibit 10.23 to the Company's Registration Statement on Form S-1
(Registration No. 33-24020).
+10.13 --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.
+10.13(a) --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.
10.14 --License Agreement dated August 1, 1986, between Monsanto Company
and the Company, incorporated by reference from Exhibit 10.25 to
the Company's Registration Statement on Form S-1 (Registration No.
33-24020).
+10.15 --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.
10.16 --Form of Indemnity Agreement exeucted between the Company and each
of its officers and directors prior to the Merger, 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.
10.17 --Form of Indemnity Agreement executed between the Company and each
of its officers and directors incorporated by reference from
Exhibit 10.17 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.18 --Amended and Restated Sterling Chemicals, Inc. Hourly Employees'
Profit Sharing Plan, incorporated by references from Exhibit 10.32 to
the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1993.
10.19 --Amended and Restated Sterling Chemicals, Inc. Salaried Employee's
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.
10.20 --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 (Commission File Number 1-10059).
10.21 --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 (Commission File
No. 1-10059).
10.22 --Articles of Agreement between the Company, its successors and
assigns, and Texas City, Texas Metal Trades Council, AFL-CIO Texas
City, May 1, 1996 to May 1, 1999 incorporated by reference from
Exhibit 10.22 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996.
10.23 --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.
10.24 --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.
10.25 --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.
10.26 --Lease dated July 1, 1997 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.
+10.27 --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.
+10.28 --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.
10.29 --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.
10.30 --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 from Exhibit
10.53 to the Company's Annual Repoprt on form 10-K for the fiscal
year ended September 30, 1995.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.31 --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 from Exhibit 10.54 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1995.
+10.32 --Product Supply Agreement dated May 15, 1995 between Praxair Hydrogen
Supply, Inc. and the Company, incorporated by reference from Exhibit
10.55 to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995.
+10.33 --Methanol Production Agreement between BP Chemicals Inc. and the
Company dated September 26, 1996 incorporated by reference from
Exhibit 10.33 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996.
10.34 --Consulting Agreement dated April 23, 1996, among The Sterling Group,
Inc. STX Acquisition Corp. and STX Chemicals Corp. incorporated by
reference from Exhibit 10.34 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1996.
10.35 --Asset Purchase Agreement, dated December 23, 1996 among Sterling
Fibers, Inc., Sterling Chemicals, Inc., Sterling Chemicals Holdings,
Inc., Cytec Acrylic Fibers, Inc., Cytec Technology Corp. and Cytec
Industries Inc., incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 1996.
**12.1 --Computation of ratio of earnings to fixed charges.
21.1 --Subsidiaries of Sterling Chemicals Holdings, Inc. incorporated by
reference to Exhibit 10.35 to the Company's Annual Quarterly Report
on Form 10-K for the fiscal year ended September 30, 1996.
**23.1 --Consent of Deloitte and Touche LLP.
**23.2 --Consent of Coopers & Lybrand LLP.
**23.3 --Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1).
**24.1 --Power of Attorney (included in Part II of the Registration
Statement).
**25.1 --Statement of Eligibility and Qualification of Form T-1 of Fleet
National Bank.
**99.1 --Form of Letter of Transmittal.
**99.2 --Form of Notice of Guaranteed Delivery.
</TABLE>
- --------
** Filed herewith.
* To be filed by amendment.
+ Confidential treatment has been requested with respect to portions of this
Exhibit, and such request has been granted.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement;
II-6
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement:
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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 Securities
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
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF
TEXAS, ON THE 2ND DAY OF MAY, 1997.
STERLING CHEMICALS, INC.
/s/ Robert W. Roten
By___________________________________
Robert W. Roten
President and Chief Executive
Officer
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW APPOINTS ROBERT W. ROTEN, JIM P.
WISE, AND F. MAXWELL EVANS, AND EACH OF THEM ACTING ALONE, AS HIS TRUE AND
LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE
AMENDMENTS) TO THIS REGISTRATION STATEMENT AND ANY REGISTRATION STATEMENT FOR
THE SAME OFFERING FILED PURSUANT TO RULE 462 UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND ALL OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, AND GRANTS UNTO SAID ATTORNEY-IN-FACT AND AGENT FULL POWER AND
AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY TO BE DONE, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
WOULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEY-IN-
FACT AND AGENT, OR HIS OR HER SUBSTITUTE AND SUBSTITUTES, MAY LAWFULLY DO OR
CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED ON THE 2ND DAY OF MAY, 1997, BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Frank P. Diassi Chairman of the Board of
____________________________________ Directors
Frank P. Diassi
/s/ Robert W. Roten President, Chief Executive
____________________________________ Officer and Director
Robert W. Roten (principal executive
officer)
/s/ Jim P. Wise Vice President--Finance and
____________________________________ Chief Financial Officer
Jim P. Wise (principal financial
officer)
/s/ Paul G. Vanderhoven Controller (principal
____________________________________ accounting officer)
Paul G. Vanderhoven
/s/ J. Virgil Waggoner Vice Chairman of the Board
____________________________________ of Directors
J. Virgil Waggoner
/s/ Robert B. Calhoun Director
____________________________________
Robert B. Calhoun
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Allan R. Dragone Director
____________________________________
Allan R. Dragone
/s/ John L. Garcia Director
____________________________________
John L. Garcia
/s/ George B. Gregory Director
____________________________________
George B. Gregory
/s/ Frank J. Hevrdejs Director
____________________________________
Frank J. Hevrdejs
/s/ T. Hunter Nelson Director
____________________________________
T. Hunter Nelson
</TABLE>
II-9
<PAGE>
EXHIBIT 4.14
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE
REFERRED TO ON THE REVERSE HEREOF.
STERLING CHEMICALS, INC.
No. ________ $______________
CUSIP NO.:
11 1/4% Senior Subordinated Note Due 2007, Series A
Sterling Chemicals, Inc., a Delaware corporation, promises to pay to Cede &
Co. or registered assigns, the principal sum of One Hundred Fifty Million
Dollars on April 1, 2007.
Interest Payment Dates: April 1 and October 1.
Record Dates: March 15 and September 15.
Additional provisions of this Note are set forth on the other side of this
Note.
STERLING CHEMICALS, INC.
By:
Dated:_______________
[Seal] ___________________________
Frank P. Diassi
Chairman of the Board
___________________________
F. Maxwell Evans
Secretary
<PAGE>
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
FLEET NATIONAL BANK,
as Trustee, certifies that this
is one of the Notes referred
to in the Indenture.
By:
_______________________________
Authorized Signatory
-2-
<PAGE>
11 1/4% Senior Subordinated Notes Due 2007, Series A
1. Interest
STERLING CHEMICALS, INC., a Delaware corporation (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being herein
called "Sterling"), promises to pay interest on the principal amount of this
Note at the rate per annum shown above provided, however, that if a Registration
Default (as defined in the Registration Rights Agreement) occurs, interest will
accrue on this security at a rate of 11 3/4% per annum from and including the
date on which any such Registration Default shall occur but excluding the date
on which all Registration Defaults have been cured.
Sterling will pay interest semi-annually on April 1 and October 1 of each
year, commencing October 1, 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 April 7, 1997. Interest will be computed on the basis of a 360-day
year of twelve 30-day months. Sterling shall pay interest on overdue principal
at the rate borne by the Notes.
2. Method of Payment
Sterling 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
March 15 or September 15 next preceding the interest payment date even if Notes
are canceled after the record date and on or before the interest payment date.
Holders must surrender Notes to a Paying Agent to collect principal payments.
Sterling 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, Sterling 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, a national banking association (the
"Trustee"), will act as Paying Agent and Registrar. Sterling may appoint and
change any Paying Agent, Registrar or co-registrar without notice. Sterling or
any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying
Agent, Registrar or co-registrar.
4. Indenture
Sterling issued the Notes under an Indenture dated as of April 7, 1997 (the
"Indenture"), between Sterling and the Trustee. The terms of the Notes include
those stated in the Indenture and those made part of the 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 Indenture (the "TIA"). Terms defined in the Indenture and
not defined herein have the meanings ascribed thereto in the Indenture. The
Notes are
-3-
<PAGE>
subject to all such terms, and Holders of Notes are referred to the Indenture
and the TIA for a statement of those terms.
The Notes are unsecured senior subordinated obligations of Sterling limited
to $150,000,000 aggregate principal amount (subject to Section 2.07 of the
Indenture). The Indenture imposes certain limitations on the incurrence of
additional indebtedness by Sterling and certain of its subsidiaries, the payment
of dividends on, and the redemption of, capital stock of Sterling 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 Indenture also restricts the
ability of Sterling 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 Sterling's option, in whole or in part, at
any time and from time to time on or after April 1, 2002, 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 April 1 of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----------
<S> <C>
2002................................ 105.625%
2003................................ 103.750%
2004................................ 101.875%
2005................................ 100.000%
</TABLE>
In addition, at any time and from time to time prior to April 1, 2000,
Sterling 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 111.25%, 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 $97,500,000 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
-4-
<PAGE>
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.
7. Put Provisions
Upon a Change of Control, any Holder of Notes will have the right to cause
Sterling 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 Indenture.
8. Subordination
The Notes are subordinated to Senior Debt. To the extent provided in the
Indenture, Senior Debt must be paid before the Notes may be paid. Sterling
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
(or, in the case of Securities sold to institutional "accredited investors" as
described in Rule 501(a) (1), (2), (3) or (7) under the Securities Act in a
transaction intended to be exempt from registration under the Securities Act,
minimum denominations of $500,000) and integral multiples of $1,000. Holders of
Notes may transfer or exchange Notes in accordance with the 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 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
-5-
<PAGE>
to Sterling at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
Sterling and not to the Trustee or Paying Agent for payment.
12. Discharge and Defeasance
Subject to certain conditions, Sterling at any time may terminate some or
all of its obligations under the Notes and the Indenture if Sterling 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.
13. Amendment; Waiver
Subject to certain exceptions set forth in the Indenture, (i) the 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 Indenture, without the consent of
any Holder of a Note, Sterling and the Trustee may amend the Indenture or the
Notes to cure any ambiguity, omission, defect or inconsistency, or to comply
with Article VI of the 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 Sterling, or 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 Indenture under the TIA.
14. Defaults and Remedies
Under the 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 Sterling to comply with other covenants in the
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 Sterling 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 Sterling 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 Indenture or the Notes except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Notes unless it receives
-6-
<PAGE>
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 Sterling
Subject to certain limitations imposed by the TIA, the Trustee under the
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 Sterling or its Affiliates and may otherwise deal with Sterling 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 Sterling or the
Trustee shall not have any liability for any obligations of Sterling under the
Notes or the 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 Sterling 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.
_________________________________
-7-
<PAGE>
Sterling will furnish to any Holder of a Note upon written request and
without charge to such Holder of a Note a copy of the Indenture which contains
the text of this Note in larger type. Requests may be made to:
Sterling Chemicals, Inc.
1200 Smith Street, Suite 1900
Houston, TX 77002
Attention: Jim P. Wise
-8-
<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.]
and irremovably appoint ______________________ agent to transfer this Note on
the books of Sterling. The agent may substitute another to act for him.
Date:__________________ Your Signature:_____________________
================================================================================
Sign exactly as your name appears on the face of this Note.
-9-
<PAGE>
OPTION OF HOLDER OF NOTE TO ELECT PURCHASE
If you elect to have this Note purchased by Sterling pursuant to Article IV
or Section 5.07 of the Indenture, check the box:
[ ]
If you elect to have only part of this Note purchased by Sterling pursuant
to Article IV or Section 5.07 of the 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)
-10-
<PAGE>
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE
The following increases or decreases in this Global Note have been made:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
____________________________________________________________________________________________________________________________________
Date of Exchange Amount of decrease Amount of increase Principal Amount of this Signature of authorized signatory
in Principal Amount in Principal Amount Global Note following of
of this Global Note of this Global Note such decrease or increase Trustee or Notes Custodian
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
</TABLE>
-11-
<PAGE>
EXHIBIT 12.1
STERLING CHEMICALS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES
<TABLE>
<CAPTION>
HOLDINGS
THREE MONTHS STERLING
HOLDINGS STERLING ENDED THREE MONTHS
YEAR ENDED SEPTEMBER 30, MAY 14 TO DECEMBER 31, ENDED
---------------------------------- SEPTEMBER 30, -------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996 1995 1996 1996
----- ----- ----- ------ ----- ------------- ------ ------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNINGS
Income (loss) before
taxes and extraordinary
items.................. $ 9.2 $(7.0) $28.2 $228.1 $50.4 $0.6 $ 19.8 $ (9.7) $(3.7)
Add:
Interest and debt
related expenses, net
of interest income... 8.4 22.4 22.1 14.6 13.4 1.6 1.6 18.6 14.8
Portion of rents
representative of the
interest factor...... 1.4 2.2 2.3 4.0 2.2 0.7 0.9 0.9
----- ----- ----- ------ ----- ---- ------ ------ -----
Earnings (as adjusted).. $19.0 $17.6 $52.6 $246.7 $66.0 $2.2 $22.1 $ 9.8 $12.0
===== ===== ===== ====== ===== ==== ====== ====== =====
FIXED CHARGES
Interest on
indebtedness......... $ 8.4 $22.4 $22.1 $ 14.6 $13.4 $1.6 $ 1.6 $ 18.6 $14.8
Capitalized interest.. 0.9 0.3 0.1 1.0 4.1 0.3 0.6 2.2 2.2
Portion of rents
representative of the
interest factor...... 1.4 2.2 2.3 4.0 2.2 0.7 0.9 0.9
----- ----- ----- ------ ----- ---- ------ ------ -----
Fixed charges........... $10.7 $24.9 $24.5 $ 19.6 $19.7 $1.9 2.9 $ 21.7 $17.9
===== ===== ===== ====== ===== ==== ====== ====== =====
RATIO OF EARNINGS TO
FIXED CHARGES(1)....... 1.8x -- 2.1x 12.6x 3.4x 1.2x 7.6x -- --
===== ===== ===== ====== ===== ==== ====== ====== =====
DEFICIENCY OF EARNINGS
TO COVER FIXED CHARGES. $ 7.3 $ 11.9 $ 5.9
===== ===== ===== ====== ===== ==== ====== ====== =====
</TABLE>
- -------
(1) 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.
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Sterling Chemicals, Inc.
on Form S-4 of our reports dated December 6, 1996, appearing in the Prospectus,
which is part of this Registration Statement, and to the reference to us under
the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Houston, Texas
May 2, 1997
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Registration Statement of Sterling
Chemicals, Inc. on Form S-4 of our report dated October 25, 1995 on our audit of
the statement of operations, cash flows and changes in stockholders' equity for
the year ended September 30, 1995, appearing in the Prospectus, which is part of
this Registration Statement. We also consent to the reference to our firm under
the caption "Experts."
COOPERS & LYBRAND L.L.P.
Houston, Texas
May 2, 1997
<PAGE>
EXHIBIT 25.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM T-1
--------------------------
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
[ ] CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)
FLEET NATIONAL BANK
----------------------------------------------------------
(Exact name of trustee as specified in its charter)
Not applicable 06-0850628
---------------------------- ------------------
(State of incorporation if (I.R.S. Employer
not a national bank) Identification No.)
777 Main Street, Hartford, Connecticut 06115
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Patricia Beaudry, 777 Main Street, Hartford, CT (860) 728-2065
------------------------------------------------------------------
(Name, address and telephone number of agent for service)
STERLING CHEMICALS, INC.
------------------------------------------------------------------
(Exact name of obligor as specified in its charter)
Delaware 76-0502785
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 Smith, Suite 1900, Houston, Texas 77002
------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
11-1/4% Senior Subordinated Notes due 2007
------------------------------------------------------------------
(Title of the indenture securities)
<PAGE>
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject:
The Comptroller of the Currency,
Washington, D.C.
Federal Reserve Bank of Boston
Boston, Massachusetts
Federal Deposit Insurance Corporation
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers:
The trustee is so authorized.
Item 2. Affiliations with obligor. If the obligor is an affiliate of
the trustee, describe each such affiliation.
None with respect to the trustee; none with respect to Fleet
Financial Group, Inc. and its affiliates (the "affiliates").
Item 16. List of exhibits. List below all exhibits filed as a part of
this statement of eligibility and qualification.
1. A copy of the Articles of Association of the trustee as
now in effect.
2. A copy of the Certificate of Authority of the trustee
to do Business and the Certification of Fiduciary Powers.
3. A copy of the By-laws of the trustee as now in effect.
4. Consent of the trustee required by Section 321(b) of
the Act.
5. A copy of the latest Consolidated Report of Condition
and Income of the trustee, published pursuant to law or the requirements
of its supervising or examining authority.
<PAGE>
NOTES
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
trustee of all facts on which to base its answer to Item 2, the answer to said
Item is based upon incomplete information. Said Item may, however, be
considered correct unless amended by an amendment to this Form T-1.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, Fleet National Bank, a national banking association organized and
existing under the laws of the United States, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Hartford, and State of
Connecticut, on the 29th day of April, 1997.
FLEET NATIONAL BANK,
Trustee
By
-------------------------------------
Susan T. Keller
Vice President
<PAGE>
EXHIBIT 1
ARTICLES OF ASSOCIATION
OF
FLEET NATIONAL BANK
FIRST. The title of this Association, which shall carry on the business of
banking under the laws of the United States, shall be "Fleet National Bank."
SECOND. The main office of the Association shall be in Springfield, Hampden
County Commonwealth of Massachusetts. The general business of the Association
shall be conducted at its main office and its branches.
THIRD. The board of directors of this Association shall consist of not less
than five (5) nor more than twenty-five (25) shareholders, the exact number of
directors within such minimum and maximum limits to be fixed and determined
from time to time by resolution of a majority of the full board of directors or
by resolution of the shareholders at any annual or special meeting thereof.
Unless otherwise provided by the laws of the United States, any vacancy in the
board of directors for any reason, including an increase in the number thereof,
may be filled by action of the board of directors.
FOURTH. The annual meeting of the shareholders for the election of directors
and the transaction of whatever other business may be brought before said
meeting shall be held at the main office or such other place as the board of
directors may designate, on the day of each year specified therefore in the
bylaws, but if no election is held on that day, it may be held on any
subsequent day according to the provisions of law; and all elections shall be
held according to such lawful regulations as may be prescribed by the board of
directors.
FIFTH. The authorized amount of capital stock of this Association shall be
eight million five hundred thousand (8,500,000) shares of which three million
five hundred thousand (3,500,000) shares shall be common stock with a
par value of six and 25/100 dollars ($6.25) each, and of which five million
(5,000,000) shares without par value shall be preferred stock. The capital
stock may be increased or decreased from time to time, in accordance with
the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of the Association shall
have any pre-emptive or preferential right of subscription to any shares of any
class of stock of the Association, whether now or hereafter authorized, or to
any obligations convertible into stock of the Association, issued or sold, nor
any right of subscription to any thereof other than such, if any, as the board
of directors, in its discretion, may from time to time determine and at such
price as the board of directors may from time to time fix.
<PAGE>
The board of directors of the Association is authorized, subject to limitations
prescribed by law and the provisions of this Article, to provide for the
issuance from time to time in one or more series of any number of the preferred
shares, and to establish the number of shares be included in each series, and
to fix the designation, relative rights, preferences, qualifications and
limitations of the shares of each such series. The authority of the board of
directors with respect to each series shall include, but not be limited to,
determination of the following:
a. The number of shares constituting that series and the distinctive
designation of that series;
b. The dividend rate on the shares of that series, whether dividends shall be
cumulative, and, if so, from which date or dates, and whether they shall be
payable in preference to, or in another relation to, the dividends payable
to any other class or classes or series of stock;
c. Whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights;
d. Whether that series shall have conversion or exchange privileges, and,
if so, the terms and conditions of such conversion or exchange, including
provision for the adjustment of the conversion or exchange rate in such
events as the board of directors shall determine;
e. Whether or not the shares of that series shall be redeemable, and, if so,
the terms and conditions of such redemption, including the manner of
selecting shares for redemption if less than all shares are to be redeemed,
the date or dates upon or after which they shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;
f. Whether that series shall be entitled to the benefit of a sinking fund to
be applied to the purchase or redemption of shares of that series, and, if
so, the terms and amounts of such sinking fund;
g. The right of the shares of that series to the benefit of conditions and
restrictions upon the creation of indebtedness of the Association or any
subsidiary, upon the issue of any additional stock (including additional
shares of such series or of any other series) and upon the payment of
dividends or the making of other distributions on, and the purchase,
redemption or other acquisition by the Association or any subsidiary of
any outstanding stock of the Association;
h. The right of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Association and
whether such rights shall be in preference to, or in another relation to,
the comparable rights of any other class or classes or series of stock; and
i. Any other relative, participating, optional or other special rights,
qualifications, limitations or restrictions of that series.
Shares of any series of preferred stock which have been redeemed (whether
through the operation of a sinking fund or otherwise) or which, if convertible
or exchangeable, have been converted into or exchanged for shares of stock of
any other class or classes shall have the status of authorized and unissued
shares of preferred stock of the same series and may be reissued as a part of
the series of which they were originally a part or may be reclassified and
reissued as part of a new series of preferred stock to be created by resolution
or resolutions of the board of directors or as part of any other series or
preferred stock, all subject to the conditions and the restrictions adopted by
the board of directors providing for the issue of any series of preferred
stock and by the provisions of any applicable law.
Subject to the provisions of any applicable law, or except as otherwise
provided by the resolution or resolutions providing for the issue of any series
of preferred stock, the holders of outstanding shares of common stock shall
exclusively possess voting power for the election of directors and for all
purposes, each holder of record of shares of common stock being entitled to one
vote for each share of common stock standing in his name on the books of the
Association.
Except as otherwise provided by the resolution or resolutions providing for the
issue of any series of preferred stock, after payment shall have been made to
the holders of preferred stock of the full amount of dividends to which they
shall be entitled pursuant to the resolution or resolutions providing for the
issue of any other series of preferred stock, the holders of common stock shall
be entitled, to the exclusion of the holders of preferred stock of any and all
series, to receive such dividends as from time to time may be declared by the
board of directors.
Except as otherwise provided by the resolution or resolutions for the issue
of any series of preferred stock, in the event of any liquidation, dissolution
or winding up of the Association, whether voluntary or involuntary, after
payment shall have been made to the holders of preferred stock of the full
amount to which they shall be entitled pursuant to the resolution or
resolutions providing for the issue of any series of preferred stock the
holders of common stock shall be entitled, to the exclusion of the holders of
preferred stock of any and all series, to share, ratable according to the
number of shares of common stock held by them, in all remaining assets of the
Association available for distribution to its shareholders.
The number of authorized shares of any class may be increased or decreased by
the affirmative vote of the holders of a majority of the stock of the
Association entitled to vote.
<PAGE>
SIXTH. The board of directors shall appoint one of its members president of
this Association, who shall be chairman of the board, unless the board appoints
another director to be the chairman. The board of directors shall have the
power to appoint one or more vice presidents; and to appoint a secretary and
such other officers and employees as may be required to transact the business
of this Association.
The board of directors shall have the power to define the duties of the
officers and employees of the Association; to fix the salaries to be paid to
them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of the
Association shall be made; to manage and administer the business and affairs of
the Association; to make all bylaws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a board of
directors to do and perform.
SEVENTH. The board of directors shall have the power to change the location of
the main office to any other place within the limits of the City of Hartford,
Connecticut, without the approval of the shareholders but subject to the
approval of the Comptroller of the Currency; and shall have the power to
establish or change the location of any branch or branches of the Association
to any other location, without the approval of the shareholders but subject to
the approval of the Comptroller of the Currency.
EIGHTH. The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
NINTH. The board of directors of this Association, or any three or more
shareholders owning, in the aggregate, not less than ten percent (10%) of the
stock of this Association, may call a special meeting of shareholders at any
time. Unless otherwise provided by the laws of the United States, a notice of
the time, place and purpose of every annual and special meeting of the
shareholders shall be given by first class mail, postage prepaid, mailed at
least ten (10) days prior to the date of such meeting to each shareholder of
record at his address as shown upon the books of this Association.
TENTH. (a) Right to Indemnification. Each person who was or is made 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 (hereinafter a "proceeding"), by reason of the fact that he or
she is or was a director, officer or employee of the Association or is or was
serving at the request of the Association as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, limited
liability company, trust, or other enterprise, including service with respect
to an employee benefit plan, shall be indemnified and held harmless by the
Association to the fullest extent authorized by the law of the state in which
the Association's ultimate parent company is incorporated, except as provided
in subsection (b). The aforesaid indemnity shall protect the indemnified
person against all expense, liability and loss (including attorney's fees,
judgements, fines ERISA excise taxes or penalties, and amounts paid in
settlement) reasonably incurred by such person in connection with such a
proceeding. Such indemnification shall continue as to a person who has ceased
to be a director, officer or employee and shall inure to the benefit of his or
her heirs, executors, and administrators, but shall only cover such person's
period of service with the Association. The Association may, by action of its
Board of Directors, grant rights to indemnification to agents of the
Association and to any director, officer, employee or agent of any of its
subsidiaries with the same scope and effect as the foregoing indemnification
of directors and officers.
(b) Restrictions on Indemnification. Notwithstanding the foregoing, (i) no
person shall be indemnified hereunder by the Association against expenses,
penalties, or other payments incurred in an administrative proceeding or action
instituted by a federal bank regulatory agency which proceeding or action
results in a final order assessing civil money penalties against that person,
requiring affirmative action by that person in the form of payments to the
Association, or removing or prohibiting that person from service with the
Association, and any advancement of expenses to that person in that proceeding
must be repaid; and (ii) no person shall be indemnified hereunder by the
Association and no advancement of expenses shall be made to any person
hereunder to the extent such indemnification or advancement of expenses would
violate or conflict with any applicable federal statute now or hereafter in
force or any applicable final regulation or interpretation now or hereafter
adopted by the Office of the Comptroller of the Currency ("OCC") or the Federal
Deposit Insurance Corporation ("FDIC"). The Association shall comply with any
requirements imposed on it by any such statue or regulation in connection with
any indemnification or advancement of expenses hereunder by the Association.
With respect to proceedings to enforce a claimant's rights to indemnification,
the Association shall indemnify any such claimant in connection with such a
proceeding only as provided in subsection (d) hereof.
(c) Advancement of Expenses. The conditional right to indemnification
conferred in this section shall be a contract right and shall include the
right to be paid by the Association the reasonable expenses (including
attorney's fees) incurred in defending a proceeding in advance of its final
disposition (an "advancement of expenses"); provided, however, that an
advancement of expenses shall be made only upon (i) delivery to the Association
of a binding written undertaking by or on behalf of the person receiving the
advancement to repay all amounts so advanced if it is ultimately determined
that such person is not entitled to be indemnified in such proceeding,
including if such proceeding results in a final order assessing civil money
penalties against that person, requiring affirmative action by that person
in the form of payments to the Association, or removing or prohibiting that
person from service with the Association, and (ii) compliance with any other
actions or determinations required by applicable law, regulation or OCC or FDIC
interpretation to be taken or made by the Board of Directors of the Association
<PAGE>
or other persons prior to an advancement of expenses. The Association shall
cease advancing expenses at any time its Board of Directors believes that any
of the prerequisites for advancement of expenses are no longer being met.
(d) Right of Claimant to Bring Suit. If a claim under subsection (a) of the
section is not paid in full by the Association within thirty (30) days after
written claim has been received by the Association, the claimant may at any time
thereafter bring suit against the Association to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a
suit brought by the Association to recover an advancement of expenses pursuant
to the terms of an undertaking, the claimant shall be entitled to be paid also
the expense of prosecuting or defending such claim. It shall be a defense to
any such action brought by the claimant to enforce a right to indemnification
hereunder (other than an action brought to enforce a claim for an advancement
of expenses where the required undertaking, if any, has been tendered to the
Association) that the claimant has not met any applicable standard for
indemnification under the law of the state in which the Association's ultimate
parent company is incorporated. In any suit brought by the Association to
recover an advancement of expenses pursuant to the terms of an undertaking, the
Association shall be entitled to recover such expenses upon a final
adjudication that the claimant has not met any applicable standard for
indemnification standard for indemnification under the law of the state in
which the Association's ultimate parent company is incorporated.
(e) Non-Exclusivity of Rights. The rights to indemnification and the
advancement of expenses conferred in this section shall not be exclusive of any
other right which any person may have or hereafter acquired under any statute,
agreement, vote of stockholders or disinterested directors or otherwise.
(f) Insurance. The Association may purchase, maintain, and make payment or
reimbursement for reasonable premiums on, insurance to protect itself and any
director, officer, employee or agent of the Association or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Association would have the power to
indemnify such person against such expense, liability or loss under the law of
the state in which the Association's ultimate parent company is incorporated;
provided however, that such insurance shall explicitly exclude insurance
coverage for a final order of a federal bank regulatory agency assessing civil
money penalties against an Association director, officer, employee or agent.
ELEVENTH. These articles of association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this Association, unless the vote of the holders of
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount. The notice of any shareholders' meeting at
which an amendment to the articles of association of this Association is to be
considered shall be given as hereinabove set forth.
I hereby certify that the articles of association of this Association, in their
entirety, are listed above in items first through eleventh.
Secretary/Assistant Secretary
- --------------------------------------------------
Dated at , as of .
--------------------------------------- --------------------
Revision of February 15, 1996
<PAGE>
EXHIBIT 2
AMENDED AND RESTATED BY-LAWS OF
FLEET NATIONAL BANK
ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting. The regular annual meeting of the shareholders for
the election of Directors and the transaction of any other business that may
properly come before the meeting shall be held at the Main Office of the
Association, or such other place as the Board of Directors may designate, on
the fourth Thursday of April in each year at 1:15 o'clock in the afternoon
unless some other hour of such day is fixed by the Board of Directors.
If, from any cause, an election of Directors is not made on such day, the Board
of Directors shall order the election to be held on some subsequent day, of
which special notice shall be given in accordance with the provisions of law,
and of these bylaws.
Section 2. Special Meetings. Special meetings of the shareholders may be called
at any time by the Board of Directors, the President, or any shareholders
owning not less than twenty-five percent (25%) of the stock of the Association.
Section 3. Notice of Meetings of Shareholders. Except as otherwise provided
by law, notice of the time and place of annual or special meetings of the
shareholders shall be mailed, postage prepaid, at least ten (10) days before
the date of the meeting to each shareholder of record entitled to vote thereat
at his address as shown upon the books of the Association; but any failure to
mail such notice to any shareholder or any irregularity therein, shall not
affect the validity of such meeting or of any of the proceedings thereat.
Notice of a special meeting shall also state the purpose of the meeting.
Section 4. Quorum; Adjourned Meetings. Unless otherwise provided by law, a
quorum for the transaction of business at every meeting of the shareholders
shall consist of not less than two-fifths (2/5) of the outstanding capital
stock represented in person or by proxy; less than such quorum may adjourn the
meeting to a future time. No notice need be given of an adjourned annual or
special meeting of the shareholders if the adjournment be to a definite place
and time.
Section 5. Votes and Proxies. At every meeting of the shareholders, each
share of the capital stock shall be entitled to one vote except as otherwise
provided by law. A majority of the votes cast shall decide every question
or matter submitted to the shareholder at any meeting, unless otherwise
provided by law or by the Articles of Association or these By-laws. Share-
holders may vote by proxies duly authorized in writing and filed with the
Cashier, but no officer, clerk, teller or bookkeeper of the Association may act
as a proxy.
<PAGE>
Section 6. Nominations to Board of Directors. At any meeting of shareholders
held for the election of Directors, nominations for election to the Board of
Directors may be made, subject to the provisions of this section, by any share-
holder of record of any outstanding class of stock of the Association entitled
to vote for the election of Directors. No person other than those whose names
are stated as proposed nominees in the proxy statement accompanying the notice
of the meeting may be nominated as such meeting unless a shareholder shall have
given to the President of the Association and to the Comptroller of the
Currency, Washington, DC written notice of intention to nominate such other
person mailed by certified mail or delivered not less than fourteen (14) days
nor more than fifty (50) days prior to the meeting of shareholders at which
such nomination is to be made; provided, however, that if less than twenty-one
(21) days' notice of such meeting is given to shareholders, such notice of
intention to nominate shall be mailed by certified mail or delivered to said
President and said Comptroller on or before the seventh day following the day
on which the notice of such meeting was mailed. Such notice of intention to
nominate shall contain the following information to the extent known to the
notifying shareholder: (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the total number of
shares of capital stock of the Association that will be voted for each proposed
nominee; (d) the name and residence address of the notifying shareholder; and
(e) the number of shares of capital stock of the Association owned by the
notifying shareholder. In the event such notice is given, the proposed nominee
may be nominated either by the shareholder giving such notice or by any other
shareholder present at the meeting at which such nomination is to be made.
Such notice may contain the names of more than one proposed nominee, and if
more than one is named, any one or more of those named may be nominated.
Section 7. Action Taken Without a Shareholder Meeting. Any action requiring
shareholder approval or consent may be taken without a meeting and without
notice of such meeting by written consent of the shareholders.
ARTICLE II
DIRECTORS
Section 1. Number. The Board of Directors shall consist of such number of
shareholders, not less than five (5) nor more than twenty-five (25), as from
time to time shall be determined by a majority of the votes to which all of its
shareholders are at the time entitled, or by the Board of Directors as
hereinafter provided.
Section 2. Mandatory Retirement for Directors. No person shall be elected a
director who has attained the age of 68 and no person shall continue to serve
as a director after the date of the first meeting of the stockholders of the
Association held on or after the date on which such person attains the age of
68; provided, however, that any director serving on the Board as of December
15, 1995 who has attained the age of 65 on or prior to such date shall be
permitted to continue to serve as a director until the date of the first
meeting of the stockholders of the Association held on or after the date on
which such person attains the age of 70.
-2-
<PAGE>
Section 3. General Powers. The Board of Directors shall exercise all the
corporate powers of the Association, except as expressly limited by law, and
shall have the control, management, direction and disposition of all its
property and affairs.
Section 4. Annual Meeting. Immediately following a meeting of shareholders
held for the election of Directors, the Cashier shall notify the directors-
elect who may be present of their election and they shall then hold a meeting
at the Main Office of the Association, or such other place as the Board of
Directors may designate, for the purpose of taking their oaths, organizing the
new Board, electing officers and transacting any other business that may come
before such meeting.
Section 5. Regular Meeting. Regular meetings of the Board of Directors shall
be held without notice at the Main Office of the Association, or such other
place as the Board of Directors may designate, at such dates and times as the
Board shall determine. If the day designated for a regular meeting falls on a
legal holiday, the meeting shall be held on the next business day.
Section 6. Special Meetings. A special meeting of the Board of Directors may
be called at anytime upon the written request of the Chairman of the Board, the
President, or of two Directors, stating the purpose of the meeting. Notice of
the time and place shall be given not later than the day before the date of the
meeting, by mailing a notice to each Director at his last known address, by
delivering such notice to him personally, or by telephoning.
Section 7. Quorum; Votes. A majority of the Board of Directors at the time
holding office shall constitute a quorum for the transaction of all business,
except when otherwise provided by law, but less than a quorum may adjourn
a meeting from time to time, and the meeting may be held, as adjourned, without
further notice. If a quorum is present when a vote is taken, the affirmative
vote of a majority of Directors present is the act of the Board of Directors.
Section 8. Action by Directors Without a Meeting. Any action requiring
Director approval or consent may be taken without a meeting and without notice
of such meeting by written consent of all the Directors.
Section 9. Telephonic Participation in Directors' Meetings. A Director or
member of a Committee of the Board of Directors may participate in a meeting of
the Board or of such Committee may participate in a meeting of the Board or of
such Committee by means of a conference telephone or similar communications
equipment enabling all Directors participating in the meeting to hear one
another, and participation in such a meeting shall constitute presence in person
at such a meeting.
Section 10. Vacancies. Vacancies in the Board of Directors may be filled by
the remaining members of the Board at any regular or special meeting of the
Board.
Section 11. Interim Appointments. The Board of Directors shall, if the share-
holders at any meeting for the election of Directors have determined a number
of Directors less than twenty-five (25), have the power, by affirmative vote of
the majority of all the Directors, to increase such number of Directors to not
more than twenty-five (25) and to elect Directors to fill the resulting
vacancies and to serve until the next annual meeting of shareholders or the
next election of Directors; provided, however, that the number of Directors
shall not be so increased by more than two (2) if the number last determined
by shareholders was fifteen (15) or less, or increased by more than four (4) if
the number last determined by shareholders was sixteen (16) or more.
Section 12. Fees. The Board of Directors shall fix the amount and direct the
payment of fees which shall be paid to each Director for attendance at any
meeting of the Board of Directors or of any Committees of the Board.
ARTICLE III
COMMITTEES OF THE BOARD
Section 1. Executive Committee. The Board of Directors shall appoint from its
members an Executive Committee which shall consist of such number of persons as
the Board of Directors shall determine; the Chairman of the Board and the
President shall be members ex-officio of the Executive Committee with full
voting power. The Chairman of the Board or the President may from time to time
appoint from the Board of Directors as temporary additional members of the
Executive Committee, with full voting powers, not more than two members to serve
for such periods as the Chairman of the Board or the President may determine.
The Board of Directors shall designate a member of the Executive Committee to
serve as Chairman thereof. A meeting of the Executive Committee may be called
at any time upon the written request of the Chairman of the Board, the President
or the Chairman of the Executive Committee, stating the purpose of the meeting.
Not less than twenty four hours' notice of said meeting shall be given to each
member of the Committee personally, by telephoning, or by mail. The Chairman of
the Executive Committee or, in his absence, a member of the Committee chosen by
a majority of the members present shall preside at meetings of the Executive
Committee.
-3-
<PAGE>
The Executive Committee shall possess and may exercise all the powers of the
Board when the Board is not in session except such as the Board, only, by law,
is authorized to exercise; it shall keep minutes of its acts and proceedings
and cause same to be presented and reported at every regular meeting and at any
special meeting of the Board including specifically, all its actions relating
to loans and discounts.
All acts done and powers and authority conferred by the Executive Committee,
from time to time, within the scope of its authority, shall be deemed to be,
and may be certified as being, the acts of and under the authority of the
Board.
Section 2. Risk Management Committee. The Board shall appoint from its
members a Risk Management Committee which shall consist of such number as the
Board shall determine. The Board shall designate a member of the Risk
Management Committee to serve as Chairman thereof. It shall be the duty of the
Risk Management Committee to (a) serve as the channel of communication with
management and the Board of Directors of Fleet Financial Group, Inc. to assure
that formal processes supported by management information systems are in place
for the identification, evaluation and management of significant risks inherent
in or associated with lending activities, the loan portfolio, asset-liability
management, the investment portfolio, trust and investment advisory activities,
the sale of nondeposit investment products and new products and services and
such additional activities or functions as the Board may determine from time
to time; (b) assure the formulation and adoption of policies approved by the
Risk Management Committee or Board governing lending activities, management of
the loan portfolio, the maintenance of an adequate allowance for loan and lease
losses, asset-liability management, the investment portfolio, the retail
sale of non-deposit investment products, new products and services and such
additional activities or functions as the Board may determine from time to time
(c) assure that a comprehensive independent loan review program is in place for
the early detection of problem loans and review significant reports of the loan
review department, management's responses to those reports and the risk
attributed to unresolved issues; (d) subject to control of the Board, exercise
general supervision over trust activities, the investment of trust funds, the
disposition of trust investments and the acceptance of new trusts and the terms
of such acceptance, and (e) perform such additional duties and exercise such
additional powers of the Board as the Board may determine from time to time.
Section 3. Audit Committee. The Board shall appoint from its members and
Audit Committee which shall consist of such number as the Board shall determine
no one of whom shall be an active officer or employee of the Association or
Fleet Financial Group, Inc. or any of its affiliates. In addition, members of
the Audit Committee must not (i) have served as an officer or employee of the
Association or any of its affiliates at any time during the year prior to their
appointment; or (ii) own, control, or have owned or controlled at any time
during the year prior to appointment, ten percent (10%) or more of any
outstanding class of voting securities of the Association. At least two (2)
members of the Audit Committee must have significant executive, professional,
educational or regulatory experience in financial, auditing, accounting,
or banking matters. No member of the Audit Committee may have significant
direct or indirect credit or other relationships with the Association, the
termination of which would materially adversely affect the Association's
financial condition or results of operations.
The Board shall designate a member of the Audit Committee to serve as Chairman
thereof. It shall be the duty of the Audit Committee to (a) cause a continuous
audit and examination to be made on its behalf into the affairs of the
Association and to review the results of such examination; (b) review
significant reports of the internal auditing department, management's responses
to those reports and the risk attributed to unresolved issues; (c) review the
basis for the reports issued under Section 112 of The Federal Deposit Insurance
Corporation Improvement Act of 1991; (d) consider, in consultation with the
independent auditor and an internal auditing executive, the adequacy of the
Association's internal controls, including the resolution of identified material
weakness and reportable conditions; (e) review regulatory communications
received from any federal or state agency with supervisory jurisdiction or
other examining authority and monitor any needed corrective action by
management; (f) ensure that a formal system of internal controls is in place
for maintaining compliance with laws and regulations; (g) cause an audit of the
Trust Department at least once during each calendar year and within 15 months
of the last such audit or, in lieu thereof, adopt a continuous audit system and
report to the Board each calendar year and within 15 months of the previous
report on the performance of such audit function; and (h) perform such
additional duties and exercise such additional powers of the Board as the Board
may determine from time to time.
The Audit Committee may consult with internal counsel and retain its own
outside counsel without approval (prior or otherwise) from the Board or
management and obligate the Association to pay the fees of such counsel.
-4-
<PAGE>
Section 4. Community Affairs Committee. The Board shall appoint from its
members a Community Affairs Committee which shall consist of such number as the
Board shall determine. The Board shall designate a member of the Community
Affairs Committee to serve as Chairman thereof. It shall be the duty of the
Community Affairs Committee to (a) oversee compliance by the Association with
the Community Reinvestment Act of 1977, as amended, and the regulations
promulgated thereunder; and (b) perform such additional duties and exercise such
additional powers of the Board as the Board may determine from time to time.
Section 5. Regular Meetings. Except for the Executive Committee which shall
meet on an ad hoc basis as set forth in Section 1 of this Article, regular
meetings of the Committees of the Board of Directors shall be held, without
notice, at such time and place as the Committee or the Board of Directors may
appoint and as often as the business of the Association may require.
Section 6. Special Meetings. A Special Meeting of any of the Committees of
the Board of Directors may be called upon the written request of the Chairman
of the Board or the President, or of any two members of the respective
Committee, stating the purpose of the meeting. Not less than twenty-four
hours' notice of such special meeting shall be given to each member of the
Committee personally, by telephoning, or by mail.
Section 7. Emergency Meetings. An Emergency Meeting of any of the Committees
of the Board of Directors may be called at the request of the Chairman of the
Board or the President, who shall state that an emergency exists, upon not
less than one hour's notice to each member of the Committee personally or by
telephoning.
Section 8. Action Taken Without a Committee Meeting. Any Committee of the
Board of Directors may take action without a meeting and without notice of such
meeting by resolution assented to in writing by all members of such Committee.
Section 9. Quorum. A majority of a Committee of the Board of Directors shall
constitute a quorum for the transaction of any business at any meeting of such
Committee. If a quorum is not available, the Chairman of the Board or the
President shall have power to make temporary appointments to a Committee of-
members of the Board of Directors, to act in the place and stead of members who
temporarily cannot attend any such meeting; provided, however, that any
temporary appointment to the Audit Committee must meet the requirements for
members of that Committee set forth in Section 3 of this Article.
Section 10. Record. The committees of the Board of Directors shall keep a
record of their respective meetings and proceedings which shall be presented
at the regular meeting of the Board of Directors held in the calendar month
next following the meetings of the Committees. If there is no regular Board
of Directors meeting held in the calendar month next following the meeting of
a Committee, then such Committee's records shall be presented at the next
regular Board of Directors meeting held in a month subsequent to such Committee
meeting.
Section 11. Changes and Vacancies. The Board of Directors shall have power
to change the members of any Committee at any time and to fill vacancies on any
Committee; provided, however, that any newly appointed member of the Audit
Committee must meet the requirements for members of that Committee set forth in
Section 3 of this Article.
Section 12. Other Committees. The Board of Directors may appoint, from time
to time, other committees of one or more persons, for such purposes and with
such powers as the Board may determine.
ARTICLE IV
WAIVER OF NOTICE OF MEETINGS
Section 1. Waiver. Whenever notice is required to be given to any shareholder,
Director, or member of a Committee of the Board of Directors, such notice may
be waived in writing either before or after such meeting by any shareholder,
Director or Committee member respectively, as the case may be, who may be
entitled to such notice; and such notice will be deemed to be waived by
attendance at any such meeting.
-5-
<PAGE>
ARTICLE V
OFFICERS AND AGENTS
Section 1. Officers. The Board shall appoint a Chairman of the Board and a
President, and shall have the power to appoint one or more Executive Vice
Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a
Cashier, a Secretary, an Auditor, a Controller, one or more Trust Officers and-
such other officers as are deemed necessary or desirable for the proper
transaction of business of the Association. The Chairman of the Board and the
President shall be appointed from members of the Board of Directors. Any two
or more offices, except those of President and Cashier, or Secretary, may be
held by the same person. The Board may, from time to time, by resolution
passed by a majority of the entire Board, designate one or more officers of the
Association or of an affiliate or of Fleet Financial Group, Inc. with power to
appoint one or more Vice Presidents and such other officers of the Association
below the level of Vice President as the officer or officers designated in such
resolution deem necessary or desirable for the proper transaction of the
business of the Association.
Section 2. Chairman of the Board. The chairman of the Board shall preside at
all meetings of the Board of Directors. Subject to definition by the Board of
Directors, he shall have general executive powers and such specific powers and
duties as from time to time may be conferred upon or assigned to him by the
Board of Directors.
Section 3. President. The President shall preside at all meetings of the
Board of Directors if there be no Chairman or if the Chairman be absent.
Subject to definition by the Board of Directors, he shall have general
executive powers and such specific powers and duties as from time to time may
be conferred upon or assigned to him by the Board of Directors.
-6-
<PAGE>
Section 4. Cashier and Secretary. The Cashier shall be the Secretary of the
Board and of the Executive Committee, and shall keep accurate minutes of their
meetings and of all meetings of the shareholders. He shall attend to the
giving of all notices required by these By-laws. He shall be custodian of the
corporate seal, records, documents and papers of the Association. He shall
have such powers and perform such duties as pertain by law or regulation to the
office of Cashier, or as are imposed by these By-laws, or as may be delegated
to him from time to time by the Board of Directors, the Chairman of the Board
or the President.
Section 5. Auditor. The Auditor shall be the chief auditing officer of the
Association. He shall continuously examine the affairs of the Association and
from time to time shall report to the Board of Directors. He shall have such
powers and perform such duties as are conferred upon, or assigned to him by
these By-laws, or as may be delegated to him from time to time by the Board
of Directors.
Section 6. Officers Seriatim. The Board of Directors shall designate from
time to time not less than two officers who shall in the absence or disability
of the Chairman or President or both, succeed seriatim to the duties and
responsibilities of the Chairman and President respectively.
Section 7. Clerks and Agents. The Board of Directors may appoint, from time
to time, such clerks, agents and employees as it may deem advisable for the
prompt and orderly transaction of the business of the Association, define
their duties, fix the salaries to be paid them and dismiss them. Subject to
the authority of the Board of Directors, the Chairman of the Board or the
President, or any other officer of the Association authorized by either of them
may appoint and dismiss all or any clerks, agents and employees and prescribe
their duties and the conditions of their employment, and from time to time
fix their compensation.
Section 8. Tenure. The Chairman of the Board of Directors and the President
shall, except in the case of death, resignation, retirement or disqualification
under these By-laws, or unless removed by the affirmative vote of at least two-
thirds of all of the members of the Board of Directors, hold office for the
term of one year or until their respective successors are appointed. Either
of such officers appointed to fill a vacancy occurring in an unexpired term
shall serve for such unexpired term of such vacancy. All other officers,
clerks, agents, attorneys-in-fact and employees of the Association shall hold
office during the pleasure of the Board of Directors or of the officer or
committee appointing them respectively.
ARTICLE VI
TRUST DEPARTMENT
Section 1. General Powers and Duties. All fiduciary powers of the Association
shall be exercised through the Trust Department, subject to such regulations as
the Comptroller of the Currency shall from time to time establish. The Trust
Department shall be to placed under the management and immediate supervision
of an officer or officers appointed by the Board of Directors. The duties of
all officers of the Trust Department shall be to cause the policies and
instructions of the Board and the Risk Management Committee with respect to the
trusts under their supervision to be carried out, and to supervise the due
performance of the trusts and agencies entrusted to the Association and under
their supervision, in accordance with law and in accordance with the terms of
such trusts and agencies.
-7-
<PAGE>
ARTICLE VII
BRANCH OFFICES
Section 1. Establishment. The Board of Directors shall have full power to
establish, to discontinue, or, from time to time, to change the location of any
branch office, subject to such limitations as may be provided by law.
Section 2. Supervision and Control. Subject to the general supervision and
control of the Board of Directors, the affairs of branch offices shall be
under the immediate supervision and control of the President or of such other
officer or officers, employee or employees, or other individuals as the Board
of Directors may from time to time determine, with such powers and duties as
the Board of Directors may confer upon or assign to him or them.
ARTICLE VIII
SIGNATURE POWERS
Section 1. Authorization. The power of officers, employees, agents and
attorneys to sign on behalf of and to affix the seal of the Association shall
be prescribed by the Board of Directors or by the Executive Committee or by
both; provided that the President is authorized to restrict such power of any
officer, employee, agent or attorney to the business of a specific department
or departments, or to a specific branch office or branch offices. Facsimile
signatures may be authorized.
-8-
<PAGE>
ARTICLE IX
STOCK CERTIFICATES AND TRANSFERS
Section 1. Stock Records. The Trust Department shall have custody of the
stock certificate books and stock ledgers of the Association, and shall make
all transfers of stock, issue certificates thereof and disburse dividends
declared thereon.
Section 2. Form of Certificate. Every shareholder shall be entitled to a
certificate conforming to the requirements of law and otherwise in such form
as the Board of Directors may approve. The certificates shall state on the
face thereof that the stock is transferable only on the books of the
Association and shall be signed by such officers as may be prescribed from time
to time by the Board of Directors or Executive Committee. Facsimile signatures
may be authorized.
Section 3. Transfers of Stock. Transfers of stock shall be made only on the
books of the Association by the holder in person, or by attorney duly
authorized in writing, upon surrender of the certificate therefor properly
endorsed, or upon the surrender of such certificate accompanied by a properly
executed written assignment of the same, or a written power of attorney to
sell, assign or transfer the same or the shares represented thereby.
Section 4. Lost Certificate. The Board of Directors or Executive Committee
may order a new certificate to be issued in place of a certificate lost or
destroyed, upon proof of such loss or destruction and upon tender to the
Association by the shareholder, of a bond in such amount and with or without
surety, as may be ordered, indemnifying the Association against all liability,
loss, cost and damage by reason of such loss or destruction and the issuance
of a new certificate.
Section 5. Closing Transfer Books. The Board of Directors may close the
transfer books for a period not exceeding thirty days preceding any regular
or special meeting of the shareholders, or the day designated for the payment
of a dividend or the allotment of rights. In lieu of closing the transfer
books the Board of Directors may fix a day and hour not more than thirty days
prior to the day of holding any meeting of the shareholders, or the day
designated for the payment of a dividend, or the day designated for the
allotment of rights, or the day when any change of conversion or exchange of
capital stock is to go into effect, as the day as of which shareholders
entitled to notice of and to vote at such meetings or entitled to such dividend
or to such allotment of rights or to exercise the rights in respect of any
such change, conversion or exchange of capital stock, shall be determined, and
only such shareholders as shall be shareholders of record on the day and hour
so fixed shall be entitled to notice of and to vote at such meeting or to
receive payment of such dividend or to receive such allotment of rights or to
exercise such rights, as the case may be.
ARTICLE X
THE CORPORATE SEAL
Section 1. Seal. The following is an impression of the seal of the
Association adopted by the Board of Directors.
ARTICLE XI
BUSINESS HOURS
Section 1. Business Hours. The main office of this Association and each
branch office thereof shall be open for business on such days, and for such
hours as the Chairman, or the President, or any Executive Vice President, or
such other officer as the Board of Directors shall from time to time
designate, may determine as to each office to conform to local custom and
convenience, provided that any one or more of the main and branch offices or
certain departments thereof may be open for such hours as the President, or
such other officer as the Board of Directors shall from time to time designate,
may determine as to each office or department on any legal holiday on which
work is not prohibited by law, and provided further that any one or more of
the main and branch offices or certain departments thereof may be ordered
closed or open on any day for such hours as to each office or department as
the President, or such other officer as the Board of Directors shall from time
to time designate, subject to applicable laws regulations, may determine when
such action may be required by reason of disaster or other emergency condition.
ARTICLE IX
CHANGES IN BY-LAWS
Section 1. Amendments. These By-laws may be amended upon vote of a majority
of the entire Board of Directors at any meeting of the Board, provided ten (10)
day's notice of the proposed amendment has been given to each member of the
Board of Directors. No amendment may be made unless the By-law, as amended, is
consistent with the requirements of law and of the Articles of Association.
These By-laws may also be amended by the Association's shareholders.
A true copy
Attest:
Secretary/Assistant Secretary
- ---------------------------------------
Dated at , as of .
--------------------------------------- ----------------------
Revision of January 11, 1993
-9-
<PAGE>
[LOGO] Exhibit 3
- -------------------------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
- -------------------------------------------------------------------------------
Washington, D.C. 20219
CERTIFICATE
I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify that:
1. The Comptroller of the Currency, pursuant to Revised Statutes 324, et
seq., as amended, 12 U.S.C. 1, et seq., as amended, has possession, custody and
control of all records pertaining to the chartering of all National Banking
Associations.
2. "Fleet National Bank," (Charter No. 1338) is a National Banking
Association formed under the laws of the United States and is authorized
thereunder to transact the business of banking and exercise Fiduciary Powers on
the date of this Certificate.
IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal of office
to be affixed to these presents at the Treasury
Department in the City of Washington and
[SEAL]
District of Columbia, this 23rd day of
December, 1996.
/s/
----------------------
Comptroller of the Currency
<PAGE>
EXHIBIT 4
CONSENT OF THE TRUSTEE
REQUIRED BY SECTION 321(b)
OF THE TRUST INDENTURE ACT OF 1939
The undersigned, as Trustee under an Indenture to be entered into
between Sterling Chemicals, Inc. and Fleet National Bank, Trustee, does hereby
consent that, pursuant to Section 321(b) of the Trust Indenture Act of 1939,
reports of examinations with respect to the undersigned by Federal, State,
Territorial or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor.
FLEET NATIONAL BANK,
Trustee
By _____________________
Susan T. Keller
Vice President
Dated: April 29, 1997
<PAGE>
[FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL LETTERHEAD]
- -------------------------------------------------------------------------------
Please refer to page i,
[LOGO] Table of Contents, for 1
the required disclosure
of estimated burden.
- -------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK WITH DOMESTIC AND
FOREIGN OFFICES - FFIEC 031
(961231)
REPORT AT THE CLOSE OF BUSINESS DECEMBER 31, 1996 -----------
(RCRI 9999)
This report is required by law: 12 U.S.C. Section 324 (State member banks); 12
U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section 161
(National banks).
This report form is to be filed by banks with branches and consolidated
subsidiaries in U.S. territories and possessions, Edge or Agreement
subsidiaries, foreign branches, consolidated foreign subsidiaries, or
International Banking Facilities.
- ------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National banks.
I, Giro S. DeRosa, Vice President
- -----------------------------------------------------
Name and Title of Officer Authorized to Sign Report
of the named bank do hereby declare that these Reports of Condition and Income
(including the supporting schedules) have been prepared in conformance with
the instructions issued by the appropriate Federal regulatory authority and are
true to the best of my knowledge and belief.
/s/ Giro DeRosa
- ----------------------------------------------
Signature of Officer Authorized to Sign Report
January 23, 1997
- -----------------
Date of Signature
The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in
some cases differ from generally accepted accounting principles.
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it
has been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.
/s/
- ------------------
Director (Trustee)
/s/
- ------------------
Director (Trustee)
/s/
- -------------------
Director (Trustee)
- -----------------------------------------------------------------------------
FOR BANKS SUBMITTING HARD COPY REPORT FORMS:
STATE MEMBER BANKS: Return the original and one copy to the appropriate Federal
Reserve District Bank.
STATE NONMEMBER BANKS: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return
address envelope, return the original only to the FDIC, c/o Quality Data
Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114.
NATIONAL BANKS: Return the original only in the special return address envelope
provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
- -------------------------------------------------------------------------------
FDIC Certificate Number [02499] Banks should affix the address label in
----------- this space.
(RCRI 9050)
Fleet National Bank
---------------------------------------
Legal Title of Bank (TEXT 9010)
One Monarch Place
---------------------------------------
City (TEXT 9131)
Springfield, MA 01102
---------------------------------------
State Abbrev. Zip Code
(TEXT 9200) (TEXT 9220)
<PAGE>
FFIEC 031
Consolidated Reports of Condition and Income for a Bank With Page i
Domestic and Foreign Offices 2
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
SIGNATURE PAGE Cover
REPORT OF INCOME
Schedule RI--Income Statement.....................RI-1, 2, 3
Schedule RI-A--Changes in Equity Capital................RI-4
Schedule RI-B--Charge-offs and Recoveries and Changes
in Allowance For Loan and Lease Losses.............RI-4, 5
Schedule RI-C--Applicable Income Taxes by Taxing
Authority.............................................RI-5
Schedule RI-D--Income from International Operations.....RI-6
Schedule RI-E--Explanations..........................RI-7, 8
REPORT OF CONDITION
Schedule RC--Balance Sheet...........................RC-1, 2
Schedule RC-A--Cash and Balances Due from Depository
Institutions..........................................RC-3
Schedule RC-B--Securities.........................RC-3, 4, 5
Schedule RC-C--Loans and Lease Financing
Receivables:
Part I. Loans and Leases..........................RC-6, 7
Part II. Loans to Small Businesses and Small
Farms (included in the forms for June 30
only).........................................RC-7a, 7b
Schedule RC-D--Trading Assets and Liabilities (to
be completed only be selected banks)..................RC-8
Schedule RC-E--Deposit Liabilities..............RC-9, 10, 11
Schedule RC-F--Other Assets............................RC-11
Schedule RC-G--Other Liabilities.......................RC-11
Schedule RC-H--Selected Balance Sheet Items for
Domestic Offices.....................................RC-12
Schedule RC-I--Selected Assets and Liabilities of
IBFs.................................................RC-13
Schedule RC-K--Quarterly Averages......................RC-13
Schedule RC-L--Off-Balance Sheet Items.........RC-14, 15, 16
Schedule RC-M--Memoranda...........................RC-17, 18
Schedule RC-N--Past Due and Nonaccrual Loans,
Leases, and Other Assets.........................RC-19, 20
Schedule RC-O--Other Data for Deposit Insurance
Assessments......................................RC-21, 22
Schedule RC-R--Regulatory Capital..................RC-23, 24
Optional Narrative Statement Concerning the
Amounts Reported in the Reports of Condition
and Income...........................................RC-25
Special Report (TO BE COMPLETED BY ALL BANKS)
Schedule RC-J--Repricing Opportunities (sent only
to and to be completed by savings banks)
DISCLOSURE OF ESTIMATED BURDEN
The estimated average burden associated with this information collection is
32.2 hours per respondent and is estimated to vary from 15 to 230 hours per
response, depending on individual circumstances. Burden estimates include the
time for reviewing instructions, gathering and maintaining data in the
required form, and completing the information collection, but exclude the time
for compiling and maintaining business records in the normal course of a
respondent's activities. Comments concerning the accuracy of this burden
estimate and suggestions for reducing this burden should be directed to the
Office of Information and Regulatory Affairs, Office of Management and Budget,
Washington, D.C. 20503, and to one of the following:
Secretary
Board of Governors of the Federal Reserve System
Washington, D.C. 20551
Legislative and Regulatory Analysis Division
Office of the Comptroller of the Currency
Washington, D.C. 20219
Assistant Executive Secretary
Federal Deposit Insurance Corporation
Washington, D.C. 20429
For Information or assistance, National and State nonmember banks should
contact the FDIC's Call Reports Analysis Unit, 550 17th Street, NW, Washington,
D.C. 20429, toll free on (800) 688-FDIC(3342), Monday through Friday between
8:00 a.m. and 5:00 p.m., Eastern time. State member banks should contact their
Federal Reserve District Bank.
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RI-1
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
CONSOLIDATED REPORT OF INCOME
FOR THE PERIOD JANUARY 1, 1996-DECEMBER 31, 1996
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RI--INCOME STATEMENT
I480 (-
-------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest income: //////////////////
a. Interest and fee income on loans: //////////////////
(1) In domestic offices: //////////////////
(a) Loans secured by real estate................................................. 4011 1,092,992 1.a.(1)(a)
(b) Loans to depository institutions............................................. 4019 1,482 1.a.(1)(b)
(c) Loans to finance agricultural production and other loans to farmers.......... 4024 501 1.a.(1)(c)
(d) Commercial and industrial loans.............................................. 4012 1,132,500 1.a.(1)(d)
(e) Acceptances of other banks................................................... 4026 264 1.a.(1)(e)
(f) Loans to individuals for household, family, and other personal expeditures: //////////////////
(1) Credit cards and related plans............................................ 4054 16,485 1.a.(1)(f)(1)
(2) Other.................................................................... 4055 189,926 1.a.(1)(f)(2)
(g) Loans to foreign governments and official institutions....................... 4056 0 1.a.(1)(g)
(h) Obligations (other than securities and leases) of states and political //////////////////
subdivisions in the U.S.: //////////////////
(1) Taxable obligations...................................................... 4503 0 1.a.(1)(h)(1)
(2) Tax-exempt obligations................................................... 4504 10,381 1.a.(1)(h)(2)
(i) All other loans in domestic offices.......................................... 4058 147,087 1.a.(1)(i)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs.................... 4059 4,161 1.a.(2)
b. Income from lease financing receivables: //////////////////
(1) Taxable leases................................................................... 4505 152,848 1.b.(1)
(2) Tax-exempt leases................................................................ 4307 1,511 1.b.(2)
c. Interest income on balances due from depository instituions: (1) //////////////////
(1) In domestic offices.............................................................. 4105 1,644 1.c.(1)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs.................... 4106 142 1.c.(2)
d. Interest and dividend income on securities: //////////////////
(1) U.S. Treasury securities and U.S. Government agency and corporation obligations.. 4027 422,212 1.d.(1)
(2) Securities issued by states and political subdivisions in the U.S.: //////////////////
(a) Taxable securities........................................................... 4506 0 1.d.(2)(a)
(b) Tax-Exempt securities........................................................ 4507 6,495 1.d.(2)(b)
(3) Other domestic debt securities................................................... 3657 12,976 1.d.(3)
(4) Foreign debt securities.......................................................... 3658 6,621 1.d.(4)
(5) Equity securities (including investments in mutual funds)........................ 3659 17,504 1.d.(5)
e. Interest income from trading assets.................................................. 4069 479 1.e.
------------------
</TABLE>
- ----------
(1) Includes interest income on time certificates of deposit not held for
trading.
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RI-2
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RI--CONTINUED
Dollar Amounts in Thousands Year-to-date
RIAD Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest income (continued)
f. Interest income on federal funds sold and securities purchased under //////////////////
agreements to resell in domestic offices of the bank and of its Edge //////////////////
and Agreement subsidiaries, and in IBFs ............................. 4020 25,839 1.f.
g. Total interest income (sum of items 1.a through 1.f) ................ 4107 3,244,050 1.g.
2. Interest expense: //////////////////
a. Interest on deposits: //////////////////
(1) Interest on deposits in domestic offices: //////////////////
(a) Transaction accounts (NOW accounts, ATS accounts, and //////////////////
telephone and preauthorized transfer accounts) .............. 4508 13,070 2.a.(1)(a)
(b) Nontransaction accounts: //////////////////
(1) Money market deposit accounts (MMDAs) ................... 4509 257,330 2.a.(1)(b)(1)
(2) Other savings deposits .................................. 4511 48,169 2.a.(1)(b)(2)
(3) Time certificates of deposit of $100,000 or more ........ 4174 170,575 2.a.(1)(b)(3)
(4) All other time deposits ................................. 4512 403,831 2.a.(1)(b)(4)
(2) Interest on deposits in foreign offices, Edge and Agreement //////////////////
subsidiaries, and IBFs .......................................... 4172 100,766 2.a.(2)
b. Expense of federal funds purchased and securities sold under //////////////////
agreements to repurchase in domestic offices of the bank and of its //////////////////
Edge and Agreement subsidiaries, and in IBFs ........................ 4180 282,599 2.b.
c. Interest on demand notes issued to the U.S. Treasury, trading //////////////////
liabilities, and other borrowed money ............................... 4185 161,582 2.c.
d. Interest on mortgage indebtedness and obligations under capitalized //////////////////
leases .............................................................. 4072 859 2.d.
e. Interest on subordinated notes and debentures ....................... 4200 69,434 2.e.
f. Total interest expense (sum of items 2.a through 2.e) ............... 4073 1,508,215 2.f.
3. Net interest income (item 1.g minus 2.f) .............................. ////////////////// RIAD 4074 1,735,835 3.
4. Provisions: //////////////////
a. Provision for loan and lease losses ................................. ////////////////// RIAD 4230 (6,834) 4.a.
b. Provision for allocated transfer risk ............................... ////////////////// RIAD 4243 0 4.b.
5. Noninterest income: //////////////////
a. Income from fiduciary activities .................................... 4070 295,272 5.a.
b. Service charges on deposit accounts in domestic offices ............. 4080 222,313 5.b.
c. TRADING REVENUE (MUST EQUAL SCHEDULE RI, SUM OF MEMORANDUM //////////////////
ITEMS 8.a THROUGH 8.d) .............................................. A220 25,253 5.c.
d. Other foreign transaction gains (losses) ............................ 4076 346 5.d.
e. Not applicable //////////////////
f. Other noninterest income: //////////////////
(1) Other fee income ................................................ 5407 797,631 5.f.(1)
(2) All other noninterest income* ................................... 5408 350,869 5.f.(2)
g. Total noninterest income (sum of items 5.a through 5.f) ............. ////////////////// RIAD 4079 1,691,684 5.g.
6. a. Realized gains (losses) on held-to-maturity securities .............. ////////////////// RIAD 3521 52 6.a.
b. Realized gains (losses) on available-for-sale securities ............ ////////////////// RIAD 3196 12,071 6.b.
7. Noninterest expense: //////////////////
a. Salaries and employee benefits ...................................... 4135 645,873 7.a.
b. Expenses of premises and fixed assets (net of rental income) //////////////////
(excluding salaries and employee benefits and mortgage interest ..... 4217 211,199 7.b.
c. Other noninterest expense* .......................................... 4092 1,243,839 7.c.
d. Total noninterest expense (sum of items 7.a through 7.c) ............ ////////////////// RIAD 4093 2,100,911 7.d.
8. Income (loss) before income taxes and extraordinary items and other //////////////////
adjustments (item 3 plus or minus items 4.a, 4.b, 5.g, 6.a, 6.b, and 7.d) ////////////////// RIAD 4301 1,345,565 8.
9. Applicable income taxes (on item 8) .................................... ////////////////// RIAD 4302 548,252 9.
10. Income (loss) before extraordinary items and other adjustments (item 8 //////////////////
minus 9) ............................................................... ////////////////// RIAD 4300 797,313 10.
- ------------
*Describe on Schedule RI-E--Explanations.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RI-3
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RI--CONTINUED
Year-to-date
------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
11. Extraordinary items and other adjustments: //////////////////
a. Extraordinary items and other adjustments, //////////////////
gross of income taxes*..................................... 4310 0 11.a.
b. Applicable income taxes (on item 11.a)*.................... 4315 0 11.b.
c. Extraordinary items and other adjustments, //////////////////
net of income taxes (item 11.a minus 11.b)................. ////////////////// RIAD 4320 0 11.c.
12. Net income (loss) (sum of items 10 and 11.c)................... ////////////////// RIAD 4340 797,313 12.
----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
I481 (-
------------
Memoranda Year-to-date
------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after //////////////////
August 7, 1986, that is not deductible for federal income tax purposes....................... 4513 2,891 M.1.
2. Income from the sale and servicing of mutual funds and annuities in domestic offices //////////////////
(included in Schedule RI, item 8)............................................................ 8431 46,475 M.2.
3.-4. Not applicable //////////////////
5. Number of full-time equivalent employees on payroll at end of current period (round to //// Number
nearest whole number)........................................................................ 4150 12,425 M.5.
6. Not applicable //////////////////
7. If the reporting bank has restated its balance sheet as a result of applying push down //// MM DD YY
accounting this calendar year, report the date of the bank's acquisition..................... 9106 00/00/00 M.7.
8. Trading revenue (from cash instruments and off-balance sheet derivative instruments) //////////////////
(SUM OF MEMORANDUM ITEMS 8.a THROUGH 8.d MUST EQUAL SCHEDULE RI, ITEM 5.c): //// Bil Mil Thou
a. Interest rate exposures.................................................................. 8757 5,738 M.8.a.
b. Foreign exchange exposures............................................................... 8758 19,515 M.8.b.
c. Equity security and index exposures...................................................... 8759 0 M.8.c.
d. Commodity and other exposures............................................................ 8760 0 M.8.d.
9. Impact on income of off-balance sheet derivatives held for purposes other than trading: //////////////////
a. Net increase (decrease) to interest income............................................... 8761 2,698 M.9.a.
b. Net (increase) decrease to interest expense.............................................. 8762 (4,902) M.9.b.
c. Other (noninterest) allocations.......................................................... 8763 12 M.9.c.
10. CREDIT LOSSES ON OFF-BALANCE SHEET DERIVATIVES (SEE INSTRUCTIONS)............................ A251 0 M.10.
</TABLE>
- -----------------
*Describe on Schedule RI-E--Explanations.
5
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RI-4
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RI-A--CHANGES IN EQUITY CAPITAL
Indicate decreases and losses in parentheses.
I483 (-
-----------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Total equity capital originally reported in the December 31, 1995, Reports of Condition //////////////////
and Income............................................................................... 3215 1,342,473 1.
2. Equity capital adjustments from amended Reports of Income, net*.......................... 3216 0 2.
3. Amended balance end of previous calendar year (sum of items 1 and 2)..................... 3217 1,342,473 3.
4. Net income (loss) (must equal Schedule RI, item 12)...................................... 4340 797,313 4.
5. Sale, conversion, acquisition, or retirement of capital stock, net....................... 4346 0 5.
6. Changes incident to business combinations, net........................................... 4356 4,161,079 6.
7. LESS: Cash dividends declared on preferred stock......................................... 4470 11,688 7.
8. LESS: Cash dividends declared on common stock............................................ 4460 761,473 8.
9. Cumulative effect of changes in accounting principles from prior years* (see instructions //////////////////
for this schedule)....................................................................... 4411 0 9.
10. Corrections of material accounting errors from prior years* (see instructions for this
schedule)................................................................................ 4412 0 10.
11. Change in net unrealized holding gains (losses) on available-for-sale securities......... 8433 (4,870) 11.
12. Foreign currency translation adjustments................................................. 4414 0 12.
13. Other transactions with parent holding company* (not included in items 5,7, or 8 above).. 4415 (1,003,722) 13.
14. Total equity capital end of current period (sum of items 3 through 13) (must equal //////////////////
Schedule RC, item 28).................................................................... 3210 4,519,112 14.
-------------------
</TABLE>
- ---------------
*Describe on Schedule RI-E--Explanations.
<TABLE>
<CAPTION>
SCHEDULE RI-B--CHARGE-OFFS AND RECOVERIES AND CHANGES
IN ALLOWANCE FOR LOAN AND LEASE LOSSES
PART I. CHARGE-OFFS AND RECOVERIES ON LOANS AND LEASES
PART I EXCLUDES CHARGE-OFFS AND RECOVERIES THROUGH
THE ALLOCATED TRANSFER RISK RESERVE.
I486 (-
--------
(Column A) (Column B)
Charge-offs Recoveries
----------------------------------------
Calendar year-to-date
----------------------------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou RIAD Bil Mil Thou
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Loans secured by real estate: ////////////////// //////////////////
a. To U.S. addressees (domicile)................................... 4651 65,946 4661 16,055 1.a.
b. To non-U.S. addressees (domicile)............................... 4652 0 4662 0 1.b.
2. Loans to depository institutions and acceptances of other banks: ////////////////// //////////////////
a. To U.S. banks and other U.S. depository institutions............ 4653 0 4663 0 2.a.
b. To foreign banks................................................ 4654 0 4664 0 2.b.
3. Loans to finance agricultural production and other loans to farmers. 4655 69 4665 105 3.
4. Commercial and industrial loans: ////////////////// //////////////////
a. To U.S. addressees (domicile)................................... 4645 73,869 4617 43,048 4.a.
b. To non-U.S. addressees (domicile)............................... 4646 0 4618 102 4.b.
5. Loans to individuals for household, family, and other personal ////////////////// //////////////////
expenditures: ////////////////// //////////////////
a. Credit cards and related plans.................................. 4656 2,356 4666 1,468 5.a.
b. Other (includes single payment, installment, and all student
loans).............................................................. 4657 29,089 4667 5,303 5.b.
6. Loans to foreign governments and official institutions.............. 4643 0 4627 0 6.
7. All other loans..................................................... 4644 5,253 4628 965 7.
8. Lease financing receivables: ////////////////// //////////////////
a. Of U.S. addressees (domicile)................................... 4658 12,926 4668 4,622 8.a.
b. Of non-U.S. addressees (domicile)............................... 4659 0 4669 0 8.b.
9. Total (sum of items 1 through 8).................................... 4635 189,508 4605 71,668 9.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RI-5
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RI-B--CONTINUED
PART I. CONTINUED
(Column A) (Column B)
Charge-offs Recoveries
-------------------------------------
Calendar-year-to-date
-------------------------------------
Memoranda
Dollar Amounts in Thousands RIAD BIL MIL THOU RIAD BIL MIL THOU
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1-3. Not applicable ////////////////// //////////////////
4. Loans to finance commercial real estate, construction, and land ////////////////// //////////////////
development activities (NOT SECURED BY REAL ESTATE) included in ////////////////// //////////////////
Schedule RI-B, part I, items 4 and 7, above.......................... 5409 714 5410 1,374 M.4.
5. Loans secured by real estate in domestic offices (included in ////////////////// //////////////////
Schedule RI-B, part I, item 1, above): ////////////////// //////////////////
a. Construction and land development................................. 3582 266 3583 337 M.5.a.
b. Secured by farmland............................................... 3584 145 3585 304 M.5.b.
c. Secured by 1-4 family residential properties: ////////////////// //////////////////
(1) Revolving, open-end loans secured by 1-4 family residential ////////////////// //////////////////
properties and extended under lines of credit................. 5411 4,428 5412 619 M.5.c.(1)
(2) All other loans secured by 1-4 family residential properties.. 5413 31,124 5414 3,602 M.5.c.(2)
d. Secured by multifamily (5 or more) residential properties.......... 3588 5,579 3589 590 M.5.d.
e. Secured by nonfarm nonresidential properties...................... 3590 24,404 3591 10,603 M.5.e.
--------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PART II. CHANGES IN ALLOWANCE FOR LOAN AND LEASE LOSSES
Dollar Amounts in Thousands RIAD BIL MIL THOU
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Balance originally reported in the December 31, 1995, Reports of Condition and Income....... 3124 266,943 1.
2. Recoveries (must equal part I, item 9, column B above)...................................... 4605 71,668 2.
3. LESS: Charge-offs (must equal part I, item 9, column A above)................................ 4635 189,508 3.
4. Provision for loan and lease losses (must equal Schedule RI, item 4.a)...................... 4230 (6,834) 4.
5. Adjustments* (see instructions for this schedule)........................................... 4815 634,542 5.
6. Balance end of current period (sum of items 1 through 5) (must equal Schedule RC, //////////////////
item 4.b)................................................................................... 3123 776,811 6.
------------------
- ------------
*Describe on Schedule RI-E--Explanations.
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE RI-C--APPLICABLE INCOME TAXES BY TAXING AUTHORITY
SCHEDULE RI-C IS TO BE REPORTED WITH THE DECEMBER REPORT OF INCOME.
I489
-----------------
Dollar Amounts in Thousands RIAD BIL MIL THOU
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Federal................................................................................... 4780 461,184 1.
2. State and local........................................................................... 4790 87,068 2.
3. Foreign................................................................................... 4795 0 3.
4. Total (sum of items 1 through 3) (must equal sum of Schedule RI, items 9 and 11.b)........ 4770 548,252 4.
5. Deferred portion of item 4............................................ RIAD 4772 274,648 ////////////////// 5.
------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RI-6
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RI-D--INCOME FROM INTERNATIONAL OPERATIONS
FOR ALL BANKS WITH FOREIGN OFFICES, EDGE OR AGREEMENT SUBSIDIARIES, OR IBFs WHERE INTERNATIONAL OPERATIONS ACCOUNT FOR MORE THAN
10 PERCENT OF TOTAL REVENUES, TOTAL ASSETS, OR NET INCOME.
PART I. ESTIMATED INCOME FROM INTERNATIONAL OPERATIONS
I492
-------------------
Year-to-date
-------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest income and expense booked at foreign offices, Edge and Agreement subsidiaries, //////////////////
and IBFs //////////////////
a. Interest income booked............................................................... 4837 N/A 1.a.
b. Interest expense booked.............................................................. 4038 N/A 1.b.
c. Net interest income booked at foreign offices, Edge and Agreement subsidiaries, and //////////////////
IBFs (item 1.a minus 1.b)............................................................ 4839 N/A 1.c.
2. Adjustments for booking location of international operations: //////////////////
a. Net interest income attributable to international operations booked at domestic //////////////////
offices.............................................................................. 4840 N/A 2.a.
b. Net interest income attributable to domestic business booked at foreign offices...... 4841 N/A 2.b.
c. Net booking location adjustment (item 2.a minus 2.b)................................. 4842 N/A 2.c.
3. Noninterest income and expense attributable to international operations: //////////////////
a. Noninterest income attributable to international operations.......................... 4097 N/A 3.a.
b. Provision for loan and lease losses attributable to international operations......... 4235 N/A 3.b.
c. Other noninterest expense attributable to international operations................... 4239 N/A 3.c.
d. Net noninterest income (expense) attributable to international operations (item 3.a //////////////////
minus 3.b and 3.c).................................................................. 4843 N/A 3.d.
4. Estimated pretax income attributable to international operations before capital //////////////////
allocation adjustment (sum of items 1.c, 2.c, and 3.d)................................. 4844 N/A 4.
5. Adjustment to pretax income for internal allocations to international operations to //////////////////
reflect the effects of equity capital on overall bank funding costs.................... 4845 N/A 5.
6. Estimated pretax income attributable to international operations after //////////////////
capital allocation adjustment (sum of items 4 and 5)................................... 4846 N/A 6.
7. Income taxes attributable to income from international operations as estimated in //////////////////
item 6................................................................................. 4797 N/A 7.
8. Estimated net income attributable to international operations (item 6 minus 7)......... 4341 N/A 8.
</TABLE>
<TABLE>
<CAPTION>
memoranda Dollar Amounts in Thousands RIAD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Intracompany interest income included in item 1.a above................................ 4847 N/A M.1.
2. Intracompany interest expense included in item 1.b above............................... 4848 N/A M.2.
</TABLE>
PART II. SUPPLEMENTARY DETAILS ON INCOME FROM INTERNATIONAL OPERATIONS REQUIRED
BY THE DEPARTMENTS OF COMMERCE AND TREASURY FOR PURPOSES OF THE U.S.
INTERNATIONAL ACCOUNTS AND THE U.S. NATIONAL INCOME AND PRODUCT ACCOUNTS
<TABLE>
<CAPTION>
Year-to-date
-------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest income booked at IBFs......................................................... 4849 N/A 1.
2. Interest expense booked at IBFs........................................................ 4850 N/A 2.
3. Noninterest income attributable to international operations booked at domestic //////////////////
offices (excluding IBFs): //////////////////
a. Gains (losses) and extraordinary items.............................................. 5491 N/A 3.a.
b. Fees and other noninterest income................................................... 5492 N/A 3.b.
4. Provision for loan and lease losses attributable to international operations booked at //////////////////
domestic offices (excluding IBFs)...................................................... 4852 N/A 4.
5. Other noninterest expense attributable to international operations booked at domestic //////////////////
offices (excluding IBFs)............................................................... 4853 N/A 5.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RI-7
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RI-E--EXPLANATIONS
SCHEDULE RI-E IS TO BE COMPLETED EACH QUARTER ON A CALENDER YEAR-TO-DATE BASIS.
Detail all adjustments in Schedule RI-A and RI-B, all extraordinary items and other adjustments in Schedule RI, and all
significant items of other noninterest income and other noninterest expense in Schedule RI. (See instructions for details.)
I495 (-
-------------------
Year-to-date
-------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. All other noninterest income (from Schedule RI, item 5.f.(2)) //////////////////
Report amounts that exceed 10% of Schedule RI, item 5.f.(2): //////////////////
a. Net gains on other real estate owned................................................ 5415 0 1.a.
b. Net gains on sales of loans......................................................... 5416 0 1.b.
c. Net gains on sales of premises and fixed assets..................................... 5417 0 1.c.
Itemize and describe the three largest other amounts that exceed 10% of Schedule RI, //////////////////
item 5.f.(2): //////////////////
d. TEXT 4461 INCOME ON MORTGAGES HELD FOR RESALE 4461 147,813 1.d.
e. TEXT 4462 GAIN FROM BRANCH DIVESTITURES 4462 77,976 1.e.
f. TEXT 4463 4463 1.f.
2. Other noninterest expense (from Schedule RI, item 7.c): //////////////////
a. Amortization expense of intangible assets........................................... 4531 278,276 2.a.
Report amounts that exceed 10% of Schedule RI, item 7.c: //////////////////
b. Net losses on other real estate owned............................................... 5418 0 2.b.
c. Net losses on sales of loans........................................................ 5419 0 2.c.
d. Net losses on sales of premises and fixed assets.................................... 5420 0 2.d.
Itemize and describe the three largest other amounts that exceed 10% of Schedule RI, //////////////////
item 7.c: //////////////////
e. TEXT 4464 INTERCOMPANY CORPORATE SUPPORT FUNCTION CHARGES 4464 296,172 2.e.
f. TEXT 4467 INTERCOMPANY DATA PROCESSING & PROGRAMMING CHARGES 4467 315,897 2.f.
g. TEXT 4468 4468 2.g.
3. Extraordinary items and other adjustments (from Schedule RI, item 11.a) and applicable //////////////////
income tax effect (from Schedule RI, item 11.b) (itemize and describe all extraordinary //////////////////
items and other adjustments): //////////////////
a. (1) TEXT 4469 4469 3.a.(1)
(2) Applicable income tax effect RIAD 4486 ////////////////// 3.a.(2)
b. (1) TEXT 4487 4487 3.b.(1)
(2) Applicable income tax effect RIAD 4488 ////////////////// 3.b.(2)
c. (1) TEXT 4489 4489 3.c.(1)
(2) Applicable income tax effect RIAD 4491 ////////////////// 3.c.(2)
4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A, item 2) //////////////////
(itemize and describe all adjustments): //////////////////
a. TEXT 4492 4492 4.a.
b. TEXT 4493 4493 4.b.
5. Cumulative effect of changes in accounting principles from prior years (from Schedule //////////////////
RI-A, item 9) (itemize and describe all changes in accounting principles): //////////////////
a. TEXT 4494 4494 5.a.
b. TEXT 4495 4495 5.b.
6. Corrections of material accounting errors from prior years (from Schedule RI-A, item 10) //////////////////
(itemize and describe all corrections): //////////////////
a. TEXT 4496 4496 6.a.
b. TEXT 4497 4497 6.b.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RI-8
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RI-E--CONTINUED
-------------------
Year-to-date
-------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
7. Other transactions with parent holding company (from Schedule RI-A, item 13) //////////////////
(itemize and describe all such transactions): //////////////////
a. TEXT 4498 FLEET NATIONAL BANK SURPLUS DISTRIBUTION TO FFG .......................... 4498 (1,003,722) 7.a.
b. TEXT 4499 ........................................................................... 4499 7.b.
8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II, item 5) //////////////////
(itemize and describe all adjustments): //////////////////
a. TEXT 4521 12/31/95 ENDING BALANCE OF POOLED ENTITIES ............................... 4521 636,497 8.a.
b. TEXT 4522 DIVESTED ALLOWANCE RELATED TO SOLD LOANS ................................. 4522 (1,955) 8.b.
9. Other explanations (the space below is provided for the bank to briefly describe, at its -------------------
option, any other significant items affecting the Report of Income): I498 | I499 (-
No comment [X] (RIAD 4769) -------------------
Other explanations (please type or print clearly):
(TEXT 4769)
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-1
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR DECEMBER 31, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise indicated,
report the amount outstanding as of the last business day of the quarter.
SCHEDULE RC -- BALANCE SHEET
C400
------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS //////////////////
1. Cash and balances due from depository institutions (from Schedule RC-A): //////////////////
a. Noninterest-bearing balances and currency and coin (1) ........................... 0081 3,923,408 1.a.
b. Interest-bearing balances(2) ..................................................... 0071 68,691 1.b.
2. Securities: //////////////////
a. Held-to-maturity securities (from Schedule RC-B, column A) ....................... 1754 261,390 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D) ..................... 1773 4,958,338 2.b.
3. Federal funds sold and securities purchased under agreements to resell in domestic //////////////////
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: //////////////////
a. Federal funds sold .............................................................. 0276 25,709 3.a.
b. Securities purchased under agreements to resell .................................. 0277 0 3.b.
4. Loans and lease financing receivables: //////////////////
a. Loans and leases, net of unearned income (from Schedule RC-C) RCFD 2122 31,260,436 ////////////////// 4.a.
b. LESS: Allowance for loan and lease losses ................... RCFD 3123 776,811 ////////////////// 4.b.
c. LESS: Allocated transfer risk reserve ....................... RCFD 3128 0 ////////////////// 4.c.
d. Loans and leases, net of unearned income, //////////////////
allowance, and reserve (item 4.a minus 4.b and 4.c) .............................. 2125 30,483,625 4.d.
5. Trading assets (from Schedule RC-D) ................................................. 3545 73,333 5.
6. Premises and fixed assets (including capitalized leases) ............................ 2145 536,686 6.
7. Other real estate owned (from Schedule RC-M) ........................................ 2145 18,911 7.
8. Investments in unconsolidated subsidiaries and associated companies //////////////////
(from Schedule RC-M) ................................................................ 2130 0 8.
9. Customers' liability to this bank on acceptances outstanding......................... 2155 6,380 9.
10. Intangible assets (from Schedule RC-M) .............................................. 2143 2,316,633 10.
11. Other assets (from Schedule RC-F) ................................................... 2160 3,907,689 11.
12. Total assets (sum of items 1 through 11) ............................................ 2170 46,580,793 12.
------------------
</TABLE>
- ------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
11
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-2
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC--CONTINUED
-----------------------
Dollar Amounts in Thousands ///////// Bil Mil Thou
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LIABILITIES ///////////////////////
13. Deposits: ///////////////////////
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, ///////////////////////
part I) ........................................................................... RCON 2200 32,792,158 13.a.
(1) Noninterest-bearing(1) .............................. RCON 6631 10,359,674 /////////////////////// 13.a.(1)
(2) Interest-bearing .................................... RCON 6636 22,432,484 /////////////////////// 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from ///////////////////////
Schedule RC-E, part II ............................................................ RCFN 2200 2,414,427 13.b.
(1) Noninterest-bearing ................................. RCFN 6631 51,133 /////////////////////// 13.b.(1)
(2) Interest-bearing .................................... RCFN 6636 2,363,294 /////////////////////// 13.b.(2)
14. Federal funds purchased and securities sold under agreements to repurchase in domestic ///////////////////////
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: ///////////////////////
a. Federal funds purchased ........................................................... RCFD 0278 2,999,129 14.a.
b. Securities sold under agreements to repurchase .................................... RCFD 0279 119,013 14.b.
15. a. Demand notes issued to the U.S. Treasury .......................................... RCON 2840 2,393 15.a.
b. Trading liabilities (from Schedule RC-D) .......................................... RCFD 3548 60,855 15.b.
16. Other borrowed money: ///////////////////////
a. WITH A REMAINING MATURITY OF ONE YEAR OR LESS ..................................... RCFD 2332 304,551 16.a.
b. WITH A REMAINING MATURITY OF MORE THAN ONE YEAR ................................... RCFD 2333 631,435 16.b.
17. Mortgage indebtedness and obligations under capitalized leases ....................... RCFD 2910 11,267 17.
18. Bank's liability on acceptances executed and outstanding ............................. RCFD 2920 6,380 18.
19. Subordinated notes and debentures .................................................... RCFD 3200 1,213,219 19.
20. Other liabilities (from Schedule RC-G) ............................................... RCFD 2930 1,506,854 20.
21. Total liabilities (sum of items 13 through 20) ....................................... RCFD 2948 42,061,681 21.
///////////////////////
22. Limited-life preferred stock and related surplus ..................................... RCFD 3282 0 22.
EQUITY CAPITAL ///////////////////////
23. Perpetual preferred stock and related surplus ........................................ RCFD 3838 125,000 23.
24. Common stock ......................................................................... RCFD 3230 19,487 24.
25. Surplus (exclude all surplus related to preferred stock) ............................. RCFD 3839 2,551,927 25.
26. a. Undivided profits and capital reserves ............................................ RCFD 3632 1,813,664 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities ............ RCFD 8434 9,034 26.b.
27. Cumulative foreign currency translation adjustments .................................. RCFD 3284 0 27.
28. Total equity capital (sum of items 23 through 27) .................................... RCFD 3210 4,519,112 28.
29. Total liabilities, limited-life preferred stock, and equity capital ///////////////////////
(sum of items 21, 22, and 28)......................................................... RCFD 3300 46,580,793 29.
Memorandum
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicate in the box at the right the number of the statement below that best describes the Number
most comprehensive level of auditing work performed for the bank by independent external ---------------------
auditors as of any date during 1995 .................................................. RCFD 6724 N/A M.1.
---------------------
</TABLE>
1 - Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 - Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately)
3 - Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 - Directors' examination of the bank performed by other external auditors (may
be required by state chartering authority)
5 - Review of the bank's financial statements by external auditors
6 - Compilation of the bank's financial statements by external auditors
7 - Other audit procedures (excluding tax preparation work)
8 - No external audit work
- ------------
(1) Includes total demand deposits and noninterest-bearing time and
savings deposits.
12
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank : FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address : ONE MONARCH PLACE Page RC-3
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-A--CASH AND BALANCES DUE FROM DEPOSITORY INSTITUTIONS
Exclude assets held for trading.
--------
C405 (-
--------------------------------------
(Column A) (Column B)
Consolidated Domestic
Bank Offices
--------------------------------------
Dollar Amounts in Thousands RCFD BIL MIL THOU RCFD BIL MIL THOU
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Cash items in process of collection, unposted debits, and currency and ////////////////// //////////////////
coin ................................................................... 0022 3,548,380 ////////////////// 1.
a. Cash items in process of collection and unposted debits.............. ////////////////// 0020 2,693,954 1.a.
b. Currency and coin ................................................... ////////////////// 0080 854,426 1.b.
2. Balances due from depository institutions in the U.S.................... ////////////////// 0082 87,601 2.
a. U.S. branches and agencies of foreign banks (including their IBFs)... 0083 0 ////////////////// 2.a.
b. Other commercial banks in the U.S. and other depository ////////////////// //////////////////
institutions in the U.S. (including their IBFs)...................... 0085 87,676 ////////////////// 2.b.
3. Balances due from banks in foreign countries and foreign central banks.. ////////////////// 0070 12,440 3.
a. Foreign branches of other U.S. banks................................. 0073 208 ////////////////// 3.a.
b. Other banks in foreign countries and foreign central banks........... 0074 12,491 ////////////////// 3.b.
4. Balances due from Federal Reserve Banks................................. 0090 343,344 0090 343,344 4.
5. Total (sum of items 1 through 4) (total of column A must equal ////////////////// //////////////////
Schedule RC, sum of items 1.a and 1.b).................................. 0010 3,992,099 0010 3,991,765 5.
--------------------------------------
-----------------
Memorandum Dollar Amounts in Thousands RCON BIL MIL THOU
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Non interest-bearing balances due from commercial banks in the U.S. (included in item 2, //////////////////
column B above) ............................................................................ 0050 71,678 M.1.
------------------
SCHEDULE RC-B--SECURITIES
Exclude assets held for trading.
--------
C410 (-
------------------------------------------------------------------------------
Held-to-maturity Available-for-sale
------------------------------------------------------------------------------
(Column A) (Column B) (Column C) (Column D)
Amortized Cost Amortized Cost Amortized Cost Amortized Cost
------------------------------------------------------------------------------
Dollar Amounts in Thousands RCFD BIL MIL THOU RCFD BIL MIL THOU RCFD BIL MIL THOU RCFD BIL MIL THOU
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. U.S. Treasury securities......... 0211 250 0213 250 1286 715,535 1287 718,580 1.
2. U.S. Government agency ////////////////// ////////////////// ////////////////// //////////////////
and corporation obligations ////////////////// ////////////////// ////////////////// //////////////////
(exclude mortgage-backed ////////////////// ////////////////// ////////////////// //////////////////
securities): ////////////////// ////////////////// ////////////////// //////////////////
a. Issued by U.S. Govern- ////////////////// ////////////////// ////////////////// //////////////////
ment agencies(2).............. 1289 0 1290 0 1291 0 1293 0 2.a.
b. Issued by U.S. ////////////////// ////////////////// ////////////////// //////////////////
Government-sponsored ////////////////// ////////////////// ////////////////// //////////////////
agencies(3)................... 1294 0 1295 0 1297 500 1298 500 2.b.
------------------------------------------------------------------------------
- ------------
(1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D.
(2) Includes Small Business Administration "Guaranteed Loan Pool Certificates," U.S. Maritime Administration obligations, and
Export-Import Bank participation certificates.
(3) Includes obligations (other than mortgage-backed securities) issued by the Farm Credit System, the Federal Home
Loan Bank System, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Financing
Corporation, Resolution Funding Corporation, the Student Loan Marketing Association, and the Tennessee Valley Authority.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-4
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-B--Continued
Held-to-maturity Available-for-sale
--------------------------------------- ---------------------------------------
(Column A) (Column B) (Column C) (Column D)
Amortized Cost Fair Value Amortized Cost Fair Value(1)
------------------ ------------------ ------------------ ------------------
Dollar Amounts in Thousands RFCD Bil Mil Thou RFCD Bil Mil Thou RFCD Bil Mil Thou RFCD Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3. Securities issued by states ////////////////// ////////////////// ////////////////// //////////////////
and political subdivisions in the ////////////////// ////////////////// ////////////////// //////////////////
U.S.: ////////////////// ////////////////// ////////////////// //////////////////
a. General obligations........... 1676 151,418 1677 151,394 1678 0 1679 0 3.a.
b. Revenue obligations........... 1681 12,415 1686 12,419 1690 0 1691 0 3.b.
c. Industrial development ////////////////// ////////////////// ////////////////// //////////////////
and similar obligations....... 1694 0 1695 0 1696 0 1697 0 3.c.
4. Mortage-backed ////////////////// ////////////////// ////////////////// //////////////////
securities (MBS): ////////////////// ////////////////// ////////////////// //////////////////
a. Pass-through securities ////////////////// ////////////////// ////////////////// //////////////////
(1) Guaranteed by ////////////////// ////////////////// ////////////////// //////////////////
GNMA..................... 1698 0 1699 0 1701 792,519 1702 790,901 4.a.(1)
(2) Issued by FNMA ////////////////// ////////////////// ////////////////// //////////////////
and FHLMC................ 1703 0 1705 0 1706 3,163,278 1707 3,176,341 4.a.(2)
(3) Other pass-through ////////////////// ////////////////// ////////////////// //////////////////
securities............... 1709 0 1710 0 1711 1 1713 1 4.a.(3)
b. Other mortgage-backed ////////////////// ////////////////// ////////////////// //////////////////
securities (include CMOs, ////////////////// ////////////////// ////////////////// //////////////////
REMICs, and stripped ////////////////// ////////////////// ////////////////// //////////////////
MBS): ////////////////// ////////////////// ////////////////// //////////////////
(1.) Issued or guaranteed ////////////////// ////////////////// ////////////////// //////////////////
by FNMA, FHLMC ////////////////// ////////////////// ////////////////// //////////////////
or GNMA................. 1714 0 1715 0 1716 0 1717 0 4.b.(1)
(2.) Collateralized ////////////////// ////////////////// ////////////////// //////////////////
by MBS issued or ////////////////// ////////////////// ////////////////// //////////////////
guaranteed by FNMA, ////////////////// ////////////////// ////////////////// //////////////////
FHLMC, or GNMA.......... 1718 0 1719 0 1731 0 1732 0 4.b.(2)
(3.) All other mortgage- ////////////////// ////////////////// ////////////////// //////////////////
backed securities....... 1733 0 1734 0 1735 453 1736 453 4.b.(3)
5. Other debt securities: ////////////////// ////////////////// ////////////////// //////////////////
a. Other domestic debt ////////////////// ////////////////// ////////////////// //////////////////
securities................... 1737 0 1738 0 1739 629 1741 621 5.a.
b. Foreign debt ////////////////// ////////////////// ////////////////// //////////////////
securities................... 1742 97,307 1743 87,332 1744 0 1746 0 5.b.
6. Equity securities: ////////////////// ////////////////// ////////////////// //////////////////
a. Investments in mutual ////////////////// ////////////////// ////////////////// //////////////////
funds........................ ////////////////// ////////////////// 1747 52,843 1748 52,843 6.a.
b. Other equity securities ////////////////// ////////////////// ////////////////// //////////////////
with readily determinable ////////////////// ////////////////// ////////////////// //////////////////
fair values.................. ////////////////// ////////////////// 1749 0 1751 0 6.b.
c. All other equity ////////////////// ////////////////// ////////////////// //////////////////
securities(1)................ ////////////////// ////////////////// 1752 218,098 1753 218,098 6.c.
7. Total (sum of items 1 ////////////////// ////////////////// ////////////////// //////////////////
through 6) (total of ////////////////// ////////////////// ////////////////// //////////////////
column A must equal ////////////////// ////////////////// ////////////////// //////////////////
Schedule RC, item 2.a) ////////////////// ////////////////// ////////////////// //////////////////
(total of column D must ////////////////// ////////////////// ////////////////// //////////////////
equal Schedule RC, ////////////////// ////////////////// ////////////////// //////////////////
item 2.b)....................... 1754 261,390 1771 251,395 1772 4,943,856 1773 4,958,338 7.
----------------------------------------------------------------------------------
</TABLE>
- -----------
(1) Includes equity securities without readily determinable fair values at
historical cost in item 6.c, column D.
14
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank : FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address : ONE MONARCH PLACE Page RC-5
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-B--CONTINUED
--------
C412 (-
------------------
Memoranda Dollar Amounts in Thousands RCFD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Pledged securities(2).......................................................................... 0416 2,436,831 M.1.
2. Maturity and repricing data for debt securities(2), (3), (4) (excluding those in //////////////////
nonaccrual status): //////////////////
a. Fixed rate debt securities with a remaining maturity of: //////////////////
(1) Three months or less.................................................................... 0343 44,985 M.2.a.(1)
(2) Over three months through 12 months..................................................... 0344 105,214 M.2.a.(2)
(3) Over one year through five years........................................................ 0345 1,418,544 M.2.a.(3)
(4) Over five years ........................................................................ 0346 2,274,468 M.2.a.(4)
(5) Total fixed rate debt securities (sum of Memorandum items 2.a(1) through 2.a.(4)........ 0347 3,843,211 M.2.a.(5)
b. Floating rate debt securities with a repricing frequency of: //////////////////
(1) Quarterly or more frequently............................................................ 4544 302,855 M.2.b.(1)
(2) Annually or more frequently, but less frequently than quarterly......................... 4545 802,642 M.2.b.(2)
(3) Every five years or more frequently, but less frequently than annually.................. 4551 79 M.2.b.(3)
(4) Less frequently than every five years................................................... 4552 0 M.2.b.(4)
(5) Total floating rate debt securities (sum of Memorandum items 2.b.(1) through 2.b.(4))... 4553 1,105,576 M.2.b.(5)
c. Total debt securities (sum of Memorandum items 2.a.(5) and 2.b.(5)) (must equal total //////////////////
debt securities from Schedule RC-B, sum of items 1 through 5, columns A and D, minus //////////////////
nonaccrual debt securities included in Schedule RC-N, item 9, column C)..................... 0393 4,948,787 M.2.c.
3. Not applicable //////////////////
4. Held-to-maturity debt securities restructured and in compliance with modified terms (included //////////////////
in Schedule RC-B, items 3 through 5, column A, above).......................................... 5365 0 M.4.
5. Not applicable //////////////////
6. Floating rate debt securities with a remaining maturity of one year or less(2), (4) (included in //////////////////
Memorandum items 2.b.(1) through 2.b.(4) above)................................................. 5519 4,000 M.6.
7. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale or //////////////////
trading securities during the calendar year-to-date (report the amortized cost at date of sale //////////////////
or transfer)................................................................................... //////////////////
8. High-risk mortgage securities (included in the held-to-maturity and available-for-sale //////////////////
accounts in Schedule RC-B, item 4.b): //////////////////
a. Amortized cost.............................................................................. 8780 0 M.8.a.
b. Fair value.................................................................................. 8781 0 M.8.b.
9. Structured notes (included in the held-to-maturity and available-for-sale account in //////////////////
Schedule RC-B, items 2, 3, and 5): //////////////////
a. Amortized cost.............................................................................. 8782 0 M.9.a.
b. Fair value.................................................................................. 8783 0 M.9.b.
- ----------------
(2) Includes held-to-maturity securities at amortized cost and available-for-sale securities at fair value.
(3) Exclude equity securities, e.g., investments in mutual funds, Federal Reserve stock, common stock, and preferred stock.
(4) Memorandum items 2 and 6 are not applicable to savings banks that must complete supplemental Schedule RC-J.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank : FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address : ONE MONARCH PLACE Page RC-6
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-C--LOANS AND LEASE FINANCING RECEIVABLES
PART I. LOANS AND LEASES
Do not deduct the allowance for loan and lease losses from amounts ------------
reported in this schedule. Report total loans and leases, net of unearned C415 (-
income. Exclude assets held for trading. --------------------------------------
(Column A) (Column B)
Consolidated Domestic
Bank Offices
--------------------------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RFCD Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Loans secured by real estate............................................ 1410 11,606,306 ////////////////// 1.
a. Construction and land development.................................... ////////////////// 1415 599,823 1.a.
b. Secured by farmland (including farm residential and other ////////////////// //////////////////
improvements)........................................................ ////////////////// 1420 1,990 1.b.
c. Secured by 1-4 family residential properties: ////////////////// //////////////////
(1) Revolving, open-end loans secured by 1-4 family residential ////////////////// //////////////////
properties and extended under lines of credit.................... ////////////////// 1797 1,906,776 1.c.(1)
(2) All other loans secured by 1-4 family residential properties: ////////////////// //////////////////
(a) Secured by first liens....................................... ////////////////// 5367 4,239,378 1.c.(2)(a)
(b) Secured by junior liens...................................... ////////////////// 5368 616,562 1.c.(2)(b)
d. Secured by multifamily (5 or more) residential properties............ ////////////////// 1460 473,710 1.d.
e. Secured by nonfarm nonresidential properties......................... ////////////////// 1480 3,768,067 1.e.
2. Loans to depository institutions: ////////////////// //////////////////
a. To commercial banks in the U.S. ..................................... ////////////////// 1505 76,227 2.a.
(1) To U.S. branches and agencies of foreign banks................... 1506 0 ////////////////// 2.a.(1)
(2) To other commercial banks in the U.S. ........................... 1507 76,227 ////////////////// 2.a.(2)
b. To other depository institutions in the U.S. ........................ 1517 13,345 1517 13,345 2.b.
c. To banks in foreign countries........................................ ////////////////// 1510 928 2.c.
(1) To foreign branches of other U.S. banks.......................... 1513 160 ////////////////// 2.c.(1)
(2) To other banks in foreign countries.............................. 1516 768 ////////////////// 2.c.(2)
3. Loans to finance agricultural production and other loans to farmers..... 1590 4,351 1590 4,351 3.
4. Commercial and industrial loans: ////////////////// //////////////////
a. To U.S. addressees (domicile)........................................ 1763 12,626,132 1763 12,574,435 4.a.
b. To non-U.S. addressees (domicile).................................... 1764 78,513 1764 31,092 4.b.
5. Acceptances of other banks: ////////////////// //////////////////
a. Of U.S. banks........................................................ 1756 0 1756 0 5.a.
b. Of foreign banks..................................................... 1757 0 1757 0 5.b.
6. Loans to individuals for household, family, and other personal ////////////////// //////////////////
expenditures (i.e., consumer loans) (includes purchased paper).......... ////////////////// 1975 2,101,041 6.
a. Credit cards and related plans (includes check credit and other ////////////////// //////////////////
revolving credit plans).............................................. 2008 94,750 ////////////////// 6.a.
b. Other (includes single payment, installment, and all student loans).. 2011 2,006,291 ////////////////// 6.b.
7. Loans to foreign governments and official institutions (including ////////////////// //////////////////
foreign central banks).................................................. 2081 0 2081 0 7.
8. Obligations (other than securities and leases) of states and political ////////////////// //////////////////
subdivisions in the U.S. (includes nonrated industrial development ////////////////// //////////////////
obligations)............................................................ 2107 149,176 2107 149,176 8.
9. Other loans ............................................................ 1563 2,018,484 ////////////////// 9.
a. Loans for purchasing or carrying securities (secured and unsecured).. ////////////////// 1545 179,603 9.a.
b. All other loans (exclude consumer loans)............................. ////////////////// 1564 1,838,881 9.b.
10. Lease financing receivables (net of unearned income).................... ////////////////// 2165 2,585,933 10.
a. Of U.S. addressees (domicile) ....................................... 2182 2,585,933 ////////////////// 10.a.
b. Of non-U.S. addressees (domicile).................................... 2183 0 ////////////////// 10.b.
11. LESS: Any unearned income on loans reflected in items 1-9 above......... 2123 0 2123 0 11.
12. Total loans and leases, net of unearned income (sum of items 1 ////////////////// //////////////////
through 10 minus item 11) (total of column A must equal ////////////////// //////////////////
Schedule RC, item 4.a) ................................................. 2122 31,260,436 2122 31,161,318 12.
--------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-7
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-C--CONTINUED
PART I. CONTINUED
(Column A) (Column B)
Consolidated Domestic
Bank Offices
Memoranda ------------------ ------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCON Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Commercial paper included in Schedule RC-C, part I, above........................ 1496 0 1496 0 M.1.
2. Loans and leases restructured and in compliance with modified terms ////////////////// //////////////////
(included in Schedule RC-C, part I, above and not reported as past due ////////////////// //////////////////
or nonaccrual in Schedule RC-N, Memorandum item 1): ////////////////// //////////////////
a. Loans secured by real estate: ////////////////// //////////////////
(1) To U.S. addressees (domicile)............................................. 1687 1,681 M.2.a.(1)
(2) To non-U.S. addressees (domicile)......................................... 1689 0 M.2.a.(2)
b. All other loans and lease financing receivable (exclude loans to //////////////////
individuals for household, family, and other personal expenditures)........... 8691 0 M.2.b.
c. Commercial and industrial loans to and lease financing receivables //////////////////
of non-U.S. addressees (domicile) included in Memorandum item 2.b //////////////////
above......................................................................... 8692 0 M.2.c.
3. Maturity and repricing data for loans and leases(1) (excluding those in //////////////////
nonaccrual status): //////////////////
a. Fixed rate loans with a remaining maturity of: //////////////////
(1) Three months or less...................................................... 0348 690,294 M.3.a.(1)
(2) Over three months through 12 months....................................... 0349 566,523 M.3.a.(2)
(3) Over one year through five years.......................................... 0356 2,658,468 M.3.a.(3)
(4) Over five years........................................................... 0357 5,501,645 M.3.a.(4)
(5) Total fixed rate loans and leases (sum of Memorandum //////////////////
items 3.a.(1) through 3.a.(4))............................................ 0358 9,416,930 M.3.a.(5)
b. Floating rate loans with a repricing frequency of: //////////////////
(1) Quarterly or more frequently.............................................. 4554 17,235,629 M.3.b.(1)
(2) Annually or more frequently, but less frequently than quarterly........... 4555 3,186,865 M.3.b.(2)
(3) Every five years or more frequently, but less frequently than //////////////////
annually.................................................................. 4561 977,978 M.3.b.(3)
(4) Less frequently than every five years..................................... 4564 129,282 M.3.b.(4)
(5) Total floating rate loans (sum of Memorandum items 3.b.(1) //////////////////
through 3.b.(4)........................................................... 4567 21,529,754 M.3.b.(5)
c. Total loans and leases (sum of Memorandum items 3.a.(5) and //////////////////
3.b.(5)) (must equal the sum of total loans and leases, net, from //////////////////
Schedule RC-C, part I, item 12, plus unearned income from //////////////////
Schedule RC-C, part I, item 11, minus total nonaccrual loans and //////////////////
leases from Schedule RC-N, sum of items 1 through 8, column C)................ 1479 30,946,684 M.3.c.
d. FLOATING RATE LOANS WITH A REMAINING MATURITY OF ONE YEAR OR LESS //////////////////
(INCLUDED IN MEMORANDUM ITEMS 3.b.(1) THROUGH 3.b.(4) ABOVE).................. A246 0 M.3.d.
4. Loans to finance commercial real estate, construction, and land //////////////////
development activities (NOT SECURED BY REAL ESTATE) included in //////////////////
Schedule RC-C, part I, items 4 and 9, column A, page RC-6(2)..................... 2746 335,734 M.4.
5. Loans and leases held for sale (included in Schedule RC-C, part I, //////////////////
above)........................................................................... 5369 0 M.5.
6. Adjustable rate closed-end loans secured by first liens on 1-4 family //////////////////
residential properties (included in Schedule RC-C, part I, item 1.c.(2)(a), ////////////////// RCON Bil Mil Thou
column B, page RC-6)............................................................. ////////////////// 5370 1,841,822 M.6.
</TABLE>
(1) Memorandum item 3 is not applicable to savings banks that must complete
supplemental Schedule RC-J.
(2) Exclude loans secured by real estate that are included in RC-C, part I,
item 1, column A.
17
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-8
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-D--TRADING ASSETS AND LIABILITIES
Schedule RC-D is to be completed only by banks with $1 billion or more in total assets or with $2 billion or more in par/notional
amount of off-balance sheet derivative contracts (as reported in Schedule RC-L, items 14.a through 14.e, columns A through D).
---------
C420 (-
----------------------
Dollar Amounts in Thousands //////// Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS //////////////////////
1. U.S. Treasury securities in domestic offices............................................. RCON 3531 0 1.
2. U.S. Government agency and corporation obligations in domestic offices (exclude mortgage- //////////////////////
backed securities)....................................................................... RCON 3532 0 2.
3. Securities issued by states and political subdivisions in the U.S. in domestic offices... RCON 3533 0 3.
4. Mortgage-backed securities (MBS) in domestic offices: //////////////////////
a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA.................. RCON 3534 0 4.a.
b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA //////////////////////
(include CMOs, REMICs, and stripped MBS).............................................. RCON 3535 0 4.b.
c. All other mortgage-backed securities.................................................. RCON 3536 0 4.c.
5. Other debt securities in domestic offices................................................ RCON 3537 0 5.
6. Certificates of deposit in domestic offices.............................................. RCON 3538 0 6.
7. Commercial paper in domestic offices..................................................... RCON 3539 0 7.
8. Bankers acceptances in domestic offices.................................................. RCON 3540 0 8.
9. Other trading assets in domestic offices................................................. RCON 3541 0 9.
10. Trading assets in foreign offices........................................................ RCFN 3542 0 10.
11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and equity //////////////////////
contracts: //////////////////////
a. In domestic offices................................................................... RCON 3543 64,043 11.a.
b. In foreign offices.................................................................... RCFN 3544 9,290 11.b.
12. Total trading assets (sum of items 1 through 11) (must equal Schedule RC, item 5)........ RCFD 3545 73,333 12.
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES //////// Bil Mil Thou
----------------------
<S> <C> <C> <C>
13. Liability for short positions............................................................ RFCD 3546 0 13.
14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and //////////////////////
equity contracts......................................................................... RFCD 3547 60,855 14.
15. Total trading liabilities (sum of items 13 and 14) (must equal Schedule RC, item 15.b)... RCFD 3548 60,855 15.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: One Monarch Place Page RC-9
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-E--DEPOSIT LIABILITIES
PART I. DEPOSITS IN DOMESTIC OFFICES
--------------
C425
--------------
Nontransaction
Transactions Accounts Accounts
---------------------------------------------------------------
(Column A) (Column B) (Column C)
Total transaction Memo: Total Total
accounts (including demand deposits nontransaction
total demand (included in accounts
deposits) column A) (including MMDAs)
----------------------------------------------------------------
Dollar Amounts in Thousands RCON Bil Mil Thou RCON Bil Mil Thou RCON Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Deposits of: ////////////////// ////////////////// //////////////////
1. Individuals, partnerships, and corporations..... 2201 8,925,633 2240 8,417,538 2346 21,118,482 1.
2. U.S. Government................................. 2202 170,644 2280 170,617 2520 5,680 2.
3. States and political subdivisions in the U.S.... 2203 531,934 2290 508,362 2530 777,806 3.
4. Commercial banks in the U.S..................... 2206 836,406 2310 836,406 2550 397 4.
5. Other depository institutions in the U.S........ 2207 223,383 2312 223,383 2349 2,868 5.
6. Banks in foreign countries...................... 2213 23,850 2320 23,850 2236 0 6.
7. Foreign governments and official institutions ////////////////// ////////////////// //////////////////
(including foreign central banks)............... 2216 0 2300 0 2377 0 7.
8. Certified and official checks................... 2330 175,075 2330 175,075 ////////////////// 8.
9. Total (sum of items 1 through 8) (sum of columns ////////////////// ////////////////// //////////////////
A and C must equal Schedule RC, item 13.a....... 2215 10,886,925 2210 10,355,231 2385 21,905,233 9.
----------------------------------------------------------------
</TABLE>
Memoranda
<TABLE>
<CAPTION>
Dollar Amounts in Thousands RCON Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Selected components of total deposits (i.e., sum of item 9, columns A and C): //////////////////
a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts.................... 6835 2,607,397 M.1.a.
b. Total brokered deposits................................................................ 2365 1,415,235 M.1.b.
c. Fully insured brokered deposits (included in Memorandum item 1.b above): //////////////////
(1) Issued in denominations of less than $100,,000.................................... 2343 2,240 M.1.c.(1)
(2) Issued EITHER in denominations of $100,000 OR in denominations greater than //////////////////
$100,000 and participated out by the broker in shares of $100,000 or less......... 2344 1,412,995 M.1.c.(2)
D. MATURITY DATA FOR BROKERED DEPOSITS: //////////////////
(1) BROKERED DEPOSITS ISSUED IN DENOMINATIONS OF LESS THAN $100,000 WITH A REMAINING //////////////////
MATURITY OF ONE YEAR OR LESS (INCLUDED IN MEMORANDUM ITEM 1.C.(1) ABOVE).......... A243 20 M.1.d.(1)
(2) BROKERED DEPOSITS ISSUED IN DENOMINATIONS OF $100,000 OR MORE WITH A REMAINING //////////////////
MATURITY OF ONE YEAR OR LESS (INCLUDED IN MEMORANDUM ITEM 1.B ABOVE).............. A244 584,547 M.1.d.(2)
e. Preferred deposits (uninsured deposits of states and political subdivisions in the //////////////////
U.S. reported in item 3 above which are secured or collateralized as required under //////////////////
state law)............................................................................. 5590 346,573 M.1.e.
2. Components of total nontransaction accounts (sum of Memorandum items 2.a through 2.d //////////////////
must equal item 9, column C above): //////////////////
a. Savings deposits: //////////////////
(1) Money market deposit accounts (MMDAs)............................................. 6810 10,252,364 M.2.a.(1)
(2) Other savings deposits (excludes MMDAs).......................................... 0352 2,397,861 M.2.a.(2)
b. Total time deposits of less than $100,000.............................................. 6648 6,781,917 M.2.b.
c. Time certificates of deposit of $100,000 or more....................................... 6645 2,473,091 M.2.c.
d. Open-account time deposits of $100,000 or more......................................... 6646 0 M.2.d.
3. All NOW accounts (included in column A above).............................................. 2398 531,694 M.3.
4. Not applicable
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-10
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-E--CONTINUED
PART I. CONTINUED
Memoranda (continued)
------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5. Maturity and repricing data for time deposits of less than $100,000 (sum of //////////////////
Memorandum items 5.a.(1) through 5.b.(3) must equal Memorandum item 2.b above):(1) //////////////////
a. Fixed rate time deposits of less than $100,000 with a remaining maturity of: //////////////////
(1) Three months or less .............................................................. A225 1,722,551 M.5.a.(1)
(2) Over three months through 12 months ............................................... A226 3,024,143 M.5.a.(2)
(3) Over one year ..................................................................... A227 1,975,207 M.5.a.(3)
b. Floating rate time deposits of less than $100,000 with a repricing frequency of: //////////////////
(1) Quarterly or more frequently ...................................................... A228 60,016 M.5.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ................... A229 0 M.5.b.(2)
(3) Les frequently than annually ...................................................... A230 0 M.5.b.(3)
c. Floating rate time deposits of less than $100,000 with a remaining maturity of //////////////////
one year or less (included in Memorandum items 5.b.(1) through 5.b.(3) above) ......... A231 39,531 M.5.c.
6. Maturity and repricing data for time deposits of $100,000 or more (i.e., time certificates //////////////////
of deposit of $100,000 or more and open-account time deposits of $100,000 or more) //////////////////
(sum of Memorandum items 6.a.(1) through 6.b.(4) must equal the sum of Memorandum //////////////////
items 2.c and 2.d above): (1) //////////////////
a. Fixed rate time deposits of $100,000 or more with a remaining maturity of: //////////////////
(1) Three months or less .............................................................. A232 720,549 M.6.a.(1)
(2) Over three months through 12 months ............................................... A233 695,947 M.6.a.(2)
(3) Over one year through five years .................................................. A234 1,014,722 M.6.a.(3)
(4) Over five years ................................................................... A235 8,868 M.6.a.(4)
b. Floating rate time deposits of $100,000 or more with a repricing frequency of: //////////////////
(1) Quarterly or more frequently ...................................................... A236 33,005 M.6.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ................... A237 0 M.6.b.(2)
(3) Every five years or more frequently, but less frequently than annually ............ A238 0 M.6.b.(3)
(4) Less frequently than every five years ............................................. A239 0 M.6.b.(4)
c. Floating rate time deposits of $100,000 or more with a remaining maturity of //////////////////
one year or less (included in Memorandum items 6.b.(1) through 6.b.(4) above).......... A240 1,896 M.6.c.
------------------
</TABLE>
- ------------
(1) Memorandum items 5 and 6 are not applicable to savings banks that
must complete supplemental Schedule RC-J.
20
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-11
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-E--CONTINUED
PART II. DEPOSITS IN FOREIGN OFFICES (INCLUDING EDGE AND
AGREEMENT SUBSIDIARIES AND IBFS)
------------------
Dollar Amounts in Thousands RCFN Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposits of: //////////////////
1. Individuals, partnerships, and corporations.......................................... 2621 2,410,097 1.
2. U.S. banks (including IBFs and foreign branches of U.S. banks)....................... 2623 0 2.
3. Foreign banks (including U.S. branches and agencies of foreign banks, including
their IBFs).......................................................................... 2625 0 3.
4. Foreign governments and official institutions (including foreign central banks)...... 2650 0 4.
5. Certified and official checks........................................................ 2330 0 5.
6. All other deposits................................................................... 2668 4,330 6.
7. Total (sum of items 1 through 6) (must equal Schedule RC, item 13.b)................. 2200 2,414,427 7.
</TABLE>
<TABLE>
<CAPTION>
------------------
Memorandum Dollar Amounts in Thousands RCFN Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. TIME DEPOSITS WITH A REMAINING MATURITY OF ONE YEAR OR LESS (INCLUDED IN PART II, //////////////////
ITEM 7 ABOVE)........................................................................ A245 2,414,425 M.1.
</TABLE>
SCHEDULE RC-F--OTHER ASSETS
<TABLE>
<CAPTION>
---------
C430
-----------------------
Dollar Amounts in Thousands ////////// Bil Mil Thou
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Income earned, not collected on loans................................................ RCFD 2164 243,319 1.
2. Net deferred tax assets (1).......................................................... RCFD 2148 0 2.
3. Excess residential mortgage servicing fees receivable................................ RCFD 5371 173,148 3.
4. Other (itemize and describe amounts that exceed 25% of this item).................... RCFD 2168 3,491,222 4.
--------- --------------------
a. TEXT 3549 MORTGAGE HELD FOR RESALE RCFD 3549 1,517,133 /////////////////////// 4.a.
-------------------------------------------------------------
b. TEXT 3550 RCFD 3550 /////////////////////// 4.b.
-------------------------------------------------------------
c. TEXT 3551 RCFD 3551 /////////////////////// 4.c.
-------------------------------------------------------------
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 11)................... RCFD 2160 3,907,689 5.
-----------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------
Memorandum Dollar Amounts in Thousands //////////// Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Deferred tax assets disallowed for regulatory capital purposes.................. RFCD 5610 0 M.1.
</TABLE>
SCHEDULE RC-G--OTHER LIABILITIES
<TABLE>
<CAPTION>
-----------
C435
------------------------
Dollar Amounts in thousands ////////// Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. a. Interest accrued and unpaid on deposits in domestic offices (2).................... RCON 3645 50,636 1.a.
b. Other expenses accrued and unpaid (includes accrued income taxes payable)......... RCFD 3646 509,357 1.b.
2. Net deferred tax liabilities(1)....................................................... RCFD 3049 434,426 2.
3. Minority interest in consolidated subsidiaries........................................ RCFD 3000 0 3.
4. Other (itemize and describe amounts that exceed 25% of this item)..................... RCFD 2938 512,435 4.
---------
a. TEXT 3552 RCFD 3552 /////////////////////// 4.a.
-------------------------------------------------------------
b. TEXT 3553 RCFD 3553 /////////////////////// 4.b.
-------------------------------------------------------------
c. TEXT 3554 RCFD 3554 /////////////////////// 4.c.
-------------------------------------------------------------
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20).................... RCFD 2930 1,506,854 5.
</TABLE>
- ----------------
(1) See discussion of deferred income taxes in Glossary entry on "income taxes."
(2) For savings banks, include "dividends" accrued and unpaid on deposits.
21
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-12
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
---------------
SCHEDULE RC-H--SELECTED BALANCE SHEET ITEMS FOR DOMESTIC OFFICES
C440
------------------
Domestic Offices
------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Customers' liability to this bank on acceptances outstanding......................... 2155 6,380 1.
2. Bank's liability on acceptances executed and outstanding............................. 2920 6,380 2.
3. Federal funds sold and securities purchased under agreements to resell............... 1350 25,709 3.
4. Federal funds purchased and securities sold under agreements to repurchase........... 2800 3,118,142 4.
5. Other borrowed money................................................................. 3190 935,986 5.
EITHER //////////////////
6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs.......... 2163 N/A 6.
OR //////////////////
7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs............ 2941 2,311,663 7.
8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, //////////////////
and IBFs)............................................................................ 2192 46,468,505 8.
9. Total liabilities (excludes net due to foreign offices, Edge and Agreement //////////////////
subsidiaries, and IBFs).............................................................. 3129 39,637,730 9.
ITEMS 10-17 INCLUDE HELD-TO-MATURITY AND AVAILABLE-FOR-SALE SECURITIES IN DOMESTIC OFFICES.
</TABLE>
<TABLE>
<CAPTION>
------------------
RCON Bil Mil Thou
------------------
<S> <C> <C> <C>
10. U.S. Treasury securities............................................................. 1779 718,830 10.
11. U.S. Government agency and corporation obligations (exclude mortgage-backed //////////////////
securities).......................................................................... 1785 500 11.
12. Securities issued by states and political subdivisions in the U.S.................... 1786 163,833 12.
13. Mortgage-backed securities (MBS): //////////////////
a. Pass-through securities: //////////////////
(1) Issued or guaranteed by FNMA, FHLMC, OR GNMA................................ 1787 3,967,242 13.a.(1)
(2) Other pass-through securities............................................... 1869 1 13.a.(2)
b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS): //////////////////
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA................................ 1877 0 13.b.(1)
(2) All other mortgage-backed securities........................................ 2253 453 13.b.(2)
14. Other domestic debt securities....................................................... 3159 621 14.
15. Foreign debt securities.............................................................. 3160 97,307 15.
16. Equity securities: //////////////////
a. Investments in mutual funds...................................................... 3161 52,843 16.a.
b. Other equity securities with readily determinable fair values.................... 3162 0 16.b.
c. All other equity securities...................................................... 3169 218,098 16.c.
17. Total held-to-maturity and available-for-sale securities (sum of items 10 through 16) 3170 5,219,728 17.
</TABLE>
Memorandum (to be completed only by banks with IBFs and other "foreign" offices)
<TABLE>
<CAPTION>
------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EITHER //////////////////
1. Net due from the IBF of the domestic offices of the reporting bank................... 3051 0 M.1.
OR //////////////////
2. Net due to the IBF of the domestic offices of the reporting bank..................... 3059 N/A M.2.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: One Monarch Place Page RC-13
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-I--SELECTED ASSETS AND LIABILITIES OF IBFs
C445
------------------
Dollar Amounts in Thousands RCFN Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12)........ 2133 0 1.
2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part I, //////////////////
item 12, column A)................................................................... 2076 0 2.
3. IBF commercial and industrial loans (component of Schedule RC-C, part I, //////////////////
item 4, column A).................................................................... 2077 0 3.
4. Total IBF liabilities (component of Schedule RC, item 21)............................ 2898 0 4.
5. IBF deposit liabilities due to banks, including other IBFs (component of Schedule //////////////////
RC-E, part II, items 2 and 3)........................................................ 2379 0 5.
6. Other IBF deposit liabilities (component of Schedule RC-E, part II, //////////////////
items 1,4,5, and 6................................................................... 2381 0 6.
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE RC-K--QUARTERLY AVERAGES (1)
C455
------------------
Dollar Amounts in Thousands ///////// Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------
ASSETS ///////////////////////
<S> <C> <C> <C>
1. Interest-bearing balances due from depository institutions...................... RCFD 3381 28,972 1.
2. U.S. Treasury securities and U.S. Government agency and corporation
obligations (2)................................................................. RCFD 3382 5,849,801 2.
3. Securities issued by states and political subdivisions in the U.S. (2).......... RCFD 3383 171,480 3.
4. a. Other debt securities (2)................................................... RCFD 3647 98,635 4.a.
b. Equity securities (3) (includes investments in mutual funds and Federal ///////////////////////
Reserve stock).................................................................. RCFD 3648 290,211 4.b.
5. Federal funds sold and securities purchased under agreements to resell in ///////////////////////
domestic offices of the bank and of its Edge and Agreement subsidiaries, and in ///////////////////////
IBFs............................................................................ RCFD 3365 34,073 5.
6. Loans:
a. Loans in domestic offices:
(1) Total loans............................................................ RCON 3360 28,772,871 6.a.(1)
(2) Loans secured by real estate........................................... RCON 3385 11,782,561 6.a.(2)
(3) Loans to finance agricultural production and other loans to ///////////////////////
farmers................................................................ RCON 3386 4,568 6.a.(3)
(4) Commercial and industrial loans........................................ RCON 3387 12,208,378 6.a.(4)
(5) Loans to individuals for household, family, and other personal ///////////////////////
expenditures........................................................... RCON 3388 2,106,517 6.a.(5)
b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs... RCFN 3360 93,116 6.b.
7. Trading assets.................................................................. RCFD 3401 70,398 7.
8. Lease financing receivables (net of unearned income)............................ RCFD 3484 2,414,362 8.
9. Total assets(4)................................................................. RCFD 3368 47,043,625 9.
LIABILITIES
10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS ///////////////////////
accounts, and telephone and preauthorized transfer accounts) (exclude demand ///////////////////////
deposits)....................................................................... RCON 3485 554,831 10.
11. Nontransaction accounts in domestic offices: ///////////////////////
a. Money market deposit accounts (MMDAs)....................................... RCON 3486 10,212,141 11.a.
b. Other savings deposits...................................................... RCON 3487 2,477,260 11.b.
c. Time certificates of deposit of $100,000 or more............................ RCON 3345 2,533,067 11.c.
d. All other time deposits..................................................... RCON 3469 6,982,619 11.d.
12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries, ///////////////////////
and IBFs........................................................................ RCFN 3404 2,117,139 12.
13. Federal funds purchased and securities sold under agreements to repurchase in ///////////////////////
domestic offices of the bank and of its Edge and Agreement subsidiaries, and in ///////////////////////
IBFs............................................................................ RCFD 3353 4,817,518 13.
14. Other borrowed money............................................................ RCFD 3355 985,125 14.
- ---------------
(1) For all items, banks have the option of reporting either (1) an average of daily figures for the quarter, or
(2) an average of weekly figures (i.e., the Wednesday of each week of the quarter).
(2) Quarterly averages for all debt securities should be based on amortized cost.
(3) Quarterly averages for all equity securities should be based on historical cost.
(4) The quarterly average for total assets should reflect all debt securities (not held for trading) at amortized
cost, equity securities with readily determinable fair values at the lower of cost or fair value, and equity
securities without readily determinable fair values at historical cost.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank : FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address : ONE MONARCH PLACE Page RC-14
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-L--OFF BALANCE SHEET ITEMS
Please read carefully the instructions for the preparation of Schedule RC-L.
Some of the amounts reported in Schedule RC-L are regarded as volume indicators
and not necessarily as measures of risk.
C460
Dollar Amounts in Thousands RCFD BIL MIL THOU
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Unused commitments: //////////////////
a. Revolving, open-end lines secured by 1-4 family residential properties, e.g., home equity //////////////////
lines....................................................................................... 3814 2,159,101 1.a.
b. Credit card lines........................................................................... 3815 37,038 1.b.
c. Commercial real estate, construction, and land development: //////////////////
(1) Commitments to fund loans secured by real estate........................................ 3816 538,163 1.c.(1)
(2) Commitments to fund loans not secured by real estate.................................... 6550 513,346 1.c.(2)
d. Securities underwriting..................................................................... 3817 0 1.d.
e. Other unused commitments.................................................................... 3818 20,572,462 1.e.
2. Financial standby letters of credit and foreign office guarantees.............................. 3819 2,322,445 2.
--------------------
a. Amount of financial standby letters of credit conveyed to others RCFD 3820 89,650 ////////////////// 2.a.
--------------------
3. Performance standby letters of credit and foreign office guarantees............................ 3821 179,230 3.
--------------------
a. Amount of performance standby letters of credit conveyed to others RCFD 3822 6,004 ////////////////// 3.a.
--------------------
4. Commercial and similar letters of credit....................................................... 3411 137,503 4.
5. Participations in acceptances (as described in the instructions) conveyed to others by the //////////////////
reporting bank................................................................................. 3428 112 5.
6. Participations in acceptances (as described in the instructions) acquired by the reporting //////////////////
(nonaccepting) bank............................................................................ 3429 12,837 6.
7. Securities borrowed............................................................................ 3432 0 7.
8. Securities lent (including customers' securities lent where the customer is indemnified against //////////////////
loss by the reporting bank).................................................................... 3433 965,792 8.
9. Loans transferred (i.e., sold or swapped) with recourse that have been treated as sold for //////////////////
Call Report purposes: //////////////////
a. FNMA and FHLMC residential mortgage loan pools: //////////////////
(1) Outstanding principal balance of mortgages transferred as or the report date............ 3650 298,423 9.a.(1)
(2) Amount of recourse exposure on these mortgages as of the report date.................... 3651 298,423 9.a.(2)
b. Private (nongovernment-issued or guaranteed) residential mortgage loan pools: //////////////////
(1) Outstanding principal balance of mortgages transferred as of the report date............ 3652 289,942 9.b.(1)
(2) Amount of recourse exposure on these mortgages as of the report date.................... 3653 289,942 9.b.(2)
c. Farmer Mac agricultural mortgage loan pools: //////////////////
(1) Outstanding principal balance of mortgages transferred as of the report date............ 3654 0 9.c.(1)
(2) Amount of recourse exposure on these mortgages as of the report date.................... 3655 0 9.c.(2)
d. Small business obligations transferred with recourse under Section 208 of the //////////////////
Riegle Community Development and Regulatory improvement Act of 1994: //////////////////
(1) Outstanding principal balance of small business obligations transferred //////////////////
as of the report date................................................................... A249 0 9.d.(1)
(2) Amount of retained recourse on these obligations as of the report date.................. A250 0 9.d.(2)
10. When-issued securities: //////////////////
a. Gross commitments to purchase............................................................... 3434 0 10.a
b. Gross commitments to sell................................................................... 3435 0 10.b.
11. Spot foreign exchange contracts................................................................ 8765 487,442 11.
12. All other off-balance sheet liabilities (exclude off-balance sheet derivatives) (itemize and //////////////////
describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital") 3430 0 12.
------------------------------------------------------------------------------------------- //////////////////
a. TEXT 3555 ........................................................ RCFD 3555 ////////////////// 12.a.
b. TEXT 3556 ........................................................ RCFD 3556 ////////////////// 12.b.
c. TEXT 3557 ........................................................ RCFD 3557 ////////////////// 12.c.
d. TEXT 3558 ........................................................ RCFD 3558 ////////////////// 12.d.
---------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-15
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-L--CONTINUED
Dollar Amounts in Thousands RCFD Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
13. All other off-balance sheet assets (exclude off-balance sheet derivatives) (itemize and //////////////////
describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital") 5591 0 13.
--------- ------------------------------ //////////////////
a. TEXT 5592 RCFD 5592 ////////////////// 13.a.
b. TEXT 5593 RCFD 5593 ////////////////// 13.b.
c. TEXT 5594 RCFD 5594 ////////////////// 13.c.
d. TEXT 5595 RCFD 5595 ////////////////// 13.d.
--------------------------------------------------------------------------------------------------------------
C461 (-
----------------- ----------------- ----------------- ------------------
(Column A) (Column B) (Column C) (Column D)
Dollar Amounts in Thousands Interest Rate Foreign Exchange Equity Derivative Commodity and
- ---------------------------------------- Contracts Contracts Contracts Other Contracts
Off-balance Sheet Derivatives ----------------- ----------------- ----------------- ------------------
Position Indicators Tril Bil Mil Thou Tril Bil Mil Thou Tril Bil Mil Thou Tril Bil Mil Thou
---------------------------------------- ----------------- ----------------- ----------------- ------------------
14. Gross amounts (e.g., notional ///////////////// ///////////////// ///////////////// /////////////////
amounts) (for each column, sum of ///////////////// ///////////////// ///////////////// /////////////////
items 14.a through 14.e must equal ///////////////// ///////////////// ///////////////// /////////////////
sum of items 15, 16.a, and 16.b): ///////////////// ///////////////// ///////////////// /////////////////
----------------- ----------------- ----------------- -----------------
a. Futures contracts ................ 0 0 0 39,037 14.a
----------------- ----------------- ----------------- -----------------
RCFD 8693 RCFD 8694 RCFD 8695 RCFD 8696
----------------- ----------------- ----------------- -----------------
b. Forward contracts ................ 2,684,800 2,284,466 0 45,604 14.b
----------------- ----------------- ----------------- -----------------
RCFD 8697 RCFD 8698 RCFD 8699 RCFD 8700
----------------- ----------------- ----------------- -----------------
c. Exchange-traded option contracts: ///////////////// ///////////////// ///////////////// /////////////////
----------------- ----------------- ----------------- -----------------
(1) Written options .............. 225,000 0 0 0 14.c.(1)
----------------- ----------------- ----------------- -----------------
RCFD 8701 RCFD 8702 RCFD 8703 RCFD 8704
----------------- ----------------- ----------------- -----------------
(2) Purchased options ............ 1,276,400 0 0 1,245 14.c.(2)
----------------- ----------------- ----------------- -----------------
RCFD 8705 RCFD 8706 RCFD 8707 RCFD 8708
----------------- ----------------- ----------------- -----------------
d. Over-the-counter option contracts: ///////////////// ///////////////// ///////////////// /////////////////
----------------- ----------------- ----------------- -----------------
(1) Written options .............. 5,051,792 5,200 0 0 14.d.(1)
----------------- ----------------- ----------------- -----------------
RCFD 8709 RCFD 8710 RCFD 8711 RCFD 8712
----------------- ----------------- ----------------- -----------------
(2) Purchased options ............ 19,427,829 5,200 0 0 14.d.(2)
----------------- ----------------- ----------------- -----------------
RCFD 8713 RCFD 8714 RCFD 8715 RCFD 8716
----------------- ----------------- ----------------- -----------------
e. Swaps ............................ 24,549,614 0 0 0 14.e
----------------- ----------------- ----------------- -----------------
RCFD 3450 RCFD 3826 RCFD 8719 RCFD 8720
----------------- ----------------- ----------------- -----------------
15. Total gross notional amount of ///////////////// ///////////////// ///////////////// /////////////////
derivative contracts held for trading. 5,289,505 2,294,866 0 l,245 15
----------------- ----------------- ----------------- -----------------
RCFD A126 RCFD A127 RCFD 8723 RCFD 8724
----------------- ----------------- ----------------- -----------------
l6. Total gross notional amount of ///////////////// ///////////////// ///////////////// /////////////////
derivative contracts held for ///////////////// ///////////////// ///////////////// /////////////////
purposes other than trading: ///////////////// ///////////////// ///////////////// /////////////////
----------------- ----------------- ----------------- -----------------
a. Contracts marked to market ...... 4,239,800 0 0 39,037 16.a.
----------------- ----------------- ----------------- -----------------
RCFD 8725 RCFD 8726 RCFD 8727 RCFD 8728
----------------- ----------------- ----------------- -----------------
b. Contracts not marked to market .. 43,686,130 0 0 45,604 16.b.
----------------- ----------------- ----------------- -----------------
RCFD 8729 RCFD 8730 RCFD 8731 RCFD 8732
----------------- ----------------- ----------------- -----------------
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-16
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-L--CONTINUED
(Column A) (Column B) (Column C) (Column D)
Dollar Amounts in Thousands Interest Rate Foreign Exchange Equity Derivative Commodity and
Off-balance Sheet Derivatives Contracts Contracts Contracts Other Contracts
Position Indicators ------------------ ------------------ ------------------ ------------------
RFCD Bil Mil Thou RFCD Bil Mil Thou RFCD Bil Mil Thou RFCD Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
17. Gross fair values of ////////////////// ////////////////// ////////////////// //////////////////
derivative contracts: ////////////////// ////////////////// ////////////////// //////////////////
a. Contracts held for ////////////////// ////////////////// ////////////////// //////////////////
trading: ////////////////// ////////////////// ////////////////// //////////////////
(1) Gross positive ////////////////// ////////////////// ////////////////// //////////////////
fair value................ 8733 31,626 8734 41,468 8736 0 8736 59 17.a.(1)
(2) Gross negative ////////////////// ////////////////// ////////////////// //////////////////
fair value................ 8737 22,099 8738 38,756 8739 0 8740 0 17.a.(2)
b. Contracts held for ////////////////// ////////////////// ////////////////// //////////////////
purposes other than ////////////////// ////////////////// ////////////////// //////////////////
trading that are marked ////////////////// ////////////////// ////////////////// //////////////////
to market: ////////////////// ////////////////// ////////////////// //////////////////
(1) Gross positive ////////////////// ////////////////// ////////////////// //////////////////
fair value................ 8741 2,258 8742 0 8743 0 8744 1,698 17.b.(1)
(2) Gross negative ////////////////// ////////////////// ////////////////// //////////////////
fair value................ 8745 1,417 8746 0 8747 0 8748 0 17.b.(2)
c. Contracts held for ////////////////// ////////////////// ////////////////// //////////////////
purposes other than ////////////////// ////////////////// ////////////////// //////////////////
trading that are not ////////////////// ////////////////// ////////////////// //////////////////
marked to market: ////////////////// ////////////////// ////////////////// //////////////////
(1) Gross positive ////////////////// ////////////////// ////////////////// //////////////////
fair value................ 8749 165,643 8750 0 8751 0 8752 169 17.c.(1)
(2) Gross negative ////////////////// ////////////////// ////////////////// //////////////////
fair value................ 8737 76,308 8754 0 8755 0 8756 0 17.c.(2)
---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Memoranda Dollar Amounts in Thousands RFCD Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1.-2. Not applicable //////////////////
3. Unused commitments with an original maturity exceeding one year that are reported in //////////////////
Schedule RC-L, items 1.a through 1.e, above (report only the unused portions of commitments //////////////////
that are fee paid or otherwise legally binding).................................................. 3833 18,552,873 M.3.
a. Participations in commitments with an original maturity //////////////////
exceeding one year to be conveyed to others......................... RCFD 3834 | 1,789,549 ////////////////// M.3.a.
4. To be completed only by banks with $1 billion or more in total assets: //////////////////
Standby letters of credit and foreign office guarantees (both financial and performance) issued //////////////////
to non-U.S. addresses (domicile) included in Schedule RC-L, items 2 and 3, above................. 3377 360,019 M.4.
5. Installment loans to individuals for household, family, and other personal expenditures that //////////////////
have been securitized and sold without recourse (with servicing retained), amounts outstanding //////////////////
by type of loan: //////////////////
a. Loans to purchase private passenger automobiles (TO BE COMPLETED FOR THE //////////////////
SEPTEMBER REPORT ONLY)........................................................................ 2741 N/A M.5.a.
b. Credit cards and related plans (TO BE COMPLETED QUARTERLY).................................... 2742 0 M.5.b.
c. All other consumer installment credit (including mobile home loans)(TO BE COMPLETED FOR THE //////////////////
SEPTEMBER REPORT ONLY)........................................................................ 2743 N/A M.5.c.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-17
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-M--MEMORANDA
--------
C465 (-
------------------
Dollar Amounts in Thousands RFCD Bil Mil Thou
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Extensions of credit by the reporting bank to its executive officers, directors, principal //////////////////
shareholders, and their related interests as of the report date: //////////////////
a. Aggregate amount of all extensions of credit to all executive officers, directors, principal //////////////////
shareholders, and their related interests...................................................... 6164 552,349 1.a.
b. Number of executive officers, directors, and principal shareholders to whom the amount of //////////////////
all extensions of credit by the reporting bank (including extensions of credit to //////////////////
related interests) equals or exceeds the lesser of $500,000 or 5 percent Number //////////////////
of total capital as defined for this purpose in agency regulations. RFCD 6165 | 20 ////////////////// 1.b.
2. Federal funds sold and securities purchased under agreements to resell with U.S. branches //////////////////
and agencies of FOREIGN BANKS(1) (included in Schedule RC, items 3.a and 3.b)..................... 3405 0 2.
3. Not applicable. //////////////////
4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for others //////////////////
(include both retained servicing and purchased servicing): //////////////////
a. Mortgages serviced under a GNMA contract....................................................... 5500 25,732,152 4.a.
b. Mortgages services under a FHLMC contract: //////////////////
(1) Serviced with recourse to servicer......................................................... 5501 48,720 4.b.(1)
(2) Serviced without recourse to servicer...................................................... 5502 34,857,978 4.b.(2)
c. Mortgages serviced under a FNMA contract: //////////////////
(1) Serviced under a regular option contract................................................... 5503 249,703 4.c.(1)
(2) Serviced under a special option contract................................................... 5504 41,105,444 4.c.(2)
d. Mortgages serviced under other servicing contracts............................................. 5505 11,267,486 4.d.
5. To be completed only by banks with $1 billion or more in total assets: //////////////////
Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b must //////////////////
equal Schedule RC, item 9): //////////////////
a. U.S. addresses (domicile)...................................................................... 2103 6,244 5.a.
b. Non-U.S. addresses (domicile).................................................................. 2104 136 5.b.
6. Intangible assets: //////////////////
a. Mortgage servicing rights...................................................................... 3164 1,563,176 6.a.
b. Other identifiable intangible assets //////////////////
(1) Purchased credit card relationships........................................................ 5506 0 6.b.(1)
(2) All other identifiable intangible assets................................................... 5507 105,984 6.b.(2)
c. Goodwill....................................................................................... 3163 647,473 6.c.
d. Total (sum of items 6.a through 6.c) (must equal Schedule RC, item 10)......................... 2143 2,316,633 6.d.
e. Amount of intangible assets (included in item 6.b.(2) above) that have been grandfathered or //////////////////
are otherwise qualifying for regulatory capital purposes....................................... 6442 0 6.e.
7. Mandatory convertible debt, net of common or perpetual preferred stock dedicated to //////////////////
redeem the debt................................................................................... 3295 75,000 7.
</TABLE>
- -----------------
(1) Do not report federal funds sold and securities purchased under agreements
to resell with other commercial banks in the U.S. in this time.
27
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank : FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address : ONE MONARCH PLACE Page RC-18
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-M--CONTINUED
------------------
Dollar Amounts in Thousands BIL MIL THOU
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
8. a. Other real estate owned: /////////////////////////
(1) Direct and indirect investments in real estate ventures......................... RCFD 5372 0 8.a.(1)
(2) All other real estate owned: /////////////////////////
(a) Construction and land development in domestic offices........................ RCON 5508 332 8.a.(2)(a)
(b) Farmland in domestic offices................................................. RCON 5509 0 8.a.(2)(b)
(c) 1-4 family residential properties in domestic offices........................ RCON 5510 9,789 8.a.(2)(c)
(d) Multifamily (5 or more) residential properties in domestic offices........... RCON 5511 347 8.a.(2)(d)
(e) Nonfarm nonresidential properties in domestic offices........................ RCON 5512 8,443 8.a.(2)(e)
(f) In foreign offices........................................................... RCFN 5513 0 8.a.(2)(f)
(3) Total (sum of items 8.a.(1) and 8.a.(2)) (must equal Schedule RC, item 7)........ RCFD 2150 18,911 8.a.(3)
b. Investments in unconsolidated subsidiaries and associated companies: /////////////////////////
(1) Direct and indirect investments in real estate ventures.......................... RCFD 5374 0 8.b.(1)
(2) All other investments in unconsolidated subsidiaries and associated companies.... RCFD 5375 0 8.b.(2)
(3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8)........ RCFD 2130 0 8.b.(3)
c. TOTAL ASSETS of unconsolidated subsidiaries and associated companies................. RCFD 5376 0 8.c.
9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC, /////////////////////////
item 23, "Perpetual preferred stock and related surplus"................................ RCFD 3778 125,000 9.
10. Mutual fund and annuity sales in domestic offices during the quarter (include /////////////////////////
proprietary, private label, and third party products): /////////////////////////
a. Money market funds................................................................... RCON 6441 204,326 10.a.
b. Equity securities funds.............................................................. RCON 8427 116,418 10.b.
c. Debt securities funds................................................................ RCON 8428 12,837 10.c.
d. Other mutual funds................................................................... RCON 8429 0 10.d.
e. Annuities............................................................................ RCON 8430 103,868 10.e.
f. Sales of proprietary mutual funds and annuities (included in items 10.a. through /////////////////////////
10.e. above)......................................................................... RCON 8784 302,177 10.f.
-------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Memorandum Dollar Amounts in Thousands RCFD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Interbank holdings of capital instruments (TO BE COMPLETED FOR THE DECEMBER REPORT ONLY): //////////////////
a. Reciprocal holdings of banking organizations' capital instruments........................... 3836 0 M.1.a.
b. Nonreciprocal holdings of banking organizations' capital instruments........................ 3837 0 M.1.b.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-19
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-N--PAST DUE AND NONACCRUAL LOANS, LEASES,
AND OTHER ASSETS
The FFIEC regards the information reported in
all of Memorandum item 1, in items 1 through 10,
column A, and in Memorandum items 2 through 4,
column A, as confidential.
--------
C470
------------------------------------------------------------
(Column A) (Column B) (Column C)
Past due Past due 90 Nonaccrual
30 through 89 days or more
days and still and still
accruing accruing
------------------ ------------------ ------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Loans secured by real estate: ////////////////// ////////////////// //////////////////
a. To U.S. addressees (domicile) .................... 1245 1246 65,607 1247 215,496 1.a.
b. To non-U.S. addressees (domicile) ................ 1248 1249 0 1250 0 1.b.
2. Loans to depository institutions and acceptances ////////////////// ////////////////// //////////////////
of other banks: ////////////////// ////////////////// //////////////////
a. To U.S. banks and other U.S. depository ////////////////// ////////////////// //////////////////
institutions ..................................... 5377 5378 0 5379 0 2.a.
b. To foreign banks ................................. 5380 5381 0 5382 0 2.b.
3. Loans to finance agricultural production and ////////////////// ////////////////// //////////////////
other loans to farmers ............................... 1594 1597 0 1583 625 3.
4. Commercial and industrial loans: ////////////////// ////////////////// //////////////////
a. To U.S. addressees (domicile) .................... 1251 1252 12,042 1253 76,393 4.a.
b. To non-U.S. addressees (domicile) ................ 1254 1255 0 1256 0 4.b.
5. Loans to individuals for household, family, and ////////////////// ////////////////// //////////////////
other personal expenditures: ////////////////// ////////////////// //////////////////
a. Credit cards and related plans ................... 5383 5384 1,574 5385 370 5.a.
b. Other (includes single payment, installment, ////////////////// ////////////////// //////////////////
and all student loans) ........................... 5386 5387 24,812 5388 7,184 5.b.
6. Loans to foreign governments and official ////////////////// ////////////////// //////////////////
institutions ......................................... 5389 5390 0 5391 0 6.
7. All other loans ...................................... 5459 5460 11,122 5461 9,921 7.
8. Lease financing receivables: ////////////////// ////////////////// //////////////////
a. Of U.S. addressees (domicile) .................... 1257 1258 21 1259 3,763 8.a
b. Of non-U.S. addressees (domicile) ................ 1271 1272 0 1791 0 8.b.
9. Debt securities and other assets (exclude other ////////////////// ////////////////// //////////////////
real estate owned and other repossessed assets) ...... 3506 3506 0 3507 32,566 9.
- ---------------------------------------------------------------------------------------------------------------------------------
Amounts reported in items 1 through 8 above include guaranteed and unguaranteed portions of past due and nonaccrual loans and
leases. Report in item 10 below certain guaranteed loans and leases that have already been included in the amounts reported in
items 1 through 8.
------------------ ------------------ ------------------
RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou
10. Loans and leases reported in items 1 ------------------------------------------------------------
through 8 above which are wholly or partially ////////////////// ////////////////// //////////////////
guaranteed by the U.S. Government .................... 5612 5613 17,347 5614 14,395 10.
a. Guaranteed portion of loans and leases ////////////////// ////////////////// //////////////////
included in item 10 above ........................ 5615 5616 17,056 5617 11,954 10.a.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-20
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RI-N--CONTINUED
--------
C473
------------------------------------------------------------
(Column A) (Column B) (Column C)
Past due Past due 90 Nonaccrual
30 through 89 days or more
and still and still
accruing accruing
Memoranda ------------------ ------------------ ------------------
Dollar Amounts in Thousands RFCD Bil Mil Thou RFCD Bil Mil Thou RFCD Bil Mil Thou
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Restructured loans and leases included in ////////////////// ////////////////// //////////////////
Schedule RC-N, items 1 through 8, above (and not ////////////////// ////////////////// //////////////////
reported in Schedule RC-C, part I, Memorandum ////////////////// ////////////////// //////////////////
item 2)................................................ 1658 1659 1661 M.1.
2. Loans to finance commercial real estate, ////////////////// ////////////////// //////////////////
construction, and land development activities ////////////////// ////////////////// //////////////////
(NOT SECURED BY REAL ESTATE) included in ////////////////// ////////////////// //////////////////
Schedule RC-N, items 4 and 7 above..................... 6558 6559 105 6560 1,919 M.2.
3. Loans secured by real estate in domestic offices RCON Bil Mil Thou RCON Bil Mil Thou RCON Bil Mil Thou
(included in Schedule RC-N, item 1, above): ////////////////// ////////////////// //////////////////
a. Construction and land development................... 2759 2769 0 3492 19,990 M.3.a.
b. Secured by farmland................................. 3493 3494 0 3495 144 M.3.b.
c. Secured by 1-4 family residential properties: ////////////////// ////////////////// //////////////////
(1) Revolving, open-end loans secured by ////////////////// ////////////////// //////////////////
1-4 family residential properties and ////////////////// ////////////////// //////////////////
extended under lines of credit.................. 5398 5399 5,009 5400 10,700 M.3.c.(1)
(2) All other loans secured by 1-4 residential ////////////////// ////////////////// //////////////////
properties...................................... 5401 5402 49,978 5403 100,900 M.3.c.(2)
d. Secured by multifamily (5 or more) residential ////////////////// ////////////////// //////////////////
properties.......................................... 3499 3500 934 3501 9,456 M.3.d.
e. Secured by nonfarm nonresidential properties........ 3502 3503 9,886 3504 74,306 M.3.e.
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------
(Column A) (Column B)
Past due 30 Past due 90
through 89 days days or more
---------------------------------------
RFCD Bil Mil Thou RFCD Bil Mil Thou
---------------------------------------
<S> <C> <C> <C> <C>
4. Interest rate, foreign exchange rate, and other ////////////////// //////////////////
commodity and equity contracts: ////////////////// //////////////////
a. Book value of amounts carried as assets............. 3522 3528 0 M.4.a.
b. Replacement cost of contracts with a ////////////////// //////////////////
positive replacement cost........................... 3529 3530 0 M.4.b.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank : FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address : ONE MONARCH PLACE Page RC-21
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-O--OTHER DATA FOR DEPOSIT INSURANCE ASSESSMENTS
--------
C475 (-
------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Unposted debits (see instructions): //////////////////
a. Actual amount of all unposted debits........................................................ 0030 0 1.a
OR //////////////////
b. Separate amount of unposted debits: //////////////////
(1) Actual amount of unposted debits to demand deposits..................................... 0031 N/A 1.b.(1)
(2) Actual amount of unposted debits to time and savings deposits(1)........................ 0032 N/A 1.b.(2)
2. Unposted credits (see instructions): //////////////////
a. Actual amount of all unposted credits....................................................... 3510 0 2.a.
OR //////////////////
b. Separate amount of unposted credits: //////////////////
(1) Actual amount of unposted credits to demand deposits.................................... 3512 N/A 2.b.(1)
(2) Actual amount of unposted credits to time and savings deposits(1)....................... 3514 N/A 2.b.(2)
3. Uninvested trust funds (cash) held in bank's own trust department (not included in total //////////////////
deposits in domestic offices).................................................................. 3520 142,277 3.
4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in Puerto //////////////////
Rico and U.S. territories and possessions (not included in total deposits): //////////////////
a. Demand deposits of consolidated subsidiaries................................................ 2211 196,951 4.a.
b. Time and savings deposits(1) of consolidated subsidiaries................................... 2351 15,807 4.b.
c. Interest accrued and unpaid on deposits of consolidated subsidiaries........................ 5514 0 4.c.
5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions: //////////////////
a. Demand deposits in insured branches (included in Schedule RC-E, Part II).................... 2229 0 5.a.
b. Time and savings deposits(1) in insured branches (included in Schedule RC-E, Part II)....... 2383 0 5.b.
c. Interest accrued and unpaid on deposits in insured branches //////////////////
(included in Schedule RC-G, item 1.b)....................................................... 5515 0 5.c.
------------------
------------------
Item 6 is not applicable to state nonmember banks that have not been authorized by the //////////////////
Federal Reserve to act as pass-through correspondents. //////////////////
6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on //////////////////
behalf of its respondent depository institutions that are also reflected as deposit liabilities //////////////////
of the reporting bank: //////////////////
a. Amount reflected in demand deposits (included in Schedule RC-E, Part I, item 4 or 5, //////////////////
column B)................................................................................... 2314 0 6.a.
b. Amount reflected in time and savings deposits(1) (included in Schedule RC-E, Part I, //////////////////
item 4 or 5, column A or C, but not column B)............................................... 2315 0 6.b.
7. Unamortized premiums and discounts on time and savings deposits:(1) //////////////////
a. Unamortized premiums........................................................................ 5516 748 7.a.
b. Unamortized discounts....................................................................... 5517 0 7.b.
------------------
- -----------------------------------------------------------------------------------------------------------------------
8. TO BE COMPLETED BY BANKS WITH "OAKAR DEPOSITS." ------------------
Total "Adjusted Attributable Deposits" of all institutions acquired under Section 5(d)(3) of //////////////////
the Federal Deposit Insurance Act (from most recent FDIC Oakar Transaction Worksheet(s))....... 5518 1,395,996 8.
------------------
- -----------------------------------------------------------------------------------------------------------------------
------------------
9. Deposits in lifeline accounts.................................................................. 5596 ///////////// 9.
10. Benefit-responsive "Depository Institution Investment Contracts" (included in total //////////////////
deposits in domestic offices).................................................................. 8432 0 10.
- ----------------
(1) For FDIC insurance assessment purposes, "time and savings deposits" consists of nontransaction accounts
and all transaction accounts other than demand deposits.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-22
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-O--CONTINUED
-------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
11. Adjustments to demand deposits in domestic offices reported in Schedule RC-E for //////////////////
certain reciprocal demand balances: //////////////////
a. Amount by which demand deposits will be reduced if reciprocal demand balances //////////////////
between the reporting bank and savings associations were reported on a net basis //////////////////
rather than a gross basis in Schedule RC-E........................................ 8785 0 11.a.
b. Amount by which demand deposits would be increased if reciprocal demand balances //////////////////
between the reporting bank and U.S. branches and agencies of foreign banks were //////////////////
reported on a gross basis rather than a net basis in Schedule RC-E................ A181 0 11.b.
c. Amount by which demand deposits would be reduced if cash items in process of //////////////////
collection were included in the calculation of net reciprocal demand balances //////////////////
between the reporting bank and the domestic offices of U.S. banks and savings //////////////////
associations in Schedule RC-E..................................................... A182 0 11.c.
-------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Total deposits in domestic offices of the bank (sum of Memorandum items 1.a.(1) and //////////////////
1.b.(1) must equal Schedule RC, item 13.a): //////////////////
a. Deposit accounts of $100,000 or less: //////////////////
(1) Amount of deposit accounts of $100,000 or less.................................. 2702 18,219,759 M.1.a.(1)
(2) Number of deposit accounts of $100,000 or less (TO BE Number //////////////////
COMPLETED FOR THE JUNE REPORT ONLY)........................... RCON 3779 N/A ////////////////// M.1.a.(2)
b. Deposit accounts of more than $100,000: //////////////////
(1) Amount of deposit accounts of more than $100,000................................ 2710 14,572,399 M.1.b.(1)
Number //////////////////
(2) Number of deposit accounts of more than $100,000 ............. RCON 2772 28,722 ////////////////// M.1.b.(2)
2. Estimated amount of uninsured deposits in domestic offices of the bank:
a. An estimate of your bank's uninsured deposits can be determined by multiplying the
number of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2)
above by $100,000 and subtracting the result from the amount of deposit accounts of
more than $100,000 reported in Memorandum item 1.b.(1) above.
Indicate in the appropriate box at the right whether your bank has a method or
procedure for determining a better estimate of uninsured deposits than the YES NO
estimate described above.............................................................. 6861 /// X M.2.a.
b. If the box marked YES has been checked, report the estimate of uninsured deposits RCON Bil Mil Thou
determined by using your bank's method or procedure................................. 5597 N/A M.2.b.
</TABLE>
- -------------------------------------------------------------------------------
Person to whom questions about the Reports of Condition and Income should be
directed: C477
PAMELA S. FLYNN, VICE PRESIDENT (401) 278-5194
- ------------------------------- ----------------------
Name and Title (TEXT 8901) Area code/phone number/extension (TEXT 8902)
32
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE PAGE RC-23
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-R--REGULATORY CAPITAL
This schedule must be completed by all banks as follows: Banks that reported total assets of $1 billion or more in Schedule RC,
item 12, for June 30, 1995, must complete items 2 through 9 and Memoranda items 1 and 2. BANKS WITH ASSETS OF LESS THAN $1 BILLION
MUST COMPLETE ITEMS 1 THROUGH 3 BELOW OR SCHEDULE RC-R IN ITS ENTIRETY, DEPENDING ON THEIR RESPONSE TO ITEM 1 BELOW.
<S> <C> <C> <C>
---------------
C480
1. TEST FOR DETERMINING THE EXTENT TO WHICH SCHEDULE RC-R MUST BE COMPLETED. TO BE --------------------------------
COMPLETED ONLY BY BANKS WITH TOTAL ASSETS OF LESS THAN $1 BILLION. Indicate in the YES NO
appropriate box at the right whether the bank has total capital greater than or --------------------------------
equal to eight percent of adjusted total assets............................................ RCFD 6056 //// 1.
--------------------------------
</TABLE>
For purposes of this test, adjusted total assets equals total assets less
cash, U.S. Treasuries, U.S. Government agency obligations, and 80 percent of
U.S. Government-sponsored agency obligations plus the allowance for loan and
lease losses and selected off-balance sheet items as reported on Schedule
RC-L (see instructions).
If the box marked YES has been checked, then the bank only has to complete
items 2 and 3 below. If the box marked NO has been checked, the bank must
complete the remainder of this schedule.
A NO response to item 1 does not necessarily mean that the bank's actual
risk-based capital ratio is less than eight percent or that the bank is not
in compliance with the risk-based capital guidelines.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
NOTE: ALL BANKS ARE REQUIRED TO COMPLETE ITEMS 2 AND 3 BELOW.
SEE OPTIONAL WORKSHEET FOR ITEMS 3.a THROUGH 3.f. -----------------------------------------
- ----------------------------------------------------------------------------- (Column A) (Column B)
Dollar Amounts in Thousands Subordinated Debt(1) Other
- ----------------------------------------------------------------------------- and Intermediate Limited-Life
Term Preferred Stock Capital Instruments
-----------------------------------------
RCFD Bil Mil Thou RCFD Bil Mil Thou
-----------------------------------------
<S> <C> <C> <C> <C> <C>
2. Subordinated debt(1) and other limited-life capital instruments (original
weighted average maturity of at least five years) with a remaining
maturity of:
a. One year or less....................................................... 3780 25,737 3786 0 2.a.
b. Over one year through two years........................................ 3781 737 3787 0 2.b.
c. Over two years through three years..................................... 3782 10,745 3788 0 2.c.
d. Over three years through four years.................................... 3783 0 3789 0 2.d.
e. Over four years through five years..................................... 3784 341,000 3790 0 2.e.
f. Over five years........................................................ 3785 760,000 3791 0 2.f.
3. AMOUNTS USED IN CALCULATING REGULATORY CAPITAL RATIOS (REPORT AMOUNTS //////////////////
DETERMINED BY THE BANK FOR ITS OWN INTERNAL REGULATORY CAPITAL ANALYSES //////////////////
CONSISTENT WITH APPLICABLE CAPITAL STANDARDS):
-------------------------
RCFD Bil Mil Thou
-------------------------
a. TIER 1 CAPITAL................................................................................ 8274 3,756,621 3.a.
b. TIER 2 CAPITAL................................................................................ 8275 1,688,820 3.b.
c. TOTAL RISK-BASED CAPITAL...................................................................... 3792 5,445,441 3.c.
d. EXCESS ALLOWANCE FOR LOAN AND LEASE LOSSES.................................................... A222 200,236 3.d.
e. RISK-WEIGHTED ASSETS (NET OF ALL DEDUCTIONS, INCLUDING EXCESS ALLOWANCE)...................... A223 45,925,732 3.e.
f. "AVERAGE TOTAL ASSETS" (NET OF ALL ASSETS DEDUCTED FROM TIER 1 CAPITAL)(2).................... A224 46,290,168 3.f.
------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------
(Column A) (Column B)
ITEMS 4-9 AND MEMORANDA ITEMS 1 AND 2 ARE TO BE COMPLETED Assets Credit Equiv-
BY BANKS THAT ANSWERED NO TO ITEM 1 ABOVE AND Recorded alent Amount
BY BANKS WITH TOTAL ASSETS OF $1 BILLION OR MORE. on the of Off-Balance
Balance Sheet Sheet Items(3)
-----------------------------------------
RCFD Bil Mil Thou RCFD Bil Mil Thou
-----------------------------------------
<S> <C> <C> <C> <C> <C>
4. Assets and credit equivalent amounts of off-balance sheet items
assigned to the Zero percent risk category: ////////////////// //////////////////
a. Assets recorded on the balance sheet: ////////////////// //////////////////
(1) Securities issued by, other claims on, and claims unconditionally ////////////////// //////////////////
guaranteed by, the U.S. Government and its agencies and ////////////////// //////////////////
other OECD central governments..................................... 3794 1,519,575 ////////////////// 4.a.(1)
(2) All other.......................................................... 3795 1,316,143 ////////////////// 4.a.(2)
b. Credit equivalent amount of off-balance sheet items.................... ////////////////// 3796 1,079,527 4.b
</TABLE>
- -------------
(1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7.
(2) Do not deduct excess allowance for loan and lease losses.
(3) Do not report in column B the risk-weighted amount of assets reported in
column A.
33
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank : FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address : ONE MONARCH PLACE Page RC-24
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
SCHEDULE RC-R--CONTINUED
Column A) (Column B)
Assets Credit Equiv-
Recorded alent Amount
on the of Off-Balance
Balance Sheet Sheet Items(1)
--------------------------------------
Dollar Amounts in Thousands RCFD BIL MIL THOU RCFD BIL MIL THOU
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5. Assets and credit equivalent amounts of off-balance sheet items ////////////////// //////////////////
assigned to the 20 percent risk category: ////////////////// //////////////////
a. Assets recorded on the balance sheet: ////////////////// //////////////////
(1) Claims conditionally guaranteed by the U.S. Government and ////////////////// //////////////////
its agencies and other OECD central governments.................... 3798 726,530 ////////////////// 5.a.(1)
(2) Claims collateralized by securities issued by the U.S. Government ////////////////// //////////////////
and its agencies and other OECD central governments; by ////////////////// //////////////////
securities issued by U.S. Government-sponsored agencies; and ////////////////// //////////////////
by cash on deposit................................................. 3799 0 ////////////////// 5.a.(2)
(3) All other.......................................................... 3800 7,055,416 ////////////////// 5.a.(3)
b. Credit equivalent amount of off-balance sheet items.................... ////////////////// 3801 1,058,252 5.b.
6. Assets and credit equivalent amounts of off-balance sheet items ////////////////// //////////////////
assigned to the 50 percent risk category: ////////////////// //////////////////
a. Assets recorded on the balance sheet................................... 3802 5,371,795 ////////////////// 6.a.
b. Credit equivalent amount of off-balance sheet items.................... ////////////////// 3803 866,687 6.b.
7. Assets and credit equivalent amounts of off-balance sheet items ////////////////// //////////////////
assigned to the 100 percent risk category: ////////////////// //////////////////
a. Assets recorded on the balance sheet................................... 3804 31,276,374 ////////////////// 7.a.
b. Credit equivalent amount of off-balance sheet items.................... ////////////////// 3805 10,715,771 7.b.
8. On-balance sheet asset values excluded from the calculation of the ////////////////// //////////////////
risk-based capital ratio (2).............................................. 3806 91,771 ////////////////// 8.
9. Total assets recorded on the balance sheet (sum of ////////////////// //////////////////
items 4.a, 5.a, 6.a, 7.a, and 8, column A) (must equal Schedule RC, ////////////////// //////////////////
item 12 plus items 4.b and 4.c)........................................... 3807 47,357,604 ////////////////// 9.
--------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Memoranda ------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Current credit exposure across all off-balance sheet derivative contracts covered by the //////////////////
risk-based capital standards.................................................................. 8764 236,389 M.1.
------------------
----------------------------------------------------------------------
With a remaining maturity of
----------------------------------------------------------------------
(Column A) (Column B) (Column C)
One year or less Over one year Over five years
through five years
2. Notional principal amounts of ----------------------------------------------------------------------
off-balance sheet derivative contracts(3): RCFD Tril Bil Mil Thou RCFD Tril Bil Mil Thou RCFD Tril Bil Mil Thou
----------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
a. Interest rate contracts................ 3809 7,502,891 8766 33,994,382 8767 779,970 M.2.a.
b. Foreign exchange contracts............. 3812 1,366,429 8769 84,993 8770 0 M.2.b.
c. Gold contracts......................... 8771 33,478 8772 0 8773 0 M.2.c.
d. Other precious metals contracts........ 8774 13,371 8775 0 8776 0 M.2.d.
e. Other commodity contracts.............. 8777 0 8778 0 8779 0 M.2.e.
f. Equity derivative contracts............ A000 0 A001 0 A002 0 M.2.f.
----------------------------------------------------------------------
- -----------------
(1) Do not report in column B the risk-weighted amount of assets reported in column A.
(2) Include the difference between the fair value and the amortized cost of available-for-sale securities in item 8 and report
the amortized cost of these securities in items 4 through 7 above. Item 8 also includes on-balance sheet asset values (or
portions thereof) of off-balance sheet interest rate, foreign exchange rate, and commodity contracts and those contracts (e.g.,
futures contracts) not subject to risk-based capital. Exclude from item 8 margin accounts and accrued receivables not included
in the calculation of credit equivalent amounts of off-balance sheet derivatives as well as any portion of the allowance for
loan and lease losses in excess of the amount that may be included in Tier 2 capital.
(3) Exclude foreign exchange contracts with an original maturity of 14 days or less and all futures contracts.
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 12/31/96 ST-BK: 25-0590 FFIEC 031
Address: One Monarch Place Page RC-25
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: [0][2][4][9][9]
</TABLE>
OPTIONAL NARRATIVE STATEMENT CONCERNING THE AMOUNTS
REPORTED IN THE REPORTS OF CONDITION AND INCOME
at close of business on December 31, 1996
Fleet National Bank Springfield , Massachusetts
- -----------------------------------------------------------------------------
Legal Title of Bank City State
The management of the reporting bank may, if it wishes, submit a brief
narrative statement on the amounts reported in the Reports of Condition and
Income. This optional statement will be made available to the public, along
with the publicly available data in the Reports of Condition and Income, in
response to any request for individual bank report data. However, the
information reported in column A and in all of Memorandum item 1 of Schedule
RC-N is regarded as confidential and will not be released to the public. BANKS
CHOOSING TO SUBMIT THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE STATEMENT
DOES NOT CONTAIN THE NAMES OR OTHER IDENTIFICATIONS OF INDIVIDUAL BANK
CUSTOMERS, REFERENCES TO THE AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS IN
SCHEDULE RC-N, OR ANY OTHER INFORMATION THAT THEY ARE NOT WILLING TO HAVE MADE
PUBLIC OR THAT WOULD COMPROMISE THE PRIVACY OF THEIR CUSTOMERS. Banks choosing
not to make a statement may check the "No comment" box below and should make no
entries of any kind in the space provided for the narrative statement; i.e., DO
NOT enter in this space such phrases as "No statement," "Not applicable,"
"N/A," "No comment," and "None."
The optional statement must be entered on this sheet. The statement should not
exceed 100 words. Further, regardless of the number of words, the statement
must not exceed 750 characters, including punctuation, indentation, and
standard spacing between words and sentences. If any submission should exceed
750 characters, as defined, it will be truncated at 750 characters with no
notice to the submitting bank and the truncated statement will appear as the
bank's statement both on agency computerized records and in computer-file
releases to the public.
All information furnished by the bank in the narrative statement must be
accurate and not misleading. Appropriate efforts shall be taken by the
submitting bank to ensure the statement's accuracy. The statement must be
signed, in the space provided below, by a senior officer of the bank who
thereby attests to its accuracy.
If, subsequent to the original submission, material changes are submitted for
the data reported in the Reports of Condition and Income, the existing
narrative statement will be deleted from the files, and from disclosure; the
bank, at its option, may replace it with a statement, under signature,
appropriate to the amended data.
The optional narrative statement will appear in agency records and in release
to the public exactly as submitted (or amended as described in the preceding
paragraph) by the management of the bank (except for the truncation of
statements exceeding the 750-character limit described above). THE STATEMENT
WILL NOT BE EDITED OR SCREENED IN ANY WAY BY THE SUPERVISORY AGENCIES FOR
ACCURACY OR RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT SIGNIFY THAT ANY
FEDERAL SUPERVISORY AGENCY HAS VERIFIED OR CONFIRMED THE ACCURACY OF THE
INFORMATION CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL APPEAR ON ANY
PUBLIC RELEASE OF THE OPTIONAL STATEMENT SUBMITTED BY THE MANAGEMENT OF THE
REPORTING BANK.
- --------------------------------------------------------------------------------
No comment [X] (RCON 6979) C471 C472
--- ------------
BANK MANAGEMENT STATEMENT (please type or print clearly):
(TEXT 6980)
/s/ Jan 23, 1997
------------------------ ------------------------
Signature of Executive Date of Signature
Officer of Bank
35
<PAGE>
EXHIBIT 99.1
STERLING CHEMICALS, INC.
LETTER OF TRANSMITTAL
FOR TENDER OF ALL OUTSTANDING
11 1/4 SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR
11 1/4 SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
PURSUANT TO THE PROSPECTUS DATED _______, 1997
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON ___________, 1997, UNLESS THE EXCHANGE OFFER IS EXTENDED.
TO: FLEET NATIONAL BANK (THE "EXCHANGE AGENT")
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Hand: By Overnight Courier:
Fleet National Bank Fleet National Bank Fleet National Bank
Transfer and Exchange Agent Transfer and Exchange Agent Transfer and Exchange Agent
Corporate Trust Operations Corporate Trust Department Corporate Trust Operations
CT OP T06D Customer Service Window, 5th Floor CT OP T06D
P.O. Box 1440 1 Talcott Plaza 1 Talcott Plaza
Hartford, Connecticut 06143 Hartford, Connecticut 06106 Hartsford, Connecticut 06103
Attention: Patricia Williams Attention: Patricia Williams Attention: Patricia Williams
By Facsimile Transmission:
Fleet National Bank
(860) 986-7908
Attention: Patricia Williams
For Information or Confirmation by Telephone:
(860) 986-1271
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OR TRANSMISSION TO A FACSIMILE
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE
METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES, IS AT THE RISK OF
THE HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.
The undersigned acknowledges that he or she has received the Prospectus,
dated ________, 1997 (the "Prospectus") of Sterling Chemicals, Inc., a Delaware
Corporation (the "Company") and this Letter of Transmittal and the instructions
hereto (the "Letter of Transmittal"), which together constitute the Company's
offer (the "Exchange Offer") to exchange $1,000 principal amount of its 11 1/4%
Senior Subordinated Notes due 2007, Series A (the "Exchange Notes") that have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement of which the Prospectus is a part,
for each $1,000 principal amount of its outstanding 11 1/4% Senior Subordinated
Notes due 2007, (the "Old Notes"), of which $150,00,000 aggregate principal
amount is outstanding, upon the terms and subject to the conditions set forth in
the Prospectus. The term "Expiration
<PAGE>
Date" shall mean 5:00 p.m., New York City time, on __________, 1997, unless the
Company, in its sole discretion, extends the Exchange Offer, in which case the
term shall mean the latest date and time to which the Exchange Offer is extended
by the Company. Capitalized terms used but not defined herein have the meaning
given to them in the Prospectus.
This Letter of Transmittal is to be used either if (i) certificates
representing Old Notes are to be physically delivered to the Exchange Agent
herewith by Holders, (ii) tender of Old Notes is to be made by book-entry
transfer to an account maintained by the Exchange Agent at The Depository Trust
Company ("DTC"), pursuant to the procedures set forth in "The Exchange Offer--
Procedures for Tendering" in the Prospectus by any financial institution that is
a participant in DTC and whose name appears on a security position listing as
the owner of Old Notes or (iii) tender of Old Notes is to be made according to
the guaranteed delivery procedures set forth in the Prospectus under "The
Exchange Offer--Guaranteed Delivery Procedures." Delivery of this Letter of
Transmittal and any other required documents must be made to the Exchange Agent.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The term "Holder" as used herein means any person in whose name Old Notes
are registered on the books of the Company or any other person who has obtained
a properly completed bond power from the registered holder.
All Holders of Old Notes who wish to tender their Old Notes must, prior to
the Expiration Date: (1) complete, sign, and deliver this Letter of Transmittal,
or a facsimile thereof, to the Exchange Agent, in person or to the address set
forth above; and (2) tender (and not withdraw) his or her Old Notes or, if a
tender of Old Notes is to be made by book-entry transfer to the account
maintained by the Exchange Agent at DTC, confirm such book-entry transfer (a
"Book-Entry Confirmation"), in each case in accordance with the procedures for
tendering described in the Instructions to this Letter of Transmittal. Holders
of Old Notes whose certificates are not immediately available, or who are unable
to deliver their certificates or Book-Entry Confirmation and all other documents
required by this Letter of Transmittal to be delivered to the Exchange Agent on
or prior to the Expiration Date, must tender their Old Notes according to the
guaranteed delivery procedures set forth under the caption "The Exchange Offer -
- - Guaranteed Delivery Procedures" in the Prospectus. (See Instruction 2).
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of the Old Notes validly tendered and not withdrawn and
the issuance of the Exchange Notes will be made promptly following the
Expiration Date. For the purposes of the Exchange Offer, the Company shall be
deemed to have accepted for exchange validly tendered Old Notes when, as and if
the Company has given written notice thereof to the Exchange Agent.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this Letter of Transmittal in its entirety.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW. THE INSTRUCTIONS INCLUDED IN THIS LETTER OF
TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR
ADDITIONAL COPIES OF THE PROSPECTUS, THIS LETTER OF TRANSMITTAL AND THE NOTICE
OF GUARANTEED DELIVERY MAY BE DIRECTED TO THE EXCHANGE AGENT. SEE INSTRUCTION
12 HEREIN.
HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR OLD NOTES
MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY AND COMPLY WITH ALL OF
ITS TERMS.
-2-
<PAGE>
List below the Old Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, the Certificate Numbers and Principal
Amounts should be listed on a separate signed schedule, attached hereto. The
minimum permitted tender is $1,000 in principal amount of 11 1/4% Senior
Subordinated Notes due 2007. All other tenders must be in integral multiples of
$1,000.
DESCRIPTION OF 11 1/4% SENIOR SUBORDINATED NOTES DUE 2007
<TABLE>
<CAPTION>
BOX I
==================================================================================================
Name(s) and Address(es) of Registered Holder(s) *
(Please fill in, if blank)
__________________________________________________________________________________________________
<S> <C> <C>
(A) (B)
Aggregate Principal
Amount Tendered
Certificate Number(s)* (if less than all)**
_______________________________________________
_______________________________________________
_______________________________________________
_______________________________________________
_______________________________________________
Total Principal
Amount of Existing
Notes Tendered
==================================================================================================
</TABLE>
_____________________________
* Need not be completed by book-entry holders.
** Need not be completed by Holders who wish to tender with respect to all Old
Notes listed.
-3-
<PAGE>
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
<TABLE>
<CAPTION>
<S> <C>
BOX II BOX III
____________________________________________________ ____________________________________________________
SPECIAL REGISTRATION INSTRUCTIONS SPECIAL REGISTRATION INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6) (SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for To be completed ONLY if certificates for
Old Notes in a principal amount not tendered, or Old Notes in a principal amount not tendered, or
Exchange Notes issued in exchange for Old Notes Exchange Notes issued in exchange for Old Notes
accepted for exchange, are to be issued in the name accepted for exchange, are to be issued in the name
of someone other than the undersigned. of someone other than the undersigned.
Issue certificate(s) to: Deliver certificate(s) to:
Name ............................................... Name ...............................................
(PLEASE PRINT) (PLEASE PRINT)
.................................................... ....................................................
(PLEASE PRINT) (PLEASE PRINT)
Address ............................................ Address ............................................
.................................................... ....................................................
(INCLUDING ZIP CODE) (INCLUDING ZIP CODE)
.................................................... ....................................................
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER) (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
____________________________________________________ ____________________________________________________
</TABLE>
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH
THE CERTIFICATE(S) FOR OLD NOTES OR A CONFIRMATION OF BOOK-ENTRY TRANSFER OF
SUCH OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS) OR, IF GUARANTEED DELIVERY
PROCEDURES ARE TO BE COMPLIED WITH, A NOTICE OF GUARANTEED DELIVERY, MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
[ ] CHECK HERE IF OLD NOTES ARE BEING DELIVERED BY DTC TO AN ACCOUNT MAINTAINED
BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution__________ [ ] The Depository Trust Company
Account Number___________________________________________________________
Transaction Code Number__________________________________________________
Holders whose Old Notes are not immediately available or who cannot deliver
their Existing Notes and all other documents required hereby to the Exchange
Agent on or prior to the Expiration Date may tender their Old Notes according to
the guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 2.
-4-
<PAGE>
[ ] CHECK HERE IF OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of tendering Holder(s)_____________________________________________
Date of Execution of Notice of Guaranteed Delivery_________________________
Name of Institution which Guaranteed Delivery______________________________
Transaction Code Number____________________________________________________
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:______________________________________________________________________
Address:___________________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Old Notes that were acquired as a
result of market-making activities or other trading activities, it acknowledges
that it will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to Sterling Chemicals, Inc. (the "Company") the principal amount
of Old Notes indicated above.
Subject to and effective upon the acceptance for exchange of the principal
amount of Old Notes tendered hereby in accordance with this Letter of
Transmittal, the undersigned sells, assigns and transfers to, or upon the order
of, the Company all right, title and interest in and to the Old Notes tendered
hereby. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent as its agent and attorney-in-fact (with full knowledge that the
Exchange Agent also acts as the agent of the Company and as Trustee and
Registrar under the Indenture for the Old Notes and the Exchange Notes) with
respect to the tendered Old Notes with full power of substitution (such power of
attorney being deemed an irrevocable power coupled with an interest), subject
only to the right of withdrawal described in the Prospectus, to (i) deliver
certificates for such Old Notes to the Company or transfer ownership of such Old
Notes on the account books maintained by DTC, together, in either such case,
with all accompanying evidences of transfer and authenticity to, or upon the
order of, the Company and (ii) present such Old Notes for transfer on the books
of the Company and receive all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms of the
Exchange Offer.
The undersigned acknowledges that the Exchange Offer is being made in
reliance upon interpretative advice given by the staff of the Securities and
Exchange Commission to third parties in connection with transactions similar to
the Exchange Offer, so that the Exchange Notes issued pursuant to the Exchange
Offer in exchange for the Old Notes
-5-
<PAGE>
may be offered for resale, resold and otherwise transferred by holders thereof
(other than a broker-dealer who purchased such Old Notes directly from the
Company for resale pursuant to Rule 144A or any other available exemption under
the Securities Act or a person that is an "affiliate" of the Company or any
Guarantor within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement with any
person to participate in the distribution of such Exchange Notes.
The undersigned agrees that acceptance of any tendered Old Notes by the
Company and the issuance of Exchange Notes in exchange therefor shall constitute
performance in full by the Company of its obligations under the Registration
Rights Agreement, (as defined in the Prospectus) and that, upon the issuance of
the Exchange Notes, the Company will have no further obligations or liabilities
thereunder (except in certain limited circumstances).
The undersigned represents and warrants that (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the person receiving Exchange Notes (which shall be the
undersigned unless otherwise indicated in the box entitled "Special Delivery
Instructions" above) (the "Recipient"), (ii) neither the undersigned nor the
Recipient (if different) is engaged in, intends to engage in or has any
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes, and (iii) neither the undersigned nor the Recipient (if
different) is an "affiliate" of the Company or any Guarantor as defined in Rule
405 under the Securities Act. If the undersigned is not a broker-dealer, the
undersigned further represents that it is not engaged in, and does not intend to
engage in, a distribution of the Exchange Notes. If the undersigned is a
broker-dealer, the undersigned further (x) represents that it acquired Old Notes
for the undersigned's own account as a result of market-making activities or
other trading activities, (y) represents that it has not entered into any
arrangement or understanding with the Company or any Guarantor or any
"affiliate" of the Company or any Guarantor (within the meaning of Rule 405
under the Securities Act) to distribute the Exchange Notes to be received in the
Exchange Offer and (z) acknowledges that it will deliver a prospectus meeting
the requirements of the Securities Act (for which purposes delivery of the
Prospectus, as the same may be hereafter supplemented or amended, shall be
sufficient) in connection with any resale of Exchange Notes received in the
Exchange Offer. Such a broker-dealer will not be deemed, solely by reason of
such acknowledgment and prospectus delivery, to admit that it is an
"underwriter" within the meaning of the Securities Act.
The undersigned understands and agrees that the Company reserves the right
not to accept tendered Old Notes from any tendering holder if the Company
determines, in its sole and absolute discretion, that such acceptance could
result in a violation of applicable securities laws.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the Old Notes
tendered hereby and to acquire Exchange Notes issuable upon the exchange of such
tendered Old Notes, and that, when the same are accepted for exchange, the
Company will acquire good and unencumbered title thereto, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claim. The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed to be necessary or desirable by the
Exchange Agent or the Company in order to complete the exchange, assignment and
transfer of tendered Old Notes or transfer of ownership of such Old Notes on the
account books maintained by a book-entry transfer facility.
The undersigned understands and acknowledges that the Company reserves the
right in its sole discretion to purchase or make offers for any Old Notes that
remain outstanding subsequent to the Expiration Date or, as set forth in the
Prospectus under the caption "The Exchange Offer--Procedures for Tendering," to
terminate the Exchange Offer and, to the extent permitted by applicable law,
purchase Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
The undersigned understands that the Company may accept the undersigned's
tender by delivering written notice of acceptance to the Exchange Agent, at
which time the undersigned's right to withdraw such tender will terminate. For
purposes of the Exchange Offer, the Company shall be deemed to have accepted
validly tendered
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<PAGE>
Old Notes when, as and if the Company has given oral (which shall be confirmed
in writing) or written notice thereof to the Exchange Agent.
The undersigned understands that the first interest payment following the
Expiration Date will include unpaid interest on the Old Notes accrued through
the date of issuance of the Exchange Notes.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer--Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer.
The undersigned acknowledges that the Exchange Offer is subject to the more
detailed terms set forth in the Prospectus and, in case of any conflict between
the terms of the Prospectus and this Letter of Transmittal, the Prospectus shall
prevail.
If any tendered Old Notes are not accepted for exchange pursuant to the
Exchange Offer for any reason, certificates for any such unaccepted Old Notes
will be returned (except as noted below with respect to tenders through DTC), at
the Company's cost and expense, to the undersigned at the address shown below or
at a different address as may be indicated herein under "Special Delivery
Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns. This tender may be withdrawn only in
accordance with the procedures set forth in this Letter of Transmittal.
By acceptance of the Exchange Offer, each broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer hereby acknowledges and agrees
that upon the receipt of notice by the Company of the happening of any event
which makes any statement in the Prospectus untrue in any material respect or
which requires the making of any changes in the Prospectus in order to make the
statements therein not misleading (which notice the Company agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of the
Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemented prospectus to such broker-dealer.
Unless otherwise indicated under "Special Registration Instructions,"
please issue the certificates representing the Exchange Notes issued in exchange
for the Old Notes accepted for exchange and return any certificates for Old
Notes not tendered or not exchanged, in the name(s) of the undersigned (or, in
either such event in the case of Old Notes tendered by DTC, by credit to the
account at DTC). Similarly, unless otherwise indicated under "Special Delivery
Instructions," please send the certificates representing the Exchange Notes
issued in exchange for the Old Notes accepted for exchange and any certificates
for Old Notes not tendered or not exchanged (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature(s), unless, in either event, tender is being made through DTC. In the
event that both "Special Registration Instructions" and "Special Delivery
Instructions" are completed, please issue the certificates representing the
Exchange Notes issued in exchange for the Old Notes accepted for exchange in the
name(s) of, and return any certificates for Old Notes not tendered or not
exchanged to, the person(s) so indicated. The undersigned understands that the
Company has no obligations pursuant to the "Special Registration Instructions"
or "Special Delivery Instructions" to transfer any Old Notes from the name of
the registered Holder(s) thereof if the Company does not accept for exchange any
of the Old Notes so tendered.
Holders who wish to tender the Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter of
Transmittal or any other documents required hereby to the Exchange Agent prior
to the Expiration Date, may tender their Old Notes according to the guaranteed
delivery procedures set forth in the Prospectus under the caption "The Exchange
Offer--Guaranteed Delivery Procedures." See Instruction 1 regarding the
completion of the Letter of Transmittal.
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<PAGE>
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
AND WHETHER OR NOT TENDER IS TO BE MADE
PURSUANT TO THE GUARANTEED DELIVERY PROCEDURES
This Letter of Transmittal must be signed by the registered holder(s) as
their name(s) appear on the Old Notes or, if tendered by a participant in DTC,
exactly as such participant's name appears on a security listing as the owner of
Old Notes, or by person(s) authorized to become registered holder(s) by a
properly completed bond power from the registered holder(s), a copy of which
must be transmitted with this Letter of Transmittal. If Old Notes to which this
Letter of Transmittal relate are held of record by two or more joint holders,
then all such holders must sign this Letter of Transmittal. If signature is by
a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
then such person must (i) set forth his or her full title below and (ii) unless
waived by the Company, submit evidence satisfactory to the Company of such
person's authority so to act. See Instruction 4 herein.
X___________________________________ __________________________________
Date
X___________________________________ __________________________________
Date
Signature(s) of Holder(s) or
Authorized Signatory
Name(s):____________________________ Address:________________________________
____________________________ ________________________________
(Please Print) (including Zip Code)
Capacity:_______________________ Area Code and Telephone Number:_________
Social Security No.:____________
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
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<PAGE>
BOX IV
________________________________________________________________________________
SIGNATURE GUARANTEE (SEE INSTRUCTION 1 HEREIN)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION
________________________________________________________________________________
(Name of Eligible Institution Guaranteeing Signatures)
________________________________________________________________________________
(Address (including zip code) and Telephone Number (including area code) of
Firm)
________________________________________________________________________________
(Authorized Signature)
________________________________________________________________________________
(Printed Name)
________________________________________________________________________________
(Title)
Date:_____________
________________________________________________________________________________
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Guarantee of Signatures. Signatures on this Letter of Transmittal
need not be guaranteed if (a) this Letter of Transmittal is signed by the
registered holder(s) of the Old Notes tendered herewith and such holder(s) have
not completed the box set forth herein entitled "Special Registration
Instructions" or the box entitled "Special Delivery Instructions" or (b) such
Old Notes are tendered for the account of an Eligible Institution. See
Instruction 6. Otherwise, all signatures on this Letter of Transmittal or a
notice of withdrawal, as the case may be, must be guaranteed by a member firm of
a registered national securities exchange or of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an office
or correspondent in the United States (an "Eligible Institution"). All
signatures on bond powers and endorsements on certificates must also be
guaranteed by an Eligible Institution.
2. Delivery of this Letter of Transmittal and Old Notes. Certificates
for all physically delivered Old Notes or confirmation of any book-entry
transfer to the Exchange Agent at DTC of Old Notes tendered by book-entry
transfer, as well as, in each case (including cases where tender is affected by
book-entry transfer), a properly completed and duly executed copy of this Letter
of Transmittal or facsimile hereof and any other documents required by this
Letter of Transmittal must be received by the Exchange Agent at its address set
forth herein prior to 5:00 p.m., New York City time, on the Expiration Date.
The method of delivery of the tendered Old Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the Holder and the delivery will be deemed made only when
actually received by the Exchange Agent. If Old Notes are sent by mail,
registered mail with return receipt requested, properly insured, is recommended.
In all cases, sufficient time should be allowed to assure timely delivery. No
Letter of Transmittal or Old Notes should be sent to the Company.
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Depositary for purposes of the Exchange Offer within two
business days after receipt of this Prospectus, and any financial institution
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<PAGE>
that is a participant in the Depositary may make book-entry delivery of Old
Notes by causing the Depositary to transfer such Old Notes into the Exchange
Agent's account at the Depositary in accordance with the Depositary's procedures
for transfer. However, although delivery of Old Notes may be effected through
book-entry transfer at the Depositary, the Letter of Transmittal, with any
required signature guarantees or an Agent's Message (as defined below) in
connection with a book-entry transfer and any other required documents, must, in
any case, be transmitted to and received by the Exchange Agent at the address
specified on the cover page of the Letter of Transmittal on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
A Holder may tender Old Notes that are held through the Depositary by
transmitting its acceptance through the Depositary's Automatic Tender Offer
Program, for which the transaction will be eligible, and the Depositary will
then edit and verify the acceptance and send an Agent's Message to the Exchange
Agent for its acceptance. The term "Agent's Message" means a message
transmitted by the Depositary to, and received by, the Exchange Agent and
forming part of the Book-Entry Confirmation, which states that the Depositary
has received an express acknowledgment from each participant in the Depositary
tendering the Old Notes and that such participant has received the Letter of
Transmittal and agrees to be bound by the terms of the Letter of Transmittal and
the Company may enforce such agreement against such participant.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, this Letter
of Transmittal or any other documents required hereby to the Exchange Agent
prior to the Expiration Date or comply with book-entry transfer procedures on a
timely basis must tender their Old Notes according to the guaranteed delivery
procedures set forth in the Prospectus. See "Exchange Offer --Guaranteed
Delivery Procedures." Pursuant to such procedure: (i) such tender must be made
by or through an Eligible Institution; (ii) prior to the Expiration Date, the
Exchange Agent must have received from the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, overnight courier, mail or hand delivery) setting forth the name
and address of the Holder of the Old Notes, the certificate number or numbers of
such Old Notes and the principal amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three New York Stock
Exchange trading days after the Expiration Date, this Letter of Transmittal (or
facsimile hereof) together with the certificate(s) representing the Old Notes
and any other required documents will be deposited by the Eligible Institution
with the Exchange Agent; and (iii) such properly completed and executed Letter
of Transmittal (or facsimile hereof), as well as all other documents required by
this Letter of Transmittal and the certificate(s) representing all tendered Old
Notes in proper form for transfer (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at DTC), must be received by
the Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date, all in the manner provided in the Prospectus under the caption
"The Exchange Offer--Guaranteed Delivery Procedures." Any Holder who wishes to
tender his Old Notes pursuant to the guaranteed delivery procedures described
above must ensure that the Exchange Agent receives the Notice of Guaranteed
Delivery prior to 5:00 p.m., New York City time, on the Expiration Date. Upon
request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to
Holders who wish to tender their Old Notes according to the guaranteed delivery
procedures set forth above.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes, and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. All tendering holders, by execution of this Letter
of Transmittal (or facsimile thereof), shall waive any right to receive notice
of the acceptance of the Old Notes for exchange. The Company reserves the
absolute right to reject any and all Old Notes not properly tendered or any Old
Notes the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any
irregularities or conditions of tender as to particular Old Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in this Letter of Transmittal) shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or irregularities
with respect to tenders of Old Notes, nor shall any of them incur any liability
for failure to give such notification. Tenders of Old Notes will not be deemed
to have been made until such defects or irregularities have been cured to the
Company's satisfaction or waived. Any Old Notes received by the Exchange Agent
that are not properly
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<PAGE>
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering Holders pursuant
to the Company's determination, unless otherwise provided in this Letter of
Transmittal as soon as practicable following the Expiration Date. The Exchange
Agent has no fiduciary duties to the Holders with respect to the Exchange Offer
and is acting solely on the basis of directions of the Company.
3. Inadequate Space. If the space provided is inadequate, the
certificate numbers and/or the number of Old Notes should be listed on a
separate signed schedule attached hereto.
4. Tender by Holder. Only a Holder of Old Notes may tender such Old
Notes in the Exchange Offer. Any beneficial owner of Old Notes who is not the
registered Holder and who wishes to tender should arrange with such holder to
execute and deliver this Letter of Transmittal on such beneficial owner's behalf
or must, prior to completing and executing this Letter of Transmittal and
delivering his Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such owner's name or obtain a properly completed
bond power from the registered holder or properly endorsed certificates
representing such Old Notes.
5. Partial Tenders; Withdrawals. Tenders of Old Notes will be accepted
only in integral multiples of $1,000. If less than the entire principal amount
of any Old Notes is tendered, the tendering Holder should fill in the principal
amount tendered in the third column of the box entitled "Description of 11 1/4%
Senior Subordinated Notes due 2007" above. The entire principal amount of any
Old Notes delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated. If the entire principal amount of all Old Notes is
not tendered, then Old Notes for the principal amount of Old Notes not tendered
and a certificate or certificates representing Exchange Notes issued in exchange
for any Old Notes accepted will be sent to the Holder at his or her registered
address, unless a different address is provided in the "Special Delivery
Instructions" box above on this Letter of Transmittal or unless tender is made
through DTC, promptly after the Old Notes are accepted for exchange.
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To
withdraw a tender of Old Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes, or, in the case of Old Notes
transferred by book-entry transfer the name and number of the account at DTC to
be credited), (iii) be signed by the Depositor in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Registrar with respect to the Old
Notes register the transfer of such Old Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Old Notes are
to be registered, if different from that of the Depositor. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for purposes of the Exchange Offer and no Exchange Notes
will be issued with respect thereto unless the Old Notes so withdrawn are
validly retendered. Any Old Notes which have been tendered but which are not
accepted for exchange by the Company will be returned to the Holder thereof
without cost to such Holder as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Old Notes
may be retendered by following one of the procedures described in the Prospectus
under "The Exchange Offer--Procedures for Tendering" at any time prior to the
Expiration Date.
6. Signatures on the Letter of Transmittal; Bond Powers and Endorsements.
If this Letter of Transmittal (or facsimile hereof) is signed by the registered
holder(s) of the Old Notes tendered hereby, the signature must correspond with
the name(s) as written on the face of the Old Note without alteration,
enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
-11-
<PAGE>
If a number of Old Notes registered in different names are tendered, it
will be necessary to complete, sign and submit as many copies of this Letter of
Transmittal as there are different registrations of Old Notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders (which term, for the Purposes described herein,
shall include a book-entry transfer facility whose name appears on a security
listing as the owner of the Old Notes) of Old Notes tendered and the certificate
or certificates for Exchange Notes issued in exchange therefor is to be issued
(or any untendered principal amount of Old Notes to be reissued) to the
registered Holder, then such Holder need not and should not endorse any tendered
Old Notes, nor provide a separate bond power. In any other case, such Holder
must either properly endorse the Old Notes tendered or transmit a properly
completed separate bond power with this Letter of Transmittal with the
signatures on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder or Holders of any Old Notes listed, such Old
Notes must be endorsed or accompanied by appropriate bond powers in each case
signed as the name of the registered Holder or Holders appears on the Old Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 6 must be guaranteed by an Eligible Institution.
7. Special Registration and Delivery Instructions. Tendering Holders
should indicate, in the applicable box or boxes, the name and address to which
Exchange Notes or substitute Old Notes for principal amounts not tendered or not
accepted for exchange are to be issued or sent, if different from the name and
address of the person signing this Letter of Transmittal. In the case of
issuance in a different name, the taxpayer identification or social security
number of the person named must also be indicated.
8. Backup Federal Income Tax Withholding and Substitute Form W-9. Under
the federal income tax laws, payments that may be made by the Company on account
of Exchange Notes issued pursuant to the Exchange Offer may be subject to backup
withholding at the rate of 31%. In order to avoid such backup withholding, each
tendering holder should complete and sign the Substitute Form W-9 included in
this Letter of Transmittal and either (a) provide the correct taxpayer
identification number ("TIN") and certify, under penalties of perjury, that the
TIN provided is correct and that (i) the holder has not been notified by the
Internal Revenue Service (the "IRS") that the holder is subject to backup
withholding as a result of failure to report all interest or dividends or (ii)
the IRS has notified the holder that the holder is no longer subject to backup
withholding; or (b) provide an adequate basis for exemption. If the tendering
holder has not been issued a TIN and has applied for one, or intends to apply
for one in the near future, such holder should write "Applied For" in the space
provided for the TIN in Part I of the Substitute Form W-9, sign and date the
Substitute Form W-9 and sign the Certificate of Payee Awaiting Taxpayer
Identification Number. If "Applied For" is written in Part I, the Company (or
the Paying Agent under the Indenture governing the Exchange Notes) shall retain
31% of payments made to the tendering holder during the sixty-day period
following the date of the Substitute Form W-9. If the Holder furnishes the
Exchange Agent or the Company with its TIN within sixty days after the date of
the Substitute Form W-9, the Company (or the Paying Agent) shall remit such
amounts retained during the sixty-day period to the Holder and no further
amounts shall be retained or withheld from payments made to the Holder
thereafter. If, however, the Holder has not provided the Exchange Agent or the
Company with its TIN within such sixty-day period, the Company (or the Paying
Agent) shall remit such previously retained amounts to the IRS as backup
withholding. In general, if a Holder is an individual, the TIN is the Social
Security number of such individual. If the Exchange Agent or the Company are
not provided with the correct TIN, the Holder may be subject to a $50 penalty
imposed by the IRS. Certain Holders (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, such Holder
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<PAGE>
must submit a statement (generally, IRS Form W-8), signed under penalties of
perjury, attesting to that individual's exempt status. Such statements can be
obtained from the Exchange Agent. For further information concerning backup
withholding and instructions for completing the Substitute Form W-9 (including
how to obtain a taxpayer identification number if you do not have one and how to
complete the Substitute Form W-9 if Old Notes are registered in more than one
name), consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause Old
Notes to be deemed invalidly tendered, but may require the Company (or the
Paying Agent) to withhold 31% of the amount of any payments made on account of
the Exchange Notes. Backup withholding is not an additional federal income tax.
Rather, the federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the IRS.
9. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing Exchange Notes or Old Notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or are to
be registered in the name of, any person other than the registered holder of the
Old Notes tendered hereby, or if tendered Old Notes are registered in the name
of a person other than the person signing this Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or on any other persons) will be
payable by the tendering Holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with this Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
Holder. See the Prospectus under "The Exchange Offer--Solicitation of Tenders;
Fees and Expenses."
Except as provided in this Instruction 9, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
10. Waiver of Conditions. The Company reserves the right, in their sole
discretion, to amend, waive or modify specified conditions in the Exchange Offer
in the case of any Old Notes tendered.
11. Mutilated, Lost, Stolen or Destroyed Old Notes. Any tendering Holder
whose Old Notes have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated herein for further instructions.
12. Requests for Assistance or Additional Copies. Requests for
assistance and requests for additional copies of the Prospectus or this Letter
of Transmittal may be directed to the Exchange Agent at the address specified in
the Prospectus. Holder may also contact their broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the Exchange Offer.
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<PAGE>
(DO NOT WRITE IN SPACE BELOW)
CERTIFICATE SURRENDERED OLD NOTES TENDERED OLD NOTES ACCEPTED
_______________________ ____________________ ___________________
_______________________ ____________________ ___________________
Date Received_______________ Accepted by_______ Checked by_________
Delivery Prepared by________ Checked by________ Date_______________
IMPORTANT TAX INFORMATION
Under federal income tax laws, a Holder whose tendered Old Notes are
accepted for payment is required to provide the Exchange Agent (as payer) with
such Holder's correct TIN on Substitute Form W-9 below or otherwise establish a
basis for exemption from backup withholding. If such Holder is an individual,
the TIN is his social security number. If the Exchange Agent is not provided
with the correct TIN, a $50 penalty may be imposed by the Internal Revenue
Service, and payments made with respect to Old Notes purchased pursuant to the
Exchange Offer may be subject to backup withholding.
Certain Holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt Holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Exchange Agent a properly completed Internal Revenue Service Form W-8,
signed under penalties of perjury, attesting to that Holder's exempt status. A
Form W-8 can be obtained from the Exchange Agent. See the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold
20% of any payments made to the Holder or other payee. Backup withholding is
not an additional federal income tax. Rather, the federal income tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the IRS.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments made with respect to the Exchange
Offer, the Holder is required to provide the Exchange Agent with either: (a) the
Holder's correct TIN by completing the form below, certifying that the TIN
provided on Substitute Form W-9 is correct (or that such Holder is awaiting a
TIN) and that (i) the Holder has been notified by the IRS that the Holder is
subject to backup withholding as a result of failure to report all interest or
dividends or (ii) the IRS has notified the Holder that the Holder is no longer
subject to backup withholding or (b) an adequate basis for exemption.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered Holder of
the Old Notes. If the Old Notes are held in more than one name or are held not
in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
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<PAGE>
________________________________________________________________________________
CERTIFICATION OF PAYEE AWAITING TAXPAYER INDEMNIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification
Number has not been issued to me, and that I mailed or delivered an application
to receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a Taxpayer Identification Number to the payer, 31% of all payments made
to me on account of the Exchange Notes shall be retained until I provide a
Taxpayer Identification Number to the payer and that, if I do not provide my
Taxpayer Identification Number within sixty days, such retained amounts shall be
remitted to the Internal Revenue Service as backup withholding and 31% of all
reportable payments made to me thereafter will be withheld and remitted to the
Internal Revenue Service until I provide a Taxpayer Identification Number.
SIGNATURE_______________________________ DATE____________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31 % OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE EXCHANGE
NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
________________________________________________________________________________
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<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYER'S NAME: STERLING CHEMICAL COMPANY, INC.
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____________________________________________________________________________________________________________________________________
SUBSTITUTE PART 1 - TAXPAYER IDENTIFICATION NUMBER (TIN) SOCIAL SECURITY NUMBER
FORM W-9 ENTER YOUR TIN IN THE APPROPRIATE BOX. FOR INDIVIDUALS, THIS
IS YOUR SOCIAL SECURITY NUMBER (SSN). FOR SOLE PROPRIETORS, _______________________________________
SEE THE INSTRUCTIONS IN THE ENCLOSED GUIDELINES. FOR OTHER OR
DEPARTMENT OF THE TREASURY ENTITIES, IT IS YOUR EMPLOYER IDENTIFICATION NUMBER (EIN).
INTERNAL REVENUE SERVICE IF YOU DO NOT HAVE A NUMBER, SEE HOW TO GET A TIN IN THE EMPLOYEE IDENTIFICATION NUMBER
ENCLOSED GUIDELINES.
REQUEST FOR TAXPAYER _______________________________________
IDENTIFICATION NUMBER NOTE: IF THE ACCOUNT IS IN MORE THAN ONE NAME, SEE THE CHART
AND CERTIFICATION ON PAGE 2 OF THE ENCLOSED GUIDELINES AS TO WHOSE NUMBER TO
ENTER.
_______________________________________________________________________________________________________
PART II - FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
(See Part II instructions in the enclosed Guidelines.)
____________________________________________________________________________________________________________________________________
PART III - CERTIFICATION - UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me),
and
(2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by
the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding.
Signature____________________________________ Date____________________________, 1996
____________________________________________________________________________________________________________________________________
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CERTIFICATION INSTRUCTIONS.-You must cross out item 2 above if you have been
notified by the IRS that you are currently subject to backup withholding because
of underreporting interest or dividends on your tax return. For real estate
transactions, item 2 does not apply. For mortgage interest paid, the
acquisition or abandonment of secured property, cancellation of debt,
contributions to an individual retirement arrangement (IRA), and generally
payments other than interest and dividends, you are not required to sign the
Certification, but you must provide your correct TIN.
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<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR 11 1/4% SENIOR SUBORDINATED NOTES DUE 2007
OF STERLING CHEMICALS, INC.
As set forth in the Prospectus dated ___________ 1997 (the "Prospectus") of
Sterling Chemicals, Inc. (the "Company") and in the Letter of Transmittal (the
"Letter of Transmittal"), this form or a form substantially equivalent to this
form must be used to accept the Exchange Offer (as defined below) if the
certificates for the outstanding 11 1/4 Senior Subordinated Notes due 2007 (the
"Old Notes") of the Company and all other documents required by the Letter of
Transmittal cannot be delivered to the Exchange Agent by the expiration of the
Exchange Offer or compliance with book-entry transfer procedures cannot be
effected on a timely basis. Such form may be delivered by hand or transmitted
by facsimile transmission, telex or mail to the Exchange Agent no later than the
Expiration Date, and must include a signature guarantee by an Eligible
Institution as set forth below. Capitalized terms used herein but not defined
herein have the meanings ascribed thereto in the Prospectus.
TO:
Fleet National Bank
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By Mail: By Hand: By Overnight Courier:
Fleet National Bank Fleet National Bank Fleet National Bank
Transfer and Exchange Agent Transfer and Exchange Agent Transfer and Exchange Agent
Corporate Trust Operations Corporate Trust Department Corporate Trust Operations
CT OP T06D Customer Service Window, 5th Floor CT OP T06D
P.O. Box 1440 1 Talcott Plaza 1 Talcott Plaza
Hartford, Connecticut 06143 Hartford, Connecticut 06106 Hartsford, Connecticut 06103
Attention: Patricia Williams Attention: Patricia Williams Attention: Patricia Williams
By Facsimile Transmission:
Fleet National Bank
(860) 986-7908
Attention: Patricia Williams
For Information or Confirmation by Telephone:
(860) 986-1271
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DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
DOES NOT CONSTITUTE A VALID DELIVERY. THE METHOD OF DELIVERY OF ALL DOCUMENTS,
INCLUDING CERTIFICATES, IS AT THE RISK OF THE HOLDER. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
THE INSTRUCTIONS ACCOMPANYING THE LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY
BEFORE THIS NOTICE OF GUARANTEED DELIVERY IS COMPLETED.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution under the instruction thereto, such
signatures must appear in the applicable space provided on the Letter of
Transmittal for Guarantee of Signature(s).
-1-
<PAGE>
Ladies and Gentlemen:
The undersigned acknowledges receipt of the Prospectus and the related
Letter of Transmittal which describes the Company's offer (the "Exchange Offer")
to exchange $1,000 in principal amount of a new series of 11 1/4% Senior
Subordinated Notes due 2007, Series A (the "Exchange Notes") for each $1,000 in
principal amount of the Old Notes.
The undersigned hereby tenders to the Company the aggregate principal
amount of Old Notes set forth below on the terms and conditions set forth in the
Prospectus and the related Letter of Transmittal pursuant to the guaranteed
delivery procedure set forth in the "The Exchange Offer--Guaranteed Delivery
Procedures" section in the Prospectus and the accompanying Letter of
Transmittal.
The undersigned understands that no withdrawal of a tender of Old Notes may
be made on or after the Expiration Date. The undersigned understands that for a
withdrawal of a tender of Old Notes to be effective, a written notice of
withdrawal that complies with the requirements of the Exchange Offer must be
timely received by the Exchange Agent at one of its addresses specified on the
cover of this Notice of Guaranteed Delivery prior to the Expiration Date.
The undersigned understands that the exchange of Old Notes for Exchange
Notes pursuant to the Exchange Offer will be made only after timely receipt by
the Exchange Agent of (i) such Old Notes (or Book-Entry Confirmation of the
transfer of such Old Notes into the Exchange Agent's account at The Depository
Trust Company (the "Depositary" or "DTC")) and (ii) a Letter of Transmittal (or
facsimile thereof) with respect to such Old Notes, properly completed and duly
executed, with any required signature guarantees, this Notice of Guaranteed
Delivery and any other documents required by the Letter of Transmittal or a
properly transmitted Agent's Message. The term "Agent's Message" means a
message transmitted by the Depositary to, and received by, the Exchange Agent
and forming part of the confirmation of a book-entry transfer, which states that
the Depositary has received an express acknowledgment from each participant in
the Depositary tendering the Old Notes and that such participant has received
the Letter of Transmittal and agrees to be bound by the terms of the Letter of
Transmittal and the Company may enforce such agreement against such participant.
All authority conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall not be affected by, and shall survive, the death or
incapacity of the undersigned, and every obligation of the undersigned under
this Notice of Guaranteed Delivery shall be binding upon the heirs, executors,
administrators, trustees in bankruptcy, personal and legal representatives,
successors and assigns of the undersigned.
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<PAGE>
PLEASE SIGN AND COMPLETE
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Signature(s) of Registered Owner(s) or Authorized Name(s) of Registered Holder(s)
Signatory: ______________________________________ ________________________________________________
_________________________________________________ ________________________________________________
_________________________________________________ ________________________________________________
Principal Amount of Old Notes Tendered: Address: _______________________________________
_________________________________________________ ________________________________________________
Certificate No(s) of Old Notes (if available): Area Code and Telephone No.: ___________________
_________________________________________________ If Old Notes will be delivered by book-entry transfer
at The Depository Trust Company, insert
_________________________________________________
Depository Account No.: ________________________
_________________________________________________
Date: ___________________________________________
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This Notice of Guaranteed Delivery must be signed by the Registered Holder(s) of
Old Notes exactly as its (their) name(s) appear on certificates for Old Notes or
on a security position listing as the owner of Old Notes, or by person(s)
authorized to become registered Holder(s) by endorsements and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must
provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): ________________________________________________________
________________________________________________________
Capacity: ________________________________________________________
Address(es): ________________________________________________________
________________________________________________________
________________________________________________________
DO NOT SEND OLD NOTES WITH THIS FORM. OLD NOTES SHOULD BE SENT TO THE EXCHANGE
AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL.
-3-
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial bank
or trust company having an office or a correspondent in the United States, or
otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended, hereby (a) represents
that each holder of Old Notes on whose behalf this tender is being made "own(s)"
the Old Notes covered hereby within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (b) represents
that such tender of Old Notes complies with Rule 14e-4 of the Exchange Act and
(c) guarantees that, within three New York Stock Exchange trading days from the
expiration date of the Exchange Offer, a properly completed and duly executed
Letter of Transmittal (or a facsimile thereof), together with certificates
representing the Old Notes covered hereby in proper form for transfer (or
confirmation of the book-entry transfer of such Old Notes into the Exchange
Agent's account at The Depository Trust Company, pursuant to the procedure for
book-entry transfer set forth in the Prospectus) and required documents will be
deposited by the undersigned with the Exchange Agent.
The undersigned acknowledges that it must deliver the Letter of Transmittal
and Old Notes tendered hereby to the Exchange Agent within the time period set
forth above and that failure to do so could result in financial loss to the
undersigned.
Name of Firm: ___________________________ ___________________________________
Authorized Signature
Address: ________________________________ Name: _____________________________
Title: ____________________________
Area Code and Telephone No.: ____________ Date: _____________________________
-4-
