<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934)
STERLING CHEMICALS, INC.
(NAME OF THE ISSUER)
STERLING CHEMICALS, INC.
THE STERLING GROUP, INC.
STX ACQUISITION CORP.
GORDON A. CAIN
WILLIAM A. MCMINN
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE ("COMMON STOCK"), OF THE REGISTRANT
(TITLE OF CLASS OF SECURITIES)
------------------------
858903-10-7
(CUSIP NUMBER OF CLASS OF SECURITIES)
<TABLE>
<CAPTION>
<S> <C> <C>
J. VIRGIL WAGGONER FRANK J. HEVRDEJS FRANK J. HEVRDEJS
PRESIDENT AND CHIEF EXECUTIVE OFFICER PRESIDENT PRESIDENT
STERLING CHEMICALS, INC. THE STERLING GROUP, INC. STX ACQUISITION CORP.
1200 SMITH STREET, SUITE 1900 EIGHT GREENWAY PLAZA EIGHT GREENWAY PLAZA
HOUSTON, TEXAS 77002-4312 SUITE 702 SUITE 702
HOUSTON, TEXAS 77046 HOUSTON, TEXAS 77046
</TABLE>
(NAME, ADDRESSES AND TELEPHONE NUMBERS OF PERSONS AUTHORIZED TO
RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT)
-------------------
This statement is filed in connection with (check the appropriate box):
(a) [x] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under
the Securities Exchange Act of 1934.
(b) [ ] The filing of a registration statement under the Securities Act of 1933.
(c) [ ] A tender offer.
(d) [ ] None of the above.
Check the following box if soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [x]
------------------
CALCULATION OF FILING FEE
===============================================================================
TRANSACTION VALUATION AMOUNT OF FILING FEE
$640,664,844* $125.00**
===============================================================================
* Calculated based on a proposed cash payment of $12.00 per share for
53,388,737 shares.
[x] Check box if any part of the fee is offset as provided by Rule D-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: $128,133.00
Form or Registration No.: Preliminary Proxy Statement
Filing Party: Sterling Chemicals, Inc.
Date Filed: May 23, 1996
** To be filed with definitive materials.
================================================================================
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INTRODUCTION
This Rule 13e-3 Transaction Statement (the "Statement") relates to the
Amended and Restated Agreement and Plan of Merger, dated as of April 24, 1996
(the "Merger Agreement"), between Sterling Chemicals, Inc., a Delaware
corporation (the "Company") and STX Acquisition Corp., a Delaware corporation
("STX Acquisition"). STX Acquisition was formed in April 1996 by an investor
group led by The Sterling Group, Inc. ("TSG") and The Unicorn Group, L.L.C. to
effect the Merger. A copy of the Merger Agreement is attached as Annex A to the
Proxy Statement filed by the Company (the "Proxy Statement"). The Proxy
Statement is attached hereto as Exhibit (d)(1).
Upon the terms and subject to the conditions of the Merger Agreement, at
the effective time of the transaction (the "Effective Time"): (a) STX
Acquisition will be merged with and into the Company (the "Merger"), with the
Company continuing as the surviving corporation (the "Surviving Corporation");
(b) the current directors of the Company will resign and will be replaced by the
director candidates to be nominated by STX Acquisition; (c) substantially all of
the operating assets and associated liabilities of the Company will be
transferred to STX Chemicals Corp. ("Chemicals"), a wholly-owned subsidiary of
the Surviving Corporation; (d) the stockholders of the Company will be entitled
to (i) retain shares in the Surviving Corporation ("Rollover Shares") to the
extent that they make an election to do so (a "Rollover Election"), subject to
pro rata reduction in the event that Rollover Elections have been made to retain
more than an aggregate of 5.0 million Rollover Shares and (ii) receive $12.00
cash for each share of Common Stock of the Company ("Common Stock") not retained
as a Rollover Share (the "Cash Payment"); and (e) the issued and outstanding
shares of common stock of STX Acquisition will be converted into shares of
common stock of the Surviving Corporation. Depending on the number of Rollover
Shares, the issued and outstanding shares of common stock of STX Acquisition
will be converted into up to 8,589,580 shares of common stock of the Surviving
Corporation, representing approximately 79% of the total outstanding shares of
the Surviving Corporation.
The following cross reference sheet shows the location in the preliminary
Proxy Statement relating to the Merger filed by the Company with the Securities
and Exchange Commission. The information in the preliminary Proxy Statement,
including all annexes thereto, is hereby expressly incorporated herein by
reference and the responses to each item of this Statement are qualified in
their entirety by the provisions of the preliminary Proxy Statement. The Proxy
Statement will be completed and, if appropriate, amended, prior to the time it
is first sent or given to stockholders of the Company. This Statement will be
amended to reflect such completion or amendment of the Proxy Statement.
1
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CROSS REFERENCE SHEET
ITEM IN
SCHEDULE 13E-3 LOCATION IN PROXY STATEMENT
- --------------------------- ---------------------------------------------------
Item 1(a) and (b).......... Outside Front Cover Page, "SUMMARY--Parties to the
Transaction," "--Votes Required" "--Market Prices
and Dividends," "THE SPECIAL MEETING--Purpose;
Record Date; Voting at the Special Meeting," "--
Votes Required" and "MARKET PRICES; DIVIDENDS."
Item 1(c) and (d).......... "SUMMARY--Market Prices; Dividends" and "MARKET
PRICES; DIVIDENDS"
Item 1(e).................. Not applicable.
Item 1(f).................. Not applicable.
Item 2(a)-(d) and (g)...... Outside Front Cover Page, "SUMMARY--Parties to the
Transaction, "--Transaction Sponsors,"
"INCORPORATION BY REFERENCE" and ANNEX D.
Item 2(e) and (f).......... Negative.
Item 3(a) and (b).......... "SUMMARY--Background," "Fairness of the Merger,"
"--Opinion of Financial Advisor," "SPECIAL FACTORS
--Background," "--Fairness of the Merger", "--
Opinion of Financial Advisor," "--Purpose and
Structure of the Transaction," and "CERTAIN
FINANCIAL PROJECTIONS."
Item 4(a) and 4(b)......... Outside Front Cover Page, "SUMMARY--Terms of
the Merger," "--Effective Time of the Merger," "--
Interests of Certain Persons in the Merger," "--
Conditions to Consummation of the Merger," "--No
Solicitation; Fiduciary Duties," "--Termination;
Fees and Expenses," "SPECIAL FACTORS--Purpose and
Structure of the Transaction," "THE MERGER--Terms
of the Merger," "--Interests of Certain Persons in
the Merger," "--Effective Time of the Merger," "--
Summary of the Terms of Related Agreements," "--
Appraisal Rights of Dissenting Stockholders" and
ANNEX A.
2
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Item 5(a) - (g)............ "SUMMARY--Terms of the Merger," "--Interests of
Certain Persons in the Merger," "SPECIAL FACTORS--
Purpose and Structure of the Transaction," "--Risks
and Effects of the Merger," "--The Company's
Business After the Merger," "THE MERGER--Interests
of Certain Persons in the Merger," "--Source and
Amount of Funds" and "DIRECTORS AND EXECUTIVE
OFFICERS OF THE SURVIVING CORPORATION."
Item 6(a), (c) and (d)..... "SUMMARY--Financing Arrangements," and "THE
MERGER--Source and Amount of Funds."
Item 6(b).................. "SUMMARY--Financing Arrangements," "THE
MERGER--Source and Amount of Funds" and "FEES
AND EXPENSES."
Item 7(a) - (d)............ Outside Front Cover Page, "SUMMARY--Background,"
"--Recommendation of the Board; Fairness of the
Merger," "--Opinion of Financial Advisor," "--
Appraisal Rights of Dissenting Stockholders,"
"--Certain Tax Consequences of the Merger,"
"--Interests of Certain Persons in the Merger,"
"SPECIAL FACTORS--Background," "--Fairness of the
Merger," "--Purpose and Structure of the
Transaction," "--Recommendation of the Board,"
"--Opinion of Financial Advisor," "--Risks and
Effects of the Merger," "--Certain Tax Consequences
of the Merger," "--The Company's Business After the
Merger," "THE MERGER--Interests of Certain Persons
in the Merger" and "--Appraisal Rights of
Dissenting Stockholders."
Item 8(a) - (f)............ Outside Front Cover Page, "SUMMARY--Background,"
"--Recommendation of the Board," "--Fairness of the
Merger," "--Opinion of Financial Advisor," "--Votes
Required," "THE SPECIAL MEETING--Votes Required,"
"SPECIAL FACTORS--Background," "--Recommendation of
the Board," "--Fairness of the Merger," "--Opinion
of Financial Advisor," "CERTAIN FINANCIAL
PROJECTIONS" and ANNEX B.
Item 9(a) - (c)............ "SUMMARY--Background," "--Recommendation of the
Board; Fairness of the Merger," "--Opinion of
Financial Advisor," "--Interests of Certain Persons
in the Merger," "SPECIAL FACTORS--Background," "--
Fairness of the Merger" "--Recommendation of the
Board," "--Opinion of Financial Advisor," "CERTAIN
FINANCIAL PROJECTIONS" and ANNEX B.
Item 10(a) and (b)......... "SUMMARY--Interests of Certain Persons in the
Merger," "THE MERGER--Interests of Certain Persons
in the Merger," "STOCK OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS," and ANNEX D.
Item 11.................... "SUMMARY--Terms of Related Agreements," "THE
MERGER--Summary of the Terms of Related
Agreements" and ANNEX A.
3
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Item 12(a) and (b)......... "SUMMARY--Recommendation of the Board; Fairness of
the Merger," "--Terms of Related Agreements,"
"SPECIAL FACTORS--Recommendation of the Board" and
"THE MERGER--Summary of the Terms of Related
Agreements."
Item 13(a)................. Outside Front Cover Page, "SUMMARY--Votes
Required," "--Appraisal Rights of Dissenting
Stockholders," "THE SPECIAL MEETING--Votes
Required," "THE MERGER--Appraisal Rights of
Dissenting Stockholders," the Notice of Special
Meeting and ANNEX C.
Item 13(b)................. "SPECIAL FACTORS--Fairness of the Merger."
Item 13(c)................. Not applicable.
Item 14(a)................. "SUMMARY--Summary Historical Financial Data" and
"SELECTED HISTORICAL FINANCIAL DATA."
Item 14(b)................. "SUMMARY--Summary Pro Forma Financial Data" and
"PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS AND
OTHER INFORMATION."
Item 15(a)................. "SPECIAL FACTORS--Risks and Effects of the Merger,"
"--The Company's Business After the Merger," "THE
MERGER," "DIRECTORS AND EXECUTIVE OFFICERS OF THE
SURVIVING CORPORATION," "FEES AND EXPENSES" and
ANNEX A.
Item 15(b)................. "THE SPECIAL MEETING--Revocation and Use of
Proxies; Solicitation."
Item 16.................... Proxy Statement, Letter to Stockholders and Notice
of Special Meeting.
Item 17.................... Separately included herewith.
4
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ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION
(a) and (b) The information set forth on the Outside Front Cover Page and
in "SUMMARY--Parties to the Transaction," "--Votes Required," "THE SPECIAL
MEETING--Purpose; Record Date; Voting at the Special Meeting," "--Votes
Required" "MARKET PRICES; DIVIDENDS" of the Proxy Statement is incorporated
herein by reference.
(c) and (d) The information set forth in "SUMMARY--Market Prices;
Dividends" and "MARKET PRICES; DIVIDENDS" of the Proxy Statement is incorporated
herein by reference.
(e) Not applicable.
(f) Not applicable.
ITEM 2. IDENTITY AND BACKGROUND.
(a) - (d) and (g) This Statement is being filed by TSG, STX Acquisition,
the Company, which is the issuer of the Common Stock, the class of equity
securities to which this Statement relates, Mr. Gordon A. Cain and Mr. William
A. McMinn (collectively, the "Filing Persons"). The information set forth on the
Outside Front Cover Page and in "SUMMARY--Parties to the Transaction" "--
Transaction Sponsors," "INCORPORATION BY REFERENCE" and ANNEX D of the Proxy
Statement is incorporated herein by reference.
(e) and (f) During the last five years, none of the Filing Persons, nor
to the best of their knowledge any of the officers, directors or control persons
of the Filing Persons, (i) has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or (ii) was a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was or is subject to a judgment, decree or
final order enjoining further violations of, or prohibiting activities subject
to, Federal or State securities laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a) and (b) The information set forth in "SUMMARY--Background," "--
Fairness of the Merger," "--Opinion of Financial Advisor," "SPECIAL FACTORS--
Background," "Fairness of the Merger," "--Opinion of Financial Advisor," "--
Purpose and Structure of the Transaction," and "CERTAIN FINANCIAL PROJECTIONS"
of the Proxy Statement is incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) and (b) The information set forth on the Outside Front Cover Page and
in "SUMMARY--Terms of the Merger," "--Effective Time of the Merger,"
"--Interests of Certain Persons in the Merger," "--Conditions to Consummation of
the Merger," "--No Solicitation; Fiduciary Duties," "--Termination; Fees and
Expenses," "SPECIAL FACTORS--Purpose and Structure of the Transaction," "THE
MERGER--Terms of the Merger," "--Interests of Certain Persons in the Merger,"
"--Summary of the Terms of Related Agreements" and "--Appraisal Rights of
Dissenting Stockholders" and ANNEX A of the Proxy Statement is incorporated by
reference.
5
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ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a) - (g) The information set forth in "SUMMARY--Terms of the Merger,"
"--Interests of Certain Persons in the Merger," "SPECIAL FACTORS--Purpose and
Structure of the Transaction," "--Risks and Effects of the Merger," "--The
Company's Business After the Merger," "THE MERGER--Interests of Certain Persons
in the Merger," "--Source and Amount of Funds" and "DIRECTORS AND EXECUTIVE
OFFICERS OF THE SURVIVING CORPORATION" of the Proxy Statement is incorporated
herein by reference.
ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION.
(a), (c) and (d) The information set forth in "SUMMARY--Financing
Arrangements" and "THE MERGER--Source and Amount of Funds" of the Proxy
Statement is incorporated herein by reference.
(b) The information set forth in "SUMMARY--Financing Arrangements," "THE
MERGER--Source and Amount of Funds" and "FEES AND EXPENSES" of the Proxy
Statement is incorporated herein by reference.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) - (d) The information set forth on the Outside Front Cover Page and
in "SUMMARY--Background," "--Recommendation of the Board; Fairness of the
Merger," "--Opinion of Financial Advisor," "--Appraisal Rights of Dissenting
Stockholders," "--Certain Tax Consequences of the Merger," "--Interests of
Certain Persons in the Merger," "SPECIAL FACTORS--Background," "--Fairness of
the Merger," "--Purpose and Structure of the Transaction," "--Recommendation of
the Board," "--Opinion of Financial Advisor," "--Risks and Effects of the
Merger," "--Certain Tax Consequences of the Merger," "THE MERGER--Interests of
Certain Persons in the Merger," and "--Appraisal Rights of Dissenting
Stockholders" of the Proxy Statement is incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a) - (f) The information set forth on the Outside Front Cover Page and
in "SUMMARY--Background," "--Recommendation of the Board; Fairness of the
Merger," "--Opinion of Financial Advisor," "--Votes Required," "THE SPECIAL
MEETING--Votes Required," "SPECIAL FACTORS--Background," "--Recommendation of
the Board," "--Fairness of the Merger," "--Opinion of Financial Advisor,"
"CERTAIN FINANCIAL PROJECTIONS" and Annex B of the Proxy Statement is
incorporated herein by reference.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) - (c) The information set forth in "SUMMARY--Background,"
"--Recommendation of the Board; Fairness of the Merger," "--Opinion of Financial
Advisor," "--Interests of Certain Persons in the Merger," "SPECIAL FACTORS--
Background," "--Fairness of the Merger," "--Recommendation of the Board," "--
Opinion of Financial Advisor," "CERTAIN FINANCIAL PROJECTIONS" and Annex B of
the Proxy Statement is incorporated herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) and (b) The information set forth in "SUMMARY--Interests of Certain
Persons in the Merger," "THE MERGER--Interests of Certain Persons in the
Merger," "STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS" and
Annex D of the Proxy Statement is incorporated herein by reference.
6
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ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
The information set forth in "SUMMARY--Terms of Related Agreements," "THE
MERGER--Summary of the Terms of Related Agreements," and ANNEX A of the Proxy
Statement is incorporated herein by reference. See also exhibits (c)(1), (c)(2),
(c)(3), (c)(4), (c)(5), (c)(6), (c)(7), and (c)(8) attached hereto.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a) and (b) The information set forth in "SUMMARY--Recommendation of the
Board; Fairness of the Merger," "SPECIAL FACTORS--Recommendation of the Board"
and "THE MERGER--Summary of the Terms of Related Agreements" of the Proxy
Statement is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in the Outside Front Cover Page, "SUMMARY--
Votes Required," "--Appraisal Rights of Dissenting Stockholders," "THE SPECIAL
MEETING--Votes Required," "THE MERGER--Appraisal Rights of Dissenting
Stockholders" and ANNEX C of the Proxy Statement, and in the Notice of Special
Meeting attached to the Proxy Statement, is incorporated herein by reference.
(b) The information set forth in "SPECIAL FACTORS--Fairness of the
Merger" of the Proxy Statement is incorporated herein by reference.
(C) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in "SUMMARY--Summary Historical Financial
Data" and "SELECTED HISTORICAL FINANCIAL DATA" of the Proxy Statement is
incorporated herein by reference.
(b) The information set forth in "SUMMARY - Summary Pro Forma Financial
Data," and "PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION"
of the Proxy Statement is incorporated herein by reference.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The information set forth in "SPECIAL FACTORS--Risks and Effects
of the Merger," "--The Company's Business After the Merger," "THE
MERGER," "DIRECTORS AND EXECUTIVE OFFICERS OF THE SURVIVING CORPORATION," "FEES
AND EXPENSES" and ANNEX A of the Proxy Statement is incorporated herein by
reference.
(b) The information set forth in "THE SPECIAL MEETING--Revocation and Use
of Proxies; Solicitation" of the Proxy Statement is incorporated herein by
reference.
ITEM 16. ADDITIONAL INFORMATION.
Additional information concerning the Merger is set forth in the Proxy
Statement, Letter to Stockholders and Notice of Special Meeting which are
attached hereto as Exhibit (d)(1).
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) Credit Agreement among STX Chemicals Corp., Texas Commerce Bank
National Association, Credit Suisse and the financial institutions
named therein.
7
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(b)(1) Fairness opinion dated April 24, 1996 delivered by
Lazard Freres & Co. LLC (filed herewith as Annex B to the Proxy
Statement that is filed as Exhibit (d)(1) hereto).
++(b)(2) Reports of Lazard Freres & Co. LLC dated April 2, 1996 and April
24, 1996 and delivered to the Board of Directors on April 2, 1996
and April 24, 1996.
(c)(1) Merger Agreement (filed herewith as Annex A to the Proxy
Statement that is filed as Exhibit (d)(1) hereto).
+(c)(2) Inducement Agreement dated as of April 24, 1996.
(c)(3) Form of Tag-Along Agreement (filed herewith as Exhibit A to Annex
A to the Proxy Statement that is filed as Exhibit (d)(1) hereto).
+(c)(4) Agreement and Irrevocable Proxy executed by J. Virgil Waggoner,
dated as of April 24, 1996.
+(c)(5) Agreement and Irrevocable Proxy executed by Gordon A. Cain, dated
as of April 24, 1996.
+(c)(6) Agreement and Irrevocable Proxy executed by Robert W. Roten, dated
as of April 24, 1996.
+(c)(7) Agreement and Irrevocable Proxy executed by Frank J. Hevrdejs,
dated as of April 24, 1996.
+(c)(8) Agreement and Irrevocable Proxy executed by William C. Oehmig,
dated as of April 24, 1996.
(d)(1) Proxy Statement of the Company, Notice of Special Meeting of
Stockholders of the Company, Letter to Stockholders of the
Company and Proxy Card.
(e)(1) Section 262 of the Delaware General Corporation Law (filed
herewith as Annex C to the Proxy Statement that is filed as
Exhibit (d)(1) hereto).
(f) None.
- ----------------
* To be filed by amendment.
+ Previously filed.
++ Confidential treatment has been requested with respect to portions of this
Exhibit.
8
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SIGNATURE
After due inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this Statement is true,
complete and correct.
Dated: July 16, 1996
STERLING CHEMICALS, INC.
By: /s/ J. VIRGIL WAGGNOER
J. Virgil Waggoner
President and Chief Executive Officer
9
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SIGNATURE
After due inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this Statement is true,
complete and correct.
Dated: July 16, 1996
THE STERLING GROUP, INC.
By: /s/ FRANK J. HEVRDEJS
Name: Frank J. Hevrdejs
Title: President
10
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SIGNATURE
---------
After due inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this Statement is true,
complete and correct.
Dated: July 16, 1996
STX ACQUISITION CORP.
By: /s/ FRANK J. HEVRDEJS
Name: Frank J. Hevrdejs
Title: President
11
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SIGNATURE
---------
After due inquiry and to the best of his knowledge and belief, the
undersigned certifies that the information set forth in this Statement is true,
complete and correct.
Dated: July 16, 1996
/s/ GORDON A. CAIN
-------------------------
GORDON A. CAIN
12
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SIGNATURE
---------
After due inquiry and to the best of his knowledge and belief, the
undersigned certifies that the information set forth in this Statement is true,
complete and correct.
Dated: July 16, 1996
/s/ WILLIAM A. MCMINN
-----------------------------------
WILLIAM A. MCMINN
13
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INDEX TO EXHIBITS
Exhibit
Number Description
- --------- -----------
(a) Credit Agreement among STX Chemicals Corp., Texas
Commerce Bank National Association, Credit Suisse and the
financial institutions named therein.
(b)(1) Fairness opinion dated April 24, 1996 delivered by
Lazard Freres & Co. LLC (filed herewith as Annex B
to the Proxy Statement that is filed as Exhibit
(d)(1) hereto).
++(b)(2) Reports of Lazard Freres & Co. LLC dated April 2, 1996 and April
24, 1996 and delivered to the Board of Directors on April 2, 1996
and April 24, 1996.
(c)(1) The Merger Agreement (filed herewith as Annex A to
the Proxy Statement that is filed as Exhibit (d)(1)
hereto).
+(c)(2) Inducement Agreement dated as of April 24, 1996.
(c)(3) Form of Tag-Along Agreement (filed herewith as
Exhibit A to Annex A to the Proxy Statement that is
filed as Exhibit (d)(1) hereto).
+(c)(4) Agreement and Irrevocable Proxy executed by
J. Virgil Waggoner, dated as of April 24, 1996.
+(c)(5) Agreement and Irrevocable Proxy executed by
Gordon A. Cain, dated as of April 24, 1996.
+(c)(6) Agreement and Irrevocable Proxy executed by
Robert W. Roten, dated as of April 24, 1996.
+(c)(7) Agreement and Irrevocable Proxy executed by
Frank J. Hevrdejs, dated as of April 24, 1996.
+(c)(8) Agreement and Irrevocable Proxy executed by
William C. Oehmig, dated as of April 24, 1996.
(d)(1) Proxy Statement of the Company, Notice of Special
Meeting of Stockholders of the Company, Letter to
Stockholders of the Company and Proxy Card.
(e)(1) Section 262 of the Delaware General Corporation Law
(filed herewith as Annex C to the Proxy Statement that
is filed as Exhibit (d)(1) hereto).
(f) None.
- ------------
* To be filed by amendment.
+ Previously filed.
++ Confidential treatment has been requested with respect to portions of this
Exhibit.
14
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EXHIBIT (a)
CREDIT AGREEMENT
Among
STX CHEMICALS CORP.
as the Company
and
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
Individually, as an Issuing Bank and as Administrative Agent,
CREDIT SUISSE
Individually, as an Issuing Bank, and as Documentation Agent
and
FINANCIAL INSTITUTIONS
NOW OR HEREAFTER PARTIES HERETO
$100,000,000 Revolving Credit Facility
$200,000,000 Tranche A Term Loans
$150,000,000 Tranche B Term Loans
$6,500,000 ESOP Term Loans
June 21, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS; CONSTRUCTION
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Section 1.01 Definitions........................... 2
Section 1.02 Accounting Terms and Determinations... 31
Section 1.03 Other Definitional Terms.............. 31
ARTICLE II
AMOUNT AND TERMS OF LOANS
Section 2.01 Loans and Commitments................. 31
Section 2.02 Borrowing Requests.................... 33
Section 2.03 Letters of Credit..................... 34
Section 2.04 Disbursement of Funds................. 38
Section 2.05 Notes and Amortization................ 39
Section 2.06 Interest.............................. 41
Section 2.07 Interest Periods...................... 42
Section 2.08 Repayment of Loans.................... 43
Section 2.09 Termination or Reduction of
Commitments.......................... 44
Section 2.10 Prepayments........................... 44
Section 2.11 Continuation and Conversion Options... 48
Section 2.12 Fees.................................. 49
Section 2.13 Payments, etc......................... 50
Section 2.14 Interest Rate Not Ascertainable, etc.. 51
Section 2.15 Illegality............................ 51
Section 2.16 Increased Costs....................... 52
Section 2.17 Change of Lending Office.............. 54
Section 2.18 Funding Losses........................ 54
Section 2.19 Sharing of Payments, etc.............. 54
Section 2.20 Taxes................................. 55
Section 2.21 Pro Rata Treatment.................... 58
Section 2.22 Replacement of Lenders................ 59
ARTICLE III
CONDITIONS TO BORROWINGS AND TO
PURCHASE, RENEWAL AND REARRANGEMENT
Section 3.01 Closing............................... 59
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Section 3.02 Conditions Precedent to Initial Loan.. 59
Section 3.03 Conditions Precedent to Each Loan..... 64
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01 Corporate Existence................... 65
Section 4.02 Corporate Power and Authorization..... 65
Section 4.03 Binding Obligations................... 65
Section 4.04 No Legal Bar or Resultant Lien........ 65
Section 4.05 No Consent............................ 66
Section 4.06 Financial Information................. 66
Section 4.07 Investments and Guaranties............ 66
Section 4.08 Litigation............................ 66
Section 4.09 Use of Proceeds....................... 66
Section 4.10 Employee Benefits..................... 67
Section 4.11 Taxes; Governmental Charges........... 68
Section 4.12 Titles, etc........................... 68
Section 4.13 Defaults.............................. 68
Section 4.14 Casualties; Taking of Properties...... 69
Section 4.15 Compliance with the Law............... 69
Section 4.16 No Material Misstatements............. 69
Section 4.17 Investment Company Act................ 69
Section 4.18 Public Utility Holding Company Act.... 69
Section 4.19 Subsidiaries.......................... 69
Section 4.20 Insurance............................. 70
Section 4.21 Environmental Matters................. 70
Section 4.22 Solvency.............................. 71
Section 4.23 Material Contracts.................... 71
Section 4.24 Employee Matters...................... 72
ARTICLE V
COVENANTS
Section 5.01 Certain Affirmative Covenants......... 72
(a) Maintenance and Compliance, etc....... 72
(b) Payment of Taxes and Claims, etc...... 72
(c) Further Assurances.................... 72
(d) Performance of Obligations............ 73
(e) Insurance............................. 73
(f) Accounts and Records.................. 73
(g) Right of Inspection................... 73
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
(h) Operation and Maintenance of Property. 73
(i) Additional Subsidiaries; Permitted
Acquisitions; Additional Liens....... 74
Section 5.02 Reporting Covenants................... 75
(a) Annual Financial Statements........... 75
(b) Quarterly Financial Statements........ 75
(c) Monthly Financial Statements.......... 75
(d) No Default/Compliance Certificate..... 76
(e) Management Letters.................... 76
(f) Title Information..................... 76
(g) Events or Circumstances with respect
to Collateral........................ 77
(h) Borrowing Base Reports................ 77
(i) Notice of Certain Events.............. 77
(j) Shareholder Communications, Filings... 77
(k) Litigation............................ 78
(l) ERISA................................. 78
(m) Borrowing Base Audit.................. 78
(n) Insurance Coverage.................... 78
(o) Annual Budget......................... 78
(p) Excess Cash Flow Certificate.......... 78
(q) Other Information..................... 79
Section 5.03 Financial Covenants................... 79
(a) Interest Coverage Ratio............... 79
(b) Current Ratio......................... 79
(c) Fixed Charge Coverage Ratio........... 79
(d) Leverage Ratio........................ 80
Section 5.04 Certain Negative Covenants............ 80
(a) Indebtedness.......................... 80
(b) Liens................................. 82
(c) Mergers, Sales, etc................... 83
(d) Dividends, etc........................ 84
(e) Investments, Loans, etc............... 84
(f) Lease Payments........................ 86
(g) Sales and Leasebacks.................. 86
(h) Nature of Business.................... 86
(i) ERISA Compliance...................... 87
(j) Sale or Discount of Receivables....... 88
(k) Negative Pledge Agreements............ 88
(l) Transactions with Affiliates.......... 88
(m) Unconditional Purchase Obligations.... 89
(n) Stock................................. 89
(o) Capital Expenditures.................. 89
(p) Modifications to Senior Subordinated
Notes; No Voluntary Prepayments...... 90
(q) Intercompany Transactions............. 90
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VI
EVENTS OF DEFAULT
Section 6.01 Payments.............................. 91
Section 6.02 Covenants Without Notice.............. 91
Section 6.03 Other Covenants....................... 91
Section 6.04 Other Financing Document Obligations.. 91
Section 6.05 Representations....................... 91
Section 6.06 Non-Payments of Other Indebtedness.... 91
Section 6.07 Defaults Under Other Agreements....... 92
Section 6.08 Bankruptcy............................ 92
Section 6.09 Money Judgment........................ 92
Section 6.10 Discontinuance of Business............ 93
Section 6.11 Financing Documents................... 93
Section 6.12 Change of Control..................... 93
Section 6.13 Merger Agreement Representations and
Warranties........................... 93
Section 6.14 Albright Indemnity.................... 93
Section 6.15 Default Under Senior Secured Discount
Notes................................ 93
ARTICLE VII
THE AGENTS
Section 7.01 Appointment of Administrative Agent... 94
Section 7.02 Limitation of Duties of
Administrative Agent................. 94
Section 7.03 Lack of Reliance on the Administrative
Agent and the Documentation Agent.... 94
Section 7.04 Certain Rights of the Administrative
Agent................................ 95
Section 7.05 Reliance by Administrative Agent...... 95
Section 7.06 INDEMNIFICATION OF ADMINISTRATIVE AGENT
AND DOCUMENTATION AGENT.............. 95
Section 7.07 The Administrative Agent and Documentation
Agent in their Individual Capacity... 96
Section 7.08 May Treat Lender as Owner............. 96
Section 7.09 Successor Administrative Agent........ 96
Section 7.10 Documentation Agent................... 97
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Notices............................... 97
Section 8.02 Amendments and Waivers................ 97
Section 8.03 No Waiver; Remedies Cumulative........ 98
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C> <C>
Section 8.04 Payment of Expenses, Indemnities, etc. 98
Section 8.05 Right of Setoff....................... 101
Section 8.06 Benefit of Agreement.................. 101
Section 8.07 Successors and Assigns; Participations
and Assignments...................... 101
Section 8.08 Governing Law; Submission to
Jurisdiction; Etc.................... 104
Section 8.09 Independent Nature of Lenders' Rights. 105
Section 8.10 Invalidity............................ 105
Section 8.11 Renewal, Extension or Rearrangement... 106
Section 8.12 Interest.............................. 106
Section 8.13 Confidential Information.............. 107
Section 8.14 ENTIRE AGREEMENT...................... 107
Section 8.15 Attachments........................... 107
Section 8.16 Counterparts.......................... 108
Section 8.17 Survival of Indemnities............... 108
Section 8.18 Headings Descriptive.................. 108
Section 8.19 Satisfaction Requirement.............. 108
Section 8.20 Exculpation Provisions................ 108
Section 8.21 Secured Affiliate..................... 108
</TABLE>
ANNEXES
Annex I - Commitments
SCHEDULES
Schedule 1.01A - Outstanding Letters of Credit
Schedule 1.01B - Principal Account Obligors
Schedule 4.07 - Investments and Guaranties
Schedule 4.08 - Litigation
Schedule 4.12 - Titles
Schedule 4.13 - Defaults
Schedule 4.19 - Subsidiaries/Guarantors
Schedule 4.23 - Material Contracts
Schedule 4.24 - Employment Contracts
Schedule 5.04(a) - Existing Indebtedness
Schedule 5.04(b) - Liens
v
<PAGE>
EXHIBITS
Exhibit A - Form of Revolving Note
Exhibit B-1 - Form of Tranche A Term Note
Exhibit B-2 - Form of Tranche B Term Note
Exhibit B-3 - Form of ESOP Term Note
Exhibit C - Form of Tax Sharing Agreement
Exhibit D - Form of Borrowing Request
Exhibit E-1 - Form of Opinion of Andrews & Kurth, L.L.P. to be dated as of the
Closing Date
Exhibit E-2 - Form of Opinion of Canadian counsel to the Company
Exhibit E-3 - Form of Opinion of Georgia counsel to the Company
Exhibit F-1 - Form of Subsidiary Guaranty Agreement
Exhibit F-2 - Form of Subrogation and Contribution Agreement
Exhibit F-3 - Form of Security Agreement of the Company
Exhibit F-4 - Form of Security Agreement of Subsidiary Guarantors
Exhibit F-5 - Form of Holdco Security Agreement (Pledge)
Exhibit F-6 - Form of Company Security Agreement (Pledge)
Exhibit F-7 - Form of Subsidiary Security Agreement (Pledge)
Exhibit F-8 - Form of Deed of Trust
Exhibit F-9 - Form of Leasehold Deed of Trust
Exhibit F-10 - Intentionally Omitted
Exhibit F-11 - Form of Collateral Assignment (Intercompany Loans and Accounts) -
the Company
Exhibit F-12 - Form of Collateral Assignments (Intercompany Loans and Accounts)
- Subsidiary Guarantors
Exhibit F-13 - Form of Cash Collateral Account Agreement
Exhibit G - Form of Assignment and Acceptance
Exhibit H - Form of Borrowing Base Report
Exhibit I - Form of U.S. Tax Compliance Certificate
Exhibit J - Form of Notice of Designated Retained Cash Flow Usage
vi
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into as of this 21st day of June,
1996, among STX CHEMICALS CORP. a Delaware corporation, whose name shall become
STERLING CHEMICALS, INC. as described in the Introductory Statement (the
"Company"), TEXAS COMMERCE BANK NATIONAL ASSOCIATION, individually, as a
Lender, as an Issuing Bank and as Administrative Agent, CREDIT SUISSE,
individually, as a Lender, as an Issuing Bank and as Documentation Agent, each
additional Issuing Bank hereunder from time to time, and each of the lenders
that is a signatory hereto or which becomes a party hereto as provided in
Section 8.07 (individually, a "Lender" and, collectively, the "Lenders").
INTRODUCTORY STATEMENT
STX Acquisition Corp., a Delaware corporation, desires to acquire
Sterling Chemicals, Inc. ("SCI"), a Delaware corporation (the "Acquisition")
pursuant to the Merger Agreement (defined below) between STX Acquisition Corp.
and SCI. Upon the terms and subject to the conditions set forth in the Merger
Agreement, STX Acquisition Corp. shall be merged with and into SCI (the
"Merger"). From and after the time that the Merger occurs, the separate
corporate existence of STX Acquisition Corp. shall cease and SCI shall continue
as the surviving corporation and shall succeed to and assume all the rights and
obligations of STX Acquisition Corp. in accordance with the General Corporation
Law of the State of Delaware.
STX Acquisition Corp. has formed the Company for purposes of acquiring
all of the assets and liabilities of SCI (the "Asset Conveyance") prior to or
simultaneously with the time that the Merger occurs. Substantially
contemporaneously with the Asset Conveyance and Merger, the Company shall be
renamed "Sterling Chemicals, Inc." (the "Name Change") and SCI shall be renamed
Sterling Chemicals Holdings, Inc. ("Holdco").
It is contemplated that the total amount of the financing for the
Acquisition and ongoing working capital needs will consist of approximately (i)
$131,000,000 of new common equity and retained equity (assuming the retained
equity is valued at $12.00 per share), (iii) $456,500,000 in senior secured debt
issued pursuant to this Agreement, as described below, (iv) up to $275,000,000
in Senior Subordinated Notes (as hereinafter defined) and (v) Senior Secured
Discount Notes (as hereinafter defined) providing initial proceeds of up to
$100,000,000.
The Lenders have agreed to provide credit facilities in the amount of
up to $456,500,000 (the "Facilities"), consisting of up to $100,000,000 of
Revolving Credit Loans, up to $200,000,000 of Tranche A Term Loans, up to
$150,000,000 of Tranche B Term Loans and up to $6,500,000 of ESOP Term Loans.
Proceeds of the Tranche A Term Loans and Tranche B Term Loans will be used
solely (i) to finance a portion of the Acquisition, (ii) to refinance existing
indebtedness and to assume the obligations under the Outstanding Letters of
Credit of SCI, and (iii) to finance fees and expenses relating to the financing
of the Acquisition. Proceeds of the Revolving Credit Loans will be used solely
to finance ongoing working capital requirements and for general corporate
purposes of the Company and to finance a portion of the Acquisition provided
that, it is expected that approximately $20,000,000 of the Revolving Credit
Loans will be used to finance the
1
<PAGE>
Acquisition. Proceeds of the ESOP Term Loans will be used solely to fund the
Secondary ESOP Loan, and will be used by the ESOP solely for the purchase of
Holdco Common Stock.
AGREEMENT
In consideration of the mutual covenants and agreements herein contained,
the Company, the Agents, the Issuing Banks and the Lenders agree as follows:
ARTICLE I
DEFINITIONS; CONSTRUCTION
Section 1.01 Definitions. As used herein, the following terms shall have
the meanings herein specified (to be equally applicable to both the singular and
plural forms of the terms defined). Reference to any party to a Financing
Document means that party and its successors and assigns.
"Acquisition" shall have the meaning provided in the Introductory
Statement.
"Administrative Agent" shall mean Texas Commerce Bank National Association,
acting in the manner and to the extent described in Article VII.
"Advance Notice" shall mean written or telecopy notice (with telephonic
confirmation in the case of telecopy notice), which in each case shall be
irrevocable, from the Company to be received by the Administrative Agent before
11:00 a.m. (Houston time), by the number of Business Days in advance of any
Borrowing, conversion, continuation or prepayment of any Loan or Loans pursuant
to this Agreement as respectively indicated below:
(a) Eurodollar Loans - 3 Business Days; and
(b) Base Rate Loans - Same Business Day.
For the purpose of determining the respectively applicable Loans in the case of
the conversion from one Type of Loan into another, the Loans into which there is
to be a conversion shall control. The Administrative Agent, each Issuing Bank
and each Lender are entitled to rely upon and act upon telecopy notice made or
purportedly made by the Company, and the Company hereby waives the right to
dispute the authenticity and validity of any such transaction once the
Administrative Agent or any Lender has advanced funds or any Issuing Bank has
issued Letters of Credit, absent manifest error.
"Affiliate" shall mean any Person controlling, controlled by or under
common control with any other Person. For purposes of this definition,
"control" (including "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to either (a) vote 10% or more
of the securities having ordinary voting power for election of directors of such
Person
2
<PAGE>
or (b) direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or otherwise.
Notwithstanding the foregoing, no individual shall be deemed to be an Affiliate
of a corporation solely by reason of his or her being an officer or director of
such corporation.
"Agents" shall mean, collectively, the Administrative Agent and the
Documentation Agent.
"Aggregate Revolving Credit Exposure" shall mean the sum of all of the
Revolving Credit Lenders' Revolving Credit Exposures.
"Agreement" shall mean this Credit Agreement, as amended, supplemented or
modified from time to time.
"Albright" shall mean Albright and Wilson U.K., Ltd., a corporation
incorporated under the laws of England and Wales.
"Albright Indemnity" shall mean the indemnification obligations of Albright
in favor of Sterling Canada and Sterling Pulp as set forth in the Purchase
Agreement dated as of August 20, 1992, between Sterling Canada, Sterling Pulp,
and Tenneco Canada, Inc., as amended pursuant to an Amending Agreement dated
January 24, 1996, which obligations were assigned by Tenneco Canada, Inc. to,
and assumed by, Albright pursuant to an Assignment and Consent Agreement dated
as of May 30, 1996.
"Applicable Commitment Fee Percentage" shall mean, on any day, the
applicable per annum percentage set forth at the appropriate intersection in the
table shown below, based on the Leverage Ratio for the Rolling Period ending on
the most recent Quarterly Date with respect to which the Company is required to
deliver the Current Information (said calculation to be made by the
Administrative Agent as soon as practicable after receipt by the Administrative
Agent of all required Current Information for the applicable period); provided
that, for purposes of this definition, "Rolling Period" shall mean (a) for the
second full Fiscal Quarter after the Effective Date, such quarter and the
preceding Fiscal Quarter, (b) for the third full Fiscal Quarter after the
Effective Date, such quarter and the two preceding Fiscal Quarters (in the case
of each of clauses (a) and (b) determined on an annualized basis) and (c) for
each Fiscal Quarter thereafter, such quarter and the three preceding Fiscal
Quarters:
<TABLE>
<CAPTION>
LEVERAGE RATIO COMMITMENT FEE PERCENTAGE
- --------------------------------------------------------------------------
<S> <C>
Greater than or equal to 3.00 .50%
- --------------------------------------------------------------------------
Less than 3.00 .375%
- --------------------------------------------------------------------------
</TABLE>
Each change in the Applicable Commitment Fee Percentage based on a change in the
Current Information (or the Company's failure to deliver the Current
Information) shall be effective as of the first day of the third month of each
applicable Fiscal Quarter (but based upon Current Information for
3
<PAGE>
the immediately preceding Rolling Period), or if such day is not a Business Day,
then the first Business Day thereafter. Notwithstanding the foregoing, (a) the
initial Applicable Commitment Fee Percentage will be (i) subject to the
provisions of Section 2.12(b), .375% for the period from the Closing Date
through the Effective Date and (ii) .50% from the Effective Date through the
first day of the third month of the third full Fiscal Quarter after the
Effective Date (but based upon Current Information for the immediately preceding
Rolling Period) and (b) if at any time the Company fails to deliver Current
Information on or before the date required pursuant to Section 5.02 (without
regard to grace periods), the Applicable Commitment Fee Percentage will be .50%
from the date such Current Information is due pursuant to Section 5.02 (without
regard to grace periods) through the date the Administrative Agent receives all
Current Information then due pursuant to Section 5.02.
"Applicable Lender" shall mean, with respect to any Borrowing of Revolving
Credit Loans, each Revolving Credit Lender, with respect to any Borrowing of
Tranche A Term Loans, each Tranche A Term Loan Lender, with respect to any
Borrowing of Tranche B Term Loans, each Tranche B Term Loan Lender, and with
respect to any Borrowing of ESOP Term Loans, each ESOP Term Loan Lender.
"Applicable Margin" shall mean, on any day and with respect to any (a)
Tranche B Term Loan, for Base Rate Loans, 2.00% per annum and for Eurodollar
Loans, 3.00% per annum, and (b) Revolving Credit Loan, Tranche A Term Loan or
ESOP Term Loan, the applicable per annum percentage set forth at the appropriate
intersection in the table shown below, based on the Leverage Ratio for the
Rolling Period ending on the most recent Quarterly Date with respect to which
the Company is required to deliver the Current Information (said calculation to
be made by the Administrative Agent as soon as practicable after receipt by the
Administrative Agent of all required Current Information for the applicable
period); provided that, for purposes of this definition, "Rolling Period" shall
mean (a) for the second full Fiscal Quarter after the Effective Date, such
quarter and the preceding Fiscal Quarter, (b) for the third full Fiscal Quarter
after the Effective Date, such quarter and the two preceding Fiscal Quarters (in
the case of each of clauses (a) and (b) determined on an annualized basis) and
(c) for each Fiscal Quarter thereafter, such quarter and the three preceding
Fiscal Quarters:
4
<PAGE>
<TABLE>
<CAPTION>
LEVERAGE RATIO EURODOLLAR LOAN APPLICABLE BASE RATE LOAN APPLICABLE
MARGIN PERCENTAGE MARGIN PERCENTAGE
- ------------------------------------------------------------------------------------
<S> <C> <C>
Greater than or equal to 2.50% 1.50%
4.00
- ------------------------------------------------------------------------------------
Greater than or equal to 2.25% 1.25%
3.75 but less than 4.00
- ------------------------------------------------------------------------------------
Greater than or equal to 2.00% 1.00%
3.50 but less than 3.75
- ------------------------------------------------------------------------------------
Greater than or equal to 1.75% .75%
3.25 but less than 3.50
- ------------------------------------------------------------------------------------
Greater than or equal to 1.50% .50%
3.00 but less than 3.25
- ------------------------------------------------------------------------------------
Greater than or equal to 1.25% .25%
2.75 but less than 3.00
- ------------------------------------------------------------------------------------
Less than 2.75 1.00% 0%
- ------------------------------------------------------------------------------------
</TABLE>
Each change in the Applicable Margin based on a change in the Current
Information (or the Company's failure to deliver the Current Information) shall
be effective as of the first day of the third month of each applicable Fiscal
Quarter (but based upon Current Information for the immediately preceding
Rolling Period), or if such day is not a Business Day, then the first Business
Day thereafter. Notwithstanding the foregoing, (a) for the period from the
Effective Date through the first day of the third month of the third full Fiscal
Quarter after the Effective Date, the initial Eurodollar Loan Applicable Margin
for the Revolving Credit Loans, Tranche A Term Loans and ESOP Term Loans will be
2.50% and the initial Base Rate Loan Applicable Margin for the Revolving Credit
Loans, Tranche A Term Loans and ESOP Term Loans will be 1.50% and (b) if at any
time the Company fails to deliver Current Information on or before the date
required pursuant to Section 5.02 (without regard to grace periods), the
Eurodollar Loan Applicable Margin for the Revolving Credit Loans, the Tranche A
Term Loans and the ESOP Term Loans will be 2.50% and the Base Rate Loan
Applicable Margin for the Revolving Credit Loans, the Tranche A Term Loans, and
the ESOP Term Loans will be 1.50% from the date such Current Information is due
pursuant to Section 5.02 (without regard to grace periods) through the date the
Administrative Agent receives all Current Information then due pursuant to
Section 5.02.
"Applicable Percentage" shall mean, with respect to any Revolving
Credit Lender, such Lender's Revolving Credit Percentage, with respect to any
Tranche A Term Loan Lender, such Lender's Tranche A Term Loan Percentage, with
respect to any Tranche B Term Loan Lender, such Lender's Tranche B Term Loan
Percentage, and with respect to any ESOP Term Loan Lender, such Lender's ESOP
Term Loan Percentage.
5
<PAGE>
"Application" shall mean an "Application and Agreement for Letters of
Credit," or similar instruments or agreements, entered into between the Company
and an Issuing Bank in connection with any Letter of Credit.
"Asset Conveyance" shall have the meaning provided in the Introductory
Statement.
"Assignment and Acceptance" shall have the meaning provided in Section
8.07(c).
"Bankruptcy Code" shall have the meaning provided in Section 6.08.
"Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month
Secondary CD Rate and (ii) a fraction, whose numerator is one and whose
denominator is one minus the C\D Reserve Percentage and (b) the C\D Assessment
Rate.
"Base Rate" shall have the meaning provided in Section 2.06(a).
"Base Rate Loan" shall mean a Revolving Credit Loan, a Tranche A Term Loan,
a Tranche B Term Loan or an ESOP Term Loan bearing interest at the rate provided
in Section 2.06(a).
"Borrowing" shall mean a borrowing pursuant to a Borrowing Request or a
continuation or a conversion pursuant to Section 2.11 consisting, in each case,
of the same Type of Loans having, in the case of Eurodollar Loans, the same
Interest Period (except as otherwise provided in Sections 2.14 and 2.15) and
made previously or being made concurrently, with respect to Revolving Credit
Loans, by all of the Revolving Credit Lenders, with respect to Tranche A Term
Loans, by all of the Tranche A Term Loan Lenders, with respect to Tranche B Term
Loans, by all of the Tranche B Term Loan Lenders, and with respect to ESOP Term
Loans, by all of the ESOP Term Loan Lenders.
"Borrowing Base" shall mean at any time the amount equal to the sum of (i)
85% of Eligible Accounts plus (ii) 65% of Eligible Inventory; provided, however,
if 65% of Eligible Inventory shall at any time exceed 85% of Eligible Accounts,
then the Borrowing Base shall be reduced by such excess amount.
"Borrowing Base Report" shall mean the report of the Company concerning the
amount of the Borrowing Base, to be delivered pursuant to Section 5.02(h),
substantially in the form attached as Exhibit H.
"Borrowing Request" shall mean a request for a Borrowing pursuant to
Section 2.02, substantially in the form attached as Exhibit D.
"Business Day" shall mean any day excluding Saturday, Sunday and any other
day on which banks are required or authorized to close in New York, New York or
Houston, Texas and, if the applicable Business Day relates to Eurodollar Loans,
on which trading is carried on by and between banks in Dollar deposits in the
applicable interbank Eurodollar market.
6
<PAGE>
"Canadian Facility" shall mean a revolving loan and letter of credit
facility for loans and letters of credit in Canadian or U.S. dollars to or for
the account of Sterling Pulp.
"Canadian Facility Administrative Agent" shall mean the "Administrative
Agent," or the Person performing such functions if called by a different title,
under the Canadian Facility.
"Canadian Subsidiaries" shall mean any Subsidiary of the Company which is
organized under the laws of Canada or any province thereof.
"Capital Expenditures" shall mean, for any period, all expenditures
(whether paid in cash or accrued as a liability, including the portion of
Capital Lease Obligations originally incurred during such period that are
capitalized for the consolidated balance sheet of the Company) by the Company
and its Subsidiaries during such period, that, in conformity with GAAP, are
included in "capital expenditures," "additions to property, plant or equipment"
or comparable items in the consolidated financial statements of the Company, but
excluding (a) increases in the consolidated fixed or capital assets of the
Company and its Subsidiaries resulting solely from Permitted Acquisitions (other
than expenditures made after the date of any such Permitted Acquisition), (b)
expenditures for the restoration, repair or replacement of any fixed or capital
asset that was destroyed or damaged, in whole or in part, in an amount equal to
any insurance proceeds received in connection with such destruction or damage,
and (c) increases in the capital assets of the Company or its Subsidiaries
resulting from expenditures in respect of fixed or capital assets made by a
Person other than the Company or its Subsidiaries so long as they have no
obligation to reimburse such other Person for such expenditures.
"Capital Expenditures from Retained Cash Flow" shall mean Capital
Expenditures of the Company and its Subsidiaries on a consolidated basis
permitted for any Fiscal Year pursuant to Section 5.04(o)(iii).
"Capital Lease Obligations" shall mean, as to any Person, the obligations
of such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal property (excluding the
Valdosta Lease but only to the extent that the Company or any Subsidiary owns
Valdosta Bonds) which obligations are required to be classified and accounted
for as a liability for a capital lease on a balance sheet of such Person and,
for purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof.
"Carry-Forward Capital Expenditures" shall mean Capital Expenditures of the
Company and its Subsidiaries on a consolidated basis permitted for any Fiscal
Year pursuant to Section 5.04(o)(ii).
"C\D Assessment Rate" shall mean for any day as applied to any Base Rate
Loan, the annual assessment rate determined by the Administrative Agent to be
payable on such day to the Federal Deposit Insurance Corporation (the "FDIC")
for the FDIC (or any successor thereto) to insure time deposits at offices of
the Administrative Agent in the United States.
"C\D Reserve Percentage" shall mean for any day as applied to any Base Rate
Loan, that percentage (expressed as a decimal) that is in effect on such day, as
prescribed by the Board of
7
<PAGE>
Governors of the Federal Reserve System (or any successor) for determining the
then current reserve requirement for the Administrative Agent in respect of new
non-personal time deposits in Dollars having a maturity of 30 days or more.
"Change of Control" shall mean either a "Change in Control", as defined in
the Senior Subordinated Notes or a change resulting when any Unrelated Person or
any Unrelated Persons, other than the Designated Shareholders, acting together,
which would constitute a Group together with any Affiliates or Related Persons
thereof (in each case also constituting Unrelated Persons) shall at any time
either (i) Beneficially Own more than 30% of the aggregate voting power of all
classes of Voting Stock of Holdco or (ii) succeed in having sufficient of its or
their nominees elected to the Board of Directors of Holdco such that such
nominees, when added to any existing director remaining on the Board of
Directors of Holdco after such election who is an Affiliate or Related Person of
such Person or Group, shall constitute a majority of the Board of Directors of
Holdco; provided, however, no Change of Control shall have occurred so long as
the Designated Shareholders (or any combination thereof) shall retain more than
50% of the aggregate voting power of all classes of Voting Stock of Holdco. As
used herein (a) "Beneficially Own" shall mean "beneficially own" as defined in
Rule 13d-3 of the Securities Exchange Act of 1934, as amended, or any successor
provision thereto; provided, however, that, for purposes of this definition, a
Person shall not be deemed to Beneficially Own securities tendered pursuant to a
tender or exchange offer made by or on behalf of such Person or any of such
Person's Affiliates until such tendered securities are accepted for purchase or
exchange; (b) "Group" shall mean a "group" for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended; (c) "Unrelated Person" shall mean
at any time any Person other than Holdco or any of its Subsidiaries and other
than any trust for any employee benefit plan of Holdco or any of its
Subsidiaries; (d) "Related Person" of any Person shall mean any other Person
owning (1) 5% or more of the outstanding common stock of such Person or (2) 5%
or more of the Voting Stock of such Person; and (e) "Designated Shareholders"
shall mean the Persons who are, as of the Effective Date, parties to the
shareholder agreement among certain shareholders of Holdco, delivered to the
Administrative Agent on the Effective Date.
"Closing Date" shall mean the "as of" date of this Agreement set forth in
the first paragraph hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and any
successor statute.
"Collateral" shall mean the Company's, Holdco's and the Subsidiary
Guarantors' Properties described in and subject to the Liens, privileges,
priorities and security interests purported to be created by any Security
Instrument.
"Commitments" shall mean, for any Lender, such Lender's Revolving Credit
Commitment and Term Loan Commitments.
"Commodity Swap Agreement" shall mean any contract for sale for future
delivery of commodities (whether or not the subject commodities are to be
delivered), hedging contract, forward contract, swap agreement, futures contract
or other commodity pricing protection agreement or option
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with respect to any such transaction, designed to hedge against fluctuations in
prices of the subject commodities.
"Company" shall mean STX Chemicals Corp., a Delaware corporation, until the
Name Change occurs, and thereafter, Sterling Chemicals, Inc., a Delaware
corporation.
"Contingent Termination Date" shall mean September 16, 1996.
"Cover", when required by this Agreement for Letter of Credit Liabilities,
shall be effected by paying to the Administrative Agent in immediately available
funds, to be held by the Administrative Agent in a collateral account maintained
by the Administrative Agent at its Payment Office and collaterally assigned as
security pursuant to the Cash Collateral Account Agreement substantially in the
form of Exhibit F-13 dated as of the Effective Date between the Company and the
Administrative Agent, an amount equal to the maximum amount of each applicable
Letter of Credit available for drawing at any time. Such amount shall be
retained by the Administrative Agent in such collateral account until such time
as the applicable Letter of Credit shall have expired and Reimburse ment
Obligations, if any, with respect thereto shall have been fully satisfied.
"Credit Suisse" shall mean Credit Suisse, in its individual capacity or as
an Issuing Bank, as the case may be, and not as Documentation Agent.
"Cumulative Retained Cash Flow" shall mean an amount equal to the
difference of (a) Retained Cash Flow for all then previous Fiscal Years, on a
cumulative basis, minus (b) Designated Retained Cash Flow Usage, on a
cumulative basis, in each case from the Effective Date through the date of
determination.
"Current Assets" shall mean all assets of a Person which under GAAP would
be classified as current assets (excluding any cash or cash equivalents).
"Current Information" shall mean, as of any day, the financial statements
and other related information for any applicable period most recently required
to be delivered to the Administrative Agent pursuant to Sections 5.02(a), (b),
and (d).
"Current Liabilities" shall mean all liabilities of a Person which under
GAAP would be classified as current liabilities, other than current maturities
of long term debt and the obligation to repay the Revolving Credit Loans.
"Current Ratio" shall mean, on any day, the ratio of Current Assets to
Current Liabilities.
"Deed of Trust" shall mean the Deed of Trust dated as of the Effective Date
and delivered by the Company pursuant to Section 3.02(d)(viii) as security for
the payment and performance of the Lender Indebtedness.
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"Default" shall mean an Event of Default or any condition or event
which, with notice or lapse of time or both, would constitute an Event of
Default.
"Designated Retained Cash Flow Usage" shall be an amount designated in
writing by a Responsible Officer of the Company to the Administrative Agent,
which designation shall be in the form of Exhibit J, to be a usage of Retained
Cash Flow for either a Permitted Acquisition or a Capital Expenditure.
"Documentary Letter of Credit" shall mean a letter of credit issued
pursuant to this Credit Agreement that supports payment or performance for a
single identified purchase or exchange of products in the ordinary course of
business of the Company or its Subsidiaries.
"Documentation Agent" shall mean Credit Suisse, acting in the manner and to
the extent described in Article VII.
"Dollar" and the sign "$" shall mean lawful money of the United States of
America.
"EBITDA" shall mean, as to the Company and its Subsidiaries on a
consolidated basis and for any period, the amount equal to net income of the
Company and its Subsidiaries less any non-cash income included in net income,
plus (a) to the extent deducted from net income, interest expense, depreciation,
depletion and impairment, amortization of leasehold and intangibles, other non-
cash expenses, and income tax expenses, and (b) prepaid royalty income to the
extent actually received in cash, provided, that, extraordinary gains or losses,
including but not limited to gains or losses on the disposition of assets, shall
not be included in EBITDA, in each case for such period.
"Effective Date" shall mean the date on which (i) each of the conditions
precedent set forth in Article III have been satisfied or waived by each of the
Lenders and (ii) the initial Loans have been made or the initial Letter of
Credit has been issued.
"Eligible Account" shall mean at any time the invoice or ledger amount
owing on each account (which shall mean (i) any "account" as such term is
defined in Section 9-106 of the UCC, (ii) any receivable arising out of the
licensing of chlorine dioxide generator technology or other technology relating
thereto, (iii) receivables arising out of the profit sharing component of
conversion contracts to the extent the parties thereto have agreed in writing as
to the amount thereof that is subject to no further adjustment and payable
within 90 days, and (iv) any "chattel paper" as such term is defined in Section
9-105(1)(b) of the UCC) of the Company or any of its Subsidiaries (net of any
credit balance, returns, trade discounts, or unbilled amounts or retention) for
which each of the following statements is accurate and complete (and the Company
by including such account in any computation of the Borrowing Base shall be
deemed to represent and warrant to the Administrative Agent, the Issuing Banks
and the Lenders the accuracy and completeness of such statements):
(a) Said account is a binding and valid obligation of the obligor thereon
in full force and effect;
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(b) Said account is genuine as appearing on its face or as represented in
the books and records of Company or any of its Subsidiaries, as applicable;
(c) Said account is free from plausibly valid claims regarding rescission,
cancellation or avoidance, whether by operation of law or otherwise;
(d) Payment of said account is less than 90 days past due as determined by
the due date stated on the invoice therefor (or if said account is not paid by
reference to an invoice in the ordinary course of business but instead by
reference to the terms of the agreements creating said account, said account has
not remained unpaid beyond 90 days after the due date therefor);
(e) Said account is net of concessions, offset (excluding any accounts
payable offset supported by a Letter of Credit) or understandings with the
obligor thereon that in any way could reasonably be expected to adversely affect
the payment of said account;
(f) In the case of an account owing to the Company or any U.S. Subsidiary,
the Administrative Agent, on behalf of the Lenders, has a first-priority
perfected Lien covering said account, and, in the case of an account owing to
any Canadian Subsidiary, the Administrative Agent, on behalf of the Lenders, has
a first-priority perfected Lien in and to 65% of the issued and outstanding
equity interests of Sterling Pulp and Sterling NRO and any other direct Canadian
Subsidiary of the Company or any U.S. Subsidiary, in each case to the extent
required by and in accordance with the applicable Security Instrument. Other
than the Liens described in the preceding sentence of this Subsection (f), said
account is, and at all times will be, free and clear of all Liens, except that
accounts owing to the Canadian Subsidiaries may be pledged to secure the
Canadian Facility.
(g) Said account arose in the ordinary course of business of the Company or
any of its Subsidiaries, as applicable;
(h) Said account is not payable by an obligor who is more than 90 days past
due with regard to 20% or more of the total accounts owed to the Company or its
Subsidiaries by such obligor or any of its Affiliates;
(i) All consents, licenses, approvals or authorizations of, or
registrations or declarations with, any Governmental Authority required to be
obtained, effected or given in connection with the execution, delivery and
performance of said account by each party obligated thereunder have been duly
obtained, effected or given and are in full force and effect;
(j) The obligor on said account is not the subject of any bankruptcy or
insolvency proceeding, has not had a trustee or receiver appointed for all or a
substantial part of its property, has not made an assignment for the benefit of
creditors, admitted its inability to pay its debts as they mature or suspended
its business;
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(k) The obligor of said account is subject to the jurisdiction of federal,
state or provincial courts in the United States of America or Canada, unless (i)
said account is backed by a letter of credit in form acceptable to the
Administrative Agent and that is issued or confirmed by an issuer, having
ratings of at least A2 or P2 by Standard & Poor's Ratings Group and Moody's
Investors Service, Inc., respectively or a rating of at least A2 by
International Bank Credit Analysis, Ltd. or at least LC-1 by Thomson Bank Watch;
provided that if such issuer is rated by more than one such Person, no such
ratings shall be lower than the applicable level set forth in this Subsection
(k), or (ii) the obligor on said account has long-term debt ratings, or is a
wholly-owned Subsidiary of a Person having long-term debt ratings of at least A-
and A3 or short-term debt ratings of at least A2 and P2, in each case by
Standard & Poor's Ratings Group and Moody's Investors Service, Inc.,
respectively;
(l) In the case of the sale of goods, the subject goods have been sold to
an obligor on a true sale basis on open account, or subject to contract, and not
on consignment, on approval or on a "sale or return" basis or subject to any
other repurchase or return agreement, no material part of the subject goods has
been returned, rejected, lost or damaged, and said account is not, evidenced by
chattel paper or an instrument of any kind; and
(m) Each of the representations and warranties set forth in the Security
Instruments with respect to said account is true and correct in all material
respects on such date;
provided that, (1) if any Eligible Account, when added to all other accounts
that are obligations of the same obligor and its Affiliates, results in a total
sum that exceeds 15% (or 25% in the case of any obligor listed on Schedule
1.01B) of the total balance then due on all Eligible Accounts (without giving
effect to any reduction in Eligible Accounts pursuant to this clause (1)), the
amount of said account in excess of 15% (or 25% in the case of any obligor
listed on Schedule 1.01B) of such total balance then due shall be excluded from
Eligible Accounts, (2) if any account which is either a Canadian Account or an
Other Foreign Account, when added to the total of all other Canadian Accounts
and Other Foreign Accounts included in Eligible Accounts, results in a sum that
exceeds 70% of the total balance then due on all Domestic Accounts, the amount
of said account in excess of such total shall be excluded from Eligible
Accounts, (3) if any account which is an Other Foreign Account, when added to
the total of all Other Foreign Accounts included in Eligible Accounts, results
in a sum that exceeds 40% of the total balance then due on all Domestic
Accounts, the amount of said account in excess of such total shall be excluded
from Eligible Accounts, and (4) any Other Foreign Account that would, but for
the effect of Subsection (k) of this definition be included in Eligible
Accounts, shall be included in Eligible Accounts up to an aggregate amount not
to exceed, at any one time, 10% of the total balance then due on all Domestic
Accounts. As used herein, the term "Canadian Account" shall mean any account
owing to a Canadian Subsidiary and that otherwise meets the requirements to be
an Eligible Account. As used herein, the term "Domestic Account" shall mean any
Eligible Account other than a Canadian Account or an Other Foreign Account. As
used herein, the term "Other Foreign Account" shall mean any account the obligor
of which is not subject to the jurisdiction of federal, state or provincial
courts in the United States of America or Canada, whether
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or not the Administrative Agent, on behalf of the Lenders, has a first-priority,
perfected Lien covering said account, but which account otherwise meets the
requirements to be an Eligible Account.
"Eligible Inventory" shall mean, at any time, all inventory (as such term
is defined in Section 9-109(4) of the UCC) of the Company and its Subsidiaries
for which each of the following statements is accurate and complete (and the
Company by including such inventory in any computation of the Borrowing Base
shall be deemed to represent and warrant to the Administrative Agent, each
Issuing Bank and each Lender the accuracy and completeness of such statements):
(a) Said inventory shall be valued in accordance with GAAP and (i) shall
include raw materials and finished goods but (ii) shall not include goods that
are classified as "work-in-progress";
(b) Said inventory is in good condition, meets all standards imposed by any
Governmental Authority having regulatory authority over it, its use and/or sale
and is either currently usable or currently salable in the normal course of
business of the Company and its Subsidiaries;
(c) Said inventory is in possession of the Company or its Subsidiaries, or
is in transit in the ordinary course of business but in respect of which title
remains in the Company or its applicable Subsidiary and which is fully insured
(subject to deductibles consistent with prudent industry standards for similarly
situated companies) and is not (i) located outside the United States of America
or Canada or (ii) in the possession or control of any warehouseman, bailee, or
any agent or processor for or customer of the Company or its Subsidiaries or, if
it is in any such Person's possession, the Company or its applicable
Subsidiaries shall have notified (in a manner that effectively under applicable
law creates a valid and first priority perfected Lien in favor of the
Administrative Agent, on behalf of the Lenders, in such inventory) such
warehouseman, bailee, agent, processor or customer of the Administrative Agent's
Lien and such warehouseman, bailee, agent, processor or customer has
subordinated or waived any Lien it may claim therein and agreed to hold all such
inventory for the Administrative Agent's account subject to the Administrative
Agent's instructions;
(d) Each of the representations and warranties set forth in the Security
Instruments with respect to said inventory is true and correct in all material
respects on such date;
(e) In the case of inventory of any U.S. Subsidiaries, the Administrative
Agent, on behalf of the Lenders, has a first-priority perfected Lien covering
said inventory and, in the case of the inventory of any of the Canadian
Subsidiaries, the Administrative Agent, on behalf of the Lenders, has a first-
priority perfected Lien in and to 65% of the issued and outstanding equity
interests of Sterling Pulp and Sterling NRO and any other direct Canadian
Subsidiary of the Company or any U.S. Subsidiary, in each case to the extent
required by and in accordance with the applicable Security Instrument. Other
than the Liens described in the preceding sentence of this Subsection (e), said
inventory is, and at all time will be, free and
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clear of all Liens (or with respect to which all rights of the holder of such
Liens have been waived or subordinated to the satisfaction of the Administrative
Agent), except that inventory owned by the Canadian Subsidiaries may be pledged
to secure the Canadian Facility; and
(f) Said inventory does not include goods that are not owned by the Company
or its Subsidiaries or that are held by the Company or its Subsidiaries pursuant
to a consignment agreement.
"Environmental Laws" shall mean any and all laws, statutes, ordinances,
rules, regulations, orders, or determinations of any Governmental Authority
pertaining to health or the environment in effect in any and all jurisdictions
in which the Company or its Subsidiaries are conducting or at any time have
conducted business, or where any Property of the Company or its Subsidiaries is
located, or where any hazardous substances generated by or disposed of by the
Company or its Subsidiaries are located, including but not limited to the Oil
Pollution Act of 1990 ("OPA"), the Clean Air Act, as amended, the Comprehensive
Environmental, Response, Compensation, and Liability Act of 1980 ("CERCLA"), as
amended, the Federal Water Pollution Control Act, as amended, the Occupational
Safety and Health Act of 1970, as amended, the Resource Conservation and
Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking Water Act, as
amended, the Toxic Substances Control Act, as amended, the Superfund Amendments
and Reauthorization Act of 1986, as amended, and other environmental
conservation or protection laws. The term "oil" shall have the meaning
specified in OPA; the terms "hazardous substance," "release" and "threatened
release" have the meanings specified in CERCLA, and the terms "solid waste" and
"disposal" (or "disposed") have the meanings specified in RCRA; provided,
however, in the event either CERCLA or RCRA is amended so as to change the
meaning of any term defined thereby, such changed meaning shall apply subsequent
to the effective date of such amendment, and provided, further, that, to the
extent the laws of the state in which any Property of the Company or its
Subsidiaries is located establish a meaning for "oil," "hazardous substance,"
"release," "solid waste" or "disposal" which is broader than that specified in
either OPA, CERCLA or RCRA, such broader meaning shall apply.
"Equity Plans" shall mean the Omnibus Stock Plan and all other contracts,
commitments, plans, programs or arrangements providing for the issuance or grant
of any Stock Acquisition Rights or any capital stock (restricted or otherwise),
stock appreciation rights, phantom stock or other equity interests (i) prior to
the Merger and Asset Conveyance, in SCI or any of its Subsidiaries, and (ii)
after the Merger and Asset Conveyance, in Holdco, including stock purchase
plans. As used herein, "Omnibus Stock Plan" shall mean (i) prior to the Merger
and Asset Conveyance, the Omnibus Stock and Incentive Plan of SCI or any of its
Subsidiaries, and (ii) after the Merger and Asset Conveyance, the Omnibus Stock
and Incentive Plan of Holdco, and "Stock Acquisition Rights" shall mean (i) all
options, warrants, calls, subscriptions or other rights of any nature to acquire
any shares of capital stock of, or any other equity interests in, Holdco and
(ii) all securities convertible into or exchangeable for such shares or equity
interests or obligating Holdco to grant, extend or enter into any such option,
warrant, call, subscription or other right, agreement or commitment; provided,
however, that the term "Stock Acquisition Rights" shall not include SARs,
phantom stock or restricted stock grants.
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"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and any successor statute.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Company or a Subsidiary of the Company
would be deemed to be a "single employer" within the meaning of Section
4001(b)(1) of ERISA or Subsections 414(b), (c), (m) or (o) of the Code.
"ERISA Termination Event" shall mean (i) a "Reportable Event" described in
Section 4043 of ERISA and the regulations issued thereunder (other than a
"Reportable Event" not subject to the provision for 30-day notice to the PBGC
under Subsections .14, .18, .19 or .20 of Part 2615 of the PBGC regulations),
(ii) the withdrawal of the Company, a Subsidiary of the Company or any ERISA
Affiliate from a Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA, (iii) the filing of a
notice of intent to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041(c) of ERISA, (iv) the institution of proceedings
to terminate a Plan by the PBGC, or (v) any other event or condition which could
reasonably be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.
"ESOP" shall mean the new employee stock ownership plan of the Company and
its related trust, as in effect on the Effective Date.
"ESOP Security Agreement" shall mean that certain Security Agreement dated
as of the Effective Date, executed by the ESOP in favor of the Company, and any
and all amendments, modifications, supplements, renewals and restatements
thereof.
"ESOP Term Loan" shall have the meaning provided in Section 2.01(a)(iii).
"ESOP Term Loan Commitment" shall have the meaning provided in Section
2.01(f).
"ESOP Term Loan Lender" shall mean any Lender having an ESOP Term Loan
Commitment hereunder or an ESOP Term Loan outstanding hereunder.
"ESOP Term Loan Maturity Date" shall mean September 30, 2000.
"ESOP Term Loan Percentage" shall mean as to any ESOP Term Loan Lender, (a)
at any time on or before the Effective Date, the percentage which such Lender's
ESOP Term Loan Commitment then outstanding constitutes of the aggregate ESOP
Term Loan Commitments then outstanding or, (b) at any time after the Effective
Date, the percentage which such Lender's ESOP Term Loans then outstanding
constitutes of the aggregate ESOP Term Loans then outstanding.
"ESOP Term Note" shall mean a promissory note of the Company described in
Section 2.05(d) payable to an ESOP Term Loan Lender and being substantially in
the form of Exhibit B-3 evidencing the aggregate indebtedness of the Company to
such Lender for ESOP Term Loans.
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"Eurodollar Loan" shall mean a Revolving Credit Loan, a Tranche A Term
Loan, a Tranche B Term Loan or an ESOP Term Loan bearing interest at the rate
provided in Subsection 2.06(b).
"Eurodollar Rate" shall mean, with respect to any Borrowing of Eurodollar
Loans for any Interest Period, the product of (a) (i) the interest rate per
annum shown on page 3750 of the Dow Jones & Company Telerate screen or any
successor page as the composite offered rate for London interbank deposits with
a period comparable to the Interest Period for such Eurodollar Loan, as shown
under the heading "USD" at 11:00 A.M. (London time) two Business Days prior to
the first day of such Interest Period or (ii) if the rate in clause (i) of this
definition is not shown for any particular day, the average interest rate per
annum (rounded upwards, if necessary, to the next 1/16th of 1%) offered to the
Reference Banks in the interbank Eurodollar market for Dollar deposits of
amounts in funds comparable to the principal amount of the Eurodollar Loan to
which such Eurodollar Rate is to be applicable with maturities comparable to the
Interest Period for which such Eurodollar Rate will apply as of approximately
10:00 a.m. (Houston time) two Business Days prior to the commencement of such
Interest Period, times (b) Statutory Reserves.
"Event of Default" shall have the meaning provided in Article VI.
"Excess Cash Flow" shall mean (a) EBITDA of the Company and its
Subsidiaries on a consolidated basis for any Fiscal Year, minus (b) the sum of
(i) scheduled payments of principal pursuant to Sections 2.05(b) and (c), (ii)
the principal portion of scheduled lease payments under Capital Lease
Obligations, (iii) cash interest, (iv) cash taxes applicable to such Fiscal Year
and paid prior to the date of determination, by or on behalf of the Company and
its Subsidiaries, (v) any Permitted Holdco Dividends actually paid, and (vi) the
amount equal to (A) actual Capital Expenditures (exclusive of Capital Lease
Obligations incurred during such Fiscal year and Capital Expenditures for such
Fiscal Year that were designated as Capital Expenditures from Retained Cash
Flow), plus (B) the amount of Carry-Forward Capital Expenditures permitted to
be made in the next succeeding Fiscal Year, minus (C) the amount of Carry-
Forward Capital Expenditures permitted to be made in the current Fiscal Year.
"Exchange Rate Swap Agreement" shall mean any contract for sale, purchase,
or exchange or for future delivery of foreign currency (whether or not the
subject currency is to be delivered or exchanged), hedging contract, forward
contract, swap agreement, futures contract, or other foreign exchange protection
agreement or option with respect to any such transaction, designed to hedge
against fluctuations in foreign exchange rates.
"Federal Funds Effective Rate" shall mean, for any day, the per annum rate
equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by the
Administrative Agent from three Federal funds brokers of recognized standing
selected by it.
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"Fee Letter" shall mean the letter agreement dated April 24, 1996,
regarding fees, executed by TCB, Credit Suisse and Chase Securities Inc. and
accepted and agreed to by TSG as of April 24, 1996.
"Financial Statements" shall mean the audited consolidated financial
statements of SCI for the Fiscal Year ended September 30, 1995 and the unaudited
consolidated financial statements of SCI for the Fiscal Quarter ended March 31,
1996.
"Financing Documents" shall mean this Agreement, the Notes, the Subsidiary
Guaranty, the Security Instruments, the Stock Intercreditor Agreement, the
Applications, Borrowing Requests, Borrowing Base Reports, the Fee Letter and the
other documents, instruments or agreements described in Subsection 3.02(d),
together with any other document, instrument or agreement (other than
participation, agency or similar agreements among the Lenders or between any
Lender and any other bank or creditor with respect to any indebtedness or
obligations of Holdco or the Company or its Subsidiaries hereunder or
thereunder) now or hereafter entered into in connection with the Loans, the
Lender Indebtedness or the Collateral, as such documents, instruments or
agreements may be amended, modified or supplemented from time to time.
"Fiscal Quarter" shall mean the fiscal quarter of the Company, ending on
the last day of each December, March, June and September in each year.
"Fiscal Year" shall mean the fiscal year of the Company, ending on
September 30th of each year.
"Fixed Charge Coverage Ratio" shall mean, for any day:
(a) from January 1, 1997, through March 31, 1997, the ratio of (i) EBITDA
for the Rolling Period ending on December 31, 1996 less cash income taxes
actually paid during the Fiscal Quarter ending on December 31, 1996, times four,
plus cash income tax refunds actually received by the Company and its
Subsidiaries on a consolidated basis for the Rolling Period ending on December
31, 1996, to (ii) the sum of (A) Scheduled Principal Payments made during the
Fiscal Quarter ending on December 31, 1996, times four, plus (B) the amount of
cash interest paid during the Fiscal Quarter ending on December 31, 1996
(including the interest component of Capital Lease Obligations), times four,
plus (C) actual Capital Expenditures (excluding Project Capital Expenditures and
Capital Lease Obligations incurred during such period) made during the Rolling
Period ending on December 31, 1996, plus (D) all Permitted Holdco Dividends paid
during the Rolling Period ending on December 31, 1996;
(b) from April 1, 1997, through June 30, 1997, the ratio of (i) EBITDA for
the Rolling Period ending on March 31, 1997, less cash income taxes actually
paid during the two Fiscal Quarters ending on December 31, 1996 and March 31,
1997, respectively, times two, plus cash income tax refunds actually received by
the Company and its Subsidiaries on a consolidated basis for the Rolling Period
ending on March 31, 1997, to (ii) the sum of (A)
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Scheduled Principal Payments made during the two Fiscal Quarters ending on
December 31, 1996, and March 31, 1997, times two, plus (B) the amount of cash
interest paid during the two Fiscal Quarters ending on December 31, 1996, and
March 31, 1997 (including the interest component of Capital Lease Obligations),
respectively, times two, plus (C) actual Capital Expenditures (excluding
Project Capital Expenditures and Capital Lease Obligations incurred during such
period) made during the Rolling Period ending on March 31, 1997, plus (D) all
Permitted Holdco Dividends paid during the Rolling Period ending on March 31,
1997;
(c) from July 1, 1997, through September 30, 1997, the ratio of (i) EBITDA
for the Rolling Period ending on June 30, 1997, less cash income taxes actually
paid for the three Fiscal Quarters ending on December 31, 1996, March 31, 1997
and June 30, 1997, respectively, times 1.33, plus cash income tax refunds
actually received by the Company and its Subsidiaries on a consolidated basis
for the Rolling Period ending on June 30, 1997, to (ii) the sum of (A) Scheduled
Principal Payments made during the three Fiscal Quarters ending on December 31,
1996, March 31, 1997, June 30, 1997, respectively, times 1.33, plus (B) the
amount of cash interest paid during the three Fiscal Quarters ending on December
31, 1996, March 31, 1997, and June 30, 1997 (including the interest component of
Capital Lease Obligations), respectively, times 1.33, plus (C) actual Capital
Expenditures (excluding Project Capital Expenditures and Capital Lease
Obligations incurred during such period) made during the Rolling Period ending
on June 30, 1997, plus (D) all Permitted Holdco Dividends paid during the
Rolling Period ending on June 30, 1997; and
(d) from October 1, 1997, through December 31, 1997, the ratio of (i)
EBITDA less cash income taxes actually paid plus cash income tax refunds
actually received by the Company and its Subsidiaries on a consolidated basis in
each case for the Rolling Period ending on September 30, 1997, to (ii) the sum
of (A) Scheduled Principal Payments made during such period, plus (B) the
amount of cash interest paid during such period (including the interest
component of Capital Lease Obligations), plus (C) the greater of (1) actual
Capital Expenditures (exclusive of Capital Lease Obligations incurred during
such period, Capital Expenditures made during such period that were designated
by the Company to be Capital Expenditures from Retained Cash Flow, and Project
Capital Expenditures made during such period) and (2) $15,000,000, plus (D) all
Permitted Holdco Dividends paid during such period, all without duplication and
as to the Company and its Subsidiaries on a consolidated basis.
(e) after December 31, 1997, the ratio of (i) EBITDA less cash income taxes
actually paid plus cash income tax refunds actually received by the Company and
its Subsidiaries on a consolidated basis to (ii) the Fixed Charges, in each case
for the Rolling Period ending on the most recent Quarterly Date.
"Fixed Charges" shall mean without duplication, as to the Company and its
Subsidiaries on a consolidated basis and for each Rolling Period, (a) Scheduled
Principal Payments made during such period, plus (b) the amount of cash interest
paid during such period (including the interest component
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of Capital Lease Obligations), plus (c) the greater of (i) actual Capital
Expenditures (exclusive of Capital Lease Obligations incurred during such period
and Capital Expenditures made during such period that were designated by the
Company to be Capital Expenditures from Retained Cash Flow) and (ii)
$15,000,000, plus (d) all Permitted Holdco Dividends paid during such period.
"Form 1001 Certification" shall have the meaning provided in Section
2.20(f).
"Form 4224 Certification" shall have the meaning provided in Section
2.20(f).
"Funded Indebtedness" shall mean, as to any Person, without duplication,
all Indebtedness for borrowed money, all obligations evidenced by bonds,
debentures, notes, or other similar instruments, all Capital Lease Obligations,
and all guaranties of Funded Indebtedness of other Persons.
"GAAP" shall mean generally accepted accounting principles as applied in
accordance with Section 1.02.
"Governmental Authority" shall mean any (domestic or foreign) federal,
state, province, county, city, municipal or other political subdivision or
government, department, commission, board, bureau, court, agency or any other
instrumentality of any of them, which exercises jurisdiction over the Company or
any of its Property, or any Subsidiary of the Company or any of such
Subsidiary's Property or any Plan.
"Governmental Requirement" shall mean any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, permit,
certificate, license, authorization or other direction or requirement (including
but not limited to any of the foregoing which relate to Environmental Laws,
energy regulations and occupational, safety and health standards or controls) of
any Governmental Authority.
"Hedge Agreement" shall mean (i) any Commodity Swap Agreement, (ii) any
Interest Rate Swap Agreement, or (iii) any Exchange Rate Swap Agreement.
"Highest Lawful Rate" shall mean, with respect to each Lender, the maximum
nonusurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Notes or on other
Lender Indebtedness, as the case may be, owed to it under the law of any
jurisdiction whose laws may be mandatorily applicable to such Lender
notwithstanding other provisions of this Agreement, or law of the United States
of America applicable to such Lender and the Transactions, which would permit
such Lender to contract for, charge, take, reserve or receive a greater amount
of interest than under such jurisdiction's law.
"Holdco" shall have the meaning provided in the Introductory Statement.
"Holdco Common Stock" shall mean the common stock of Holdco, par value
$0.01 per share.
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"Indebtedness" of any Person shall mean:
(i) all obligations of such Person for borrowed money and obligations
evidenced by bonds, debentures, notes or other similar instruments;
(ii) all obligations of such Person (whether contingent or otherwise) in
respect of bankers' acceptances, letters of credit, surety or other bonds and
similar instruments;
(iii) all obligations of such Person to pay the deferred purchase price of
Property or services (other than for borrowed money);
(iv) all Capital Lease Obligations in respect of which such Person is
liable, contingently or otherwise, as obligor, guarantor or otherwise, or in
respect of which obligations such Person otherwise assures a creditor against
loss;
(v) all guaranties (direct or indirect), and other contingent obligations
of such Person in respect of, or obligations to purchase or otherwise acquire or
to assure payment of, Indebtedness of other Persons;
(vi) Indebtedness of others secured by any Lien upon Property owned by such
Person, whether or not assumed;
(vii) all obligations or undertakings of such Person to maintain or cause
to be maintained the financial position or financial covenants of other Persons;
(viii) obligations to deliver goods or services in consideration of
advance payments, excluding such obligations incurred in the ordinary course of
business as conducted by the Company and its Subsidiaries as of the Closing
Date; and
(ix) the net amount of obligations of such Person under agreements of the
types described in the definitions of Commodity Swap Agreements, Exchange Rate
Swap Agreements and Interest Rate Swap Agreements;
provided, that the term "Indebtedness" shall not mean or include any
indebtedness of the type described in clause (i) of this definition in respect
of which monies sufficient to pay and discharge the same in full (either on the
expressed date of maturity thereof or on such earlier date as such indebtedness
may be duly called for redemption and payment) shall be deposited (in accordance
with the terms of such indebtedness) with a depository, agency or trustee,
acceptable to the Administrative Agent, in trust for the payment of such
indebtedness with the effect that the obligor of such indebtedness has no
further obligation to comply with the covenants and other applicable terms of
the documentation existing in connection therewith.
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"Interest Coverage Ratio" shall mean, on any day, the ratio of (a)
EBITDA for the Rolling Period ending on the then most recent Quarterly Date to
(b) cash interest payments made by the Company and its Subsidiaries on a
consolidated basis during such Rolling Period.
"Interest Period" shall mean, with respect to each Borrowing of Eurodollar
Loans, an interest period complying with the terms and provisions of Section
2.07.
"Interest Rate Swap Agreement" shall mean any rate swap, rate cap, rate
floor, rate collar, forward rate agreement, futures or other rate protection
agreement or option with respect to any such transaction, designed to hedge
against fluctuations in interest rates.
"Issuing Bank" shall mean, for each Letter of Credit, TCB, Credit Suisse
(or any other Lender designated by the Company and approved in writing by the
Administrative Agent such approval not to be unreasonably withheld), as the
issuing bank for such Letter of Credit, at the option of the Company.
"Leasehold Deed of Trust" shall mean the Leasehold Deed to Secure Debt and
Security Agreement dated as of the Effective Date and delivered by the Company
pursuant to Section 3.02(d)(x) as security for the Lender Indebtedness.
"Lender" shall have the meaning assigned such term in the opening paragraph
of this Agreement.
"Lender Indebtedness" shall mean any and all amounts owing or to be owing
by the Company to the Agents, the Issuing Banks or the Lenders with respect to
or in connection with the Loans, any Letter of Credit Liabilities, the Notes,
any Hedge Agreement, this Agreement, or any other Financing Document and, as to
Hedge Agreements, any and all amounts owing or to be owing by the Company
thereunder to any Secured Affiliate.
"Lending Office" shall mean for each Lender the office specified opposite
such Lender's name on the signature pages hereof, or in the Assignment and
Acceptance pursuant to which it became a Lender, with respect to each Type of
Loan, or such other office as such Lender may designate in writing from time to
time to the Company and the Administrative Agent with respect to such Type of
Loan.
"Letters of Credit" shall have the meaning assigned such term in
Section 2.03(a) and shall include the Outstanding Letters of Credit, which are
hereby deemed to be issued under this Agreement.
"Letter of Credit Liabilities" shall mean, at any time and in respect of
any Letter of Credit, the sum of (i) the amount available for drawings under
such Letter of Credit as of the date of determination plus (ii) the aggregate
unpaid amount of all Reimbursement Obligations due and payable as of the date of
determination in respect of previous drawings made under such Letter of Credit.
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"Leverage Ratio" shall mean, on any day, the ratio of (a) Funded
Indebtedness of the Company and its Subsidiaries on a consolidated basis as of
the date of determination to (b) EBITDA for the Rolling Period ending on the
most recent Quarterly Date as of the date of determination.
"Lien" shall mean any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether such
interest is based on contract or constitutional common law, or statutory law,
and including but not limited to the lien or security interest arising from a
mortgage, encumbrance, pledge, security agreement, conditional sale or trust
receipt or a lease, consignment or bailment for security purposes. The term
"Lien" shall include reservations, exceptions, encroachments, easements, rights
of way, covenants, conditions, restrictions, liens and other statutory,
constitutional, or common law rights of landlords, leases and other title
exceptions and encumbrances affecting Property. For the purposes of this
Agreement, the Company or any Subsidiary of the Company shall be deemed to be
the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, financing lease or other arrangement pursuant to
which title to the Property has been retained by or vested in some other Person
for security purposes.
"Loan" shall mean a Revolving Credit Loan or a Term Loan and "Loans" shall
mean collectively the Revolving Credit Loans or the Term Loans or one or more of
them as provided herein.
"Margin Stock" shall have the meaning provided in Regulations G, U and X.
"Material Adverse Effect" shall mean any material and adverse effect on (i)
the business operations, assets, liabilities, condition (financial or
otherwise), or results of operations of the Company, on an individual basis, or
the Company and its Subsidiaries taken as a whole, (ii) the ability of the
Company on an individual basis to carry out its business or of the Company and
its Subsidiaries taken as a whole to carry out their business, or (iii) the
ability of the Company and its Subsidiaries, taken as a whole, to perform the
obligations under the Notes, this Agreement or the other Financing Documents in
accordance with their respective terms.
"Material Contract" shall mean each contract, license, and agreement
listed on Schedule 4.23.
"Maximum Available Amount" shall mean, at any date, an amount equal to the
lesser of (a) the amount by which (i) the aggregate Revolving Credit Commitments
as of such date exceeds (ii) the aggregate principal amount of Indebtedness
outstanding under the Canadian Facility as of such date, and (b) the amount by
which (i) the Borrowing Base as of such date exceeds (ii) the aggregate
principal amount of Indebtedness outstanding under the Canadian Facility as of
such date.
"Merger" shall have the meaning provided in Introductory Statement.
"Merger Agreement" shall mean the Agreement and Plan of Merger, between
Holdco and SCI, as amended by that certain letter agreement dated as of June 11,
1996 and in effect on the Closing Date.
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"Net Proceeds" shall mean, with respect to any sale, transfer, or
disposition of Property permitted by Section 5.04(c) ("Permitted Disposition"),
the gross amount received by the Company or any of its Subsidiaries from such
Permitted Disposition, minus the sum of (i) the amount, if any, of all taxes
paid or payable by the Company or any of its Subsidiaries directly resulting
from such Permitted Disposition (including the amount, if any, estimated by the
Company in good faith at the time of such Permitted Disposition for taxes
payable by the Company or any of its Subsidiaries on or measured by net income
or gain resulting from such Permitted Disposition), and (ii) the reasonable out-
of-pocket costs and expenses incurred by the Company or such Subsidiary in
connection with such Permitted Disposition (including reasonable brokerage fees
paid to a Person other than an Affiliate of the Company, but excluding any fees
or expenses paid to an Affiliate of the Company).
"Notes" shall mean the Revolving Credit Notes and the Term Notes.
"Notice of Designated Retained Cash Flow Usage" shall mean a notice in the
form attached as Exhibit J.
"Other Taxes" shall have the meaning provided in Subsection 2.20(b).
"Outstanding Letter of Credit" shall mean any of the outstanding letters of
credit issued for the account of the Company or Sterling Pulp, and identified on
Scheduled 1.01A.
"Payment Office" shall mean the Administrative Agent's office located at
1111 Fannin Street, Houston, Texas 77002; Attention: Gale Manning (or such
other office or individual as the Administrative Agent may hereafter designate
in writing to the other parties hereto).
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Permitted Acquisition" shall mean any non-hostile acquisition of the
voting securities (other than publicly traded securities) or other equity
interests, or all or substantially all of the assets, of any Person (or any
division or product line of such person), but only so long as no Default shall
have occurred and be continuing at the time of (or would result from) such
acquisition, and only to the extent permitted pursuant to Section 5.04(e)(x).
"Permitted Holdco Dividend" shall mean any of the following, to the extent
permitted pursuant to Section 5.04(d)(iv):
(a) cash dividends to Holdco in any Fiscal Year not to exceed (A) $500,000
for the period from the Effective Date through September 30, 1996 and (B)
$2,000,000 for Fiscal Year ended September 30, 1997, and for each succeeding
Fiscal Year; and
(b) cash dividends to Holdco so long as Holdco promptly, and in any event
within five Business Days, utilizes the full amount of such cash dividends for
the sole purpose of paying interest as and when due with respect to the Senior
Secured Discount Notes then outstanding to the extent required to be made in
accordance with the terms of the Senior
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Secured Discount Notes as in effect on the Effective Date and without giving
effect to any amendment or modification thereof unless agreed to in writing by
the Lenders; provided that (i) the amount of such cash dividends paid pursuant
to this clause (b) shall not exceed the amount necessary to make such required
interest payment in accordance with the terms of the Senior Secured Discount
Notes, (ii) no such payment shall be made at any time when the payment of cash
interest on the Senior Secured Discount Notes is not required to be made
pursuant to the provisions thereof, and (iii) no such payment shall be made at
any time prior to the fifth anniversary of the Effective Date.
"Person" shall mean any individual, partnership, firm, corporation
(including, but not limited to the Company), association, joint venture, trust
or other entity, or any government or political subdivision or agency,
department or instrumentality thereof; provided, however, for the purpose of the
definition of "Change of Control," "Person" shall mean a "person" or group of
persons within the meaning of Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended.
"Pilko Report" shall mean the environmental assessment letter of Pilko &
Associates, Inc. dated April 18, 1996, and the accompanying Environmental
Assessment of Sterling Chemicals, Inc. each of which has been delivered to the
Lenders.
"Plan" shall mean any employee pension benefit plan, as defined in Section
3(2) of ERISA (including, but not limited to, an employee pension benefit plan,
such as a foreign plan, which is not subject to the provisions of ERISA), which
(i) is currently or hereafter sponsored, maintained or contributed to by the
Company, a Subsidiary of the Company or an ERISA Affiliate, or (ii) was at any
time during the six preceding Fiscal Years sponsored, maintained or contributed
to by the Company, a Subsidiary of the Company or an ERISA Affiliate.
"Prime Rate" shall mean the rate which the Administrative Agent announces
from time to time as its prime rate, effective as of the date announced as the
effective date of any change in such prime rate. Without notice to the Company
or any other Person, the Prime Rate shall change automatically from time to time
as and in the amount by which such prime rate shall fluctuate. The Prime Rate
is a reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. The Administrative Agent may make commercial
loans or other loans at rates of interest at, above or below the Prime Rate.
"Project Capital Expenditures" shall mean all Capital Expenditures made by
the Company and its Subsidiaries through December 31, 1996, for the construction
of the Valdosta, Georgia facility and the methanol facility located in Texas
City, Texas.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Quarterly Dates" shall mean the last day of each December, March, June,
and September, in each year.
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"Reference Banks" shall mean the Agents.
"Register" shall have the meaning assigned in Section 8.07(d).
"Regulation D", "Regulations G, U and X" shall mean, respectively,
Regulation D under the Securities Act of 1933, as amended or modified from time
to time, and Regulation G, Regulation U and Regulation X of the Board of
Governors of the Federal Reserve System, as such regulations are from time to
time in effect and any successor regulations thereto.
"Reimbursement Obligations" shall mean, at any date, the obligations of the
Company then outstanding in respect of the Letters of Credit, to reimburse the
Administrative Agent for the account of the Issuing Bank for the amount paid by
the Issuing Bank in respect of any drawings under the Letters of Credit.
"Required Lenders" shall mean at any time, Lenders the Total Credit
Percentages of which aggregate at least 51%.
"Responsible Officer" shall mean, with respect to any corporation, the
chairman of the board, the president, any vice president, the chief executive
officer or the chief operating officer, or any equivalent officer (regardless of
his or her title), and, in respect of financial or accounting matters, the chief
financial officer, the vice president of finance, the treasurer, the controller,
or any equivalent officer (regardless of his or her title). Unless otherwise
specified, all references to a Responsible Officer herein shall mean a
Responsible Officer of the Company.
"Retained Cash Flow" shall mean, in any Fiscal Year, the amount of Excess
Cash Flow that exceeds the amount of the prepayment of Term Loans required
pursuant to Section 2.10(b)(i) for such Fiscal Year.
"Revolving Credit Commitment" shall have the meaning assigned such term in
Subsection 2.01(c).
"Revolving Credit Exposure" shall mean, at any time and as to each Lender,
the sum of (a) the aggregate principal amount of the Revolving Credit Loans made
by such Lender outstanding as of such date plus (b) such Lender's Revolving
Credit Percentage of the aggregate amount of all Letter of Credit Liabilities as
of such date.
"Revolving Credit Lender" shall mean any Lender having a Revolving Credit
Commitment or Revolving Credit Exposure hereunder.
"Revolving Credit Loan" shall have the meaning provided in Subsection
2.01(a)(iv); the Revolving Credit Loans shall not include any Letter of Credit
Liabilities.
"Revolving Credit Maturity Date" shall mean March 31, 2003.
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"Revolving Credit Note" shall mean a promissory note of the Company
described in Section 2.05(a) payable to any Lender and being substantially in
the form of Exhibit A, evidencing the aggregate Indebtedness of the Company to
such Lender resulting from Revolving Credit Loans made by such Lender.
"Revolving Credit Percentage" shall mean as to any Revolving Credit Lender,
the percentage of the aggregate Revolving Credit Commitments constituted by its
Revolving Credit Commitment (or, if the Revolving Credit Commitments have
terminated or expired, the percentage which such Lender's Revolving Credit
Exposure at such time constitutes of the Aggregate Revolving Credit Exposure at
such time).
"Rolling Period" shall mean for each Fiscal Quarter commencing with the
first full Fiscal Quarter after the Effective Date, such quarter and the three
preceding Fiscal Quarters.
"SAR" shall mean each stock appreciation right outstanding under any Equity
Plan.
"Scheduled Capital Expenditures" shall mean Capital Expenditures of the
Company and its Subsidiaries on a consolidated basis permitted for any Fiscal
Year pursuant to Section 5.04(o)(i).
"Scheduled Principal Payments" shall mean, for any period, the amounts of
scheduled principal payments made during such period with respect to Funded
Indebtedness (including the principal portion of all Capital Lease Obligations)
not including any principal payments of (a) the ESOP Term Loan, but only to the
extent that net income for the applicable period was reduced for the expense
incurred by the Company for contributions to the ESOP, and (b) Revolving Credit
Loans.
"SCI" shall mean Sterling Chemicals, Inc., a Delaware corporation.
"Secondary ESOP Loan" shall mean the loan made by the Company to the ESOP
on the Effective Date with the proceeds of the ESOP Term Loans to allow the ESOP
to purchase up to 55,000 shares of Holdco Common Stock.
"Secondary ESOP Loan Documents" shall mean the Secondary ESOP Note, the
ESOP Security Agreement, and all documents, instruments and agreements now or
hereafter executed by the ESOP and delivered to the Company as the lender under
the Secondary ESOP Loan, and any and all amendments, modifications, supplements,
renewals or restatements thereof.
"Secondary ESOP Note" shall mean the promissory note from the ESOP to the
Company evidencing the Secondary ESOP Loan, and any and all amendments,
modifications, supplements, renewals and restatements thereof.
"Secured Affiliate" shall mean any Affiliate of any Lender that has entered
into a Hedge Agreement with the Company or any of its Subsidiaries with the
obligations of the Company or such Subsidiary thereunder being secured by one or
more Security Instruments.
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"Security Instruments" shall mean the agreements or instruments described
or referred to in Subsections 3.02(d)(iii) through (xii) and (xv) and any and
all other agreements or instruments now or hereafter executed and delivered by
the Company, any Subsidiary of the Company or any other Person as security for
the payment or performance of the Lender Indebtedness.
"Senior Secured Discount Notes" shall mean the senior secured discount
notes with initial proceeds in an amount of up to $100,000,000 issued by Holdco
in connection with the debt financing for the Acquisition.
"Senior Subordinated Notes" shall mean the senior subordinated notes in an
amount of up to $275,000,000 issued by the Company in connection with the debt
financing for the Acquisition.
"Solvent" shall mean with respect to any Person on a particular date, the
condition that, on such date, (a) the fair value of the property of such Person
is greater than the total amount of liabilities, including, without limitation,
contingent liabilities, of such Person, (b) the present fair salable value of
the assets of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured, (c) such Person does not intend to, and does not believe that it
will, incur debts or liabilities beyond such Person's ability to pay as such
debts and liabilities mature, and (d) such Person is not engaged in business or
a transaction, and is not about to engage in business or a transaction, for
which such Person's property would constitute an unreasonably small amount of
capital.
"Standby Letter of Credit" shall mean a letter of credit that (i) is used
in lieu or in support of performance guarantees or performance, surety or other
similar bonds (but expressly excluding stay and appeal bonds) arising in the
ordinary course of business, (ii) is used in lieu or in support of stay or
appeal bonds, (iii) supports the payment of insurance premiums for reasonably
necessary casualty insurance carried by the Company or any of its consolidated
Subsidiaries, or (iv) supports payment or performance for identified purchases
or exchanges of products in the ordinary course of business.
"Statutory Reserves" shall mean a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum applicable reserve percentages, including
any marginal, special, emergency or supplemental reserves (expressed as a
decimal) established by the Board of Governors of the Federal Reserve System and
any other banking authority to which the Lenders are subject for Eurocurrency
Liabilities (as defined in Regulation D) or any other category of deposits or
liabilities by reference to which the Eurodollar Rate is determined. Such
reserve percentages shall include those imposed pursuant to Regulation D.
Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities and to
be subject to such reserve requirements without benefit of or credit for
proration, exemptions or offsets that may be available from time to time to any
Lender under such Regulation D. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"Sterling Canada" shall mean Sterling Canada, Inc., a Delaware corporation
and a wholly-owned Subsidiary of the Company.
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"Sterling NRO" shall mean Sterling NRO, Ltd., an Ontario (Canada)
corporation.
"Sterling Pulp" shall mean Sterling Pulp Chemicals, Ltd., an Ontario
(Canada) corporation and a wholly-owned subsidiary of Sterling Canada.
"Stock Intercreditor Agreement" shall mean the intercreditor agreement
between the Administrative Agent, on behalf of the Lenders, and Fleet National
Bank of Connecticut, as Trustee on behalf of the holders of the Senior Secured
Discount Notes, and dated as of the Effective Date.
"Subrogation and Contribution Agreement" shall mean the Subrogation and
Contribution Agreement dated as of the Effective Date among the Subsidiary
Guarantors.
"Subsidiary" of any Person shall mean a corporation, limited liability
company, partnership or other entity of which a majority of the outstanding
shares of stock of each class having ordinary voting power or other equity
interests is owned by such Person, by one or more Subsidiaries of such Person,
or by such Person and one or more of its Subsidiaries.
"Subsidiary Guaranty" shall mean the Guaranty Agreement dated as of the
Effective Date executed by the Subsidiary Guarantors in favor of the
Administrative Agent, the Issuing Banks, and the Lenders.
"Subsidiary Guarantors" shall mean those Subsidiaries designated as
Subsidiary Guarantors on Schedule 4.19, and any other Subsidiaries that become
Subsidiary Guarantors pursuant to Section 5.01(i).
"Tax Sharing Agreement" shall mean the Tax Sharing Agreement substantially
in the form of Exhibit C, dated as of the Effective Date, executed between the
Company and Holdco.
"Taxes" shall have the meaning provided in Subsection 2.20(a).
"TCB" shall mean Texas Commerce Bank National Association, in its
individual capacity or as an Issuing Bank, as the case may be, and not as
Administrative Agent.
"Term Loan" shall mean a Tranche A Term Loan, a Tranche B Term Loan or an
ESOP Term Loan, as the context shall require; collectively, the "Term Loans".
"Term Loan Commitments" shall mean as to any Lender, its Tranche A Term
Loan Commitment, Tranche B Term Loan Commitment and ESOP Term Loan Commitment.
"Term Loan Lender" shall mean any Tranche A Term Loan Lender, Tranche B
Term Loan Lender or ESOP Term Loan Lender.
"Term Note" shall mean a Tranche A Term Note, a Tranche B Term Note or an
ESOP Term Note, as the context shall require; collectively the "Term Notes".
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"Three-Month Secondary CD Rate" shall mean, for any day, the secondary rate
(adjusted to the basis of a year of 365 or 366 days, as the case may be) for
three-month certificates of deposit reported as being in effect on such day (or,
if such day shall not be a Business Day, the next preceding Business Day) by the
Board of Governors of the Federal Reserve System (the "Board") through the
public information telephone line of the Federal Reserve Bank of New York (which
rate will, under the current practices of the Board, be published in the Federal
Reserve Statistical Release H.15(519) during the week following such day), or if
such rate shall not be so reported on such day or such next preceding Business
Day, the average of the secondary market quotations for three-month certificates
of deposit of major money center banks in New York City received at
approximately 10:00 A.M., New York City time on such day (or, if such day shall
not be a Business Day, on the next preceding Day) by the Administrative Agent
from three New York City negotiable certificate of deposit dealers of recognized
standing selected by the Administrative Agent.
"Total Credit Percentage" shall mean as to any Lender at any time, the
percentage of the aggregate Revolving Credit Commitments, aggregate Tranche A
Term Loan Commitments, aggregate Tranche B Term Loan Commitments and aggregate
ESOP Term Loan Commitments then constituted by such Lender's Revolving Credit
Commitment, Tranche A Term Loan Commitment, Tranche B Term Loan Commitment and
ESOP Term Loan Commitment (it being agreed that upon termination or expiration
of the Revolving Credit Commitments, or, as to the Tranche A Term Loan
Commitments, the Tranche B Term Loan Commitments and the ESOP Term Loan
Commitments, after the Effective Date, the Total Credit Percentage of any Lender
shall be determined:
(i) in the case of the termination or expiration of the Revolving Credit
Commitments, by reference to the Aggregate Revolving Credit Exposure of the
Revolving Credit Lenders and such Lender's Revolving Credit Exposure; and
(ii) as to the Tranche A Term Loan Commitment, the Tranche B Term Loan
Commitment or the ESOP Term Loan Commitment, by reference to the aggregate
principal amount of the Tranche A Term Loans, the Tranche B Term Loans or the
ESOP Term Loans of the Lenders, as the case may be, and the aggregate principal
amount of such Lender's Tranche A Term Loans, Tranche B Term Loans or ESOP Term
Loans, as the case may be).
"Tranche A Term Loan" shall have the meaning provided in Subsection
2.01(a)(i).
"Tranche A Term Loan Commitment" shall have the meaning assigned such term
in Subsection 2.01(d).
"Tranche A Term Loan Lender" shall mean any Lender having a Tranche A Term
Loan Commitment hereunder and/or a Tranche A Term Loan outstanding hereunder.
"Tranche A Term Loan Maturity Date" shall mean March 31, 2003.
"Tranche A Term Loan Percentage" shall mean as to any Tranche A Term Loan
Lender, (a) at any time on or before the Effective Date, the percentage which
such Lender's Tranche A Term Loan
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Commitment then outstanding constitutes of the aggregate Tranche A Term Loan
Commitments then outstanding or, (b) at any time after the Effective Date, the
percentage which such Lender's Tranche A Term Loans then outstanding constitutes
of the aggregate Tranche A Term Loans then outstanding.
"Tranche A Term Note" shall mean a promissory note of the Company described
in Section 2.05(b) payable to a Tranche A Term Loan Lender and being
substantially in the form of Exhibit B-1, evidencing the aggregate indebtedness
of the Company to such Lender for Tranche A Term Loans.
"Tranche B Term Loan" shall have the meaning provided in Subsection
2.01(a)(ii).
"Tranche B Term Loan Commitment" shall have the meaning assigned such term
in Subsection 2.01(e).
"Tranche B Term Loan Lender" shall mean any Lender having a Tranche B Term
Loan Commitment hereunder or a Tranche B Term Loan outstanding hereunder.
"Tranche B Term Loan Maturity Date" shall mean September 30, 2004.
"Tranche B Term Loan Percentage" shall mean as to any Tranche B Term Loan
Lender, (a) at any time on or before the Effective Date, the percentage which
such Lender's Tranche B Term Loan Commitment then outstanding constitutes of the
aggregate Tranche B Term Loan Commitments then outstanding or, (b) at any time
after the Effective Date, the percentage which such Lender's Tranche B Term
Loans then outstanding constitutes of the aggregate Tranche B Term Loans then
outstanding.
"Tranche B Term Note" shall mean a promissory note of the Company described
in Section 2.05(c) payable to a Tranche B Term Loan Lender and being
substantially in the form of Exhibit B-2, evidencing the aggregate indebtedness
of the Company to such Lender for Tranche B Term Loans.
"Transactions" shall mean the transactions provided for in and contemplated
by this Agreement and the other Financing Documents.
"TSG" shall mean The Sterling Group, Inc., a Texas corporation.
"Type" of Loan shall mean a Base Rate Loan or Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code as from time to time in effect
in the State of New York or, where applicable as to specific Collateral, any
other relevant state.
"U.S. Subsidiary" shall mean all Subsidiaries of the Company organized
under the laws of any state, territory or subdivision of the United States.
"U.S. Tax Compliance Certificate" shall have the meaning provided in
Section 2.20(f)(y).
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<PAGE>
"Valdosta Bonds" shall mean any of the Valdosta-Lowndes County Industrial
Authority Industrial Development Revenue Bonds (Sterling Pulp Chemicals US, Inc.
Project) Series 1995, issued and outstanding under that certain Indenture of
Trust dated as of October 1, 1995 between Valdosta-Lowndes County Industrial
Authority and Synovus Trust Company, as amended as of the Closing Date, and
thereafter, as amended from time to time to the extent permitted by the
Financing Documents.
"Valdosta Lease" shall mean that certain Indenture of Lease dated as of
October 1, 1995 by and between the Valdosta-Lowndes County Industrial Authority
and Sterling Pulp Chemicals US, Inc., a Delaware corporation.
"Voting Stock" of any Person shall mean capital stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
Section 1.02 Accounting Terms and Determinations. Unless otherwise
defined or specified herein, all accounting terms shall be construed herein, all
accounting determinations hereunder shall be made, all financial statements
required to be delivered hereunder shall be prepared in accordance with GAAP
applied on a basis consistent with the Financial Statements, except for changes
concurred with by the Company's independent public accountants; provided that,
if such changes affect the results of the calculations of the financial ratios
required under Section 5.03 (as compared to the results obtained by applying
GAAP in effect on the Closing Date), the Company and the Administrative Agent
(acting on behalf and at the direction of the Required Lenders) agree to
negotiate in good faith to adjust such financial ratios in order to make them
comparable after giving effect to such change in GAAP.
Section 1.03 Other Definitional Terms. The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and article, section, schedule, exhibit and like references are to
this Agreement unless otherwise specified.
ARTICLE II
AMOUNT AND TERMS OF LOANS
Section 2.01 Loans and Commitments.
(a) Loans. Subject to the terms and conditions and relying on the
representations and warranties contained herein, (i) each Tranche A Term Loan
Lender severally agrees to make, on the Effective Date, term loans pursuant to
its Tranche A Term Loan Commitment (each a "Tranche A Term Loan") to the
Company; (ii) each Tranche B Term Loan Lender severally agrees to make, on the
Effective Date, term loans pursuant to its Tranche B Term Loan Commitment (each
a "Tranche B Term Loan") to the Company; (iii) each ESOP Term Loan Lender
severally agrees to make, on the
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<PAGE>
Effective Date, term loans pursuant to its ESOP Term Loan Commitment (each an
"ESOP Term Loan") to the Company; and (iv) on any Business Day from and after
the Effective Date but prior to the Revolving Credit Maturity Date, each
Revolving Credit Lender severally agrees to make revolving credit loans (each a
"Revolving Credit Loan") to the Company.
(b) Types of Loans. The Revolving Credit Loans and the Term Loans made
pursuant hereto by each Lender shall, at the option of the Company, be either
Base Rate Loans or Eurodollar Loans and may be continued or converted pursuant
to Section 2.11, provided that, except as otherwise specifically provided
herein, all Loans made pursuant to the same Borrowing shall be of the same Type.
(c) Revolving Credit Commitments. Each Revolving Credit Lender's Revolving
Credit Exposure shall not exceed at any one time the amount set forth opposite
such Lender's name on Annex I under the caption "Revolving Credit Commitment"
(as the same may be reduced pursuant to Section 2.09 or otherwise from time to
time modified pursuant to Section 8.07(b), its "Revolving Credit Commitment,"
and collectively for all Revolving Credit Lenders, the "Revolving Credit
Commitments"); provided, however, that the Aggregate Revolving Credit Exposure
at any one time outstanding shall not exceed the Maximum Available Amount in
effect at such time; and, provided, further, the aggregate principal amount of
all Revolving Credit Loans at any one time outstanding shall not exceed the
difference between (i) the Maximum Available Amount in effect at such time and
(ii) the aggregate amount of all Letter of Credit Liabilities at such time.
There may be more than one Borrowing with respect to Revolving Credit Loans on
any day. Within the foregoing limits and subject to the conditions set out in
Article III, the Company may obtain Borrowings of Revolving Credit Loans, repay
or prepay such Revolving Credit Loans, and reborrow such Revolving Credit Loans.
(d) Tranche A Term Loan Commitments. The Tranche A Term Loans made
pursuant hereto by each Tranche A Term Loan Lender shall not exceed in aggregate
principal amount outstanding the amount set forth opposite such Lender's name on
Annex I under the caption "Tranche A Term Loan Commitment" (as the same may be
from time to time modified pursuant to Section 8.07(b), its "Tranche A Term Loan
Commitment," and collectively for all Tranche A Term Loan Lenders, the "Tranche
A Term Loan Commitments"). Any portion of each such Lender's Tranche A Term
Loan Commitment not utilized on the Effective Date shall be permanently
cancelled. Any Tranche A Term Loans that are repaid or prepaid may not be
reborrowed.
(e) Tranche B Term Loan Commitments. The Tranche B Term Loans made
pursuant hereto by each Tranche B Term Loan Lender shall not exceed in aggregate
principal amount outstanding the amount set forth opposite such Lender's name on
Annex I under the caption "Tranche B Term Loan Commitment" (as the same may be
from time to time modified pursuant to Section 8.07(b), its "Tranche B Term Loan
Commitment," and collectively for all Tranche B Term Loan Lenders, the "Tranche
B Term Loan Commitments"). Any portion of each such Lender's Tranche B Term
Loan Commitment not utilized on the Effective Date shall be permanently
cancelled. Any Tranche B Term Loans that are repaid or prepaid may not be
reborrowed.
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<PAGE>
(f) ESOP Term Loan Commitments. The ESOP Term Loans made pursuant hereto by
each ESOP Term Loan Lender shall not exceed in aggregate principal amount
outstanding the amount set forth opposite such Lender's name on Annex I under
the caption "ESOP Term Loan Commitment" (as the same may be from time to time
modified pursuant to Section 8.07(b), its "ESOP Term Loan Commitment", and
collectively for all ESOP Term Loan Lenders, the "ESOP Term Loan Commitments").
Any portion of each such Lender's ESOP Term Loan Commitment not utilized on the
Effective Date shall be permanently cancelled. Any ESOP Term Loans that are
repaid or prepaid may not be reborrowed.
(g) Amounts of Borrowings, etc. The aggregate principal amount of each
Borrowing (i) of Eurodollar Loans shall be not less than $3,000,000 and shall be
in an integral multiple of $100,000, and (ii) of Base Rate Loans hereunder shall
be not less than $1,000,000 and shall be in an integral multiple of $100,000,
except that any Borrowing of Revolving Credit Loans that are Base Rate Loans may
be in the aggregate amount of the unused Maximum Revolving Credit Loan Amount in
effect at such time. Borrowings of more than one Type may be outstanding at the
same time; provided, however, that the Company shall not be entitled to request
any Borrowing that, if made, would result in an aggregate of more than eight
separate Borrowings of Eurodollar Loans being outstanding at any one time. For
purposes of the foregoing, Borrowings having different Interest Periods,
regardless of whether they commence on the same date, shall be considered
separate Borrowings.
Section 2.02 Borrowing Requests.
(a) Borrowing Requests. Whenever the Company desires to make a Borrowing
hereunder, it shall give Advance Notice in the form of a Borrowing Request,
specifying, subject to the provisions hereof, (i) if, but only if, such
Borrowing Request is regarding Loans to be made on the Effective Date, whether
such Borrowing will be Revolving Credit Loans, Tranche A Term Loans, Tranche B
Term Loans or ESOP Term Loans, (ii) the aggregate principal amount of the Loans
to be made pursuant to such Borrowing, (iii) the date of Borrowing (which shall
be a Business Day), (iv) whether the Loans being made pursuant to such Borrowing
are to be Base Rate Loans or Eurodollar Loans, and (v) in the case of Eurodollar
Loans, the Interest Period to be applicable thereto. After the Effective Date,
the Company may deliver Borrowing Requests only for the purpose of requesting
Revolving Credit Loans.
(b) Notice by Administrative Agent. The Administrative Agent shall
promptly give each Applicable Lender telecopy or telephonic notice (and, in the
case of telephonic notices, confirmed by telecopy or otherwise in writing) of
the proposed Borrowing, of such Lender's Applicable Percentage thereof and of
the other matters covered by the Advance Notice. The Company hereby waives the
right to dispute the Administrative Agent's record of the terms of such
telephonic notice, absent manifest error.
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Section 2.03 Letters of Credit.
(a) Issuance of Letters of Credit. Subject to the terms and conditions
hereof, the Company shall have the right, in addition to Revolving Credit Loans
provided for in Section 2.01, to utilize the Revolving Credit Commitments from
time to time prior to the Revolving Credit Maturity Date by obtaining the
issuance of either Documentary Letters of Credit or Standby Letters of Credit
for the account of the Company by an Issuing Bank if the Company shall so
request in the notice referred to in Subsection 2.03(b)(i) (such letters of
credit being collectively referred to as the "Letters of Credit"); provided,
however, that the Aggregate Revolving Credit Exposure at any one time
outstanding shall not exceed the Maximum Available Amount in effect at such time
and the aggregate of all Letter of Credit Liabilities at any one time
outstanding shall not exceed $25,000,000. The Letters of Credit shall be
denominated in Dollars and may be issued to support the obligations of the
Company or any of its Subsidiaries. Upon the date of the issuance of a Letter
of Credit, the applicable Issuing Bank shall be deemed, without further action
by any party hereto, to have sold to each Revolving Credit Lender, and each
Revolving Credit Lender shall be deemed, without further action by any party
hereto, to have purchased from such Issuing Bank, a participation, to the extent
of such Lender's Revolving Credit Percentage, in such Letter of Credit and the
related Letter of Credit Liabilities. No Letter of Credit issued pursuant to
this Agreement shall have an expiry date that exceeds the Revolving Credit
Maturity Date. Any Letter of Credit may give the beneficiary thereof either the
right to draw upon the Letter of Credit upon its expiry date or the right to
automatically extend the expiry date thereof for periods of up to one year per
extension; provided that no such extension shall extend the expiry date beyond
the Revolving Credit Maturity Date. The Company and the Lenders agree that, as
of the Effective Date, the Outstanding Letters of Credit shall for all purposes
of this Agreement be deemed to be Letters of Credit issued under and pursuant to
the terms of this Agreement.
(b) Additional Letter of Credit Provisions. The following additional
provisions shall apply to each Letter of Credit:
(i) The Company shall give the Administrative Agent and the Issuing Bank at
least three Business Days' prior notice (effective upon receipt), or in each
case, such shorter period as may be agreed to by the Administrative Agent and
such Issuing Bank, specifying the date such Letter of Credit is to be issued
(which shall be a Business Day) and the Issuing Bank and describing: (A) the
face amount of the Letter of Credit, (B) the expiration date of the Letter of
Credit, (C) the name and address of the beneficiary, (D) information concerning
the transaction proposed to be supported by such Letter of Credit as the
Administrative Agent or such Issuing Bank may reasonably request, (E) such other
information and documents relating to the Letter of Credit as the Administrative
Agent or such Issuing Bank may reasonably request, and (F) a precise description
of documents and the verbatim text of any certificate to be presented by the
beneficiary, which, if presented prior to the expiry date of the Letter of
Credit, would require such Issuing Bank to make payment under the Letter of
Credit; provided that such Issuing Bank, in its reasonable judgment, may require
changes in such documents and certificates; and provided further that no Issuing
Bank shall be required to issue any Letter of Credit that on its terms requires
payment thereunder prior to the next
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<PAGE>
Business Day following receipt by such Issuing Bank of such documents and
certificates. Each such notice shall be accompanied by the applicable Issuing
Bank's Application and by a certificate executed by a Responsible Officer
setting forth calculations evidencing availability for such Letter of Credit
pursuant to Subsection 2.03(b)(ii) and stating that all conditions precedent to
such issuance have been satisfied. Each Letter of Credit shall, to the extent
not inconsistent with the express terms hereof or the applicable Application, be
subject to the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication No. 500 (together with
any subsequent revisions thereof approved by a Congress of the International
Chamber of Commerce, the "UCP"), and shall, as to matters not governed by the
UCP, be governed by, and construed and interpreted in accordance with, the laws
of the State of New York.
(ii) No Letter of Credit may be issued if after giving effect thereto the
Aggregate Revolving Credit Exposure would exceed the Maximum Available Amount.
On each day during the period commencing with the issuance of any Letter of
Credit and until such Letter of Credit shall have expired or have been
terminated, the Revolving Credit Commitment of each Revolving Credit Lender
shall be deemed to be utilized for all purposes hereof in an amount equal to
such Lender's Revolving Credit Percentage of the amount of the Letter of Credit
Liabilities related to such Letter of Credit.
(iii) Upon receipt from the beneficiary of any Letter of Credit of any
demand for payment thereunder, the Issuing Bank shall promptly notify the
Company and the Administrative Agent of such demand (provided that the failure
of an Issuing Bank to give such notice shall not affect the Reimbursement
Obligations of the Company hereunder) and the Company shall immediately, and in
any event no later than 10:00 a.m. (Houston, Texas time) on the date of such
drawing, reimburse the Administrative Agent for the account of the applicable
Issuing Bank for any amount paid by the Issuing Bank upon any drawing under any
Letter of Credit, without presentment, demand, protest or other formalities of
any kind in an amount, in same day funds, equal to the amount of such drawing.
Unless prior to 10:00 a.m. (Houston, Texas time) on the date of such drawing,
the Company shall have either notified the Issuing Bank and the Administrative
Agent that the Company intends to reimburse the Administrative Agent for the
account of the applicable Issuing Bank for the amount of such drawing with funds
other than the proceeds of Revolving Credit Loans or delivered to the
Administrative Agent a Borrowing Request for Revolving Credit Loans in an amount
equal to such drawing, the Company will be deemed to have given a Borrowing
Request to the Administrative Agent requesting that the Revolving Credit Lenders
make Revolving Credit Loans which shall be Base Rate Loans on the date on which
such drawing is honored in an amount equal to the amount of such drawing;
provided that such Loans shall be subject to (i) the satisfaction of the
conditions in Article III and (ii) the existence of Revolving Credit Loan
availability pursuant to Section 2.01(c) hereof (after giving effect to
repayment of the applicable Reimbursement Obligations with the proceeds of the
proposed Revolving Credit Loans). Subject to the preceding sentence, if so
requested by the Administrative Agent, each of the Revolving Credit Lenders
shall, on the date of such drawing, make such Revolving Credit Loans in an
amount equal to such Lender's Revolving
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Credit Percentage of such drawing or the full amount of the unused Revolving
Credit Loan available pursuant to Section 2.01(c), as applicable, the proceeds
of which shall be applied directly by the Administrative Agent to reimburse the
applicable Issuing Bank to the extent of such proceeds.
(iv) If the Company fails to reimburse the applicable Issuing Bank as
provided in clause (iii) above for any reason, including, but not limited to,
failure to satisfy the conditions in Article III or insufficient unused
Revolving Credit Loan availability pursuant to Section 2.01(c), such Issuing
Bank shall promptly notify the Administrative Agent and the Administrative Agent
shall notify each Revolving Credit Lender of the unreimbursed amount of such
drawing and of such Lender's respective participation therein based on such
Lender's Revolving Credit Percentage. Each Revolving Credit Lender will pay to
the Administrative Agent for the account of the applicable Issuing Bank on the
date of such notice an amount equal to such Lender's Revolving Credit Percentage
of such unreimbursed drawing (or, if such notice is made after 1:00 p.m.
(Houston, Texas time) on such date, on the next succeeding Business Day). If
any Revolving Credit Lender fails to make available to such Issuing Bank the
amount of such Lender's participation in such Letter of Credit as provided in
this clause (iv), such Issuing Bank shall be entitled to recover such amount on
demand from such Lender together with interest at the Federal Funds Effective
Rate for one Business Day and thereafter at the Base Rate. Nothing in this
clause (iv) shall be deemed to prejudice the right of any Revolving Credit
Lender to recover from such Issuing Bank any amounts made available by such
Lender to such Issuing Bank pursuant to this clause (iv) if it is determined by
a court of competent jurisdiction that the payment with respect to a Letter of
Credit by such Issuing Bank was wrongful and such wrongful payment was the
result of gross negligence or willful misconduct on the part of such Issuing
Bank. The applicable Issuing Bank shall pay to the Administrative Agent and the
Administrative Agent to each Revolving Credit Lender such Lender's Revolving
Credit Percentage of all amounts received from the Company for payment, in whole
or in part, of the Reimbursement Obligation in respect of any Letter of Credit,
but only to the extent such Lender has made payment to such Issuing Bank in
respect of such Letter of Credit pursuant to this clause (iv).
(v) The issuance by the applicable Issuing Bank of each Letter of Credit
shall, in addition to the conditions precedent set forth in Article III, be
subject to the conditions precedent that such Letter of Credit shall be in such
form and contain such terms as shall be reasonably satisfactory to such Issuing
Bank, and that the Company shall have executed and delivered such other
instruments and agreements relating to such Letter of Credit as such Issuing
Bank shall have reasonably requested and that are not inconsistent with the
terms of this Agreement including the applicable Issuing Bank's Application
therefor. In the event of a conflict between the terms of this Agreement and
the terms of any Application, the terms of this Agreement shall control.
(vi) AS BETWEEN THE COMPANY AND ANY ISSUING BANK, THE COMPANY ASSUMES ALL
RISKS OF THE ACTS AND OMISSIONS OF OR MISUSE OF THE LETTERS OF CREDIT ISSUED BY
SUCH ISSUING BANK BY THE RESPECTIVE BENEFICIARIES OF SUCH
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<PAGE>
LETTERS OF CREDIT. IN FURTHERANCE AND NOT IN LIMITATION OF THE FOREGOING, SUCH
ISSUING BANK SHALL NOT BE RESPONSIBLE: (A) FOR THE FORM, VALIDITY, SUFFICIENCY,
ACCURACY, GENUINENESS OR LEGAL EFFECT OF ANY DOCUMENT SUBMITTED BY ANY PERSON IN
CONNECTION WITH THE APPLICATION FOR OR ISSUANCE OF SUCH LETTERS OF CREDIT, EVEN
IF IT SHOULD IN FACT PROVE TO BE IN ANY OR ALL RESPECTS INVALID, INSUFFICIENT,
INACCURATE, FRAUDULENT OR FORGED; (B) FOR THE VALIDITY OR SUFFICIENCY OF ANY
INSTRUMENT TRANSFERRING OR ASSIGNING OR PURPORTING TO TRANSFER OR ASSIGN ANY
SUCH LETTER OF CREDIT OR THE RIGHTS OR BENEFITS THEREUNDER OR PROCEEDS THEREOF,
IN WHOLE OR IN PART, WHICH MAY PROVE TO BE INVALID OR INEFFECTIVE FOR ANY
REASON; (C) FOR ERRORS, OMISSIONS, INTERRUPTIONS OR DELAYS IN TRANSMISSION OR
DELIVERY OF ANY MESSAGES, BY MAIL, CABLE, TELEGRAPH, TELEX OR OTHERWISE, WHETHER
OR NOT THEY ARE IN CIPHER; (D) FOR ERRORS IN INTERPRETATION OF TECHNICAL TERMS;
(E) FOR ANY LOSS OR DELAY IN THE TRANSMISSION OR OTHERWISE OF ANY DOCUMENT
REQUIRED IN ORDER TO MAKE A DRAWING UNDER ANY SUCH LETTER OF CREDIT OR OF THE
PROCEEDS THEREOF; (F) FOR THE MISAPPLICATION BY THE BENEFICIARY OF ANY SUCH
LETTER OF CREDIT OF THE PROCEEDS OF ANY DRAWING UNDER SUCH LETTER OF CREDIT; AND
(G) FOR ANY CONSEQUENCES ARISING FROM CAUSES BEYOND THE CONTROL OF SUCH ISSUING
BANK, INCLUDING, WITHOUT LIMITATION, THE ACTIONS OF ANY GOVERNMENTAL AUTHORITY.
NONE OF THE ABOVE SHALL AFFECT, IMPAIR, OR PREVENT THE VESTING OF ANY OF SUCH
ISSUING BANK'S RIGHTS OR POWERS HEREUNDER. NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED IN THIS CLAUSE (VI), THE COMPANY SHALL NOT ASSUME ANY RISK,
AND SHALL HAVE NO OBLIGATION TO INDEMNIFY AN ISSUING BANK, IN RESPECT OF ANY
LIABILITY INCURRED BY SUCH ISSUING BANK ARISING PRIMARILY OUT OF THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH ISSUING BANK, AS DETERMINED BY A COURT
OF COMPETENT JURISDICTION.
(vii) Each Issuing Bank will send to the Company and the Administrative
Agent immediately upon issuance of any Letter of Credit, or an amendment
thereto, a true and complete copy of such Letter of Credit, or such amendment
thereto. Upon issuance of any Letter of Credit or an amendment thereto, the
Administrative Agent shall promptly notify each Revolving Credit Lender of the
terms of such Letter of Credit or amendment thereto, the Issuing Bank for such
Letter of Credit or amendment thereto, and of such Lender's Revolving Credit
Percentage of the amount of such Letter of Credit or amendment thereto, and the
Administrative Agent shall provide to each Revolving Credit Lender a copy of
such Letter of Credit or such amendment thereto. Upon cancellation or
termination of any Letter of Credit, the Issuing Bank shall promptly notify the
Administrative Agent and the Company, and the Administrative Agent will then
promptly notify each Revolving Credit Lender, of such cancellation or
termination.
(viii) The obligation of the Company to reimburse each Issuing Bank for
Reimbursement Obligations with regard to the Letters of Credit issued by it and
the obligations of the Revolving Credit Lenders under clause (iv) shall be
unconditional and
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irrevocable and shall be paid strictly in accordance with the terms of this
Agreement and under all circumstances including, without limitation, the
following circumstances:
(A) any lack of validity or enforceability of any Letter of Credit;
(B) the existence of any claim, set-off, defense or other right that the
Company may have at any time against a beneficiary or any transferee of any
Letter of Credit (or any Persons for whom any such transferee may be acting),
any Lender or any other Person, whether in connection with this Agreement, the
transactions contemplated herein or any unrelated transaction (including any
underlying transaction between the Company or one of its Subsidiaries and the
beneficiary for which the Letter of Credit was procured) other than a defense
based on the gross negligence (AS OPPOSED TO ORDINARY NEGLIGENCE) or willful
misconduct of such Issuing Bank, as determined by a court of competent
jurisdiction;
(C) any draft, demand, certificate or any other document presented under
any Letter of Credit is proved to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein is untrue or inaccurate in any respect;
(D) any adverse change in the condition (financial or otherwise) of the
Company;
(E) any breach of this Agreement or any other Financing Document by the
Company, Administrative Agent or any Lender (other than the applicable Issuing
Bank);
(F) any other circumstance or happening whatsoever which is similar to any
of the foregoing; provided that such other occurrence or happening is not the
result of the gross negligence (AS OPPOSED TO ORDINARY NEGLIGENCE) or willful
misconduct of such Issuing Bank, as determined by a court of competent
jurisdiction; or
(G) the fact that a Default shall have occurred and be continuing.
(c) Upon the request of the Company, the Administrative Agent, the Issuing
Banks, the Lenders and the Company agree to negotiate in good faith to allow or
to provide for the issuance of letters of credit denominated in Canadian
dollars.
Section 2.04 Disbursement of Funds.
(a) Availability. No later than 11:00 a.m. (Houston time) on the date of
each Borrowing, each Lender will make available to the Administrative Agent such
Lender's Applicable Percentage of the amount (if any) by which the principal
amount of the Borrowing requested to be made on such date by such Lender exceeds
the principal amount of Loans (if any) of such Lender maturing on such
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<PAGE>
date, in Dollars and in immediately available funds at the Payment Office. The
Administrative Agent will make available to the Company at the Payment Office
the aggregate of the amounts (if any) so made available by the Lenders by
depositing such amounts, in immediately available funds, to an account of the
Company at the Administrative Agent designated by the Company for such purpose.
To the extent that Revolving Credit Loans mature or Reimbursement Obligations
are due and owing on the date of a requested Borrowing of Revolving Credit
Loans, the Revolving Credit Lenders shall apply the proceeds of the Revolving
Credit Loans then being made, to the extent thereof, to the repayment of such
maturing Revolving Credit Loans or Reimbursement Obligations, such Revolving
Credit Loans or Reimbursement Obligations and repayments intended to be a
contemporaneous exchange.
(b) Funds to the Administrative Agent. Unless the Administrative Agent
shall have been notified by any Applicable Lender prior to the date of a
Borrowing that such Lender does not intend to make available to the
Administrative Agent such Lender's Applicable Percentage of the Borrowing to be
made on such date, the Administrative Agent may assume that such Lender has made
such amount available to the Administrative Agent on such date, and the
Administrative Agent may make available to the Company a corresponding amount.
If such corresponding amount is not in fact made available to the Administrative
Agent by such Lender on the date of a Borrowing, the Administrative Agent shall
be entitled to recover such corresponding amount on demand from such Lender
together with interest at the Federal Funds Effective Rate. If such Lender does
not pay such corresponding amount forthwith upon the Administrative Agent's
demand therefor, the Administrative Agent shall promptly notify the Company, and
the Company shall immediately pay such corresponding amount to the
Administrative Agent together with interest at the rate specified for the
Borrowing which includes such amount paid. Nothing in this Section shall be
deemed to relieve any Lender from its obligation to fulfill its Commitments
hereunder or to prejudice any rights which the Company may have against any
Lender as a result of any default by such Lender hereunder.
(c) Lenders' Responsibilities. No Lender shall be responsible for any
default by any other Lender in its obligation to make Loans hereunder, and each
Lender shall be obligated to make only such Loans provided to be made by it
hereunder, regardless of the failure of any other Lender to fulfill its
Commitment hereunder.
Section 2.05 Notes and Amortization.
(a) Revolving Credit Notes. The Company's obligation to pay the principal
of, and interest on, the Revolving Credit Loans made by each Revolving Credit
Lender shall be further evidenced by the Company's issuance, execution and
delivery of a Revolving Credit Note payable to the order of each such Lender in
the amount of such Lender's Revolving Credit Commitment and shall be dated as of
the date of issuance of such Revolving Credit Note. The principal amount of
each Revolving Credit Note shall be payable on or before the Revolving Credit
Maturity Date.
(b) Tranche A Term Notes and Amortization. The Company's obligation to pay
the principal of, and interest on, the Tranche A Term Loans made by each Tranche
A Term Loan Lender shall be further evidenced by the Company's issuance,
execution and delivery of a Tranche A Term
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<PAGE>
Note payable to the order of each such Lender in the amount of the sum of such
Lender's Tranche A Term Loan Commitment (if issued prior to the Effective Date)
or in the principal amount of such Lender's Tranche A Term Loans (if issued
after the Effective Date), and dated as of the date of issuance of such Tranche
A Term Note. The aggregate principal amount of the Tranche A Term Notes
applicable to the aggregate Tranche A Term Loans of all Tranche A Term Loan
Lenders shall be payable in quarterly installments of the amounts set forth
below (in each case, as reduced by the application of any prepayments pursuant
to Section 2.10):
<TABLE>
<CAPTION>
QUARTERLY DATE AMOUNT QUARTERLY DATE AMOUNT
- -------------- -------- -------------- --------
<S> <C> <C> <C>
December 31, 1996 $2,250,000 March 31, 2000 $ 7,250,000
March 31, 1997 $2,250,000 June 30, 2000 $ 7,250,000
June 30, 1997 $2,250,000 September 30, 2000 $ 7,250,000
September 30, 1997 $2,250,000 December 31, 2000 $ 9,750,000
December 31, 1997 $6,000,000 March 31, 2001 $ 9,750,000
March 31, 1998 $6,000,000 June 30, 2001 $ 9,750,000
June 30, 1998 $6,000,000 September 30, 2001 $ 9,750,000
September 30, 1998 $6,000,000 December 31, 2001 $12,250,000
December 31, 1998 $6,000,000 March 31, 2002 $12,250,000
March 31, 1999 $6,000,000 June 30, 2002 $12,250,000
June 30, 1999 $6,000,000 September 30, 2002 $12,250,000
September 30, 1999 $6,000,000 December 31, 2002 $13,000,000
December 31, 1999 $7,250,000 March 31, 2003 $13,000,000
</TABLE>
The first such quarterly installment shall be payable on December 31, 1996, and
the remaining quarterly installments shall be payable on each Quarterly Date
thereafter, with the final installment in the amount of the aggregate unpaid
principal balance then owing being payable on or before the Tranche A Term Loan
Maturity Date.
(c) Tranche B Term Notes and Amortization. The Company's obligation to pay
the principal of, and interest on, the Tranche B Term Loans made by each Tranche
B Term Loan Lender shall be further evidenced by the Company's issuance,
execution and delivery of a Tranche B Term Note payable to the order of each
such Lender in the amount of the sum of such Lender's Tranche B Term Loan
Commitment (if issued prior to the Effective Date) or in the principal amount of
such Lender's Tranche B Term Loans (if issued after the Effective Date), and
dated as of the date of issuance of such Tranche B Term Note. The aggregate
principal amount of the Tranche B Term Notes applicable to the aggregate Tranche
B Term Loans of all Tranche B Term Loan Lenders shall be payable in quarterly
installments in the amounts set forth below (in each case, as reduced by the
application of any prepayments pursuant to Section 2.10):
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<PAGE>
<TABLE>
<CAPTION>
QUARTERLY DATE AMOUNT QUARTERLY DATE AMOUNT
- -------------- -------- -------------- --------
<S> <C> <C> <C>
December 31, 1996 $250,000 December 31, 2000 $ 250,000
March 31, 1997 $250,000 March 31, 2001 $ 250,000
June 30, 1997 $250,000 June 30, 2001 $ 250,000
September 30, 1997 $250,000 September 30, 2001 $ 250,000
December 31, 1997 $250,000 December 31, 2001 $ 250,000
March 30, 1998 $250,000 March 31, 2002 $ 250,000
June 30, 1998 $250,000 June 30, 2002 $ 250,000
September 30, 1998 $250,000 September 30, 2002 $ 250,000
December 31, 1998 $250,000 December 31, 2002 $ 250,000
March 31, 1999 $250,000 March 31, 2003 $ 250,000
June 30, 1999 $250,000 June 30, 2003 $23,000,000
September 30, 1999 $250,000 September 30, 2003 $23,000,000
December 31, 1999 $250,000 December 31, 2003 $24,375,000
March 30, 2000 $250,000 March 30, 2004 $24,375,000
June 30, 2000 $250,000 June 30, 2004 $24,375,000
September 30, 2000 $250,000 September 30, 2004 $24,375,000
</TABLE>
The first such quarterly installment shall be payable on December 31, 1996, and
the remaining quarterly installments shall be payable on each Quarterly Date
thereafter, with the final installment in the amount of the aggregate unpaid
principal balance then owing being payable on or before the Tranche B Term Loan
Maturity Date.
(d) ESOP Term Notes and Amortization. The Company's obligation to pay the
principal of, and interest on, the ESOP Term Loans made by each ESOP Term Loan
Lender shall be further evidenced by the Company's issuance, execution and
delivery of an ESOP Term Note payable to the order of each such Lender in the
amount of such Lender's ESOP Term Loan Commitment (if issued prior to the
Effective Date) or in the principal amount of such Lender's ESOP Term Loans (if
issued after the Effective Date) and dated as of the date of issuance of such
ESOP Term Note. The principal amount of the aggregate ESOP Term Notes shall be
payable in 16 quarterly installments (in each case as reduced by the application
of any prepayments pursuant to Section 2.10), the first 15 of which will be
equal installments of $406,250. The first such quarterly installment shall be
payable on December 31, 1996, and the remainder shall be payable on each
Quarterly Date thereafter, with the final installment in the amount of the
aggregate unpaid principal balance then owing being payable on or before the
ESOP Term Loan Maturity Date.
Section 2.06 Interest. In all cases subject to Section 8.12:
(a) Base Rate Loans. Subject to Section 2.06(c), the Company agrees to pay
interest in respect of the unpaid principal amount of each Base Rate Loan from
the date thereof until payment in full thereof at a rate per annum which shall
be, for any day, equal to the sum of the Applicable Margin plus the Base Rate in
effect on such day, but in no event to exceed the Highest Lawful Rate. The term
"Base Rate" shall mean, for any day, the highest of (i) the Prime Rate in effect
on such day,
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(ii) one-half of one percent (1/2%) plus the Federal Funds Effective Rate in
effect for such day (rounded upwards, if necessary, to the nearest 1/16th of
1%), and (iii) one percent (1%) plus the Base CD Rate in effect on such day, but
in no event to exceed the Highest Lawful Rate. For purposes of this Agreement,
any change in the Base Rate due to a change in the Three-Month Secondary CD
Rate, the Federal Funds Effective Rate, or the Prime Rate shall be effective as
of the opening of business on the effective date of such change in the Three-
Month Secondary CD Rate, the Federal Funds Effective Rate, or the Prime Rate, as
the case may be. If for any reason the Administrative Agent shall have
determined (which determination shall be conclusive and binding, absent manifest
error) that it is unable to ascertain the Federal Funds Effective Rate and the
Three-Month Secondary CD Rate for any reason, including but not limited to the
inability of the Administrative Agent to obtain sufficient bids or publications
in accordance with the terms hereof, the Base Rate shall be the Prime Rate until
the circumstances giving rise to such inability no longer exist.
(b) Eurodollar Loans. Subject to Section 2.06(c), the Company agrees to
pay interest in respect of the unpaid principal amount of each Eurodollar Loan
from the date thereof until payment in full thereof at a rate per annum which
shall be the sum of the relevant Applicable Margin plus the Eurodollar Rate, but
in no event to exceed the Highest Lawful Rate.
(c) Default Interest. If the Company shall default in the payment of the
principal of or interest on any Loan or any other amount becoming due hereunder
or under any Financing Document, by acceleration or otherwise, the Company shall
on demand from time to time pay interest, to the extent permitted by law, on
such defaulted amount to but excluding the date of actual payment (after as well
as before judgment) at a rate per annum equal to (a) in the case of any
Eurodollar Loan, the rate that would be applicable under Section 2.06(b) to such
Eurodollar Loan, plus 2% per annum, and (b) in the case of any other amount, the
rate that would be applicable under Section 2.06(a) to a Base Rate Loan, plus 2%
per annum.
(d) Interest Payment Dates. Interest on each Loan shall accrue from and
including the date of such Loan to but excluding the date of payment in full
thereof. Interest on each Eurodollar Loan shall be payable on the last day of
each Interest Period applicable thereto and, in the case of an Interest Period
in excess of three months, on each day which occurs every three months after the
initial date of such Interest Period, and on any prepayment (on the amount
prepaid), at maturity (whether by acceleration or otherwise) and, after
maturity, on demand. Interest on each Base Rate Loan shall be payable on each
Quarterly Date, commencing on the first of such days to occur after such Loan is
made, at maturity (whether by acceleration or otherwise) and, after maturity, on
demand.
(e) Notice by the Administrative Agent. The Administrative Agent, upon
determining the Eurodollar Rate for any Interest Period, shall promptly notify
by telecopy or telephone (in the case of telephonic notices, confirmed by
telecopy or otherwise in writing) or in writing the Company and the Applicable
Lenders.
Section 2.07 Interest Periods. In connection with each Borrowing of
Eurodollar Loans, the Company shall elect an Interest Period to be applicable to
such Borrowing, which Interest Period shall begin on and include, as the case
may be, the date selected by the Company pursuant to Section 2.02(a), the
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<PAGE>
conversion date or the date of expiration of the then current Interest Period
applicable thereto, and end on but exclude the date which is either one, two,
three, six or (subject to availability by each Applicable Lender) twelve months
thereafter, as selected by the Company; provided that:
(a) Business Days. If any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided, further, that if any Interest Period (other
than in respect of a Borrowing of Eurodollar Loans the Interest Period of which
is expiring pursuant to Section 2.15(b) hereof) would otherwise expire on a day
which is not a Business Day but is a day of the month after which no further
Business Day occurs in such month, such Interest Period shall expire on the next
preceding Business Day;
(b) Month End. Any Interest Period which begins on the last Business Day
of a calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall, subject to
Subsection (c) below, end on the last Business Day of a calendar month;
(c) Payment Limitations. No Interest Period shall extend beyond any date
that any principal payment or prepayment is scheduled to be due unless the
aggregate principal amount of Borrowings which are Borrowings of Base Rate Loans
or which have Interest Periods which will expire on or before such date, less
the aggregate amount of any other principal payments or prepayments due during
such Interest Period, is equal to or in excess of the amount of such principal
payment or prepayment; and
(d) Maturity Dates. No Interest Period with regard to Revolving Credit
Loans shall extend beyond the Revolving Credit Maturity Date, no Interest Period
with regard to Tranche A Loans shall extend beyond the Tranche A Term Loan
Maturity Date, no Interest Period with regard to Tranche B Term Loans shall
extend beyond the Tranche B Term Loan Maturity Date and no Interest Period with
regard to ESOP Term Loans shall extend beyond the ESOP Term Loan Maturity Date.
Section 2.08 Repayment of Loans.
(a) The Company hereby unconditionally promises to pay to the
Administrative Agent for the account of (i) each Revolving Credit Lender, the
then unpaid principal amount of each Revolving Credit Loan of such Lender on the
Revolving Credit Maturity Date (or such earlier date on which the Revolving
Credit Loans become due and payable pursuant to Article VI); (ii) each Tranche A
Term Loan Lender, the amounts specified in Section 2.05(b), on the dates
specified in Section 2.05(b) (or such earlier date on which the Tranche A Term
Loans become due and payable pursuant to Article VI); (iii) each Tranche B Term
Loan Lender, the amounts specified in Section 2.05(c), on the dates specified in
Section 2.05(c) (or such earlier date on which the Tranche B Term Loans become
due and payable pursuant to Article VI); and (iv) each ESOP Term Loan Lender,
the amounts specified in Section 2.05(d), on the dates specified in Section
2.05(d) (or such earlier date on which the ESOP Term Loans become due and
payable pursuant to Article VI). The Company hereby further agrees to pay
interest on the unpaid principal amount of the Loans from time to time
43
<PAGE>
outstanding from the date hereof until payment in full thereof at the rates per
annum, and on the dates, set forth in Section 2.06.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing indebtedness of the Company to such Lender
resulting from each Loan of such Lender from time to time, including, without
limitation, the amounts of principal and interest payable and paid to such
Lender from time to time under this Agreement.
(c) The Administrative Agent shall maintain the Register pursuant to
Section 8.07(d), and a subaccount therein for each Lender, in which shall be
recorded (i) the amount of each Loan made hereunder, the Type thereof and each
Interest Period, if any, applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Company to each
Lender hereunder and (iii) both the amount of any sum received by the
Administrative Agent hereunder from the Company and each Lender's Applicable
Percentage thereof.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to Section 2.08(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Company therein recorded; provided, however, that the failure
of any Lender or the Administrative Agent to maintain the Register or any such
account, or any error therein, shall not in any manner affect the obligation of
the Company to repay (with applicable interest) the Loans made to the Company by
such Lender in accordance with the terms of this Agreement.
Section 2.09 Termination or Reduction of Commitments.
(a) Revolving Credit Commitments. The Company may, upon at least three
Business Days' notice to the Administrative Agent, terminate entirely at any
time, or partially reduce from time to time by an aggregate amount of $5,000,000
or any larger multiple of $1,000,000, the unused portions of the Revolving
Credit Commitments, provided that any such reduction shall apply proportionately
to the Revolving Credit Commitment of each Revolving Credit Lender. If the
Revolving Credit Commitments are terminated in their entirety, all accrued
commitment fees with respect thereto shall be payable on the effective date of
such termination.
(b) Term Loan Commitments. Any or all of the Term Loan Commitments
remaining unused after the earlier to occur of the Effective Date and the
Contingent Termination Date, shall automatically terminate at 5:00 p.m. (Houston
time) on such earlier date.
Section 2.10 Prepayments.
(a) Mandatory Borrowing Base Prepayments. If at any time the Aggregate
Revolving Credit Exposure is in excess of the Maximum Available Amount, the
Company shall immediately pay to the Administrative Agent, for the account of
the Revolving Credit Lenders, the amount of such excess to be applied (i) as a
prepayment of the Revolving Credit Loans and Reimbursement Obligations
outstanding and (ii) after payment in full of the Revolving Credit Loans and
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<PAGE>
Reimbursement Obligations outstanding, as Cover for the Letter of Credit
Liabilities in an amount of such remaining excess. Any such prepayment or Cover
shall be payable or provided in full on the date on which the reduction or
termination of the Commitments pursuant to Section 2.09 becomes effective.
(b) Mandatory Term Loan Prepayments.
(i) On or before the 105th day after each September 30th, commencing on
September 30, 1997, the Company shall deliver to each Lender the Company's
calculation of its Excess Cash Flow for the Fiscal Year ended on such September
30th; provided that for purposes of this Section 2.10(b), the period ending on
September 30, 1997, shall begin on the first day of the first full calendar
month after the Effective Date and end on September 30, 1997. On the third day
after delivery of the notice provided above, but in no event later than the
108th day after each September 30th, commencing September 30, 1997, the Company
shall prepay (by payment to the Administrative Agent for distribution to the
Term Loan Lenders as provided below) an aggregate principal amount of Term Loans
equal to (A) 75% of Excess Cash Flow for any Fiscal Year (or other applicable
period as provided above) if, as of the last day of the applicable Fiscal Year,
the aggregate principal amount of the Tranche A Term Loans and Tranche B Term
Loans is equal to or greater than $162,500,000, and (B) 50% of Excess Cash Flow
for any Fiscal Year thereafter (provided that, other Indebtedness of the Company
and its Subsidiaries has not been used to effect such repayment of Term Loans);
and, in the case of (A) and (B) above, less the amount of any voluntary
prepayments of Term Loans made by the Company as permitted in Subsection 2.10(c)
during such Fiscal Year (or other applicable period).
(ii) At any time the Company becomes obligated to prepay all or part of the
Senior Subordinated Notes, the Company shall, prior to any prepayment of the
Senior Subordinated Notes, prepay the Term Loans in full.
(iii) At any time that the Company and its Subsidiaries sell, lease, or
otherwise dispose of any of their Property, the Company shall promptly prepay an
aggregate principal amount of Term Loans equal to the amount of Net Proceeds in
excess of $5,000,000 in the aggregate in any Fiscal Year, received from such
sale, lease or disposal of Property, less the amount reinvested pursuant to
Subsection 5.04(c)(i)(C)(2).
(iv) Prepayments of the Term Loans pursuant to this Section 2.10(b) shall
be applied (i), so long as no Default has occurred and is continuing, to the
Tranche A Term Loans and Tranche B Term Loans (A) pro rata based on outstanding
principal amount thereof at the time of such prepayment and (B) pro rata to the
respective installments of principal thereof, and (ii), if a Default has
occurred and is continuing, (A) pro rata (based on outstanding principal amount
thereof at the time of such prepayment) to the Tranche A Term Loans, the Tranche
B Term Loans and the ESOP Term Loans and (B) pro rata to the respective
installments of principal thereof. Notwithstanding the foregoing, in respect of
any partial prepayment of Term Loans (until such time as the Tranche A Term
Loans have been repaid in full) pursuant to this Section 2.10(b), any Tranche B
Term Loan Lender may, at its option, irrevocably decline receipt of the its
Tranche B Term Loan share of any such prepayment, and, if such Lender so
declines, such share shall be applied as an additional prepayment
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<PAGE>
of the Tranche A Term Loans, the other Tranche B Term Loans and ESOP Term Loans
in accordance with the immediately preceding sentence, as further adjusted
pursuant to balance of this Section 2.10(b). In the case of any prepayment
pursuant to clauses (i,) (ii), or (iii), the Company shall provide to the
Administrative Agent written notice of such prepayment at least five Business
Days prior to the date such prepayment is to be made. Any Tranche B Term Loan
Lender may notify the Administrative Agent and the Company of its election to
decline its Tranche B Term Loan share of all such prepayments, in which event
such notice shall be effective until such Lender notifies the Administrative
Agent and the Company to the contrary. Any Tranche B Term Loan Lender that
wishes to decline receipt of its share of any given prepayment pursuant to this
Section 2.10(b), shall promptly, and in any event no later than 10:00 a.m.
(Houston, Texas time) on the date following its receipt of the notice of such
prepayment, notify the Company and the Administrative Agent of such election.
Any Tranche B Term Loan Lender that has not provided notice pursuant to one of
the two preceding sentences prior to such 10:00 a.m. deadline shall be deemed to
have elected to accept such prepayment. The Administrative Agent shall promptly
provide, to all such accepting Tranche B Term Loan Lenders, notice of the
principal amount of the Tranche B Term Loans that Lenders have elected to
decline. Any such accepting Lender may, at its option, irrevocably decline
receipt of its share of any such declined shares of such prepayment (and shall
indicate in such notice whether it elects to accept or decline receipt of its
share of such prepayment declined by other Lenders pursuant to this sentence),
and, if such Lender so declines, such share shall be applied as an additional
prepayment of the Tranche A Term Loans, the other Tranche B Term Loans and ESOP
Term Loans in accordance with this Section 2.10(b). Any Tranche B Term Loan
Lender that wishes to decline receipt of its share of such declined shares,
shall promptly, and in any event no later than 10:00 a.m. (Houston, Texas time)
on the date following receipt of the notice from the Administrative Agent
regarding such declined shares, notify the Company and the Administrative Agent
of such election. Any such accepting Lender that has not provided such notice
prior to such 10:00 a.m. deadline shall be deemed to have elected to accept such
the full amount of its share of such prepayment.
(c) Voluntary Prepayments. The Company may, at its option, at any time and
from time to time, prepay Loans and the Reimbursement Obligations, in whole or
in part, upon giving, in the case of any Revolving Credit Loan that is a
Eurodollar Loan, or any Term Loan, three Business Days' prior written notice to
the Administrative Agent, and, in the case of any Revolving Credit Loan that is
a Base Rate Loan, prior written notice on the same Business Day to the
Administrative Agent. Such notice shall specify (i) in the case of any
prepayment of Loans, the date and amount of prepayment and whether the
prepayment is (A) of Term Loans or Revolving Credit Loans, or a combination
thereof and (B) of Eurodollar Loans, Base Rate Loans or a combination thereof,
and, in each case if a combination thereof, the principal amount allocable to
each; (ii) in the case of any prepayment of Reimbursement Obligations, the date
and amount of prepayment, the identity of the applicable Letter of Credit or
Letters of Credit and the amount allocable to each of such Reimbursement
Obligations; and (iii) in the case of the prepayment of Term Loans, whether the
Company shall approve the election, if any, of the Tranche B Term Loan Lenders
to decline their share of any such prepayment as further provided in this
Section 2.10(c). Upon receipt of such notice, the Administrative Agent shall
promptly notify each Applicable Lender of the contents thereof and of such
Lender's Applicable Percentage of such prepayment and, in the case of any
Tranche B Term Loan Lender, whether or not the Company has elected to permit
each Tranche B Term Loan Lender to, at its option, decline its
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<PAGE>
Tranche B Term Loan share of such prepayment. If any such notice is given, the
amount specified in such notice shall be due and payable on the date specified
therein, together with (if a Eurodollar Loan is prepaid other than at the end of
the Interest Period applicable thereto) any amounts payable pursuant to Section
2.18 and, in the case of prepayments of the Term Loans only, accrued interest to
such date on the amount prepaid. Prepayments of (i) the Term Loans pursuant to
this Section 2.10(c) shall be applied (A) so long as no Default has occurred and
is continuing, first, to the Tranche A Term Loans and Tranche B Term Loans (x)
pro rata based on outstanding principal amount thereof at the time of such
prepayment and (y) pro rata to the respective installments of principal thereof,
and, second, to the ESOP Term Loans pro rata to the respective installments of
principal thereof, and (B) if a Default has occurred and is continuing, (x) pro
rata (based on outstanding principal amount thereof at the time of such
prepayment) to the Tranche A Term Loans, the Tranche B Term Loans and the ESOP
Term Loans and (y) pro rata to the respective installments of principal thereof,
and (ii) the Revolving Credit Loans and the Reimbursement Obligations pursuant
this Section shall (unless the Company otherwise directs) be applied, first, to
payment of the Revolving Credit Loans then outstanding, second, to payment of
any Reimbursement Obligations then outstanding and, last, to Cover any
outstanding Letter of Credit Liability. Notwithstanding the foregoing and
subject to the Company's approval described above, in respect of any partial
prepayment of Term Loans (until such time as the Tranche A Term Loans have been
repaid in full) pursuant to this Section 2.10(c), any Tranche B Term Loan Lender
may, at its option, irrevocably decline receipt of the its Tranche B Term Loan
share of any such prepayment, and, if such Lender so declines, such share shall
be applied as an additional prepayment of the Tranche A Term Loans, the other
Tranche B Term Loans and ESOP Term Loans in accordance with the immediately
preceding sentence, as further adjusted pursuant to balance of this Section
2.10(c). Any Tranche B Term Loan Lender may notify the Administrative Agent and
the Company of its election to decline its Tranche B Term Loan share of all such
prepayments, in which event such notice shall be effective until such Lender
notifies the Administrative Agent and the Company to the contrary. Any Tranche
B Term Loan Lender that wishes to decline receipt of its share of any given
prepayment pursuant to this Section 2.10(c), shall promptly, and in any event no
later than 10:00 a.m. (Houston, Texas time) on the date following receipt of its
notice of such prepayment, notify the Company and the Administrative Agent of
such election. Any Tranche B Term Loan Lender that has not provided notice
pursuant to one of the two preceding sentences prior to such 10:00 a.m. deadline
shall be deemed to have elected to accept such prepayment. The Administrative
Agent shall promptly provide, to all such accepting Tranche B Term Loan Lenders,
notice of the principal amount of the Tranche B Term Loans that Lenders have
elected to decline. Any such accepting Lender may, at its option, irrevocably
decline receipt of the its share of any such declined shares of such prepayment
(and shall indicate in such notice whether it elects to accept or decline
receipt of its share of such prepayment declined by other Lenders pursuant to
this sentence), and, if such Lender so declines, such share shall be applied as
an additional prepayment of the Tranche A Term Loans, the other Tranche B Term
Loans and ESOP Term Loans in accordance with this Section 2.10(c). Any Tranche B
Term Loan Lender that wishes to decline receipt of its share of such declined
shares, shall promptly, and in any event no later than 10:00 a.m. (Houston,
Texas time) on the date following receipt of the notice from the Administrative
Agent regarding such declined shares, notify the Company and the Administrative
Agent of such election. Any such accepting Lender that has not provided such
notice prior to such 10:00 a.m. deadline shall be deemed to have elected to
accept such the full amount of its share of such prepayment. Each prepayment of
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Base Rate Loans shall be in the minimum principal amount of $1,000,000 and in
integral multiples of $100,000 and each prepayment of Eurodollar Loans shall be
in the minimum principal amount of $3,000,000 and in integral multiples of
$100,000 or, in the case of either Base Rase Loans or Eurodollar Loans, the
aggregate principal balance outstanding on the applicable Notes.
(d) Notice by Administrative Agent. Upon receipt of a notice of prepayment
pursuant to this Section, the Administrative Agent shall promptly notify each
Applicable Lender of the contents thereof and of such Lender's ratable share of
such prepayment.
Section 2.11 Continuation and Conversion Options.
(a) Continuation. The Company may elect to continue all or any part of any
Borrowing of Eurodollar Loans beyond the expiration of the then current Interest
Period relating thereto by giving Advance Notice (which shall be irrevocable) to
the Administrative Agent of such election, specifying the Eurodollar Loans or
portion thereof to be continued and the Interest Period therefor. In the
absence of such a timely and proper election with regard to Eurodollar Loans,
the Company shall be deemed to have elected to convert such Eurodollar Loans to
Base Rate Loans pursuant to Subsection 2.11(d).
(b) Amounts of Continuations. All or part of any Eurodollar Loans may be
continued as provided herein, provided that any continuation of such Loans shall
not be (as to each Borrowing of such Loans as continued for an applicable
Interest Period) less than $3,000,000 and shall be in an integral multiple of
$100,000.
(c) Continuation or Conversion Upon Default. If no Default shall have
occurred and be continuing, each Eurodollar Loan may be continued or converted
as provided in this Section. If a Default shall have occurred and be
continuing, the Company shall not have the option to elect to continue any such
Eurodollar Loan pursuant to Subsection 2.11(a) or to convert Base Rate Loans to
Eurodollar Loans pursuant to Subsection 2.11(e).
(d) Conversion to Base Rate. The Company may elect to convert any
Eurodollar Loan on the last day of the then current Interest Period relating
thereto to a Base Rate Loan by giving Advance Notice to the Administrative Agent
of such election.
(e) Conversion to Eurodollar Rate. The Company may elect to convert any
Base Rate Loan at any time or from time to time to a Eurodollar Loan by giving
Advance Notice (which shall be irrevocable) to the Administrative Agent of such
election, specifying each Interest Period therefor.
(f) Amounts of Conversions. All or any part of the outstanding Loans may
be converted as provided herein, provided that any conversion of such Loans
shall not result in a Borrowing of Eurodollar Loans in an amount less than
$3,000,000 and in integral multiples of $100,000.
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Section 2.12 Fees.
(a) Revolving Credit Commitments. The Company shall pay to the
Administrative Agent for the account of and distribution to each Revolving
Credit Lender in accordance with its Revolving Credit Percentage a commitment
fee for the period commencing on the Closing Date to and including the Revolving
Credit Maturity Date (or such earlier date as the Revolving Credit Commitments
shall have been terminated entirely) computed at the rate per annum equal to the
Applicable Commitment Fee Percentage on the average daily excess amount of the
Revolving Credit Commitments over the Revolving Credit Exposure. In the event
that either (i) the Effective Date does not occur on or before the Contingent
Termination Date or (ii) the Merger Agreement is terminated before the earlier
to occur of (x) the Contingent Termination Date or (y) the Effective Date, then
the Revolving Credit Commitments will terminate, and the commitment fees on the
Revolving Credit Commitments shall be payable on the date of termination of the
Merger Agreement; provided that if the conditions set forth in this sentence
occur, such pre-Effective Date commitment fees shall be payable only to the
extent a breakage fee is received by STX Acquisition Corp. or an Affiliate
thereof pursuant to the Merger Agreement. The commitment fees on the Revolving
Credit Commitments earned from and after the Effective Date shall be payable in
arrears on each Quarterly Date, commencing on the first Quarterly Date to occur
after the Closing Date.
(b) Term Loan Commitments. The Company shall pay to the Administrative
Agent for the account of and distribution to each Term Loan Lender in accordance
with its Tranche A Term Loan Percentage, Tranche B Term Loan Percentage and ESOP
Term Loan Percentage, as applicable, a commitment fee for the period commencing
on the Closing Date to and including the Effective Date computed at the rate per
annum equal to the Applicable Commitment Fee Percentage, on the average daily
unused portion of the respective Term Loan Commitments. In the event that
either (i) the Effective Date does not occur on or before the Contingent
Termination Date or (ii) the Merger Agreement is terminated before the earlier
to occur of (x) the Contingent Termination Date or (y) the Effective Date, then
the Term Loan Commitments will terminate, and the commitment fees on the Term
Loan Commitments shall be payable on the date of termination of the Merger
Agreement; provided that if the conditions set forth in this sentence occur,
such commitment fees shall be payable only to the extent a breakage fee is
received by STX Acquisition Corp. or an Affiliate thereof pursuant to the Merger
Agreement.
(c) Letters of Credit.
(i) As consideration for acting as the Issuing Bank with respect to any
Letter of Credit, the Company will pay to the applicable Issuing Bank a fee to
be agreed upon between the Company and the applicable Issuing Bank not to exceed
.25% per annum on the daily average amount available for drawing on the
applicable Letter of Credit, payable in arrears on each Quarterly Date. The
Company shall also pay to the Issuing Bank, with respect to any issuance,
amendment, transfer, or cancellation prior to expiration of any Letter of Credit
and for each drawing made thereunder, documentary and processing charges in
accordance with the Issuing Bank's standard schedule for such charges in effect
at the time of, and payable at
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the time of, such issuance, amendment, transfer, cancellation or drawing, as the
case may be. All fees payable pursuant to this clause (i) shall be retained by
the applicable Issuing Bank.
(ii) The Company will pay to the Administrative Agent for the account of
and pro rata distribution to each Revolving Credit Lender a fee on the daily
average amount available for drawings under each Letter of Credit, in each case
for the period from and including the date of issuance of such Letter of Credit
to and excluding the date of expiration or termination thereof computed at a per
annum rate for each day equal to the Applicable Margin for Revolving Credit
Loans that are Eurodollar Loans in effect on such day, payable in arrears on
each Quarterly Date.
(d) Administrative Agent and Documentation Agent Fees. The Company shall
pay to the Agents such fees as are set forth in the Fee Letter, as the same has
been or may be hereafter amended or supplemented, on the dates and in the manner
specified therein.
Section 2.13 Payments, etc.
(a) Without Setoff, etc. Except as otherwise specifically provided herein,
all payments under this Agreement shall be made to the Administrative Agent on
behalf of the Applicable Lenders without defense, set-off or counterclaim to the
Administrative Agent not later than 11:00 a.m. Houston time on the date when due
and shall be made in Dollars in immediately available funds at the Payment
Office; provided, that, to the extent that the Company has provided Advance
Notice with respect to a Borrowing of Revolving Credit Loans and has instructed
that the proceeds of such Borrowing is to be used to repay installments of Term
Loans due on the date of such Borrowing, then so long as all conditions for such
Borrowing have been met, any such installments shall, to the extent of such
Borrowing, be considered repaid by 11:00 a.m. on the date of such Borrowing
regardless of when the Administrative Agent actually receives such funds from
the Lenders; provided, further, that the foregoing proviso shall not modify the
obligations of the Company provided in Section 2.04(b). The Administrative
Agent will promptly thereafter distribute funds in the form received relating to
the payment of principal or interest or commitment fees ratably to the
Applicable Lenders for the account of their respective Lending Offices, and
funds in the form received relating to the payment of any other amount payable
to any Lender to such Lender for the account of its Lending Office.
(b) Non-Business Days. Whenever any payment to be made hereunder or under
any Note shall be stated to be due on a day which is not a Business Day, the due
date thereof shall be extended to the next succeeding Business Day (except as
otherwise provided in Section 2.07 hereof) and, with respect to payments of
principal, interest thereon shall be payable at the applicable rate during such
extension.
(c) Computations. All computations of interest shall be made on the basis
of a year of 360 days (unless such calculation would result in a usurious rate,
in which case interest shall be calculated on the basis of a year of 365 or 366
days, as the case may be) in the case of Eurodollar Loans or Base Rate Loans
that are based upon the Federal Funds Effective Rate or the Base CD Rate, and
365 or 366 days (as the case may be) in the case of Base Rate Loans that are
based upon the Prime
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Rate, and all computations of fees shall be made on the basis of a year of 360
days (unless such calculation would result in a usurious rate, in which case
interest shall be calculated on the basis of a year of 365 or 366 days, as the
case may be), in each case for the actual number of days (including the first
day but excluding the last day) occurring in the period for which such interest
or fees are payable. Each determination by the Administrative Agent of an
interest rate or fee hereunder shall, except for manifest error, be final,
conclusive and binding for all purposes, provided that such determination shall
be made in good faith in a manner generally consistent with the Administrative
Agent's standard practice. If the Administrative Agent and the Company
determine that manifest error exists, said parties shall correct such error by
way of an adjustment to the payment due on the next Quarterly Date.
Section 2.14 Interest Rate Not Ascertainable, etc. In the event that the
Administrative Agent shall have determined (which determination shall be
reasonably exercised and shall, absent manifest error, be final, conclusive and
binding upon all parties) that on any date for determining the Eurodollar Rate
for any Interest Period, by reason of any changes arising after the date of this
Agreement affecting the interbank Eurodollar market, or any Lender's position in
such market, adequate and fair means do not exist for ascertaining the
applicable interest rate on the basis provided for in the definition of
Eurodollar Rate, then, and in any such event, the Administrative Agent shall
forthwith give notice (by telephone confirmed in writing) to the Company and to
the Lenders of such determination. Until the Administrative Agent notifies the
Company that the circumstances giving rise to the suspension described herein no
longer exist, the obligations of the Lenders to make Eurodollar Loans shall be
immediately suspended; any Borrowing of Eurodollar Loans that is requested (by
continuation, conversion or otherwise) shall instead be made as a Borrowing of
Base Rate Loans, and any outstanding Eurodollar Loan shall be converted, on the
last day of the then current Interest Period applicable thereto, to a Base Rate
Loan.
Section 2.15 Illegality.
(a) Determinations of Illegality. In the event that any Lender shall have
determined (which determination shall be reasonably exercised and shall, absent
manifest error, be final, conclusive and binding upon all parties) at any time
that the making or continuance of any Eurodollar Loan has become unlawful as a
result of compliance by such Lender in good faith with any applicable law,
governmental rule, regulation, guideline or order (whether or not having the
force of law and whether or not failure to comply therewith would be unlawful),
then, in any such event, the Lender shall give prompt notice (by telephone
confirmed in writing) to the Company and to the Administrative Agent of such
determination (which notice the Administrative Agent shall promptly transmit to
the other Lenders).
(b) Eurodollar Loans Suspended. Upon the giving of the notice to the
Company referred to in Subsection (a) above, (i) the Company's right to request
(by continuation, conversion or otherwise) and such Lender's obligation to make
Eurodollar Loans shall be immediately suspended, and thereafter, any requested
Borrowing of Eurodollar Loans shall, as to such Lender only, be deemed to be a
request for a Base Rate Loan, and (ii) if the affected Eurodollar Loan or Loans
are then outstanding, the Company shall immediately, or if permitted by
applicable law, no later than the date permitted thereby, upon at least one
Business Day's written notice to the Administrative Agent and
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the affected Lender, convert each such Eurodollar Loan into a Base Rate Loan,
provided that if more than one Lender is affected at any time, then all affected
Lenders must be treated the same pursuant to this Subsection.
Section 2.16 Increased Costs.
(a) Eurodollar Regulations, etc. If, by reason of (x) after the date
hereof, the introduction of or any change (including, but not limited to, any
change by way of imposition or increase of reserve requirements) in or in the
interpretation of any law or regulation, or (y) the compliance with any
guideline or request issued by any central bank or other governmental authority
or quasi-governmental authority exercising control over banks or financial
institutions generally that becomes effective after the Closing Date (whether
or not having the force of law):
(i) any Lender (or its applicable Lending Office) shall be subject to any
tax, duty or other charge with respect to its Eurodollar Loans or its obligation
to make Eurodollar Loans, or shall change the basis of taxation of payments to
any Lender of the principal of or interest on its Eurodollar Loans or its
obligation to make Eurodollar Loans (except for changes in the rate of tax on
the overall net income or gross receipts of such Lender or its applicable
Lending Office imposed by the jurisdiction in which such Lender's principal
executive office or applicable Lending Office is located); or
(ii) any reserve (including, but not limited to, any imposed by the Board
of Governors of the Federal Reserve System, but excluding any such reserve
requirement that is reflected in the Eurodollar Rate), special deposit or
similar requirement against assets of, deposits with or for the account of, or
credit extended by, any Lender or its applicable Lending Office shall be imposed
or deemed applicable or any other condition affecting its Eurodollar Loans or
its obligations to make Eurodollar Loans shall be imposed on any Lender or its
applicable Lending Office or the interbank Eurodollar market or the secondary
certificate of deposit market;
and as a result thereof there shall be any increase in the cost to such Lender
of agreeing to make or making, funding or maintaining Eurodollar Loans (except
to the extent already included in the determination of the applicable Eurodollar
Rate) or there shall be a reduction in the amount received or receivable by such
Lender or its applicable Lending Office, then the Company shall from time to
time, upon written notice from and demand by such Lender (with a copy of such
notice and demand to the Administrative Agent), pay to such Lender, within 30
days after the date specified in such notice and demand, additional amounts
determined by such Lender in a reasonable manner to be sufficient to indemnify
such Lender against such increased cost. A certificate as to the amount of such
increased cost and the calculation thereof, submitted to the Company and the
Administrative Agent by such Lender, shall, except for manifest error, be final,
conclusive and binding for all purposes, provided that the determination of such
amount shall be made in good faith in a manner generally consistent with such
Lender's standard practice.
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(b) Costs. If any Lender shall advise the Administrative Agent that
at any time, because of the circumstances described in clauses (x) or (y) in
Subsection 2.16(a) or any other circumstances arising after the Effective Date
affecting such Lender or the interbank Eurodollar market or such Lender's
position in such market, the Eurodollar Rate, as determined in good faith by the
Administrative Agent, will not adequately and fairly reflect the cost to such
Lender of funding its Eurodollar Loans, then, and in any such event:
(i) the Administrative Agent shall forthwith give notice (by telephone
confirmed in writing) to the Company and to the Lenders of such advice;
(ii) the Company's right to request a Borrowing of Eurodollar Loans from
such Lender and such Lender's obligation to make Eurodollar Loans shall be
immediately suspended, any such Borrowing of Eurodollar Loans that is requested
(by continuation, conversion or otherwise) shall, as to such Lender only, be
deemed to be a request for a Base Rate Loan, and any such outstanding Eurodollar
Loan from such Lender shall be converted, on the last day of the then current
Interest Period applicable thereto, to a Base Rate Loan.
(c) Capital Adequacy. If, by reason of (i) after the date hereof, the
introduction of or any change (including, but not limited to, any change by way
of imposition or increase of reserve requirements) in or in the interpretation
of any law or regulation, or (ii) the compliance with any guideline or request
issued by any central bank or other governmental authority or quasi-governmental
authority exercising control over banks or financial institutions generally that
becomes effective after the Closing Date (whether or not having the force of
law) affects or would affect the amount of capital required to be maintained by
any Lender or any corporation controlling such Lender, and the amount of such
capital is increased by or based upon the existence of such Lender's Loans or
such Lender's Commitment to lend hereunder and other commitments of this type or
of the Letters of Credit (or similar contingent obligations), then, within 30
days after written request therefor by such Lender (with a copy of such request
to the Administrative Agent), the Company shall pay to such Lender, from time to
time as specified by such Lender, additional amounts sufficient to compensate
such Lender for the increased cost of such additional capital in light of such
circumstances, to the extent that such Lender reasonably determines such
increase in capital to be allocable to the existence of such Lender's Loans or
such Lender's Commitment to lend hereunder or to the issuance or maintenance of
the Letters of Credit. A certificate as to such amounts and the calculation
thereof, submitted to the Company and the Administrative Agent by such Lender,
shall be conclusive and binding for all purposes, absent manifest error,
provided that the determination of such amount shall be made in good faith in a
manner generally consistent with such Lender's standard practice.
(d) Issuing Bank. The rights and benefits of the Lenders under this
Section 2.16 shall also apply to any Issuing Bank in its capacity as such.
(e) Notice. The Company shall not be obligated to compensate any Lender
pursuant to this Section 2.16 for any amounts attributable to a period more than
one year prior to the giving of notice by such Lender to the Company of its
intention to seek compensation under this Section 2.16.
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Section 2.17 Change of Lending Office. Each Lender agrees that it will
use reasonable efforts to designate an alternate Lending Office with respect to
any of its Eurodollar Loans affected by the matters or circumstances described
in Sections 2.14, 2.15 or 2.16 to reduce the liability of the Company or avoid
the results provided thereunder, so long as such designation is not
disadvantageous to such Lender as determined by such Lender in its sole
discretion; provided that such Lender shall have no obligation to so designate
an alternate Lending Office located in the United States.
Section 2.18 Funding Losses. The Company shall compensate each Lender,
upon its written request (which request shall set forth the basis for requesting
such amounts and shall, absent manifest error, be final, conclusive and binding
upon all of the parties hereto), for all losses, expenses and liabilities
(including, but not limited to, any interest paid by such Lender to lenders of
funds borrowed by it to make or carry its Eurodollar Loans to the extent not
recovered by the Lender in connection with the re-employment of such funds and
excluding loss of anticipated profits), which the Lender may sustain: (i) if
for any reason (other than a default by such Lender) a Borrowing of Eurodollar
Loans does not occur on the date specified therefor in a Borrowing Request
(whether or not withdrawn), including, but not limited to a failure by the
Company to fulfill on the date of any Borrowing of Eurodollar Loans the
conditions set forth in Article III, or to convert or continue any Eurodollar
Loan hereunder after irrevocable notice of such conversion or continuation has
been given pursuant to Section 2.11 (ii), if any payment, prepayment or
conversion of any of its Eurodollar Loans required or permitted by any other
provision of this Agreement or otherwise, or any assignment of a Eurodollar Loan
pursuant to Section 2.22, in each case is made or deemed made on a date which is
not the last day of the Interest Period applicable thereto, or (iii) if, for any
reason, the Company defaults in its obligation to repay its Eurodollar Loans or
interest accrued thereon as and when due and payable (at the due date thereof,
whether at scheduled maturity, by acceleration, irrevocable notice of prepayment
or otherwise).
Section 2.19 Sharing of Payments, etc. If any Lender shall obtain any
payment or reduction (including, but not limited to, any amounts received as
adequate protection of a deposit treated as cash collateral under the Bankruptcy
Code) of any obligation of the Company hereunder (whether voluntary,
involuntary, through the exercise of any right of set-off, or otherwise) in
excess of its ratable share of payments or reductions on account of such
obligations obtained by all the Lenders, such Lender shall forthwith (i) notify
each of the other Lenders and the Administrative Agent of such receipt, and (ii)
purchase from the other Lenders such participations in the affected obligations
as shall be necessary to cause such purchasing Lender to share the excess
payment or reduction, net of costs incurred in connection therewith, ratably
with each of them, provided that if all or any portion of such excess payment or
reduction is thereafter recovered from such purchasing Lender or additional
costs are incurred, the purchase shall be rescinded and the purchase price
restored to the extent of such recovery or such additional costs, but without
interest. The Company agrees that any Lender so purchasing a participation from
another Lender pursuant to this Section may, to the fullest extent permitted by
law, exercise all its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Lender were the direct
creditor of the Company in the amount of such participation.
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Section 2.20 Taxes.
(a) Payments Free and Clear. Any and all payments by the Company under
this Agreement or any other Financing Document shall be made, in accordance with
Section 2.13, free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Lender, the
Administrative Agent and each Issuing Bank, taxes imposed on its income, and
franchise or similar taxes imposed on it, by (i) any jurisdiction (or political
subdivision thereof) of which the Administrative Agent, such Issuing Bank or
such Lender, as the case may be, is a citizen or resident or in which such
Lender has a permanent establishment (or is otherwise engaged in the active
conduct of its banking business through an office or a branch) which is such
Lender's applicable Lending Office, (ii) the jurisdiction (or any political
subdivision thereof) in which the Administrative Agent, such Issuing Bank or
such Lender is organized, or (iii) any jurisdiction (or political subdivision
thereof) in which such Lender, such Issuing Bank or the Administrative Agent is
presently doing business which taxes are imposed solely as a result of doing
business in such jurisdiction (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities so arising out of payments by
the Company being hereinafter referred to as "Taxes"). If the Company shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to the Lenders, the Issuing Banks or the Administrative Agent (i) the
sum payable shall be increased by the amount necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 2.20) such Lender, such Issuing Bank or the Administrative
Agent (as the case may be) shall receive an amount equal to the sum it would
have received had no such deductions been made, (ii) the Company shall make such
deductions and (iii) the Company shall pay the full amount deducted to the
relevant taxing authority or other Governmental Authority in accordance with
applicable law.
(b) Other Taxes. In addition, the Company agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes, charges
or similar levies that arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement, any Assignment and Acceptance or any other Financing Document
(hereinafter referred to as "Other Taxes").
(c) Indemnification. The Company will indemnify each Lender, each Issuing
Bank and the Administrative Agent for the full amount of Taxes and Other Taxes
(including, but not limited to, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 2.20) paid by such Lender or
such Issuing Bank or the Administrative Agent (on their behalf or on behalf of
any Lender), as the case may be, and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto, whether or not
such Taxes or Other Taxes were correctly or legally asserted. Any payment
pursuant to such indemnification shall be made within 30 days after the date any
Lender, any Issuing Bank or the Administrative Agent, as the case may be, makes
written demand therefor. If a Lender, an Issuing Bank or the Administrative
Agent shall become aware that it is entitled to claim a refund from a
Governmental Authority in respect of Taxes or Other Taxes as to which it has
been indemnified by the Company, or with respect to which the Company has paid
additional amounts, pursuant to this Section 2.20, it shall promptly notify the
Company of the
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availability of such claim and shall, within 30 days after receipt of a request
by the Company, make a claim to such Governmental Authority for such refund at
the Company's expense. If a Lender, an Issuing Bank or the Administrative Agent
receives a refund in respect of any Taxes or Other Taxes with respect to which
the Company has paid additional amounts pursuant to this Section 2.20, it shall
within 30 days from the date of such receipt pay over such refund to the Company
(but only to the extent of indemnity payments made, or additional amounts paid,
by the Company under this Section 2.20 with respect to the Taxes or Other Taxes
giving rise to such refund), net of all out-of-pocket expenses of such Lender,
such Issuing Bank or the Administrative Agent and without interest (other than
interest paid by the relevant Governmental Authority with respect to such
refund); provided, however, that the Company, upon the request of such Lender,
such Issuing Bank or the Administrative Agent, agrees to repay the amount paid
over to the Company (plus penalties, interest or other charges payable to the
relevant Governmental Authority) to such Lender, such Issuing Bank or the
Administrative Agent in the event such Lender, such Issuing Bank or the
Administrative Agent is required to repay such refund to such Governmental
Authority.
(d) Receipts. Within 30 days after the date of any payment of Taxes or
Other Taxes withheld by the Company in respect of any payment to any Lender, any
Issuing Bank or the Administrative Agent, the Company will furnish to the
Administrative Agent the original or a certified copy of a receipt evidencing
payment thereof.
(e) Survival. Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 2.20
shall survive the payment in full of principal and interest hereunder.
(f) Lender Representations and Agreements. As of the date on which any
Lender becomes a party hereto, such Lender represents that it is either (i) a
corporation organized under the laws of the United States of America or any
state thereof (ii) entitled to complete exemption from United States withholding
tax imposed on or with respect to any payments, including fees, to be made to it
pursuant to this Agreement or (iii) entitled to complete exemption from United
States withholding tax on interest imposed on or with respect to any payments of
interest to be made pursuant to this Agreement (A) under an applicable provision
of a tax convention to which the United States of America is a party (B) because
it is acting through a branch, agency or office in the United States of America
and any payment to be received by it hereunder is effectively connected with a
trade or business in the United States of America or (C) because it is a
recipient of portfolio interest within the meaning of Section 871(h) or 881(c)
of the Code. Each Lender that is not a corporation organized under the laws of
the United States of America or any state thereof shall:
(x) provide to the Company and the Administrative Agent on or before the
date of any payment by the Company hereunder, or on the date of its delivery of
the Assignment and Acceptance pursuant to which it becomes a Lender, and at such
other times as required by United States law or as the Company or the
Administrative Agent shall reasonably request, two accurate and complete
original signed copies of either (A) Internal Revenue Service Form 4224 (or
successor form) certifying that all payments to be made to it hereunder will be
effectively connected to a United States trade or business (the "Form 4224
Certification"), or
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(B) Internal Revenue Service Form 1001 (or successor form) certifying that it is
entitled to the benefit of a provision of a tax convention to which the United
States of America is a party which completely exempts from United States
withholding tax all payments to be made to it hereunder (the "Form 1001
Certification"). In addition, each Lender agrees that if it previously filed a
Form 4224 Certification it will deliver to the Company and the Administrative
Agent a new Form 4224 Certification prior to the first payment date occurring in
each of its subsequent taxable years (or such other date as may be required in
compliance with applicable law); and if it previously filed a Form 1001
Certification, it will deliver to the Company and the Administrative Agent a new
certification prior to the first payment date falling in the third year
following the previous filing of such certification (or such other date as may
be required in compliance with applicable law); or
(y) in the case of any such Lender that is not a "bank" within the meaning
of Section 881(c)(3)(A) of the Code, (i) furnish to the Company on or before the
date of any payment by the Company, with a copy to the Administrative Agent, (A)
a certificate substantially in the form of Exhibit I (any such certificate a
"U.S. Tax Compliance Certificate") and (B) two accurate and complete original
signed copies of Internal Revenue Service Form W-8, or successor applicable form
certifying to such Lender's legal entitlement at the date of such certificate to
an exemption from U.S. withholding tax under the provisions of Section 881(c) of
the Code with respect to payments of interest to be made under this Agreement,
any Notes or other Financing Documents (and to deliver to the Company and the
Administrative Agent two further copies of such form on or before the date it
expires or becomes obsolete and after the occurrence of any event requiring a
change in the most recently provided form and, if necessary, obtain any
extensions of time reasonably requested by the Company or the Administrative
Agent for filing and completing such forms) and (ii) agree, to the extent
legally entitled to do so, upon reasonable request by the Company, to provide to
the Company (for the benefit of the Company and the Administrative Agent) such
other forms as may be reasonably required in order to establish the legal
entitlement of such Lender to an exemption from withholding with respect to
payments of interest under this Agreement, any Notes or other Financing
Documents, provided that in determining the reasonableness of a request under
this clause (iii) such Lender shall be entitled to consider the cost (to the
extent unreimbursed by the Company) which would be imposed on such Lender of
complying with such request.
Each Lender also agrees to deliver to the Company and the Administrative Agent
such other or supplemental forms as may at any time be required as a result of
changes in applicable law or regulation in order to confirm or maintain in
effect its entitlement to exemption from United States withholding tax on any
payments hereunder, provided that the circumstances of the Lender at the
relevant time and applicable laws permit it to do so. Except as provided
immediately below, if a Lender is organized under the laws of a jurisdiction
outside the United States of America, unless the Company and the Administrative
Agent have received a Form 1001 Certification, Form 4224 Certification, or an
Internal Revenue Service Form W-8 and a U.S. Tax Compliance Certificate, as
applicable, satisfactory to them indicating that all payments, or in the case of
a Lender providing such forms as are required under Section 2.20(f)(y) hereof,
all payments of interest, to be made to such
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Lender hereunder are not subject to United States withholding tax, the Company
shall be entitled to withhold taxes from such payments at the applicable
statutory rate, provided that such withholding shall not increase the amount of
payments for the account of such Lender to be made by the Company pursuant to
Subsection 2.20(a). If a Lender determines, as a result of any change in either
(i) applicable law, regulation or treaty, or in any official application thereof
or (ii) its circumstances, that it is unable to submit any form or certificate
that it is obligated to submit pursuant to this Section, or that it is required
to withdraw or cancel any such form or certificate previously submitted, it
shall promptly notify the Company and the Administrative Agent of such fact and
the Company shall be entitled to withhold taxes from such payments at the
applicable statutory rate, it being understood that such withholding shall
increase the amount of payments for the account of such Lender to be made by the
Company pursuant to Section 2.20(a). Each Lender agrees to indemnify and hold
the Administrative Agent harmless from any United States taxes, penalties,
interest and other expenses, costs and losses incurred or payable by the
Administrative Agent (i) as a result of such Lender's failure to submit any
form or certificate that it is required to provide pursuant to this Section or
(ii) as a result of the Administrative Agent's reliance on any such form or
certificate which such Lender has provided to it pursuant to this Section. Each
Person that shall become a Lender or a Participant pursuant to Section 8.07
shall, upon the effectiveness of the related transfer, be required to provide
all of the forms, certifications and statements required pursuant to this
Section, provided that in the case of a Participant the obligations of such
Participant were it a Lender except that such Participant shall furnish all such
required forms, certifications and statements to the Lender from which the
related participation shall have been purchased.
(g) Efforts to Avoid or Reduce. Any Lender claiming any additional amounts
payable pursuant to this Section 2.20 shall use reasonable efforts (consistent
with legal and regulatory restrictions) to file any certificate or document
requested by the Company or the Administrative Agent or to change the
jurisdiction of its applicable Lending Office or to contest any tax imposed if
the making of such a filing or change or contesting such tax would avoid the
need for or reduce the amount of any such additional amounts that may thereafter
accrue and would not, in the sole determination of such Lender, be otherwise
disadvantageous to such Lender.
Section 2.21 Pro Rata Treatment. Subject to Section 2.04(b), each
Borrowing of Revolving Credit Loans shall be made, each payment on account of
any commitment fee in respect of the Revolving Credit Commitments hereunder
shall be allocated by the Administrative Agent, and any reduction of the
Revolving Credit Commitments of the Lenders shall be allocated by the
Administrative Agent, pro rata according to the relevant Revolving Credit
Percentages of the Lenders. Subject to Section 2.04(b), each payment (including
each prepayment) on account of principal of and interest on any Revolving Credit
Loans shall be allocated by the Administrative Agent pro rata according to the
respective outstanding principal amounts of such Revolving Credit Loans then
held by the Revolving Credit Lenders. Each payment on account of any commitment
fee in respect of the Term Loan Commitments shall be allocated by the
Administrative Agent, and any reduction of the Term Loan Commitments of the
Lenders shall be allocated by the Administrative Agent, pro rata according to
the Applicable Percentages of the Applicable Lenders. Except as otherwise
provided in Sections 2.10(b) and (c), each payment on account of principal of
and interest on any Term Loans shall be allocated by the Administrative Agent
pro rata according to the respective outstanding principal amounts of such Term
Loans then held by the Term Loan Lenders. All proceeds (including proceeds from
the realization upon the
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Collateral) received after acceleration of the maturity of the Loans, shall be
applied first to reimbursement of expenses and indemnities provided for in this
Agreement and the Financing Documents; second, to other Lender Indebtedness
(including, without limitation, Letter of Credit Liabilities) until repaid in
full pro rata to each Lender in accordance with its Total Credit Percentage;
and, third, to any other Person entitled to receive such proceeds in accordance
with applicable law.
Section 2.22 Replacement of Lenders. If any Lender does not make a
Eurodollar Loan pursuant to Section 2.15, is subject to increased costs pursuant
to Section 2.16, fails to designate an alternate Lending Office pursuant to
Section 2.17, or is owed or reasonably anticipates being owed additional amounts
pursuant to Section 2.20 and fails to take action required under Subsection
2.20(g) to avoid or reduce any such additional amounts, the Company shall have
the right, if no Default then exists, to replace such Lender with another bank
or financial institution with the consent of the Administrative Agent, which
consent shall not be unreasonably withheld, provided that (i) the obligations of
the Company owing to the Lender being replaced (including such increased costs)
that are not being assigned to the replacement lender shall be paid in full to
the Lender being replaced concurrently with such replacement lender, (ii) the
replacement lender shall execute an Assignment and Acceptance pursuant to which
it shall become a party hereto as provided in Section 8.07(c), and (iii) upon
compliance with the provisions for assignment provided in Section 8.07(c) and
the payment of amounts referred to in clause (i), the replacement lender shall
constitute a "Lender" hereunder and the Lender being so replaced shall no longer
constitute a "Lender" hereunder.
ARTICLE III
CONDITIONS TO BORROWINGS AND TO
PURCHASE, RENEWAL AND REARRANGEMENT
The obligation of each Lender to make a Loan or an Issuing Bank to issue a
Letter of Credit hereunder is subject to the satisfaction of the following
conditions:
Section 3.01 Closing. The Company shall have delivered to the
Administrative Agent (unless waived by the Administrative Agent) at least three
Business Days' advance written notice of the proposed Effective Date, which
shall be a Business Day not later than the Contingent Termination Date for the
delivery of all instruments, certificates and opinions referred to in Section
3.02 not theretofore delivered.
Section 3.02 Conditions Precedent to Initial Loan. At the time of the
making by such Lender of its initial Loan hereunder or the issuance by such
Issuing Bank of the initial Letter of Credit (including, but not limited to, the
assumption by the Lenders of the Outstanding Letters of Credit), all obligations
of the Company hereunder to the Administrative Agent or any Lender incurred
prior to such initial Loan or Letter of Credit, shall have been paid in full,
and the Administrative Agent shall have received the following, each in form and
substance reasonably satisfactory to the Agents and the Lenders, with an
original thereof for the Administrative Agent and with sufficient copies thereof
for each Lender (except that in the case of the Notes, the originals thereof
will be delivered to the respective Lenders):
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(a) Notes - A duly completed and executed Note for each Lender and in each
case dated as of the Closing Date and payable to the order of such Lender.
(b) Resolutions and Incumbency Certificates -
(i) certified copies of the resolutions of the Boards of Directors of the
Company, Holdco, and any of the Company's Subsidiaries that are parties to any
Financing Document, dated, as to the Company, as of the Closing Date, and as to
Holdco and the Company's Subsidiaries, as of the Effective Date, and approving,
as appropriate, the Loans, the Notes, this Agreement and the other Financing
Documents, and all other documents, if any, to which the Company, Holdco or such
Subsidiary is a party and evidencing corporate authorization with respect to
such documents;
(ii) a certificate of the Secretary or an Assistant Secretary of the
Company dated as of the Closing Date and certifying (A) the name, title and true
signature of each officer of such Person authorized to execute the Notes, this
Agreement, Applications and the other Financing Documents to which it is a
party, (B) the name, title and true signature of each officer of such Person
authorized to provide the certifications required pursuant to this Agreement
including, but not limited to, certifications required pursuant to Section 5.02,
Borrowing Requests, and Borrowing Base Reports, and (C) that attached thereto is
a true and complete copy of the articles of incorporation and bylaws of the
Company, as amended to date, and a recent good standing certificate; and
(iii) a certificate of the Secretary or an Assistant Secretary of Holdco
and of each Subsidiary that is a party to any Financing Document, in each case,
dated as of the Effective Date and certifying (x) the name, title and true
signature of each officer of Holdco or such Subsidiary, as the case may be,
authorized to execute each such Financing Document to which it is a party, and
(y) that attached thereto is a true and complete copy of the articles of
incorporation and bylaws of Holdco or such Subsidiary, as the case may be, as
amended to date, and a recent good standing certificate for Holdco or such
Subsidiary, as the case may be.
(c) Opinions of Counsel - The following opinions of counsel, in each case
addressed to each of the Agents, the Issuing Banks and the Lenders and covering
such other matters as any Administrative Agent, any Issuing Bank or the Lenders
may reasonably request:
(i) Andrews & Kurth L.L.P., counsel to Holdco, the Company and the
Subsidiary Guarantors dated as of the Closing Date and substantially in the form
of Exhibit E-1 hereto; and
(ii) Andrews & Kurth L.L.P., counsel to Holdco, the Company and the
Subsidiary Guarantors, dated as of the Effective Date; and
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(iii) Local counsel to the Company dated as of the Closing Date and
substantially in the form of Exhibits E-2 through E-3 as to the laws of Canada
and the State of Georgia.
(d) The Security Instruments and Guaranties -
(i) Subsidiary Guaranty substantially in the form of Exhibit F-1 hereto,
and dated as of the Effective Date;
(ii) Subrogation and Contribution Agreement substantially in the form of
Exhibit F-2 hereto, and dated as of the Effective Date;
(iii) Security Agreement dated as of the Effective Date executed by the
Company, granting to the Administrative Agent a first priority security interest
in all personal Property described therein, as security for the indebtedness
defined therein as the "Obligations", substantially in the form of Exhibit F-3;
(iv) Security Agreements dated as of the Effective Date executed by each of
the Subsidiary Guarantors, granting to the Administrative Agent a first priority
security interest in all personal Property described therein of each such
Person, as security for the indebtedness respectively defined therein as the
"Obligations", substantially in the form of Exhibit F-4;
(v) Security Agreement (Pledge) dated as of the Effective Date executed by
Holdco granting to the Administrative Agent a first priority security interest
in 100% of the capital stock of the Company, as security for the Lender
Indebtedness, substantially in the form of Exhibit F-5;
(vi) Security Agreement (Pledge) dated as of the Effective Date executed by
the Company granting to the Administrative Agent a first priority security
interest in 100% of the Capital Stock of the Company's directly owned U.S.
Subsidiaries, as security for the Lender Indebtedness, substantially in the form
of Exhibit F-6;
(vii) Security Agreements (Pledge) dated as of the Effective Date executed
by each of the Subsidiary Guarantors granting to the Administrative Agent a
first priority security interest in 65% of the capital stock of Sterling Pulp
and Sterling NRO, as security for the Lender Indebtedness, substantially in the
form of Exhibit F-7;.
(viii) the Deed of Trust substantially in the form of Exhibit F-8 hereto
and dated as of the Effective Date;
(ix) The Leasehold Deed of Trust covering the leasehold estate under the
Valdosta Lease substantially in the form of Exhibit F-9 and dated as of the
Effective Date;
(x) Collateral Assignment (Intercompany Loans and Accounts) dated as of the
Effective Date executed by the Company, assigning to the Administrative Agent
the
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Company's rights, titles and interests in and to all intercompany loans and
accounts owing to the Company by any of its Subsidiaries, whether or not
evidenced by promissory notes or other instruments, as security for the Lender
Indebtedness, substantially in the form of Exhibit F-11;
(xi) Collateral Assignments (Intercompany Loans and Accounts) dated as of
the Effective Date executed by each Subsidiary Guarantor, assigning to the
Administrative Agent such Subsidiary Guarantor's rights, titles and interests in
and to all intercompany loans and accounts owing to such Subsidiary Guarantor by
the Company or any of its other Subsidiaries, whether or not evidenced by
promissory notes or other instruments, as security for the Lender Indebtedness,
substantially in the form of Exhibit F-12;
(xii) Financing Statements, as appropriate, to perfect the security
interests created by the instruments delivered under clauses (iii) through (xii)
above;
(xiii) Stock certificates and corresponding stock powers to perfect the
Administrative Agent's security in the stock pledged by the instruments
delivered under clauses (v) and (vii) above;
(xiv) all Property in which the Administrative Agent shall, at such time,
be entitled to have a Lien pursuant to this Agreement or any other Financing
Document shall have been physically delivered to the possession of the
Administrative Agent to the extent that such possession is necessary for the
purpose of perfecting the Administrative Agent's Lien in such Collateral;
(xv) the Stock Intercreditor Agreement dated as of the Effective Date; and
(xvi) the Cash Collateral Agreement substantially in the form of Exhibit
F-13 dated as of the Effective Date.
(e) Insurance. A certificate of insurance coverage, dated as of the
Effective Date evidencing that the Company and its Subsidiaries are carrying
insurance in accordance with Section 5.01(e) hereof. In addition, the
Administrative Agent shall have received evidence satisfactory to the
Administrative Agent that none of the improved real estate Collateral is
situated in an area that has been identified by the Director of the Federal
Emergency Management Agency (as to such Collateral located in the United States
of America) or any other Governmental Authority as an area having special flood
hazards. Should it be determined, however, that any of the real estate
Collateral is situated in an area identified as having special flood hazards,
the Administrative Agent shall have received a copy of the applicable flood
insurance policies (or policy applications), in form and substance satisfactory
to the Required Lenders, indicating that the maximum limits of coverage have
been obtained and that the full premium therefor has been paid in full.
(f) Title Insurance; Survey. Mortgagee's Policies of Title Insurance,
dated as of the Effective Date in form and substance satisfactory to the Agents
insuring (i) the Lien on the Company's
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chemical plant in Texas City, Texas granted pursuant to the Deed of Trust in the
amount of $9,000,000 (and a current survey covering such chemical plant) and
(ii) the Lien granted pursuant to the Leasehold Deed of Trust on the leasehold
estate under the Valdosta Lease, in the amount of $168,000.
(g) Consummation of Acquisition, Merger and Asset Conveyance. The
Acquisition, the Merger and Asset Conveyance shall have been consummated in
accordance with the terms of the Merger Agreement and the Merger Agreement shall
not have been amended or modified other than with express written consent of the
Required Lenders (except for amendments that do not materially change the
structure of the Merger, Acquisition or Asset Conveyance as contemplated in the
Merger Agreement as of the Closing Date), subject only to the funding of the
Loans. The proceeds of the new common equity and retained equity in Holdco
equal to approximately $131,000,000 (assuming the retained equity is valued at
$12.00 per share), the Senior Subordinated Notes and the Senior Secured Discount
Notes necessary to consummate the Acquisition and Merger shall have been
received by the Company or Holdco in amounts and under terms reasonably
satisfactory to the Agents and the Lenders. All conditions precedent to the
Acquisition, Merger and Asset Conveyance set forth in the Merger Agreement shall
have been satisfied and shall not have been amended, modified or waived since
the Closing Date without the express written consent of the Required Lenders.
All representations and warranties made by SCI in the Merger Agreement shall be
true and correct as of the Effective Date in all material respects (and SCI
shall have so certified in writing, to the Administrative Agent, the Issuing
Banks and the Lenders) and shall not have been amended, modified or waived since
the Closing Date without the express written consent of the Required Lenders.
All documents, instruments, agreements, transfers, conveyances and bills of sale
necessary for the Asset Conveyance shall be in form reasonably satisfactory to
the Administrative Agent.
(h) Appraisals. Appraisals shall have been completed, at the expense of
the Company, determining the value-in-use of (i) the Company's real and personal
Property, located at the Texas City, Texas facility, and (ii) designated
personal Property of Sterling Pulp.
(i) Solvency Opinion. A solvency opinion by Houlihan, Lokey, Howard and
Zukin, Inc., dated as of the Effective Date, addressed to the Administrative
Agent, the Issuing Banks and the Lenders, stating that the Company is Solvent,
before and after giving effect to the Acquisition, Merger and Asset Conveyance.
(j) Lien Searches. Lien searches reflecting no prior Liens on the
Collateral other than Liens set forth on Schedule 5.04(b).
(k) Repayment of Debt and Release of Liens. Provision satisfactory to the
Agents having been made for the prepayment and refinancing of all Indebtedness
of the Company and its Subsidiaries and termination of commitments described on
Schedule 5.04(a), subject only to making available the proceeds of the Loans
for such prepayment and refinancing and all Liens identified on Schedule 5.04(b)
have been released or documentation providing for the release of all such Liens
shall have been duly executed by all necessary Persons and provision
satisfactory to the Agents shall have been
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made for delivery thereof to the Administrative Agent upon repayment of the
Indebtedness of the Company and its Subsidiaries described on Schedule 5.04(a);
(l) Secondary ESOP Loan Documents. Duly completed and executed copies of
the Secondary ESOP Note and the ESOP Security Agreement.
(m) Financial Statements and Projections. The financial condition of the
Company and SCI reflected in the financial information and projections of the
Company and SCI that were delivered to the Lenders as of the Closing Date by the
Company have not changed in such a way as to materially and adversely affect the
prospects of the Company or otherwise cause or result in a Material Adverse
Effect (after giving effect to the Merger and Asset Conveyance).
(n) Pilko Report. A certificate of the Company, dated as of the Effective
Date, to the effect that to the Company's best knowledge, no relevant facts,
conditions or circumstances pertaining to environmental claims or liabilities
shall have arisen that would cause the Pilko Report, if deemed to have been
delivered on the Effective Date, to contain any material misstatement of fact,
or any omission of any material fact necessary to make the Pilko Report
accurate, complete and not misleading, except to the extent that any such fact,
condition, or circumstance could not reasonably be expected to have a Material
Adverse Effect.
(o) Albright Indemnity. The Albright Indemnity shall remain legal, valid
and binding in all respects as of the Effective Date.
(p) Tax Sharing Agreement. The Tax Sharing Agreement dated as of the
Effective Date.
Section 3.03 Conditions Precedent to Each Loan. At the time of the
making by such Lender of each Loan, including the initial Loan but not including
continuations or conversions pursuant to Section 2.11 (before as well as after
giving effect to such Loan and to the proposed use of the proceeds thereof):
(a) No Default. There shall exist no Default;
(b) Representations and Warranties. All representations and warranties
contained herein and in the other Financing Documents executed and delivered on
or after the date hereof shall be true and correct in all material respects with
the same effect as though such representations and warranties had been made on
and as of the date of such Loan (unless such representation and warranty is
expressly limited to an earlier date or is no longer true and correct solely as
a result of transactions not prohibited by the Financing Documents); and
(c) Documentation. The Administrative Agent shall have received such other
documents as the Administrative Agent (or any Lender acting through the
Administrative Agent) may reasonably request, all in form and substance
reasonably satisfactory to the Administrative Agent.
Each Borrowing Request submitted by the Company, and the acceptance by the
Company of the proceeds of such Borrowing (but not including continuations or
conversions pursuant to Section 2.11), shall
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constitute a representation and warranty by the Company, as of the date of such
Borrowing, that the conditions specified in Subsections 3.03(a) and (b) have
been satisfied.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this Agreement, the Company
represents and warrants to the Lenders (which representations and warranties (i)
will survive the delivery of the Notes and (ii) made by the Company as of the
Closing Date are made assuming that the Acquisition, Merger, and Asset
Conveyance had occurred on or before the Closing Date) that:
Section 4.01 Corporate Existence. The Company and each of its
Subsidiaries are corporations duly organized, legally existing and in good
standing under the laws of the jurisdictions in which they are incorporated and
are duly qualified as foreign corporations in all jurisdictions wherein the
Property owned or the business transacted by them makes such qualification
necessary, except where the failure to be so qualified would not have a Material
Adverse Effect.
Section 4.02 Corporate Power and Authorization. The Company is
authorized and empowered to create and issue the Notes; the Company and each of
its Subsidiaries are duly authorized and empowered to execute, deliver and
perform the Financing Documents, including this Agreement, to which they
respectively are parties; and all corporate action on the Company's part
requisite for the due creation and issuance of the Notes on the Company's and
each of its Subsidiaries' respective part requisite for the due execution,
delivery and performance of the Financing Documents, including this Agreement,
to which the Company and each of its Subsidiaries respectively are parties has
been duly and effectively taken.
Section 4.03 Binding Obligations. This Agreement does, and the Notes and
other material Financing Documents to which the Company and each of its
Subsidiaries respectively are parties upon their creation, issuance, execution
and delivery will, when issued and delivered under this Agreement, constitute
legal, valid and binding obligations of the Company and each such Subsidiary
that is a party thereto, respectively, and will be enforceable in accordance
with their respective terms (except that enforcement may be subject to any
applicable bankruptcy, insolvency or similar laws generally affecting the
enforcement of creditors' rights and subject to the availability of equitable
remedies).
Section 4.04 No Legal Bar or Resultant Lien. The execution, delivery and
performance of the Notes and the other Financing Documents, including this
Agreement, to which the Company or any of its Subsidiaries is a party do not and
will not violate or create a default under any provisions of the articles or
certificate of incorporation or bylaws of the Company or any of its
Subsidiaries, or any contract, agreement, instrument or Governmental Requirement
to which the Company or any of its Subsidiaries is subject, or result in the
creation or imposition of any Lien upon any Properties of the Company or any of
its Subsidiaries, other than those violations and defaults that would not have a
Material Adverse Effect upon the Company's or such Subsidiaries' use of such
Properties or those permitted by this Agreement.
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Section 4.05 No Consent. The Company's and each of its Subsidiaries'
respective execution, delivery and performance of the Notes and the other
Financing Documents, including this Agreement, to which the Company and each
such Subsidiary respectively are parties, and the consummation of the Merger and
Acquisition, do not require notice to or filing or registration with, or the
authorization, consent or approval of or other action by any other Person,
including, but not limited to, any Governmental Authority, except where the
failure to do so could not reasonably be expected to have a Material Adverse
Effect.
Section 4.06 Financial Information.
(a) Financial Statements. The March 31, 1996 pro forma consolidated
financial statements of the Company heretofore delivered to the Lenders were
prepared consistent with GAAP and present the estimated consolidated financial
condition and operations of the Company at such date and the results of its
operations for the six-month period then ended on a pro forma basis.
(b) No Material Adverse Effect. Since September 30, 1995, there has been
no event or occurrence that could reasonably be expected to have a Material
Adverse Effect.
Section 4.07 Investments and Guaranties. Neither the Company nor any of
its Subsidiaries has made investments in or advances to any Person or guaranties
of the obligations of any Person that is not a Subsidiary of the Company, except
those permitted by Section 5.04, reflected in the Financial Statements or
described in Schedule 4.07.
Section 4.08 Litigation. Except as set forth in Schedule 4.08, there is
no material action, suit or proceeding, or any material governmental
investigation or any arbitration, in each case pending or, to the knowledge of
the Company, threatened against the Company or any of its Subsidiaries or any
material Property of any thereof before any court or arbitrator or any
Governmental Authority. There is no action, suit or proceeding, or any
governmental investigation or any arbitration, in each case pending or, to the
knowledge of the Company, threatened against the Company or any of its
Subsidiaries or any material Property of any thereof before any court or
arbitrator or any Governmental Authority which (i) challenges the validity of
this Agreement, any Note, any Application, the Subsidiary Guaranty or any of the
other Financing Documents or (ii) could reasonably be expected to have a
Material Adverse Effect.
Section 4.09 Use of Proceeds. The Company will use the proceeds of the
Loans only for the purposes specified in the Introductory Statement to this
Agreement. The Letters of Credit will be used only for the purposes provided in
Section 2.03. Neither the Company nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of
extending credit for the purpose, whether immediate, incidental or ultimate, of
buying or carrying Margin Stock (within the meaning of Regulations, G, U or X)
and no part of the proceeds of any Loan hereunder will be used to buy or carry
any Margin Stock in violation of Regulation G, U, or X. Neither the Company nor
any Person acting on behalf of the Company has taken or will take any action
which could reasonably be expected to cause the Notes or any of the Financing
Documents, including this Agreement, to violate Regulations G, U or X or any
other regulation of the Board of Governors of the Federal Reserve System, in
each case as now in effect or as the same may hereinafter be in effect.
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Section 4.10 Employee Benefits.
(a) Except as could not reasonably be expected to have a Material Adverse
Effect (i) the Company, its Subsidiaries and each ERISA Affiliate have complied
in all material respects with all applicable laws regarding each Plan
(including, where applicable, ERISA, the Code, the Pension Benefits Act
(Ontario), and the Income Tax Act (Canada)); (ii) each Plan is, and has been,
maintained and administered in substantial compliance with its terms, applicable
collective bargaining agreements, and all applicable laws (including, where
applicable, ERISA, the Code, the Pension Benefits Act (Ontario), and the Income
Tax Act (Canada)); and (iii) no act, omission or transaction has occurred which
could result in imposition on the Company, any Subsidiary of the Company or any
ERISA Affiliate (whether directly or indirectly) of (A) either a civil penalty
assessed pursuant to Subsections (c), (i) or (l) of Section 502 of ERISA or a
tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (B) breach of
fiduciary duty liability damages under Section 409 of ERISA.
(b) There exists no material outstanding liability of the Company, any of
its Subsidiaries or any ERISA Affiliate with respect to any Plan that has been
terminated. No material liability to the PBGC (other than for the payment of
current premiums which are not past due) by the Company, any Subsidiary of the
Company or any ERISA Affiliate has been or is expected by the Company, any
Subsidiary of the Company or any ERISA Affiliate to be incurred with respect to
any Plan. No ERISA Termination Event with respect to any Plan has occurred or
is reasonably expected to occur (other than an event described in clause (i) or
(ii) of the definition of "ERISA Termination Event" that could not reasonably be
expected to have a Material Adverse Effect).
(c) Full payment when due has been made of all amounts which the Company,
any of its Subsidiaries or any ERISA Affiliate is required under the terms of
each Plan or applicable law to have paid as contributions to such Plan
(excluding any nonpayment involving an amount that is not material), and no
accumulated funding deficiency (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, exists with respect to any Plan.
(d) With respect to any Plan that is a pension plan subject to the Pension
Benefits Act (Ontario), such Plan is fully funded, on a going concern basis, in
accordance with its terms and regulatory requirements as outlined by the Pension
Benefits Act (Ontario), administrative requirements of the Pension Commission of
Ontario and the most recent actuarial report filed with the Pension Commission
of Ontario in respect of such Plan except to the extent any failure to do so
could not reasonably be expected to have a Material Adverse Effect.
(e) The actuarial present value of the benefit liabilities (computed on an
accumulated benefit obligation basis in accordance with GAAP) under all Plans in
the aggregate that are subject to Title IV of ERISA does not, as of the end of
the most recently ended fiscal year of such Plans, exceed the current value of
the assets of all Plans in the aggregate that are allocable to such benefit
liabilities by (i) an amount that could reasonably be expected to cause a
Material Adverse Effect, if such excess is the result of a change in market
conditions, and (ii) more than $10,000,000 if such excess is for any other
reason. The term "actuarial present value of the benefit liabilities" shall
have the meaning specified in Section 4041 of ERISA.
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(f) Except as expressly permitted pursuant to Sections 5.04(i)(v) and (vi),
neither the Company, any Subsidiary of the Company nor any ERISA Affiliate
sponsors, maintains or contributes to, or has at any time in the preceding six-
year period sponsored, maintained or contributed to, (i) any "multiemployer
plan" (as defined in Section 3(37) or 4001(a)(3) of ERISA) or (ii) any "multi-
employer pension plan" (as defined in the Pension Benefits Act (Ontario)).
(g) Neither the Company, any Subsidiary of the Company nor any ERISA
Affiliate is required to provide security to a Plan pursuant to Section
401(a)(29) of the Code.
(h) The execution and delivery of the Financing Documents and the Secondary
ESOP Loan Documents, the consummation of the Transactions and the transactions
provided for in and contemplated by the Secondary ESOP Loan Documents, and the
lending of funds pursuant to the provisions of the Financing Documents and the
Secondary ESOP Loan Documents will not involve or give rise to any non-exempt
prohibited transaction within the meaning of Section 406 of ERISA or Section
4975 of the Code.
Section 4.11 Taxes; Governmental Charges. The Company and its
Subsidiaries have filed all tax returns and reports required to be filed and
have paid all taxes, assessments, fees and other governmental charges levied
upon any of them or upon any of their respective Properties or income which are
due and payable, including interest and penalties, except where failure to so
pay or file would not have a Material Adverse Effect, or have provided adequate
reserves for the payment thereof if required in accordance with GAAP for the
payment thereof, except such interest and penalties as are being contested in
good faith by appropriate actions or proceedings and for which adequate reserves
for the payment thereof as required by GAAP have been provided.
Section 4.12 Titles, etc. The Company and its Subsidiaries have
indefeasible title to their respective material (individually or in the
aggregate) Properties, and with respect to leased Properties, indefeasible title
to the leasehold estate with respect thereto, pursuant to valid and enforceable
leases, free and clear of all Liens except (i) Liens disclosed to the Lenders in
Schedule 4.12, (ii) in addition to the Liens disclosed in Schedule 4.12, other
Liens and minor irregularities in title which do not materially interfere with
the occupation, use and enjoyment by the Company or any Subsidiary of the
Company of any of their respective Properties in the normal course of business
as presently conducted or materially impair the value thereof for such business,
and (iii) Liens otherwise permitted or contemplated by this Agreement or the
other Financing Documents.
Section 4.13 Defaults. Neither the Company nor any of its Subsidiaries
is in default nor has any event or circumstance occurred which, but for the
passage of time or the giving of notice, or both, would constitute a default (in
any respect that would have a Material Adverse Effect) under any loan or credit
agreement, indenture, mortgage, deed of trust, security agreement or other
instrument or agreement evidencing or pertaining to any Indebtedness of the
Company or any of its Subsidiaries, or under any material agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound, except as disclosed to
the Lenders in Schedule 4.13. No Default hereunder has occurred and is
continuing.
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Section 4.14 Casualties; Taking of Properties. Since September 30, 1995,
neither the business nor the Properties of the Company or any of its
Subsidiaries have been affected in a manner that has had or would have a
Material Adverse Effect as a result of any fire, explosion, earthquake, flood,
drought, windstorm, accident, strike or other labor disturbance, embargo,
requisition or taking of Property or cancellation of contracts, permits or
concessions by any domestic or foreign government or any agency thereof, riot,
activities of armed forces or acts of God or of any public enemy.
Section 4.15 Compliance with the Law. Neither the Company nor any of its
Subsidiaries:
(a) is in violation of any Governmental Requirement; and
(b) has failed to obtain any license, permit, right-of-way, franchise or
other right or governmental authorization necessary to the ownership of any of
their respective Properties or the conduct of their respective business;
which violation or failure would have (in the event that such a violation or
failure were asserted by any Person through appropriate action) a Material
Adverse Effect.
Section 4.16 No Material Misstatements. No written information, exhibit,
schedule or report prepared by or on behalf of the Company and furnished to the
Agent or the Lenders by or at the direction of the Company or any of its
Subsidiaries in connection with the negotiation of this Agreement contained any
material misstatement of fact or, when such statement is considered with all
other written statements furnished to the Lenders in that connection, omitted to
state a material fact or any fact necessary to make the statement contained
therein not misleading; provided, that, the financial information with respect
to the Company's projections, copies of which have been furnished to each Lender
prior to the Closing Date, were prepared in good faith on the basis of the
assumptions stated therein, which assumptions were believed by the Company to be
reasonable in all material respects at the time made.
Section 4.17 Investment Company Act. The Company is not an "investment
company" or a company "controlled" by an "investment company" that is
incorporated in or organized under the laws of the United States or any "State,"
as those terms are defined in the Investment Company Act of 1940, as amended.
The execution and delivery by the Company and its Subsidiaries of this Agreement
and the other Financing Documents to which they respectively are parties and
their respective performance of the obligations provided for therein, will not
result in a violation of the Investment Company Act of 1940, as amended.
Section 4.18 Public Utility Holding Company Act. The Company is not a
"holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
Section 4.19 Subsidiaries. As of the Effective Date, the Company has no
Subsidiaries except those shown in Schedule 4.19 hereto, which schedule is
complete and accurate. The Company owns, either directly or indirectly, 100% of
all stock of the Subsidiaries listed in such Schedule.
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Section 4.20 Insurance. All policies of fire, liability, workmen's
compensation, casualty, flood, business interruption and other forms of
insurance owned or held by the Company, and each of its Subsidiaries are
sufficient for compliance with all requirements of law and of all agreements to
which the Company or any of its Subsidiaries is a party; are valid, outstanding
and enforceable policies; provide adequate insurance coverage in at least such
amounts and against at least such risks (but including in any event public
liability) as are usually insured against in the same general area by companies
engaged in the same or a similar business for the assets and operations of the
Company and each of its Subsidiaries; and will not in any way be affected by, or
terminate or lapse by reason of, the transactions contemplated by this
Agreement. All such material policies are in full force and effect, all premiums
with respect thereto have been paid in accordance with their respective terms,
and no notice of cancellation or termination has been received with respect to
any such policy. Neither the Company nor any of its Subsidiaries maintains any
formalized self-insurance program with respect to its assets or operations or
material risks with respect thereto in excess of $5,000,000 in the aggregate.
The certificate of insurance delivered to the Lenders pursuant to Section
3.02(e) contains an accurate and complete description of all material policies
of insurance owned or held by the Company and each of its Subsidiaries on the
Effective Date.
Section 4.21 Environmental Matters. Except as disclosed to the Lenders
in the Pilko Report:
(a) Environmental Laws, etc. Neither any Property of the Company or its
Subsidiaries nor the operations conducted thereon violate any applicable order
of any court or Governmental Authority or Environmental Laws, which violation
could reasonably be expected to have a Material Adverse Effect or which could
reasonably be expected to result in remedial obligations having a Material
Adverse Effect assuming disclosure to the applicable Governmental Authority of
all relevant facts, conditions and circumstances, if any, pertaining to the
relevant Property.
(b) No Litigation. Without limitation of Subsection (a) above, no Property
of the Company or its Subsidiaries nor the operations currently conducted
thereon or by any prior owner or operator of such Property or operation, are in
violation of or subject to any existing, pending or threatened action, suit,
investigation, inquiry or proceeding by or before any court or Governmental
Authority or to any remedial obligations under Environmental Laws, which
violation, action, suit, investigation, inquiry or proceeding could reasonably
be expected to have a Material Adverse Effect or which could reasonably be
expected to result in remedial obligations having a Material Adverse Effect
assuming disclosure to the applicable Governmental Authority of all relevant
facts, conditions and circumstances, if any, pertaining to the relevant
Property.
(c) Notices, Permits, etc. All notices, permits, licenses or similar
authorizations, if any, required to be obtained or filed by the Company or its
Subsidiaries in connection with the operation or use of any and all Property of
the Company or its Subsidiaries, including but not limited to past or present
treatment, storage, disposal or release of a hazardous substance or solid waste
into the environment, have been duly obtained or filed except to the extent the
failure to obtain or file such notices, permits, licenses or similar
authorizations could not reasonably be expected to have a Material Adverse
Effect or which could reasonably be expected to result in remedial obligations
having a Material Adverse Effect assuming disclosure to the applicable
Governmental Authority of all relevant facts, conditions and circumstances, if
any, pertaining to the relevant Property.
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(d) Hazardous Substances Carriers. All hazardous substances or solid waste
generated at any and all Property of the Company or its Subsidiaries have in the
past been transported, treated and disposed of only by carriers maintaining
valid permits under RCRA and any other Environmental Law, except to the extent
the failure to have such substances or waste transported, treated or disposed by
such carriers could not reasonably be expected to have a Material Adverse
Effect, and only at treatment, storage and disposal facilities maintaining valid
permits under RCRA and any other Environmental Law, which carriers and
facilities have been and are operating in compliance with such permits, except
to the extent the failure to have such substances or waste treated, stored or
disposed at such facilities, or the failure of such carriers or facilities to so
operate, could not reasonably be expected to have a Material Adverse Effect or
which could reasonably be expected to result in remedial obligations having a
Material Adverse Effect assuming disclosure to the applicable Governmental
Authority of all relevant facts, conditions and circumstances, if any,
pertaining to the relevant Property.
(e) Hazardous Substances Disposal. The Company and its Subsidiaries have
taken all reasonable steps necessary to determine and have determined that no
hazardous substances or solid waste have been disposed of or otherwise released
and there has been no threatened release of any hazardous substances on or to
any Property of the Company or its Subsidiaries except in compliance with
Environmental Laws, except to the extent the failure to do so could not
reasonably be expected to have a Material Adverse Effect or which could
reasonably be expected to result in remedial obligations having a Material
Adverse Effect assuming disclosure to the applicable Governmental Authority of
all relevant facts, conditions and circumstances, if any, pertaining to the
relevant Property.
(f) No Contingent Liability. The Company and its Subsidiaries have no
material contingent liability in connection with any release or threatened
release of any hazardous substance or solid waste into the environment other
than such contingent liabilities at any one time and from time to time which
could reasonably be expected to exceed $10,000,000 in excess of applicable
insurance coverage and for which adequate reserves for the payment thereof as
required by GAAP have not been provided, or which could reasonably be expected
to result in remedial obligations having a Material Adverse Effect assuming
disclosure to the applicable Governmental Authority of all relevant facts,
conditions and circumstances, if any, pertaining to such release or threatened
release.
Section 4.22 Solvency. The Company and its Subsidiaries, taken as a
whole, and the Company and each of its material Subsidiaries are Solvent, both
before and after taking into account the Acquisition and Merger.
Section 4.23 Material Contracts. As of the Effective Date, each of the
Material Contracts is in full force and effect. Neither the Company nor any of
its Subsidiaries is in default under or in breach of any term or condition of
any Material Contract that would have a Material Adverse Effect, nor is it aware
of any default under or breach of any term or condition of any Material Contract
by any other party thereto that would have a Material Adverse Effect.
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Section 4.24 Employee Matters. Except as set forth on Schedule 4.24, as
of the Effective Date, none of the Company or its Subsidiaries, or any of their
respective employees, is subject to any collective bargaining agreement. There
are no strikes, slowdowns, work stoppages or controversies pending or, to the
best knowledge of the Company, threatened against the Company or its
Subsidiaries, or their respective employees, which could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect.
Except as set forth in Schedule 4.24, none of the Company nor any of its
Subsidiaries is subject to an employment contract.
ARTICLE V
COVENANTS
Section 5.01 Certain Affirmative Covenants. So long as any Lender has
any Commitment hereunder or any Loan remains unpaid or any Revolving Credit
Exposure remains outstanding, the Company will at all times comply with the
following covenants:
(a) Maintenance and Compliance, etc. The Company will and will cause each
of its Subsidiaries to (i) except as permitted by Section 5.04(c), preserve and
maintain its corporate existence, and (ii) except where failure to do so could
not reasonably be expected to have a Material Adverse Effect, observe and comply
with all Governmental Requirements.
(b) Payment of Taxes and Claims, etc. The Company will pay, and cause
each of its Subsidiaries to pay, (i) all material taxes, assessments and
governmental charges imposed upon it or upon its Property, and (ii) all material
claims (including, but not limited to, claims for labor, materials, supplies or
services) which could reasonably be expected, if unpaid, to become a Lien upon
its Property, unless, in each case, the validity or amount thereof is being
contested in good faith by appropriate action or proceedings and the Company has
established adequate reserves in accordance with GAAP with respect thereto.
(c) Further Assurances. The Company will and will cause each of its
Subsidiaries to cure promptly any defects in the creation and issuance of the
Notes, and the execution and delivery of the Financing Documents, including this
Agreement. The Company at its expense will, as promptly as practical, execute
and deliver to the Administrative Agent or the applicable Issuing Bank upon
request all such other and further documents, agreements and instruments (or
cause any of its Subsidiaries to take such action) in compliance with or
performance of the covenants and agreements of the Company or any of its
Subsidiaries in the Financing Documents, including this Agreement, or to further
evidence and more fully describe the Collateral, or to correct any omissions in
the Financing Documents, or more fully to state the security obligations set out
herein or in any of the Financing Documents, or to perfect, protect or preserve
any Liens created pursuant to any of the Financing Documents, or to make any
recordings, to file any notices, or obtain any consents, all as may be necessary
or appropriate in connection therewith.
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(d) Performance of Obligations. The Company will pay the Notes according to
the reading, tenor and effect thereof; and the Company will do and perform every
act and discharge all of the obligations provided to be performed and discharged
by the Company under the Financing Documents, including this Agreement, at the
time or times and in the manner specified, and cause each of its Subsidiaries to
take such action with respect to their obligations to be performed and
discharged under the Financing Documents to which they respectively are parties.
(e) Insurance. The Company will and will cause each of its Subsidiaries
to maintain or cause to be maintained, with financially sound and reputable
insurers, insurance with respect to their respective Properties and business
against such liabilities, casualties, risks and contingencies and in such types
(including business interruption insurance and flood insurance) and amounts as
is customary in the case of Persons engaged in the same or similar businesses
and similarly situated and in accordance with any Governmental Requirement. In
the case of any fire, accident or other casualty causing loss or damage to any
Properties of the Company used in generating cash flow or required by applicable
law, the proceeds of such policies in excess of $100,000 per occurrence shall be
used to promptly repair or replace any such damaged Properties as required by
applicable law, and otherwise shall be used in the Company's sole discretion,
(i) to reasonably promptly repair or replace the damaged Property, (ii) to
prepay the Term Loans in accordance with Section 2.10(c), or (iii) to reinvest
in other Properties that, in the good faith judgment of the Company, meet the
Company's capital investment criteria. The Company will obtain endorsements to
the policies pertaining to all physical Properties in which the Administrative
Agent or the Lenders shall have a Lien under the Financing Documents, naming the
Administrative Agent as a loss payee and containing provisions that such
policies will not be cancelled without 30 days prior written notice having been
given by the insurance company to the Administrative Agent.
(f) Accounts and Records. The Company will keep and will cause each of
its Subsidiaries to keep proper books of record and account in accordance with
GAAP.
(g) Right of Inspection. The Company will permit and will cause each of
its Subsidiaries to permit any officer, employee or agent of the Administrative
Agent (and during the continuance of any Default, any of the Lenders) to visit
and inspect any of the Properties of the Company or any of its Subsidiaries,
examine the Company's or any such Subsidiary's books of record and accounts,
take copies and extracts therefrom, and discuss the affairs, finances and
accounts of the Company or any of its Subsidiaries with the Company's or such
Subsidiary's officers, accountants and auditors, as often and all at such
reasonable times during normal business hours as may be reasonably requested by
the Administrative Agent or any of the Lenders.
(h) Operation and Maintenance of Property. The Company will, and will
cause each of its Subsidiaries to, operate its Properties or cause its
Properties to be operated and maintained (i) in accordance with prudent industry
practice in all material respects and in compliance in all material respects
with the terms and provisions of all applicable leases, contracts and agreements
and (ii) except where the noncompliance therewith could not reasonably be
expected to cause or result in a Material Adverse Effect, in compliance with all
applicable laws of the jurisdiction in which such
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Properties may be situated, and all applicable laws, rules and regulations of
every other Governmental Authority from time to time constituted to regulate the
ownership and operation of such Properties.
(i) Additional Subsidiaries; Permitted Acquisitions; Additional Liens.
(i) If at any time after the Effective Date the Company or its
Subsidiaries create or acquire any one or more additional Subsidiaries:
(A) the Company shall, and shall cause its U.S. Subsidiaries, to execute
and deliver to the Administrative Agent, at the time of such new Subsidiary's
creation or acquisition, additional pledge agreements granting a security
interest in, (1) if such new Subsidiary is a U.S. Subsidiary, 100% of the
capital stock of, and other equity interest in, such Subsidiary owned by the
Company or any such U.S. Subsidiary, respectively, or (2) if such new Subsidiary
is not a U.S. Subsidiary, 65% or the capital stock of, and other equity interest
in, such Subsidiary owned by the Company or any such U.S. Subsidiary,
respectively, in each case in substantially the same form as the Pledge
Agreement executed by the Company or its U.S. Subsidiaries, as applicable, in
connection with this Agreement; and
(B) if such new Subsidiary is a wholly-owned (directly or indirectly) U.S.
Subsidiary, the Company shall cause such new Subsidiary to execute and deliver
to the Administrative Agent, at the time of such Subsidiary's creation or
acquisition, (1) a guaranty agreement in substantially the same form as the
Guaranty Agreement executed by the Subsidiary Guarantors in connection with this
Agreement, and (2) appropriate mortgages and security agreements and the like
covering such Subsidiary's Property;
provided that, if such new Subsidiary does not have, but only for so long as
such new Subsidiary does not have, assets of more than $50,000, the Company
shall not be required to comply with this Section 5.01(i) with respect to such
Subsidiary.
(ii) If at any time after the Effective Date the Company or any of its
Subsidiaries makes a Permitted Acquisition with respect to a Person that is not
a Subsidiary, the Company shall, and shall cause its U.S. Subsidiaries, to
execute and deliver to the Administrative Agent at the time of such Permitted
Acquisition, additional pledge agreements granting a security interest in 100%
of the capital stock of, or other equity interest in, such Person owned by the
Company or any such U.S. Subsidiary, respectively, in each case in substantially
the same form as the Pledge Agreement executed by the Company or its U.S.
Subsidiaries, as applicable, in connection with this Agreement.
(iii) In connection with the execution and delivery of any guaranty
agreement, pledge agreement, mortgage, security agreement or similar agreement
pursuant to this Section 5.01(i), the Company shall, or shall cause the relevant
Subsidiary to, deliver to the Lenders such corporate resolutions, certificates,
legal opinions and such other related documents as shall be reasonably requested
by the Required Lenders and consistent with the relevant forms and types thereof
delivered on the Effective Date or as shall be otherwise reasonably acceptable
to the Required Lenders. Each guaranty agreement, pledge agreement, mortgage,
security agreement and the like delivered pursuant
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to this Section 5.01(i) shall be deemed to be a Security Instrument from and
after the date of execution thereof.
Section 5.02 Reporting Covenants. So long as any Lender has any
Commitment hereunder or any Loan remains unpaid or any Revolving Credit Exposure
remains outstanding, the Company will furnish the following to the
Administrative Agent (which shall provide copies to each Lender) and, in the
case of Sections 5.02(a), (b), (d), (e), (g), (i), (j), (k) and (l) to each of
the Lenders:
(a) Annual Financial Statements. As soon as available and in any event
within 90 days after the end of each Fiscal Year of the Company, a consolidated
balance sheet of the Company and its Subsidiaries as at the end of such year and
the related consolidated statements of income, retained earnings and cash flows
of the Company and its Subsidiaries for such Fiscal Year, setting forth in each
case in comparative form the figures for the previous Fiscal Year, all in
reasonable detail and accompanied by a report thereon of independent public
accountants of recognized national standing, which such report shall state that
such consolidated financial statements present fairly the consolidated financial
condition as at the end of such Fiscal Year, and the consolidated results of
operations and cash flows for such Fiscal Year, of the Company and its
Subsidiaries in accordance with GAAP, applied on a consistent basis. At the
same time, a consolidating balance sheet of the Company and its Subsidiaries as
at the end of such year and related consolidating statements of income and cash
flows for such Fiscal Year (in each case consolidating on the basis of principal
lines of business of the Company and its Subsidiaries), accompanied by a
certification thereon of a Responsible Officer, stating that such consolidating
financial statements form the basis of the Company's consolidated financial
statements and are fairly stated in all material respects when considered in
relation thereto.
(b) Quarterly Financial Statements. As soon as available and in any event
within 45 days after the end of each Fiscal Quarter of the Company, a
consolidated balance sheet of the Company and its Subsidiaries as at the end of
such quarter and the related consolidated statements of income, retained
earnings and cash flows of the Company and its Subsidiaries for such Fiscal
Quarter and for the portion of the Company's Fiscal Year ended at the end of
such quarter, setting forth in each case in comparative form the figures for the
corresponding quarter and the corresponding portion of the Company's previous
Fiscal Year, all in reasonable detail and certified by a Responsible Officer
that such financial statements are complete and correct and fairly present the
consolidated financial condition as at the end of such Fiscal Quarter, and the
consolidated results of operations and cash flows for such Fiscal Quarter and
such portion of the Company's Fiscal Year, of the Company and its Subsidiaries
in accordance with GAAP (subject to normal, year-end adjustments). At the same
time, a consolidating balance sheet of the Company and its Subsidiaries at the
end of such Fiscal Quarter and related consolidating statements of income and
cash flows, for the portion of the Company's Fiscal Year ended at such quarter
(in each case consolidating on the basis of principal lines of business of the
Company and its Subsidiaries), accompanied by a certification from a Responsible
Officer that such consolidating financial statements form the basis of the
Company's consolidated financial statements and are fairly stated in all
material respects when considered in relation thereto.
(c) Monthly Financial Statements. As soon as available and in any event
within 30 days after the end of each calendar month of the Company, a
consolidated balance sheet of the Company
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and its Subsidiaries as at the end of such month and the related consolidated
statements of income, retained earnings and cash flows of the Company and its
Subsidiaries for such calendar month and for the portion of the Company's Fiscal
Year ended at the end of such month, setting forth in each case in comparative
form the figures for the corresponding month and the corresponding portion of
the Company's previous Fiscal Year, all in reasonable detail and certified by a
Responsible Officer that such financial statements are complete and correct and
fairly present the consolidated financial condition as at the end of such
calendar month, and the consolidated results of operations and cash flows for
such calendar month and such portion of the Company's Fiscal Year, of the
Company and its Subsidiaries in accordance with GAAP (subject to normal, year-
end adjustments). At the same time, a consolidating balance sheet of the
Company and its Subsidiaries at the end of such calendar month and related
consolidating statements of income and cash flows, for the portion of the
Company's Fiscal Year ended at such month (in each case consolidating on the
basis of principal lines of business of the Company and its Subsidiaries),
accompanied by a certification from a Responsible Officer that such
consolidating financial statements form the basis of the Company's consolidated
financial statements and are fairly stated in all material respects when
considered in relation thereto.
(d) No Default/Compliance Certificate. Together with the financial
statements required pursuant to subsections (a) and (b) above, a certificate of
the Company, signed by a Responsible Officer (i) stating that a review of such
financial statements during the period covered thereby and of the activities of
the Company and its Subsidiaries has been made under such Responsible Officer's
supervision with a view to determining whether the Company and its Subsidiaries
have fulfilled all of their obligations under this Agreement, the other
Financing Documents, and the Notes; (ii) stating that the Company and its
Subsidiaries have fulfilled their obligations under such instruments and that
all representations made in this Agreement continue to be true and correct (or
specifying the nature of any change), or if there shall be a Default or Event of
Default, specifying the nature and status thereof and the Company's proposed
response thereto; (iii) demonstrating in reasonable detail compliance
(including, but not limited to, showing all material calculations) as at the end
of such Fiscal Year or such Fiscal Quarter with Subsections 5.03(a), 5.03(b),
5.03(c), and 5.03(d); (iv) demonstrating in reasonable detail compliance
(including, but not limited to, showing all material calculations) as at the end
of the Fiscal Year with Sections 5.04(o) and 5.04(e)(x), describing by category
(utilizing the same categories as are used by the Company in its internal
financial reports) any Permitted Acquisitions and any Capital Expenditures made
by the Company or any Subsidiary as of the end of such Fiscal Year and attaching
thereto a Notice of Designation of Retained Cash Flow Usage dated as of the end
of the preceding Fiscal Quarter; and (v) containing or accompanied by such
financial or other details, information and material as the Administrative Agent
may reasonably request to evidence such compliance.
(e) Management Letters. Together with the financial statements required
pursuant to subsection (a) above, copies of each management letter issued to the
Company by such accountants promptly following consideration or review by the
Board of Directors of the Company, or any committee thereof (together with any
response thereto prepared by the Company).
(f) Title Information. Within a reasonable time after a request by the
Administrative Agent, additional title information in form and substance
acceptable to the Required Lenders as is
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reasonably necessary covering the Collateral so that the Lenders shall have
received, together with the title information previously received by the
Lenders, satisfactory title information covering all of the Collateral .
(g) Events or Circumstances with respect to Collateral. Promptly after
the occurrence of any event or circumstance concerning or changing any of the
Collateral that would have a Material Adverse Effect, notice of such event or
circumstance in reasonable detail.
(h) Borrowing Base Reports. As soon as available and in any event by the
20th day following the close of each calendar month, a Borrowing Base Report
dated and reflecting amounts as of the close of business on the last day of the
preceding calendar month.
(i) Notice of Certain Events. Promptly after the Company learns of the
receipt or occurrence of any of the following, a certificate of the Company,
signed by a Responsible Officer specifying (i) any official notice of any
violation, possible violation, non-compliance or possible non-compliance, or
claim made by any Governmental Authority pertaining to all or any part of the
Properties of the Company or any of its Subsidiaries which could reasonably be
expected to have a Material Adverse Effect; (ii) any event which constitutes a
Default or Event of Default, together with a detailed statement specifying the
nature thereof and the steps being taken to cure such Default or Event of
Default; (iii) the receipt of any notice from, or the taking of any other action
by, the holder of any promissory note, debenture or other evidence of
indebtedness in excess of $5,000,000 of the Company or any of its Subsidiaries
with respect to a claimed default, together with a detailed statement specifying
the notice given or other action taken by such holder and the nature of the
claimed default and what action the Company or its Subsidiary is taking or
proposes to take with respect thereto; (iv) any default or noncompliance of any
party to any of the Financing Documents with any of the terms and conditions
thereof or any notice of termination or other proceedings or actions which could
reasonably be expected to adversely affect any of the Financing Documents; (v)
the creation, dissolution, merger or acquisition of any Subsidiary of the
Company with material operations; (vi) any event or condition not previously
disclosed to the Administrative Agent, which violates any Environmental Law and
which could potentially, in the Company's reasonable judgment, have a Material
Adverse Effect; (vii) any material amendment to, termination of, or material
default under a Material Contract or any execution of, or material amendment to,
termination of, or material default under, any material collective bargaining
agreement; (viii) any event or condition which may reasonably be expected to
have a Material Adverse Effect; or (ix) the occurrence, with respect to
Albright, of any of the events described in Section 6.08 or the failure of the
Albright Indemnity to continue to be in full force and effect.
(j) Shareholder Communications, Filings. Promptly upon the mailing,
filing, or making thereof, copies of all registration statements, periodic
reports and other documents (excluding the related exhibits except to the extent
expressly requested by the Administrative Agent) filed by the Company with the
Securities and Exchange Commission (or any successor thereto) or any national
securities exchange.
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(k) Litigation. Promptly after the occurrence thereof, notice of the
institution of or any material adverse development in any action, suit or
proceeding or any governmental investigation or any arbitration, before any
court or arbitrator or any governmental or administrative body, agency or
official, against the Company, Holdco, or any Subsidiary Guarantor or any
material Property of any thereof, in which the amount involved is material and
is not covered by insurance or which could reasonably be expected to have a
Material Adverse Effect.
(l) ERISA. Promptly after (i) the Company's obtaining knowledge of the
occurrence thereof, notice that an ERISA Termination Event or a "prohibited
transaction," as such term is defined in Section 406 of ERISA or Section 4975 of
the Code, with respect to any Plan has occurred, which such notice shall specify
the nature thereof, the Company's proposed response thereto (and, if applicable,
the proposed response thereto of any Subsidiary of the Company and of any ERISA
Affiliate) and, where known, any action taken or proposed by the Internal
Revenue Service, the Department of Labor or the PBGC with respect thereto, (ii)
the Company's obtaining knowledge thereof, copies of any notice of the PBGC's
intention to terminate or to have a trustee appointed to administer any Plan,
and (iii) the filing thereof with any Governmental Authority (if requested by
the Administrative Agent), copies of each annual and other report (including
applicable schedules) with respect to each Plan or any trust created thereunder.
(m) Borrowing Base Audit. At the cost of the Company, a report or reports
of an independent collateral field examiner approved (i) by the Company, whose
approval shall not be unreasonably withheld and (ii) by the Administrative Agent
(and which collateral field examiner may be the Administrative Agent or an
affiliate thereof) with respect to the Eligible Accounts and Eligible Inventory
components included in the Borrowing Base. The Administrative Agent may (and,
at the direction of the Required Lenders, shall) request such reports or
additional reports as it (or the Required Lenders) shall reasonably deem
necessary; provided, however, that so long as no Default has occurred and is
continuing, the Company shall not be required to reimburse the cost of more than
one such report per Fiscal Year.
(n) Insurance Coverage. Upon request, a summary of the insurance
coverages of the Company and its Subsidiaries in form and substance reasonably
satisfactory to the Administrative Agent; upon renewal of any insurance policy,
a copy of an insurance certificate summarizing the terms of such policy; and
upon request of the Administrative Agent, copies of the applicable policies.
(o) Annual Budget. Not later than the 90th day after the Fiscal Year
ended September 30, 1996, and not later than the 60th day after each Fiscal Year
end thereafter, an annual budget of the Company and it Subsidiaries
(consolidating on the basis of principal lines of business of the Company and
its Subsidiaries), reviewed by the Board of Directors of the Company, setting
forth in reasonable detail, the projected revenues and expenses of the Company
for the following Fiscal Year.
(p) Excess Cash Flow Certificate. On or before the 100th day after each
September 30th, commencing on September 30, 1997, the Company's preliminary
calculation of its Excess Cash Flow for the Fiscal Year ended on such September
30th, in accordance with Section 2.10(b).
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(q) Other Information. With reasonable promptness, such other information
about the business and affairs and financial condition of the Company or its
Subsidiaries as the Administrative Agent may reasonably request from time to
time.
Section 5.03 Financial Covenants. So long as any Lender has any Commitment
hereunder or any Loan remains unpaid or any Revolving Credit Exposure remains
outstanding, the Company will, at all times on or after December 31, 1996:
(a) Interest Coverage Ratio. Maintain an Interest Coverage Ratio of not
less than the ratio for each Rolling Period indicated below:
Each Rolling Period ending Ratio
- -------------------------- -----
December 31, 1996 1.75
March 31, 1997 1.75
June 30, 1997 2.00
September 30, 1997 2.00
Each Rolling Period during
the Fiscal Years ending Ratio
- ---------------------------- -----
September 30, 1998 2.00
September 30, 1999 2.25
September 30, 2000 2.50
Each Rolling Period
thereafter Ratio
- -------------------- -----
2.50
(b) Current Ratio. Maintain a Current Ratio of not less than (i) 1.20 to
1.00, from January 1, 1997, through September 30, 1998, and (ii) 1.25 to 1.00 at
all times after October 1, 1998.
(c) Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage Ratio of
not less than the ratio for each Rolling Period indicated below:
Each Rolling Period during
the period beginning January 1, Ratio
- ------------------------------- -----
1997 through September 30, 1998 1.05
Each Rolling Period during
the Fiscal Years ending Ratio
- -------------------------- -----
September 30, 1999 1.10
September 30, 2000 1.15
September 30, 2001 1.20
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Each Rolling Period Ratio
thereafter 1.20
(d) Leverage Ratio. Maintain a Leverage Ratio of not greater than the
ratio for each Rolling Period indicated below:
Each Rolling Period ending Ratio
December 31, 1996 5.25
March 31, 1997 5.25
June 30, 1997 5.25
September 30, 1997 5.00
December 31, 1997 5.00
March 31, 1998 5.00
June 30, 1998 4.75
September 30, 1998 4.75
Each Rolling Period during
the Fiscal Years ending Ratio
September 30, 1999 4.50
September 30, 2000 4.00
September 30, 2001 3.50
September 30, 2002 3.00
Each Rolling Period Ratio
thereafter 3.00
The Company shall be deemed to be in compliance with the covenants contained in
this Section 5.03 at any time so long as the then most recent financial
statements prepared by the Company (for internal use or otherwise) and made
available to the Lenders show, or provide a basis for ascertaining, such
compliance and no Responsible Officer has obtained any information that causes
such Responsible Officer to reasonably conclude that the Company is not in
compliance with the covenants contained in this Section 5.03.
Section 5.04 Certain Negative Covenants. So long as any Lender has any
Commitment hereunder or any Loan remains unpaid or any Revolving Credit Exposure
remains outstanding, the Company will not:
(a) Indebtedness. Create, incur, assume or suffer to exist, or permit any
of its Subsidiaries to create, incur, assume or suffer to exist, any
Indebtedness, other than:
(i) the Lender Indebtedness;
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(ii) Indebtedness outstanding on the date hereof which is set forth on
Schedule 5.04(a), provided that any such Indebtedness indicated on Schedule
5.04(a) as "Indebtedness to be Repaid" shall have been repaid on or before the
Effective Date;
(iii) accounts payable (for the deferred purchase price of Property or
services) from time to time incurred in the ordinary course of business and
guaranties by the Company or any Subsidiary in the ordinary course of business
of any such obligations incurred by any other Subsidiary;
(iv) Indebtedness owing by (A) the Company or a Subsidiary Guarantor to
Canadian Subsidiaries not to exceed $5,000,000 in the aggregate, (B) Canadian
Subsidiaries to the Company or a Subsidiary Guarantor not to exceed (1)
$120,000,000 in the aggregate provided that such Indebtedness may only arise
from a transfer to one or more U.S. Subsidiaries or the Company of existing
Indebtedness owing as of the Effective Date to one or more Canadian Subsidiaries
and which does not under any circumstances involve consideration for such
transfer other than an exchange of such Indebtedness for equity, plus (2)
Indebtedness permitted pursuant to Section 5.04(e)(vii); (C) any Subsidiary
Guarantor to the Company or any other Subsidiary Guarantor, (D) the Company to
any Subsidiary Guarantor; and (E) any Canadian Subsidiary to any other Canadian
Subsidiary;
(v) obligations for current taxes, assessments and other governmental
charges and taxes, assessments or other governmental charges which are not yet
due or are being contested in good faith by appropriate action or proceeding
promptly initiated and diligently conducted, if such reserve as shall be
required by GAAP shall have been made therefor;
(vi) Capital Lease Obligations not to exceed $1,000,000 at any one time;
(vii) Indebtedness not exceeding U.S. $15,000,000 under the Canadian
Facility (and the "Bankers' Acceptances" provided for therein) so long as the
documentation with respect thereto is reasonably satisfactory to the
Administrative Agent.
(viii) Indebtedness evidenced by the Senior Subordinated Notes;
(ix) Indebtedness owing pursuant to Hedge Agreements entered into in the
ordinary course of business for the purpose of hedging against fluctuations in
interest rates (on money borrowed by the Company), commodity prices and foreign
exchange rates; and
(x) Indebtedness (other than short-term Indebtedness for borrowed money)
created, incurred, assumed or guaranteed after the date hereof not otherwise
permitted pursuant to this Subsection 5.04(a), provided that the aggregate
outstanding principal amount of such Indebtedness, together with obligations
(calculated based upon the net present value of all future lease payments at an
assumed discount rate of 12%) in respect of the transactions described in
Section 5.04(g), shall not exceed $20,000,000 at any one time outstanding.
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(b) Liens. Create, incur, assume or suffer to exist, or permit any of
its Subsidiaries to create, incur, assume or suffer to exist, any Lien on any of
its Property now owned or hereafter acquired to secure any Indebtedness of the
Company, any Subsidiary or any other Person, other than:
(i) Liens existing on the date hereof and set forth on Schedule 5.04(b);
provided that any such Liens indicated on Schedule 5.04(b) as "Liens to be
Released" shall have been released of record within 10 days after the Effective
Date;
(ii) Liens securing the Lender Indebtedness and Liens on Property of the
Canadian Subsidiaries securing Indebtedness under the Canadian Facility to the
extent permitted pursuant to Section 5.04(a);
(iii) Liens for taxes, assessments or other governmental charges or levies
not yet due or which are being contested in good faith by appropriate action or
proceedings and with respect to which adequate reserves are being maintained;
(iv) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen, repairmen, workmen, and other Liens imposed by law
created in the ordinary course of business for amounts which are not past due
for more than 30 days or which are being contested in good faith by appropriate
action or proceedings and with respect to which adequate reserves in accordance
with GAAP are being maintained;
(v) Liens incurred or deposits or pledges made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security, old age or other similar obligations, or to
secure the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, performance and return-of-money bonds
and other similar obligations (exclusive of obligations for the payment of
borrowed money);
(vi) minor irregularities in title, easements, rights-of-way, restrictions,
servitudes, permits, reservations, exceptions, conditions, covenants and other
similar charges or encumbrances not materially interfering with the occupation,
use and enjoyment by the Company or any of its Subsidiaries of any of their
respective Properties in the normal course of business or materially impairing
the value thereof ;
(vii) any obligations or duties affecting any of the Property of the
Company or its Subsidiaries to any municipality or public authority with respect
to any franchise, grant, license or permit which do not materially impair the
use of such Property for the purposes for which it is held;
(viii) Liens upon Property acquired by the Company, other than as a
Permitted Acquisition, after the Effective Date with the proceeds of no greater
than $10,000,000 of Indebtedness permitted pursuant to Section 5.04(a)(x);
provided that (A) such Lien was created solely for the purpose of securing such
Indebtedness, (B) and the principal amount
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of such Indebtedness does not exceed the fair value of such Property at the time
of its acquisition;
(ix) Liens securing not more than $1,000,000 in the aggregate existing on
any real or personal property of any Person at the time it becomes a Subsidiary
after the Effective Date pursuant to a Permitted Acquisition;
(x) extensions, renewals or replacements of any Lien referred to in
Subsections 5.04(b)(i), (ii) and (ix), provided that the principal amount of the
Indebtedness or obligation secured thereby is not increased and that any such
extension, renewal or replacement is limited to the Property originally
encumbered thereby;
(xi) with respect to Property located in Canada, reservations, limitations,
provisos and conditions in any original grant from the Crown or any freehold
lessor of any of the properties of the Company or its Subsidiaries; and
(xii) Liens resulting from operation of law with respect to any judgments
or orders not constituting a Default.
(c) Mergers, Sales, etc. Merge into or with or consolidate with, or
permit any of its Subsidiaries to merge into or with or consolidate with, any
other Person, or sell, lease or otherwise dispose of, or permit any of its
Subsidiaries to sell, lease or otherwise dispose of (whether in one transaction
or in a series of transactions) all or any part of its Property to any other
Person. Notwithstanding the foregoing limitations:
(i) the Company and its Subsidiaries may (A) sell inventory, and other
similar assets in the ordinary course of business, (B) sell, transfer or
otherwise dispose of personal property (including, but not limited to, pipe,
equipment, machinery and vehicles) in the ordinary course of business or when,
in the reasonable judgment of the Company, such property is no longer used or
useful in the conduct of its business or the business of its Subsidiaries, and
(C) in addition to clauses (A) and (B), sell, lease, or otherwise dispose of (1)
up to $5,000,000 in fair-market value of their Property in the aggregate during
any Fiscal Year, and (2) more than $5,000,000, but less than $10,000,000 in
fair-market value of their Property in the aggregate during any Fiscal Year,
provided that the Company shall either prepay the Term Loans pursuant to Section
2.10(b)(iii) or promptly reinvest the Net Proceeds (in excess of $5,000,000)
from such sale in Properties that, in the good-faith judgment of the Company,
meet the Company's capital investment criteria;
(ii) (A) any Subsidiary Guarantor may merge into or with or consolidate
with any other Subsidiary Guarantor or the Company (and, in the case of the
Company, so long as the Company is the surviving entity), (B) any Canadian
Subsidiary may merge into or with or consolidate with any other Canadian
Subsidiary, (C) Sterling NRO may be liquidated into Sterling Canada, and (D) any
Canadian Subsidiary may merge with or into or consolidate with any Subsidiary
Guarantor so long as (1) the Subsidiary Guarantor is the surviving entity and
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(2) the Canadian Subsidiary was Solvent immediately prior to the time of such
merger or consolidation; and
(iii) any Subsidiary Guarantor may transfer Property to any other
Subsidiary Guarantor or to the Company, and any Canadian Subsidiary may transfer
Property to the Company, any Subsidiary Guarantor, or any other Canadian
Subsidiary.
(d) Dividends, etc. Declare or pay any dividend on its capital stock,
make any payment to purchase, redeem, retire or otherwise acquire any of its
capital stock or any option, warrant, or other right to acquire such capital
stock, now or hereafter outstanding, return any capital to its stockholders,
make any distribution of its assets, capital stock, warrants, rights, options,
obligations or securities to its stockholders, or permit any of its Subsidiaries
to do so, except that:
(i) the Company may declare and deliver dividends payable solely in shares
of its capital stock or in options, warrants or rights to purchase shares of
capital stock;
(ii) the Company may make contributions to the ESOP on behalf of the
employees of the Company or its Subsidiaries in the aggregate amount in any
Fiscal Year not to exceed 8% of payroll expense during such Fiscal Year
attributable to employees of the Company and its Subsidiaries who are eligible
to participate in the ESOP;
(iii) any Subsidiary of the Company other than any U.S. Subsidiary of a
Canadian Subsidiary may declare and deliver dividends to the Company or any
wholly-owned Subsidiary of the Company, and any Canadian Subsidiary may redeem
shares of its own capital stock;
(iv) the Company may declare and deliver in any Fiscal Year Permitted
Holdco Dividends so long as, at the time of payment of such dividend (both
before and after giving effect to the payment thereof), the Company satisfies
the conditions precedent to the making of Loans set forth in Section 3.03; and
(v) the Company may declare and make a non-cash dividend or make a return
of capital to Holdco in the form of cancellation by the Company of the
Indebtedness of Holdco referred to in Section 5.04(e)(viii).
(e) Investments, Loans, etc. Make or permit any loans to or investments
in any Person, or permit any of its Subsidiaries to make or permit any loans to
or investments in any Person, other than:
(i) investments, loans or advances, the material details of which have been
set forth in either the Financial Statements or Schedule 4.07 hereto;
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(ii) investments in direct obligations of the United States of America or
any agency thereof or, in the case of Canadian Subsidiaries, investments in
direct obligations of Canada, in each case with maturities of one year or less
from the date of acquisition;
(iii) investments in certificates of deposit of maturities less than one
year, issued by commercial banks in the United States having capital and surplus
in excess of $500,000,000 and having short-term credit ratings of at least A1
and P1 by Standard & Poor's Ratings Group and Moody's Investors Service, Inc.,
respectively;
(iv) investments in commercial paper of maturities of not more than 270
days rated at least A1 and P1 by Standard & Poor's Ratings Group and Moody's
Investors Service, Inc., respectively; and
(v) investments in securities that are obligations of the United States
government purchased by the Company or any Subsidiary of the Company under
repurchase agreements pursuant to which arrangements are made with selling
financial institutions (being a financial institution having unimpaired capital
and surplus of not less than $500,000,000 and with short-term credit ratings of
at least A1 and P1 by Standard & Poor's Ratings Group and Moody's Investors
Service, Inc., respectively) for such financial institutions to repurchase such
securities within 30 days from the date of purchase by the Company or such
Subsidiary, and other similar short-term investments made in connection with the
Company's or any of its Subsidiary's cash management practices; provided that
the Company shall take possession of all securities purchased by the Company or
any Subsidiary under repurchase agreements and shall adhere to customary margin
and mark-to-market procedures with respect to fluctuations in value;
(vi) investments in any security issued by an investment company registered
under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-8) that is
a money market fund in compliance with all applicable requirements of SEC Rule
2a-7 (17 CFR 270.2a-7);
(vii) (A) investments in or loans or advances to Canadian Subsidiaries
made after the Effective Date not to exceed $10,000,000 in the aggregate, and
(B) loans or advances to, or investments in, Guarantor Subsidiaries;
(viii) a loan by the Company to Holdco approximately in the amount of
$450,000,000 on the Effective Date to be used by Holdco solely for consummation
of the Acquisition and related transaction costs;
(ix) the Secondary ESOP Loan and any renewals or replacements thereof or
reborrowing thereunder in a total principal amount not to exceed $6,500,000 at
any time;
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(x) Permitted Acquisitions in an amount not to exceed (after giving effect
thereto) Cumulative Retained Cash Flow as of the date any such Permitted
Acquisition is made;
(xi) routine loans or advances to employees in the ordinary course of
business not to exceed $25,000 at any time outstanding to any one employee and
$500,000 in the aggregate;
(xii) loans in an aggregate amount not to exceed $500,000 to finance the
purchase of homes by employees who have been relocated by the Company or any
Subsidiary; and
(xiii) investments, after the Effective Date, in additional Valdosta Bonds
issued to finance the completion of the Company's plant in Valdosta, Georgia, so
long as the Administrative Agent (on behalf of the Lenders) has a first
priority, perfected Lien thereon to secure the Lender Indebtedness;
(xiv) participations (for a tenor of not more than 90 days) in loans to
Persons having short-term credit ratings of at least A1 and P1 by Standard &
Poor's Ratings Group and Moody's Investors Service, Inc., respectively; and
(xv) other investments, loans, or advances in an aggregate amount not to
exceed $1,000,000.
(f) Lease Payments. Create, incur, assume or suffer to exist, nor permit
any of its Subsidiaries to create, incur, assume or suffer to exist, any
obligation for the payment of rent or hire of Property of any kind whatsoever
(real or personal), whether directly or as a guarantor, if, after giving effect
thereto, the aggregate amount of all payments required to be made by the Company
and its Subsidiaries on a consolidated basis pursuant to such leases or lease
agreements (excluding payments in respect of Capital Lease Obligations and
obligations described in Section 5.04(g) to the extent permitted by this
Agreement) would exceed $5,000,000 in any Fiscal Year.
(g) Sales and Leasebacks. Except as permitted by Section 5.04(a)(x),
enter into, or permit any of its Subsidiaries to enter into, any arrangement,
directly or indirectly, with any Person whereby the Company or any such
Subsidiary shall sell or transfer any Property, whether now owned or hereafter
acquired, and whereby the Company or any such Subsidiary shall then or
thereafter rent or lease as lessee such Property or any part thereof or other
Property which the Company or any such Subsidiary intends to use for
substantially the same purpose or purposes as the Property sold or transferred.
(h) Nature of Business. Permit any material change to be made in the
character of its business or the business of any Subsidiary as carried on at the
date hereof, except as may be permitted pursuant to this Agreement.
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(i) ERISA Compliance.
(i) Engage in, or permit a Subsidiary of the Company or any ERISA Affiliate
to engage in, any transaction in connection with which the Company, a Subsidiary
of the Company or any ERISA Affiliate could be subjected to either a civil
penalty assessed pursuant to Sections 502(c), (i) or (l) of ERISA or a tax
imposed by Chapter 43 of Subtitle D of the Code, except where such assessment or
imposition could not reasonably be expected to have Material Adverse Effect;
(ii) Terminate, or permit a Subsidiary of the Company or any ERISA
Affiliate to terminate, any Plan in a manner, or take any other action with
respect to any Plan, which could reasonably be expected to result in any
material liability of the Company, a Subsidiary of the Company or any ERISA
Affiliate to the PBGC or any other Governmental Authority;
(iii) Fail to make, or permit a Subsidiary of the Company or any ERISA
Affiliate to fail to make, full payment when due of all amounts which, under the
provisions of any Plan, agreement relating thereto or applicable law, the
Company, a Subsidiary of the Company or any ERISA Affiliate is required to pay
as contributions thereto, except where the failure to make such payments could
not reasonably be expected to have Material Adverse Effect;
(iv) Permit to exist, or allow a Subsidiary of the Company or any ERISA
Affiliate to permit to exist, any accumulated funding deficiency within the
meaning of Section 302 of ERISA or Section 412 of the Code, whether or not
waived, with respect to any Plan;
(v) Contribute to or assume an obligation to contribute to, or permit a
Subsidiary of the Company (other than a Subsidiary acquired as permitted
pursuant to Section 5.04(i)(vi)) or any ERISA Affiliate to contribute to or
assume an obligation to contribute to, any "multiemployer plan" as such term is
defined in Section 3(37) or 4001(a)(3) of ERISA or any "multi-employer pension
plan" as such term is defined in the Pension Benefits Act (Ontario);
(vi) Acquire, or permit a Subsidiary of the Company or any ERISA Affiliate
to acquire, an interest in any Person that causes such Person to become an ERISA
Affiliate with respect to the Company or a Subsidiary of the Company or with
respect to any ERISA Affiliate of the Company or a Subsidiary of the Company if
such Person sponsors, maintains or contributes to, or at any time in the six-
year period preceding such acquisition has spon sored, maintained, or
contributed to, (A) any "multiemployer plan" as such term is defined in Section
3(37) or 4001(a)(3) of ERISA, or (B) any "multi-employer pension plan" as such
term is defined in the Pension Benefits Act (Ontario); provided that, the
Company may acquire any such Person if (1) such Person is acquired as a
Permitted Acquisition, (2) such Person would not become an ERISA Affiliate, and
(3) neither the Company nor any of its other Subsidiaries has any legal
liability to perform such Person's obligations or assume such Person's
liabilities.
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(vii) Fail to pay, or cause to be paid, to the PBGC in a timely manner,
and without incurring any late payment or underpayment charge or penalty, all
premiums required pursuant to Sections 4006 and 4007 of ERISA, except where such
failure could not reasonably be expected to have a Material Adverse Effect;
(viii) Amend, or permit a Subsidiary of the Company or any ERISA Affiliate
to amend, a Plan resulting in an increase in current liability such that the
Company, a Subsidiary of the Company or any ERISA Affiliate is required to
provide security to such Plan under Section 401(a)(29) of the Code;
(ix) Incur, or permit a Subsidiary of the Company or any ERISA Affiliate to
incur, a material liability to or on account of a Plan under Sections 515, 4062,
4063, 4064, 4201 or 4204 of ERISA; or
(x) Permit, or allow a Subsidiary of the Company or any ERISA Affiliate to
permit, the actuarial present value of the benefit liabilities (computed on an
accumulated benefit obligation basis in accordance with GAAP) under all Plans in
the aggregate to exceed the current value of the assets of all Plans in the
aggregate that are allocable to such benefit liabilities by (A) an amount that
could reasonably be expected to cause a Material Adverse Effect, if such excess
is the result of a change in market conditions, and (B) more than $10,000,000 if
such excess is for any other reason.
(j) Sale or Discount of Receivables. Discount or sell (with or without
recourse), or permit any of its Subsidiaries to discount or sell (with or
without recourse), any of its or its Subsidiaries' notes receivable or accounts
receivable, other than notes receivable and accounts receivable discounted or
sold without recourse and in the ordinary course of business of the Company and
its Subsidiaries (as conducted as of the Effective Date) in an aggregate amount
not to exceed $15,000,000 in any Fiscal Year.
(k) Negative Pledge Agreements. Create, incur, assume or suffer to exist,
or permit any of its Subsidiaries to create, incur, assume or suffer to exist,
any contract, agreement or understanding (other than this Agreement, the other
Financing Documents or as set forth on Schedule I to the respective Security
Agreements delivered by the Company and its Subsidiaries) which in any way
prohibits or restricts the granting, conveying, creation or imposition of any
Lien on any Property of the Company or its Subsidiaries, or which requires the
consent of or notice to other Persons in connection therewith, other than
agreements (that do not provide for borrowed money Indebtedness) entered into in
the ordinary course of business that restrict assignment by the Company of its
rights thereunder; provided that the Company shall use its best efforts to
negotiate such restrictions so as not to limit the right of the Company to grant
a Lien on the Company's rights thereunder in favor of the Administrative Agent
on behalf of the Lenders as security for the Lender Indebtedness.
(l) Transactions with Affiliates. Enter into any transaction or series of
transactions, or permit any of its Subsidiaries to enter into any transaction or
series of transactions, with Affiliates of the Company or its Subsidiaries which
involve an outflow of money or other Property from the
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Company or its Subsidiaries to an Affiliate of the Company or its Subsidiaries,
including but not limited to repayment of Indebtedness, management fees,
compensation, salaries, asset purchase payments or any other type of fees or
payments similar in nature, other than on terms and conditions substantially as
favorable to the Company and its Subsidiaries as would be obtainable by the
Company and its Subsidiaries in a reasonably comparable arm's-length transaction
with a Person other than an Affiliate of the Company or its Subsidiaries.
Notwithstanding the foregoing, the restrictions set forth in this Section
5.04(l) shall not apply to: (i) the payment of reasonable and customary fees to
directors of the Company who are not employees of the Company, (ii) any other
transaction with any employee, officer or director of the Company or any of its
Subsidiaries pursuant to employee benefit plans and compensation arrangements in
amounts customary for corporations similarly situated to the Company or any such
Subsidiary and entered into the ordinary course of business and approved by the
Board of Directors of the Company or any committee thereof or the Board of
Directors of such Subsidiary, (iii) the payment of fees to TSG in connection
with the Acquisition which has been disclosed to the Administrative Agent in
writing, (iv) the Asset Conveyance, (v) the cancellation of Indebtedness
described in Section 5.04(e)(viii), or (vi) any other transactions with
Affiliates that do not in the aggregate involve the payment of more than
$1,000,000 during any twelve-month period.
(m) Unconditional Purchase Obligations. Enter into or be a party to, or
permit any of its Subsidiaries to enter into or be a party to, any material
contract for the purchase of materials, supplies or other property or services,
if such contract requires that payment be made by it regardless of whether or
not delivery is ever made of such materials, supplies or other property or
services, except any such contract for the purchase of power entered into by the
Company or any Subsidiary in the ordinary course of its business.
(n) Stock. Authorize or issue (i) any Voting Stock to any Person other
than Holdco or (ii) any preferred stock or other equity securities having a
mandatory redemption right existing with regard thereto.
(o) Capital Expenditures. Make, or permit any of its Subsidiaries to
make, Capital Expenditures in any Fiscal Year for the Company and its
Subsidiaries on a consolidated basis in excess of the sum of (i), (ii) and (iii)
below:
(i) The Company may make Capital Expenditures in any Fiscal Year pursuant
to the following schedule:
Maximum Scheduled
Fiscal Year Ending Capital Expenditures
- ------------------ --------------------
September 30, 1997 $50,000,000
September 30, 1998 $40,000,000
September 30, 1999 and $30,000,000
each Fiscal Year thereafter
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(ii) Up to 50% of the amount listed above for any Fiscal Year but not
expended in such Fiscal Year may be carried forward and expended during the next
Fiscal Year (but not any other Fiscal Year).
(iii) In addition to Capital Expenditures permitted by Sections 5.04(o)(i)
and (ii), the Company may make Capital Expenditures in an amount (after giving
effect thereto) not to exceed Cumulative Retained Cash Flow, as of the date any
such Capital Expenditure is made.
(iv) In addition to Capital Expenditures permitted by Sections 5.04(o)(i),
(ii) and (iii), for the period from the Effective Date through September 30,
1996, the Company and its Subsidiaries may make Capital Expenditures in an
amount not to exceed $18,000,000.
Capital Expenditures that are not designated as Capital Expenditures from
Retained Cash Flow pursuant to a Notice of Designated Retained Cash Flow Usage,
are deemed to apply first to Carry-Forward Capital Expenditures and last to
Scheduled Capital Expenditures.
(p) Modifications to Senior Subordinated Notes; No Voluntary Prepayments.
(i) Amend, modify, or waive any covenant contained in the Senior
Subordinated Notes if the effect of such amendment, modification, or waiver
would be to make the terms of the Senior Subordinated Notes materially more
onerous on the Company;
(ii) Amend, modify, or waive any provision of the Senior Subordinated
Notes which (A) subjects the Company to any additional material obligation, (B)
increases the principal of or rate of interest on any Senior Subordinated Note,
(C) accelerates the date fixed for any payment of principal or interest on any
Senior Subordinated Note, (D) would change the percentage of holders of such
Senior Subordinated Notes required for any such amendment, modification, or
waiver from the percentage required on the Effective Date, or (E) relates to the
subordination provisions; or
(iii) make any voluntary prepayment of, or optionally redeem, or make any
payment in defeasance of, any part of the Senior Subordinated Notes.
(q) Intercompany Transactions. Create and will not permit any of its
Subsidiaries to, create or otherwise cause or permit to exist or become
effective, except as may be expressly permitted or required by the Financing
Documents, any consensual encumbrance or restriction of any kind on the ability
of any Subsidiary to (i) pay dividends or make any other distribution to the
Company or any of its Subsidiaries in respect of such Subsidiary's capital stock
or with respect to any other interest or participation in, or measured by, its
profits, (ii) pay any indebtedness owed to the Company or any of its
Subsidiaries, (iii) make any loan or advance to the Company or any of its
Subsidiaries, or (iv) sell, lease or transfer any of its Property to the Company
or any of its Subsidiaries.
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ARTICLE VI
EVENTS OF DEFAULT
Upon the occurrence and during the continuance of any of the following
specified events (each an "Event of Default"):
Section 6.01 Payments. (a) The Company shall fail to pay when due
(including, but not limited to, by mandatory prepayment required pursuant to
Section 2.10) any principal of any Loan or any Note, or any Reimbursement
Obligation; or (b) the Company shall fail to pay when due any interest on any
Loan or Note, any fee or any other amount payable hereunder or under the Fee
Letter or any other Financing Document, and such failure to pay shall continue
unremedied for a period of five days;
Section 6.02 Covenants Without Notice. The Company shall fail to
observe or perform any covenant or agreement contained in Subsections 5.01(e),
(g) and (i), Section 5.03 or Section 5.04 (other than Subsections 5.04(b)(iii)-
(v) hereof).
Section 6.03 Other Covenants. The Company shall fail to observe or
perform any covenant or agreement contained in (a) Subsections 5.02(a), (b),
(c), (d), (f), (g), (h), (j), (k) or (m) or Subsections 5.04(b)(iii)-(v), and,
if capable of being remedied, such failure shall remain unremedied for 10 days
after the earlier of (i) the Company's obtaining knowledge thereof, or (ii)
written notice thereof shall have been given to the Company by any Lender, any
Issuing Bank or the Administrative Agent; and (b) this Agreement, other than
those referred to in Sections 6.01, 6.02, or clause (a) of this Section 6.03,
and, if capable of being remedied, such failure shall remain unremedied for 30
days after the earlier of (i) the Company's obtaining knowledge thereof, or (ii)
written notice thereof shall have been given to the Company by any Lender, any
Issuing Bank or the Administrative Agent;
Section 6.04 Other Financing Document Obligations. Default is made
in the due observance or performance by Holdco, the Company or any Subsidiary of
the Company of any of the covenants or agreements contained in any Financing
Document other than this Agreement, and such default continues unremedied beyond
the expiration of any applicable grace period which may be expressly allowed
under such Financing Document;
Section 6.05 Representations. Any representation, warranty or
statement made or deemed to be made by Holdco, the Company or any Subsidiary of
the Company or any of Holdco's, such Company's, or Subsidiary's officers herein
or in any other Financing Document, or in any certificate, request or other
document furnished pursuant to or under this Agreement or any other Financing
Document, shall have been incorrect in any material respect as of the date when
made or deemed to be made;
Section 6.06 Non-Payments of Other Indebtedness. The Company or any
of its Subsidiaries shall fail to make any payment or payments of principal of
or interest on any Indebtedness of the Company or such Subsidiary (other than
(i) the Lender Indebtedness and (ii) any trade account subject to a bona fide
dispute and the trade creditor has neither filed a lawsuit nor caused a Lien to
be placed upon any Property of the Company
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or such Subsidiary) in excess of $10,000,000 in the aggregate when due (whether
at stated maturity, by acceleration, on demand or otherwise) after giving effect
to any applicable grace period;
Section 6.07 Defaults Under Other Agreements. The Company or any of
its Subsidiaries shall fail to observe or perform any covenant or agreement
contained in any agreement(s) or instrument(s) relating to Indebtedness of the
Company or such Subsidiary of $10,000,000 or more in the aggregate within any
applicable grace period, or any other event shall occur, if the effect of such
failure or other event is to accelerate, or to permit the holder of such
Indebtedness or any other Person to accelerate, the maturity of $10,000,000 or
more in the aggregate of such Indebtedness; or $10,000,000 or more in the
aggregate of any such Indebtedness shall be, or if as a result of such failure
or other event may be, required to be prepaid (other than by a regularly
scheduled required prepayment) in whole or in part prior to its stated maturity;
Section 6.08 Bankruptcy. Holdco, the Company or any of its
Subsidiaries shall commence a voluntary case concerning itself under Title 11 of
the United States Code entitled "Bankruptcy" as now or hereafter in effect, or
any successor thereto (the "Bankruptcy Code"); or an involuntary case is
commenced against Holdco, the Company or any of its Subsidiaries and the
petition is not controverted within 10 days, or is not stayed or dismissed
within 60 days, after commencement of the case; or a custodian (as defined in
the Bankruptcy Code) is appointed for, or takes charge of, all or any
substantial part of the property of Holdco, the Company or any of its
Subsidiaries; or Holdco, the Company or any of its Subsidiaries commences any
other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to Holdco, the Company
or such Subsidiary or there is commenced against Holdco, the Company or any of
its Subsidiaries any such proceeding which remains unstayed or undismissed for a
period of 60 days; or Holdco, the Company or any of its Subsidiaries is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or Holdco, the Company or any
of its Subsidiaries suffers any appointment of any custodian or the like for it
or any substantial part of its Property to continue undischarged or unstayed for
a period of 60 days; or Holdco, the Company or any of its Subsidiaries makes a
general assignment for the benefit of creditors; or Holdco, the Company or any
of its Subsidiaries shall fail to pay, or shall state in writing that it is
unable to pay, or shall be unable to pay, its debts generally as they become
due; or Holdco, the Company or any of its Subsidiaries shall by any act or
failure to act indicate its consent to, approval of or acquiescence in any of
the foregoing; or any corporate action is taken by Holdco, the Company or any of
its Subsidiaries for the purpose of effecting any of the foregoing;
Section 6.09 Money Judgment. Judgments or orders for the payment of
money involving in the aggregate at any time a liability (net of any insurance
proceeds or indemnity payments actually received in respect thereof prior to or
within 60 days from the entry thereof, or to be received in respect thereof in
the event any appeal thereof shall be unsuccessful) of more than $10,000,000, or
that would otherwise have a Material Adverse Effect shall be rendered against
the Company or any of it Subsidiaries and such judgment or order shall continue
unsatisfied in accordance with the terms of such judgment or order (in the case
of a money judgment) and in effect for a period of 60 days during which
execution shall not be effectively stayed or deferred (whether by action of a
court, by agreement or otherwise);
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Section 6.10 Discontinuance of Business. Except as a result of any
merger permitted by Section 5.04(c), the Company or any material Subsidiary
shall cease to be principally engaged in the businesses and operations in which
it was principally engaged on the Effective Date;
Section 6.11 Financing Documents. Any Material Provision of any of
the Financing Documents after delivery thereof shall for any reason, except to
the extent permitted by the terms thereof, cease to be in full force and effect
and valid, binding and enforceable (except as enforceability may be limited as
stated in Section 4.03) in accordance with its terms, or, in the case of any of
the Security Instruments, cease to create a valid and perfected Lien of the
priority contemplated thereby on any of the collateral purported to be covered
thereby, or the Company or any of its Subsidiaries (or any other Person who may
have granted or purported to grant such Lien) shall so state in writing. As
used in this Section 6.11, "Material Provision" shall mean (i) with respect to
this Agreement, the Notes, or any Subsidiary Guaranty, any material term,
covenant, or agreement set forth therein, and (ii) with respect to any other
Financing Document, any provision if the validity and enforceability thereof is
necessary for such Financing Document to accomplish its stated, or clearly
intended, purpose or otherwise necessary in order for any Lender to enforce any
material right or remedy under any Financing Document;
Section 6.12 Change of Control. The occurrence of a Change of Control; or
Section 6.13 Merger Agreement Representations and Warranties. Any
representation or warranty made or deemed made by SCI in the Merger Agreement
shall be or have been incorrect in any material respect as of the Effective
Date;
Section 6.14 Albright Indemnity. (a) The occurrence, with respect to
Albright, of any of the events described in Section 6.08 or the failure of the
Albright Indemnity to continue to be in full force and effect, (b) the
occurrence of any event or the existence of any condition that would have been
covered by the Albright Indemnity, and (c) the existence of (a) and (b),
collectively, could reasonably be expected to have a Materal Adverse Effect.
Section 6.15 Default Under Senior Secured Discount Notes. Holdco shall fail
to observe or perform any covenant or agreement contained in the Senior Secured
Discount Notes within any applicable grace period, if the effect of such failure
or other event is to accelerate, or to permit the holders of the Senior Secured
Discount Notes or any other Person to accelerate, the maturity thereof.
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent, upon the written or telex
request of the Required Lenders, shall, by written notice to the Company, take
any or all of the following actions, without prejudice to the rights of the
Administrative Agent, any Lender or the holder of any Note, to enforce its
claims against the Company: (i) declare the Revolving Credit Commitment and
other lending obligations, if any, terminated, whereupon the Revolving Credit
Commitment and other lending obligations, if any, of each Lender shall terminate
immediately; or (ii) declare the entire principal amount of and all accrued
interest on all Lender Indebtedness then outstanding to be, whereupon the same
shall become, forthwith due and payable without presentment, demand, protest,
notice of protest or dishonor, notice of acceleration, notice of intent to
accelerate or other notice of any kind, all of which are hereby expressly waived
by the Company, and thereupon take such action as it may deem
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desirable under and pursuant to the Financing Documents; provided, that, if an
Event of Default specified in Section 6.08 shall occur, the result which would
occur upon the giving of written notice by the Administrative Agent to the
Company, as specified in clauses (i) and (ii) above, shall occur automatically
without the giving of any such notice.
ARTICLE VII
THE AGENTS
Section 7.01 Appointment of Administrative Agent. Each Lender (and each
Secured Affiliate by and through its affiliated Lender) and each Issuing Bank
hereby designates Texas Commerce Bank National Association, as Administrative
Agent to act as herein specified and as specified in the other Financing
Documents. Each Lender (and each Secured Affiliate by and through its affiliated
Lender) and each Issuing Bank hereby irrevocably authorizes the Administrative
Agent to take such action on its behalf under the provisions of this Agreement,
the Notes, and the other Financing Documents and to exercise such powers and to
perform such duties hereunder and thereunder as are specifically delegated to or
required of the Administrative Agent by the terms hereof and thereof and such
other powers as are reasonably incidental thereto. The Administrative Agent may
perform any of its duties hereunder by or through its agents or employees.
Section 7.02 Limitation of Duties of Administrative Agent. The
Administrative Agent shall have no duties or responsibilities except those
expressly set forth with respect to the Administrative Agent in this Agreement
and as specified in the other Financing Documents. Neither the Administrative
Agent nor any of its officers, directors, employees or agents shall be liable
for any action taken or omitted by it as such hereunder or in connection
herewith, unless caused by its or their gross negligence or willful misconduct.
The duties of the Administrative Agent shall be mechanical and administrative in
nature; the Administrative Agent shall not have by reason of this Agreement a
fiduciary relationship in respect of any Lender; and nothing in this Agreement,
expressed or implied, is intended to or shall be so construed as to impose upon
the Administrative Agent any obligations in respect of this Agreement except as
expressly set forth herein.
Section 7.03 Lack of Reliance on the Administrative Agent and the
Documentation Agent.
(a) Independent Investigation. Independently and without reliance upon the
Administrative Agent or the Documentation Agent, each Lender, to the extent it
deems appropriate, has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of the Company in
connection with the taking or not taking of any action in connection herewith,
and (ii) its own appraisal of the creditworthiness of the Company, and, except
as expressly provided in this Agreement, and the other Financing Documents the
Administrative Agent and the Documentation Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any Lender
with any credit or other information with respect thereto, whether coming into
its possession before the consummation of the transactions contemplated herein
or at any time or times thereafter.
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(b) Agents Not Responsible. The Administrative Agent and the
Documentation Agent shall not be responsible to any Lender or any Issuing Bank
for any recitals, statements, information, representations or warranties herein
or in any document, certificate or other writing delivered in connection
herewith or for the execution, effectiveness, genuineness, validity,
enforceability, collectibility, priority or sufficiency of this Agreement, the
Notes, the Letters of Credit or the other Financing Documents or the financial
condition of the Company or be required to make any inquiry concerning either
the performance or observance of any of the terms, provisions or conditions of
this Agreement, the Notes or the other Financing Documents, or the financial
condition of the Company, or the existence or possible existence of any Default
or Event of Default.
Section 7.04 Certain Rights of the Administrative Agent. If the
Administrative Agent shall request instructions from the Required Lenders with
respect to any act or action (including the failure to act) in connection with
this Agreement, the Notes and the other Financing Documents, the Administrative
Agent shall be entitled to refrain from such act or taking such action unless
and until the Administrative Agent shall have received instructions from the
Required Lenders; and the Administrative Agent shall not incur liability to any
Person by reason of so refraining. Without limiting the foregoing, no Lender
shall have any right of action whatsoever against the Administrative Agent as a
result of the Administrative Agent acting or refraining from acting under this
Agreement, the Notes and the other Financing Documents in accordance with the
instructions of the Required Lenders, or to the extent required by Section 8.02,
all of the Lenders.
Section 7.05 Reliance by Administrative Agent. The Administrative
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any note, writing, resolution, notice, statement, certificate, telex, teletype
or telecopier message, cablegram, radiogram, order or other documentary
teletransmission or telephone message believed by it to be genuine and correct
and to have been signed, sent or made by the proper Person. The Administrative
Agent may consult with legal counsel (including counsel for the Company),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken by it in good faith in
accordance with the advice of such counsel, accountants or experts.
Section 7.06 INDEMNIFICATION OF ADMINISTRATIVE AGENT AND
DOCUMENTATION AGENT. TO THE EXTENT THE ADMINISTRATIVE AGENT OR THE
DOCUMENTATION AGENT IS NOT REIMBURSED AND INDEMNIFIED BY THE COMPANY, EACH
LENDER WILL REIMBURSE AND INDEMNIFY THE ADMINISTRATIVE AGENT OR THE
DOCUMENTATION AGENT, AS APPLICABLE, IN PROPORTION TO ITS TOTAL CREDIT
PERCENTAGE, FOR AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES (INCLUDING
REASONABLE COUNSEL FEES AND DISBURSEMENTS) OR DISBURSEMENTS OF ANY KIND OR
NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE
ADMINISTRATIVE AGENT OR THE DOCUMENTATION AGENT IN PERFORMING ITS DUTIES
HEREUNDER, IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT AND BY REASON
OF THE ORDINARY NEGLIGENCE OF THE ADMINISTRATIVE AGENT AND THE DOCUMENTATION
AGENT; PROVIDED THAT NO LENDER SHALL BE LIABLE TO THE ADMINISTRATIVE AGENT OR
THE DOCUMENTATION AGENT FOR ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR
DISBURSEMENTS RESULTING FROM, AS TO THE ADMINISTRATIVE AGENT, THE ADMINISTRATIVE
AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OR, AS TO THE DOCUMENTATION
AGENT, THE DOCUMENTATION AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
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Section 7.07 The Administrative Agent and Documentation Agent in
their Individual Capacity. With respect to their obligations under this
Agreement, the Loans made by it and the Notes issued to it, the Administrative
Agent and Documentation Agent shall have the same rights and powers hereunder as
any other Lender or holder of a Note and may exercise the same as though it were
not performing the duties, if any, specified herein; and the terms "Lenders,"
"Required Lenders," "ESOP Term Loan Lenders," "Revolving Credit Lenders,"
"Tranche A Term Loan Lenders," "Tranche B Term Loan Lenders," "holders of Notes"
or any similar terms shall, unless the context clearly otherwise indicates,
include the Administrative Agent and Documentation Agent in their individual
capacity. The Administrative Agent and Documentation Agent may accept deposits
from, lend money to, and generally engage in any kind of banking, trust,
financial advisory or other business with the Company or any affiliate of the
Company as if it were not performing the duties, if any, specified herein, and
may accept fees and other consideration from the Company for services in
connection with this Agreement and otherwise without having to account for the
same to the Lenders.
Section 7.08 May Treat Lender as Owner. The Company, the
Administrative Agent and the Issuing Banks may deem and treat each Lender as the
owner of such Lender's Note for all purposes hereof unless and until a written
notice of the assignment or transfer thereof shall have been filed with the
Administrative Agent. Any request, authority or consent of any Person who at the
time of making such request or giving such authority or consent is the owner of
a Note shall be conclusive and binding on any subsequent owner, transferee or
assignee of such Note or any promissory note or notes issued in exchange
therefor.
Section 7.09 Successor Administrative Agent.
(a) Administrative Agent Resignation. The Administrative Agent may
resign at any time by giving written notice thereof to the Lenders, the Issuing
Banks and the Company and may be removed at any time with or without cause by
the Required Lenders. Upon any such resignation or removal, the Required
Lenders shall have the right, upon five days' notice to the Company, to appoint
a successor Administrative Agent, subject to the approval of the Company, such
approval not to be unreasonably withheld. If no successor Administrative Agent
shall have been so appointed by the Required Lenders, and shall have accepted
such appointment, within 30 days after the retiring Administrative Agent's
giving of notice of resignation or the Required Lenders' removal of the retiring
Administrative Agent, then, upon five days' notice to the Company, the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent (subject to approval of the Company, such approval not to
be unreasonably withheld), which shall be a bank which maintains an office in
the United States, or a commercial bank organized under the laws of the United
States of America or of any State thereof, or any Affiliate of such bank, having
a combined capital and surplus of at least $250,000,000.
(b) Rights, Powers, etc. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Administrative
Agent, and the retiring Administrative Agent shall be discharged from its duties
and obligations under this Agreement. After any retiring Administrative Agent's
resignation or removal hereunder as Administrative Agent, the provisions of this
Article VII shall inure to its
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benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement.
Section 7.10 Documentation Agent. The Documentation Agent has no
duties hereunder in its capacity as Documentation Agent.
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including, telecopy or similar
teletransmission or writing) and shall be given to such party at its address or
telecopy number set forth on the signature pages hereof or such other address or
telecopy number as such party may hereafter specify by notice to the
Administrative Agent and the Company. Each such notice, request or other
communication shall be effective (i) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid, or (ii) if given by any other means (including, but not
limited to, by air courier), when delivered at the address specified in this
Section; provided that notices to the Administrative Agent shall not be
effective until actually and physically received.
Section 8.02 Amendments and Waivers. Neither this Agreement nor any
other Financing Document, nor any terms hereof or thereof, may be amended,
supplemented or modified except in accordance with the provisions of this
Section. The Required Lenders may, or, with the written consent of the Required
Lenders, the Administrative Agent shall, from time to time, (x) enter into with
the Company, written amendments, supplements or modifications hereto and to the
other Financing Documents for the purpose of adding any provisions to this
Agreement or to the other Financing Documents or changing in any manner the
rights or obligations of the Lenders or the Company hereunder or thereunder or
(y) waive at the Company's request, on such terms and conditions as the Required
Lenders or the Administrative Agent, as the case may be, may specify in such
instrument, any of the requirements of this Agreement or the other Financing
Documents or any Default and its consequences; provided, however, that no such
waiver and no such amendment, supplement or modification shall:
(a) reduce the amount or extend the scheduled date of maturity of any
Loan or any Reimbursement Obligation or of any scheduled installment thereof or
reduce the stated rate of any interest or fee payable hereunder or extend the
scheduled date of any payment thereof or modify any provision that provides for
the ratable sharing by the Lenders of any payment or prepayment of Lender
Indebtedness to provide for a non-ratable sharing thereof or the right of the
Term Lenders to decline acceptance of prepayment or increase the amount or
extend the expiration date of any Lender's Revolving Credit Commitment or Term
Loan Commitments (other than an extension of the Contingent Termination Date to
a date not later than October 31, 1996) or change the currency in which any Loan
or Reimbursement Obligation is payable or amend, modify or waive any provision
of Section 2.19 or this Section 8.02 or (on or before the Effective Date)
Article III or reduce the percentage specified in the definition of Required
Lenders, in each case without the written consent of all of the Lenders;
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(b) release (A) any Subsidiary Guarantor from its obligations under
the Subsidiary Guaranty or (B) any of the Collateral, without the written
consent of all of the Lenders, except as expressly permitted hereby, provided
that the Administrative Agent shall release (without consent from the Lenders)
any Collateral sold, transferred or otherwise disposed of as permitted by
Section 5.04(c);
(c) amend, modify or waive any provision of Article VII without the
written consent of the Administrative Agent, and of the Documentation Agent, if
affected thereby; or
(d) amend, modify or waive (A) any Letter of Credit Liability without
the written consent of the Issuing Bank or (B) any Letter of Credit without the
consent of each Revolving Credit Lender if such Letter of Credit, after giving
effect to such amendment, modification or waiver, would no longer satisfy the
requirements hereof if such Letter of Credit was being issued ab initio at such
time, provided that in all cases other than clauses (A) or (B), only the consent
of the Issuing Bank shall be required to amend, modify or waive any Letter of
Credit.
Any waiver and any amendment, supplement or modification pursuant to this
Section 8.02 shall apply to each of the Lenders and shall be binding upon the
Company, the Lenders, the Administrative Agent and all future holders of the
Loans. In the case of any waiver, the Company, the Lenders and the
Administrative Agent shall be restored to their former position and rights
hereunder and under the other Financing Documents, and any Default waived shall
be deemed to be cured and not continuing; but no such waiver shall extend to any
subsequent or other Default, or impair any right consequent thereon.
Section 8.03 No Waiver; Remedies Cumulative. No failure or delay on
the part of the Company or the Administrative Agent or any Lender or any holder
of any Note in exercising any right or remedy under this Agreement or any other
Financing Document and no course of dealing between the Company and the
Administrative Agent or any Lender or any holder of any Note shall operate as a
waiver thereof, nor shall any single or partial exercise of any right or remedy
under the Notes, this Agreement or any other Financing Document preclude any
other or further exercise thereof or the exercise of any other right or remedy
under the Notes, this Agreement or any other Financing Document. The rights and
remedies herein expressly provided are cumulative and not exclusive of any
rights or remedies which the Company, the Administrative Agent or any Lender
would otherwise have. No notice to or demand on the Company not required under
the Notes, this Agreement or any other Financing Document in any case shall
entitle the Company to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Administrative Agent
or the Lenders to any other or further action in any circumstances without
notice or demand.
Section 8.04 Payment of Expenses, Indemnities, etc. The Company agrees
to (and shall be liable for):
(a) Expenses. Whether or not the transactions hereby contemplated are
consummated, pay all reasonable out-of-pocket costs and expenses of the
Administrative Agent, the Documentation Agent and each Issuing Bank in the
administration (both before and after the execution hereof and
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including advice of counsel for the Administrative Agent as to the rights and
duties of the Administrative Agent and the Lenders with respect thereto) of, and
in connection with the preparation, execution and delivery of, recording or
filing of, preservation of rights under, enforcement of, and, after a Default,
refinancing, renegotiation or restructuring of, this Agreement, the Notes, and
the other Financing Documents and any amendment, waiver or consent relating
thereto (including, but not limited to, the reasonable fees and disbursements of
counsel for the Administrative Agent and in the case of enforcement for any of
the Lenders) and promptly reimburse the Administrative Agent for all amounts
expended, advanced, or incurred by the Administrative Agent or the Lenders to
satisfy any obligation of the Company, Holdco, or the Subsidiary Guarantors
under this Agreement or any other Financing Document;
(B) INDEMNIFICATION. INDEMNIFY THE ADMINISTRATIVE AGENT, THE
DOCUMENTATION AGENT, THE ISSUING BANKS AND EACH LENDER, EACH OF THEIR RESPECTIVE
OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES, AGENTS AND AFFILIATES FROM,
HOLD EACH OF THEM HARMLESS AGAINST, AND PROMPTLY UPON DEMAND PAY OR REIMBURSE
EACH OF THEM FOR, ANY AND ALL ACTIONS, SUITS, PROCEEDINGS (INCLUDING ANY
INVESTIGATIONS, LITIGATION OR INQUIRIES), CLAIMS, COSTS, LOSSES, LIABILITIES,
DAMAGES OR EXPENSES OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE INCURRED BY OR
ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR NOT ANY OF THEM IS
DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED
TO (I) ANY ACTUAL OR PROPOSED USE BY THE COMPANY OR ANY SUBSIDIARY OF THE
COMPANY OF THE PROCEEDS OF ANY OF THE LOANS; OR (II) ANY OTHER ASPECT OF THIS
AGREEMENT, THE NOTES, AND THE FINANCING DOCUMENTS, INCLUDING BUT NOT LIMITED TO
THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL (INCLUDING ALLOCATED COSTS OF
INTERNAL COUNSEL) AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH
INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION, SUIT,
PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES) OR CLAIM, AND
INCLUDING ALL ACTIONS, SUITS, PROCEEDINGS (INCLUDING ANY INVESTIGATIONS,
LITIGATION OR INQUIRIES), CLAIMS, COSTS, LOSSES, LIABILITIES, DAMAGES OR
EXPENSES ARISING BY REASON OF ORDINARY NEGLIGENCE OF ANY OF THE ADMINISTRATIVE
AGENT, THE DOCUMENTATION AGENT, THE ISSUING BANKS AND EACH LENDER, EACH OF THEIR
RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES, AGENTS AND
AFFILIATES; PROVIDED, HOWEVER, THE PROVISIONS OF THIS SECTION 8.04(B) SHALL NOT
APPLY TO ANY ACTION, SUITS, PROCEEDINGS, CLAIMS, COSTS, LOSSES, LIABILITIES,
DAMAGES, OR EXPENSES TO THE EXTENT, BUT ONLY TO THE EXTENT, CAUSED BY THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PARTY SEEKING INDEMNIFICATION;
(C) ENVIRONMENTAL INDEMNIFICATION. INDEMNIFY AND HOLD HARMLESS FROM
TIME TO TIME THE ADMINISTRATIVE AGENT, THE DOCUMENTATION AGENT, THE ISSUING
BANKS AND THE LENDERS, EACH PERSON CLAIMING BY, THROUGH, UNDER OR ON ACCOUNT OF
ANY OF THE FOREGOING AND THE RESPECTIVE DIRECTORS, OFFICERS, COUNSEL, EMPLOYEES,
AGENTS, SUCCESSORS AND ASSIGNS OF EACH OF THE FOREGOING FROM AND AGAINST ANY AND
ALL LOSSES, CLAIMS, COST RECOVERY ACTIONS, ADMINISTRATIVE ORDERS OR PROCEEDINGS,
DAMAGES AND LIABILITIES (WHICH RELATE TO OR ARISE AS A RESULT OF THE LOANS, THE
LETTERS OF CREDIT OR ANY FINANCING DOCUMENT) TO WHICH ANY SUCH PERSON MAY BECOME
SUBJECT AND INCLUDING ANY AND ALL LOSSES, CLAIMS, COST RECOVERY ACTIONS,
ADMINISTRATIVE ORDERS OR
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PROCEEDINGS, DAMAGES AND LIABILITIES (WHICH RELATE TO OR ARISE AS A RESULT OF
THE LOANS, THE LETTERS OF CREDIT OR ANY FINANCING DOCUMENT) ARISING BY REASON OF
THE ORDINARY NEGLIGENCE OF THE ADMINISTRATIVE AGENT, THE DOCUMENTATION AGENT,
THE ISSUING BANKS AND THE LENDERS, EACH PERSON CLAIMING BY, THROUGH, UNDER OR ON
ACCOUNT OF ANY OF THE FOREGOING AND THE RESPECTIVE DIRECTORS, OFFICERS, COUNSEL,
EMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS OF EACH OF THE FOREGOING (1) UNDER ANY
ENVIRONMENTAL LAW APPLICABLE TO THE COMPANY OR ANY OF ITS SUBSIDIARIES OR ANY OF
THEIR RESPECTIVE PROPERTIES, INCLUDING WITHOUT LIMITATION, THE TREATMENT OR
DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF THEIR RESPECTIVE PROPERTIES, (2) AS A
RESULT OF THE BREACH OR NON-COMPLIANCE BY THE COMPANY OR ANY OF ITS SUBSIDIARIES
WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE COMPANY OR ANY OF ITS SUBSIDIARIES,
(3) DUE TO PAST OWNERSHIP BY THE COMPANY OR ANY OF ITS SUBSIDIARIES OF ANY OF
THEIR RESPECTIVE PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR RESPECTIVE
PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR RESPECTIVE PROPERTIES WHICH, THOUGH
LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (4)
THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS
SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE COMPANY OR
ANY OF ITS SUBSIDIARIES, OR (5) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY
CONDITION IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR ANY OTHER FINANCING
DOCUMENT; PROVIDED, HOWEVER, NO INDEMNITY SHALL BE AFFORDED UNDER THIS SECTION
8.04(C) IN RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE ARISING PRIMARILY FROM THE
ACTS OR OMISSIONS OF THE ADMINISTRATIVE AGENT OR ANY LENDER DURING THE PERIOD
AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE OBTAINED ACTUAL
PHYSICAL POSSESSION OF SUCH PROPERTY (WHETHER BY FORECLOSURE OR DEED IN LIEU OF
FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR OTHERWISE); AND
(D) ENVIRONMENTAL WAIVER. WITHOUT LIMITING THE FOREGOING PROVISIONS,
THE COMPANY HEREBY DOES WAIVE, RELEASE AND COVENANT NOT TO BRING AGAINST ANY OF
THE PERSONS INDEMNIFIED IN THIS SECTION 8.04 ANY DEMAND, CLAIM, COST RECOVERY
ACTION OR LAWSUIT THEY MAY NOW OR HEREAFTER HAVE OR ACCRUE (WHICH RELATE TO OR
ARISE AS A RESULT OF THE LOANS, THE LETTERS OF CREDIT OR ANY FINANCING DOCUMENT)
ARISING FROM (1) ANY ENVIRONMENTAL LAW NOW OR HEREAFTER ENACTED (INCLUDING THOSE
APPLICABLE TO THE COMPANY OR ANY OF ITS SUBSIDIARIES) UNLESS THE ACTS OR
OMISSIONS OF ANY SUCH PERSON OR THEIR RESPECTIVE SUCCESSORS AND ASSIGNS ARE THE
PRIMARY CAUSE OF THE CIRCUMSTANCES GIVING RISE TO SUCH DEMAND, COST RECOVERY
ACTION OR LAWSUIT, (2) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR
DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR
OPERATED BY THE COMPANY OR ANY OF ITS SUBSIDIARIES, OR (3) THE BREACH OR NON-
COMPLIANCE BY THE COMPANY WITH ANY ENVIRONMENTAL LAW OR ENVIRONMENTAL COVENANT
APPLICABLE TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, UNLESS THE ACTS OR
OMISSIONS OF SUCH PERSON, ITS SUCCESSORS AND ASSIGNS ARE THE PRIMARY CAUSE OF
THE CIRCUMSTANCES GIVING RISE TO SUCH DEMAND, CLAIM, COST RECOVERY ACTION OR
LAWSUIT.
If and to the extent that the obligations of the Company under this Section are
unenforceable for any reason, the Company hereby agrees to make the maximum
contribution to the payment and satisfaction of such
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obligations which is permissible under applicable law. The Company's
obligations under this Section shall survive any termination of this Agreement
and the payment of the Notes.
Section 8.05 Right of Setoff. In addition to and not in limitation
of all rights of offset that any Lender or Issuing Bank may have under
applicable law, each Lender or other holder of a Note, or any other Lender
Indebtedness shall, upon the occurrence of any Event of Default and at any time
during the continuance thereof and whether or not such Lender, such Issuing Bank
or such holder has made any demand or the Company's obligations are matured,
have the right at any time and from time to time, without notice to the Company
(any such notice being expressly waived by the Company) to set-off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by any Lender or Issuing
Bank to or for the credit or the account of the Company against any and all of
the Lender Indebtedness owing to such Lender or Issuing Bank then outstanding,
subject to the provisions of Section 2.19.
Section 8.06 Benefit of Agreement. The Notes, this Agreement and the
other Financing Documents shall be binding upon and inure to the benefit of and
be enforceable by the respective successors and assigns of the parties hereto,
provided that the Company may not assign or transfer any of its interest
hereunder or thereunder without the prior written consent of the Lenders.
Section 8.07 Successors and Assigns; Participations and Assignments.
(a) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more banks, financial
institutions, or investment funds ("Participants") participating interests in
any Loan owing to such Lender, any Note held by such Lender, any Revolving
Credit Commitment or Term Loan Commitment of such Lender or any other interest
of such Lender hereunder and under the other Financing Documents. In the event
of any such sale by a Lender of a participating interest to a Participant, such
Lender's obligations under this Agreement to the other parties to this Agreement
shall remain unchanged, such Lender shall remain solely responsible for the
performance thereof, such Lender shall remain the holder of any such Loan (and
any Note evidencing such Loan) for all purposes under this Agreement and the
other Financing Documents and the Company and the Administrative Agent shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and the other Financing
Documents. Any agreement pursuant to which any Lender shall sell any such
participating interest shall provide that such Lender shall retain the sole
right and responsibility to exercise such Lender's rights and enforce the
Company's obligations hereunder, including the right to consent to any
amendment, supplement, modification or waiver of any provision of this Agreement
or any of the other Financing Documents, provided that such participation
agreement may provide that such Lender will not agree to any amendment,
supplement, modification or waiver described in clause (i) or (ii) of the
proviso to the second sentence of Section 8.02(a) without the consent of the
Participant. The Company agrees that each Lender shall be entitled to the
benefits of Sections 2.15, 2.16, 2.18, 2.20 and 8.04 without regard to whether
it has granted any participating interests, and that all amounts payable to a
Lender under such Sections shall be determined as if such Lender had not granted
any such participating interests. Each Participant shall have the rights of
set-off against the
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Lender Indebtedness and similar rights or Liens to the same extent as may be
available to the Administrative Agent or the Lenders.
(b) Branch Offices, Affiliates, Any Lender may make, carry or
transfer Loans at, to or for the account of, any of its branch offices or the
office of an Affiliate of such Lender.
(c) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time and from time to time assign to any
Lender or any Affiliate thereof, or, with the prior written consent of the
Company and the Administrative Agent (which in each case shall not be
unreasonably withheld), to an additional bank, financial institution or
investment fund (an "Assignee") all or any part of its rights and obligations
under this Agreement and any Notes, including, without limitation, its Revolving
Credit Commitment, Term Loan Commitments, Loans, and Letter of Credit
Liabilities pursuant to an Assignment and Acceptance, substantially in the form
of Exhibit G (each an "Assignment and Acceptance"), executed by such Assignee,
such assigning Lender (and, in the case of any Assignee that is not then a
Lender or an Affiliate thereof, by the Company and the Administrative Agent) and
delivered to the Administrative Agent for its acceptance and recording in the
Register; provided that (i) (unless the Company and the Administrative Agent
otherwise consent in writing) no such transfer to an Assignee (other than a
Lender or any Affiliate thereof) shall be in a principal amount less than (A)
$5,000,000 for a transfer by any Tranche B Term Loan Lender, and (B) $10,000,000
in the aggregate for a transfer by any other Lender (or, if less than the
applicable amount required by clause (A) or (B), the full amount of such
assigning Lender's Term Loans, Revolving Credit Loans, Letter of Credit
Liabilities, Term Loan Commitments and Revolving Credit Commitment) and (ii) if
any Lender assigns all or any part of its rights and obligations under this
Agreement to one of its Affiliates in connection with or in contemplation of the
sale or other disposition of its interest in such Affiliate, the Company's and
the Administrative Agent's prior written consent shall be required for such
assignment. Upon such execution, delivery, acceptance and recording, from and
after the effective date determined pursuant to such Assignment and Acceptance,
(x) the Assignee thereunder shall be a party hereto and, to the extent provided
in such Assignment and Acceptance, have the rights and obligations of a Lender
hereunder with a Revolving Credit Commitment, Revolving Credit Exposure, Term
Loan Commitments and Term Loans, as set forth therein, and (y) the assigning
Lender thereunder shall be released from its obligations under this Agreement to
the extent that such obligations shall have been expressly assumed by the
Assignee pursuant to such Assignment and Acceptance (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such assigning Lender
shall cease to be a party hereto but shall nevertheless continue to be entitled
to the benefits of Sections 2.16, 2.18, 2.20 and 8.04). Notwithstanding the
foregoing, no Assignee, which as of the date of any assignment to it pursuant to
this Section 8.07(c) would be entitled to receive any greater payment under
Section 2.16 or 2.20 than the assigning Lender would have been entitled to
receive as of such date under such Sections with respect to the rights assigned,
shall be entitled to receive such payments unless the Company has expressly
consented in writing to waive the benefit of this provision at the time of the
Assignment.
(d) The Administrative Agent, on behalf of the Company, shall maintain
at its address referred to in Section 8.01 a copy of each Assignment and
Acceptance delivered to it and a register
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(the "Register") for the recordation of the names and addresses of the Lenders
and the Revolving Credit Commitment and Term Loan Commitments and of, and the
principal amount of the Loans and Letter of Credit Liabilities owing to, and any
Notes evidencing such Loans owned by, each Lender from time to time.
Notwithstanding anything in this Agreement to the contrary, the Company, the
Administrative Agent and the Lenders shall treat each Person whose name is
recorded in the Register as the owner of any Loan, any Notes and the Revolving
Credit Commitments and Term Loan Commitments recorded therein for all purposes
of this Agreement. The Register shall be available for inspection by the
Company or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Notwithstanding anything in this Agreement to the contrary, no
assignment under Section 8.07(c) of any rights or obligations under or in
respect of the Loans, Reimbursement Obligations or the Notes evidencing such
Loans shall be effective unless and until the Administrative Agent shall have
recorded the assignment in the Register pursuant to this Section 8.07(e). Upon
its receipt of an Assignment and Acceptance executed by an assigning Lender and
an Assignee (and, in the case of an Assignee that is not then a Lender or an
Affiliate thereof, by the Company and the Administrative Agent), together with
payment to the Administrative Agent of a registration and processing fee of
$3,500 (which fee need not be paid in the case of any assignment to an Affiliate
of the assigning Lender and which shall not be a cost subject to reimbursement
under Section 8.04 or otherwise hereunder), the Administrative Agent shall (i)
promptly accept such Assignment and Acceptance and (ii) on the effective date
determined pursuant thereto record the information contained therein in the
Register and give prompt notice of such acceptance and recordation to the
Lenders and the Company. On or prior to such effective date, the assigning
Lender shall surrender any outstanding Notes held by it, all or a portion of
which are being assigned, and the Company, shall, upon the request to the
Administrative Agent by the assigning Lender or the Assignee, as applicable,
execute and deliver to the Administrative Agent (in exchange for the outstanding
Notes of the assigning Lender) a new Revolving Credit Note, Tranche A Term Note,
Tranche B Term Note and/or ESOP Term Note, as the case may be, to the order of
such Assignee in an amount equal to (i) in the case of a Revolving Credit Note,
the greater of (A) the amount of such Assignee's Revolving Credit Commitment and
(B) the aggregate principal amount of the Revolving Credit Exposure of such
Assignee, (ii) in the case of a Tranche A Term Note, the greater of (A) the
amount of such Assignee's Tranche A Term Loan Commitment and (B) the amount of
such Assignee's Tranche A Term Loans, (iii) in the case of a Tranche B Term
Note, the greater of (A) the amount of such Assignee's Tranche A Term Loan
Commitment and (B) the amount of such Assignee's Tranche B Term Loans, and (iv)
in the case of an ESOP Term Note, the greater of (A) the amount of such
Assignee's ESOP Term Loan Commitment and (B) the amount of such Assignee's ESOP
Term Loans, in each case with respect to the relevant Loan, Letter of Credit
Liability, Revolving Credit Commitment or Term Loan Commitment after giving
effect to such Assignment and Acceptance and, if the assigning Lender has
retained a Revolving Credit Commitment, Revolving Credit Exposure, Term Loan
Commitment or Term Loan hereunder, a new Revolving Credit Note, Tranche A Term
Note, Tranche B Term Note and/or ESOP Term Note, as the case may be, to the
order of the assigning Lender in an amount equal to (i) in the case of a
Revolving Credit Note, the greater of (A) the amount of such Lender's Revolving
Credit Commitment and (B) the aggregate principal amount of all Revolving Credit
Exposure of such Lender, (ii) in the case of a Tranche A Term Note, the greater
of (A) the amount of such Lender's
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Tranche A Term Loan Commitment and (B) the amount of such Lender's Tranche A
Term Loans, (iii) in the case of a Tranche B Term Note, the greater of (A) the
amount of such Assignee's Tranche A Term Loan Commitment and (B) the amount of
such Assignee's Tranche B Term Loans, and (iv) in the case of an ESOP Term Note,
the greater of (A) the amount of such Assignee's ESOP Term Loan Commitment and
(B) the amount of such Assignee's ESOP Term Loans, in each case with respect to
the relevant Loan, Revolving Credit Exposure, Revolving Credit Commitment or
Term Loan Commitment after giving effect to such Assignment and Acceptance. Any
such new Notes shall be dated the Effective Date and shall otherwise be in the
form of the Note replaced thereby. Any Notes surrendered by the assigning
Lender shall be returned by the Administrative Agent to the Company marked
"canceled".
(f) The Company authorizes each Lender to disclose to any participant
or Assignee (each, a "Transferee") and any prospective Transferee, provided,
that, any such Transferee or potential Transferee has signed a confidentiality
agreement substantially similar to the provisions of Section 8.13, any and all
information in such Lender's possession concerning the Company and its
Affiliates which has been delivered to such Lender by or on behalf of the
Company pursuant to this Agreement or which has been delivered to such Lender by
or on behalf of the Company in connection with such Lender's credit evaluation
of the Company, SCI and their Affiliates prior to becoming a party to this
Agreement. No assignment or participation made or purported to be made to any
Transferee shall be effective without the prior written consent of the Company
if it would require it to make any filing with any Governmental Authority or
qualify any Loan or Note under the laws of any jurisdiction, and the Company
shall be entitled to request and receive such information and assurances as it
may reasonably request from any Lender or any Transferee to determine whether
any such filing or qualification is required or whether any assignment or
participation is otherwise in accordance with applicable law.
(g) Nothing herein shall prohibit any Lender from pledging or
assigning any Loan or any Note to any Federal Reserve Bank in accordance with
applicable law.
Section 8.08 Governing Law; Submission to Jurisdiction; Etc.
(A) GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER AND UNDER THE NOTES SHALL BE CONSTRUED IN ACCORDANCE WITH
AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401
OF THE NEW YORK GENERAL OBLIGATIONS LAW, OR ANY SIMILAR SUCCESSOR PROVISION
THERETO, BUT EXCLUDING ALL OTHER CONFLICT-OF-LAWS RULES)AND TO THE EXTENT
CONTROLLING, LAWS OF THE UNITED STATES OF AMERICA.
(B) SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING WITH
RESPECT TO THIS AGREEMENT, THE NOTES OR THE OTHER FINANCING DOCUMENTS MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, THE COMPANY HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS. THE
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COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, BUT NOT LIMITED TO,
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH
ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS.
(C) WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT ALLOWED BY APPLICABLE
LAW, EACH OF THE COMPANY, THE AGENTS, THE ISSUING BANKS AND THE LENDERS (I)
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO ANY FINANCING DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN;
(II) IRREVOCABLY WAIVE ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFY THAT NO PARTY
HERETO NOR ANY REPRESENTATIVE OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS; AND (IV) ACKNOWLEDGE THAT IT
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER FINANCING DOCUMENTS AND
THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BASED UPON, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION.
(d) Designation of Process Agent. The Company hereby irrevocably
designates CT Corporation System, with an office on the date hereof at 1633
Broadway, New York, New York, 10019, as the designee, appointee and process
agent of the Company to receive, for and on behalf of the Company, service of
process in such respective jurisdictions in any legal action or proceeding with
respect to this Agreement, the Notes, or the other Financing Documents. It is
understood that a copy of such process served on such agent will be promptly
forwarded by mail to the Company at its address set forth opposite its signature
below, but the failure of the Company to receive such copy shall not affect in
any way the service of such process. The Company further irrevocably consents
to the service of process of any of the aforementioned courts in any such action
or proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the Company at its said address, such service to become
effective 30 days after such mailing.
(e) Service of Process. Nothing herein shall affect the right of the
Administrative Agent or any Lender or any holder of a Note to serve process in
any other manner permitted by law or to commence legal proceedings or otherwise
proceed against the Company in any other jurisdiction.
Section 8.09 Independent Nature of Lenders' Rights. The amounts
payable at any time hereunder to each Lender shall be a separate and independent
debt, and each Lender shall be entitled to protect and enforce its rights
arising out of this Agreement, and it shall not be necessary for any other
Lender to be joined as an additional party in any proceeding for such purpose.
Section 8.10 Invalidity. In the event that any one or more of the
provisions contained in the Notes, this Agreement or in any other Financing
Document shall, for any reason, be held invalid, illegal or unenforceable in any
respect, (i) the Company agrees that such invalidity, illegality or
unenforceability shall not affect any other provision of the Notes, this
Agreement or any other Financing Document and (ii) the
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Company and the Administrative Agent (acting on behalf and at the direction of
the Lenders) will negotiate in good faith to amend such provision so as to be
legal, valid, and enforceable.
Section 8.11 Renewal, Extension or Rearrangement. All provisions of
this Agreement and of any other Financing Documents relating to the Notes or
other Lender Indebtedness shall apply with equal force and effect to each and
all promissory notes hereafter executed which in whole or in part represent a
renewal, extension for any period, increase or rearrangement of any part of the
Lender Indebtedness originally represented by the Notes, or of any part of such
other Lender Indebtedness.
Section 8.12 Interest. It is the intention of the parties hereto to
conform strictly to usury laws applicable to the Administrative Agent, the
Documentation Agent, the Issuing Banks and the Lenders (collectively, the
"Financing Parties") and the Transactions. Accordingly, if the Transactions
would be usurious as to any Financing Party under laws applicable to it, then,
notwithstanding anything to the contrary in the Notes, this Agreement or in any
other Financing Document or agreement entered into in connection with the
Transactions or as security for the Notes, it is agreed as follows: (i) the
aggregate of all consideration which constitutes interest under law applicable
to any Financing Party that is contracted for, taken, reserved, charged or
received by such Financing Party under the Notes, this Agreement or under any of
such other Financing Documents or agreements or otherwise in connection with the
Transactions shall under no circumstances exceed the maximum amount allowed by
such applicable law, (ii) in the event that the maturity of the Notes is
accelerated for any reason, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest under law
applicable to any Financing Party may never include more than the maximum amount
allowed by such applicable law, and (iii) excess interest, if any, provided for
in this Agreement or otherwise in connection with the Transactions shall be
cancelled automatically by such Financing Party and, if theretofore paid, shall
be credited by such Financing Party on the principal amount of the Company's
Indebtedness to such Financing Party (or, to the extent that the principal
amount of the Company's Indebtedness to such Financing Party shall have been or
would thereby be paid in full, refunded by such Financing Party to the Company).
The right to accelerate the maturity of the Notes does not include the right to
accelerate any interest which has not otherwise accrued on the date of such
acceleration, and the Financing Parties do not intend to collect any unearned
interest in the event of acceleration. All sums paid or agreed to be paid to
the Financing Parties for the use, forbearance or detention of sums included in
the Lender Indebtedness shall, to the extent permitted by law applicable to such
Financing Party, be amortized, prorated, allocated and spread throughout the
full term of the Notes until payment in full so that the rate or amount of
interest on account of the Lender Indebtedness does not exceed the applicable
usury ceiling, if any. As used in this Section, the terms "applicable law" or
"laws applicable to any Financing Party" shall mean the law of any jurisdiction
whose laws may be mandatorily applicable notwithstanding other provisions of
this Agreement, or law of the United States of America applicable to any
Financing Party and the Transactions which would permit such Financing Party to
contract for, charge, take, reserve or receive a greater amount of interest than
under such jurisdiction's law. To the extent that Article 5069-1.04 of the
Texas Revised Civil Statutes is relevant to any Financing Party for the purpose
of determining the Highest Lawful Rate, such Financing Party hereby elects to
determine the applicable rate ceiling under such Article by the indicated
(weekly) rate ceiling from time to time in effect, subject to such Financing
Party's right subsequently to change such method in accordance with applicable
law.
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Section 8.13 Confidential Information. The Administrative Agent and
each Lender agree that all documentation and other information made available by
the Company to the Administrative Agent or such Lender under the terms of this
Agreement shall (except to the extent such documentation or other information is
publicly available or hereafter becomes publicly available other than by action
of the Administrative Agent or such Lender, or was theretofore known or
hereinafter becomes known to the Administrative Agent or such Lender independent
of any disclosure thereto by the Company) be held in the strictest confidence by
the Administrative Agent or such Lender and used solely in the administration
and enforcement of the Loans from time to time outstanding from such Lender to
the Company and in the prosecution of defense of legal proceedings arising in
connection herewith; provided that (i) the Administrative Agent or such Lender
may disclose documentation and information to the Administrative Agent and/or to
any other Lender which is a party to this Agreement or any Affiliates thereof
and (ii) the Administrative Agent or such Lender may disclose such documentation
or other information to any other bank or other Person to which such Lender
sells or proposes to make an assignment or sell a participation in its Loans
hereunder if such other bank or Person, prior to such disclosure, agrees in
writing to be bound by the terms of a confidentiality agreement substantially
similar to the provisions of this Section 8.13. Notwithstanding the foregoing,
nothing contained herein shall be construed to prevent the Administrative Agent
or a Lender from (a) making disclosure of any information (i) if required to do
so by applicable law or regulation, (ii) to any governmental agency or
regulatory body (including any self-regulatory agency or body) having or
claiming to have authority to regulate or oversee any aspect of such Lender's
business or that of such Lender's corporate parent or affiliates in connection
with the exercise of such authority or claimed authority, (iii) pursuant to any
subpoena or if otherwise compelled in connection with any litigation or
administrative proceeding, (iv) to correct any false or misleading information
which may become public concerning such Person's relationship to the Company, or
(v) to the extent the Administrative Agent or such Lender or its counsel deems
necessary or appropriate to effect or preserve its security for any Lender
Indebtedness or to enforce any remedy provided in the Financing Documents, the
Notes or this Agreement or otherwise available by law; or (b) making, on a
confidential basis, such disclosures as such Lender reasonably deems necessary
or appropriate to its legal counsel or accountants (including outside auditors).
If the Administrative Agent or such Lender is compelled to disclose such
confidential information in a proceeding requesting such disclosure, the
Administrative Agent or such Lender shall seek to obtain assurance that such
confidential treatment will be accorded such information; provided, however,
that the Lender shall have no liability for the failure to obtain such
treatment.
Section 8.14 ENTIRE AGREEMENT. THE NOTES, THIS AGREEMENT AND THE
OTHER FINANCING DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN
THE AGENTS, THE ISSUING BANKS OR THE LENDERS AND THE OTHER RESPECTIVE PARTIES
HERETO AND THERETO AND SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS BETWEEN
SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 8.15 Attachments. The exhibits, schedules and annexes
attached to this Agreement are incorporated herein and shall be considered a
part of this Agreement for the purposes stated herein, except that in the event
of any conflict between any of the provisions of such exhibits and the
provisions of this Agreement, the provisions of this Agreement shall prevail.
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Section 8.16 Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original
but all of which shall together constitute one and the same instrument.
Section 8.17 Survival of Indemnities. The Company's obligations
under Sections 2.16, 2.18, 2.20 and 8.04 shall survive the payment in full of
the Loans and the Letter of Credit Liabilities.
Section 8.18 Headings Descriptive. The headings of the several
sections and subsections of this Agreement, and the Table of Contents, are
inserted for convenience only and shall not in any way affect the meaning or
construction of any provision of this Agreement.
Section 8.19 Satisfaction Requirement. If any agreement,
certificate, instrument or other writing, or any action taken or to be taken, is
by the terms of this Agreement required to be satisfactory to any party, the
determination of such satisfaction shall be made by such party in its sole and
exclusive judgment exercised reasonably and in good faith.
SECTION 8.20 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER
FINANCING DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF
THE TERMS OF THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS; THAT IT HAS IN
FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE
OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN
REPRESENTED BY LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING
ITS EXECUTION OF THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS; AND HAS
RECEIVED THE ADVICE OF ITS ATTORNEYS IN ENTERING INTO THIS AGREEMENT AND THE
OTHER FINANCING DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF
THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS RESULT IN ONE PARTY ASSUMING
THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE
OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES
AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY
EXCULPATORY PROVISION OF THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS ON THE
BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE
PROVISION IS NOT "CONSPICUOUS."
Section 8.21 Secured Affiliate. For purposes of this Agreement and
all other Financing Documents (other than applicable Hedge Agreements), if a
Secured Affiliate of a Lender has entered into one or more Hedge Agreements with
the Company or any its Subsidiaries, then to the extent that such Secured
Affiliate has rights or obligations (or if the affiliated Lender, rather than
the Secured Affiliate, were the counter-party to the applicable Hedge Agreement,
such rights or obligations that such Lender has) hereunder or under any other
Financing Document (other than applicable Hedge Agreements), such affiliated
Lender shall be the agent and attorney-in-fact for such Secured Affiliate with
regard to any such rights and obligations, or deemed rights and obligations, as
if such Lender were the counter-party to the applicable Hedge Agreement
including, but not limited to, the following: (a) all distributions or payments
in respect of Collateral owing to such Secured Affiliate shall be distributed or
paid to such Lender, (b) all representations, statements or disclaimers made
herein or in any Financing Document by or to such Lender shall be deemed to have
been made by or to such Secured Affiliate, (c) all obligations incurred by such
Lender that would have been incurred by the Secured
108
<PAGE>
Affiliate if it were a party hereto (including, but not limited to, obligations
under Section 7.06) shall be the obligations of such Lender, and such Lender, as
the agent and attorney-in-fact of its Secured Affiliate, will make any and all
payments owing to the Administrative Agent with respect to such obligations or
deemed obligations of its Secured Affiliate. Each such Lender represents,
warrants and covenants to and with the Administrative Agent that such Lender
has, or at all applicable times will have, full power and authority to act as
agent and attorney-in-fact for its Secured Affiliates. Under no circumstance
shall any Secured Affiliate have any voting rights hereunder and the voting
rights of any affiliated Lender shall not be increased by virtue of the
obligations owing to any such Secured Affiliate.
109
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of the date first above written.
COMPANY: STX CHEMICALS CORP.
By: /s/ Hunter Nelson
--------------------------
Hunter Nelson
Vice President
Address:
8 Greenway Plaza
Suite 702
Houston, Texas 77046
Attention: Mr. John D. Hawkins
Telephone: (713) 877-8257, ext. 113
Telecopy: (713) 877-1824
ADMINISTRATIVE AGENT, TEXAS COMMERCE BANK
DOCUMENTATION AGENT, NATIONAL ASSOCIATION
ISSUING BANKS Individually, as an Issuing Bank and as
AND THE LENDERS: Administrative Agent
By: /s/ Mary C. Arnold
--------------------------
Mary C. Arnold
Vice President
Address:
c/o Chase Securities Inc.
712 Main Street
Houston, Texas 77002
Attention: Ms. Martha Gurwit
Telephone: (713) 216-6387
Telecopy: (713) 216-4986
With Copy To:
712 Main Street
Houston, Texas 77002
Attention: Ms. Debra Harris
Telephone: (713) 216-4117
Telecopy: (713) 216-5733
110
<PAGE>
CREDIT SUISSE,
as Documentation Agent
By: /s/ Kathleen D. O'Brien
--------------------------
Name: Kathleen D. O'Brien
Title: Member of Senior Management
By: /s/ William R. Ziglar
--------------------------
Name: William R. Ziglar
Title: Associate
Address:
12 East 49th Street
New York, New York 10017
Telephone: (212) 238-2000
Telecopy: (212) 238-5073
CREDIT SUISSE,
individually, as an Issuing Bank and as a
Lender
By: /s/ David J. Worthington
--------------------------
Name: David J. Worthington
Title: Member of Senior Management
By: /s/ Marilsu Palenzuela
--------------------------
Name: Marilsu Palenzuela
Title: Member of Senior Management
Address:
633 West 5th Street, 64th Floor
Los Angeles, California 90071
Attention: Ms. Rita Asa
Telephone: (213) 955-8284
Telecopy: (213) 955-8245
[Signature Page-1]
<PAGE>
ABN AMRO BANK N.V.
Houston Agency
By: ABN AMRO NORTH AMERICA, INC.,
As Agent
By: /s/ Gordon Chang
--------------------------
Name: Gordon Chang
Title: Vice President & Director
By: /s/ Collis Sanders
--------------------------
Name: Collis Sanders
Title: Group Vice President & Director
Address:
Three Riverway, Suite 1700
Houston, Texas 77056
Attention: Mr. Gordon Chang
Telephone: (713) 964-3322
Telecopy: (713) 629-7533
[Signature Page-2]
<PAGE>
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
--------------------------
Name: F.C.H. Ashby
Title: Senior Manager
Loan Operations
Address:
Atlanta Agency
600 Peachtree Street
Northeast
Suite 2700
Atlanta, Georgia 30308
Attention: Mr. F.C.H. Ashby
Telephone: (404) 877-1500
Telecopy: (404) 888-8998
With Copy To:
1100 Louisiana Street, Suite 3000
Houston, Texas 77002
Attention: Mr. Richard Slaid
Telephone: (713) 752-0900
Telecopy: (713) 752-2425
[Signature Page-3]
<PAGE>
BANK OF SCOTLAND
By: /s/ Catherine M. Quiffrey
--------------------------
Name: Catherine M. Quiffrey
Title: Vice President
Bank of Scotland
Address:
565 Fifth Avenue, 5th Floor
New York, New York 10017
Attention: Catherine M. Quiffrey
Telephone: (212) 450-0870
Telecopy: (212) 557-9460
[Signature Page-4]
<PAGE>
BANQUE PARIBAS
By: /s/ Christopher S. Goodwin
---------------------------
Name: Christopher S. Goodwin
Title: Vice President
By: /s/ Larry Robinson
---------------------------
Name: Larry Robinson
Title: Vice President
Address:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Attention: Mr. Chris Goodwin
Telephone: (713) 659-4811
Telecopy: (713) 659-5234
[Signature Page-5]
<PAGE>
BHF-BANK AKTIENGESELLSCHAFT
By: [Signature appears here]
Name:
Title:
Address:
590 Madison Avenue
New York, New York 10022-2540
Attention: Mr. Paul Travers
Telephone: (212) 756-5570
Telecopy: (212) 756-5536
[Signature Page-6]
<PAGE>
CIBC, INC.
By: [Signature appears here]
--------------------------
Name:
Title: Authorized Signatory
Address:
2 Houston Center
909 Fannin Street, Suite 1200
Houston, Texas 77010
Attention: Mr. David Balderach
Telephone: (713) 658-8400
Telecopy: (713) 650-3727
With Copy To:
Two Paces West
2727 Paces Ferry Road
Suite 1200
Atlanta, Georgia 30339
Attention: Mr. Gary Gaskill
Telephone: (770) 319-4824
Telecopy: (770) 319-4950
[Signature Page-7]
<PAGE>
CREDIT LYONNAIS, NEW YORK BRANCH
By: /s/ Robert H. Dial
--------------------------
Name: Robert H. Dial
Title: Vice President
Address:
1000 Louisiana Street, Suite 5360
Houston, Texas 77002
Attention: Mr. Page Dillehunt
Telephone: (713) 751-0500
Telecopy: (713) 751-0307
With Copy To:
Address:
Leverage Finance, 18th Floor
1301 Avenue of the Americas
New York, New York 10019
Attention: Mr. Robert H. Dial
Telephone: (212) 261-7869
Telecopy: (212) 459-3176
[Signature Page-8]
<PAGE>
FIRST SOURCE FINANCIAL LLP
By: FIRST SOURCE FINANCIAL, INC.
as its Agent/Manager
By: /s/ David Wagner
--------------------------
Name: David Wagner
Title: Assistant Vice President
Address:
2850 West Golf Road, 5th Floor
Rolling Meadows, Illinois 60008
Attention: Mr. Dave Wagner
Telephone: (847) 734-2043
Telecopy: (847) 734-7910
[Signature Page-9]
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Dixon P. Schultz
--------------------------
Name: Dixon P. Schultz
Title: Vice President
Address:
One First National Plaza, MS 0634, 1-10
Chicago, Illinois 60670
Attention: Mr. Mike Lorenzi
Telephone: (312) 732-8573
Telecopy: (312) 732-4840
With Copy To:
1100 Louisiana Street, Suite 3200
Houston, Texas 77002
Attention: Ms. Dixon Schultz
Telephone: (713) 654-7329
Telecopy: (713) 654-7370
[Signature Page-10]
<PAGE>
THE CIT GROUP/BUSINESS CREDIT, INC.
By: /s/ John Hanley
--------------------------
Name: John Hanley
Title: Vice President
Address:
Two Lincoln Center
5420 LBJ Freeway, Suite 200
Dallas, Texas 75240
Attention: Mr. Lan Haverfield
Telephone: (214) 455-1680
Telecopy: (214) 455-1690
[Signature Page-11]
<PAGE>
COMERICA BANK
By: /s/ Reginald M. Goldsmith, III
---------------------------------
Name: Reginald M. Goldsmith, III
Title: Vice President
Address:
4100 Spring Valley, Suite 900
Dallas, Texas 75244
Attention: Mr. Reggie Goldsmith
Telephone: (214) 818-2548
Telecopy: (214) 818-2550
[Signature Page-12]
<PAGE>
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Robert M. Biringer
---------------------------
Name: Robert M. Biringer
Title: Senior Vice President
By: /s/ Joseph P. Longosz
---------------------------
Name: Joseph P. Longosz
Title: Vice President
Address:
Two Greenwich Plaza
2nd Floor
Greenwich, Connecticut 06830
Attention: Ms. Lisa Bruno
Telephone: (203) 861-6464
Telecopy: (203) 861-6594
With Copy To:
Two Ravinia Drive, Suite 1680
Atlanta, Georgia 30346
Attention: Mr. Joseph Longosz
Telephone: (770) 390-1850
Telecopy: (770) 390-1851
[Signature Page-13]
<PAGE>
HIBERNIA NATIONAL BANK
By: /s/ Lyndsay Job
--------------------------
Name: Lyndsay Job
Title: Senior Vice President
Address:
313 Carondelet Street, 13th Floor
New Orleans, Louisiana 70130
Attention: Ms. Colleen Smith
Telephone: (504) 533-5395
Telecopy: (504) 533-5434
[Signature Page-14]
<PAGE>
MERITA BANK, LIMITED
NEW YORK BRANCH
By: /s/ Charles Poer
---------------------------
Name: Charles Poer
Title: Vice President
By: /s/ F. Maffei
---------------------------
Name: F. Maffei
Title: Assistant Vice President
Address:
437 Madison Avenue, 21st Floor
New York, New York 10022
Attention: Mr. Chaz Poer
Telephone: (212) 318-9564
Telecopy: (212) 421-4420
<PAGE>
NATIONAL BANK OF CANADA
By: /s/ Larry L. Sears
-----------------------------------------------
Name: Larry L. Sears
Title: Group Vice President
By: /s/ David Clark
-----------------------------------------------
Name: David Clark
Title: Vice President
Address:
125 West 55th Street
23rd Floor
New York, New York 10019
Attention: Ms. Eleanor Valentine
Telephone: (212) 632-8820
Telecopy: (212) 632-8736
With Copy To:
2121 San Jacinto, #1850
Dallas, Texas 75201
Attention: Mr. Larry L. Sears
Telephone: (214) 871-1208
Telecopy: (214) 871-2015
<PAGE>
THE SANWA BANK, LIMITED, DALLAS AGENCY
By: /s/ Lad Perenyi
-----------------------------------------------
Name:
Title:
Address:
2200 Ross Avenue, Suite 4100 West
Dallas, Texas 75201
Attention: Mr. Lad Perenyi
Telephone: (214) 665-0224
Telecopy: (214) 741-6535
<PAGE>
THE FUJI BANK, LIMITED
By: /s/ Philip C. Lauinger III
-----------------------------------------------
Name: Philip C. Lauinger III
Title: Vice President & Joint Manager
Address:
One Houston Center, Suite 4100
1221 McKinney Street
Houston, Texas 77010
Attention: Mr. Phil Lauinger
Telephone: (713) 650-7852
Telecopy: (713) 759-0048
<PAGE>
THE LONG TERM CREDIT BANK OF JAPAN, LIMITED
NEW YORK BRANCH
By: /s/ Satoru Otsubo
-----------------------------------------------
Name: Satoru Otsubo
Title: Joint General Manager
Address:
165 Broadway, 49th Floor
New York, New York 10006
Attention: Ms. Maria Araujo
Telephone: (212) 335-4553
Telecopy: (212) 608-2371
With Copy To:
2200 Ross Avenue
Texas Commerce Tower, Suite 4700W
Dallas, Texas 75201
Attention: Mr. Robert Nelson
Telephone: (214) 969-5352
Telecopy: (214) 969-5357
<PAGE>
CHL HIGH YIELD LOAN PORTFOLIO
(a unit of Chemical Bank)
By: /s/ Joyce C. Delucca
-----------------------------------------------
Name: Joyce C. Delucca
Title: Vice President
Address:
380 Madison Avenue, 12th Floor
New York, New York 10017
Attention: Ms. Joyce Delucca
Telephone: (212) 622-3104
Telecopy: (212) 622-3797
With Copy To:
140 East 45th Street
New York, New York 10017
Attention: Mr. Joseph Nerich
Telephone: (212) 622-0621
Telecopy: (212) 622-0122
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
By: [SIGNATURE APPEARS HERE]
-----------------------------------------------
Name:
Title:
Address:
1295 State Street
Springfield, Massachusetts 01111-0001
Attention: Mr. John Wheeler
Telephone: (413) 744-6228
Telecopy: (413) 744-6127
With Copy To:
1295 State Street
Springfield, Massachusetts 01111-0001
Attention: Ms. Laura Hamel
Phone: (413) 744-3878
Telecopy: (413) 744-7922
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By: /s/ Gilles Moreland
-----------------------------------------------
Name: Gilles Moreland
Title:
Address:
800 Scudders Mill Road - Area 2C
Plainsboro, New Jersey 08536
Attention: Ms. Jill Montanye
Telephone: (609) 282-3102
Telecopy: (609) 282-2550
With Copy To:
Custodian Bank:
---------------
Bank of New York
90 Washington Street, 12th Floor
New York, New York 10286
Attention: Mr. Nick Ruggiero
Telephone: (212) 495-2929
Telecopy: (212) 495-2935/2936/2937
MLAM Accounting
500 College Road - 4E
Plainsboro, New Jersey 08536
Attention: Mr. John Dugan
Telephone: (212) 282-7705
Telecopy: (212) 282-7612
<PAGE>
PILGRIM AMERICA PRIME RATE TRUST
By: /s/ Michael J. Bacevich
-----------------------------------------------
Name: Michael J. Bacevich
Title: Vice President
Address:
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004-4424
Attention: Mr. Mike Bacevich
Telephone: (602) 417-8258
Telecopy: (602) 417-8327
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
By: /s/ Mark K. Okada
-----------------------------------------------
Name: Mark K. Okada CFA
Title: Principal
Protective Asset Management Co.
Address:
1150 Two Galleria Tower
13455 Noel Road - LB #45
Dallas, Texas 75240
Attention: Mr. Mark Okada
Telephone: (214) 233-4300
Telecopy: (214) 233-4343
<PAGE>
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME
TRUST
By: /s/ Jeffrey W. Maillet
-----------------------------------------------
Name: Jeffrey W. Maillet
Title: Sr. Vice Pres.-Portfolio Mgr.
Address:
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Attention: Mr. Jeffrey Maillet
Telephone: (708) 684-6438
Telecopy: (708) 684-6740
<PAGE>
* CONFIDENTIAL TREATMENT-- Confidential portion has been omitted and filed
separately with the Commission.
================================================================================
PROJECT PLATE
Analyses Supplement
================================================================================
LAZARD FRERES & CO. LLC APRIL 2, 1996
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE Table of Contents
- --------------------------------------------------------------------------------
Page
------
<S> <C>
I. STANDALONE PLATE EXHIBITS
A. Annual Cost Savings - $0
- Company Revised Base Case................................. 1
- Company Revised Downside Case............................. 2
B. Annual Cost Savings - $30
- Company Revised Base Case................................. 3
- Company Revised Downside Case............................. 4
II. LBO ANALYSIS - STERLING GROUP STRUCTURE
A. Annual Cost Savings - $0
- Company Revised Base Case................................. 5
- Company Revised Downside Case............................. 9
B. Annual Cost Savings - $30
- Company Revised Base Case................................. 13
- Company Revised Downside Case............................. 17
III. RECAPITALIZATION ANALYSIS
A. Share Repurchase/Special Dividend - Annual Cost Savings - $0
- Company Revised Base Case - $400 million.................. 21
- Company Revised Base Case - $500 million.................. 25
- Company Revised Downside Case - $400 million.............. 29
- Company Revised Downside Case - $500 million.............. 33
- Analysis of Blended Share Price - Base Case............... 37
- Post-Repurchase Trading Analysis - Base Case.............. 39
- Analysis of Blended Share Price - Downside Case........... 44
- Post-Repurchase Trading Analysis - Downside Case.......... 46
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE Table of Contents
- --------------------------------------------------------------------------------
Page
------
<S> <C>
III. RECAPITALIZATION ANALYSIS (CONT'D)
A. Share Repurchase/Special Dividend - Annual Cost Savings - $30
- Company Revised Base Case - $400 million.................. 51
- Company Revised Base Case - $500 million.................. 55
- Company Revised Downside Case - $400 million.............. 59
- Company Revised Downside Case - $500 million.............. 63
- Analysis of Blended Share Price - Base Case............... 67
- Post-Repurchase Trading Analysis - Base Case.............. 69
- Analysis of Blended Share Price - Downside Case........... 74
- Post-Repurchase Trading Analysis - Downside Case.......... 76
IV. DCF ANALYSIS
A. Company Revised Base Case
- Annual Cost Savings - $0.................................. 81
B. Company Revised Downside Case
- Annual Cost Savings $0.................................... 84
V. PUBLIC COMPARABLE COMPANIES
A. Equity Comparables............................................ 87
B. Credit Comparables............................................ 90
C. Historical Credit Comparables................................. 92
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE I. STANDALONE PLATE EXHIBITS
- ---------------------------------------------------------------------------------------------------------------------------
COMPANY REVISED BASE CASE
STANDALONE INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS - $0
(Dollars in millions except per share date)
ACTUAL PROJECTED
----------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Petrochemicals EBITDA $ 21.5 $ 62.3 $239.5 $ 126.1 $122.3 $ 76.3 $117.7 $133.1
Pulp Chemicals EBITDA 32.7 27.1 44.7 61.8 85.8 104.4 102.9 94.7
- --------------------- ------ ------ ------ ------- ------ ------ ------ ------
Operating EBITDA 54.2 89.4 284.2 187.9 208.1 180.6 220.7 227.8
Cost Savings - - - - - - - -
Total EBITDA 54.2 89.4 284.2 187.9 208.1 180.6 220.7 227.8
Less: Depreciation (38.8) (40.9) (43.0) (39.1) (52.8) (55.1) (55.1) (55.1)
- ------------------ ------ ------ ------ ------- ------ ------ ------ ------
EBIT 15.4 48.5 241.2 148.8 155.3 125.6 165.6 172.7
SAR's & Other Income - - - (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Income (Expense) (22.4) (20.2) (14.6) (10.2) (3.6) 10.7 27.9 47.5
- ------------------------- ------ ------ ------ ------- ------ ------ ------ ------
Pretax Income (7.0) 28.3 226.6 135.9 149.3 135.1 192.3 219.0
Income Taxes 1.5 (9.3) (76.6) (47.6) (52.2) (47.3) (67.3) (76.7)
- ------------------ ------ ------ ------ ------- ------ ------ ------ ------
NET INCOME ($5.5) $ 19.1 $150.0 $ 88.3 $ 97.0 $ 87.8 $125.0 $142.4
- ---------------------------------------------------------------------------------------------------------------
E.P.S $ 2.69 $ 1.59 $ 1.74 $ 158 $ 2.24 $ 2.56
Shares Outstanding 55.7 55.7 55.7 55.7 55.7 55.7
- ---------------------------------------------------------------------------------------------------------------
Plus: Deferred Taxes $ 1.0 $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: Dep. & Amortization 43.0 39.1 52.8 55.1 55.1 55.1
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (1.5) 0.4
Less: Capital Expenditures (53.9) (104.2) (47.5) (31.5) (25.0) (25.0)
------ ------- ------ ------ ------ ------
Free Cash Flow $141.4 $ 3.7 $111.4 $137.5 $160.8 $179.5
====== ======= ====== ====== ====== ======
Cash & Investments $ 0.0 $ 0.0 $ 24.6 $162.1 $322.9 $502.4
Debt
Long-Term Debt $129.6
Short-Term Debt 3.2
--------------- ------
Total $132.8 $ 86.8 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Net Debt $132.8 $ 86.8 ($24.6) ($162.1) ($322.9) ($502.4)
Common Equity $239.3 $327.6 $424.6 $512.5 $637.5 $779.8
</TABLE>
- 1 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE I. STANDALONE PLATE EXHIBITS
- ---------------------------------------------------------------------------------------------------------------------------
COMPANY REVISED DOWNSIDE CASE
STANDALONE INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS - $0
(Dollars in millions except per share data)
ACTUAL PROJECTED
----------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Petrochemicals EBITDA $ 21.5 $ 62.3 $239.5 $ 101.1 $ 71.2 $ 41.8 $ 79.9 $ 94.9
Pulp Chemicals EBITDA 32.7 27.1 44.7 61.8 72.0 78.4 90.0 82.5
- --------------------- ------ ------ ------ ------- ------ ------ ------ ------
Operating EBITDA 54.2 89.4 284.2 162.9 143.2 120.2 170.0 177.4
Cost Savings - - - - - - - -
Total EBITDA 54.2 89.4 284.2 162.9 143.2 120.2 170.0 177.4
Less: Depreciation (38.8) (40.9) (43.0) (39.1) (52.1) (53.4) (53.4) (53.4)
- ------------------ ------ ------ ------ ------- ------ ------ ------ ------
EBIT 15.4 48.5 241.2 123.8 91.1 66.8 116.5 123.9
SAR's & Other Income - - - (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Income (Expense) (22.4) (20.2) (14.6) (11.2) (7.2) 3.3 15.7 30.2
- ------------------------- ------ ------ ------ ------- ------ ------ ------ ------
Pretax Income (7.0) 28.3 226.6 109.9 81.4 68.8 131.1 153.0
Income Taxes 1.5 (9.3) (76.6) (38.5) (28.5) (24.1) (45.9) (53.5)
- ------------------ ------ ------ ------ ------- ------ ------ ------ ------
NET INCOME ($5.5) $ 19.1 $150.0 $ 71.4 $ 52.9 $ 44.7 $ 85.2 $ 99.4
- ---------------------------------------------------------------------------------------------------------------
E.P.S $ 2.69 $ 1.28 $ 0.95 $ 0.80 $ 1.53 $ 1.79
Shares Outstanding 55.7 55.7 55.7 55.7 55.7 55.7
- ---------------------------------------------------------------------------------------------------------------
Plus: Deferred Taxes $ 1.10 $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: Dep. & Amortization 43.0 39.1 52.1 53.4 53.4 53.4
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (3.4) 0.4
Less: Capital Expenditures (53.9) (104.2) (31.7) (25.0) (25.0) (25.0)
------ ------- ------ ------ ------ ------
Free Cash Flow $141.4 ($ 13.2) $ 82.4 $ 99.3 $177.4 $135.0
====== ======= ====== ====== ====== ======
Cash & Investments $ 0.0 $ 0.0 $ 0.0 $ 78.0 $195.4 $330.5
Debt
Long-Term Debt $129.6
Short-Term Debt 3.2
--------------- ------
Total $132.8 $ 103.7 $ 21.3 $ 0.0 $ 0.0 $ 0.0
Net Debt $132.8 $ 103.7 $ 21.3 ($ 78.0) ($195.4) ($330.5)
Common Equity $239.3 $ 310.7 $363.6 $408.4 $493.6 $593.0
</TABLE>
- 2 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE I. STANDALONE PLATE EXHIBITS
- ---------------------------------------------------------------------------------------------------------------------------
COMPANY REVISED BASE CASE
STANDALONE INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS - $30
(Dollars in millions except per share data)
ACTUAL PROJECTED
----------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Petrochemicals EBITDA $ 21.5 $ 62.3 $239.5 $ 126.1 $122.3 $ 76.3 $117.7 $133.1
Pulp Chemicals EBITDA 32.7 27.1 44.7 61.8 85.8 104.4 102.9 94.7
- --------------------- ------ ------ ------ ------- ------ ------ ------ ------
Operating EBITDA 54.2 89.4 284.2 187.9 208.1 180.6 220.7 227.8
Cost Savings - - - - 30.0 30.0 30.0 30.0
Total EBITDA 54.2 89.4 284.2 187.9 238.1 210.6 250.7 257.8
Less: Depreciation (38.8) (40.9) (43.0) (39.1) (52.8) (55.1) (55.1) (55.1)
- ------------------ ------ ------ ------ ------- ------ ------ ------ ------
EBIT 15.4 48.5 241.2 148.8 185.3 155.6 195.6 202.7
SAR's & Other Income - - - (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Income (Expense) (22.4) (20.2) (14.6) (10.2) (2.4) 14.3 34.1 56.5
- ------------------------- ------ ------ ------ ------- ------ ------ ------ ------
Pretax Income (7.0) 28.3 226.6 135.9 180.4 168.7 228.5 258.0
Income Taxes 1.5 (9.3) (76.6) (47.6) (63.1) (59.0) (80.0) (90.3)
- ------------------ ------ ------ ------ ------- ------ ------ ------ ------
NET INCOME ($5.5) $ 19.1 $150.0 $ 88.3 $117.3 $109.7 $148.5 $167.7
- ---------------------------------------------------------------------------------------------------------------
E.P.S $ 2.69 $ 1.59 $ 2.11 $ 1.97 $ 2.67 $ 3.01
Shares Outstanding 55.7 55.7 55.7 55.7 55.7 55.7
- ---------------------------------------------------------------------------------------------------------------
Plus: Deferred Taxes $ 1.0 $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: Dep. & Amortization 43.0 39.1 52.8 55.1 55.1 55.1
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (1.5) 0.4
Less: Capital Expenditures (53.9) (104.2) (47.5) (31.5) (25.0) (25.0)
------ ------- ------ ------ ------ ------
Free Cash Flow $141.4 $ 3.7 $131.7 $159.4 $184.3 $204.9
====== ======= ====== ====== ====== ======
Cash & Investments $ 0.0 $ 0.0 $ 44.8 $204.2 $388.5 $593.3
Debt
Long-Term Debt $129.6
Short-Term Debt 3.2
--------------- ------
Total $132.8 $ 86.8 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Net Debt $132.8 $ 86.8 ($44.8) ($204.2) ($388.5) ($593.3)
Common Equity $239.3 $ 327.6 $444.9 $554.5 $703.1 $870.8
</TABLE>
- 3 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE I. STANDALONE PLATE EXHIBITS
- ---------------------------------------------------------------------------------------------------------------------------
COMPANY REVISED DOWNSIDE CASE
STANDALONE INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS - $30
(Dollars in millions except per share data)
ACTUAL PROJECTED
----------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Petrochemicals EBITDA $ 21.5 $ 62.3 $239.5 $ 101.1 $ 71.2 $ 41.8 $ 79.9 $ 94.9
Pulp Chemicals EBITDA 32.7 27.1 44.7 61.8 72.0 78.4 90.0 82.5
- --------------------- ------ ------ ------ ------- ------ ------ ------ ------
Operating EBITDA 54.2 89.4 284.2 162.9 143.2 120.2 170.0 177.4
Cost Savings - - - - 30.0 30.0 30.0 30.0
Total EBITDA 54.2 89.4 284.2 162.9 173.2 150.2 200.0 207.4
Less: Depreciation (38.8) (40.9) (43.0) (39.1) (52.1) (53.4) (53.4) (53.4)
- ------------------ ------ ------ ------ ------- ------ ------ ------ ------
EBIT 15.4 48.5 241.2 123.8 121.1 96.8 146.5 153.9
SAR's & Other Income - - - (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Income (Expense) (22.4) (20.2) (14.6) (11.2) (6.0) 6.8 21.9 39.2
- ------------------------- ------ ------ ------ ------- ------ ------ ------ ------
Pretax Income (7.0) 28.3 226.6 109.9 112.6 102.4 167.3 192.0
Income Taxes 1.5 (9.3) (76.6) (38.5) (39.4) (35.8) (58.5) (67.2)
- ------------------ ------ ------ ------ ------- ------ ------ ------ ------
NET INCOME ($5.5) $ 19.1 $150.0 $ 71.4 $ 73.2 $ 66.6 $108.7 $124.8
- ---------------------------------------------------------------------------------------------------------------
E.P.S $ 2.69 $ 1.28 $ 1.31 $ 1.20 $ 1.95 $ 2.24
Shares Outstanding 55.7 55.7 55.7 55.7 55.7 55.7
- ---------------------------------------------------------------------------------------------------------------
Plus: Deferred Taxes $ 1.0 $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: Dep. & Amortization 43.0 39.1 52.1 53.4 53.4 53.4
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (3.4) 0.4
Less: Capital Expenditures (53.9) (104.2) (31.7) (25.0) (25.0) (25.0)
------ ------- ------ ------ ------ ------
Free Cash Flow $141.4 ($ 13.2) $102.7 $121.1 $141.0 $160.4
====== ======= ====== ====== ====== ======
Cash & Investments $ 0.0 $ 0.0 $ 0.0 $120.1 $261.1 $421.4
Debt
Long-Term Debt $129.6
Short-Term Debt 3.2
--------------- ------
Total $132.8 $ 103.7 $ 1.0 $ 0.0 $ 0.0 $ 0.0
Net Debt $132.8 $ 103.7 $ 1.0 ($120.1) ($261.1) ($421.4)
Common Equity $239.3 $ 310.7 $383.9 $450.5 $559.2 $684.0
</TABLE>
- 4 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE II. LBO ANALYSIS-STERLING GROUP STRUCTURE-COMPANY REVISED BASE CASE
- ----------------------------------------------------------------------------------------
SUMMARY ANALYSIS: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions)
<S> <C> <C> <C> <C>
LBO ASSUMPTIONS CAPITAL STRUCTURE
Total Shares Outstanding 55.7 Bank Debt $325.0 39.1%
Shares Repurchased 51.0 Subordinated Debt 275.0 33.1%
Shares Rolled Over 4.6 Dis. Notes (Zero) 100.0 12.0%
Purchase Price Per Share $12.00 Rollover Equity 55.7 6.7%
New Equity 75.0 9.0%
Purchase Price for Equity $612.6 ------
Rollover Equity Value 55.7 Total $830.7 100.0%
Assumed Debt 133.0 ====== ======
SAR Cost 13.8
Fees and Expenses 15.6
------ Interest Rate-Bank 8.4%
Enterprise Value $830.7 Interest Rate-Sub. 11.5%
====== Interest Rate-Dis. (Zero) 13.0%
Purchase x '95 EBITDA 2.9x Effective Tax Rate 35.0%
Exit Multiple of EBITDA 4.0x Interest Rate-Cash 4.0%
Effective Date Sep-95
DILUTION Shares Value
------ -----
Equity Warrants 10.0% Rolled Over Shares 4.641 $ 55.7
Warrant Strike Price $0.00 New Equity Shares 6.250 75.0
------ ------
Primary Shares Outstanding 10.891 130.7
Equity Warrants 1.089 13.1
------ -----
Fully Diluted Shares
Outstanding 11.980 $143.8
</TABLE>
- 5 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE II. LBO ANALYSIS - STERLING GROUP STRUCTURE - COMPANY REVISED BASE CASE
- ------------------------------------------------------------------------------------------
SUMMARY ANALYSIS: 1997 - 2000 ANNUAL COST SAVINGS - $0
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PROJECTED
------------------------------- -------------------------------------------------------
LBO ANALYSIS 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ----
Bank Debt $256.8 $186.7 $133.0 $348.5 $269.3 $168.2 $ 48.8 $ 0.0
Sub. Debt 275.0 275.0 275.0 275.0 275.0
Dis. Notes (Zero) 113.0 127.7 144.3 163.0 184.2
----------------- ------ ------ ------ ------ ------
Total Debt $736.5 $672.0 $587.5 $486.9 $459.2
Cash $ 0.0 0.0 0.0 0.0 0.0 84.0
Net Debt $133.0 $736.5 $672.0 $587.5 $486.9 $375.2
EPS (Fully Diluted) ($0.10) $ 0.34 $ 2.69 $ 4.02 $ 4.18 $ 5.42 $ 5.42 $ 6.22
At Closing
----------
Equity Value at 4x EBITDA Multiple $130.7 $ 4.3 $150.4 $130.3 $391.1 $531.3
Equity Value Per Share (Primary) $48.79
Equity Value Per Share (Fully Diluted) $44.35
LBO FIVE YEAR RATE OF RETURN TO EQUITY
Original Equity Purchase Price Per Share $10.00 $11.00 $12.00 $13.00 $14.00
Exit Multiple 4.0x 41% 36% 31% 25% 20%
of EBITDA 4.5x 46% 41% 36% 31% 26%
5.0x 50% 45% 40% 35% 31%
</TABLE>
- 6 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE II. LBO ANALYSIS - STERLING GROUP STRUCTURE - COMPANY REVISED BASE CASE
- ------------------------------------------------------------------------------------------
ASSUMED INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS - $0
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PROJECTED
------------------------------- -------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ----
Operating EBITDA $ 54.2 $ 89.4 $284.2 $185.2 $205.6 $179.5 $219.5 $226.6
Cost Savings - - - - - - - -
EBITDA 54.2 89.4 284.2 185.2 205.6 179.5 219.5 226.6
Less: Depreciation (38.8) (40.9) (43.0) (39.1) (52.8) (55.1) (55.1) (55.1)
----------------- ------ ------ ------ ------ ------ ------ ------ ------
EBIT 15.4 48.5 241.2 146.1 152.8 124.4 164.4 171.6
Interest Expense (Bank) (22.4) (20.2) (14.6) (27.4) (29.4) (22.7) (14.2) (4.1)
Interest Expense (Sub) (31.6) (31.6) (31.6) (31.6) (31.6)
Interest Expense (Dis.-Zero) (13.0) (14.7) (16.6) (18.8) (21.2)
---------------------------- ------ ------ ------ ------ ------
Total Interest Expense (72.0) (75.7) (70.9) (64.6) (56.9)
Pretax Income (7.0) 28.3 229.4 74.1 77.1 53.4 99.9 114.6
Income Taxes 1.5 (9.2) (78.1) (25.9) (27.0) (18.7) (35.0) (40.1)
------------ ------ ------ ------ ------ ------ ------ ------ ------
NET INCOME ($5.5) $19.1 $150.0 $48.1 $50.1 $34.7 $64.9 $74.5
Plus: Deferred Taxes $1.0 $10.2 $12.3 $8.1 $7.2 $6.7
Plus: Dep. & Amortization 43.0 39.1 52.8 55.1 55.1 55.1
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (1.5) 0.4
Less: Capital Expenditures (53.9) (104.2) (47.5) (31.5) (25.0) (25.0)
Plus: Non-Cash Interest 0.0 13.0 14.7 16.6 18.8 21.2
------ ------ ------ ------ ------ ------
Free Cash Flow $141.4 ($23.5) $79.2 $101.0 $119.4 $132.8
-------------- ====== ====== ====== ====== ====== ======
Cash Balances
Cash & Investments beginning $0.0 $0.0 $0.0 $0.0 $0.0
Free Cash Flow (23.5) 79.2 101.0 119.4 132.8
------ ------ ------ ------ ------
Cash Available to Pay Debt (23.5) 79.2 101.0 119.4 132.8
Cash Repayment Balances
Senior Debt 23.5 (79.2) (101.0) (119.4) (48.8)
Cash Balance 0.0 0.0 0.0 0.0 84.0
Cash Interest Income 0.0 0.0 0.0 0.0 0.0
</TABLE>
- 7 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE II. LBO ANALYSIS - STERLING GROUP STRUCTURE - COMPANY REVISED BASE CASE
- ------------------------------------------------------------------------------------------
CREDIT STATISTICS: 1997-2000 ANNUAL COST SAVINGS - $0
<S> <C> <C> <C> <C> <C> <C>
ACTUAL PROJECTED PRO FORMA
-----------------------------------------------------
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
Coverage Ratios
Total Net Debt/EBITDA 0.5x 4.0x 3.3x 3.3x 2.2x 1.7x
EBITDA/Net Interest 19.5x 2.6x 2.7x 2.5x 3.4x 4.0x
EBITDA/Cash Net Interest 19.5x 3.1x 3.4x 3.3x 4.8x 6.3x
(EBITDA-CapEx)/Net Interest 15.8x 1.1x 2.1x 2.1x 3.0x 3.5x
(EBITDA-CapEx)/Cash Net Interest 15.8x 1.4x 2.6x 2.7x 4.2x 5.6x
EBIT/Net Interest 16.5x 2.0x 2.0x 1.8x 2.5x 3.0x
EBIT/Cash Net Interest 16.5x 2.5x 2.5x 2.3x 3.6x 4.8x
</TABLE>
- 8 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE II. LBO ANALYSIS - STERLING GROUP STRUCTURE - COMPANY REVISED BASE CASE
- ------------------------------------------------------------------------------------------
SUMMARY ANALYSIS: 1997 - 2000 ANNUAL COST SAVINGS - $0
(Dollars in millions)
<S> <C> <C> <C> <C>
LBO ASSUMPTIONS CAPITAL STRUCTURE
Total Shares Outstanding 55.7 Bank Debt $325.0 39.1%
Shares Repurchased 51.0 Subordinated Debt 275.0 33.1%
Shares Rolled Over 4.6 Dis. Notes (Zero) 100.0 12.0%
Purchase Price Per Share $12.00 Rollover Equity 55.7 6.7%
New Equity 75.0 9.0%
-----
Purchase Price for Equity $612.6 Total $830.7 100.0%
Rollover Equity Value 55.7 ====== ======
Assumed Debt 133.0
SAR Cost 13.8 Interest Rate - Bank 8.4%
Fees and Expenes 15.6 Interest Rate - Sub. 11.5%
---------------- ------ Interest Rate - Dis. (Zero) 13.0%
Enterprise Value $830.7 Effective Tax Rate 35.0%
====== Interest Rate - Cash 4.0%
Purchase x '95 EBITDA 2.9x
Exit Multiple of EBITDA 4.0x Shares Value
Effective Date Sep-95 ------ -----
Rolled Over Shares 4.641 $55.7
DILUTION New Equity Shares 6.250 75.0
----- -----
Equity Warrants 10.0% Primary Shares Outstanding 10.891 130.7
Warrant Strike Price $0.00 Equity Warrants 1.089 13.1
------ -----
Fully Diluted Shares Outstanding 11.980 $143.8
</TABLE>
- 9 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE II. LBO ANALYSIS - STERLING GROUP STRUCTURE - COMPANY REVISED DOWNSIDE CASE
- ---------------------------------------------------------------------------------------------
SUMMARY ANALYSIS: 1997 - 2000 ANNUAL COST SAVINGS - $0
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PROJECTED
------------------------------- -------------------------------------------------------
LBO ANALYSIS 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ----
Bank Debt $256.8 $186.7 $133.0 $364.7 $313.1 $247.8 $168.2 $ 75.1
Sub. Debt 275.0 275.0 275.0 275.0 275.0
Dis. Notes (Zero) 113.0 127.7 144.3 163.0 184.2
----------------- ------ ------ ------ ------ ------
Total Debt $752.7 $715.7 $667.1 $606.2 $534.4
Cash $ 0.0 0.0 0.0 0.0 0.0 0.0
Net Debt $133.0 $752.7 $715.7 $667.1 $606.2 $534.4
EPS (Fully Diluted) ($0.10) $ 0.34 $ 2.69 $ 2.66 $ 0.62 $(0.49) $ 2.39 $ 3.02
At Closing
----------
Equity Value at 4x EBITDA Multiple $130.7 ($112.0) ($153.1) ($191.0) $ 69.0 $170.4
Equity Value Per Share (Primary) $15.65
Equity Value Per Share (Fully Diluted) $14.22
LBO FIVE YEAR RATE OF RETURN TO EQUITY
Original Equity Purchase Price Per Share $10.00 $11.00 $12.00 $13.00 $14.00
Exit Multiple 4.0x 21% 14% 5% -5% -21%
of EBITDA 4.5x 27% 21% 14% 6% -4%
5.0x 33% 26% 20% 14% 6%
</TABLE>
- 10 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE II.LBO ANALYSIS-STERLING GROUP STRUCTURE-COMPANY REVISED DOWNSIDE CASE
- ----------------------------------------------------------------------------------------
ASSUMED INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions)
ACTUAL PROJECTED
-------------------------- -------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating EBITDA $54.2 $89.4 $284.2 $160.2 $140.7 $119.0 $168.8 $176.2
Cost Savings - - - - - - - -
EBITDA 54.2 89.4 284.2 160.2 140.7 119.0 168.8 176.2
Less: Depreciation (38.8) (40.9) (43.0) (39.1) (52.1) (53.4) (53.4) (53.4)
----- ----- ----- ----- ----- ------ ------ ------
EBIT 15.4 48.5 241.2 121.1 88.6 65.6 115.3 122.8
Interest Expense (Bank) (22.4) (20.2) (14.6) (27.4) (30.8) (26.4) (20.9) (14.2)
Interest Expense (Sub) (31.6) (31.6) (31.6) (31.6) (31.6)
Interest Expense (Dis.-Zero) (13.0) (14.7) (16.6) (18.8) (21.2)
----- ----- ----- ----- -----
Total Interest Expense (72.0) (77.1) (74.6) (71.3) (67.0)
Pretax Income (7.0) 28.3 229.4 49.0 11.5 (9.1) 44.1 55.7
Income Taxes 1.5 (9.2) (78.1) (17.2) (4.0) 3.2 (15.4) (19.5)
----- ----- ----- ----- ----- ------ ------ ------
NET INCOME ($5.5) $19.1 $150.0 $31.9 $7.5 ($5.9) $28.6 $36.2
Plus: Deferred Taxes $1.0 $10.2 $12.3 $8.1 $7.2 $6.7
Plus: Dep. & Amortization 43.0 39.1 52.1 53.4 53.4 53.4
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (3.4) 0.4
Less: Capital Expenditures (53.9) (104.2) (31.7) (25.0) (25.0) (25.0)
Plus: Non-Cash Interest 0.0 13.0 14.7 16.6 18.8 21.2
----- ----- ----- ------ ------ ------
Free Cash Flow $141.4 ($39.7) $51.7 $65.3 $79.6 $93.0
===== ===== ===== ====== ====== ======
Cash Balances
Cash & Investments beginning $0.0 $0.0 $0.0 $0.0 $0.0
Free Cash Flow (39.7) 51.7 65.3 79.6 93.0
----- ----- ------ ------ ------
Cash Available to Pay Debt (39.7) 51.7 65.3 79.6 93.0
Cash Repayment Balances
Senior Debt 39.7 (51.7) (65.3) (79.6) (93.0)
Cash Balance 0.0 0.0 0.0 0.0 0.0
Cash Interest Income 0.0 0.0 0.0 0.0 0.0
</TABLE>
- 11 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE II. LBO ANALYSIS-STERLING GROUP STRUCTURE-COMPANY REVISED DOWNSIDE CASE
- -----------------------------------------------------------------------------------------
SUMMARY ANALYSIS: 1997-2000 ANNUAL COST SAVINGS-$0
PROJECTED PRO FORMA
ACTUAL -------------------------------------------------
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Coverage Ratios
Total Net Debt/EBITDA 0.5x 4.7x 5.1x 5.6x 3.6x 3.0x
EBITDA/Net Interest 19.5x 2.2x 1.8x 1.6x 2.4x 2.6x
EBITDA/Cash Net Interest 19.5x 2.7x 2.3x 2.1x 3.2x 3.8x
(EBITDA-CapEx)/Net Interest 15.8x 0.8x 1.4x 1.3x 2.0x 2.3x
(EBITDA-CapEx)/Cash Net Interest 15.8x 0.9x 1.7x 1.6x 2.7x 3.3x
EBIT/Net Interest 16.5x 1.7x 1.1x 0.9x 1.6x 1.8x
EBIT/Cash Net Interest 16.5x 2.1x 1.4x 1.1x 2.2x 2.7x
</TABLE>
- 12 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE II. LBO ANALYSIS-STERLING GROUP STRUCTURE-COMPANY REVISED DOWNSIDE CASE
- -----------------------------------------------------------------------------------------
SUMMARY ANALYSIS: 1997-2000 ANNUAL COST SAVINGS-$30
(Dollars in millions)
<S> <C> <C> <C> <C>
LBO ASSUMPTIONS CAPITAL STRUCTURE
Total Shares Outstanding 55.7 Bank Debt $325.0 39.1%
Shares Repurchased 51.0 Subordinated Debt 275.0 33.1%
Shares Rolled Over 4.6 Dis. Notes (Zero) 100.0 12.0%
Purchase Price Per Share $12.00 Rollover Equity 55.7 6.7%
New Equity 75.0 9.0%
------
Purchase Price for Equity $612.6 Total $830.7 100.0%
Rollover Equity Value 55.7 ====== =====
Assumed Debt 133.0
SAR Cost 13.8
Fees and Expenses 15.6 Interest Rate-Bank 8.4%
------ Interest Rate-Sub. 11.5%
Enterprise Value $830.7 Interest Rate-Dis. (Zero) 13.0%
====== Effective Tax Rate 35.0%
Purchase x '95 EBITDA 2.9x Interest Rate-Cash 4.0%
Exit Multiple of EBITDA 4.0x
Effective Date Sep-95
DILUTION Shares Value
------ -----
Equity Warrants 10.0% Rolled Over Shares 4.641 $55.7
Warrant Strike Price $0.00 New Equity Shares 6.250 75.0
------ -----
Primary Shares Outstanding 10.891 130.7
Equity Warrants 1.089 13.1
------ -----
Fully Diluted Shares
Outstanding 11.980 $143.8
</TABLE>
- 13 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE II. LBO ANALYSIS - STERLING GROUP STRUCTURE - COMPANY REVISED BASE CASE
- ------------------------------------------------------------------------------------------
SUMMARY ANALYSIS: 1997 - 2000 ANNUAL COST SAVINGS - $30
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PROJECTED
------------------------------- -------------------------------------------------------
LBO ANALYSIS 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ----
Bank Debt $256.8 $186.7 $133.0 $348.5 $249.8 $128.2 $ 0.0 $ 0.0
Sub. Debt 275.0 275.0 275.0 275.0 275.0
Dis. Notes (Zero) 113.0 127.7 144.3 163.0 184.2
----------------- ------ ------ ------ ------ ------
Total Debt $736.5 $652.5 $547.5 $438.0 $459.2
Cash $ 0.0 0.0 0.0 0.0 13.0 168.5
Net Debt $133.0 $736.5 $652.5 $547.5 $425.1 $290.7
EPS (Fully Diluted) ($0.10) $ 0.34 $ 2.69 $ 4.02 $ 5.81 $ 4.62 $ 7.23 $ 8.07
At Closing
----------
Equity Value at 4x EBITDA Multiple $130.7 $ 4.3 $289.9 $290.4 $572.9 $735.8
Equity Value Per Share (Primary) $67.56
Equity Value Per Share (Fully Diluted) $61.42
LBO FIVE YEAR RATE OF RETURN TO EQUITY
Original Equity Purchase Price Per Share $10.00 $11.00 $12.00 $13.00 $14.00
Exit Multiple 4.0x 49% 44% 39% 34% 30%
of EBITDA 4.5x 53% 48% 44% 39% 35%
5.0x 57% 52% 48% 43% 39%
</TABLE>
- 14 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE II. LBO ANALYSIS - STERLING GROUP STRUCTURE - COMPANY REVISED BASE CASE
- ------------------------------------------------------------------------------------------
ASSUMED INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS - $30
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PROJECTED
------------------------------- -------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ----
Operating EBITDA $ 54.2 $ 89.4 $284.2 $185.2 $205.6 $179.5 $219.5 $226.6
Cost Savings - - - - 30.0 30.0 30.0 30.0
EBITDA 54.2 89.4 284.2 185.2 235.6 209.5 249.5 256.6
Less: Depreciation (38.8) (40.9) (43.0) (39.1) (52.8) (55.1) (55.1) (55.1)
----------------- ------ ------ ------ ------ ------ ------ ------ ------
EBIT 15.4 48.5 241.2 146.1 182.8 154.4 194.4 201.6
Interest Expense (Bank) (22.4) (20.2) (14.6) (27.4) (29.4) (21.1) (10.8) 0.0
Interest Expense (Sub) (31.6) (31.6) (31.6) (31.6) (31.6)
Interest Expense (Dis.-Zero) (13.0) (14.7) (16.6) (18.8) (21.2)
---------------------------- ------ ------ ------ ------ ------
Total Interest Expense (72.0) (75.7) (69.3) (61.2) (52.8)
Pretax Income (7.0) 28.3 229.4 74.1 107.1 85.1 133.2 148.7
Income Taxes 1.5 (9.2) (78.1) (25.9) (37.5) (29.8) (46.6) (52.1)
------------ ------ ------ ------ ------ ------ ------ ------ ------
NET INCOME ($5.5) $19.1 $150.0 $48.1 $69.6 $55.3 $86.6 $96.7
Plus: Deferred Taxes $1.0 $10.2 $12.3 $8.1 $7.2 $6.7
Plus: Dep. & Amortization 43.0 39.1 52.8 55.1 55.1 55.1
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (1.5) 0.4
Less: Capital Expenditures (53.9) (104.2) (47.5) (31.5) (25.0) (25.0)
Plus: Non-Cash Interest 0.0 13.0 14.7 16.6 18.8 21.2
------ ------ ------ ------ ------ ------
Free Cash Flow $141.4 ($23.5) $98.7 $121.6 $141.1 $155.0
====== ====== ====== ====== ====== ======
Cash Balances
Cash & Investments beginning $0.0 $0.0 $0.0 $0.0 $13.0
Free Cash Flow (23.5) 98.7 121.6 141.1 155.0
-------------- ------ ------ ------ ------ ------
Cash Available to Pay Debt (23.5) 98.7 121.6 141.1 168.0
Cash Repayment Balances
Senior Debt 23.5 (98.7) (121.6) (128.2) 0.0
Cash Balance 0.0 0.0 0.0 13.0 168.5
Cash Interest Income 0.0 0.0 0.0 0.0 0.5
</TABLE>
- 15 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE II. LBO ANALYSIS-STERLING GROUP STRUCTURE-COMPANY REVISED BASE CASE
- -------------------------------------------------------------------------------------
SUMMARY ANALYSIS: 1997-2000 ANNUAL COST SAVINGS-$30
PROJECTED
ACTUAL -------------------------------------------------
LBO ANALYSIS 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Coverage Ratios
Total Net Debt/EBITDA 0.5x 4.0x 2.8x 2.6x 1.7x 1.1x
EBITDA/Net Interest 19.5x 2.6x 3.1x 3.0x 4.1x 4.9x
EBITDA/Cash Net Interest 19.5x 3.1x 3.9x 4.0x 5.9x 8.3x
(EBITDA-CapEx)/Net Interest 15.8x 1.1x 2.5x 2.6x 3.7x 4.4x
(EBITDA-CapEx)/Cash Net Interest 15.8x 1.4x 3.1x 3.4x 5.3x 7.4x
EBIT/Net Interest 16.5x 2.0x 2.4x 2.2x 3.2x 3.9x
EBIT/Cash Net Interest 16.5x 2.5x 3.0x 2.9x 4.6x 6.5x
</TABLE>
- 16 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE II. LBO ANALYSIS-STERLING GROUP STRUCTURE-COMPANY REVISED DOWNSIDE CASE
- ----------------------------------------------------------------------------------------
SUMMARY ANALYSIS: 1997-2000 ANNUAL COST SAVINGS-$30
(Dollars in millions)
<S> <C> <C> <C> <C>
LBO ASSUMPTIONS CAPITAL STRUCTURE
Total Shares Outstanding 55.7 Bank Debt $325.0 39.1%
Shares Repurchased 51.0 Subordinated Debt 275.0 33.1%
Shares Rolled Over 4.6 Dis. Notes (Zero) 100.0 12.0%
Purchase Price Per Share $12.00 Rollover Equity 55.7 6.7%
New Equity 75.0 9.0%
------
Purchase Price for Equity $612.6 Total $830.7 100.0%
Rollover Equity Value 55.7 ====== =====
Assumed Debt 133.0
SAR Cost 13.8
Fees and Expenses 15.6 Interest Rate-Bank 8.4%
------ Interest Rate-Sub. 11.5%
Enterprise Value $830.7 Interest Rate-Dis. (Zero) 13.0%
====== Effective Tax Rate 35.0%
Purchase x '95 EBITDA 2.9x Interest Rate-Cash 4.0%
Exit Multiple of EBITDA 4.0x
Effective Date Sep-95
DILUTION Shares Value
------ -----
Equity Warrants 10.0% Rolled Over Shares 4.641 $55.7
Warrant Strike Price $0.00 New Equity Shares 6.250 75.0
------ -----
Primary Shares Outstanding 10.891 130.7
Equity Warrants 1.089 13.1
------ -----
Fully Diluted Shares
Outstanding 11.980 $143.8
</TABLE>
- 17 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE II.LBO ANALYSIS-STERLING GROUP STRUCTURE-COMPANY REVISED DOWNSIDE CASE
- ----------------------------------------------------------------------------------------
SUMMARY ANALYSIS: 1997-2000 ANNUAL COST SAVINGS-$30
(Dollars in millions)
ACTUAL PROJECTED
-------------------------- -------------------------------------------------
LBO ANALYSIS 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bank Debt $256.8 $186.7 $133.0 $364.7 $293.6 $207.7 $106.4 $0.0
Sub. Debt 275.0 275.0 275.0 275.0 275.0
Dis. Notes (Zero) 113.0 127.7 144.3 163.0 184.2
----------------- ------ ------ ------ ------ ------
Total Debt $752.7 $696.2 $627.0 $544.4 $459.2
Cash $0.0 0.0 0.0 0.0 0.0 9.5
Net Debt $133.0 $752.7 $696.2 $627.0 $544.4 $449.7
EPS (Fully Diluted) ($0.10) $0.34 $2.69 $2.66 $2.25 $1.23 $4.20 $4.94
At Closing
----------
Equity Value at 4x EBITDA Multiple $130.7 ($112.0) ($13.6) ($30.9) $250.7 $375.1
Equity Value Per Share (Primary) $34.44
Equity Value Per Share (Fully Diluted) $31.31
LBO FIVE YEAR RATE OF RETURN TO EQUITY
Original Equity Purchase Price Per Share $10.00 $11.00 $12.00 $13.00 $14.00
Exit Multiple 4.0x 34% 28% 22% 16% 9%
of EBITDA 4.5x 39% 33% 28% 22% 16%
5.0x 43% 38% 33% 28% 23%
</TABLE>
- 18 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE II.LBO ANALYSIS-STERLING GROUP STRUCTURE-COMPANY REVISED DOWNSIDE CASE
- ----------------------------------------------------------------------------------------
ASSUMED INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS-$30
(Dollars in millions)
ACTUAL PROJECTED
-------------------------- -------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating EBITDA $54.2 $89.4 $284.2 $160.2 $140.7 $119.0 $168.8 $176.2
Cost Savings - - - - 30.0 30.0 30.0 30.0
EBITDA 54.2 89.4 284.2 160.2 170.7 149.0 198.8 206.2
Less: Depreciation (38.8) (40.9) (43.0) (39.1) (52.1) (53.4) (53.4) (53.4)
----- ----- ----- ----- ----- ------ ------ ------
EBIT 15.4 48.5 241.2 121.1 118.6 95.6 145.3 152.8
Interest Expense (Bank) (22.4) (20.2) (14.6) (27.4) (30.8) (24.8) (17.5) (9.0)
Interest Expense (Sub) (31.6) (31.6) (31.6) (31.6) (31.6)
Interest Expense (Dis.-Zero) (13.0) (14.7) (16.6) (18.8) (21.2)
----- ----- ----- ----- -----
Total Interest Expense (72.0) (77.1) (73.0) (67.9) (61.8)
Pretax Income (7.0) 28.3 229.4 49.0 41.5 22.6 77.4 91.0
Income Taxes 1.5 (9.2) (78.1) (17.2) (14.5) (7.9) (27.1) (31.8)
----- ----- ----- ----- ----- ------ ------ ------
NET INCOME ($5.5) $19.1 $150.0 $31.9 $27.0 $14.7 $50.3 $59.1
Plus: Deferred Taxes $1.0 $10.2 $12.3 $8.1 $7.2 $6.7
Plus: Dep. & Amortization 43.0 39.1 52.1 53.4 53.4 53.4
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (3.4) 0.4
Less: Capital Expenditures (53.9) (104.2) (31.7) (25.0) (25.0) (25.0)
Plus: Non-Cash Interest 0.0 13.0 14.7 16.6 18.8 21.2
----- ----- ----- ------ ------ ------
Free Cash Flow $141.4 ($39.7) $71.2 $85.8 $101.3 $115.9
===== ===== ===== ====== ====== ======
Cash Balances
Cash & Investments beginning $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Free Cash Flow (39.7) 71.2 85.8 101.3 115.9
----- ----- ------ ------ ------
Cash Available to Pay Debt (39.7) 71.2 85.8 101.3 115.9
Cash Repayment Balances
Senior Debt 39.7 (71.2) (85.8) (101.3) (106.4)
Cash Balance 0.0 0.0 0.0 0.0 9.5
Cash Interest Income 0.0 0.0 0.0 0.0 0.0
</TABLE>
- 19 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE II. LBO ANALYSIS-STERLING GROUP STRUCTURE-COMPANY REVISED DOWNSIDE CASE
- -----------------------------------------------------------------------------------------
SUMMARY ANALYSIS: 1997-2000 ANNUAL COST SAVINGS-$30
PROJECTED
ACTUAL -------------------------------------------------
LBO ANALYSIS 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Coverage Ratios
Total Net Debt/EBITDA 0.5x 4.7x 4.1x 4.2x 2.7x 2.2x
EBITDA/Net Interest 19.5x 2.2x 2.2x 2.0x 2.9x 3.3x
EBITDA/Cash Net Interest 19.5x 2.7x 2.7x 2.6x 4.0x 5.1x
(EBITDA-CapEx)/Net Interest 15.8x 0.8x 1.8x 1.7x 2.6x 2.9x
(EBITDA-CapEx)/Cash Net Interest 15.8x 0.9x 2.2x 2.2x 3.5x 4.5x
EBIT/Net Interest 16.5x 1.7x 1.5x 1.3x 2.1x 2.5x
EBIT/Cash Net Interest 16.5x 2.1x 1.9x 1.7x 3.0x 3.8x
</TABLE>
- 20 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE I. STANDALONE PLATE EXHIBITS
- ---------------------------------------------------------------------------------------------------------------------------
SCENARIO: SHARE REPURCHASE-$400m-COMPANY REVISED BASE CASE
ASSUMPTIONS
- ----------------------------------------------------------------------------------------------------------------------------
Current Share Price (3/29/95) $12.63 Senior Bank Debt @ 8.4% $273.4 Current Shares Outstanding 55.7
Offer Price $12.00 Senior Bank Debt @ 11.0% 273.4 # of Shares Repurchased 33.3
------------------------ ------ ----
Equity Repurchased $400.0 Total Debt $546.8 # of Pro Forma Shares 22.4
Transaction Expenses $14.0 Assumed Debt $132.8
- ----------------------------------------------------------------------------------------------------------------------------
PRO FORMA INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS - $0
(Dollars in millions except per share data)
PROJECTED
ACTUAL -------------------------------------------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Petrochemicals EBITDA $239.5 $ 126.1 $122.3 $ 76.3 $117.7 $133.1
Pulp Chemicals EBITDA 44.7 61.8 85.8 104.4 102.9 94.7
- --------------------- ------ ------- ------ ------ ------ ------
Operating EBITDA 284.2 187.9 208.1 180.6 220.7 227.8
Cost Savings - - - - - -
Total EBITDA 284.2 187.9 208.1 180.6 220.7 227.8
Less: Depreciation (43.0) (39.1) (52.8) (55.1) (55.1) (55.1)
- ------------------ ------ ------- ------ ------ ------ ------
EBIT 241.2 148.8 155.3 125.6 165.6 172.7
SAR's & Other Income - (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Expense
Company Debt (14.6) 0.0 0.0 0.0 0.0 0.0
Senior Bank Debt @ 8.4% 0.0 (23.1) (25.1) (18.5) (10.2) (0.4)
Senior Sub. Debt @ 11.0% 0.0 (30.1) (30.1) (30.1) (30.1) (30.1)
------------------------ ------ ------- ------ ------ ------ ------
Total Interest Expense (14.6) (53.1) (55.2) (48.6) (40.3) (30.4)
Pretax Income 212.0 93.0 97.7 75.8 124.2 141.1
Income Taxes (62.0) (32.5) (34.2) (26.5) (43.5) (49.4)
- ------------------ ------ ------- ------ ------ ------ ------
NET INCOME $150.0 $ 60.4 $ 63.5 $ 49.3 $ 80.7 $ 91.7
- ------------------------------ --------------------------------------------------------------
E.P.S $ 2.69 $ 2.70 $ 2.84 $ 2.20 $ 3.61 $ 4.10
Shares Outstanding 55.7 22.4 22.4 22.4 22.4 22.4
- ------------------------------ --------------------------------------------------------------
Plus: Deferred Taxes $ 1.0 $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: Dep. & Amortization 43.0 39.1 52.8 55.1 55.1 55.1
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (1.5) 0.4
Less: Capital Expenditures (53.9) (104.2) (47.5) (31.5) (25.0) (25.0)
------ ------- ------ ------ ------ ------
Free Cash Flow $141.4 ($24.2) $ 77.9 $ 99.0 $116.5 $128.9
====== ======= ====== ====== ====== ======
</TABLE>
- 21 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
SCENARIO: DISTRIBUTION-$400 MILLION-COMPANY REVISED BASE CASE
DEBT CALCULATIONS: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions except per share data)
PROJECTED
--------------------------------------------------
1996 1997 1998 1999 2000
------- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Cash & Investments $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Debt
Long-Term Debt $ 129.6
Short-Term Debt 3.2
--------------- --------
Total Company Debt $ 132.8 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Senior Bank Debt $ 273.4 $297.6 $219.7 $120.8 $ 4.3 $ 0.0
Senior Sub. Deb. 273.4 273.4 273.4 273.4 273.4 148.8
---------------- -------- ------- ------- ------ ------ ------
Incremental Debt 546.8 571.0 493.1 394.1 277.7 148.8
---------------- -------- ------- ------- ------ ------ ------
Total Debt $ 546.8 $571.0 $493.1 $394.1 $277.7 $148.8
Common Equity $ 239.3
Incremental Effect (400.0)
------------------ --------
Total ($ 160.7) ($100.3) ($ 36.8) $ 12.4 $ 93.1 $184.9
Net Income $ 150.0 $ 60.4 $ 63.5 $ 49.3 $ 80.7 $ 91.7
Cash Balances
Cash & Investments beginning $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Free Cash Flow (24.2) 77.9 99.0 116.5 128.9
-------------- ------- ------- ------ ------ ------
Cash Available to Pay Debt (24.2) 77.9 99.0 116.5 128.9
Cash Repayment Balances
Senior Debt 24.2 (77.9) (99.0) (116.5) (4.3)
Cash Balance 0.0 0.0 0.0 0.0 124.6
Senior Sub. Debt 0.0 0.0 0.0 0.0 (124.6)
Cash Balance 0.0 0.0 0.0 0.0 0.0
Interest Income 0.0 0.0 0.0 0.0 0.0
</TABLE>
- 22 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE II. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
SCENARIO: DISTRIBUTION-$400 MILLION-COMPANY REVISED BASE CASE
CREDIT STATISTICS: 1997-2000 ANNUAL COST SAVINGS-$0
PROJECTED PRO FORMA
ACTUAL PRO FORMA -------------------------------------------------
1995 1995 1996 1997 1998 1999 2000
---- --------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Leverage Ratios
Net Debt/Book Capitalization 36% 216% 121% 108% 97% 75% 45%
Coverage Ratios
Total Debt/EBITDA 0.5x 1.9x 3.0x 2.4x 2.2x 1.3x 0.7x
EBITDA/Interest 19.5x 5.3x 3.5x 3.8x 3.7x 5.5x 7.5x
(EBITDA-CapEx)/Interest 15.8x 4.3x 1.6x 2.9x 3.1x 4.9x 6.7x
EBIT/Interest 16.5x 4.5x 2.8x 2.8x 2.6x 4.1x 5.7x
</TABLE>
- 23 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- ---------------------------------------------------------------------------------------------------------------------------
SCENARIO: SPECIAL DIVIDEND-$400 MILLION-COMPANY REVISED BASE CASE
- ---------------------------------------------------------------------------------------------------------------------------
ASSUMPTIONS
Current Shares Outstanding 55.7 Senior Bank Debt @ 8.4% $273.4 Cash Dividend $400.0
Senior Bank Debt @ 11.0% 273.4 Trans. Expenses 14.0
------------------------ ------ Assumed Debt 132.8
Total Debt $546.8 ------
Total Uses $546.8
- ----------------------------------------------------------------------------------------------------------------------------
PRO FORMA INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS - $0
(Dollars in millions except per share data)
PROJECTED
ACTUAL -------------------------------------------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Petrochemicals EBITDA $239.5 $ 126.1 $122.3 $ 76.3 $117.7 $133.1
Pulp Chemicals EBITDA 44.7 61.8 85.8 104.4 102.9 94.7
- --------------------- ------ ------- ------ ------ ------ ------
Operating EBITDA 284.2 187.9 208.1 180.6 220.7 227.8
Cost Savings - - - - - -
Total EBITDA 284.2 187.9 208.1 180.6 220.7 227.8
Less: Depreciation (43.0) (39.1) (52.8) (55.1) (55.1) (55.1)
- ------------------ ------ ------- ------ ------ ------ ------
EBIT 241.2 148.8 155.3 125.6 165.6 172.7
SAR's & Other Income - (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Expense
Company Debt (14.6) 0.0 0.0 0.0 0.0 0.0
Senior Bank Debt @ 8.4% 0.0 (23.1) (25.1) (18.5) (10.2) (0.4)
Senior Sub. Debt @ 11.0% 0.0 (30.1) (30.1) (30.1) (30.1) (30.1)
------------------------ ------ ------- ------ ------ ------ ------
Total Interest Expense (14.6) (53.1) (55.2) (48.6) (40.3) (30.4)
Pretax Income 226.6 93.0 97.7 75.8 124.2 141.1
Income Taxes (76.6) (32.5) (34.2) (26.5) (43.5) (49.4)
- ------------------ ------ ------- ------ ------ ------ ------
NET INCOME $150.0 $ 60.4 $ 63.5 $ 49.3 $ 80.7 $ 91.7
- ------------------------------ --------------------------------------------------------------
E.P.S $ 2.69 $ 1.08 $ 1.14 $ 0.88 $ 1.45 $ 1.65
Shares Outstanding 55.7 55.7 55.7 55.7 55.7 55.7
- ------------------------------ --------------------------------------------------------------
Plus: Deferred Taxes $ 1.0 $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: Dep. & Amortization 43.0 39.1 52.8 55.1 55.1 55.1
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (1.5) 0.4
Less: Capital Expenditures (53.9) (104.2) (47.5) (31.5) (25.0) (25.0)
- -------------------------- ------ ------- ------ ------ ------ ------
Free Cash Flow $141.4 ($24.2) $ 77.9 $ 99.0 $116.5 $128.9
====== ======= ====== ====== ====== ======
</TABLE>
- 24 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- ---------------------------------------------------------------------------------------------------------------------------
SCENARIO: SHARE REPURCHASE-$500m-COMPANY REVISED BASE CASE
ASSUMPTIONS
- ----------------------------------------------------------------------------------------------------------------------------
Current Share Price (3/29/95) $12.63 Senior Bank Debt @ 8.4% $324.9 Current Shares Outstanding 55.7
Offer Price $12.00 Senior Sub. Debt @ 11.5% 324.9 # of Shares Repurchased 41.7
------------------------ ------ ----
Equity Repurchased $500.0 Total Debt $649.8 # of Pro Forma Shares 14.0
Transaction Expenses $17.0 Assumed Debt $132.8
- ----------------------------------------------------------------------------------------------------------------------------
PRO FORMA INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS - $0
(Dollars in millions except per share data)
PROJECTED
ACTUAL -------------------------------------------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Petrochemicals EBITDA $239.5 $ 126.1 $122.3 $ 76.3 $117.7 $133.1
Pulp Chemicals EBITDA 44.7 61.8 85.8 104.4 102.9 94.7
- --------------------- ------ ------- ------ ------ ------ ------
Operating EBITDA 284.2 187.9 208.1 180.6 220.7 227.8
Cost Savings - - - - - -
Total EBITDA 284.2 187.9 208.1 180.6 220.7 227.8
Less: Depreciation (43.0) (39.1) (52.8) (55.1) (55.1) (55.1)
- ------------------ ------ ------- ------ ------ ------ ------
EBIT 241.2 148.8 155.3 125.6 165.6 172.7
SAR's & Other Income - (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Expense
Company Debt (14.6) 0.0 0.0 0.0 0.0 0.0
Senior Bank Debt @ 8.4% 0.0 (27.4) (30.1) (24.2) (16.6) (7.5)
Senior Sub. Debt @ 11.0% 0.0 (37.4) (37.4) (37.4) (37.4) (37.4)
------------------------ ------ ------- ------ ------ ------ ------
Total Interest Expense (14.6) (64.8) (67.5) (61.6) (53.9) (44.8)
Pretax Income 212.0 81.3 85.4 62.8 110.5 126.7
Income Taxes (62.0) (28.5) (29.9) (22.0) (38.7) (44.4)
- ------------------ ------ ------- ------ ------ ------ ------
NET INCOME $150.0 $ 52.9 $ 55.5 $ 40.8 $ 71.8 $ 82.4
- ------------------------------ --------------------------------------------------------------
E.P.S $ 2.69 $ 3.77 $ 3.95 $ 2.91 $ 5.12 $ 5.87
Shares Outstanding 55.7 14.0 14.0 14.0 14.0 14.0
- ------------------------------ --------------------------------------------------------------
Plus: Deferred Taxes $ 1.0 $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: Dep. & Amortization 43.0 39.1 52.8 55.1 55.1 55.1
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (1.5) 0.4
Less: Capital Expenditures (53.9) (104.2) (47.5) (31.5) (25.0) (25.0)
- -------------------------- ------ ------- ------ ------ ------ ------
Free Cash Flow $141.4 ($31.8) $ 69.9 $ 90.5 $107.6 $119.5
====== ======= ====== ====== ====== ======
</TABLE>
- 25 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
SCENARIO: DISTRIBUTION-$500 MILLION-COMPANY REVISED BASE CASE
DEBT CALCULATIONS: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions except per share data)
PROJECTED
--------------------------------------------------
1996 1997 1998 1999 2000
------- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Cash & Investments $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Debt
Long-Term Debt $ 129.6
Short-Term Debt 3.2
--------------- --------
Total Company Debt $ 132.8 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Senior Bank Debt $ 324.9 $356.6 $286.8 $196.2 $ 88.6 $ 0.0
Senior Sub. Deb. 324.9 324.9 324.9 324.9 324.9 294.0
---------------- -------- ------- ------- ------- ------- ------
Incremental Debt 649.8 681.5 611.7 521.1 413.5 294.0
---------------- -------- ------- ------- ------- ------- ------
Total Debt $ 649.8 $681.5 $611.7 $521.1 $413.5 $294.0
Common Equity $ 239.3
Incremental Effect (500.0)
------------------ --------
Total ($ 260.7) ($207.9) ($152.4) ($111.5) ($ 39.7) $ 42.7
Net Income $ 150.0 $ 52.9 $ 55.5 $ 40.8 $ 71.8 $ 82.4
Cash Balances
Cash & Investments beginning $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Free Cash Flow (31.8) 69.9 90.5 107.6 119.5
-------------- ------- ------- ------- ------- ------
Cash Available to Pay Debt (31.8) 69.9 90.5 107.6 119.5
Cash Repayment Balances
Senior Debt 31.8 (69.9) (90.5) (107.6) (88.6)
Cash Balance 0.0 0.0 0.0 0.0 30.9
Senior Sub. Debt 0.0 0.0 0.0 0.0 (30.9)
Cash Balance 0.0 0.0 0.0 0.0 0.0
Interest Income 0.0 0.0 0.0 0.0 0.0
</TABLE>
- 26 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE II. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
SCENARIO: DISTRIBUTION-$500 MILLION-COMPANY REVISED BASE CASE
CREDIT STATISTICS: 1997-2000 ANNUAL COST SAVINGS-$0
PROJECTED PRO FORMA
ACTUAL PRO FORMA -------------------------------------------------
1995 1995 1996 1997 1998 1999 2000
---- --------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Leverage Ratio
Net Debt/Book Capitalization 36% 254% 144% 133% 127% 111% 87%
Coverage Ratios
Total Debt/EBITDA 0.5x 2.3x 3.6x 2.9x 2.9x 1.9x 1.3x
EBITDA/Interest 19.5x 4.4x 2.9x 3.1x 2.9x 4.1x 5.1x
(EBITDA-CapEx)/Interest 15.8x 3.6x 1.3x 2.4x 2.4x 3.6x 4.5x
EBIT/Interest 16.5x 3.7x 2.3x 2.3x 2.0x 3.1x 3.9x
</TABLE>
- 27 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- ---------------------------------------------------------------------------------------------------------------------------
SCENARIO: SHARE REPURCHASE-$500m-COMPANY REVISED BASE CASE
- ----------------------------------------------------------------------------------------------------------------------------
ASSUMPTIONS
Current Shares Outstanding 55.7 Senior Bank Debt @ 8.4% $324.9 Cash Dividend $500.0
Senior Sub. Debt @ 11.5% 324.9 Trans. Expenes 17.0
------------------------ ------ Assumed Debt 132.8
Total Debt $649.8 ------
Total Uses $649.8
- ----------------------------------------------------------------------------------------------------------------------------
PRO FORMA INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS - $0
(Dollars in millions except per share data)
PROJECTED
ACTUAL -------------------------------------------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Petrochemicals EBITDA $239.5 $ 126.1 $122.3 $ 76.3 $117.7 $133.1
Pulp Chemicals EBITDA 44.7 61.8 85.8 104.4 102.9 94.7
- --------------------- ------ ------- ------ ------ ------ ------
Operating EBITDA 284.2 187.9 208.1 180.6 220.7 227.8
Cost Savings - - - - - -
Total EBITDA 284.2 187.9 208.1 180.6 220.7 227.8
Less: Depreciation (43.0) (39.1) (52.8) (55.1) (55.1) (55.1)
- ------------------ ------ ------- ------ ------ ------ ------
EBIT 241.2 148.8 155.3 125.6 165.6 172.7
SAR's & Other Income - (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Expense
Company Debt (14.6) 0.0 0.0 0.0 0.0 0.0
Senior Bank Debt @ 8.4% 0.0 (27.4) (30.1) (24.2) (16.6) (7.5)
Senior Sub. Debt @ 11.5% 0.0 (37.4) (37.4) (37.4) (37.4) (37.4)
------------------------ ------ ------- ------ ------ ------ ------
Total Interest Expense (14.6) (64.8) (67.5) (61.6) (53.9) (44.8)
Pretax Income 226.6 81.3 85.4 62.8 110.5 126.7
Income Taxes (76.6) (28.5) (29.9) (22.0) (38.7) (44.4)
- ------------------ ------ ------- ------ ------ ------ ------
NET INCOME $150.0 $ 52.9 $ 55.5 $ 40.8 $ 71.8 $ 82.4
- ------------------------------ --------------------------------------------------------------
E.P.S $ 2.69 $ 0.95 $ 1.00 $ 0.73 $ 1.29 $ 1.48
Shares Outstanding 55.7 55.7 55.7 55.7 55.7 55.7
- ------------------------------ --------------------------------------------------------------
Plus: Deferred Taxes $ 1.0 $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: Dep. & Amortization 43.0 39.1 52.8 55.1 55.1 55.1
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (1.5) 0.4
Less: Capital Expenditures (53.9) (104.2) (47.5) (31.5) (25.0) (25.0)
- -------------------------- ------ ------- ------ ------ ------ ------
Free Cash Flow $141.4 ($31.8) $ 69.9 $ 90.5 $107.6 $119.5
====== ======= ====== ====== ====== ======
</TABLE>
- 28 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- ---------------------------------------------------------------------------------------------------------------------------
SCENARIO: SHARE REPURCHASE-$400m-COMPANY REVISED BASE CASE
ASSUMPTIONS
- ----------------------------------------------------------------------------------------------------------------------------
Current Share Price (3/29/95) $12.63 Senior Bank Debt @ 8.4% $273.4 Current Shares Outstanding 55.7
Offer Price $12.00 Senior Sub. Debt @ 11.0% 273.4 # of Shares Repurchased 33.3
------------------------ ------ ----
Equity Repurchased $400.0 Total Debt $546.8 # of Pro Forma Shares 22.4
Transaction Expenses $14.0 Assumed Debt $132.8
- ----------------------------------------------------------------------------------------------------------------------------
PRO FORMA INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS - $0
(Dollars in millions except per share data)
PROJECTED
ACTUAL -------------------------------------------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Petrochemicals EBITDA $239.5 $ 101.1 $ 71.2 $ 41.8 $ 79.9 $ 94.9
Pulp Chemicals EBITDA 44.7 61.8 72.0 78.4 90.0 82.5
- --------------------- ------ ------- ------ ------ ------ ------
Operating EBITDA 284.2 162.9 143.2 120.2 170.0 177.4
Cost Savings - - - - - -
Total EBITDA 284.2 162.9 143.2 120.2 170.0 177.4
Less: Depreciation (43.0) (39.1) (52.1) (53.4) (53.4) (53.4)
- ------------------ ------ ------- ------ ------ ------ ------
EBIT 241.2 123.8 91.1 66.8 116.5 123.9
SAR's & Other Income - (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Expense
Company Debt (14.6) 0.0 0.0 0.0 0.0 0.0
Senior Bank Debt @ 8.4% 0.0 (23.1) (26.5) (22.2) (16.9) (10.4)
Senior Sub. Debt @ 11.0% 0.0 (30.1) (30.1) (30.1) (30.1) (30.1)
------------------------ ------ ------- ------ ------ ------ ------
Total Interest Expense (14.6) (53.1) (56.6) (52.3) (47.0) (40.5)
Pretax Income 212.0 67.9 32.0 13.3 68.4 82.2
Income Taxes (62.0) (23.8) (11.2) (4.6) (23.9) (28.8)
- ------------------ ------ ------- ------ ------ ------ ------
NET INCOME $150.0 $ 44.2 $ 20.8 $ 8.6 $ 44.4 $ 53.5
- ------------------------------ --------------------------------------------------------------
E.P.S $ 2.69 $ 1.97 $ 0.93 $ 0.39 $ 1.99 $ 2.39
Shares Outstanding 55.7 22.4 22.4 22.4 22.4 22.4
- ------------------------------ --------------------------------------------------------------
Plus: Deferred Taxes $ 1.0 $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: Dep. & Amortization 43.0 39.1 52.1 53.4 53.4 53.4
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (3.4) 0.4
Less: Capital Expenditures (53.9) (104.2) (31.7) (25.0) (25.0) (25.0)
- -------------------------- ------ ------- ------ ------ ------ ------
Free Cash Flow $141.4 ($40.5) $ 50.3 $ 63.2 $ 76.7 $ 89.0
====== ======= ====== ====== ====== ======
</TABLE>
- 29 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
SCENARIO: DISTRIBUTION-$400 MILLION-COMPANY REVISED DOWNSIDE CASE
DEBT CALCULATIONS: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions except per share data)
PROJECTED
--------------------------------------------------
1996 1997 1998 1999 2000
------- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Cash & Investments $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Debt
Long-Term Debt $ 129.6
Short-Term Debt 3.2
--------------- --------
Total Company Debt $ 132.8 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Senior Bank Debt $ 273.4 $313.8 $263.5 $200.3 $123.6 $ 34.6
Senior Sub. Deb. 273.4 273.4 273.4 273.4 273.4 273.4
---------------- -------- ------- ------- ------- ------- ------
Incremental Debt 546.8 587.2 536.9 473.7 397.0 308.0
---------------- -------- ------- ------- ------- ------- ------
Total Debt $ 546.8 $587.2 $536.9 $473.7 $397.0 $308.0
Common Equity $ 239.3
Incremental Effect (400.0)
------------------ --------
Total ($ 160.7) ($116.6) ($ 95.7) ($ 87.1) ($ 42.7) $ 10.8
Net Income $ 150.0 $ 44.2 $ 20.8 $ 8.6 $ 44.4 $ 53.5
Cash Balances
Cash & Investments beginning $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Free Cash Flow (40.5) 50.3 63.2 76.7 89.0
-------------- ------- ------- ------- ------- ------
Cash Available to Pay Debt (40.5) 50.3 63.2 76.7 89.0
Cash Repayment Balances
Senior Debt 40.5 (50.3) (63.2) (76.7) (89.0)
Cash Balance 0.0 0.0 0.0 0.0 0.0
Senior Sub. Debt 0.0 0.0 0.0 0.0 0.0
Cash Balance 0.0 0.0 0.0 0.0 0.0
Interest Income 0.0 0.0 0.0 0.0 0.0
</TABLE>
- 30 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE II. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
SCENARIO: DISTRIBUTION-$400 MILLION-COMPANY REVISED DOWNSIDE CASE
CREDIT STATISTICS: 1997-2000 ANNUAL COST SAVINGS-$0
PROJECTED PRO FORMA
ACTUAL PRO FORMA -------------------------------------------------
1995 1995 1996 1997 1998 1999 2000
---- --------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Leverage Ratio
Net Debt/Book Capitalization 36% 216% 125% 122% 123% 112% 97%
Coverage Ratios
Total Debt/EBITDA 0.5x 1.9x 3.6x 3.7x 3.9x 2.3x 1.7x
EBITDA/Interest 19.5x 5.3x 3.1x 2.5x 2.3x 3.6x 4.4x
(EBITDA-CapEx)/Interest 15.8x 4.3x 1.1x 2.0x 1.8x 3.1x 3.8x
EBIT/Interest 16.5x 4.5x 2.3x 1.6x 1.3x 2.5x 3.1x
</TABLE>
- 31 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- ---------------------------------------------------------------------------------------------------------------------------
SCENARIO: SHARE REPURCHASE-$400 MILLION-COMPANY REVISED DOWNSIDE CASE
- ----------------------------------------------------------------------------------------------------------------------------
ASSUMPTIONS
Current Shares Outstanding 55.7 Senior Bank Debt @ 8.4% $273.4 Cash Dividend $400.0
Senior Sub. Debt @ 11.0% 273.4 Trans. Expenses 14.0
------------------------ ------ ----
Total Debt $546.8 Assumed Debt 132.8
Total Uses $546.8
- ----------------------------------------------------------------------------------------------------------------------------
PRO FORMA INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS - $0
(Dollars in millions except per share data)
PROJECTED
ACTUAL -------------------------------------------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Petrochemicals EBITDA $239.5 $ 101.1 $ 71.2 $ 41.8 $ 79.9 $ 94.9
Pulp Chemicals EBITDA 44.7 61.8 72.0 78.4 90.0 82.5
- --------------------- ------ ------- ------ ------ ------ ------
Operating EBITDA 284.2 162.9 143.2 120.2 170.0 177.4
Cost Savings - - - - - -
Total EBITDA 284.2 162.9 143.2 120.2 170.0 177.4
Less: Depreciation (43.0) (39.1) (52.1) (53.4) (53.4) (53.4)
- ------------------ ------ ------- ------ ------ ------ ------
EBIT 241.2 123.8 91.1 66.8 116.5 123.9
SAR's & Other Income - (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Expense
Company Debt (14.6) 0.0 0.0 0.0 0.0 0.0
Senior Bank Debt @ 8.4% 0.0 (23.1) (26.5) (22.2) (16.9) (10.4)
Senior Sub. Debt @ 11.0% 0.0 (30.1) (30.1) (30.1) (30.1) (30.1)
------------------------ ------ ------- ------ ------ ------ ------
Total Interest Expense (14.6) (53.1) (56.6) (52.3) (47.0) (40.5)
Pretax Income 226.6 67.9 32.0 13.3 68.4 82.2
Income Taxes (76.6) (23.8) (11.2) (4.6) (23.9) (28.8)
- ------------------ ------ ------- ------ ------ ------ ------
NET INCOME $150.0 $ 44.2 $ 20.8 $ 8.6 $ 44.4 $ 53.5
- ------------------------------ --------------------------------------------------------------
E.P.S $ 2.69 $ 0.79 $ 0.37 $ 0.15 $ 0.80 $ 0.96
Shares Outstanding 55.7 55.7 55.7 55.7 55.7 55.7
- ------------------------------ --------------------------------------------------------------
Plus: Deferred Taxes $ 1.0 $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: Dep. & Amortization 43.0 39.1 52.1 53.4 53.4 53.4
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (3.4) 0.4
Less: Capital Expenditures (53.9) (104.2) (31.7) (25.0) (25.0) (25.0)
- -------------------------- ------ ------- ------ ------ ------ ------
Free Cash Flow $141.4 ($40.5) $ 50.3 $ 63.2 $ 76.7 $ 89.0
====== ======= ====== ====== ====== ======
</TABLE>
- 32 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- ---------------------------------------------------------------------------------------------------------------------------
SCENARIO: SHARE REPURCHASE-$500m-COMPANY REVISED DOWNSIDE CASE
ASSUMPTIONS
- ----------------------------------------------------------------------------------------------------------------------------
Current Share Price (3/29/95) $12.63 Senior Bank Debt @ 8.4% $324.9 Current Shares Outstanding 55.7
Offer Price $12.00 Senior Sub. Debt @ 11.5% 324.9 # of Shares Repurchased 41.7
------------------------ ------ ----
Equity Repurchased $500.0 Total Debt $649.8 # of Pro Forma Shares 14.0
Transaction Expenses $17.0 Assumed Debt $132.8
- ----------------------------------------------------------------------------------------------------------------------------
PRO FORMA INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS - $0
(Dollars in millions except per share data)
PROJECTED
ACTUAL -------------------------------------------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Petrochemicals EBITDA $239.5 $ 101.1 $ 71.2 $ 41.8 $ 79.9 $ 94.9
Pulp Chemicals EBITDA 44.7 61.8 72.0 78.4 90.0 82.5
- --------------------- ------ ------- ------ ------ ------ ------
Operating EBITDA 284.2 162.9 143.2 120.2 170.0 177.4
Cost Savings - - - - - -
Total EBITDA 284.2 162.9 143.2 120.2 170.0 177.4
Less: Depreciation (43.0) (39.1) (52.1) (53.4) (53.4) (53.4)
- ------------------ ------ ------- ------ ------ ------ ------
EBIT 241.2 123.8 91.1 66.8 116.5 123.9
SAR's & Other Income - (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Expense
Company Debt (14.6) 0.0 0.0 0.0 0.0 0.0
Senior Bank Debt @ 8.4% 0.0 (27.4) (31.5) (27.9) (23.3) (17.5)
Senior Sub. Debt @ 11.0% 0.0 (37.4) (37.4) (37.4) (37.4) (37.4)
------------------------ ------ ------- ------ ------ ------ ------
Total Interest Expense (14.6) (64.8) (68.8) (65.3) (60.6) (54.9)
Pretax Income 212.0 56.3 19.8 0.3 54.7 67.8
Income Taxes (62.0) (19.7) (6.9) (0.1) (19.1) (23.7)
- ------------------ ------ ------- ------ ------ ------ ------
NET INCOME $150.0 $ 36.6 $ 12.8 $ 0.2 $ 35.6 $ 44.1
- ------------------------------ --------------------------------------------------------------
E.P.S $ 2.69 $ 2.61 $ 0.92 $ 0.02 $ 2.53 $ 3.14
Shares Outstanding 55.7 14.0 14.0 14.0 14.0 14.0
- ------------------------------ --------------------------------------------------------------
Plus: Deferred Taxes $ 1.0 $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: Dep. & Amortization 43.0 39.1 52.1 53.4 53.4 53.4
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (3.4) 0.4
Less: Capital Expenditures (53.9) (104.2) (31.7) (25.0) (25.0) (25.0)
- -------------------------- ------ ------- ------ ------ ------ ------
Free Cash Flow $141.4 ($48.0) $ 42.4 $ 54.8 $ 67.8 $ 79.7
====== ======= ====== ====== ====== ======
</TABLE>
- 33 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
SCENARIO: DISTRIBUTION-$500 MILLION-COMPANY REVISED DOWNSIDE CASE
DEBT CALCULATIONS: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions except per share data)
PROJECTED
--------------------------------------------------
1996 1997 1998 1999 2000
------- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Cash & Investments $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Debt
Long-Term Debt $ 129.6
Short-Term Debt 3.2
--------------- --------
Total Company Debt $ 132.8 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Senior Bank Debt $ 324.9 $372.9 $330.5 $275.8 $208.0 $128.3
Senior Sub. Deb. 324.9 324.9 324.9 324.9 324.9 324.9
---------------- -------- ------- ------- ------- ------- -------
Incremental Debt 649.8 697.8 655.4 600.7 532.9 453.2
---------------- -------- ------- ------- ------- ------- -------
Total Debt $ 649.8 $697.8 $655.4 $600.7 $532.9 $453.2
Common Equity $ 239.3
Incremental Effect (500.0)
------------------ --------
Total ($ 260.7) ($224.1) ($211.3) ($211.1) ($175.5) ($131.4)
Net Income $ 150.0 $ 36.6 $ 12.8 $ 0.2 $ 35.6 $ 44.1
Cash Balances
Cash & Investments beginning $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Free Cash Flow (48.0) 42.4 54.8 67.8 79.7
-------------- ------- ------- ------- ------- -------
Cash Available to Pay Debt (48.0) 42.4 54.8 67.8 79.7
Cash Repayment Balances
Senior Debt 48.0 (42.4) (54.8) (67.8) (79.7)
Cash Balance 0.0 0.0 0.0 0.0 0.0
Senior Sub. Debt 0.0 0.0 0.0 0.0 0.0
Cash Balance 0.0 0.0 0.0 0.0 0.0
Interest Income 0.0 0.0 0.0 0.0 0.0
</TABLE>
- 34 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
SCENARIO: DISTRIBUTION-$500 MILLION-COMPANY REVISED DOWNSIDE CASE
CREDIT STATISTICS: 1997-2000 ANNUAL COST SAVINGS-$0
PROJECTED PRO FORMA
ACTUAL PRO FORMA -------------------------------------------------
1995 1995 1996 1997 1998 1999 2000
---- --------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Leverage Ratio
Net Debt/Book Capitalization 36% 254% 147% 148% 154% 149% 141%
Coverage Ratios
Total Debt/EBITDA 0.5x 2.3x 4.3x 4.6x 5.0x 3.1x 2.6x
EBITDA/Interest 19.5x 4.4x 2.5x 2.1x 1.8x 2.8x 3.2x
(EBITDA-CapEx)/Interest 15.8x 3.6x 0.9x 1.6x 1.5x 2.4x 2.8x
EBIT/Interest 16.5x 3.7x 1.9x 1.3x 1.0x 1.9x 2.3x
</TABLE>
- 35 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- ---------------------------------------------------------------------------------------------------------------------------
SCENARIO: SPECIAL DIVIDEND-$500 MILLION-COMPANY REVISED DOWNSIDE CASE
- ----------------------------------------------------------------------------------------------------------------------------
ASSUMPTIONS
Current Share Price 55.7 Senior Bank Debt @ 8.4% $324.9 Cash Dividend $500.0
Senior Sub. Debt @ 11.5% 324.9 Trans. Expenses 17.0
------------------------ ------ Assumed Debt 132.8
Total Debt $649.8 ------
Total Uses $649.8
- ----------------------------------------------------------------------------------------------------------------------------
PRO FORMA INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS - $0
(Dollars in millions except per share data)
PROJECTED
ACTUAL -------------------------------------------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Petrochemicals EBITDA $239.5 $ 101.1 $ 71.2 $ 41.8 $ 79.9 $ 94.9
Pulp Chemicals EBITDA 44.7 61.8 72.0 78.4 90.0 82.5
- --------------------- ------ ------- ------ ------ ------ ------
Operating EBITDA 284.2 162.9 143.2 120.2 170.0 177.4
Cost Savings - - - - - -
Total EBITDA 284.2 162.9 143.2 120.2 170.0 177.4
Less: Depreciation (43.0) (39.1) (52.1) (53.4) (53.4) (53.4)
- ------------------ ------ ------- ------ ------ ------ ------
EBIT 241.2 123.8 91.1 66.8 116.5 123.9
SAR's & Other Income - (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Expense
Company Debt (14.6) 0.0 0.0 0.0 0.0 0.0
Senior Bank Debt @ 8.4% 0.0 (27.4) (31.5) (27.9) (23.3) (17.5)
Senior Sub. Debt @ 11.5% 0.0 (37.4) (37.4) (37.4) (37.4) (37.4)
------------------------ ------ ------- ------ ------ ------ ------
Total Interest Expense (14.6) (64.8) (68.8) (65.3) (60.6) (54.9)
Pretax Income 226.6 56.3 19.8 0.3 54.7 67.8
Income Taxes (76.6) (19.7) (6.9) (0.1) (19.1) (23.7)
- ------------------ ------ ------- ------ ------ ------ ------
NET INCOME $150.0 $ 36.6 $ 12.8 $ 0.2 $ 35.6 $ 44.1
- ------------------------------ --------------------------------------------------------------
E.P.S $ 2.69 $ 0.66 $ 0.23 $ 0.00 $ 0.64 $ 0.79
Shares Outstanding 55.7 55.7 55.7 55.7 55.7 55.7
- ------------------------------ --------------------------------------------------------------
Plus: Deferred Taxes $ 1.0 $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: Dep. & Amortization 43.0 39.1 52.1 53.4 53.4 53.4
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (3.4) 0.4
Less: Capital Expenditures (53.9) (104.2) (31.7) (25.0) (25.0) (25.0)
- -------------------------- ------ ------- ------ ------ ------ ------
Free Cash Flow $141.4 ($48.0) $ 42.4 $ 54.8 $ 67.8 $ 79.7
====== ======= ====== ====== ====== ======
</TABLE>
- 36 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
ANALYSIS OF BLENDED SHARE PRICE
(Dollars in millions except per share data)
SCENARIO: COMPANY REVISED BASE CASE: 1997-2000 ANNUAL COST SAVINGS-$0
Current Stock Price $12.625
<S> <C> <C> <C> <C> <C>
Repurchase Price $10.00 $11.00 $12.00 $13.00 $14.00
$ Repurchases (millions) $ 400 $ 400 $ 400 $ 400 $ 400
% Repurchased 71.8% 65.3% 59.8% 55.2% 51.3%
------ ------ ------ ------ ------
# of Shares Repurchased 40.0 36.4 33.3 30.8 28.6
Pro Forma # of Shares 15.7 19.3 22.4 24.9 27.1
Pro Forma EPS:
1996E $ 3.85 $ 3.13 $ 2.70 $ 2.42 $ 2.23
1997E 4.04 3.28 2.84 2.55 2.34
Blended Share Price Assuming
No Change Post-Repurchase $10.74 $11.56 $12.25 $12.83 $13.33
Implied Share Price Effects:
Pro-Rated Repurchases $ 7.18 $ 7.18 $ 7.18 $ 7.18 $ 7.18
Remaining Interest (a) 4.34 4.34 4.34 4.34 4.34
------ ------ ------ ------ ------
Blended Share Price $11.52 $11.52 $11.52 $11.52 $11.52
====== ====== ====== ====== ======
Pro Forma Stock Price (a) $15.40 $12.50 $10.81 $ 9.70 $ 8.91
</TABLE>
- ----------------
(a) Assumes post-trading multiple settles at 4.0x 1996 estimatted EPS.
- 37 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
ANALYSIS OF BLENDED SHARE PRICE
(Dollars in millions except per share data)
SCENARIO: COMPANY REVISED BASE CASE: 1997-2000 ANNUAL COST SAVINGS-$0
Current Stock Price $12.625
<S> <C> <C> <C> <C> <C>
Repurchase Price $10.00 $11.00 $12.00 $13.00 $14.00
$ Repurchases (millions) $ 500 $ 500 $ 500 $ 500 $ 500
% Repurchased 89.8% 81.6% 74.8% 69.1% 64.1%
------ ------ ------ ------ ------
# of Shares Repurchased 50.0 45.5 41.7 38.5 35.7
Pro Forma # of Shares 5.7 10.2 14.0 17.2 20.0
Pro Forma EPS:
1996E $ 9.28 $ 5.16 $ 3.77 $ 3.07 $ 2.65
1997E 9.74 5.42 3.95 3.22 2.78
Blended Share Price Assuming
No Change Post-Repurchase $10.27 $11.30 $12.16 $12.88 $13.51
Implied Share Price Effects:
Pro-Rated Repurchases $ 8.98 $ 8.98 $ 8.98 $ 8.98 $ 8.98
Remaining Interest (a) 3.80 3.80 3.80 3.80 3.80
------ ------ ------ ------ ------
Blended Share Price $12.77 $12.77 $12.77 $12.77 $12.77
====== ====== ====== ====== ======
Pro Forma Stock Price (a) $37.10 $20.64 $15.07 $12.27 $10.58
</TABLE>
- ----------------
(a) Assumes post-trading multiple settles at 4.0x 1996 estimatted EPS.
- 38 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
POST-REPURCHASE TRADING ANALYSIS-COMPANY REVISED BASE CASE: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions except per share data)
SCENARIO 1: $10 REPURCHASE STOCK PRICE
PRO FORMA PRICE/ MARKET CAPITALIZATION/
EARNINGS PER SHARE PRICE/E.P.S. CASH FLOW PER SHARE (A) EBITDA
REPURCHASE STOCK PRICE ------------------ ---------------------- ----------------------- ----------------------
AMOUNT POST TRANSACTION 1996E 1997E 1996E 1997E 1996E 1997E 1996E 1997E
- ---------- ---------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400 $ 4.00 $3.85 $4.04 1.0x 1.0x 0.6x 0.5x 3.2x 2.9x
$ 5.00 1.3x 1.2x 0.7x 0.6x 3.3x 3.0x
$ 6.00 1.6x 1.5x 0.9x 0.7x 3.4x 3.1x
$ 7.00 1.8x 1.7x 1.0x 0.9x 3.5x 3.2x
$ 8.00 2.1x 2.0x 1.1x 1.0x 3.6x 3.2x
$ 9.00 2.3x 2.2x 1.3x 1.1x 3.7x 3.3x
$10.00 2.6x 2.5x 1.4x 1.2x 3.7x 3.4x
$11.00 2.9x 2.7x 1.6x 1.3x 3.8x 3.5x
$12.00 3.1x 3.0x 1.7x 1.5x 3.9x 3.5x
$13.00 3.4x 3.2x 1.9x 1.6x 4.0x 3.6x
$14.00 3.6x 3.5x 2.0x 1.7x 4.1x 3.7x
REPURCHASE
AMOUNT
- ----------
$500 $ 4.00 $9.28 $9.74 0.4x 0.4x 0.2x 0.2x 3.6x 3.2x
$ 5.00 0.5x 0.5x 0.3x 0.2x 3.6x 3.3x
$ 6.00 0.6x 0.6x 0.3x 0.3x 3.6x 3.3x
$ 7.00 0.8x 0.7x 0.4x 0.3x 3.7x 3.3x
$ 8.00 0.9x 0.8x 0.4x 0.4x 3.7x 3.3x
$ 9.00 1.0x 0.9x 0.5x 0.4x 3.7x 3.4x
$10.00 1.1x 1.0x 0.6x 0.5x 3.8x 3.4x
$11.00 1.2x 1.1x 0.6x 0.5x 3.8x 3.4x
$12.00 1.3x 1.2x 0.7x 0.6x 3.8x 3.5x
$13.00 1.4x 1.3x 0.7x 0.6x 3.9x 3.5x
$14.00 1.5x 1.4x 0.8x 0.7x 3.9x 3.5x
</TABLE>
- ---------------
(a) Cash flow per share defined as net income plus deferred taxes, plus
depreciation and amortization, divided by the pro forma number of shares
outstanding.
- 39 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
POST-REPURCHASE TRADING ANALYSIS-COMPANY REVISED BASE CASE: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions except per share data)
SCENARIO 2: $11 REPURCHASE STOCK PRICE
PRO FORMA PRICE/ MARKET CAPITALIZATION/
EARNINGS PER SHARE PRICE/E.P.S. CASH FLOW PER SHARE (A) EBITDA
REPURCHASE STOCK PRICE ------------------ ---------------------- ----------------------- ----------------------
AMOUNT POST TRANSACTION 1996E 1997E 1996E 1997E 1996E 1997E 1996E 1997E
- ---------- ---------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400 $ 4.00 $3.13 $3.28 1.3x 1.2x 0.7x 0.6x 3.3x 3.0x
$ 5.00 1.6x 1.5x 0.9x 0.8x 3.4x 3.1x
$ 6.00 1.9x 1.8x 1.1x 0.9x 3.5x 3.2x
$ 7.00 2.2x 2.1x 1.2x 1.1x 3.6x 3.3x
$ 8.00 2.6x 2.4x 1.4x 1.2x 3.7x 3.4x
$ 9.00 2.9x 2.7x 1.6x 1.4x 3.8x 3.5x
$10.00 3.2x 3.0x 1.8x 1.5x 3.9x 3.6x
$11.00 3.5x 3.4x 1.9x 1.7x 4.0x 3.6x
$12.00 3.8x 3.7x 2.1x 1.8x 4.1x 3.7x
$13.00 4.2x 4.0x 2.3x 2.0x 4.2x 3.8x
$14.00 4.5x 4.3x 2.5x 2.1x 4.4x 3.9x
REPURCHASE
AMOUNT
- ----------
$500 $ 4.00 $5.16 $5.42 0.8x 0.7x 0.4x 0.3x 3.7x 3.3x
$ 5.00 1.0x 0.9x 0.5x 0.4x 3.7x 3.4x
$ 6.00 1.2x 1.1x 0.6x 0.5x 3.8x 3.4x
$ 7.00 1.4x 1.3x 0.7x 0.6x 3.8x 3.5x
$ 8.00 1.6x 1.5x 0.8x 0.7x 3.9x 3.5x
$ 9.00 1.7x 1.7x 0.9x 0.8x 3.9x 3.6x
$10.00 1.9x 1.8x 1.0x 0.8x 4.0x 3.6x
$11.00 2.1x 2.0x 1.1x 0.9x 4.1x 3.7x
$12.00 2.3x 2.2x 1.2x 1.0x 4.1x 3.7x
$13.00 2.5x 2.4x 1.3x 1.1x 4.2x 3.8x
$14.00 2.7x 2.6x 1.4x 1.2x 4.2x 3.8x
</TABLE>
- ---------------
(a) Cash flow per share defined as net income plus deferred taxes, plus
depreciation and amortization, divided by the pro forma number of shares
outstanding.
- 40 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
POST-REPURCHASE TRADING ANALYSIS-COMPANY REVISED BASE CASE: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions except per share data)
SCENARIO 3: $12 REPURCHASE STOCK PRICE
PRO FORMA PRICE/ MARKET CAPITALIZATION/
EARNINGS PER SHARE PRICE/E.P.S. CASH FLOW PER SHARE (A) EBITDA
REPURCHASE STOCK PRICE ------------------ ---------------------- ----------------------- ----------------------
AMOUNT POST TRANSACTION 1996E 1997E 1996E 1997E 1996E 1997E 1996E 1997E
- ---------- ---------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400 $ 4.00 $2.70 $2.84 1.5x 1.4x 0.8x 0.7x 3.4x 3.1x
$ 5.00 1.9x 1.8x 1.0x 0.9x 3.5x 3.2x
$ 6.00 2.2x 2.1x 1.2x 1.0x 3.6x 3.3x
$ 7.00 2.6x 2.5x 1.4x 1.2x 3.7x 3.4x
$ 8.00 3.0x 2.8x 1.6x 1.4x 3.9x 3.5x
$ 9.00 3.3x 3.2x 1.8x 1.6x 4.0x 3.6x
$10.00 3.7x 3.5x 2.0x 1.7x 4.1x 3.7x
$11.00 4.1x 3.9x 2.2x 1.9x 4.2x 3.8x
$12.00 4.4x 4.2x 2.4x 2.1x 4.3x 3.9x
$13.00 4.8x 4.6x 2.6x 2.3x 4.5x 4.0x
$14.00 5.2x 4.9x 2.9x 2.4x 4.6x 4.1x
REPURCHASE
AMOUNT
- ----------
$500 $ 4.00 $3.77 $3.95 1.1x 1.0x 0.5x 0.5x 3.8x 3.4x
$ 5.00 1.3x 1.3x 0.7x 0.6x 3.8x 3.5x
$ 6.00 1.6x 1.5x 0.8x 0.7x 3.9x 3.5x
$ 7.00 1.9x 1.8x 1.0x 0.8x 4.0x 3.6x
$ 8.00 2.1x 2.0x 1.1x 0.9x 4.1x 3.7x
$ 9.00 2.4x 2.3x 1.2x 1.0x 4.1x 3.7x
$10.00 2.7x 2.5x 1.4x 1.2x 4.2x 3.8x
$11.00 2.9x 2.8x 1.5x 1.3x 4.3x 3.9x
$12.00 3.2x 3.0x 1.6x 1.4x 4.4x 3.9x
$13.00 3.5x 3.3x 1.8x 1.5x 4.4x 4.0x
$14.00 3.7x 3.5x 1.9x 1.6x 4.5x 4.1x
</TABLE>
- ---------------
(a) Cash flow per share defined as net income plus deferred taxes, plus
depreciation and amortization, divided by the pro forma number of shares
outstanding.
- 41 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
POST-REPURCHASE TRADING ANALYSIS-COMPANY REVISED BASE CASE: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions except per share data)
SCENARIO 4: $13 REPURCHASE STOCK PRICE
PRO FORMA PRICE/ MARKET CAPITALIZATION/
EARNINGS PER SHARE PRICE/E.P.S. CASH FLOW PER SHARE (A) EBITDA
REPURCHASE STOCK PRICE ------------------ ---------------------- ----------------------- ----------------------
AMOUNT POST TRANSACTION 1996E 1997E 1996E 1997E 1996E 1997E 1996E 1997E
- ---------- ---------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400 $ 4.00 $2.42 $2.55 1.7x 1.6x 0.9x 0.8x 3.4x 3.1x
$ 5.00 2.1x 2.0x 1.1x 1.0x 3.6x 3.2x
$ 6.00 2.5x 2.4x 1.4x 1.2x 3.7x 3.3x
$ 7.00 2.9x 2.7x 1.6x 1.4x 3.8x 3.5x
$ 8.00 3.3x 3.1x 1.8x 1.6x 4.0x 3.6x
$ 9.00 3.7x 3.5x 2.0x 1.7x 4.1x 3.7x
$10.00 4.1x 3.9x 2.3x 1.9x 4.2x 3.8x
$11.00 4.5x 4.3x 2.5x 2.1x 4.4x 3.9x
$12.00 5.0x 4.7x 2.7x 2.3x 4.5x 4.1x
$13.00 5.4x 5.1x 3.0x 2.5x 4.6x 4.2x
$14.00 5.8x 5.5x 3.2x 2.7x 4.8x 4.3x
REPURCHASE
AMOUNT
- ----------
$500 $ 4.00 $3.07 $3.22 1.3x 1.2x 0.7x 0.6x 3.8x 3.5x
$ 5.00 1.6x 1.6x 0.8x 0.7x 3.9x 3.5x
$ 6.00 2.0x 1.9x 1.0x 0.9x 4.0x 3.6x
$ 7.00 2.3x 2.2x 1.2x 1.0x 4.1x 3.7x
$ 8.00 2.6x 2.5x 1.3x 1.1x 4.2x 3.8x
$ 9.00 2.9x 2.8x 1.5x 1.3x 4.3x 3.9x
$10.00 3.3x 3.1x 1.7x 1.4x 4.4x 4.0x
$11.00 3.6x 3.4x 1.9x 1.6x 4.5x 4.0x
$12.00 3.9x 3.7x 2.0x 1.7x 4.6x 4.1x
$13.00 4.2x 4.0x 2.2x 1.9x 4.7x 4.2x
$14.00 4.6x 4.3x 2.4x 2.0x 4.7x 4.3x
</TABLE>
- ---------------
(a) Cash flow per share defined as net income plus deferred taxes, plus
depreciation and amortization, divided by the pro forma number of shares
outstanding.
- 42 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
POST-REPURCHASE TRADING ANALYSIS-COMPANY REVISED BASE CASE: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions except per share data)
SCENARIO 5: $14 REPURCHASE STOCK PRICE
PRO FORMA PRICE/ MARKET CAPITALIZATION/
EARNINGS PER SHARE PRICE/E.P.S. CASH FLOW PER SHARE (A) EBITDA
REPURCHASE STOCK PRICE ------------------ ---------------------- ----------------------- ----------------------
AMOUNT POST TRANSACTION 1996E 1997E 1996E 1997E 1996E 1997E 1996E 1997E
- ---------- ---------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400 $ 4.00 $2.23 $2.34 1.8x 1.7x 1.0x 0.8x 3.5x 3.1x
$ 5.00 2.2x 2.1x 1.2x 1.1x 3.6x 3.3x
$ 6.00 2.7x 2.6x 1.5x 1.3x 3.8x 3.4x
$ 7.00 3.1x 3.0x 1.7x 1.5x 3.9x 3.5x
$ 8.00 3.6x 3.4x 2.0x 1.7x 4.1x 3.7x
$ 9.00 4.0x 3.8x 2.2x 1.9x 4.2x 3.8x
$10.00 4.5x 4.3x 2.5x 2.1x 4.4x 3.9x
$11.00 4.9x 4.7x 2.7x 2.3x 4.5x 4.1x
$12.00 5.4x 5.1x 3.0x 2.5x 4.6x 4.2x
$13.00 5.8x 5.6x 3.2x 2.7x 4.8x 4.3x
$14.00 6.3x 6.0x 3.5x 3.0x 4.9x 4.5x
REPURCHASE
AMOUNT
- ----------
$500 $ 4.00 $2.65 $2.78 1.5x 1.4x 0.8x 0.7x 3.9x 3.5x
$ 5.00 1.9x 1.8x 1.0x 0.8x 4.0x 3.6x
$ 6.00 2.3x 2.2x 1.2x 1.0x 4.1x 3.7x
$ 7.00 2.6x 2.5x 1.4x 1.2x 4.2x 3.8x
$ 8.00 3.0x 2.9x 1.6x 1.3x 4.3x 3.9x
$ 9.00 3.4x 3.2x 1.8x 1.5x 4.4x 4.0x
$10.00 3.8x 3.6x 2.0x 1.7x 4.5x 4.1x
$11.00 4.2x 4.0x 2.2x 1.8x 4.6x 4.2x
$12.00 4.5x 4.3x 2.3x 2.0x 4.7x 4.3x
$13.00 4.9x 4.7x 2.5x 2.2x 4.8x 4.4x
$14.00 5.3x 5.0x 2.7x 2.3x 4.9x 4.5x
</TABLE>
- ---------------
(a) Cash flow per share defined as net income plus deferred taxes, plus
depreciation and amortization, divided by the pro forma number of shares
outstanding.
- 43 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
ANALYSIS OF BLENDED SHARE PRICE
(Dollars in millions except per share data)
SCENARIO: COMPANY REVISED DOWNSIDE CASE: 1997-2000 ANNUAL COST SAVINGS-$0
Current Stock Price $12.625
<S> <C> <C> <C> <C> <C>
Repurchase Price $10.00 $11.00 $12.00 $13.00 $14.00
$ Repurchases (millions) $ 400 $ 400 $ 400 $ 400 $ 400
% Repurchased 71.8% 65.3% 59.8% 55.2% 51.3%
------ ------ ------ ------ ------
# of Shares Repurchased 40.0 36.4 33.3 30.8 28.6
Pro Forma # of Shares 15.7 19.3 22.4 24.9 27.1
Pro Forma EPS:
1996E $ 2.81 $ 2.28 $ 1.97 $ 1.77 $ 1.63
1997E 1.33 1.08 0.93 0.84 0.77
Blended Share Price Assuming
No Change Post-Repurchase $10.74 $11.56 $12.25 $12.83 $13.33
Implied Share Price Effects:
Pro-Rated Repurchases $ 7.18 $ 7.18 $ 7.18 $ 7.18 $ 7.18
Remaining Interest (a) 3.17 3.17 3.17 3.17 3.17
------ ------ ------ ------ ------
Blended Share Price $10.35 $10.35 $10.35 $10.35 $10.35
====== ====== ====== ====== ======
Pro Forma Stock Price (a) $11.25 $ 9.14 $ 7.90 $ 7.09 $ 6.51
</TABLE>
- ----------------
(a) Assumes post-trading multiple settles at 4.0x 1996 estimated EPS.
- 44 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
ANALYSIS OF BLENDED SHARE PRICE
(Dollars in millions except per share data)
SCENARIO: COMPANY REVISED DOWNSIDE CASE: 1997-2000 ANNUAL COST SAVINGS-$0
Current Stock Price $12.625
<S> <C> <C> <C> <C> <C>
Repurchase Price $10.00 $11.00 $12.00 $13.00 $14.00
$ Repurchases (millions) $ 500 $ 500 $ 500 $ 500 $ 500
% Repurchased 89.8% 81.6% 74.8% 69.1% 64.1%
------ ------ ------ ------ ------
# of Shares Repurchased 50.0 45.5 41.7 38.5 35.7
Pro Forma # of Shares 5.7 10.2 14.0 17.2 20.0
Pro Forma EPS:
1996E $ 6.42 $ 3.57 $ 2.61 $ 2.12 $ 1.83
1997E 2.25 1.25 0.92 0.75 0.64
Blended Share Price Assuming
No Change Post-Repurchase $10.27 $11.30 $12.16 $12.88 $13.51
Implied Share Price Effects:
Pro-Rated Repurchases $ 8.98 $ 8.98 $ 8.98 $ 8.98 $ 8.98
Remaining Interest (a) 2.63 2.63 2.63 2.63 2.63
------ ------ ------ ------ ------
Blended Share Price $11.61 $11.61 $11.61 $11.61 $11.61
====== ====== ====== ====== ======
Pro Forma Stock Price (a) $25.69 $14.29 $10.43 $ 8.49 $ 7.33
</TABLE>
- ----------------
(a) Assumes post-trading multiple settles at 4.0x 1996 estimated EPS.
- 45 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
POST-REPURCHASE TRADING ANALYSIS-COMPANY REVISED DOWNSIDE CASE: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions except per share data)
SCENARIO 1: $10 REPURCHASE STOCK PRICE
PRO FORMA PRICE/ MARKET CAPITALIZATION/
EARNINGS PER SHARE PRICE/E.P.S. CASH FLOW PER SHARE (A) EBITDA
REPURCHASE STOCK PRICE ------------------ ---------------------- ----------------------- ----------------------
AMOUNT POST TRANSACTION 1996E 1997E 1996E 1997E 1996E 1997E 1996E 1997E
- ---------- ---------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400 $ 4.00 $2.81 $1.33 1.4x 3.0x 0.7x 0.7x 3.7x 4.3x
$ 5.00 1.8x 3.8x 0.8x 0.9x 3.8x 4.4x
$ 6.00 2.1x 4.5x 1.0x 1.1x 3.9x 4.5x
$ 7.00 2.5x 5.3x 1.2x 1.3x 4.0x 4.6x
$ 8.00 2.8x 6.0x 1.3x 1.5x 4.1x 4.7x
$ 9.00 3.2x 6.8x 1.5x 1.7x 4.2x 4.8x
$10.00 3.6x 7.5x 1.7x 1.8x 4.3x 4.9x
$11.00 3.9x 8.3x 1.8x 2.0x 4.4x 5.0x
$12.00 4.3x 9.0x 2.0x 2.2x 4.5x 5.1x
$13.00 4.6x 9.8x 2.2x 2.4x 4.6x 5.2x
$14.00 5.0x 10.6x 2.4x 2.6x 4.7x 5.4x
REPURCHASE
AMOUNT
- ----------
$500 $ 4.00 $6.42 $2.25 0.6x 1.8x 0.3x 0.3x 4.1x 4.7x
$ 5.00 0.8x 2.2x 0.3x 0.4x 4.2x 4.7x
$ 6.00 0.9x 2.7x 0.4x 0.4x 4.2x 4.8x
$ 7.00 1.1x 3.1x 0.5x 0.5x 4.2x 4.8x
$ 8.00 1.2x 3.5x 0.5x 0.6x 4.3x 4.9x
$ 9.00 1.4x 4.0x 0.6x 0.7x 4.3x 4.9x
$10.00 1.6x 4.4x 0.7x 0.7x 4.3x 4.9x
$11.00 1.7x 4.9x 0.7x 0.8x 4.4x 5.0x
$12.00 1.9x 5.3x 0.8x 0.9x 4.4x 5.0x
$13.00 2.0x 5.8x 0.9x 1.0x 4.4x 5.1x
$14.00 2.2x 6.2x 0.9x 1.0x 4.5x 5.1x
</TABLE>
- ---------------
(a) Cash flow per share defined as net income plus deferred taxes, plus
depreciation and amortization, divided by the pro forma number of shares
outstanding.
- 46 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
POST-REPURCHASE TRADING ANALYSIS-COMPANY REVISED DOWNSIDE CASE: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions except per share data)
SCENARIO 2: $11 REPURCHASE STOCK PRICE
PRO FORMA PRICE/ MARKET CAPITALIZATION/
EARNINGS PER SHARE PRICE/E.P.S. CASH FLOW PER SHARE (A) EBITDA
REPURCHASE STOCK PRICE ------------------ ---------------------- ----------------------- ----------------------
AMOUNT POST TRANSACTION 1996E 1997E 1996E 1997E 1996E 1997E 1996E 1997E
- ---------- ---------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400 $ 4.00 $2.28 $1.08 1.8x 3.7x 0.8x 0.9x 3.8x 4.4x
$ 5.00 2.2x 4.6x 1.0x 1.1x 4.0x 4.5x
$ 6.00 2.6x 5.6x 1.2x 1.4x 4.1x 4.6x
$ 7.00 3.1x 6.5x 1.4x 1.6x 4.2x 4.8x
$ 8.00 3.5x 7.4x 1.7x 1.8x 4.3x 4.9x
$ 9.00 3.9x 8.4x 1.9x 2.0x 4.4x 5.0x
$10.00 4.4x 9.3x 2.1x 2.3x 4.5x 5.2x
$11.00 4.8x 10.2x 2.3x 2.5x 4.7x 5.3x
$12.00 5.3x 11.1x 2.5x 2.7x 4.8x 5.4x
$13.00 5.7x 12.1x 2.7x 3.0x 4.9x 5.6x
$14.00 6.1x 13.0x 2.9x 3.2x 5.0x 5.7x
REPURCHASE
AMOUNT
- ----------
$500 $ 4.00 $3.57 $1.25 1.1x 3.2x 0.5x 0.5x 4.2x 4.8x
$ 5.00 1.4x 4.0x 0.6x 0.7x 4.3x 4.9x
$ 6.00 1.7x 4.8x 0.7x 0.8x 4.4x 5.0x
$ 7.00 2.0x 5.6x 0.8x 0.9x 4.4x 5.0x
$ 8.00 2.2x 6.4x 1.0x 1.1x 4.5x 5.1x
$ 9.00 2.5x 7.2x 1.1x 1.2x 4.6x 5.2x
$10.00 2.8x 8.0x 1.2x 1.3x 4.6x 5.3x
$11.00 3.1x 8.8x 1.3x 1.5x 4.7x 5.3x
$12.00 3.4x 9.6x 1.4x 1.6x 4.7x 5.4x
$13.00 3.6x 10.4x 1.5x 1.7x 4.8x 5.5x
$14.00 3.9x 11.2x 1.7x 1.9x 4.9x 5.5x
</TABLE>
- ---------------
(a) Cash flow per share defined as net income plus deferred taxes, plus
depreciation and amortization, divided by the pro forma number of shares
outstanding.
- 47 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
POST-REPURCHASE TRADING ANALYSIS-COMPANY REVISED DOWNSIDE CASE: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions except per share data)
SCENARIO 3: $12 REPURCHASE STOCK PRICE
PRO FORMA PRICE/ MARKET CAPITALIZATION/
EARNINGS PER SHARE PRICE/E.P.S. CASH FLOW PER SHARE (A) EBITDA
REPURCHASE STOCK PRICE ------------------ ---------------------- ----------------------- ----------------------
AMOUNT POST TRANSACTION 1996E 1997E 1996E 1997E 1996E 1997E 1996E 1997E
- ---------- ---------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400 $ 4.00 $1.97 $0.93 2.0x 4.3x 1.0x 1.0x 3.9x 4.4x
$ 5.00 2.5x 5.4x 1.2x 1.3x 4.0x 4.6x
$ 6.00 3.0x 6.4x 1.4x 1.6x 4.2x 4.8x
$ 7.00 3.5x 7.5x 1.7x 1.8x 4.3x 4.9x
$ 8.00 4.1x 8.6x 1.9x 2.1x 4.5x 5.1x
$ 9.00 4.6x 9.7x 2.2x 2.4x 4.6x 5.2x
$10.00 5.1x 10.7x 2.4x 2.6x 4.7x 5.4x
$11.00 5.6x 11.8x 2.6x 2.9x 4.9x 5.5x
$12.00 6.1x 12.9x 2.9x 3.1x 5.0x 5.7x
$13.00 6.6x 14.0x 3.1x 3.4x 5.1x 5.8x
$14.00 7.1x 15.0x 3.3x 3.7x 5.3x 6.0x
REPURCHASE
AMOUNT
- ----------
$500 $ 4.00 $2.61 $0.92 1.5x 4.4x 0.7x 0.7x 4.3x 4.9x
$ 5.00 1.9x 5.5x 0.8x 0.9x 4.4x 5.0x
$ 6.00 2.3x 6.6x 1.0x 1.1x 4.5x 5.1x
$ 7.00 2.7x 7.6x 1.1x 1.3x 4.6x 5.2x
$ 8.00 3.1x 8.7x 1.3x 1.5x 4.7x 5.3x
$ 9.00 3.5x 9.8x 1.5x 1.6x 4.8x 5.4x
$10.00 3.8x 10.9x 1.6x 1.8x 4.9x 5.5x
$11.00 4.2x 12.0x 1.8x 2.0x 4.9x 5.6x
$12.00 4.6x 13.1x 2.0x 2.2x 5.0x 5.7x
$13.00 5.0x 14.2x 2.1x 2.4x 5.1x 5.8x
$14.00 5.4x 15.3x 2.3x 2.5x 5.2x 5.9x
</TABLE>
- ---------------
(a) Cash flow per share defined as net income plus deferred taxes, plus
depreciation and amortization, divided by the pro forma number of shares
outstanding.
- 48 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
POST-REPURCHASE TRADING ANALYSIS-COMPANY REVISED DOWNSIDE CASE: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions except per share data)
SCENARIO 4: $13 REPURCHASE STOCK PRICE
PRO FORMA PRICE/ MARKET CAPITALIZATION/
EARNINGS PER SHARE PRICE/E.P.S. CASH FLOW PER SHARE (A) EBITDA
REPURCHASE STOCK PRICE ------------------ ---------------------- ----------------------- ----------------------
AMOUNT POST TRANSACTION 1996E 1997E 1996E 1997E 1996E 1997E 1996E 1997E
- ---------- ---------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400 $ 4.00 $1.77 $0.84 2.3x 4.8x 1.1x 1.2x 4.0x 4.5x
$ 5.00 2.8x 6.0x 1.3x 1.5x 4.1x 4.7x
$ 6.00 3.4x 7.2x 1.6x 1.8x 4.3x 4.9x
$ 7.00 4.0x 8.4x 1.9x 2.0x 4.4x 5.0x
$ 8.00 4.5x 9.6x 2.1x 2.3x 4.6x 5.2x
$ 9.00 5.1x 10.8x 2.4x 2.6x 4.7x 5.4x
$10.00 5.6x 12.0x 2.7x 2.9x 4.9x 5.6x
$11.00 6.2x 13.2x 2.9x 3.2x 5.0x 5.7x
$12.00 6.8x 14.4x 3.2x 3.5x 5.2x 5.9x
$13.00 7.3x 15.6x 3.5x 3.8x 5.3x 6.1x
$14.00 7.9x 16.8x 3.7x 4.1x 5.5x 6.3x
REPURCHASE
AMOUNT
- ----------
$500 $ 4.00 $2.12 $0.75 1.9x 5.4x 0.8x 0.9x 4.4x 5.0x
$ 5.00 2.4x 6.7x 1.0x 1.1x 4.5x 5.1x
$ 6.00 2.8x 8.1x 1.2x 1.3x 4.6x 5.3x
$ 7.00 3.3x 9.4x 1.4x 1.6x 4.7x 5.4x
$ 8.00 3.8x 10.7x 1.6x 1.8x 4.8x 5.5x
$ 9.00 4.2x 12.1x 1.8x 2.0x 4.9x 5.6x
$10.00 4.7x 13.4x 2.0x 2.2x 5.0x 5.7x
$11.00 5.2x 14.8x 2.2x 2.5x 5.2x 5.9x
$12.00 5.7x 16.1x 2.4x 2.7x 5.3x 6.0x
$13.00 6.1x 17.4x 2.6x 2.9x 5.4x 6.1x
$14.00 6.6x 18.8x 2.8x 3.1x 5.5x 6.2x
</TABLE>
- ---------------
(a) Cash flow per share defined as net income plus deferred taxes, plus
depreciation and amortization, divided by the pro forma number of shares
outstanding.
- 49 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
POST-REPURCHASE TRADING ANALYSIS-COMPANY REVISED DOWNSIDE CASE: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions except per share data)
SCENARIO 5: $14 REPURCHASE STOCK PRICE
PRO FORMA PRICE/ MARKET CAPITALIZATION/
EARNINGS PER SHARE PRICE/E.P.S. CASH FLOW PER SHARE (A) EBITDA
REPURCHASE STOCK PRICE ------------------ ---------------------- ----------------------- ----------------------
AMOUNT POST TRANSACTION 1996E 1997E 1996E 1997E 1996E 1997E 1996E 1997E
- ---------- ---------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400 $ 4.00 $1.63 $0.77 2.5x 5.2x 1.2x 1.3x 4.0x 4.6x
$ 5.00 3.1x 6.5x 1.5x 1.6x 4.2x 4.8x
$ 6.00 3.7x 7.8x 1.7x 1.9x 4.4x 5.0x
$ 7.00 4.3x 9.1x 2.0x 2.2x 4.5x 5.1x
$ 8.00 4.9x 10.4x 2.3x 2.5x 4.7x 5.3x
$ 9.00 5.5x 11.7x 2.6x 2.9x 4.9x 5.5x
$10.00 6.1x 13.0x 2.9x 3.2x 5.0x 5.7x
$11.00 6.8x 14.3x 3.2x 3.5x 5.2x 5.9x
$12.00 7.4x 15.6x 3.5x 3.8x 5.4x 6.1x
$13.00 8.0x 16.9x 3.8x 4.1x 5.5x 6.3x
$14.00 8.6x 18.2x 4.1x 4.5x 5.7x 6.5x
REPURCHASE
AMOUNT
- ----------
$500 $ 4.00 $1.83 $0.64 2.2x 6.2x 0.9x 1.0x 4.5x 5.1x
$ 5.00 2.7x 7.8x 1.2x 1.3x 4.6x 5.2x
$ 6.00 3.3x 9.3x 1.4x 1.6x 4.7x 5.4x
$ 7.00 3.8x 10.9x 1.6x 1.8x 4.8x 5.5x
$ 8.00 4.4x 12.4x 1.9x 2.1x 5.0x 5.7x
$ 9.00 4.9x 14.0x 2.1x 2.3x 5.1x 5.8x
$10.00 5.5x 15.6x 2.3x 2.6x 5.2x 5.9x
$11.00 6.0x 17.1x 2.6x 2.8x 5.3x 6.1x
$12.00 6.6x 18.7x 2.8x 3.1x 5.5x 6.2x
$13.00 7.1x 20.2x 3.0x 3.4x 5.6x 6.4x
$14.00 7.6x 21.8x 3.3x 3.6x 5.7x 6.5x
</TABLE>
- ---------------
(a) Cash flow per share defined as net income plus deferred taxes, plus
depreciation and amortization, divided by the pro forma number of shares
outstanding.
- 50 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- ---------------------------------------------------------------------------------------------------------------------------
SCENARIO: SHARE REPURCHASE-$400m-COMPANY REVISED BASE CASE
ASSUMPTIONS
- ----------------------------------------------------------------------------------------------------------------------------
Current Share Price (3/29/95) $12.63 Senior Bank Debt @ 8.4% $273.4 Current Shares Outstanding 55.7
Offer Price $12.00 Senior Sub. Debt @ 11.0% 273.4 # of Shares Repurchased 33.3
------------------------ ------ ----
Equity Repurchased $400.0 Total Debt $546.8 # of Pro Forma Shares 22.4
Transaction Expenses $14.0 Assumed Debt $132.8
- ----------------------------------------------------------------------------------------------------------------------------
PRO FORMA INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS - $30
(Dollars in millions except per share data)
PROJECTED
ACTUAL -------------------------------------------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Petrochemicals EBITDA $239.5 $ 126.1 $122.3 $ 76.3 $117.7 $133.1
Pulp Chemicals EBITDA 44.7 61.8 85.8 104.4 102.9 94.7
- --------------------- ------ ------- ------ ------ ------ ------
Operating EBITDA 284.2 187.9 208.1 180.6 220.7 227.8
Cost Savings - - 30.0 30.0 30.0 30.0
Total EBITDA 284.2 187.9 238.1 210.6 250.7 257.8
Less: Depreciation (43.0) (39.1) (52.8) (55.1) (55.1) (55.1)
- ------------------ ------ ------- ------ ------ ------ ------
EBIT 241.2 148.8 185.3 155.6 195.6 202.7
SAR's & Other Income - (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Expense
Company Debt (14.6) 0.0 0.0 0.0 0.0 0.0
Senior Bank Debt @ 8.4% 0.0 (23.1) (25.1) (16.9) (6.8) 0.0
Senior Sub. Debt @ 11.0% 0.0 (30.1) (30.1) (30.1) (30.1) (23.7)
------------------------ ------ ------- ------ ------ ------ ------
Total Interest Expense (14.6) (53.1) (55.2) (47.0) (36.9) (23.7)
Pretax Income 212.0 93.0 127.7 107.4 157.6 177.8
Income Taxes (62.0) (32.5) (44.7) (37.6) (55.1) (62.2)
- ------------------ ------ ------- ------ ------ ------ ------
NET INCOME $150.0 $ 60.4 $ 83.0 $ 69.8 $102.4 $115.6
- ------------------------------ --------------------------------------------------------------
E.P.S $ 2.69 $ 2.70 $ 3.71 $ 3.12 $ 4.58 $ 5.17
Shares Outstanding 55.7 22.4 22.4 22.4 22.4 22.4
- ------------------------------ --------------------------------------------------------------
Plus: Deferred Taxes $ 1.0 $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: Dep. & Amortization 43.0 39.1 52.8 55.1 55.1 55.1
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (1.5) 0.4
Less: Capital Expenditures (53.9) (104.2) (47.5) (31.5) (25.0) (25.0)
- -------------------------- ------ ------- ------ ------ ------ ------
Free Cash Flow $141.4 ($24.2) $ 97.4 $119.5 $138.2 $152.7
====== ======= ====== ====== ====== ======
</TABLE>
- 51 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- ----------------------------------------------------------------------------------------
SCENARIO: DISTRIBUTION-$400 MILLION-COMPANY REVISED BASE CASE
DEBT CALCULATIONS: 1997-2000 ANNUAL COST SAVINGS-$30
(Dollars in millions)
PROJECTED
-------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Cash & Investments $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Debt
Long-Term Debt $129.6
Short-term Debt 3.2
--------------- ------
Total Company Debt $132.8 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Senior Bank Debt $273.4 $297.6 $200.2 $ 80.7 $ 0.0 $ 0.0
Senior Sub. Deb. 273.4 273.4 273.4 273.4 215.9 63.2
---------------- ------ ------ ------ ------- ------ -------
Incremental Debt 546.8 571.0 473.6 354.1 215.9 63.2
---------------- ------ ------ ------ ------- ------ -------
Total Debt $546.8 $571.0 $473.6 $ 354.1 $215.9 $ 63.2
Common Equity $239.3
Incremental Effect (400.0)
------------------ ------
Total ($160.7) ($100.3) ($17.3) $ 52.5 $154.9 $270.5
Net Income $150.0 $ 60.4 $ 83.0 $ 69.8 $102.4 $115.6
Cash Balances
Cash & Investments beginning $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Free Cash Flow (24.2) 97.4 119.5 138.2 152.7
-------------- ------ ------ ------- ------ -------
Cash Available to Pay Debt (24.2) 97.4 119.5 138.2 152.7
Cash Repayment Balances
Senior Debt 24.2 (97.4) (119.5) (80.7) 0.0
Cash Balance 0.0 0.0 0.0 (57.5) (152.7)
Senior Sub. Debt 0.0 0.0 0.0 0.0 0.0
Cash Balance 0.0 0.0 0.0 0.0 0.0
Interest Income 0.0 0.0 0.0 0.0 0.0
</TABLE>
- 52 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
SCENARIO: DISTRIBUTION-$400 MILLION-COMPANY REVISED BASE CASE
CREDIT STATISTICS: 1997-2000 ANNUAL COST SAVINGS-$30
PROJECTED PRO FORMA
ACTUAL PRO FORMA -------------------------------------------------
1995 1995 1996 1997 1998 1999 2000
---- --------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Leverage Ratio
Net Debt/Book Capitalization 36% 216% 121% 104% 87% 58% 19%
Coverage Ratios
Total Debt/EBITDA 0.5x 1.9x 3.0x 2.0x 1.7x 0.9x 0.2x
EBITDA/Interest 19.5x 5.3x 3.5x 4.3x 4.5x 6.8x 10.9x
(EBITDA-CapEx)/Interest 15.8x 4.3x 1.6x 3.5x 3.8x 6.1x 9.8x
EBIT/Interest 16.5x 4.5x 2.8x 3.4x 3.3x 5.3x 8.5x
</TABLE>
- 53 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- ---------------------------------------------------------------------------------------------------------------------------
SCENARIO: SHARE REPURCHASE-$400 MILLION-COMPANY REVISED BASE CASE
- ----------------------------------------------------------------------------------------------------------------------------
ASSUMPTIONS
Current Shares Outstanding 55.7 Senior Bank Debt @ 8.4% $273.4 Cash Dividend $400.0
Senior Sub. Debt @ 11.0% 273.4 Trans. Expenses 14.0
------------------------ ------ Assumed Debt 132.8
Total Debt $546.8 ------
Total Uses $546.8
- ----------------------------------------------------------------------------------------------------------------------------
PRO FORMA INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS - $30
(Dollars in millions except per share data)
PROJECTED
ACTUAL -------------------------------------------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Petrochemicals EBITDA $239.5 $ 126.1 $122.3 $ 76.3 $117.7 $133.1
Pulp Chemicals EBITDA 44.7 61.8 85.8 104.4 102.9 94.7
- --------------------- ------ ------- ------ ------ ------ ------
Operating EBITDA 284.2 187.9 208.1 180.6 220.7 227.8
Cost Savings - - 30.0 30.0 30.0 30.0
Total EBITDA 284.2 187.9 238.1 210.6 250.7 257.8
Less: Depreciation (43.0) (39.1) (52.8) (55.1) (55.1) (55.1)
- ------------------ ------ ------- ------ ------ ------ ------
EBIT 241.2 148.8 185.3 155.6 195.6 202.7
SAR's & Other Income - (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Expense
Company Debt (14.6) 0.0 0.0 0.0 0.0 0.0
Senior Bank Debt @ 8.4% 0.0 (23.1) (25.1) (16.9) (6.8) 0.0
Senior Sub. Debt @ 11.0% 0.0 (30.1) (30.1) (30.1) (30.1) (23.7)
------------------------ ------ ------- ------ ------ ------ ------
Total Interest Expense (14.6) (53.1) (55.2) (47.0) (36.9) (23.7)
Pretax Income 226.6 93.0 127.7 107.4 157.6 177.8
Income Taxes (76.6) (32.5) (44.7) (37.6) (55.1) (62.2)
- ------------------ ------ ------- ------ ------ ------ ------
NET INCOME $150.0 $ 60.4 $ 83.0 $ 69.8 $102.4 $115.6
- ------------------------------ --------------------------------------------------------------
E.P.S $ 2.69 $ 1.08 $ 1.49 $ 1.25 $ 1.84 $ 2.08
Shares Outstanding 55.7 55.7 55.7 55.7 55.7 55.7
- ------------------------------ --------------------------------------------------------------
Plus: Deferred Taxes $ 1.0 $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: Dep. & Amortization 43.0 39.1 52.8 55.1 55.1 55.1
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (1.5) 0.4
Less: Capital Expenditures (53.9) (104.2) (47.5) (31.5) (25.0) (25.0)
- -------------------------- ------ ------- ------ ------ ------ ------
Free Cash Flow $141.4 ($24.2) $ 97.4 $119.5 $138.2 $152.7
====== ======= ====== ====== ====== ======
</TABLE>
- 54 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- ---------------------------------------------------------------------------------------------------------------------------
SCENARIO: SHARE REPURCHASE-$500m-COMPANY REVISED BASE CASE
ASSUMPTIONS
- ----------------------------------------------------------------------------------------------------------------------------
Current Share Price (3/29/95) $12.63 Senior Bank Debt @ 8.4% $324.9 Current Shares Outstanding 55.7
Offer Price $12.00 Senior Sub. Debt @ 11.5% 324.9 # of Shares Repurchased 41.7
------------------------ ------ ------
Equity Repurchased $500.0 Total Debt $649.8 # of Pro Forma Shares 14.0
Transaction Expenses $ 17.0 Assumed Debt $132.8
- ----------------------------------------------------------------------------------------------------------------------------
PRO FORMA INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS - $30
(Dollars in millions except per share date)
PROJECTED
ACTUAL -------------------------------------------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Petrochemicals EBITDA $239.5 $ 126.1 $122.3 $ 76.3 $117.7 $133.1
Pulp Chemicals EBITDA 44.7 61.8 85.8 104.4 102.9 94.7
- --------------------- ------ ------- ------ ------ ------ ------
Operating EBITDA 284.2 187.9 208.1 180.6 220.7 227.8
Cost Savings - - 30.0 30.0 30.0 30.0
Total EBITDA 284.2 187.9 238.1 210.6 250.7 257.8
Less: Depreciation (43.0) (39.1) (52.8) (55.1) (55.1) (55.1)
- ------------------ ------ ------- ------ ------ ------ ------
EBIT 241.2 148.8 185.3 155.6 195.6 202.7
SAR's & Other Income - (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Expense
Company Debt (14.6) 0.0 0.0 0.0 0.0 0.0
Senior Bank Debt @ 8.4% 0.0 (27.4) (30.1) (22.6) (13.2) (2.3)
Senior Sub. Debt @ 11.5% 0.0 (37.4) (37.4) (37.4) (37.4) (37.4)
------------------------ ------ ------- ------ ------ ------ ------
Total Interest Expense (14.6) (64.8) (67.5) (59.9) (50.5) (39.6)
Pretax Income 212.0 81.3 115.4 94.5 143.9 161.9
Income Taxes (62.0) (28.5) (40.4) (33.1) (50.4) (56.7)
- ------------------ ------ ------- ------ ------ ------ ------
NET INCOME $150.0 $ 52.9 $ 75.0 $ 61.4 $ 93.5 $105.3
- ------------------------------ --------------------------------------------------------------
E.P.S $ 2.69 $ 3.77 $ 5.34 $ 4.38 $ 6.67 $ 7.50
Shares Outstanding 55.7 14.0 14.0 14.0 14.0 14.0
- ------------------------------ --------------------------------------------------------------
Plus: Deferred Taxes $ 1.0 $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: Dep. & Amortization 43.0 39.1 52.8 55.1 55.1 55.1
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (1.5) 0.4
Less: Capital Expenditures (53.9) (104.2) (47.5) (31.5) (25.0) (25.0)
- -------------------------- ------ ------- ------ ------ ------ ------
Free Cash Flow $141.4 ($31.8) $ 89.4 $111.1 $129.3 $142.4
====== ======= ====== ====== ====== ======
</TABLE>
- 55 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- ----------------------------------------------------------------------------------------
SCENARIO: DISTRIBUTION-$500 MILLION-COMPANY REVISED BASE CASE
DEBT CALCULATIONS: 1997-2000 ANNUAL COST SAVINGS-$30
(Dollars in millions except per share data)
PROJECTED
-------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Cash & Investments $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Debt
Long-Term Debt $129.6
Short-term Debt 3.2
--------------- ------
Total Company Debt $132.8 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Senior Bank Debt $324.9 $356.6 $267.3 $ 156.1 $ 26.8 $ 0.0
Senior Sub. Deb. 324.9 324.9 324.9 324.9 324.9 209.3
---------------- ------ ------ ------ ------- ------ -------
Incremental Debt 649.8 681.5 592.2 481.0 351.7 209.3
---------------- ------ ------ ------ ------- ------ -------
Total Debt $649.8 $681.5 $592.2 $ 481.0 $351.7 $ 209.3
Common Equity $239.3
Incremental Effect (500.0)
------------------ ------
Total ($260.7) ($207.9) ($132.9) ($ 71.5) $ 22.1 $127.3
Net Income $150.0 $ 52.9 $ 75.0 $ 61.4 $ 93.5 $105.3
Cash Balances
Cash & Investments beginning $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Free Cash Flow (31.8) 89.4 111.1 129.3 142.4
-------------- ------ ------ ------- ------ -------
Cash Available to Pay Debt (31.8) 89.4 111.1 129.3 142.4
Cash Repayment Balances
Senior Debt 31.8 (89.4) (111.1) (129.3) (26.8)
Cash Balance 0.0 0.0 0.0 0.0 115.6
Senior Sub. Debt 0.0 0.0 0.0 0.0 (115.6)
Cash Balance 0.0 0.0 0.0 0.0 0.0
Interest Income 0.0 0.0 0.0 0.0 0.0
</TABLE>
- 56 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE II. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
SCENARIO: DISTRIBUTION-$500 MILLION-COMPANY REVISED BASE CASE
CREDIT STATISTICS: 1997-2000 ANNUAL COST SAVINGS-$30
PROJECTED PRO FORMA
ACTUAL PRO FORMA -------------------------------------------------
1995 1995 1996 1997 1998 1999 2000
---- --------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Leverage Ratio
Net Debt/Book Capitalization 36% 254% 144% 129% 117% 94% 62%
Coverage Ratios
Total Debt/EBITDA 0.5x 2.3x 3.6x 2.5x 2.3x 1.4x 0.8x
EBITDA/Interest 19.5x 4.4x 2.9x 3.5x 3.5x 5.0x 6.5x
(EBITDA-CapEx)/Interest 15.8x 3.6x 1.3x 2.8x 3.0x 4.5x 5.9x
EBIT/Interest 16.5x 3.7x 2.3x 2.7x 2.6x 3.9x 5.1x
</TABLE>
- 57 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- ---------------------------------------------------------------------------------------------------------------------------
SCENARIO: SPECIAL DIVIDEND-$500 MILLION-COMPANY REVISED BASE CASE
ASSUMPTIONS
- ----------------------------------------------------------------------------------------------------------------------------
Current Shares Outstanding 55.7 Senior Bank Debt @ 8.4% $324.9 Cash Dividend $500.0
Senior Sub. Debt @ 11.5% 324.9 Trans. Expenses 17.0
------------------------ ------ Assumed Debt 132.8
Total Debt $649.8 ------
Total Uses $649.8
- ----------------------------------------------------------------------------------------------------------------------------
PRO FORMA INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS-$30
(Dollars in millions except per share data)
PROJECTED
ACTUAL -------------------------------------------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Petrochemicals EBITDA $239.5 $ 126.1 $122.3 $ 76.3 $117.7 $133.1
Pulp Chemicals EBITDA 44.7 61.8 85.8 104.4 102.9 94.7
- --------------------- ------ ------- ------ ------ ------ ------
Operating EBITDA 284.2 187.9 208.1 180.6 220.7 227.8
Cost Savings - - 30.0 30.0 30.0 30.0
Total EBITDA 284.2 187.9 238.1 210.6 250.7 257.8
Less: Depreciation (43.0) (39.1) (52.8) (55.1) (55.1) (55.1)
- ------------------ ------ ------- ------ ------ ------ ------
EBIT 241.2 148.8 185.3 155.6 195.6 202.7
SAR's & Other Income - (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Expense
Company Debt (14.6) 0.0 0.0 0.0 0.0 0.0
Senior Bank Debt @ 8.4% 0.0 (27.4) (30.1) (22.6) (13.2) 2.3
Senior Sub. Debt @ 11.5% 0.0 (37.4) (37.4) (37.4) (37.4) (37.4)
------------------------ ------ ------- ------ ------ ------ ------
Total Interest Expense (14.6) (64.8) (67.5) (59.9) (50.5) (39.6)
Pretax Income 226.6 81.3 115.4 94.5 143.9 161.9
Income Taxes (76.6) (28.5) (40.4) (33.1) (50.4) (56.7)
- ------------------ ------ ------- ------ ------ ------ ------
NET INCOME $150.0 $ 52.9 $ 75.0 $ 61.4 $ 93.5 $105.3
- ------------------------------ --------------------------------------------------------------
E.P.S $ 2.69 $ 0.95 $ 1.35 $ 1.10 $ 1.68 $ 1.89
Shares Outstanding 55.7 55.7 55.7 55.7 55.7 55.7
- ------------------------------ --------------------------------------------------------------
Plus: Deferred Taxes $ 1.0 $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: Dep. & Amortization 43.0 39.1 52.8 55.1 55.1 55.1
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (1.5) 0.4
Less: Capital Expenditures (53.9) (104.2) (47.5) (31.5) (25.0) (25.0)
- -------------------------- ------ ------- ------ ------ ------ ------
Free Cash Flow $141.4 ($31.8) $ 89.4 $111.1 $129.3 $142.4
====== ======= ====== ====== ====== ======
</TABLE>
- 58 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- ---------------------------------------------------------------------------------------------------------------------------
SCENARIO: SHARE REPURCHASE-$400m-COMPANY REVISED DOWNSIDE CASE
ASSUMPTIONS
- ----------------------------------------------------------------------------------------------------------------------------
Current Share Price (3/29/95) $12.63 Senior Bank Debt @ 8.4% $273.4 Current Shares Outstanding 55.7
Offer Price $12.00 Senior Sub. Debt @ 11.0% 273.4 # of Shares Repurchased 33.3
------------------------ ------ ----
Equity Repurchased $400.0 Total Debt $546.8 # of Pro Forma Shares 22.4
Transaction Expenses $14.0 Assumed Debt $132.8
- ----------------------------------------------------------------------------------------------------------------------------
PRO FORMA INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS-$30
(Dollars in millions except per share data)
PROJECTED
ACTUAL -------------------------------------------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Petrochemicals EBITDA $239.5 $ 101.1 $ 71.2 $ 41.8 $ 79.9 $ 94.9
Pulp Chemicals EBITDA 44.7 61.8 72.0 78.4 90.0 82.5
- --------------------- ------ ------- ------ ------ ------ ------
Operating EBITDA 284.2 162.9 143.2 120.2 170.0 177.4
Cost Savings - - 30.0 30.0 30.0 30.0
Total EBITDA 284.2 162.9 173.2 150.2 200.0 207.4
Less: Depreciation (43.0) (39.1) (52.1) (53.4) (53.4) (53.4)
- ------------------ ------ ------- ------ ------ ------ ------
EBIT 241.2 123.8 121.1 96.8 146.5 153.9
SAR's & Other Income - (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Expense
Company Debt (14.6) 0.0 0.0 0.0 0.0 0.0
Senior Bank Debt @ 8.4% 0.0 (23.1) (26.5) (20.6) (13.5) (5.2)
Senior Sub. Debt @ 11.0% 0.0 (30.1) (30.1) (30.1) (30.1) (30.1)
------------------------ ------ ------- ------ ------ ------ ------
Total Interest Expense (14.6) (53.1) (56.6) (50.7) (43.6) (35.3)
Pretax Income 212.0 67.9 62.0 44.9 101.7 117.5
Income Taxes (62.0) (23.8) (21.7) (15.7) (35.6) (41.1)
- ------------------ ------ ------- ------ ------ ------ ------
NET INCOME $150.0 $ 44.2 $ 40.3 $ 29.2 $ 66.1 $ 76.3
- ------------------------------ --------------------------------------------------------------
E.P.S $ 2.69 $ 1.97 $ 1.80 $ 1.31 $ 2.96 $ 3.41
Shares Outstanding 55.7 22.4 22.4 22.4 22.4 22.4
- ------------------------------ --------------------------------------------------------------
Plus: Deferred Taxes $ 1.0 $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: Dep. & Amortization 43.0 39.1 52.1 53.4 53.4 53.4
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (3.4) 0.4
Less: Capital Expenditures (53.9) (104.2) (31.7) (25.0) (25.0) (25.0)
- -------------------------- ------ ------- ------ ------ ------ ------
Free Cash Flow $141.4 ($40.5) $ 69.8 $ 83.8 $ 98.4 $111.9
====== ======= ====== ====== ====== ======
</TABLE>
- 59 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- ----------------------------------------------------------------------------------------
SCENARIO: DISTRIBUTION-$400 MILLION-COMPANY REVISED DOWNSIDE CASE
DEBT CALCULATIONS: 1997-2000 ANNUAL COST SAVINGS-$30
(Dollars in millions except per share data)
PROJECTED
-------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Cash & Investments $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Debt
Long-Term Debt $129.6
Short-term Debt 3.2
--------------- ------
Total Company Debt $132.8 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Senior Bank Debt $273.4 $313.8 $244.0 $ 160.2 $ 61.9 $ 0.0
Senior Sub. Deb. 273.4 273.4 273.4 273.4 273.4 223.3
---------------- ------ ------ ------ ------- ------ -------
Incremental Debt 546.8 587.2 517.4 433.6 335.3 223.3
---------------- ------ ------ ------ ------- ------ -------
Total Debt $546.8 $587.2 $517.4 $ 433.6 $335.3 $ 223.3
Common Equity $239.3
Incremental Effect (400.0)
------------------ ------
Total ($160.7) ($116.6) ($76.2) $ 47.0 $ 19.1 $ 95.4
Net Income $150.0 $ 44.2 $ 40.3 $ 29.2 $ 66.1 $ 76.3
Cash Balances
Cash & Investments beginning $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Free Cash Flow (40.5) 69.8 83.8 98.4 111.9
-------------- ------ ------ ------- ------ -------
Cash Available to Pay Debt (40.5) 69.8 83.8 98.4 111.9
Cash Repayment Balances
Senior Debt 40.5 (69.8) (83.8) (98.4) (61.9)
Cash Balance 0.0 0.0 0.0 0.0 50.1
Senior Sub. Debt 0.0 0.0 0.0 0.0 (50.1)
Cash Balance 0.0 0.0 0.0 0.0 0.0
Interest Income 0.0 0.0 0.0 0.0 0.0
</TABLE>
- 60 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
SCENARIO: DISTRIBUTION-$400 MILLION-COMPANY REVISED DOWNSIDE CASE
CREDIT STATISTICS: 1997-2000 ANNUAL COST SAVINGS-$30
PROJECTED PRO FORMA
ACTUAL PRO FORMA -------------------------------------------------
1995 1995 1996 1997 1998 1999 2000
---- --------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Leverage Ratio
Net Debt/Book Capitalization 36% 216% 125% 117% 112% 95% 70%
Coverage Ratios
Total Debt/EBITDA 0.5x 1.9x 3.6x 3.0x 2.9x 1.7x 1.1x
EBITDA/Interest 19.5x 5.3x 3.1x 3.1x 3.0x 4.6x 5.9x
(EBITDA-CapEx)/Interest 15.8x 4.3x 1.1x 2.5x 2.5x 4.0x 5.2x
EBIT/Interest 16.5x 4.5x 2.3x 2.1x 1.9x 3.4x 4.4x
</TABLE>
- 61 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- ---------------------------------------------------------------------------------------------------------------------------
SCENARIO: SHARE REPURCHASE-$400m-COMPANY REVISED BASE CASE
- ---------------------------------------------------------------------------------------------------------------------------
ASSUMPTIONS
Current Shares Outstanding 55.7 Senior Bank Debt @ 8.4% $273.4 Cash Dividend $400.00
Senior Sub. Debt @ 11.0% 273.4 Trans. Expenses 14.0
------------------------ ------ Assumed Debt 132.8
Total Debt $546.8 ------
Total Uses $546.8
- ----------------------------------------------------------------------------------------------------------------------------
PRO FORMA INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS - $30
(Dollars in millions except per share data)
PROJECTED
ACTUAL -------------------------------------------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Petrochemicals EBITDA $239.5 $ 101.1 $ 71.2 $ 41.8 $ 79.9 $ 94.9
Pulp Chemicals EBITDA 44.7 61.8 72.0 78.4 90.0 82.5
- --------------------- ------ ------- ------ ------ ------ ------
Operating EBITDA 284.2 162.9 143.2 120.2 170.0 177.4
Cost Savings - - 30.0 30.0 30.0 30.0
Total EBITDA 284.2 162.9 173.2 150.2 200.0 207.4
Less: Depreciation (43.0) (39.1) (52.1) (53.4) (53.4) (53.4)
- ------------------ ------ ------- ------ ------ ------ ------
EBIT 241.2 123.8 121.1 96.8 146.5 153.9
SAR's & Other Income - (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Expense
Company Debt (14.6) 0.0 0.0 0.0 0.0 0.0
Senior Bank Debt @ 8.4% 0.0 (23.1) (26.5) (20.6) (13.5) (5.2)
Senior Sub. Debt @ 11.0% 0.0 (30.1) (30.1) (30.1) (30.1) (30.1)
------------------------ ------ ------- ------ ------ ------ ------
Total Interest Expense (14.6) (53.1) (56.6) (50.7) (43.6) (35.3)
Pretax Income 226.6 67.9 62.0 44.9 101.7 117.5
Income Taxes (76.6) (23.8) (21.7) (15.7) (35.6) (41.1)
- ------------------ ------ ------- ------ ------ ------ ------
NET INCOME $150.0 $ 44.2 $ 40.3 $ 29.2 $ 66.1 $ 76.3
- ------------------------------ --------------------------------------------------------------
E.P.S $ 2.69 $ 0.79 $ 0.72 $ 0.52 $ 1.19 $ 1.37
Shares Outstanding 55.7 55.7 55.7 55.7 55.7 55.7
- ------------------------------ --------------------------------------------------------------
Plus: Deferred Taxes $ 1.0 $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: Dep. & Amortization 43.0 39.1 52.1 53.4 53.4 53.4
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (3.4) 0.4
Less: Capital Expenditures (53.9) (104.2) (31.7) (25.0) (25.0) (25.0)
- -------------------------- ------ ------- ------ ------ ------ ------
Free Cash Flow $141.4 ($40.5) $ 69.8 $ 83.8 $ 98.4 $111.9
====== ======= ====== ====== ====== ======
</TABLE>
- 62 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- ---------------------------------------------------------------------------------------------------------------------------
SCENARIO: SHARE REPURCHASE-$500m-COMPANY REVISED DOWNSIDE CASE
ASSUMPTIONS
- ---------------------------------------------------------------------------------------------------------------------------
Current Share Price (3/29/95) $12.63 Senior Bank Debt @ 8.4% $324.9 Current Shares Outstanding 55.7
Offer Price $12.00 Senior Sub. Debt @ 11.5% 324.9 # of Shares Repurchased 41.7
------------------------ ------ ------
Equity Repurchased $500.0 Total Debt $649.8 # of Pro Forma Shares 14.0
Transaction Expenses $ 17.0 Assumed Debt $132.8
- ----------------------------------------------------------------------------------------------------------------------------
PRO FORMA INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS - $30
(Dollars in millions except per share data)
PROJECTED
ACTUAL -------------------------------------------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Petrochemicals EBITDA $239.5 $ 101.1 $ 71.2 $ 41.8 $ 79.9 $ 94.9
Pulp Chemicals EBITDA 44.7 61.8 72.0 78.4 90.0 82.5
- --------------------- ------ ------- ------ ------ ------ ------
Operating EBITDA 284.2 162.9 143.2 120.2 170.0 177.4
Cost Savings - - 30.0 30.0 30.0 30.0
Total EBITDA 284.2 162.9 173.2 150.2 200.0 207.4
Less: Depreciation (43.0) (39.1) (52.1) (53.4) (53.4) (53.4)
- ------------------ ------ ------- ------ ------ ------ ------
EBIT 241.2 123.8 121.1 96.8 146.5 153.9
SAR's & Other Income - (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Expense
Company Debt (14.6) 0.0 0.0 0.0 0.0 0.0
Senior Bank Debt @ 8.4% 0.0 (27.4) (31.5) (26.2) (19.9) (12.3)
Senior Sub. Debt @ 11.5% 0.0 (37.4) (37.4) (37.4) (37.4) (37.4)
------------------------ ------ ------- ------ ------ ------ ------
Total Interest Expense (14.6) (64.8) (68.8) (63.6) (57.2) (49.7)
Pretax Income 212.0 56.3 49.8 32.0 88.1 103.1
Income Taxes (62.0) (19.7) (17.4) (11.2) (30.8) (36.1)
- ------------------ ------ ------- ------ ------ ------ ------
NET INCOME $150.0 $ 36.6 $ 32.3 $ 20.8 $ 57.3 $ 67.0
- ------------------------------ --------------------------------------------------------------
E.P.S $ 2.69 $ 2.61 $ 2.30 $ 1.48 $ 4.08 $ 4.77
Shares Outstanding 55.7 14.0 14.0 14.0 14.0 14.0
- ------------------------------ --------------------------------------------------------------
Plus: Deferred Taxes $ 1.0 $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: Dep. & Amortization 43.0 39.1 52.1 53.4 53.4 53.4
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (3.4) 0.4
Less: Capital Expenditures (53.9) (104.2) (31.7) (25.0) (25.0) (25.0)
- -------------------------- ------ ------- ------ ------ ------ ------
Free Cash Flow $141.4 ($48.0) $ 61.9 $ 75.3 $ 89.5 $102.6
====== ======= ====== ====== ====== ======
</TABLE>
- 63 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- ----------------------------------------------------------------------------------------------------
SCENARIO: DISTRIBUTION-$500 MILLION-COMPANY REVISED DOWNSIDE CASE
DEBT CALCULATIONS: 1997-2000 ANNUAL COST SAVINGS-$30
(Dollars in millions)
PROJECTED
-------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Cash & Investments $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Debt
Long-Term Debt $129.6
Short-term Debt 3.2
--------------- ------
Total Company Debt $132.8 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Senior Bank Debt $324.9 $372.9 $311.0 $ 235.7 $146.2 $ 43.6
Senior Sub. Deb. 324.9 324.9 324.9 324.9 324.9 324.9
---------------- ------ ------ ------ ------- ------ -------
Incremental Debt 649.8 697.8 635.9 560.6 471.1 368.5
---------------- ------ ------ ------ ------- ------ -------
Total Debt $649.8 $697.8 $635.9 $ 560.6 $471.1 $ 368.5
Common Equity $239.3
Incremental Effect (500.0)
------------------ ------
Total ($260.7) ($224.1) ($191.8) ($171.0) ($113.7) ($46.8)
Net Income $150.0 $ 36.6 $ 32.3 $ 20.8 $ 57.3 $ 67.0
Cash Balances
Cash & Investments beginning $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Free Cash Flow (48.0) 61.9 75.3 89.5 102.6
-------------- ------ ------ ------- ------ ------
Cash Available to Pay Debt (48.0) 61.9 75.3 89.5 102.6
Cash Repayment Balances
Senior Debt 48.0 (61.9) (75.3) (89.5) (102.6)
Cash Balance 0.0 0.0 0.0 0.0 0.0
Senior Sub. Debt 0.0 0.0 0.0 0.0 0.0
Cash Balance 0.0 0.0 0.0 0.0 0.0
Interest Income 0.0 0.0 0.0 0.0 0.0
</TABLE>
- 64 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -------------------------------------------------------------------------------------------------------------------------
SCENARIO: DISTRIBUTION-$500 MILLION-COMPANY REVISED DOWNSIDE CASE
CREDIT STATISTICS: 1997-2000 ANNUAL COST SAVINGS-$30
PROJECTED PRO FORMA
ACTUAL PRO FORMA -------------------------------------------------
1995 1995 1996 1997 1998 1999 2000
---- --------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Leverage Ratios
Net Debt/Book Capitalization 36% 254% 147% 143% 144% 132% 115%
Coverage Ratios
Total Debt/EBITDA 0.5x 2.3x 4.3x 3.7x 3.7x 2.4x 1.8x
EBITDA/Interest 19.5x 4.4x 2.5x 2.5x 2.4x 3.5x 4.2x
(EBITDA-CapEx)/Interest 15.8x 3.6x 0.9x 2.1x 2.0x 3.1x 3.7x
EBIT/Interest 16.5x 3.7x 1.9x 1.8x 1.5x 2.6x 3.1x
</TABLE>
- 65 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- ---------------------------------------------------------------------------------------------------------------------------
SCENARIO: SPECIAL DIVIDEND-$500 MILLION-COMPANY REVISED DOWNSIDE CASE
- ---------------------------------------------------------------------------------------------------------------------------
ASSUMPTIONS
Current Shares Outstanding 55.7 Senior Bank Debt @ 8.4% $324.9 Cash Dividend $500.00
Senior Sub. Debt @ 11.5% 324.9 Trans. Expenses 17.0
------------------------ ------ Assumed Debt 132.8
Total Debt $649.8 ------
Total Uses $649.8
- ----------------------------------------------------------------------------------------------------------------------------
PRO FORMA INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS - $30
(Dollars in millions except per share data)
PROJECTED
ACTUAL -------------------------------------------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Petrochemicals EBITDA $239.5 $ 101.1 $ 71.2 $ 41.8 $ 79.9 $ 94.9
Pulp Chemicals EBITDA 44.7 61.8 72.0 78.4 90.0 82.5
- --------------------- ------ ------- ------ ------ ------ ------
Operating EBITDA 284.2 162.9 143.2 120.2 170.0 177.4
Cost Savings - - 30.0 30.0 30.0 30.0
Total EBITDA 284.2 162.9 173.2 150.2 200.0 207.4
Less: Depreciation (43.0) (39.1) (52.1) (53.4) (53.4) (53.4)
- ------------------ ------ ------- ------ ------ ------ ------
EBIT 241.2 123.8 121.1 96.8 146.5 153.9
SAR's & Other Income - (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Expense
Company Debt (14.6) 0.0 0.0 0.0 0.0 0.0
Senior Bank Debt @ 8.4% 0.0 (27.4) (31.5) (26.2) (19.9) (12.3)
Senior Sub. Debt @ 11.5% 0.0 (37.4) (37.4) (37.4) (37.4) (37.4)
------------------------ ------ ------- ------ ------ ------ ------
Total Interest Expense (14.6) (64.8) (68.8) (63.6) (57.2) (49.7)
Pretax Income 226.6 56.3 49.8 32.0 88.1 103.1
Income Taxes (76.6) (19.7) (17.4) (11.2) (30.8) (36.1)
- ------------------ ------ ------- ------ ------ ------ ------
NET INCOME $150.0 $ 36.6 $ 32.3 $ 20.8 $ 57.3 $ 67.0
- ------------------------------ --------------------------------------------------------------
E.P.S $ 2.69 $ 0.66 $ 0.58 $ 0.37 $ 1.03 $ 1.20
Shares Outstanding 55.7 55.7 55.7 55.7 55.7 55.7
- ------------------------------ --------------------------------------------------------------
Plus: Deferred Taxes $ 1.0 $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: Dep. & Amortization 43.0 39.1 52.1 53.4 53.4 53.4
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (3.4) 0.4
Less: Capital Expenditures (53.9) (104.2) (31.7) (25.0) (25.0) (25.0)
- -------------------------- ------ ------- ------ ------ ------ ------
Free Cash Flow $141.4 ($48.0) $ 61.9 $ 75.3 $ 89.5 $102.6
====== ======= ====== ====== ====== ======
</TABLE>
- 66 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
ANALYSIS OF BLENDED SHARE PRICE
(Dollars in millions except per share data)
SCENARIO: COMPANY REVISED BASE CASE: 1997-2000 ANNUAL COST SAVINGS-$30
Current Stock Price $12.625
<S> <C> <C> <C> <C> <C>
Repurchase Price $10.00 $11.00 $12.00 $13.00 $14.00
$ Repurchases (millions) $ 400 $ 400 $ 400 $ 400 $ 400
% Repurchased 71.8% 65.3% 59.8% 55.2% 51.3%
------ ------ ------ ------ ------
# of Shares Repurchased 40.0 36.4 33.3 30.8 28.6
Pro Forma # of Shares 15.7 19.3 22.4 24.9 27.1
Pro Forma EPS:
1996E $ 3.85 $ 3.13 $ 2.70 $ 2.42 $ 2.23
1997E 5.29 4.29 3.71 3.33 3.06
Blended Share Price Assuming
No Change Post-Repurchase $10.74 $11.56 $12.25 $12.83 $13.33
Implied Share Price Effects:
Pro-Rated Repurchases $ 7.18 $ 7.18 $ 7.18 $ 7.18 $ 7.18
Remaining Interest (a) 4.34 4.34 4.34 4.34 4.34
------ ------ ------ ------ ------
Blended Share Price $11.52 $11.52 $11.52 $11.52 $11.52
====== ====== ====== ====== ======
Pro Forma Stock Price (a) $15.40 $12.50 $10.81 $ 9.70 $ 8.91
</TABLE>
- ----------------
(a) Assumes post-trading multiple settles at 4.0x 1996 estimated EPS.
- 67 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
ANALYSIS OF BLENDED SHARE PRICE
(Dollars in millions except per share data)
SCENARIO: COMPANY REVISED BASE CASE: 1997-2000 ANNUAL COST SAVINGS-$30
Current Stock Price $12.625
<S> <C> <C> <C> <C> <C>
Repurchase Price $10.00 $11.00 $12.00 $13.00 $14.00
$ Repurchases (millions) $ 500 $ 500 $ 500 $ 500 $ 500
% Repurchased 89.8% 81.6% 74.8% 69.1% 64.1%
------ ------ ------ ------ ------
# of Shares Repurchased 50.0 45.5 41.7 38.5 35.7
Pro Forma # of Shares 5.7 10.2 14.0 17.2 20.0
Pro Forma EPS:
1996E $ 9.28 $ 5.16 $ 3.77 $ 3.07 $ 2.65
1997E 13.16 7.32 5.34 4.35 3.75
Blended Share Price Assuming
No Change Post-Repurchase $10.27 $11.30 $12.16 $12.88 $13.51
Implied Share Price Effects:
Pro-Rated Repurchases $ 8.98 $ 8.98 $ 8.98 $ 8.98 $ 8.98
Remaining Interest (a) 3.80 3.80 3.80 3.80 3.80
------ ------ ------ ------ ------
Blended Share Price $12.77 $12.77 $12.77 $12.77 $12.77
====== ====== ====== ====== ======
Pro Forma Stock Price (a) $37.10 $20.64 $15.07 $12.27 $10.58
</TABLE>
- ----------------
(a) Assumes post-trading multiple settles at 4.0x 1996 estimated EPS.
- 68 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
POST-REPURCHASE TRADING ANALYSIS-COMPANY REVISED BASE CASE: 1997-2000 ANNUAL COST SAVINGS-$30
(Dollars in millions except per share data)
SCENARIO 1: $10 REPURCHASE STOCK PRICE
PRO FORMA PRICE/ MARKET CAPITALIZATION/
EARNINGS PER SHARE PRICE/E.P.S. CASH FLOW PER SHARE (A) EBITDA
REPURCHASE STOCK PRICE ------------------ ---------------------- ----------------------- ----------------------
AMOUNT POST TRANSACTION 1996E 1997E 1996E 1997E 1996E 1997E 1996E 1997E
- ---------- ---------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400 $ 4.00 $3.85 $5.29 1.0x 0.8x 0.6x 0.4x 3.2x 2.6x
$ 5.00 1.3x 0.9x 0.7x 0.5x 3.3x 2.6x
$ 6.00 1.6x 1.1x 0.9x 0.6x 3.4x 2.7x
$ 7.00 1.8x 1.3x 1.0x 0.7x 3.5x 2.8x
$ 8.00 2.1x 1.5x 1.1x 0.8x 3.6x 2.8x
$ 9.00 2.3x 1.7x 1.3x 1.0x 3.7x 2.9x
$10.00 2.6x 1.9x 1.4x 1.1x 3.7x 3.0x
$11.00 2.9x 2.1x 1.6x 1.2x 3.8x 3.0x
$12.00 3.1x 2.3x 1.7x 1.3x 3.9x 3.1x
$13.00 3.4x 2.5x 1.9x 1.4x 4.0x 3.2x
$14.00 3.6x 2.6x 2.0x 1.5x 4.1x 3.2x
REPURCHASE
AMOUNT
- ----------
$500 $ 4.00 $9.28 $13.16 0.4x 0.3x 0.2x 0.2x 3.6x 2.8x
$ 5.00 0.5x 0.4x 0.3x 0.2x 3.6x 2.8x
$ 6.00 0.6x 0.5x 0.3x 0.2x 3.6x 2.9x
$ 7.00 0.8x 0.5x 0.4x 0.3x 3.7x 2.9x
$ 8.00 0.9x 0.6x 0.4x 0.3x 3.7x 2.9x
$ 9.00 1.0x 0.7x 0.5x 0.4x 3.7x 2.9x
$10.00 1.1x 0.8x 0.6x 0.4x 3.8x 3.0x
$11.00 1.2x 0.8x 0.6x 0.4x 3.8x 3.0x
$12.00 1.3x 0.9x 0.7x 0.5x 3.8x 3.0x
$13.00 1.4x 1.0x 0.7x 0.5x 3.9x 3.0x
$14.00 1.5x 1.1x 0.8x 0.6x 3.9x 3.1x
</TABLE>
- ---------------
(a) Cash flow per share defined as net income plus deferred taxes, plus
depreciation and amortization, divided by the pro forma number of shares
outstanding.
- 69 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
POST-REPURCHASE TRADING ANALYSIS-COMPANY REVISED BASE CASE: 1997-2000 ANNUAL COST SAVINGS-$30
(Dollars in millions except per share data)
SCENARIO 2: $11 REPURCHASE STOCK PRICE
PRO FORMA PRICE/ MARKET CAPITALIZATION/
EARNINGS PER SHARE PRICE/E.P.S. CASH FLOW PER SHARE (A) EBITDA
REPURCHASE STOCK PRICE ------------------ ---------------------- ----------------------- ----------------------
AMOUNT POST TRANSACTION 1996E 1997E 1996E 1997E 1996E 1997E 1996E 1997E
- ---------- ---------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400 $ 4.00 $3.13 $4.29 1.3x 0.9x 0.7x 0.5x 3.3x 2.6x
$ 5.00 1.6x 1.2x 0.9x 0.7x 3.4x 2.7x
$ 6.00 1.9x 1.4x 1.1x 0.8x 3.5x 2.8x
$ 7.00 2.2x 1.6x 1.2x 0.9x 3.6x 2.9x
$ 8.00 2.6x 1.9x 1.4x 1.0x 3.7x 2.9x
$ 9.00 2.9x 2.1x 1.6x 1.2x 3.8x 3.0x
$10.00 3.2x 2.3x 1.8x 1.3x 3.9x 3.1x
$11.00 3.5x 2.6x 1.9x 1.4x 4.0x 3.2x
$12.00 3.8x 2.8x 2.1x 1.6x 4.1x 3.3x
$13.00 4.2x 3.0x 2.3x 1.7x 4.2x 3.4x
$14.00 4.5x 3.3x 2.5x 1.8x 4.4x 3.4x
REPURCHASE
AMOUNT
- ----------
$500 $ 4.00 $5.16 $7.32 0.8x 0.5x 0.4x 0.3x 3.7x 2.9x
$ 5.00 1.0x 0.7x 0.5x 0.4x 3.7x 2.9x
$ 6.00 1.2x 0.8x 0.6x 0.4x 3.8x 3.0x
$ 7.00 1.4x 1.0x 0.7x 0.5x 3.8x 3.0x
$ 8.00 1.6x 1.1x 0.8x 0.6x 3.9x 3.1x
$ 9.00 1.7x 1.2x 0.9x 0.7x 3.9x 3.1x
$10.00 1.9x 1.4x 1.0x 0.7x 4.0x 3.2x
$11.00 2.1x 1.5x 1.1x 0.8x 4.1x 3.2x
$12.00 2.3x 1.6x 1.2x 0.9x 4.1x 3.2x
$13.00 2.5x 1.8x 1.3x 1.0x 4.2x 3.3x
$14.00 2.7x 1.9x 1.4x 1.0x 4.2x 3.3x
</TABLE>
- ---------------
(a) Cash flow per share defined as net income plus deferred taxes, plus
depreciation and amortization, divided by the pro forma number of shares
outstanding.
- 70 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
POST-REPURCHASE TRADING ANALYSIS-COMPANY REVISED BASE CASE: 1997-2000 ANNUAL COST SAVINGS-$30
(Dollars in millions except per share data)
SCENARIO 3: $12 REPURCHASE STOCK PRICE
PRO FORMA PRICE/ MARKET CAPITALIZATION/
EARNINGS PER SHARE PRICE/E.P.S. CASH FLOW PER SHARE (A) EBITDA
REPURCHASE STOCK PRICE ------------------ ---------------------- ----------------------- ----------------------
AMOUNT POST TRANSACTION 1996E 1997E 1996E 1997E 1996E 1997E 1996E 1997E
- ---------- ---------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400 $ 4.00 $2.70 $3.71 1.5x 1.1x 0.8x 0.6x 3.4x 2.7x
$ 5.00 1.9x 1.3x 1.0x 0.8x 3.5x 2.8x
$ 6.00 2.2x 1.6x 1.2x 0.9x 3.6x 2.9x
$ 7.00 2.6x 1.9x 1.4x 1.1x 3.7x 3.0x
$ 8.00 3.0x 2.2x 1.6x 1.2x 3.9x 3.0x
$ 9.00 3.3x 2.4x 1.8x 1.4x 4.0x 3.1x
$10.00 3.7x 2.7x 2.0x 1.5x 4.1x 3.2x
$11.00 4.1x 3.0x 2.2x 1.7x 4.2x 3.3x
$12.00 4.4x 3.2x 2.4x 1.8x 4.3x 3.4x
$13.00 4.8x 3.5x 2.6x 2.0x 4.5x 3.5x
$14.00 5.2x 3.8x 2.9x 2.1x 4.6x 3.6x
REPURCHASE
AMOUNT
- ----------
$500 $ 4.00 $3.77 $5.34 1.1x 0.7x 0.5x 0.4x 3.8x 3.0x
$ 5.00 1.3x 0.9x 0.7x 0.5x 3.8x 3.0x
$ 6.00 1.6x 1.1x 0.8x 0.6x 3.9x 3.1x
$ 7.00 1.9x 1.3x 1.0x 0.7x 4.0x 3.1x
$ 8.00 2.1x 1.5x 1.1x 0.8x 4.1x 3.2x
$ 9.00 2.4x 1.7x 1.2x 0.9x 4.1x 3.3x
$10.00 2.7x 1.9x 1.4x 1.0x 4.2x 3.3x
$11.00 2.9x 2.1x 1.5x 1.1x 4.3x 3.4x
$12.00 3.2x 2.2x 1.6x 1.2x 4.4x 3.4x
$13.00 3.5x 2.4x 1.8x 1.3x 4.4x 3.5x
$14.00 3.7x 2.6x 1.9x 1.4x 4.5x 3.6x
</TABLE>
- ---------------
(a) Cash flow per share defined as net income plus deferred taxes, plus
depreciation and amortization, divided by the pro forma number of shares
outstanding.
- 71 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
POST-REPURCHASE TRADING ANALYSIS-COMPANY REVISED BASE CASE: 1997-2000 ANNUAL COST SAVINGS-$30
(Dollars in millions except per share data)
SCENARIO 4: $13 REPURCHASE STOCK PRICE
PRO FORMA PRICE/ MARKET CAPITALIZATION/
EARNINGS PER SHARE PRICE/E.P.S. CASH FLOW PER SHARE (A) EBITDA
REPURCHASE STOCK PRICE ------------------ ---------------------- ----------------------- ----------------------
AMOUNT POST TRANSACTION 1996E 1997E 1996E 1997E 1996E 1997E 1996E 1997E
- ---------- ---------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400 $ 4.00 $2.42 $3.33 1.7x 1.2x 0.9x 0.7x 3.4x 2.7x
$ 5.00 2.1x 1.5x 1.1x 0.8x 3.6x 2.8x
$ 6.00 2.5x 1.8x 1.4x 1.0x 3.7x 2.9x
$ 7.00 2.9x 2.1x 1.6x 1.2x 3.8x 3.0x
$ 8.00 3.3x 2.4x 1.8x 1.3x 4.0x 3.1x
$ 9.00 3.7x 2.7x 2.0x 1.5x 4.1x 3.2x
$10.00 4.1x 3.0x 2.3x 1.7x 4.2x 3.3x
$11.00 4.5x 3.3x 2.5x 1.9x 4.4x 3.4x
$12.00 5.0x 3.6x 2.7x 2.0x 4.5x 3.6x
$13.00 5.4x 3.9x 3.0x 2.2x 4.6x 3.7x
$14.00 5.8x 4.2x 3.2x 2.4x 4.8x 3.8x
REPURCHASE
AMOUNT
- ----------
$500 $ 4.00 $3.07 $4.35 1.3x 0.9x 0.7x 0.5x 3.8x 3.0x
$ 5.00 1.6x 1.1x 0.8x 0.6x 3.9x 3.1x
$ 6.00 2.0x 1.4x 1.0x 0.7x 4.0x 3.2x
$ 7.00 2.3x 1.6x 1.2x 0.9x 4.1x 3.2x
$ 8.00 2.6x 1.8x 1.3x 1.0x 4.2x 3.3x
$ 9.00 2.9x 2.1x 1.5x 1.1x 4.3x 3.4x
$10.00 3.3x 2.3x 1.7x 1.2x 4.4x 3.5x
$11.00 3.6x 2.5x 1.9x 1.4x 4.5x 3.5x
$12.00 3.9x 2.8x 2.0x 1.5x 4.6x 3.6x
$13.00 4.2x 3.0x 2.2x 1.6x 4.7x 3.7x
$14.00 4.6x 3.2x 2.4x 1.7x 4.7x 3.7x
</TABLE>
- ---------------
(a) Cash flow per share defined as net income plus deferred taxes, plus
depreciation and amortization, divided by the pro forma number of shares
outstanding.
- 72 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
POST-REPURCHASE TRADING ANALYSIS-COMPANY REVISED BASE CASE: 1997-2000 ANNUAL COST SAVINGS-$30
(Dollars in millions except per share data)
SCENARIO 5: $14 REPURCHASE STOCK PRICE
PRO FORMA PRICE/ MARKET CAPITALIZATION/
EARNINGS PER SHARE PRICE/E.P.S. CASH FLOW PER SHARE (A) EBITDA
REPURCHASE STOCK PRICE ------------------ ---------------------- ----------------------- ----------------------
AMOUNT POST TRANSACTION 1996E 1997E 1996E 1997E 1996E 1997E 1996E 1997E
- ---------- ---------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400 $ 4.00 $2.23 $3.06 1.8x 1.3x 1.0x 0.7x 3.5x 2.8x
$ 5.00 2.2x 1.6x 1.2x 0.9x 3.6x 2.9x
$ 6.00 2.7x 2.0x 1.5x 1.1x 3.8x 3.0x
$ 7.00 3.1x 2.3x 1.7x 1.3x 3.9x 3.1x
$ 8.00 3.6x 2.6x 2.0x 1.5x 4.1x 3.2x
$ 9.00 4.0x 2.9x 2.2x 1.6x 4.2x 3.3x
$10.00 4.5x 3.3x 2.5x 1.8x 4.4x 3.4x
$11.00 4.9x 3.6x 2.7x 2.0x 4.5x 3.5x
$12.00 5.4x 3.9x 3.0x 2.2x 4.6x 3.7x
$13.00 5.8x 4.3x 3.2x 2.4x 4.8x 3.8x
$14.00 6.3x 4.6x 3.5x 2.6x 4.9x 3.9x
REPURCHASE
AMOUNT
- ----------
$500 $ 4.00 $2.65 $3.75 1.5x 1.1x 0.8x 0.6x 3.9x 3.1x
$ 5.00 1.9x 1.3x 1.0x 0.7x 4.0x 3.1x
$ 6.00 2.3x 1.6x 1.2x 0.9x 4.1x 3.2x
$ 7.00 2.6x 1.9x 1.4x 1.0x 4.2x 3.3x
$ 8.00 3.0x 2.1x 1.6x 1.1x 4.3x 3.4x
$ 9.00 3.4x 2.4x 1.8x 1.3x 4.4x 3.5x
$10.00 3.8x 2.7x 2.0x 1.4x 4.5x 3.6x
$11.00 4.2x 2.9x 2.2x 1.6x 4.6x 3.7x
$12.00 3.5x 3.2x 2.3x 1.7x 4.7x 3.7x
$13.00 4.9x 3.5x 2.5x 1.9x 4.8x 3.8x
$14.00 5.3x 3.7x 2.7x 2.0x 4.9x 3.9x
</TABLE>
- ---------------
(a) Cash flow per share defined as net income plus deferred taxes, plus
depreciation and amortization, divided by the pro forma number of shares
outstanding.
- 73 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
ANALYSIS OF BLENDED SHARE PRICE
(Dollars in millions except per share data)
SCENARIO: COMPANY REVISED DOWNSIDE CASE: 1997-2000 ANNUAL COST SAVINGS-$30
Current Stock Price $12.625
<S> <C> <C> <C> <C> <C>
Repurchase Price $10.00 $11.00 $12.00 $13.00 $14.00
$ Repurchases (millions) $ 400 $ 400 $ 400 $ 400 $ 400
% Repurchased 71.8% 65.3% 59.8% 55.2% 51.3%
------ ------ ------ ------ ------
# of Shares Repurchased 40.0 36.4 33.3 30.8 28.6
Pro Forma # of Shares 15.7 19.3 22.4 24.9 27.1
Pro Forma EPS:
1996E $ 2.81 $ 2.28 $ 1.97 $ 1.77 $ 1.63
1997E 2.57 2.09 1.80 1.62 1.49
Blended Share Price Assuming
No Change Post-Repurchase $10.74 $11.56 $12.25 $12.83 $13.33
Implied Share Price Effects:
Pro-Rated Repurchases $ 7.18 $ 7.18 $ 7.18 $ 7.18 $ 7.18
Remaining Interest (a) 3.17 3.17 3.17 3.17 3.17
------ ------ ------ ------ ------
Blended Share Price $10.35 $10.35 $10.35 $10.35 $10.35
====== ====== ====== ====== ======
Pro Forma Stock Price (a) $11.25 $ 9.14 $ 7.90 $ 7.09 $ 6.51
</TABLE>
- ----------------
(a) Assumes post-trading multiple settles at 4.0x 1996 estimated EPS.
- 74 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
ANALYSIS OF BLENDED SHARE PRICE
(Dollars in millions except per share data)
SCENARIO: COMPANY REVISED DOWNSIDE CASE: 1997-2000 ANNUAL COST SAVINGS-$30
Current Stock Price $12.625
<S> <C> <C> <C> <C> <C>
Repurchase Price $10.00 $11.00 $12.00 $13.00 $14.00
$ Repurchases (millions) $ 500 $ 500 $ 500 $ 500 $ 500
% Repurchased 89.8% 81.6% 74.8% 69.1% 64.1%
------ ------ ------ ------ ------
# of Shares Repurchased 50.0 45.5 41.7 38.5 35.7
Pro Forma # of Shares 5.7 10.2 14.0 17.2 20.0
Pro Forma EPS:
1996E $ 6.42 $ 3.57 $ 2.61 $ 2.12 $ 1.83
1997E 5.67 3.16 2.30 1.88 1.62
Blended Share Price Assuming
No Change Post-Repurchase $10.27 $11.30 $12.16 $12.88 $13.51
Implied Share Price Effects:
Pro-Rated Repurchases $ 8.98 $ 8.98 $ 8.98 $ 8.98 $ 8.98
Remaining Interest (a) 2.63 2.63 2.63 2.63 2.63
------ ------ ------ ------ ------
Blended Share Price $11.61 $11.61 $11.61 $11.61 $11.61
====== ====== ====== ====== ======
Pro Forma Stock Price (a) $25.69 $14.29 $10.43 $ 8.49 $ 7.33
</TABLE>
- ----------------
(a) Assumes post-trading multiple settles at 4.0x 1996 estimated EPS.
- 75 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
POST-REPURCHASE TRADING ANALYSIS-COMPANY REVISED DOWNSIDE CASE: 1997-2000 ANNUAL COST SAVINGS-$30
(Dollars in millions except per share data)
SCENARIO 1: $10 REPURCHASE STOCK PRICE
PRO FORMA PRICE/ MARKET CAPITALIZATION/
EARNINGS PER SHARE PRICE/E.P.S. CASH FLOW PER SHARE (A) EBITDA
REPURCHASE STOCK PRICE ------------------ ---------------------- ----------------------- ----------------------
AMOUNT POST TRANSACTION 1996E 1997E 1996E 1997E 1996E 1997E 1996E 1997E
- ---------- ---------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400 $ 4.00 $2.81 $2.57 1.4x 1.6x 0.7x 0.6x 3.7x 3.5x
$ 5.00 1.8x 1.9x 0.8x 0.7x 3.8x 3.6x
$ 6.00 2.1x 2.3x 1.0x 0.9x 3.9x 3.7x
$ 7.00 2.5x 2.7x 1.2x 1.0x 4.0x 3.8x
$ 8.00 2.8x 3.1x 1.3x 1.2x 4.1x 3.9x
$ 9.00 3.2x 3.5x 1.5x 1.3x 4.2x 4.0x
$10.00 3.6x 3.9x 1.7x 1.5x 4.3x 4.1x
$11.00 3.9x 4.3x 1.8x 1.6x 4.4x 4.2x
$12.00 4.3x 4.7x 2.0x 1.8x 4.5x 4.2x
$13.00 4.6x 5.1x 2.2x 1.9x 4.6x 4.3x
$14.00 5.0x 5.5x 2.4x 2.1x 4.7x 4.4x
REPURCHASE
AMOUNT
- ----------
$500 $ 4.00 $6.42 $5.67 0.6x 0.7x 0.3x 0.2x 4.1x 3.9x
$ 5.00 0.8x 0.9x 0.3x 0.3x 4.2x 3.9x
$ 6.00 0.9x 1.1x 0.4x 0.4x 4.2x 3.9x
$ 7.00 1.1x 1.2x 0.5x 0.4x 4.2x 4.0x
$ 8.00 1.2x 1.4x 0.5x 0.5x 4.3x 4.0x
$ 9.00 1.4x 1.6x 0.6x 0.5x 4.3x 4.0x
$10.00 1.6x 1.8x 0.7x 0.6x 4.3x 4.1x
$11.00 1.7x 1.9x 0.7x 0.6x 4.4x 4.1x
$12.00 1.9x 2.1x 0.8x 0.7x 4.4x 4.1x
$13.00 2.0x 2.3x 0.9x 0.8x 4.4x 4.2x
$14.00 2.2x 2.5x 0.9x 0.8x 4.5x 4.2x
</TABLE>
- ---------------
(a) Cash flow per share defined as net income plus deferred taxes, plus
depreciation and amortization, divided by the pro forma number of shares
outstanding.
- 76 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
POST-REPURCHASE TRADING ANALYSIS-COMPANY REVISED DOWNSIDE CASE: 1997-2000 ANNUAL COST SAVINGS-$30
(Dollars in millions except per share data)
SCENARIO 2: $11 REPURCHASE STOCK PRICE
PRO FORMA PRICE/ MARKET CAPITALIZATION/
EARNINGS PER SHARE PRICE/E.P.S. CASH FLOW PER SHARE (A) EBITDA
REPURCHASE STOCK PRICE ------------------ ---------------------- ----------------------- ----------------------
AMOUNT POST TRANSACTION 1996E 1997E 1996E 1997E 1996E 1997E 1996E 1997E
- ---------- ---------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400 $ 4.00 $2.28 $2.09 1.8x 1.9x 0.8x 0.7x 3.8x 3.6x
$ 5.00 2.2x 2.4x 1.0x 0.9x 4.0x 3.7x
$ 6.00 2.6x 2.9x 1.2x 1.1x 4.1x 3.8x
$ 7.00 3.1x 3.4x 1.4x 1.3x 4.2x 3.9x
$ 8.00 3.5x 3.8x 1.7x 1.5x 4.3x 4.1x
$ 9.00 3.9x 4.3x 1.9x 1.7x 4.4x 4.2x
$10.00 4.4x 4.8x 2.1x 1.8x 4.5x 4.3x
$11.00 4.8x 5.3x 2.3x 2.0x 4.7x 4.4x
$12.00 5.3x 5.8x 2.5x 2.2x 4.8x 4.5x
$13.00 5.7x 6.2x 2.7x 2.4x 4.9x 4.6x
$14.00 6.1x 6.7x 2.9x 2.6x 5.0x 4.7x
REPURCHASE
AMOUNT
- ----------
$500 $ 4.00 $3.57 $3.16 1.1x 1.3x 0.5x 0.4x 4.2x 4.0x
$ 5.00 1.4x 1.6x 0.6x 0.5x 4.3x 4.0x
$ 6.00 1.7x 1.9x 0.7x 0.6x 4.4x 4.1x
$ 7.00 2.0x 2.2x 0.8x 0.7x 4.4x 4.2x
$ 8.00 2.2x 2.5x 1.0x 0.8x 4.5x 4.2x
$ 9.00 2.5x 2.9x 1.1x 1.0x 4.6x 4.3x
$10.00 2.8x 3.2x 1.2x 1.1x 4.6x 4.3x
$11.00 3.1x 3.5x 1.3x 1.2x 4.7x 4.4x
$12.00 3.4x 3.8x 1.4x 1.3x 4.7x 4.5x
$13.00 3.6x 4.1x 1.5x 1.4x 4.8x 4.5x
$14.00 3.9x 4.4x 1.7x 1.5x 4.9x 4.6x
</TABLE>
- ---------------
(a) Cash flow per share defined as net income plus deferred taxes, plus
depreciation and amortization, divided by the pro forma number of shares
outstanding.
- 77 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
POST-REPURCHASE TRADING ANALYSIS-COMPANY REVISED DOWNSIDE CASE: 1997-2000 ANNUAL COST SAVINGS-$30
(Dollars in millions except per share data)
SCENARIO 3: $12 REPURCHASE STOCK PRICE
PRO FORMA PRICE/ MARKET CAPITALIZATION/
EARNINGS PER SHARE PRICE/E.P.S. CASH FLOW PER SHARE (A) EBITDA
REPURCHASE STOCK PRICE ------------------ ---------------------- ----------------------- ----------------------
AMOUNT POST TRANSACTION 1996E 1997E 1996E 1997E 1996E 1997E 1996E 1997E
- ---------- ---------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400 $ 4.00 $1.97 $1.80 2.0x 2.2x 1.0x 0.9x 3.9x 3.7x
$ 5.00 2.5x 2.8x 1.2x 1.1x 4.0x 3.8x
$ 6.00 3.0x 3.3x 1.4x 1.3x 4.2x 3.9x
$ 7.00 3.5x 3.9x 1.7x 1.5x 4.3x 4.1x
$ 8.00 4.1x 4.4x 1.9x 1.7x 4.5x 4.2x
$ 9.00 4.6x 5.0x 2.2x 1.9x 4.6x 4.3x
$10.00 5.1x 5.5x 2.4x 2.1x 4.7x 4.4x
$11.00 5.6x 6.1x 2.6x 2.3x 4.9x 4.6x
$12.00 6.1x 6.7x 2.9x 2.6x 5.0x 4.7x
$13.00 6.6x 7.2x 3.1x 2.8x 5.1x 4.8x
$14.00 7.1x 7.8x 3.3x 3.0x 5.3x 5.0x
REPURCHASE
AMOUNT
- ----------
$500 $ 4.00 $2.61 $2.30 1.5x 1.7x 0.7x 0.6x 4.3x 4.1x
$ 5.00 1.9x 2.2x 0.8x 0.7x 4.4x 4.2x
$ 6.00 2.3x 2.6x 1.0x 0.9x 4.5x 4.2x
$ 7.00 2.7x 3.0x 1.1x 1.0x 4.6x 4.3x
$ 8.00 3.1x 3.5x 1.3x 1.2x 4.7x 4.4x
$ 9.00 3.5x 3.9x 1.5x 1.3x 4.8x 4.5x
$10.00 3.8x 4.3x 1.6x 1.5x 4.9x 4.6x
$11.00 4.2x 4.8x 1.8x 1.6x 4.9x 4.6x
$12.00 4.6x 5.2x 2.0x 1.7x 5.0x 4.7x
$13.00 5.0x 5.6x 2.1x 1.9x 5.1x 4.8x
$14.00 5.4x 6.1x 2.3x 2.0x 5.2x 4.9x
</TABLE>
- ---------------
(a) Cash flow per share defined as net income plus deferred taxes, plus
depreciation and amortization, divided by the pro forma number of shares
outstanding.
- 78 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
POST-REPURCHASE TRADING ANALYSIS-COMPANY REVISED DOWNSIDE CASE: 1997-2000 ANNUAL COST SAVINGS-$30
(Dollars in millions except per share data)
SCENARIO 4: $13 REPURCHASE STOCK PRICE
PRO FORMA PRICE/ MARKET CAPITALIZATION/
EARNINGS PER SHARE PRICE/E.P.S. CASH FLOW PER SHARE (A) EBITDA
REPURCHASE STOCK PRICE ------------------ ---------------------- ----------------------- ----------------------
AMOUNT POST TRANSACTION 1996E 1997E 1996E 1997E 1996E 1997E 1996E 1997E
- ---------- ---------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400 $ 4.00 $1.77 $1.62 2.3x 2.5x 1.1x 1.0x 4.0x 3.7x
$ 5.00 2.8x 3.1x 1.3x 1.2x 4.1x 3.9x
$ 6.00 3.4x 3.7x 1.6x 1.4x 4.3x 4.0x
$ 7.00 4.0x 4.3x 1.9x 1.7x 4.4x 4.2x
$ 8.00 4.5x 4.9x 2.1x 1.9x 4.6x 4.3x
$ 9.00 5.1x 5.6x 2.4x 2.1x 4.7x 4.5x
$10.00 5.6x 6.2x 2.7x 2.4x 4.9x 4.6x
$11.00 6.2x 6.8x 2.9x 2.6x 5.0x 4.7x
$12.00 6.8x 7.4x 3.2x 2.9x 5.2x 4.9x
$13.00 7.3x 8.0x 3.5x 3.1x 5.3x 5.0x
$14.00 7.9x 8.7x 3.7x 3.3x 5.5x 5.2x
REPURCHASE
AMOUNT
- ----------
$500 $ 4.00 $2.12 $1.88 1.9x 2.1x 0.8x 0.7x 4.4x 4.2x
$ 5.00 2.4x 2.7x 1.0x 0.9x 4.5x 4.2x
$ 6.00 2.8x 3.2x 1.2x 1.1x 4.6x 4.3x
$ 7.00 3.3x 3.7x 1.4x 1.2x 4.7x 4.4x
$ 8.00 3.8x 4.3x 1.6x 1.4x 4.8x 4.5x
$ 9.00 4.2x 4.8x 1.8x 1.6x 4.9x 4.6x
$10.00 4.7x 5.3x 2.0x 1.8x 5.0x 4.7x
$11.00 5.2x 5.9x 2.2x 2.0x 5.2x 4.8x
$12.00 5.7x 6.4x 2.4x 2.1x 5.3x 4.9x
$13.00 6.1x 6.9x 2.6x 2.3x 5.4x 5.0x
$14.00 6.6x 7.5x 2.8x 2.5x 5.5x 5.1x
</TABLE>
- ---------------
(a) Cash flow per share defined as net income plus deferred taxes, plus
depreciation and amortization, divided by the pro forma number of shares
outstanding.
- 79 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE III. RECAPITALIZATION ANALYSIS
- -----------------------------------------------------------------------------------------
POST-REPURCHASE TRADING ANALYSIS-COMPANY REVISED DOWNSIDE CASE: 1997-2000 ANNUAL COST SAVINGS-$30
(Dollars in millions except per share data)
SCENARIO 5: $14 REPURCHASE STOCK PRICE
PRO FORMA PRICE/ MARKET CAPITALIZATION/
EARNINGS PER SHARE PRICE/E.P.S. CASH FLOW PER SHARE (A) EBITDA
REPURCHASE STOCK PRICE ------------------ ---------------------- ----------------------- ----------------------
AMOUNT POST TRANSACTION 1996E 1997E 1996E 1997E 1996E 1997E 1996E 1997E
- ---------- ---------------- -------- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$400 $ 4.00 $1.63 $1.49 2.5x 2.7x 1.2x 1.0x 4.0x 3.8x
$ 5.00 3.1x 3.4x 1.5x 1.3x 4.2x 3.9x
$ 6.00 3.7x 4.0x 1.7x 1.6x 4.4x 4.1x
$ 7.00 4.3x 4.7x 2.0x 1.8x 4.5x 4.3x
$ 8.00 4.9x 5.4x 2.3x 2.1x 4.7x 4.4x
$ 9.00 5.5x 6.1x 2.6x 2.3x 4.9x 4.6x
$10.00 6.1x 6.7x 2.9x 2.6x 5.0x 4.7x
$11.00 6.8x 7.4x 3.2x 2.8x 5.2x 4.9x
$12.00 7.4x 8.1x 3.5x 3.1x 5.4x 5.0x
$13.00 8.0x 8.7x 3.8x 3.4x 5.5x 5.2x
$14.00 8.6x 9.4x 4.1x 3.6x 5.7x 5.4x
REPURCHASE
AMOUNT
- ----------
$500 $ 4.00 $1.83 $1.62 2.2x 2.5x 0.9x 0.8x 4.5x 4.2x
$ 5.00 2.7x 3.1x 1.2x 1.0x 4.6x 4.3x
$ 6.00 3.3x 3.7x 1.4x 1.2x 4.7x 4.4x
$ 7.00 3.8x 4.3x 1.6x 1.4x 4.8x 4.6x
$ 8.00 4.4x 4.9x 1.9x 1.7x 5.0x 4.7x
$ 9.00 4.9x 5.6x 2.1x 1.9x 5.1x 4.8x
$10.00 5.5x 6.2x 2.3x 2.1x 5.2x 4.9x
$11.00 6.0x 6.8x 2.6x 2.3x 5.3x 5.0x
$12.00 6.6x 7.4x 2.8x 2.5x 5.5x 5.1x
$13.00 7.1x 8.0x 3.0x 2.7x 5.6x 5.3x
$14.00 7.6x 8.7x 3.3x 2.9x 5.7x 5.4x
</TABLE>
- ---------------
(a) Cash flow per share defined as net income plus deferred taxes, plus
depreciation and amortization, divided by the pro forma number of shares
outstanding.
- 80 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE DCF ANALYSIS OF PLATE-COMPANY REVISED BASE CASE
- ----------------------------------------------------------------------------------------
ASSUMED INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions except per share data)
ACTUAL PROJECTED
-------------------------- -------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $518.7 $700.8 $1,030.2 $856.7 $905.0 $886.9 $909.8 $906.9
Operating EBITDA 54.2 89.4 284.2 187.9 208.1 180.6 220.7 227.8
Cost Savings - - - - - - - -
EBITDA 54.2 89.4 284.2 187.9 208.1 180.6 220.7 227.8
Less: D & A (38.8) (40.9) (43.0) (39.1) (52.8) (55.1) (55.1) (55.1)
----- ----- -------- ----- ----- ------ ------ ------
EBIT 15.4 48.5 241.2 148.8 155.3 125.6 165.6 172.7
SAR's & Other Income - - 2.8 (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Income/(Expense) (22.4) (20.2) (14.6) (10.2) (3.6) 10.7 27.9 47.4
----- ----- ------ ------ ------
Pretax Income (7.0) 28.3 228.2 135.9 149.3 135.1 192.3 219.0
Income Taxes 1.5 (9.2) (78.1) (47.6) (52.2) (47.3) (67.3) (76.7)
----- ----- -------- ----- ----- ------ ------ ------
NET INCOME ($5.5) $19.1 $150.0 $88.3 $97.0 $87.8 $125.0 $142.4
Plus: Deferred Taxes $1.0 $10.2 $12.3 $8.1 $7.2 $6.7
Plus: Dep. & Amortization 43.0 39.1 52.8 55.1 55.1 55.1
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (1.7) 0.4
Less: Capital Expenditures (53.9) (104.2) (47.5) (31.5) (25.0) (25.0)
-------- ----- ----- ------ ------ ------
Free Cash Flow $141.4 $3.7 $111.4 $137.5 $160.6 $179.5
======== ===== ===== ====== ====== ======
Unlevered Cash Flow for DCF $151.9 $10.4 $113.7 $130.6 $142.5 $148.7
SUMMARY OF DISCOUNTED CASH FLOW VALUATION
<CAPTION>
PV OF TERMINAL VALUE FOR 5 YEAR SUM OF PV OF
AVERAGE EBITDA EXIT MULTIPLES CASH FLOWS AND TERMS. VALUE
DISCOUNT PRESENT VALUE ---------------------------------- -----------------------------------
RATE OF CASH FLOWS 4.0x 5.0x 6.0x 4.0x 5.0x 6.0x
- -------- --------------- ------- ------- ------- ------- -------- --------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $391.1 $509.2 $636.5 $763.8 $900.3 $1,027.6 $1,154.9
11.0% 379.2 486.7 608.4 730.0 865.9 987.5 $1,109.2
12.0% 367.7 465.3 581.7 698.0 833.1 949.4 $1,065.8
13.0% 356.8 445.1 556.4 667.7 801.9 913.2 $1,024.5
DISCOUNT ----------------------------------
RATE NET DEBT TOTAL EQUITY VALUE PER SHARE IMPLIED PERPETUAL GROWTH RATE
- -------- --------------- ---------------------------------- -----------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $132.8 $13.78 $16.07 $18.35 -8.1% -4.5% -2.1%
11.0% 13.16 15.35 17.53 -7.1% -3.5% -1.1%
12.0% 12.57 14.66 16.75 -6.1% -2.5% -0.1%
13.0% 12.01 14.01 16.01 -5.1% -1.5% 0.9%
----------------------------------
</TABLE>
- 81 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE DCF ANALYSIS OF PETROCHEMICALS-COMPANY REVISED BASE CASE
- ----------------------------------------------------------------------------------------
ASSUMED INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions except per share data)
ACTUAL PROJECTED
-------------------------- -------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $399.4 $578.3 $886.2 $689.6 $707.3 $664.7 $690.2 $695.5
Operating EBITDA 21.5 62.3 239.5 126.1 122.3 76.3 117.7 133.1
Cost Savings - - - - - - - -
EBITDA 21.5 62.3 239.5 126.1 122.3 76.3 117.7 133.1
Less: D & A (25.0) (26.3) (28.4) (25.0) (35.5) (37.8) (37.8) (37.8)
----- ----- -------- ----- ----- ------ ------ ------
EBIT (3.5) 36.0 213.4 101.1 86.7 38.5 79.9 95.3
SAR's & Other Income - - (0.8) (1.4) - - - -
Interest Expense (9.4) (9.7) (1.4) 4.0 8.3 15.4 23.2 33.1
----- ----- -------- ----- ----- ------ ------ ------
Pretax Income (12.9) 26.3 211.2 103.7 95.1 53.8 103.1 128.4
Income Taxes 3.9 (8.4) (70.8) (36.3) (33.3) (18.8) (36.1) (44.9)
----- ----- -------- ----- ----- ------ ------ ------
NET INCOME ($9.0) $17.9 $140.4 $67.4 $61.8 $35.0 $67.0 $83.5
Plus: Deferred Taxes ($3.9) $2.6 $4.0 ($1.3) ($1.3) ($1.3)
Plus: Dep. & Amortization 28.4 25.0 35.5 37.8 37.8 37.8
Less: Change in Working Capital (0.9) (30.5) 2.2 15.1 (1.9) (0.4)
Less: Capital Expenditures (45.7) (53.7) (35.4) (26.5) (20.0) (20.0)
-------- ----- ----- ------ ------ ------
Free Cash Flow $118.2 $10.9 $68.2 $60.2 $81.6 $99.6
======== ===== ===== ====== ====== ======
Unlevered Cash Flow for DCF $119.2 $8.3 $62.8 $50.2 $66.5 $78.0
SUMMARY OF DISCOUNTED CASH FLOW VALUATION
<CAPTION>
PV OF TERMINAL VALUE FOR 5 YEAR SUM OF PV OF
AVERAGE EBITDA EXIT MULTIPLES CASH FLOWS AND TERM. VALUE
DISCOUNT PRESENT VALUE ---------------------------------- -----------------------------------
RATE OF CASH FLOWS 4.0x 5.0x 6.0x 4.0x 5.0x 6.0x
- -------- --------------- ------- ------- ------- ------- -------- --------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $191.0 $285.8 $357.3 $428.8 $476.8 $548.3 $619.8
11.0% 185.2 273.2 341.5 409.8 458.4 526.7 $595.0
12.0% 179.7 261.2 326.5 391.8 440.9 506.2 $571.5
13.0% 174.4 249.9 312.3 374.8 424.3 486.8 $549.2
DISCOUNT ----------------------------------
RATE NET DEBT TOTAL EQUITY VALUE PER SHARE IMPLIED PERPETUAL GROWTH RATE
- -------- --------------- ---------------------------------- -----------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $0.0 $8.56 $9.84 $11.13 -6.9% -3.6% -1.3%
11.0% 8.23 9.46 10.68 -5.9% -2.6% -0.3%
12.0% 7.92 9.09 10.26 -4.9% -1.6% 0.7%
13.0% 7.62 8.74 9.86 -3.9% -0.6% 1.7%
----------------------------------
</TABLE>
- 82 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE DCF ANALYSIS OF PULP CHEMICALS-COMPANY REVISED BASE CASE
- ----------------------------------------------------------------------------------------
ASSUMED INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions except per share data)
ACTUAL PROJECTED
-------------------------- -------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $119.3 $122.5 $144.0 $160.7 $199.4 $223.9 $219.6 $211.4
EBITDA 32.7 27.1 44.7 61.8 85.8 104.4 102.9 94.7
Less: D & A (13.8) (14.6) (14.6) (14.1) (17.2) (17.3) (17.3) (17.3)
----- ----- -------- ----- ----- ------ ------ ------
EBIT 18.9 12.5 30.1 47.7 68.6 87.1 85.7 77.5
SAR's & Other Income - - - (1.4) (2.5) (1.2) (1.2) (1.2)
Interest Expense (13.0) (12.4) (13.2) (13.7) (11.7) (5.1) 3.4 12.1
----- ----- -------- ----- ----- ------ ------ ------
Pretax Income 5.9 0.1 16.9 32.6 54.4 80.8 87.9 88.4
Income Taxes (2.4) 1.1 (7.2) (11.4) (19.0) (28.3) (30.8) (30.9)
----- ----- -------- ----- ----- ------ ------ ------
NET INCOME $3.5 $1.2 $9.7 $21.2 $35.3 $52.5 $57.2 $57.4
Plus: Deferred Taxes $5.0 $7.6 $8.3 $9.4 $8.5 $8.0
Plus: Dep. & Amortization 14.6 14.1 17.2 17.3 17.3 17.3
Less: Change in Working Capital 2.2 0.8 (5.4) 2.9 0.4 0.8
Less: Capital Expenditures (8.2) (50.6) (12.1) (5.0) (5.0) (5.0)
-------- ----- ----- ------ ------ ------
Free Cash Flow $23.2 ($6.9) $43.3 $77.1 $78.3 $78.5
======== ===== ===== ====== ====== ======
Unlevered Cash Flow for DCF $30.8 $2.0 $51.0 $80.4 $76.1 $70.6
SUMMARY OF DISCOUNTED CASH FLOW VALUATION
<CAPTION>
PV OF TERMINAL VALUE FOR 5 YEAR SUM OF PV OF
AVERAGE EBITDA EXIT MULTIPLES CASH FLOWS AND TERM. VALUE
DISCOUNT PRESENT VALUE ---------------------------------- -----------------------------------
RATE OF CASH FLOWS 4.0x 5.0x 6.0x 4.0x 5.0x 6.0x
- -------- --------------- ------- ------- ------- ------- -------- --------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $200.2 $223.4 $279.2 $335.0 $423.6 $479.4 $535.3
11.0% 194.0 213.5 266.9 320.2 407.5 460.9 $514.3
12.0% 188.1 204.1 255.2 306.2 392.2 443.3 $494.3
13.0% 182.5 195.2 244.1 292.9 377.7 426.5 $475.3
DISCOUNT ----------------------------------
RATE NET DEBT TOTAL EQUITY VALUE PER SHARE IMPLIED PERPETUAL GROWTH RATE
- -------- --------------- ---------------------------------- -----------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $132.8 $5.22 $6.22 $7.23 -5.6% -2.5% -0.4%
11.0% 4.93 5.89 6.85 -4.6% -1.5% 0.6%
12.0% 4.66 5.57 6.49 -3.6% -0.5% 1.6%
13.0% 4.40 5.27 6.15 -2.6% 0.5% 2.6%
----------------------------------
</TABLE>
- 83 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE DCF ANALYSIS OF PLATE-COMPANY REVISED DOWNSIDE CASE
- ----------------------------------------------------------------------------------------
ASSUMED INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions except per share data)
ACTUAL PROJECTED
-------------------------- -------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $518.7 $700.8 $1,030.2 $785.4 $827.0 $812.4 $849.9 $847.4
Operating EBITDA 54.2 89.4 284.2 162.9 143.2 120.2 170.0 177.4
Cost Savings - - - - - - - -
EBITDA 54.2 89.4 284.2 162.9 143.2 120.2 170.0 177.4
Less: D & A (38.8) (40.9) (43.0) (39.1) (52.1) (53.4) (53.4) (53.4)
----- ----- -------- ----- ----- ------ ------ ------
EBIT 15.4 48.5 241.2 123.8 91.1 66.8 116.5 123.9
SAR's & Other Income - - 2.8 (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Income/(Expense) (22.4) (20.2) (14.6) (11.2) (7.2) 3.3 15.7 30.2
----- ----- -------- ----- ----- ------ ------ ------
Pretax Income (7.0) 28.3 228.2 109.9 81.4 68.8 131.1 153.0
Income Taxes 1.5 (9.2) (78.1) (38.5) (28.5) (24.1) (45.9) (53.5)
----- ----- -------- ----- ----- ------ ------ ------
NET INCOME ($5.5) $19.1 $150.0 $71.4 $52.9 $44.7 $85.2 $99.4
Plus: Deferred Taxes 1.0 10.2 12.3 8.1 7.2 6.7
Plus: Dep. & Amortization 43.0 39.1 52.1 53.4 53.4 53.4
Less: Change in Working Capital 1.3 (29.7) (3.2) 18.0 (3.4) 0.4
Less: Capital Expenditures (53.9) (104.2) (31.7) (25.0) (25.0) (25.0)
-------- ----- ----- ------ ------ ------
Free Cash Flow $141.4 (13.2) $82.4 $99.3 $117.4 $135.0
======== ===== ===== ====== ====== ======
Unlevered Cash Flow for DCF $151.9 ($5.9) $87.1 $97.2 $107.2 $115.4
SUMMARY OF DISCOUNTED CASH FLOW VALUATION
<CAPTION>
PV OF TERMINAL VALUE FOR 5 YEAR SUM OF PV OF
AVERAGE EBITDA EXIT MULTIPLES CASH FLOWS AND TERM. VALUE
DISCOUNT PRESENT VALUE ---------------------------------- -----------------------------------
RATE OF CASH FLOWS 4.0x 5.0x 6.0x 4.0x 5.0x 6.0x
- -------- --------------- ------- ------- ------- ------- -------- --------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $284.5 $384.3 $480.3 $576.4 $668.8 $764.8 $860.9
11.0% 275.5 367.3 459.1 550.9 642.8 734.6 $826.4
12.0% 266.9 351.2 439.0 526.8 618.1 705.9 $793.7
13.0% 258.7 335.9 419.9 503.9 594.6 678.6 $762.6
DISCOUNT ----------------------------------
RATE NET DEBT TOTAL EQUITY VALUE PER SHARE IMPLIED PERPETUAL GROWTH RATE
- -------- --------------- ---------------------------------- -----------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $132.8 $9.62 $11.35 $13.07 -8.6% -4.9% -2.4%
11.0% 9.16 10.80 12.45 -7.6% -3.9% -1.4%
12.0% 8.71 10.29 11.87 -6.6% -2.9% -0.4%
13.0% 8.29 9.80 11.31 -5.6% -1.9% 0.6%
----------------------------------
</TABLE>
- 84 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE DCF ANALYSIS OF PETROCHEMICALS-COMPANY REVISED DOWNSIDE CASE
- ----------------------------------------------------------------------------------------
ASSUMED INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions except per share data)
ACTUAL PROJECTED
-------------------------- -------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $399.4 $578.3 $886.2 $633.9 $646.6 $620.3 $644.3 $649.2
Operating EBITDA 21.5 62.3 239.5 101.1 71.2 41.8 79.9 94.9
Cost Savings - - - - - - - -
EBITDA 21.5 62.3 239.5 101.1 71.2 41.8 79.9 94.9
Less: D & A (25.0) (26.3) (28.4) (25.0) (34.8) (36.2) (36.2) (36.2)
----- ----- -------- ----- ----- ------ ------ ------
EBIT (3.5) 36.0 213.4 76.1 36.3 5.6 43.8 58.7
SAR's & Other Income - - (0.8) (1.4) - - - -
Interest Expense (9.4) (9.7) (1.4) 3.1 5.4 10.3 15.3 21.8
----- ----- -------- ----- ----- ------ ------ ------
Pretax Income (12.9) 26.3 211.2 77.8 41.7 15.9 59.1 80.5
Income Taxes 3.9 (8.4) (70.8) (27.2) (14.6) (5.6) (20.7) (28.2)
----- ----- -------- ----- ----- ------ ------ ------
NET INCOME ($9.0) $17.9 $140.4 $50.6 $27.1 $10.3 $38.4 $52.3
Plus: Deferred Taxes ($3.9) $2.6 $4.0 ($1.3) ($1.3) ($1.3)
Plus: Dep. & Amortization 28.4 25.0 34.8 36.2 36.2 36.2
Less: Change in Working Capital (0.9) (30.5) 2.2 15.1 (1.9) (0.4)
Less: Capital Expenditures (45.7) (53.7) (19.6) (20.0) (20.0) (20.0)
-------- ----- ----- ------ ------ ------
Free Cash Flow $118.2 ($6.0) $48.6 $40.3 $51.4 $66.8
======== ===== ===== ====== ====== ======
Unlevered Cash Flow for DCF $119.2 ($8.0) $45.1 $33.7 $41.4 $52.6
SUMMARY OF DISCOUNTED CASH FLOW VALUATION
<CAPTION>
PV OF TERMINAL VALUE FOR 5 YEAR SUM OF PV OF
AVERAGE EBITDA EXIT MULTIPLES CASH FLOWS AND TERM. VALUE
DISCOUNT PRESENT VALUE ---------------------------------- -----------------------------------
RATE OF CASH FLOWS 4.0x 5.0x 6.0x 4.0x 5.0x 6.0x
- -------- --------------- ------- ------- ------- ------- -------- --------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $116.3 $193.2 $241.5 $289.7 $309.5 $357.8 $406.0
11.0% 112.6 184.6 230.8 276.9 297.2 343.3 $389.5
12.0% 109.0 176.5 220.7 264.8 285.5 329.7 $373.8
13.0% 105.6 168.9 211.1 253.3 274.4 316.6 $358.9
DISCOUNT ----------------------------------
RATE NET DEBT TOTAL EQUITY VALUE PER SHARE IMPLIED PERPETUAL GROWTH RATE
- -------- --------------- ---------------------------------- -----------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $0.0 $5.56 $6.42 $7.29 -6.9% -3.5% -1.3%
11.0% 5.34 6.16 6.99 -5.9% -2.5% -0.3%
12.0% 5.13 5.92 6.71 -4.9% -1.5% -0.7%
13.0% 4.93 5.68 6.44 -3.9% -0.5% 1.7%
----------------------------------
</TABLE>
- 85 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE DCF ANALYSIS OF PULP CHEMICALS-COMPANY REVISED DOWNSIDE CASE
- ----------------------------------------------------------------------------------------
ASSUMED INCOME AND CASH FLOW: 1997-2000 ANNUAL COST SAVINGS-$0
(Dollars in millions except per share data)
ACTUAL PROJECTED
-------------------------- -------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $119.3 $122.5 $144.0 $151.5 $180.4 $192.1 $205.6 $198.1
EBITDA 32.7 27.1 44.7 61.8 72.0 78.4 90.0 82.5
Less: D & A (13.8) (14.6) (14.6) (14.1) (17.2) (17.3) (17.3) (17.3)
----- ----- -------- ----- ----- ------ ------ ------
EBIT 18.9 12.5 30.1 47.7 54.8 61.1 72.8 65.3
SAR's & Other Income - - - (1.4) (2.5) (1.2) (1.2) (1.2)
Interest Expense (13.0) (12.4) (13.2) (13.7) (12.2) (7.1) (0.3) 7.0
----- ----- ----- ----- ----- ------ ------ ------
Pretax Income 5.9 0.1 16.9 32.6 40.0 52.8 71.3 71.1
Income Taxes (2.4) 1.1 (7.2) (11.4) (14.0) (18.5) (25.0) (24.9)
----- ----- -------- ----- ----- ------ ------ ------
NET INCOME ($3.5) $1.2 $9.7 $21.2 $26.0 $34.3 $46.3 $46.2
Plus: Deferred Taxes $5.0 $7.6 $8.3 $9.4 $8.5 $8.0
Plus: Dep. & Amortization 14.6 14.1 17.2 17.3 17.3 17.3
Less: Change in Working Capital 2.2 0.8 (5.4) 2.9 (1.5) 0.8
Less: Capital Expenditures (8.2) (50.6) (12.1) (5.0) (5.0) (5.0)
-------- ----- ----- ------ ------ ------
Free Cash Flow $23.2 ($6.9) $34.0 $58.9 $65.6 $67.3
======== ===== ===== ====== ====== ======
Unlevered Cash Flow for DCF $30.8 $2.0 $42.0 $63.5 $65.8 $62.7
SUMMARY OF DISCOUNTED CASH FLOW VALUATION
<CAPTION>
PV OF TERMINAL VALUE FOR 5 YEAR SUM OF PV OF
AVERAGE EBITDA EXIT MULTIPLES CASH FLOWS AND TERM. VALUE
DISCOUNT PRESENT VALUE ---------------------------------- -----------------------------------
RATE OF CASH FLOWS 4.0x 5.0x 6.0x 4.0x 5.0x 6.0x
- -------- --------------- ------- ------- ------- ------- -------- --------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $168.2 $191.1 $238.9 $286.7 $359.3 $407.1 $454.9
11.0% 163.0 182.7 228.3 274.0 345.6 391.3 $436.9
12.0% 157.9 174.6 218.3 262.0 332.6 376.2 $419.9
13.0% 153.1 167.1 208.8 250.6 320.2 361.9 $403.7
DISCOUNT ----------------------------------
RATE NET DEBT TOTAL EQUITY VALUE PER SHARE IMPLIED PERPETUAL GROWTH RATE
- -------- --------------- ---------------------------------- -----------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $132.8 $4.07 $4.92 $5.78 -5.3% -2.3% -0.2%
11.0% 3.82 4.64 5.46 -4.3% -1.3% 0.8%
12.0% 3.59 4.37 5.15 -3.3% -0.3% 1.8%
13.0% 3.36 4.11 4.86 -2.3% 0.7% 2.8%
----------------------------------
</TABLE>
- 86 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE V. PUBLIC MARKET COMPARABLE COMPANIES
- -----------------------------------------------------------------------------------------
SUMMARY MARKET AND OPERATING DATA ON SELECTED COMPARABLE CHEMICAL COMPANIES
($ in millions, except share data)
COMMODITY CHEMICAL COMPANIES
-------------------------------------------------------------------
STERLING CYTEC DOW GEORGIA GEON
MEDIAN(a) CHEMICALS, INC. INDUSTRIES CHEMICAL GULF COMPANY
--------- --------------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Latest Quarter End (LTM) 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95
Latest Fiscal Yer End 9/30/95 12/31/95 12/31/95 12/31/95 12/31/95
MAJOR PRODUCTS Styrene Specialty Diversified Commodity PVC Resins
commodity and Hybrid Chemicals and polymer Diversified
chemicals Chemicals chemicals Chemicals
CURRENT MARKET INFORMATION
Ticker STX CYT DOW GGC GON
Stock Price (as of 3/29/96) $ 12.63 $ 84.50 $ 87.00 $ 37.50 $ 26.63
52-Week High 13.38 88.38 90.00 39.50 31.38
52-Week Low 7.38 32.63 65.38 28.13 23.38
Price as % of High 94.8% 94.4% 95.6% 96.7% 94.9% 84.9%
Shares Outstanding (MM) 55.7 16.7 248.4 36.9 24.9
Market Value (b) $ 703.1 $1,409.5 $21,611.9 $1,383.2 $ 662.7
Market Capitalization (c) 811.1 1,463.6 25,470.9 1,673.1 737.9
Indicated Dividend $ 0.00 $ 0.00 $ 3.00 $ 0.32 $ 0.50
Dividend Yield 0.00% 0.00% 3.45% 0.85% 1.88%
- ------------------------------------------------------------------------------------------------------------------------
MARKET CAPITALIZATION AS A
MULTIPLE OF: (C)
1997E Net Sales NA x 0.9 x NA x NA x 1.6 x 0.6 x
1996E Net Sales 1.0 0.9 1.1 1.2 1.7 0.6
LTM Net Sales 1.0 0.8 1.2 1.3 1.5 0.6
1997E EBITDA NA x 3.9 x NA x NA x 5.6 x 4.6 x
1996E EBITDA 5.6 4.4 6.5 4.8 6.9 5.5
LTM EBITDA 4.7 3.0 6.9 4.7 4.6 4.0
1997E EBIT NA x 5.3 x NA x NA x 6.5 x 7.3 x
1996E EBIT 8.1 5.6 10.5 6.9 8.1 9.6
LTM EBIT 5.5 3.6 11.9 6.4 5.1 5.8
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
1997E I/B/E/S Estimated
EPS (d) 10.3 x 7.3 x 13.6 x 10.8 x 9.4 x 11.8 x
1996E I/B/E/S Estimated
EPS (d) 11.8 8.1 15.9 11.6 12.0 17.6
LTM EPS 8.6 4.9 19.1 10.5 7.9 9.8
Book Value Per Share 3.2 x 2.8 x 4.1 3.1 x NM x 3.0 x
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
I/B/E/S 5-YEAR GROWTH RATE 7.0% 4.0% 18.0% 8.0% 11.5% 7.0%
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
LEVERAGE RATIOS:
Total Debt/Total Book Cap. 37.5% 31.2% 16.1% 37.6% 85.2% 32.2%
Net Debt/Market Cap. 12.3% 13.3% 3.7% 7.7% 17.3% 10.2%
Total Debt/EBITDA 0.9 x 0.4 x 0.3 1.0 x 0.8 x 0.6 x
- ------------------------------------------------------------------------------------------------------------------------
SUMMARY CAPITALIZATION: 12/31/95 12/31/95 9/30/95 12/31/95 9/30/95
---------- ---------- ---------- ---------- ----------
Cash & Investments $ 5.6 $ 12.0 $ 3,450.0 $ 2.5 $ 31.6
Short-Term Debt 13.4 4% 0.0 0% 698.0 5% 0.0 0% 14.0 4%
Long-Term Debt 100.2 28% 66.0 16% 4,705.0 33% 292.4 85% 92.8 28%
Minority Interest 0.0 0% 0.0 0% 1,775.0 12% 0.0 0% 0.0 0%
Preferred Equity @ Liq. 0.0 0% 0.1 0% 131.0 1% 0.0 0% 0.0 0%
Common Equity 250.1 69% 342.8 84% 7,048.0(ae) 49% 50.6 15% 224.6 68%
------- ------- --------- ------- -------
Total Book Cap. (e) $363.7 $408.9 $14,357.0 $343.0 $331.4
======= ======= ========= ======= =======
</TABLE>
<TABLE>
<CAPTION>
COMMODITY CHEMICAL COMPANIES
-------------------------------------------------------------------
LYONDELL METHANEX OLIN REXENE UNION
PETROCHEMICAL CORPORATION CORPORATION CORPORATION CARBIDE
--------------- ----------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
Latest Quarter End (LTM) 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95
Latest Fiscal Yer End 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95
MAJOR PRODUCTS Diversified Methanol Diversified Diversified Diversified
Petrochemicals Chemicals Chemicals Chemicals
(Brass)
CURRENT MARKET INFORMATION
Ticker LYO MEOHF OLN RXN UK
Stock Price (as of 3/29/96) $ 30.50 $ 6.75 $ 87.00 $ 13.38 $ 49.63
52-Week High 32.25 11.00 88.88 15.63 49.88
52-Week Low 21.13 6.00 50.38 5.88 28.38
Price as % of High 95% 61% 97.9% 85.6% 99.5%
Shares Outstanding (MM) 80.0 189.0 24.8 18.7 134.5
Market Value (b) $ 2,440 $ 1,276 $ 2,157.9 $ 249.9 $6,672.3
Market Capitalization (c) $ 3,713 $ 1,302 2,767.6 377.7 7,716.3
Indicated Dividend $ 0.90 $ 0.00 $ 24.0 $ 0.16 $ 0.75
Dividend Yield 2.95% 0.00% 2.76% 1.20% 1.51%
- ------------------------------------------------------------------------------------------------------------------------
MARKET CAPITALIZATION AS A
MULTIPLE OF: (C)
1997E Net Sales 0.9 x 1.5 x NA x NA x NA x
1996E Net Sales 0.8 1.6 0.8 0.7 1.2
LTM Net Sales 0.8 1.0 0.9 0.6 1.3
1997E EBITDA 4.9 x 4.6 x NA x NA x NA x
1996E EBITDA 6.7 5.3 6.5 3.2 5.7
LTM EBITDA 4.7 3.2 7.2 2.6 5.0
1997E EBIT 5.7 x 8.1 x NA x NA x NA x
1996E EBIT 8.2 8.8 10.1 3.8 7.4
LTM EBIT 5.3 4.3 11.3 3.0 6.3
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
1997E I/B/E/S Estimated
EPS (d) 7.8 x 21.1 x 13.4 x 6.6 x 9.7 x
1996E I/B/E/S Estimated
EPS (d) 10.7 23.3 13.5 8.5 10.6
LTM EPS 1.9 6.0 15.9 3.9 9.2
Book Value Per Share 6.4 x 1.1 2.8 x 1.8 x 3.3 x
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
I/B/E/S 5-YEAR GROWTH RATE 8.0% NA 6.5% 6.5% 7.0%
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
LEVERAGE RATIOS:
Total Debt/Total Book Cap. 49.6% 27.2% 39.1% 55.5% 37.4%
Net Debt/Market Cap. 21.9% 2.0% 19.2% 33.8% 11.3%
Total Debt/EBITDA 1.0 x 1.1 1.4 x 1.2 x 0.9 x
- ------------------------------------------------------------------------------------------------------------------------
SUMMARY CAPITALIZATION: 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95
---------- ---------- ---------- ---------- ----------
Cash & Investments $ 10 $ 400 $ 7.5 $ 47.3 $449.0
Short-Term Debt 17.3 1% 24.4 2% 122.1 9% 0.0 0% 38.0 1%
Long-Term Debt 807.0 49% 401.3 26% 417.8 30% 175.0 56% 1,285 36%
Minority Interest 459.0 28% 0.0 0% 0.0 0% 0.0 0% 24.0 1%
Preferred Equity @ Liq. 0.0 0% 0.0 0% 77.3 6% 0.0 0% 146.0 4%
Common Equity 380.0 23% 1,139.6 73% 764.0 55% 140.2 44% 2,045.0 58%
------- ------- --------- ------- --------
Total Book Cap. (e) $1,663 $1,565 $ 1,381.2 $315.2 $3,538.0
======= ======= ========= ======= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE V. PUBLIC MARKET COMPARABLE COMPANIES
- -----------------------------------------------------------------------------------------
SUMMARY MARKET AND OPERATING DATA ON SELECTED COMPARABLE CHEMICAL COMPANIES
($ in millions, except share data)
COMMODITY CHEMICAL COMPANIES
-------------------------------------------------------------------
STERLING CYTEC DOW GEORGIA GEON
MEDIAN(a) CHEMICALS, INC. INDUSTRIES CHEMICAL GULF COMPANY
--------- --------------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SALES
1997E $ 895.5 (aa) NA NA $ 1,074.5 (ag) $ 1,236.4 (ah)
1996E 863.1 (aa) 1,363.8 (s) 22,000.0 (ac) 988.8 (ag) 1,144.8 (ah)
LTM 981.1 1,260.1 20,200.0 1,081.6 1,267.8
LFY 1,030.2 1,260.1 20,200.0 1,081.6 1,267.8
LFY-1 700.8 1,101.3 20,015.0 955.3 1.208.6
EBITDA (g)
1997E $ 205.6 (aa) NA NA 297.0 (ag) 161.1
1996E 185.2 (aa) 225.8 (s) 5,280.0 (ac) 243.0 (ag) 135.3 (ah)
LTM 267.9 212.6 5,446.0 (ad) 360.0 183.9 (ai)
LFY 285.8 212.6 5,446.0 360.0 183.9
LFY-1 88.7 (ab) 154.6 3,983.0 258.0 160.1
EBIT (h)
1997E $ 152.8 (aa) NA NA $ 258.0 (ag) $ 101.1 (ah)
1996E 146.1 (aa) 139.2 (s) 3,680.0 (ac) 207.0 (ag) 77.0 (ah)
LTM 224.5 122.7 4,004.0 (ad) 327.9 127.2 (ai)
LFY 242.8 122.7 4,004.0 (ad) 327.9 127.2 (ai)
LFY-1 47.8 (ab) 68.5 2,458.0 230.2 101.9
NET INCOME (i)
1997E 95.7 (aa) NA NA $ 141.3 (ag) $ 58.2 (ah)
1996E 86.4 (aa) 87.6 (s) 1,900.0 (ac) 111.0 (ag) 43.4 (ah)
LTM 143.7 83.8 2,223.1 (af) 186.5 70.5
LFY 153.2 83.8 (t) 2,223.1 (af) 186.5 70.5 (ai)
LFY-1 17.6 (ab) 47.7 931.0 122.2 57.9
EARNINGS PER SHARE
I/B/E/S 1997E 1.72 (aa) 6.21 (d) 8.05 (d) 3.98 (d) 2.26 (d)
I/B/E/S 1997E 1.55 (aa) 5.30 (d) 7.50 (d) 3.12 (d) 1.51 (d)
Valueline 1997E NA NA (s) NA (ac) NA (ag) 2.50 (ah)
Valueline 1996E 1.15 4.60 (s) 7.65 (ac) 4.25 (ag) 1.80 (ah)
LTM 2.58 4.42 8.29 4.73 2.72
LFY 2.75 4.42 8.29 4.73 2.72
LFY-1 0.32 2.51 3.37 2.88 2.06
EBITDA MARGIN (g)
1997E NA 23.0 % NA NA 27.6 % 13.0 %
1996E 21.1 % 21.5 % 16.6 % 24.0 % 24.6 % 11.8 %
LTM 24.9 % 27.3 % 16.9 % 27.0 % 33.3 % 14.5 %
LFY 24.9 % 27.7 % 16.9 % 27.0 % 33.3 % 14.5 %
LFY-1 15.5 % 12.7 % 14.0 % 19.9 % 27.0 % 13.2 %
EBIT MARGIN (h)
1997E NA 17.1 % NA NA 24.0 % 8.2 %
1996E 16.4 % 16.9 % 10.2 % 16.7 % 20.9 % 6.7 %
LTM 20.1 % 22.9 % 9.7 % 19.8 % 30.3 % 10.0 %
LFY 20.1 % 23.6 % 9.7 % 19.8 % 30.3 % 10.0 %
LFY-1 11.2 % 6.8 % 6.2 % 12.3 % 24.1 % 8.4 %
NET INCOME MARGIN
1997E NA 10.7 % NA NA 13.1 % 4.7 %
1996E 7.5 % 10.0 % 6.4 % 8.6 % 11.2 % 3.8 %
LTM 10.8 % 14.6 % 6.7 % 11.0 % 17.2 % 5.6 %
LFY 10.8 % 14.9 % 6.7 % 11.0 % 17.2 % 5.6 %
LFY-1 4.7 % 2.5 % 4.3 % 4.7 % 12.8 % 4.8 %
</TABLE>
<TABLE>
<CAPTION>
COMMODITY CHEMICAL COMPANIES
------------------------------------------------------------------------
LYONDELL METHANEX OLIN REXENE UNION
MEDIAN(a) PETROCHEMICAL CORPORATION CORPORATION CORPORATION CARBIDE
--------- ------------- ----------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
SALES
1997E $4,110.0 (ax) $ 846.1 (ay) NA NA NA
1996E 4,710.0 (ax) 826.2 (ay) 3,300.0 (aj) 560.0 (az) 6,500.0 (ak)
LTM 4,936.0 1,249.2 3,149.8 615.2 5,888.0
LFY 4,936.0 1,249.2 3,149.8 615.2 5,888.0
LFY-1 3,857.0 1,487.9 2,658.0 538.0 4,865.0
EBITDA (g)
1997E 765.0 280.7 NA NA NA
1996E 552.0 247.7 429.0 (aj) 118.7 (az) 1,365.0 (ak)
LTM 792.0 400.9 387.0 146.6 1,532.0 (al)
LFY 792.0 400.9 387.0 146.6 1,532.0 (am)
LFY-1 489.0 611.7 308.0 94.8 830.0
EBIT (h)
1997E $ 651.0 (ax) $ 161.5 (ay) NA NA NA
1996E 453.0 (aX) 147.2 (ay) 274.0 (aj) 99.2 (az) 1,040.0 (ak)
LTM 706.0 303.3 244.5 125.1 1,226.0 (al)
LFY 706.0 303.3 244.5 125.1 1,226.0 (al)
LFY-1 424.0 537.2 168.0 75.8 556.0 (am)
NET INCOME (i)
1997E $ 350.0 (ax) $(35.5)(ay) NA NA NA
1996E 224.0 (aX) 4.2 (ay) 150.0 (aj) 49.7 (az) 885.0 (ak)
LTM 389.0 215.4 133.6 65.4 851.8 (al)
LFY 389.0 215.4 133.6 65.4 851.8 (al)
LFY-1 223.0 442.7 84.4 (4.3) 382.1 (an)
EARNINGS PER SHARE
I/B/E/S 1997E 3.90 (d) 0.32 (d) 6.51 (d) 2.02 (d) 5.11 (d)
I/B/E/S 1997E 2.84 (d) 0.29 (d) 6.44 (d) 1.57 (d) 4.68 (d)
Valueline 1997E NA (ah) NA (ah) NA (aj) NA (ah) NA (ak)
Valueline 1996E NA (ah) NA (ah) 6.15 (aj) NA (ah) 5.70 (ak)
LTM 15.94 1.13 5.48 3.42 5.38 (ao)
LFY 15.94 1.13 5.48 3.42 5.38 (ao)
LFY-1 9.57 2.24 3.62 (0.37) 2.24 (ao)
EBITDA MARGIN (g)
1997E 18.6 % 33.2 % NA NA NA
1996E 11.7 % 30.0 % 13.0 % 21.2 % 21.0 %
LTM 16.0 % 32.1 % 12.3 % 23.8 % 26.0 %
LFY 16.0 % 32.1 % 12.3 % 23.8 % 26.0 %
LFY-1 12.7 % 41.1 % 11.6 % 17.6 % 17.1 %
EBIT MARGIN (h)
1997E 15.8 % 19.1 % NA NA NA
1996E 9.6 % 17.8 % 8.3 % 17.7 % 16.0 %
LTM 14.3 % 24.3 % 7.8 % 20.3 % 20.8 %
LFY 14.3 % 24.3 % 7.8 % 20.3 % 20.8 %
LFY-1 11.0 % 36.1 % 6.3 % 14.1 % 11.4 %
NET INCOME MARGIN
1997E 8.5 % (4.2)% NA NA NA
1996E 4.8 % 0.5 % 4.5 % 8.9 % 13.6 %
LTM 7.9 % 17.2 % 4.2 % 10.6 % 14.5 %
LFY 7.9 % 17.2 % 4.2 % 10.6 % 14.5 %
LFY-1 5.8 % 29.8 % 3.2 % (0.8)% 7.9 %
</TABLE>
<PAGE>
PROJECT PLATE V. PUBLIC MARKET COMPARABLE COMPANIES
- -------------------------------------------------------------------------------
SUMMARY MARKET AND OPERATING DATA ON SELECTED COMPARABLE CHEMICAL COMPANIES
($ in millions, except share data)
FOOTNOTES
(a) Median calculation.
(b) Market Value defined as shares outstanding multiplied by current stock
price on 3/29/96.
(c) Market Capitalization defined as market value of common equity plus
short-term debt, long-term debt, minority interest, and preferred stock at
liquidation less cash and investments.
(d) Mean earnings estimates are as reported by the Institutional Brokers
Estimate System (I/B/E/S) database, dated 3/29/96.
(e) Total Book Capitalization defined as book value of common equity plus
short-term debt, long-term debt, minority interest, and preferred stock at
liquidation.
(f) Represents Compounded Annual Growth Rate from Latest Fiscal Year to Latest
Fiscal Year + 2.
(g) EBITDA defined as Earnings Before Interest, Taxes, Depreciation, and
Amortization.
(h) EBIT defined as Earnings Before Interest and Taxes.
(i) Net Income is defined as Net Income Available to Common Stockholders (i.e.,
after preferred dividends, where applicable).
(j) Projected financial information as reported by Valueline, February 2, 1996.
(k) Fiscal Year 1994 EBIT and EBITDA results for Arco exclude a pre-tax
restructuring charge of $30 million and a $26 million pre-tax benefit from
insurance proceeds.
(l) Fiscal Year 1994 Net Income results for Arco exclude an after-tax
restructuring charge of $19 million and a $12 million after-tax benefit
from insurance proceeds.
(m) Projected financial information as reported by Valueline,
December 29, 1995.
(n) Rohm & Haas announced a quarterly dividend increase on July 24, 1995 from
37 cents to 41 cents, effective as of the third quartr of the current
fiscal year.
(o) 1995 EBIT and EBITDA results for Rohm & Haas exclude a $26 million pre-tax
charge related to waste site clean-up.
(p) Fiscal Year 1994 EBIT and EBITDA results for Rohm & Haas exclude a $17
million pre-tax restructuring charge.
(q) LTM Net Income results for Rohm & Haas exclude a $17 million after-tax
charge related to waste site clean-up.
(r) Fiscal Year 1994 Net Income results for Rohm & Haas exclude a $17 million
pre-tax restructuring charge, tax effected at 38% (i.e., $10.5 million
after-tax).
(s) Projected financial information as reported by Salomon Brothers,
December 6, 1995.
(t) Excludes a $195 million charge for the excess of the repurchase price of
preferred stock over the related book value and a gain of $193 million
resulting from a reversal of the valuation allowance. Reported on a fully-
diluted basis.
(u) Projected financial information as reported by Valueline,
December 29, 1995.
(v) 1995 EBIT is estimated using 1994 EBIT margin applied against 1995 net
sales as reported in the press release dated January 29, 1995.
(w) Excludes an after-tax special charge of $4.1 million.
(x) 1994 EBIT and EBITDA for Ethyl exclude a $10.72 million charge for
environmental remediation and an $8 million gain on a legal settlement.
(y) 1994 Net Income for Ethyl excludes a $10.72 million pre-tax charge for
environmental remediation and an $8 million pre-tax gain on a legal
settlement, with a net after-tax effect of $1.69 million.
(z) Projected financial information as reported by Valueline, December 1, 1995.
(aa) Projected financial information as per management.
(ab) Excludes a $2.6 million gain on sale of assets, tax-effected at 40% where
applicable.
(ac) Projected financial information as reported by Valueline, February 2, 1996.
(ad) 1995 EBIT and EBITDA results exclude a pre-tax charge of $330 million for
Dow Chemical's share of Dow Corning's bankruptcy filing costs.
(ae) The common equity amount has been adjusted downward by a $103 million
guaranteed ESOP obligation and excludes temporary equity reclassified in
anticipation of stock repurchase.
(af) 1995 Net Income results exclude an after-tax charge of $1.24 per common
share for Dow Chemical's share of Dow Corning's bankruptcy filing costs.
(ag) Source: DLJ research report dated March 6, 1996.
(ah) Projected financial information as reported by DLJ research report dated
March 11, 1996.
(ai) 1995 EBIT and EBITDA for Geon excludes $64 million in restructuring
charges, tax-effected at 40% where applicable.
(aj) Projected financial information as reported by Valueline, February 2, 1996.
(ak) Projected financial information as reported by Valueline, February 2, 1996.
(al) 1995 EBIT results for Union Carbide exclude a $381 million pre-tax gain on
the reduction of its equity interest in UCAR, a pre-tax gain of $161
million relating to UCAR's IPO, a pre-tax charge of $68 milion for post-
retirement benefits, and a $191 million pre-tax charge for future lease
obligations on unused office space (all tax-effected at 40% where
applicable).
(am) Fiscal Year 1994 EBIT and EBITDA results for Union Carbide exclude a $81
million pre-tax gain on the sale of assets, a $24 million pre-tax charge
for the write-off of an investment in India, a $12 million pre-tax loss on
the sale of assets, $74 pre-tax million associated with legal costs related
to divested companies and a $24 million pre-tax gain on the sale of its
preferred stock investment in OSi Specialties.
(ao) Earnings per share are calculated on a fully diluted basis for Union
Carbide.
(ap) Projected financial information as reported by Valueline, February 2, 1996.
(aq) 1995 EBIT is estimated using 1994 EBIT margin applied against 1995 net
sales as reported in the press release dated January 29, 1995.
(ar) Fiscal Year 1994 EBIT and EBITDA results for Monsanto exclude a $40 million
net pre-tax restructuring charge and a $33 million one-time pre-tax gain on
a tax settlement with the IRS.
(as) Excludes a fourth quarter restructuring charge of $0.17 per share in 1995.
(at) Fiscal Year 1994 Net Income results for Monsanto exclude a $22 million net
after-tax restructuring charge and a $21 million one-time after-tax gain on
a tax settlement with the IRS.
(au) Includes $59.1 million in minority interest.
(av) Excludes restructuring costs of $150 million and a $99.7 million gain on
the sale of a minority interest in its soda ash facility, both tax effected
at 35%.
(aw) Depreciation estimate of $270 million from Value Line research dated
February 9, 1996.
(ax) Source: Donaldson Lufkin & Jenrette Research Report dated January 29, 1996.
(ay) Source: CIBC Wood Gundy research report dated January 16, 1996.
(az) Source: Select Equity Group research report dated October 5, 1995.
- 89 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE V. PUBLIC MARKET COMPARABLE COMPANIES
- -----------------------------------------------------------------------------------------------------
COMPARABLE CREDIT ANALYSIS OF SELECTED CHEMICAL COMPANIES
(Figure Amounts and Shares in Millions, Except per Share Data)
STERLING GENERAL GEORGIA
CHEMICALS CHEMICAL GULF
--------- -------- --------
Business Description Produces intermediate Supplier of soda ash Integrated manuf. of
commodity petro- calcium chloride, water caustic soda, chlorine
chemicals & chems. chemicals, sulfur sodium chlorate, VCM,
for the pulp and paper products, fine & elec- vinyl resins, cumene,
Industries tronic chemicals phenol, & methanol
Latest Fiscal Year (LFY) ended 9/30/95 12/31/94 12/31/95
Latest 12 Months (LTM) ended 12/31/95 9/30/95 12/31/95
<S> <C> <C> <C> <C> <C> <C> <C>
Bond Trading Statistics:
---------------------------------------------------------------------------------------------------------------------
Ranking Sr. Sub. Senior
Maturity 8/15/03 11/15/05
Rating B2/B+ Bal/BBB-
Coupon 9.250% 7.625%
Price (as of 3/22/96) 100.75 91.72
Yield-to-Worst 8.832% 8.921%
Yield-to-Worst Date 8/15/01 11/15/05
----------------------------------------------------------------------------------------------------------------------
Book Capitalization as of: 12/31/95 9/30/95 12/31/95
- --------------------------
Cash and Equivalents $5.6 $18.8 $2.5
S-T Debt 13.4 13.0 0.0
L-T Debt 100.2 260.0 292.4
-------- ------- -------
Total Debt 113.6 31.2% 273.0 292.4 85.2%
Preferred Stock 0.0 0.0% 0.0 0.0 0.0%
Minority Interests 0.0 0.0% 0.0 48.5 0.0%
Shareholders' Equity 250.1 68.8% (205.2) 50.6 14.8%
-------- ------- -------
Total Capitalization 363.7 100.0% 67.8 100.0% 343.0 100.0%
======== ======= =======
Coverages & Ratios
---------------------------------------------------------------------------------------------------------------------
EBIT/Interest-LFY 16.6 x 3.3 x 13.2 x
EBIT/Interest LTM 21.0 4.3 13.2
EBITDA/Interest-LFY 19.6 x 4.0 x 14.5 x
EBITDA/Interest LTM 25.1 5.3 14.5
(EBITDA-CapEx)/Int.-LFY 15.9 x 3.4 x 11.0 x
(EBITDA-CapEx)/Int.-LTM 18.8 4.2 11.0
Total Debt/LTM EBITDA 0.4 x 2.1 x 0.8 x
Total Debt/Total Book Cap. 31.2% 402.9% 85.2%
Net Debt/Net Book Cap. 30.2% 519.2% 85.1%
---------------------------------------------------------------------------------------------------------------------
Equity Market Statistics
- ------------------------
Market Value of Equity $703.1 NA $1,383.2
Market Capitalization 811.1 NA 1,673.1
Total Debt/Market Cap. 14.0% NA 17.5%
Net Debt/Market Cap. 13.3% NA 17.3%
Profitability Ratios
---------------------------------------------------------------------------------------------------------------------
EBIT Margins LFY 23.6% 22.8% 30.3%
EBIT Margins LTM 22.9% 22.7% 30.3%
EBITDA Margins LFY 27.7% 28.2% 33.3%
EBITDA Margins LTM 27.3% 28.2% 33.3%
---------------------------------------------------------------------------------------------------------------------
Harris Chemical
North America Methanex Pioneer
---------------- -------- -------
Business Description Pioneer of inorganic Produce & market Manufactures chlorine,
chemical products, chemicals grade meth- caustic soda, and
salt, soda ash, boron, anol for the manuf. of related chemicals
chemicals & potash formaldehyde, acetic for water treatment,
fertilizers acid & other plastics and other.
Latest Fiscal Year (LFY) ended 3/25/95 12/31/95 12/31/94
Latest 12 Months (LTM) ended 12/23/95 12/31/95 9/30/95
Bond Trading Statistics:
---------------------------------------------------------------------------------------------------------------------
Ranking Sr. Sub. Sr. Sub. Senior Senior Senior
Maturity 10/15/03 7/15/01 8/15/02 8/15/05 4/1/05
Rating B3/B B2/B+ Ba1/BBB+ Ba1/BBB+ B2/B+
Coupon 10.750% 10.250% 7.400% 7.750% 13.375%
Price (as of 3/22/96) 96.00 97.50 99.79 99.27 113.97
Yield-to-Worst 11.554% 10.875% 7.440% 7.860% 10.410%
Yield-to-Worst Date 10/15/03 7/15/01 8/15/02 12/1/04 4/1/00
---------------------------------------------------------------------------------------------------------------------
Book Capitalization as of: 12/23/95 12/31/95 9/30/95
- --------------------------
Cash and Equivalents $ 0.0 $399.6 $8.5
S-T Debt 12.5 24.4 0.0
L-T Debt 821.5 401.3 146.5
-------- ------- -------
Total Debt 834.1 425.7 27.2% 146.5 78.3%
Preferred Stock 0.0 0.0 0.0% 0.0 0.0%
Minority Interests 0.0 0.0 0.0% 0.0 0.0%
Shareholders' Equity (282.5) 1,139.6 72.8% 40.6 21.7%
-------- ------- -------
Total Capitalization 551.6 100.0% 1,565.3 100.0% 187.1 100.0%
======== ======= =======
Coverages & Ratios
---------------------------------------------------------------------------------------------------------------------
EBIT/Interest-LFY 0.6 x 35.0 x 1.6 x
EBIT/Interest LTM 0.4 35.0 2.1
EBITDA/Interest-LFY 1.4 x 46.2 x 3.7 x
EBITDA/Interest LTM 1.0 46.2 3.2
(EBITDA-CapEx)/Int.-LFY 0.8 x 25.4 x 2.8 x
(EBITDA-CapEx)/Int.-LTM 0.5 25.4 2.3
Total Debt/LTM EBITDA 7.5 x 1.1 x 4.5 x
Total Debt/Total Book Cap. 151.2% 27.2% 78.3%
Net Debt/Net Book Cap. 151.2% 2.2% 77.2%
---------------------------------------------------------------------------------------------------------------------
Equity Market Statistics
- ------------------------
Market Value of Equity NA $1,275.8 NA
Market Capitalization NA 1,301.8 NA
Total Debt/Market Cap. NA 32.7% NA
Net Debt/Market Cap. NA 2.0% NA
Profitability Ratios
---------------------------------------------------------------------------------------------------------------------
EBIT Margins LFY 10.5% 24.3% 6.1%
EBIT Margins LTM 10.3% 24.3% 15.3%
EBITDA Margins LFY 23.2% 32.1% 14.2%
EBITDA Margins LTM 23.4% 32.1% 23.3%
---------------------------------------------------------------------------------------------------------------------
Rexene
------
Business Description Manufactures products
such as plastic film,
polyethylene, polypro-
pylene, resins
& styrene
Latest Fiscal Year (LFY) ended 12/31/95
Latest 12 Months (LTM) ended 12/31/95
Bond Trading Statistics:
---------------------------------------------------------------------------------------------------------------------
Ranking Senior
Maturity 12/1/04
Rating B1/BB-
Coupon 11.750%
Price (as of 3/22/96) 104.00
Yield-to-Worst 10.885%
Yield-to-Worst Date 12/1/02
---------------------------------------------------------------------------------------------------------------------
Book Capitalization as of: 12/31/95
- --------------------------
Cash and Equivalents $47.3
S-T Debt 0.0
L-T Debt 175.0
-------
Total Debt 175.0 55.5%
Preferred Stock 0.0 0.0%
Minority Interests 0.0 0.0%
Shareholders' Equity 140.2 44.5%
-------
Total Capitalization 315.2 100.0%
=======
Coverages & Ratios
---------------------------------------------------------------------------------------------------------------------
EBIT/Interest-LFY 2.6 x
EBIT/Interest LTM 2.6
EBITDA/Interest-LFY 3.1 x
EBITDA/Interest LTM 3.1
(EBITDA-CapEx)/Int.-LFY 1.9 x
(EBITDA-CapEx)/Int.-LTM 1.9
Total Debt/LTM EBITDA 1.2 x
Total Debt/Total Book Cap. 55.5%
Net Debt/Net Book Cap. 47.7%
---------------------------------------------------------------------------------------------------------------------
Equity Market Statistics
- ------------------------
Market Value of Equity $248.4
Market Capitalization 376.1
Total Debt/Market Cap. 46.5%
Net Debt/Market Cap. 34.0%
Profitability Ratios
---------------------------------------------------------------------------------------------------------------------
EBIT Margins LFY 20.3%
EBIT Margins LTM 20.3%
EBITDA Margins LFY 23.8%
EBITDA Margins LTM 23.8%
---------------------------------------------------------------------------------------------------------------------
-90-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE V. PUBLIC MARKET COMPARABLE COMPANIES
- -----------------------------------------------------------------------------------------------------
COMPARABLE CREDIT ANALYSIS OF SELECTED CHEMICAL COMPANIES
(Figure Amounts and Shares in Millions, Except per Share Data)
Sterling General Georgia Harris Chemical
Chemicals Chemical Gulf North America Methanex Pioneer Rexene
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales
LFY 1,030.2 441.3 1,081.6 459.6 1,249.2 167.2 615.2
LTM 981.1 456.1 1,081.6 475.2 1,249.2 140.4 615.2
EBIT
LFY 242.8 100.6(a) 327.9 48.3 303.3 10.1 125.1
LTM 224.5 103.4(a) 327.9 49.1 303.3 21.5 125.1
EBITDA
LFY 285.8 124.6(a) 360.0 106.5 400.9 23.7 146.6
LTM 267.9 128.4(a) 360.0 111.4 400.9 32.7 146.6
CapEx
LFY 54.0 19.6 86.3 42.1 181.1 5.7 54.6
LTM 67.1 27.2 86.3 51.0 181.1 9.4 54.6
Interest Expense
LFY 14.6 30.8 24.9 78.5 8.7 6.4 47.5(b)
LTM 10.7 24.3 24.9 112.3 8.7 10.2 47.5
Depreciation & Amortization
LFY 43.0 24.0 32.1 58.1 97.6 13.6 21.5
LTM 43.4 25.0 32.1 62.3 97.6 11.2 21.5
</TABLE>
- ----------
(a) Adjusted for a $9 MM one time expenses related to the Richmond incident
costs in 1994.
(b) Includes non-cash interest
- 91 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE V. PUBLIC MARKET COMPARABLE COMPANIES
- -----------------------------------------------------------------------------------------------------
HISTORICAL COMPARABLE CREDIT ANALYSIS OF SELECTED RECAPITALIZED CHEMICAL COMPANIES
(Figure Amounts and Shares in Millions, Except per Share Data)
General
Quantum Vista Chemical
------- ----- --------
Business Description Manufactures Petro- Manuf. commodity & Supplier of soda ash
chemicals & markets specialty chemicals calcium chloride, water
propane. Products: eg. surfactants for use chemicals, sulfur
poly-ethylene and in detergents, PVC and products, fine & elec-
-propylene and AA other plastics tronic chemicals
Date of Recapitalization 3/89 6/89 11/89
Latest Fiscal Year (LFY) ended 12/31/88 9/30/88 12/31/88
Latest 12 Months (LTM) ended 12/31/88 3/31/89 9/30/89
<S> <C> <C> <C> <C> <C> <C> <C>
Bond Trading Statistics:
---------------------------------------------------------------------------------------------------------------------
Ranking Snr. Sub. Snr. Sub. Snr. Sub. Sr. Sec 1 Sr. Sec. 2
Maturity 3/15/99 3/15/04 7/21/98 11/1/94 11/1/98
Rating B1 B1 NR Ba3 B2
Coupon 12.500% 13.000% 12.25% floating 10.500% 14.000%
Price (as of Recapitalization) 100.00 100.00 100.00 100.00 100.00
Amount Issued $300 $500 $200 $200 $150
---------------------------------------------------------------------------------------------------------------------
Book Capitalization as of: 12/31/88 3/31/89 9/30/89
- --------------------------
Cash and Equivalents $248.9 $0.9 $1.6
S-T Debt 8.2 0.0 0.0
L-T Debt 2,221.3 597.1 410.0
-------- ------- -------
Total Debt 2,229.5 114.5% 597.1 152.0% 410.0 191.5%
Preferred Stock 0.0 0.0% 0.0 0.0% 0.0 0.0%
Minority Interests 0.0 0.0% 0.0 0.0% 48.5 22.6%
Shareholders' Equity (281.9) -14.5% (204.4) -52.0% (244.4) -114.1%
-------- ------- -------
Total Capitalization 1,947.6 100.0% 392.7 100.0% 214.1 100.0%
======== ======= =======
Coverages & Ratios
---------------------------------------------------------------------------------------------------------------------
EBIT/Interest-LFY 3.3 x 3.9 x 1.8 x
EBIT/Interest LTM 3.3 3.9 1.8
EBITDA/Interest-LFY 4.0 x 4.5 x 2.3 x
EBITDA/Interest LTM 4.0 4.6 2.6
(EBITDA-CapEx)/Int.-LFY 2.5 x 3.6 x 2.0 x
(EBITDA-CapEx)/Int.-LTM 2.5 3.3 2.3
Total Debt/LTM EBITDA 2.4 x 2.4 x 2.9 x
Total Debt/Total Book Cap. 114.5% 152.0% 191.5%
Net Debt/Net Book Cap. 116.6% 152.2% 192.2%
---------------------------------------------------------------------------------------------------------------------
Equity Market Statistics
- ------------------------
Market Value of Equity $989.0 $656.3 NA
Market Capitalization 2,969.6 1,252.5 NA
Total Debt/Market Cap. 75.1% 47.7% NA
Net Debt/Market Cap. 66.7% 47.6% NA
Profitability Ratios
---------------------------------------------------------------------------------------------------------------------
EBIT Margins LFY 26.0% 27.6% 20.4%
EBIT Margins LTM 26.0% 28.1% 22.6%
EBITDA Margins LFY 31.5% 32.0% 25.6%
EBITDA Margins LTM 31.5% 32.7% 27.6%
---------------------------------------------------------------------------------------------------------------------
Georgia
Gulf Huntsman Rexene
------- -------- ------
Business Description Integrated manuf. of Manuf. commodity Manufactures products
caustic soda, chlorine, chemicals, eg. ethyl- such as plastic film,
sodium chlorate, VCM, ene & propylene, and polyethylene,polypro-
vinyl resins, cumene, specialty chem.s eg pylene, resins
phenol & methanol sufcactants & amines & styrene
Date of Recapitalization 3/90 4/94 11/94
Latest Fiscal Year (LFY) ended 12/31/89 12/31/93 12/31/93
Latest 12 Months (LTM) ended 12/31/89 12/31/93 9/30/94
Bond Trading Statistics:
---------------------------------------------------------------------------------------------------------------------
Ranking Senior Sub. 1st Mtge 1st Mtge Senior
Maturity 4/15/00 4/15/01 4/15/04 12/1/04
Rating B2 B1/BB- B1/BB- B1/B+
Coupon 15.000% 10.625% 11.000% 11.750%
Price (as of Recapitalization) 100.00 100.00 100.00 100.00
Amount Issued $200 $200 $400 $175
---------------------------------------------------------------------------------------------------------------------
Book Capitalization as of: 12/31/89 12/31/93 9/30/94
- --------------------------
Cash and Equivalents $ 5.0 $4.0 $26.2
S-T Debt 24.2 3.0 10.0
L-T Debt 714.9 794.0 265.0
-------- ------- -------
Total Debt 739.2 278.6% 797.0 88.9% 275.0 82.1%
Preferred Stock 0.0 0.0% 0.0 0.0% 0.0 0.0%
Minority Interests 0.0 0.0% 0.0 0.0% 0.0 0.0%
Shareholders' Equity (473.9) -178.6% 100.0 11.1% 60.0 17.9%
-------- ------- -------
Total Capitalization 265.3 100.0% 897.0 100.0% 335.0 100.0%
======== ======= =======
Coverages & Ratios
---------------------------------------------------------------------------------------------------------------------
EBIT/Interest-LFY 2.9 x 0.5 x 0.3 x
EBIT/Interest LTM 2.9 0.5 1.0
EBITDA/Interest-LFY 3.1 x 1.3 x 0.8 x
EBITDA/Interest LTM 3.1 1.3 1.5
(EBITDA-CapEx)/Int.-LFY 2.5 x 0.4 x 0.4 x
(EBITDA-CapEx)/Int.-LTM 2.5 0.4 0.9
Total Debt/LTM EBITDA 2.3 x 7.7 x 3.9 x
Total Debt/Total Book Cap. 278.6% 88.9% 82.1%
Net Debt/Net Book Cap. 282.1% 88.8% 80.6%
---------------------------------------------------------------------------------------------------------------------
Equity Market Statistics
- ------------------------
Market Value of Equity $1,096.6 NA $122.2
Market Capitalization 1,830.8 NA 371.0
Total Debt/Market Cap. 40.4% NA 74.1%
Net Debt/Market Cap. 40.1% NA 67.1%
Profitability Ratios
---------------------------------------------------------------------------------------------------------------------
EBIT Margins LFY 29.9% 38.4% 3.4%
EBIT Margins LTM 29.9% 38.4% 9.9%
EBITDA Margins LFY 31.8% 108.0% 8.4%
EBITDA Margins LTM 31.8% 108.0% 14.3%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
- 92 -
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE V. PUBLIC MARKET COMPARABLE COMPANIES
- -----------------------------------------------------------------------------------------------------
HISTORICAL CREDIT ANALYSIS OF SELECTED RECAPITALIZED CHEMICAL COMPANIES
(Figure Amounts and Shares in Millions, Except per Share Data)
General Georgia
Quantum Vista Chemical Gulf Huntsman Rexene
<S> <C> <C> <C> <C> <C> <C>
Net Sales
LFY 2,921.9 781.4 493.6 995.9 96.3 429.4
LTM 2,921.9 776.7 518.5 995.9 96.3 488.9
EBIT
LFY 759.8 215.5 100.6(a) 298.2 37.0 14.5
LTM 759.8 218.5 117.3(a) 298.2 37.0 48.6
EBITDA
LFY 919.6 249.9 126.4(a) 316.9 104.0 36.0
LTM 919.6 253.7 143.1(a) 316.9 104.0 70.1
CapEx
LFY 334.2 48.1 15.7 54.2 73.0 17.0
LTM 334.2 68.5 17.8 54.2 73.0 27.4
Interest Expense
LFY 230.2 55.7 54.9 103.8 80.0 47.5
LTM 230.2 55.7 54.9 103.8 80.0 47.8
Depreciation & Amortization
LFY 159.8 34.4 25.9 18.7 67.0 21.5
LTM 159.8 35.2 25.8 18.7 67.0 21.5
</TABLE>
- ----------
(a) Adjusted for a $9 MM one time expenses related to the Richmond incident
costs in 1994.
(b) Pro Forma results derived from the balance sheet as of last fiscal year,
assuming constant debt balances through the year.
- 93 -
<PAGE>
================================================================================
STERLING CHEMICALS, INC.
April 24, 1996
================================================================================
LAZARD FRERES & CO. LLC APRIL 24, 1996
<PAGE>
TOPICS FOR DISCUSSION
. Review of events subsequent to April 2
. Valuation summary
. Principal open issues in the Sterling Group negotiation
. Review of the Sterling Group contract
. Summary
LAZARD FRERES & CO. LLC APRIL 24, 1996
<PAGE>
* CONFIDENTIAL TREATMENT-- Confidential portion has been omitted and filed
separately with the Commission.
EVENTS SUBSEQUENT TO APRIL 2
. Sterling Group negotiations
. [ * ] discussions
. Other bidders
. Huntsman Corporation
LAZARD FRERES & CO. LLC APRIL 24, 1996
<PAGE>
VALUATION SUMMARY
. See Annex
LAZARD FRERES & CO. LLC APRIL 24, 1996
<PAGE>
STERLING GROUP: PRINCIPAL OPEN ISSUES
. Consequences of breach
. Financing condition
. Equity financing
LAZARD FRERES & CO. LLC APRIL 24, 1996
<PAGE>
REVIEW OF THE STERLING GROUP CONTRACT
. To be discussed
LAZARD FRERES & CO. LLC APRIL 24, 1996
<PAGE>
SUMMARY
. Price
. Structure
. Terms
. Marketing process
. Valuation
. Risks
LAZARD FRERES & CO. LLC APRIL 24, 1996
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE DCF ANALYSIS OF PETROCHEMICALS-COMPANY REVISED BASE CASE
- ----------------------------------------------------------------------------------------------------------------------------------
ASSUMED INCOME AND CASH FLOW:
(Dollars in millions except per share data)
ACTUAL PROJECTED
-------------------------- 9 Mnths 3 Mnths ------------------------------------------------
1993 1994 1995 Jun-96 Sep-96 1996 1997 1998 1999 2000
---- ---- ---- ------- -------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $518.7 $700.8 $1,030.2 $619.3 $243.8 $ 863.1 $895.5 $865.7 $909.8 $906.9
Operating EBITDA 54.2 89.4 284.2 123.9 64.0 187.9 208.1 180.6 220.7 227.8
Cost Savings - - - - - - - - - -
EBITDA 54.2 89.4 284.2 123.9 64.0 187.9 208.1 180.6 220.7 227.8
Less: D & A (38.8) (40.9) (43.0) (27.2) (11.8) (39.1) (52.8) (55.1) (55.1) (55.1)
----------- ----- ----- -------- ------ ------ ------- ------ ------ ------ ------
EBIT 15.4 48.5 241.2 96.6 52.2 148.8 155.3 125.6 165.6 172.7
SAR's & Other Income - - 2.8 (2.0) (0.7) (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Income/(Expense) (22.4) (20.2) (14.6) (6.1) (2.3) (8.4) 7.2 0.8 6.3 12.3
-------------------------- ----- ----- -------- ------ ------ ------- ------ ------ ------ ------
Pretax Income (7.0) 28.3 228.2 88.5 49.2 137.7 145.6 125.2 170.7 183.9
Income Taxes 1.5 (9.2) (78.1) (31.0) (17.2) (48.2) (51.0) (43.8) (59.8) (64.4)
------------ ----- ----- -------- ------ ------ ------- ------ ------ ------ ------
NET INCOME ($5.5) $19.1 $ 150.0 $ 57.5 $ 32.0 $ 89.5 $ 94.7 $ 81.4 $111.0 $119.5
Plus: Deferred Taxes 1.0 8.3 2.8 11.0 13.9 15.4 13.1 12.1
Plus: Dep. & Amortization 43.0 27.2 11.8 39.1 52.8 55.1 55.1 55.1
Less: Change in Working
Capital 8.5 (50.3) 4.3 (45.9) 16.7 17.3 (3.2) 0.4
Less: Capital Expenditures (53.9) (78.1) (26.1) (104.2) (47.5) (31.5) (25.0) (25.0)
-------------------------- -------- ------ ------ ------- ------ ------ ------ ------
Free Cash Flow $ 148.7 ($35.4) $ 24.9 ($10.5) $130.5 $137.6 $151.0 $162.1
======== ====== ====== ======= ====== ====== ====== ======
Unlevered Cash Flow for DCF $159.1 ($31.4) $ 26.4 ($5.0) $135.2 $137.1 $146.9 $154.1
SUMMARY OF DISCOUNTED CASH FLOW VALUATION
<CAPTION>
PV OF TERMINAL VALUE FOR 5 YEAR SUM OF PV OF
AVERAGE EBITDA EXIT MULTIPLES CASH FLOWS AND TERM. VALUE
DISCOUNT PRESENT VALUE ---------------------------------- -----------------------------------
RATE OF CASH FLOWS 4.0x 4.5x 5.0x 4.0x 4.5x 5.0x
- -------- --------------- ------- ------- ------- ------- -------- --------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $406.2 $509.2 $572.9 $636.5 $915.4 $979.1 $1,042.7
11.0% 393.7 486.7 547.5 608.4 880.4 941.2 $1,002.0
12.0% 381.7 465.3 523.5 581.7 847.0 905.2 $963.4
13.0% 370.2 445.1 500.7 556.4 815.3 871.0 $926.6
DISCOUNT ----------------------------------
RATE NET DEBT TOTAL EQUITY VALUE PER SHARE IMPLIED PERPETUAL GROWTH RATE
- -------- --------------- ---------------------------------- -----------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $136.0 $14.00 $15.14 $16.28 -8.4% -6.4% -4.7%
11.0% 13.37 14.46 15.55 -7.4% -5.4% -3.7%
12.0% 12.77 13.81 14.86 -6.4% -4.4% -2.7%
13.0% 12.20 13.20 14.20 -5.4% -3.4% -1.7%
----------------------------------
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE DCF ANALYSIS OF PETROCHEMICALS-COMPANY REVISED BASE CASE
- ----------------------------------------------------------------------------------------------------------------------------------
ASSUMED INCOME AND CASH FLOW:
(Dollars in millions except per share data)
ACTUAL PROJECTED
-------------------------- 9 Mnths 3 Mnths ------------------------------------------------
1993 1994 1995 Jun-96 Sep-96 1996 1997 1998 1999 2000
---- ---- ---- ------- -------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $399.4 $578.3 $886.2 $501.5 $194.4 $696.0 $697.8 $643.6 $690.2 $695.5
Operating EBITDA 21.5 62.3 239.5 80.6 45.6 126.1 123.5 76.3 117.7 133.1
Cost Savings - - - - - - - - - -
EBITDA 21.5 62.3 239.5 80.6 45.6 126.1 123.5 76.3 117.7 133.1
Less: D & A (25.0) (26.3) (28.4) (16.7) (8.3) (25.0) (35.5) (37.8) (37.8) (37.8)
----------- ----- ----- -------- ------ ------ ------- ------ ------ ------ ------
EBIT (3.5) 36.0 213.4 63.8 37.3 101.1 88.0 38.5 79.9 95.3
SAR's & Other Income - - (0.8) (1.0) (0.3) (1.4) (1.3) - - -
Interest Expense (9.4) (9.7) (1.4) 0.0 0.0 0.0 0.0 4.3 6.4 9.1
---------------- ----- ----- -------- ------ ------ ------- ------ ------ ------ ------
Pretax Income (12.9) 26.3 211.2 62.8 36.9 99.7 86.7 42.7 86.3 104.4
Income Taxes 3.9 (8.4) (70.8) (22.0) (12.9) (34.9) (30.4) (15.0) (30.2) (36.5)
------------ ----- ----- -------- ------ ------ ------- ------ ------ ------ ------
NET INCOME ($9.0) $17.9 $ 140.4 $ 40.8 $ 24.0 $ 64.8 $ 56.4 $ 27.8 $ 56.1 $ 67.8
Plus: Deferred Taxes ($3.9) $0.6 $0.2 $0.8 $2.7 ($1.9) ($1.9) ($1.9)
Plus: Dep. & Amortization 28.4 16.7 8.3 25.0 35.5 37.8 37.8 37.8
Less: Change in Working
Capital 6.3 (51.6) 4.8 (46.8) 22.2 14.3 (3.4) (0.4)
Less: Capital Expenditures (45.7) (42.4) (11.2) (53.7) (35.4) (26.5) (20.0) (20.0)
-------------------------- -------- ------ ------ ------- ------ ------ ------ ------
Free Cash Flow $ 125.5 ($35.9) $ 26.1 ($9.8) $ 81.3 $ 51.6 $ 68.6 $ 83.4
======== ====== ====== ======= ====== ====== ====== ======
Unlevered Cash Flow for DCF $126.4 ($35.9) $ 26.1 ($9.8) $ 81.3 $ 48.8 $ 64.5 $ 77.5
SUMMARY OF DISCOUNTED CASH FLOW VALUATION
<CAPTION>
PV OF TERMINAL VALUE FOR 5 YEAR SUM OF PV OF
AVERAGE EBITDA EXIT MULTIPLES CASH FLOWS AND TERM. VALUE
DISCOUNT PRESENT VALUE ---------------------------------- -----------------------------------
RATE OF CASH FLOWS 4.0x 4.5x 5.0x 4.0x 4.5x 5.0x
- -------- --------------- ------- ------- ------- ------- -------- --------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $187.1 $286.5 $322.3 $358.1 $473.6 $509.4 $545.2
11.0% 181.3 273.8 308.0 342.2 455.1 489.3 $523.5
12.0% 175.7 261.8 294.5 327.2 437.5 470.2 $503.0
13.0% 170.4 250.4 281.7 313.0 420.8 452.1 $483.4
DISCOUNT ----------------------------------
RATE NET DEBT TOTAL EQUITY VALUE PER SHARE IMPLIED PERPETUAL GROWTH RATE
- -------- --------------- ---------------------------------- -----------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $ 0.0 $8.50 $9.14 $9.79 -6.8% -4.9% -3.4%
11.0% 8.17 8.78 9.40 -5.8% -3.9% -2.4%
12.0% 7.85 8.44 9.03 -4.8% -2.9% -1.4%
13.0% 7.56 8.12 8.68 -3.8% -1.9% -0.4%
----------------------------------
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE DCF ANALYSIS OF PULP CHEMICALS-COMPANY REVISED BASE CASE
- ----------------------------------------------------------------------------------------------------------------------------------
ASSUMED INCOME AND CASH FLOW:
(Dollars in millions except per share data)
ACTUAL PROJECTED
-------------------------- 9 Mnths 3 Mnths ------------------------------------------------
1993 1994 1995 Jun-96 Sep-96 1996 1997 1998 1999 2000
---- ---- ---- ------- -------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $119.3 $122.5 $144.0 $117.7 $ 49.3 $167.1 $197.7 $222.2 $219.6 $211.4
EBITDA 32.7 27.1 44.7 43.3 18.5 61.8 84.6 104.4 102.9 94.7
Less: D & A (13.8) (14.6) (14.6) (10.5) (3.6) (14.1) (17.2) (17.3) (17.3) (17.3)
----------- ------ ----- -------- ------ ------ ------- ------ ------ ------ ------
EBIT 18.9 12.5 30.1 32.8 14.9 47.7 67.4 87.1 85.7 77.5
SAR's & Other Income - - - (1.0) (0.3) (1.4) (1.3) (1.2) (1.2) (1.2)
Interest Expense (13.0) (12.4) (13.2) (6.6) (2.2) (8.8) (8.9) (5.8) (0.3) 3.1
---------------- ------ ----- -------- ------ ------ ------- ------ ------ ------ ------
Pretax Income 5.9 0.1 16.9 25.2 12.3 37.5 57.2 80.1 84.2 79.4
Income Taxes (2.4) 1.1 (7.2) (8.8) (4.3) (13.1) (20.0) (28.1) (29.5) (27.8)
------------ ------ ----- -------- ------ ------ ------- ------ ------ ------ ------
NET INCOME $ 3.5 $ 1.2 $ 9.7 $ 16.4 $ 8.0 $ 24.4 $ 37.2 $ 52.1 $ 54.7 $ 51.6
Plus: Deferred Taxes $ 5.0 $ 7.7 $ 2.6 $ 10.3 $ 11.3 $ 17.3 $ 15.0 $ 14.0
Plus: Dep. & Amortization 14.6 10.5 3.6 14.1 17.2 17.3 17.3 17.3
Less: Change in Working
Capital 2.2 1.3 (0.5) 0.9 (5.5) 2.9 0.2 0.8
Less: Capital Expenditures (8.2) (35.7) (14.8) (50.6) (12.1) (5.0) (5.0) (5.0)
-------------------------- -------- ------ ------ ------- ------ ------ ------ ------
Free Cash Flow $ 23.2 $ 0.2 ($1.2) ($1.0) $ 48.1 $ 84.6 $ 82.2 $ 78.7
======== ====== ====== ======= ====== ====== ====== ======
Unlevered Cash Flow for DCF $ 30.8 $ 4.5 $ 0.3 $ 4.8 $ 53.9 $ 88.3 $ 82.4 $ 76.6
SUMMARY OF DISCOUNTED CASH FLOW VALUATION
<CAPTION>
PV OF TERMINAL VALUE FOR 5 YEAR SUM OF PV OF
AVERAGE EBITDA EXIT MULTIPLES CASH FLOWS AND TERM. VALUE
DISCOUNT PRESENT VALUE ---------------------------------- -----------------------------------
RATE OF CASH FLOWS 4.0x 4.5x 5.0x 4.0x 4.5x 5.0x
- -------- --------------- ------- ------- ------- ------- -------- --------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $219.1 $222.7 $250.6 $278.4 $441.9 $469.7 $497.6
11.0% 212.4 212.9 239.5 266.1 425.3 451.9 $478.5
12.0% 206.0 203.6 229.0 254.4 409.5 435.0 $460.4
13.0% 199.8 194.7 219.0 243.4 394.5 418.8 $443.2
DISCOUNT ----------------------------------
RATE NET DEBT TOTAL EQUITY VALUE PER SHARE IMPLIED PERPETUAL GROWTH RATE
- -------- --------------- ---------------------------------- -----------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $136.0 $5.49 $5.99 $6.49 -11.4% -9.0% -7.1%
11.0% 5.19 5.67 6.15 -10.4% -8.0% -6.1%
12.0% 4.91 5.37 5.82 -9.4% -7.0% -5.1%
13.0% 4.64 5.08 5.51 -8.4% -6.0% -4.1%
----------------------------------
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE DCF ANALYSIS OF PLATE-COMPANY REVISED DOWNSIDE CASE
- ----------------------------------------------------------------------------------------------------------------------------------
ASSUMED INCOME AND CASH FLOW
(Dollars in millions except per share data)
ACTUAL PROJECTED
-------------------------- 9 Mnths 3 Mnths ------------------------------------------------
1993 1994 1995 Jun-96 Sep-96 1996 1997 1998 1999 2000
---- ---- ---- ------- -------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $518.7 $700.8 $1,030.2 $611.9 $226.1 $838.0 $813.0 $794.0 $849.9 $847.4
Operating EBITDA 54.2 89.4 284.2 116.5 46.4 162.9 143.2 120.2 170.0 177.4
Cost Savings - - - - - - - - - -
EBITDA 54.2 89.4 284.2 116.5 46.4 162.9 143.2 120.2 170.0 177.4
Less: D & A (38.8) (40.9) (43.0) (27.2) (11.8) (39.1) (52.1) (53.4) (53.4) (53.4)
----------- ----- ----- -------- ------ ------ ------- ------ ------ ------ ------
EBIT 15.4 48.5 241.2 89.3 34.5 123.8 91.1 66.8 116.5 123.9
SAR's & Other Income - - 2.8 (2.0) (0.7) (2.7) (2.5) (1.2) (1.2) (1.2)
Interest Income/(Expense) (22.4) (20.2) (14.6) (6.1) (2.3) (8.4) (7.7) (0.2) 3.6 8.0
------------------------- ----- ----- -------- ------ ------ ------- ------ ------ ------ ------
Pretax Income (7.0) 28.3 228.2 81.1 31.6 112.7 80.9 65.4 118.9 130.7
Income Taxes 1.5 (9.2) (78.1) (28.4) (11.1) (39.4) (28.3) (22.9) (41.6) (45.8)
------------ ----- ----- -------- ------ ------ ------- ------ ------ ------ ------
NET INCOME ($5.5) $19.1 $ 150.0 $ 52.7 $ 20.5 $ 73.2 $ 52.6 $ 42.5 $ 77.3 $ 85.0
Plus: Deferred Taxes 1.0 7.9 2.6 10.5 9.7 7.9 7.5 6.5
Plus: Dep. & Amortization 43.0 27.2 11.8 39.1 52.1 53.4 53.4 53.4
Less: Change in Working
Capital 8.5 (43.8) 8.2 (35.5) 33.0 13.8 (3.2) 0.1
Less: Capital Expenditures (53.9) (78.1) (26.1) (104.2) (31.7) (25.0) (25.0) (25.0)
-------------------------- -------- ------ ------ ------- ------ ------ ------ ------
Free Cash Flow $ 148.7 ($34.1) $ 17.1 ($16.9) $115.7 $ 92.6 $110.1 $120.0
======== ====== ====== ======= ====== ====== ====== ======
Unlevered Cash Flow for DCF $ 159.1 ($30.1) $ 18.6 ($11.5) $120.7 $ 92.7 $107.7 $114.9
SUMMARY OF DISCOUNTED CASH FLOW VALUATION
<CAPTION>
PV OF TERMINAL VALUE FOR 5 YEAR SUM OF PV OF
AVERAGE EBITDA EXIT MULTIPLES CASH FLOWS AND TERM. VALUE
DISCOUNT PRESENT VALUE ---------------------------------- -----------------------------------
RATE OF CASH FLOWS 4.0x 4.5x 5.0x 4.0x 4.5x 5.0x
- -------- --------------- ------- ------- ------- ------- -------- --------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $303.9 $384.3 $432.3 $480.3 $688.2 $736.2 $784.3
11.0% 294.6 367.3 413.2 459.1 661.9 707.8 $753.7
12.0% 285.6 351.2 395.1 439.0 636.8 680.7 $724.6
13.0% 277.1 335.9 377.9 419.9 613.0 655.0 $696.9
DISCOUNT ----------------------------------
RATE NET DEBT TOTAL EQUITY VALUE PER SHARE IMPLIED PERPETUAL GROWTH RATE
- -------- --------------- ---------------------------------- -----------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $136.0 $9.92 $10.78 $11.64 -8.8% -6.7% -5.0%
11.0% 9.44 10.27 11.09 -7.8% -5.7% -4.0%
12.0% 8.99 9.78 10.57 -6.8% -4.7% -3.0%
13.0% 8.56 9.32 10.07 -5.8% -3.7% -2.0%
----------------------------------
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE DCF ANALYSIS OF PETROCHEMICALS-COMPANY REVISED DOWNSIDE CASE
- ----------------------------------------------------------------------------------------------------------------------------------
ASSUMED INCOME AND CASH FLOW:
(Dollars in millions except per share data)
ACTUAL PROJECTED
-------------------------- 9 Mnths 3 Mnths ------------------------------------------------
1993 1994 1995 Jun-96 Sep-96 1996 1997 1998 1999 2000
---- ---- ---- ------- -------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $399.4 $578.3 $886.2 $494.2 $176.8 $671.0 $629.1 $595.9 $644.3 $649.2
Operating EBITDA 21.5 62.3 239.5 73.2 27.9 101.1 72.4 41.8 79.9 94.9
Cost Savings - - - - - - - - - -
EBITDA 21.5 62.3 239.5 73.2 27.9 101.1 72.4 41.8 79.9 94.9
Less: D & A (25.0) (26.3) (28.4) (16.7) (8.3) (25.0) (34.8) (36.2) (36.2) (36.2)
----------- ----- ----- -------- ------ ------ ------- ------ ------ ------ ------
EBIT (3.5) 36.0 213.4 56.5 19.6 76.1 37.6 5.6 43.8 58.7
SAR's & Other Income - - (0.8) (1.0) (0.3) (1.4) (1.3) - - -
Interest Expense (9.4) (9.7) (1.4) 0.0 0.0 0.0 0.0 3.5 4.8 6.6
---------------- ----- ----- -------- ------ ------ ------- ------ ------ ------ ------
Pretax Income (12.9) 26.3 211.2 55.4 19.3 74.7 36.3 9.1 48.6 65.2
Income Taxes 3.9 (8.4) (70.8) (19.4) (6.8) (26.2) (12.7) (3.2) (17.0) (22.8)
------------ ----- ----- -------- ------ ------ ------- ------ ------ ------ ------
NET INCOME ($9.0) $17.9 $ 140.4 $ 36.0 $ 12.5 $ 48.6 $ 23.6 $ 5.9 $ 31.6 $ 42.4
Plus: Deferred Taxes ($3.9) $0.1 $0.0 $0.2 $4.1 ($1.5) ($1.5) ($1.5)
Plus: Dep. & Amortization 28.4 16.7 8.3 25.0 34.8 36.2 36.2 36.2
Less: Change in Working
Capital 6.3 (45.1) 8.7 (36.4) 26.7 12.2 (2.8) (0.3)
Less: Capital Expenditures (45.7) (42.4) (11.2) (53.7) (19.6) (20.0) (20.0) (20.0)
-------------------------- -------- ------ ------ ------- ------ ------ ------ ------
Free Cash Flow $ 125.5 ($34.6) $ 18.3 ($16.2) $ 69.6 $ 32.8 $ 43.5 $ 56.8
======== ====== ====== ======= ====== ====== ====== ======
Unlevered Cash Flow for DCF $ 126.4 ($34.6) $ 18.3 ($16.2) $ 69.6 $ 30.6 $ 40.4 $ 52.5
SUMMARY OF DISCOUNTED CASH FLOW VALUATION
<CAPTION>
PV OF TERMINAL VALUE FOR 5 YEAR SUM OF PV OF
AVERAGE EBITDA EXIT MULTIPLES CASH FLOWS AND TERM. VALUE
DISCOUNT PRESENT VALUE ---------------------------------- -----------------------------------
RATE OF CASH FLOWS 4.0x 4.5x 5.0x 4.0x 4.5x 5.0x
- -------- --------------- ------- ------- ------- ------- -------- --------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $125.9 $193.8 $218.0 $242.2 $319.7 $343.9 $368.1
11.0% 122.0 185.2 208.4 231.5 307.2 330.3 $353.5
12.0% 118.2 177.1 199.2 221.4 295.3 317.4 $339.6
13.0% 114.6 169.4 190.6 211.7 284.0 305.2 $326.3
DISCOUNT ----------------------------------
RATE NET DEBT TOTAL EQUITY VALUE PER SHARE IMPLIED PERPETUAL GROWTH RATE
- -------- --------------- ---------------------------------- -----------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $0.0 $5.74 $6.17 $6.61 -6.8% -5.0% -3.5%
11.0% 5.52 5.93 6.35 -5.8% -4.0% -2.5%
12.0% 5.30 5.70 6.10 -4.8% -3.0% -1.5%
13.0% 5.10 5.48 5.86 -3.8% -2.0% -0.5%
----------------------------------
</TABLE>
A-5
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE DCF ANALYSIS OF PULP CHEMICALS-COMPANY REVISED DOWNSIDE CASE
- ----------------------------------------------------------------------------------------------------------------------------------
ASSUMED INCOME AND CASH FLOW:
(Dollars in millions except per share data)
ACTUAL PROJECTED
-------------------------- 9 Mnths 3 Mnths ------------------------------------------------
1993 1994 1995 Jun-96 Sep-96 1996 1997 1998 1999 2000
---- ---- ---- ------- -------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $119.3 $122.5 $144.0 $117.7 $49.3 $167.1 $183.9 $198.1 $205.6 $198.1
EBITDA 32.7 27.1 44.7 43.3 18.5 61.8 70.8 78.4 90.0 82.5
Less: D&A (13.8) (14.6) (14.6) (10.5) (3.6) (14.1) (17.2) (17.3) (17.3) (17.3)
--------- ------ ------ ------ ------ ------ ----- ------ ------ ------ ------
EBIT 18.9 12.5 30.1 32.8 14.9 47.7 53.5 61.1 72.8 65.3
SAR's & Other Income - - - (1.0) (0.3) (1.4) (1.3) (1.2) (1.2) (1.2)
Interest Expense (13.0) (12.4) (13.2) (6.6) (2.2) (8.8) (8.9) (6.0) (2.2) 1.3
---------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Pretax Income 5.9 0.1 16.9 25.2 12.3 37.5 43.4 54.0 69.4 65.4
Income Taxes (2.4) 1.1 (7.2) (8.8) (4.3) (13.1) (15.2) (18.9) (24.3) (22.9)
------------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET INCOME $ 3.5 $ 1.2 $ 9.7 $ 16.4 $ 8.0 $ 24.4 $ 28.2 $ 35.1 $ 45.1 $ 42.5
Plus: Deferred Taxes $ 5.0 $ 7.7 $ 2.6 $ 10.3 $ 5.6 $ 9.4 $ 9.0 $ 8.0
Plus: Dep. & Amortization 14.6 10.5 3.6 14.1 17.2 17.3 17.3 17.3
Less: Change in Working
Capital 2.2 1.3 (0.5) 0.9 6.4 1.6 (0.4) 0.4
Less: Capital Expenditures (8.2) (35.7) (14.8) (50.6) (12.1) (5.0) (5.0) (5.0)
-------------------------- ------ ------ ------ ------ ------ ------ ------ ------
Free Cash Flow $ 23.2 $ 0.2 ($ 1.2) ($ 1.0) $ 45.3 $ 58.3 $ 66.0 $ 63.2
====== ====== ====== ======= ====== ====== ====== ======
Unlevered Cash Flow for DCF $ 30.8 $ 4.5 $ 0.3 $ 4.8 $ 51.1 $ 62.1 $ 67.4 $ 62.3
SUMMARY OF DISCOUNTED CASH FLOW VALUATION
<CAPTION>
PV OF TERMINAL VALUE FOR 5 YEAR SUM OF PV OF
AVERAGE EBITDA EXIT MULTIPLES CASH FLOWS AND TERM. VALUE
DISCOUNT PRESENT VALUE ---------------------------------- -----------------------------------
RATE OF CASH FLOWS 4.0x 4.5x 5.0x 4.0x 4.5x 5.0x
- -------- --------------- ------- ------- ------- ------- -------- --------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $178.0 $190.5 $214.3 $238.1 $368.5 $392.3 $416.1
11.0% 172.6 182.1 204.8 227.6 354.7 377.4 $400.2
12.0% 167.4 174.1 195.8 217.6 341.5 363.3 $385.0
13.0% 162.5 166.5 187.3 208.1 329.0 349.8 $370.6
DISCOUNT ----------------------------------
RATE NET DEBT VALUE PER SHARE IMPLIED PERPETUAL GROWTH RATE
- -------- --------------- ---------------------------------- -----------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
10.0% $136.0 $4.17 $4.60 $5.03 -10.3% -8.1% -6.3%
11.0% 3.93 4.33 4.74 -9.3% -7.1% -5.3%
12.0% 3.69 4.08 4.47 -8.3% -6.1% -4.3%
13.0% 3.46 3.84 4.21 -7.3% -5.1% -3.3%
----------------------------------
</TABLE>
A-6
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE LBO ANALYSIS - STERLING GROUP STRUCTURE - COMPANY REVISED BASE CASE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY ANALYSIS
(Dollars in millions except per share)
OPERATING STATISTICS PROJECTED
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Operating EBITDA $187.9 $208.1 $180.6 $220.7 $227.8
Net Income $57.6
Net Debt $378.8
VALUE OF EQUITY AT 9/30/96
Terminal Value PV of Terminal Value
At EBITDA Exit Multiples At EBITDA Exit Multiples At EBITDA Exit Multiples of:
------------------------------ ------------------------------- ---------------------------------
Discount Rate 4.0x 4.5x 5.0x 4.0x 4.5x 5.0x 4.0x 4.5x 5.0x
------------- ---- ---- ---- ---- ---- ---- ---- ---- ----
25.0% $532.5 $646.4 $760.3 $218.1 $264.8 $311.4 Implied Net Income Multiplies
30.0% 186.4 226.3 266.2 -----------------------------
35.0% 160.3 194.6 228.9 9.2x 11.2x 13.2x
Discount Rate Total Equity Value Per Share
------------- -------------------------------
25.0% $18.02 $21.88 $25.73
30.0% 15.41 18.70 22.00
35.0% 13.25 16.08 18.92
A-7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROJECT PLATE LBO ANALYSIS - STERLING GROUP STRUCTURE - COMPANY REVISED DOWNSIDE CASE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY ANALYSIS
(Dollars in millions except per share)
OPERATING STATISTICS PROJECTED
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Operating EBITDA $162.9 $143.2 $120.2 $170.0 $177.4
Net Income $19.6
Net Debt $535.6
VALUE OF EQUITY AT 9/30/96
Terminal Value PV of Terminal Value
At EBITDA Exit Multiples At EBITDA Exit Multiples At EBITDA Exit Multiples of:
------------------------------ ------------------------------- ---------------------------------
Discount Rate 4.0x 4.5x 5.0x 4.0x 4.5x 5.0x 4.0x 4.5x 5.0x
------------- ---- ---- ---- ---- ---- ---- ---- ---- ----
25.0% $173.9 $262.6 $351.2 $71.2 $107.5 $143.9 Implied Net Income Multiplies
30.0% 60.9 91.9 123.0 -----------------------------
35.0% 52.3 79.0 105.7 8.9x 13.4x 17.9x
Discount Rate Total Equity Value Per Share
------------- -------------------------------
25.0% $5.89 $8.89 $11.89
30.0% 5.03 7.60 10.16
35.0% 4.33 6.53 8.74
A-8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPARISON OF SG OFFER TO SELECTED CHEMICAL COMPANIES
($ in millions)
SG OFFER (a)(b) PETROCHEM. BUSINESS (d)
-------------------- -------------------------
BASE DOWNSIDE GEON GEORGIA LYONDELL REXENE UNION BASE DOWNSIDE
CASE CASE COMPANY GULF PETROCHEM. CORP. CARBIDE CASE CASE
------- -------- -------- ------- ---------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MARKET CAPITALIZATION $804.3(c) $804.3(c) $764.5 $1,700.8 $3,899.0 $377.7 $7,384.0 $529.0 $529.0
(US$MM)
IMPLIED MULTIPLES:
LTM Revenue 0.8x 0.8 0.6x 1.6x 0.8x 0.6x 1.3x 0.6x 0.6x
LFY + 1 Revenue 0.9 1.0 0.7 1.7 0.8 0.7 1.3 0.8 0.8
LFY + 2 Revenue 0.9 1.0 0.6 1.6 0.9 NA 1.2 0.8 0.6
LTM EBITDA 3.0x 3.0x 4.2x 4.7x 4.9x 2.6x 4.8x 2.2x 2.2x
LFY + 1 EBITDA 4.3 5.0 5.7 7.0 7.1 3.2 7.0 4.2 5.3
LFY + 2 EBITDA 3.9 5.7 4.7 5.7 5.1 NA 6.4 4.3 7.4
LTM EBIT 3.6x 3.6x 6.0x 5.2x 5.5x 3.0x 6.0x 2.5x 2.5x
LFY + 1 EBIT 5.5 6.6 9.9 8.2 8.6 3.8 10.2 5.3 7.1
LFY + 2 EBIT 5.3 9.1 7.6 6.6 6.0 NA 9.2 6.1 14.6
LTM Net Income 4.6x 4.6x 9.9x 8.1x 6.1x 3.9x 8.7x 2.8x 2.8x
LFY + 1 Net Income 7.7 9.6 19.1 12.4 11.1 8.3 10.5 6.2 8.4
LFY + 2 Net Income 7.1 12.9 12.0 9.9 7.9 6.5 9.5 6.3 14.5
SELECTED OPERATING STATISTICS:
5-Year I/B/E/S/ Growth Est. 4.0% 4.0% 8.0% 14.0% 8.0% 7.3% 7.0% NA NA
LTM EBITDA Margin 27.1% 27.1% 14.5% 33.3% 16.0% 23.8% 26.0% 26.9% 26.9%
LFY + 1 EBITDA Margin 21.5% 19.1% 11.8% 24.6% 11.7% 21.2% 18.4% 17.9% 25.3%
LFY + 2 EBITDA Margin 23.0% 17.3% 13.0% 27.6% 18.6% NA 18.7% 17.5% 18.1%
- ----------------------------
(a) Multiples implied by transaction price.
(b) Company projections used: March 1996 revised projection of FY 1996-1998 performance.
(c) Multiples for revenues, EBITDA and EBIT use the transaction value, multiples for net income use the assumed equity
value of $668.4 m.
(d) Multiples implied by the valuation of the Petrochemicals business of STX derived from a Pulp Chemicals business valuation
of $330 million (equivalent to the highest bid) as is outlined in Appendix B.
</TABLE>
<PAGE>
================================================================================
PROJECT PLATE
PRESENTATION TO THE BOARD OF DIRECTORS
================================================================================
LAZARD FRERES & CO. LLC APRIL 2, 1996
<PAGE>
PROJECT PLATE Discussion Objectives
- --------------------------------------------------------------------------------
. Review of the Sale Process
. Review of Results
. Valuation Update
. Potential Alternatives
- 1 -
<PAGE>
* CONFIDENTIAL TREATMENT-- Confidential portion has been omitted and filed
separately with the Commission.
PROJECT PLATE Review of the Sale Process
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DATE EVENT COMMENTS
- --------------------------- ----------------------- --------------------------
<S> <C> <C>
18 December Special Committee . Begin drafting
meeting decides to Information Memorandum
market the Company . Initial contacts made
over subsequent 3 weeks
. Buyer due diligence
begins in January
25 January First round bids due . 2 bids on Pulp
Chemicals; 5 bids on the
Company as a whole; 13
not interested or dropped out
29 January Discussions announced . Stock price rises
. Receive a number of
new approaches
22 February Special Committee . New entrants admitted
progress report . Final bid deadline
communicated to potential
buyers
29 March Final bids due . A number of potential
buyers drop out
. [ * ] bid for Pulp
Chemicals
. [ * ] bid for
Petrochemicals
. Sterling Group bid for
the Company
. [ * ] orally
reaffirms bid for the
Company
. A number of potential
buyers request more time
1 April Special Committee . [ * ] rescinds
meeting proposal
Note: Process reflects discussions with over 35 potential buyers.
- -----
</TABLE>
- 2 -
<PAGE>
* CONFIDENTIAL TREATMENT-- Confidential portion has been omitted and filed
separately with the Commission.
PROJECT PLATE Review of Results
- --------------------------------------------------------------------------------
MARKET FEEDBACK
PETROCHEMICALS:
. Industry plans to add styrene capacity, especially in the Far East
. Cost competitiveness
. [*] control of Acrylonitrile and [ * ] technology
. Texas City environmental a major concern
. [*] interest defensive, not strategic
. Integrated facility, but all of Texas City not strategic to any one party
. Texas City value in the low $400 mm
PULP CHEMICALS:
. No strategic buyers for Pulp Chemicals
. Concerns about generator royalty stream; near-term growth but long-term
cyclical, commodity characteristics
. Pulp Chemicals value in the low $300 mm
WHOLE COMPANY:
. Timing in the cycle
. Company "shop worn" in the marketplace
. Segments bear no relation to each other
. Tax leakage of splitting segments
- 3 -
<PAGE>
* CONFIDENTIAL TREATMENT-- Confidential portion has been omitted and filed
separately with the Commission.
PROJECT PLATE Review of Results
- --------------------------------------------------------------------------------
COMMENTS ON FINAL ROUND DROP-OUTS
. [ * ] Timing considerations. Driven primarily by
styrene. Real interest unclear
. [*] Decided not sufficiently interested to be
competitive on price
. [ * ] Revised proposal for Pulp Chemicals too low (ca.
$260 million), based on concerns about ERCO
royalties outlook and cyclicality
. [*] Decided not a good strategic fit
. [ * ] Notional value of $650 million for Petrochemicals,
but unwilling to confirm in writing by March 29
. [ * ] Not prepared to meet evaluation deadlines
. [*] Concern regarding environmental issues
. [ * ] Had reaffirmed initial indication at 0.45 share,
or approximately $12 per Company share at current
prices. Ultimately dropped out due to last-minute
concerns about shareholder and market reaction
. [ * ] Internal competition for capital
- 4 -
<PAGE>
* CONFIDENTIAL TREATMENT-- Confidential portion has been omitted and filed
separately with the Commission.
PROJECT PLATE Review of Results
- --------------------------------------------------------------------------------
SUMMARY OF BIDDER EVALUATIONS
<TABLE>
<CAPTION>
BIDDER PULP CHEMICALS (MM) PETROCHEMICALS (MM) COMPANY (PER SHARE)
First Round:
<S> <C> <C> <C>
[ * ] $330-370 $10.50
[ * ] 15.00
[ * ] 350
[ *] 400
[ *] 10-11
[ * ] 9.56
Sterling Group 11.25
Second Round:
[ * ] 313
[ * ] $410
[ * ] 260
[ *] 266
[ * ] 650
[ * ] 10-11
[ * ] 12.04
[ * ] 10-13
Sterling Group 12.00
</TABLE>
- 5 -
<PAGE>
PROJECT PLATE Review of Results
- --------------------------------------------------------------------------------
ACQUISITION PROPOSALS: THE STERLING GROUP ("SG")
SUMMARY DESCRIPTION
. SG proposal is a change of control recapitalization/leveraged buyout
transaction for the whole company
. Proposal expires on April 5 at 5:00 p.m. Houston time
TERMS
. 91.7% (or 51,049,158) of the current outstanding shares would be purchased at
$12 per share
. 8.3% (or 4,640,833) of the outstanding shares would be retained by existing
shareholders
- At $12 per share this represents rollover of $55.7 million of equity value
- Resulting ownership: 43% primary and 39% fully diluted
. New equity of $75 million would be provided to the Company
- At $12 per share this represents 6.25 million shares
- Resulting ownership: 57% primary and 52% fully diluted
. Existing debt of $133 million would be taken out
. $700 million of debt would need to be raised
- $325 million of bank debt ($300 million term and $25 million out of $100
million revolver)
- $275 million of Sr. Subordinated Notes
- $100 million of Sr. Secured Discount Notes with equity warrants
representing 10% of outstanding shares
- 6 -
<PAGE>
PROJECT PLATE Review of Results
- --------------------------------------------------------------------------------
ACQUISITION PROPOSALS: THE STERLING GROUP ("SG")
. Chemical Securities and Credit Suisse provided a commitment letter on the
bank debt subject to the terms of a letter agreement dated March 4, 1996 (not
included)
. Chemical Securities and CS First Boston each provided a highly confident
letter on the high yield debt
. SG provided a highly confident letter that the equity can be raised
. Clipper Group (affiliate of CS First Boston) provided a letter indicating
"strong interest" in providing $25 million of equity financing
. No indicative terms on the debt financing were provided
CONDITIONS/LEGAL ISSUES
. Financing condition
. Financing due diligence
. No marked up contract submitted with proposal, although there have been
extensive discussions between legal counsels
. 8.3% rollover requirement
. Acquisition vehicle a shell
. Break-up fee of $4 million on signing of LOI and increases to $8 million
under merger agreement
. No shop/right of first refusal
- 7 -
<PAGE>
PROJECT PLATE Review of Results
- --------------------------------------------------------------------------------
ACQUISITION PROPOSALS: THE STERLING GROUP ("SG")
SOURCES AND USES
(in millions)
SOURCES
$100 MM Revolver $ 25
Bank Term Loan 300
Sr. Sub. Notes 275
Sr. Secured Dis. Notes 100
New Equity 75
Rollover Equity 56
----
Total $831
USES
Debt as of 3/31/96 $133
Purchase of 91.7% of Equity 613
Rollover Equity 56
SARs 14
Expenses (plug) 15
----
Total $831
- 8 -
<PAGE>
* CONFIDENTIAL TREATMENT-- Confidential portion has been omitted and filed
separately with the Commission.
PROJECT PLATE Review of Results
- --------------------------------------------------------------------------------
ACQUISITION PROPOSALS: [ * ]
SUMMARY DESCRIPTION
. [ * ] proposal is to purchase all of the assets of Sterling Canada, Inc.
("SCI") for $313 million "plus the trade liabilities of [SCI]"
. Proposal expires April 5 at 5:00 pm New York time
TERMS
. Purchase price assumes SCI and its subsidiaries are debt free
. Purchase price will be decreased by SAR payments made to employees
. Purchase includes cash, accounts receivables, intellectual property, license
agreements, intangibles, and all capital stock of subsidiaries of SCI
. [ * ] has commitment letters from Chase to provide $310 million of credit
facilities and from [ * ] to purchase $60 million of [ * ]
equity on a firm bought deal basis
. No indicative terms on financing provided
CONDITIONS/LEGAL ISSUES
. Transaction is structured as an asset purchase. Tax advice of Arthur
Andersen and Piper & Marbury is that an asset transaction can be structured
to be tax neutral relative to a stock transaction (SCI would utilize its
NOLs)
. [ * ] may elect to purchase the stock of SCI
. Financing is not a condition to closing
---
- 9 -
<PAGE>
* CONFIDENTIAL TREATMENT-- Confidential portion has been omitted and filed
separately with the Commission.
PROJECT PLATE Review of Results
- --------------------------------------------------------------------------------
ACQUISITION PROPOSALS: [ * ]
CONDITIONS/LEGAL ISSUES (CONT'D)
. The transaction is contingent upon (i) satisfactory review of environmental
matters, (ii) pension plan obligations being fully funded and (iii) Valdosta
continuing on or ahead of schedule
. Asking for rights of first refusal
. Asking for break-up fee of $15 million
. No marked up contract submitted with proposal, although there have been
extensive discussions between legal counsels
- 10 -
<PAGE>
* CONFIDENTIAL TREATMENT-- Confidential portion has been omitted and filed
separately with the Commission.
PROJECT PLATE Review of Results
- --------------------------------------------------------------------------------
ACQUISITION PROPOSALS: [ * ]
SOURCES AND USES
(in millions)
SOURCES(1)
$310 MM Credit Facilities $253
New Equity 60
----
Total $313
USES
Assets of SCI $313
- -------------------
(1) [ * ] has not specified the interplay between equity and credit facilities
sources of funds in financing the transaction.
- 11 -
<PAGE>
* CONFIDENTIAL TREATMENT-- Confidential portion has been omitted and filed
separately with the Commission.
PROJECT PLATE Review of Results
- --------------------------------------------------------------------------------
ACQUISITION PROPOSALS: [ * ]
SUMMARY DESCRIPTION
. Enterprise value offered for Texas City of $410 million. Would purchase
stock of Sterling Chemicals net of other liabilities
. Proposal expires on April 15 at 5:00 p.m. New York time
TERMS
. All Cash
. No indicative terms on financing provided
. Commitment letter from [ * ] on bank financing of $250 million
. Highly confident letter from [ * ] on $100 million high yield
. Based on Feb. 29, 1996 balance sheet excluding Pulp Chemicals (although
includes $133 million of net debt)
. Management rollover of up to 20 percent, or $15 million, of equity
contribution of $74 million. (Needs clarification)
. Marked up purchase agreement included
- 12 -
<PAGE>
* CONFIDENTIAL TREATMENT-- Confidential portion has been omitted and filed
separately with the Commission.
PROJECT PLATE Review of Results
- --------------------------------------------------------------------------------
ACQUISITION PROPOSALS: [ * ]
CONDITIONS/LEGAL ISSUES
. Environmental, legal and other due diligence. Environmental may be an issue
. Financing contingency
. Negotiating a mutually acceptable agreement
. Pulp Chemicals sale successfully closed
- 13 -
<PAGE>
* CONFIDENTIAL TREATMENT-- Confidential portion has been omitted and filed
separately with the Commission.
PROJECT PLATE Review of Results
- --------------------------------------------------------------------------------
ACQUISITION PROPOSALS: [ * ]
SOURCES AND USES(1)
(in millions)
SOURCES
$75 MM Revolver $ 25
Bank Term Debt 225
Sr. Sub. Debt 100
Equity 74
----
Total $424
USES
New Purchase of Equity $272
Debt (net of cash) 133
Other Liabilities Assumed 5(2)
Expenses 14
----
Total $424
- ---------------
(1) Structure assumes a company not including Pulp Chemicals, but including $133
million of net debt.
(2) Not defined.
- 14 -
<PAGE>
* CONFIDENTIAL TREATMENT-- Confidential portion has been omitted and filed
separately with the Commission.
PROJECT PLATE Review of Results
- --------------------------------------------------------------------------------
ACQUISITION PROPOSALS: [ * ]
SUMMARY DESCRIPTION
. [ *] proposal is to purchase the issued and outstanding stock of SCI for $266
million
. Proposal expires on April 8, 1996
TERMS
. $240 million initial payment (1)
. $26 million paid on completion of Valdosta (1)
. With transaction costs of $14 million, uses total $280 million. This amount
excludes SAR costs
. [ * ] provided "strong interest" letter on financing
. [ *] fund would provide $60 million of equity
- ------------------
(1) Split between initial payment and "Valdosta" payment dependent on Valdosta
progress.
- 15 -
<PAGE>
* CONFIDENTIAL TREATMENT-- Confidential portion has been omitted and filed
separately with the Commission.
PROJECT PLATE Review of Results
- --------------------------------------------------------------------------------
ACQUISITION PROPOSALS: [ * ]
CONDITIONS/LEGAL ISSUES
. Financial, legal, environmental and business due diligence
. Financing condition for lenders
. Continue to meet or exceed 1996 projections
. Valdosta completion staying on track
. Free and clear of all liabilities except for working capital accounts and
certain post employment benefits with limits
- 16 -
<PAGE>
* CONFIDENTIAL TREATMENT-- Confidential portion has been omitted and filed
separately with the Commission.
PROJECT PLATE Discussion Objectives
- --------------------------------------------------------------------------------
ACQUISITION PROPOSALS: [ * ]
SOURCES AND USES
(in millions)
SOURCES
$25 MM Revolver --
Bank Term Loan $120
Senior Sub. Notes 100
New Equity 60
----
Total $280
USES
Initial Purchase $240
Valdosta Payment 26
Expenses 14
----
Total $280
- 17 -
<PAGE>
* CONFIDENTIAL TREATMENT-- Confidential portion has been omitted and filed
separately with the Commission.
PROJECT PLATE Review of Results
- --------------------------------------------------------------------------------
ACQUISITION PROPOSALS
OTHERS
. [ * ] [ * ] called on Friday. Indicating $10 to $11
per share cash bid for whole company. A letter stating
this was requested
. [ * ] Possible interest in investment in recapitalization/LBO or
[*] joint venture for whole company
. [ * ] Worked over weekend. Uncertain where they will come out
- 18 -
<PAGE>
PROJECT PLATE Review of Results
- --------------------------------------------------------------------------------
ESTIMATED TIME SCHEDULE TO CONSUMMATE
<TABLE>
<CAPTION>
STERLING PROCESS BUYER PROCESS
------------------------------------------------------------
<C> <S> <C>
April 2, 1996 Board Meeting
April 19, 1996 Sign Definitive Agreement. Sign Definitive Agreement
Press Release. Begin Preparing Proxy
April 23, 1996 File Proxy with SEC File Prospectus with SEC
June 24, 1996 SEC Clearance SEC Clearance
June 28, 1996 Mail Proxy and Solicit Votes Begin Marketing
August 16, 1996 Shareholder Meeting
August 19, 1996 Pricing
August 22, 1996 Close Close
</TABLE>
. Above schedule assumes SEC review
. If SEC review avoided, schedule could be compressed by 30 to 45 days
- 19 -
<PAGE>
PROJECT PLATE Valuation Update
- --------------------------------------------------------------------------------
BREAK-UP ANALYSIS
($ in millions, except share amounts)
<TABLE>
<CAPTION>
BASED ON BIDS COMPARATIVE VALUES
-------------- --------------------------------------------
<S> <C> <C> <C>
Petrochemicals $ 410 $ 450 $ 500
Pulp Chemicals 313 350 350
------ ------ ------
Total $ 723 800 850
Less:
Net Debt 133 133 133
SARs 9 11 12
Environmental 14 14 14
------ ------ ------
Pre-tax Asset Value 567 642 691
Less:
Taxes on Pulp Chemicals
Sales at 38% 51 65 65
------ ------ ------
Net Asset Value 516 577 626
Net Asset Value per Share $ 9.26 $10.36 $11.24
Tax Loss per Share 0.92 1.17 1.17
------ ------ ------
Pre-tax Value per Share $10.18 $11.53 $12.41
====== ====== ======
</TABLE>
- 20 -
<PAGE>
PROJECT PLATE Valuation Update
- --------------------------------------------------------------------------------
OTHER SALE ALTERNATIVES
<TABLE>
<CAPTION>
ORIGINAL VALUATION ADDITIONAL INFORMATION CURRENT VALUATION
- ---------------------------- ------------------------------------- -------------------------------
<C> <S> <C>
PETROCHEMICALS: NEGATIVES: PETROCHEMICALS:
$400 to $600 mm Environmental liability ($14+ mm) $410 mm
Severance cost (-$12 mm A-T)
PULP CHEMICALS: Higher net debt ($133 mm) PULP CHEMICALS:
$350 to $450 mm Texas City cost structure ($15-30 mm) $313 mm
Expected falloff in ERCO royalties
NET DEBT: New EB unit needed ($25mm) NET DEBT:
$91 mm YTD results below projections $133 mm
B.C. 2002 environmental regulation
WHOLE COMPANY: $10/ton "temporary" chlorate reduction WHOLE COMPANY:
Industrial: $12 to $15/share Company projections lowered Industrial: $10 to $13/share
LBO: $10 to $12 /share LBO: $10 to $12/share
POSITIVES: Recap: $11 to $12/share
Improving petrochemicals outlook
</TABLE>
- 21 -
<PAGE>
* CONFIDENTIAL TREATMENT-- Confidential portion has been omitted and filed
separately with the Commission.
PROJECT PLATE Potential Alternatives
- --------------------------------------------------------------------------------
. Remain independent and do nothing
. Remain independent and recapitalize
. Sell to Sterling Group
. Explore [*] joint venture purchase
- 22 -
<PAGE>
PROJECT PLATE Potential Alternatives
- --------------------------------------------------------------------------------
REMAIN INDEPENDENT AND DO NOTHING:
ADVANTAGES ISSUES
- --------------------------------- --------------------------------------------
. Retain control over operations . Likely stock price performance
. Can seek a transaction at a . Attitudes of shareholders seeking an exit
better time in the cycle
. Cost structure addressed to . Long-term management and ownership issues
the benefit of existing
shareholders
. Conservatively financed . Competitive position may deteriorate
- 23 -
<PAGE>
PROJECT PLATE Potential Alternatives
- --------------------------------------------------------------------------------
REMAIN INDEPENDENT AND RECAPITALIZE:
ADVANTAGES ISSUES
- ---------------------------------- --------------------------------------------
. May retain control over . Weaker capital structure
operations
. Can seek a sale at a better . Outsider may be able to borrow more
time in the cycle
. Enhanced shareholder value . Impact of exiting managers on sentiment
near-term
. Cost structure addressed to . Long-term management and ownership issues
the benefit of existing
shareholders
. The Board can control
parameters, subject to financial
market conditions
- 24 -
<PAGE>
PROJECT PLATE Potential Alternatives
- --------------------------------------------------------------------------------
RECAPITALIZATION ANALYSIS
<TABLE>
<S> <C> <C> <C>
Incremental Debt $300 $400 $500
Existing Net Debt plus Expenses 133 + 11 133+ 14 133 + 17
-------------- -------------- -------------
Total Net Debt $444 $547 $650
% Repurchased @ $12/share 44.9% 59.8% 74.8%
Proforma Interest $ 43 $ 53 $ 65
Incremental Debt Per Share $ 5.39 $ 7.18 $ 8.98
Net Debt Per Share $ 7.97 $ 9.82 $ 11.67
Trough EBITDA Coverage
Base Case 4.2x 3.4x 2.8x
Downside Case 2.8 2.3 1.8
EBITDA
1996E $187.9 $187.9 $187.9
1997E 208.1 208.1 208.1
Proforma EPS of Stub
1996E $ 2.18 $ 2.70 $ 3.77
1997E 2.29 2.84 3.95
Implied P/E @ Stub Value of: 1996E 1997E 1996E 1997E 1996E 1997E
----- ----- ----- ----- ----- -----
$8.00 3.7x 3.5x 3.0x 2.8x 2.1x 2.0x
$10.00 4.6 4.4 3.7 3.5 2.7 2.5
$12.00 5.5 5.2 4.4 4.2 3.2 3.0
$14.00 6.4 6.1 5.2 4.9 3.7 3.5
Implied EBITDA Multiple @ Stub Value of: 1996E 1997E 1996E 1997E 1996E 1997E
----- ----- ----- ----- ----- -----
$8.00 3.7x 3.3x 3.9x 3.5x 4.1x 3.7x
$10.00 4.0 3.6 4.1 3.7 4.2 3.8
$12.00 4.3 3.9 4.3 3.9 4.4 3.9
$14.00 4.6 4.2 4.6 4.1 4.5 4.1
</TABLE>
- 25 -
<PAGE>
PROJECT PLATE Potential Alternatives
- --------------------------------------------------------------------------------
SELL TO STERLING GROUP:
ADVANTAGES ISSUES
- ----------------------------- -----------------------------------------------
. Shareholders realize . Highly conditional proposal, with important
value now parameters undisclosed
. Control transferred to . Concerns about market acceptance of Discount
new hands Notes, potentially leading to cram-down
and/or price renegotiation
. Possible continued . Financing market risk during lengthy
ownership stake (limited) pre-closing period
. Evident, strong . Ultimate resale and/or split-up likely
interest in a transaction
. Trading value, if any, of the stub
. Management acceptance of transaction
- 26 -
<PAGE>
PROJECT PLATE Potential Alternatives
- --------------------------------------------------------------------------------
EXPLORE BP JOINT VENTURE PURCHASE:
ADVANTAGES ISSUES
- ----------------------------- ----------------------------------------------
. May yield more certain . Significant uncertainties as to likelihood,
value outcome price and conditions
. Can be pursued in . Joint ventures usually cumbersome to
parallel with other negotiate: timing may be a concern
avenues
. Long-term "home" for the
Company
- 27 -
<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934 (AMENDMENT NO. 3)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
[_]Confidential, for Use of the
Check the appropriate box: Commission Only (as Permitted by
Rule 14a-6(e)(2))
[X] Preliminary Proxy Statement
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
STERLING CHEMICALS, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: _________
(2) Aggregate number of securities to which transaction applies:
_____________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
--------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------
(3) Filing party:
--------------------------------------------------------------------------
(4) Date filed:
--------------------------------------------------------------------------
<PAGE>
STERLING CHEMICALS, INC.
[LETTERHEAD APPEARS HERE]
July 19, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting (the "Special
Meeting") of Stockholders of Sterling Chemicals, Inc. (the "Company") to be
held on August 20, 1996, at 2:00 p.m., Central Time, at Texas Commerce Center
Auditorium, 601 Travis Street, Houston, Texas 77002. As described in the
enclosed Proxy Statement, at the Special Meeting, the stockholders of the
Company will be asked to consider and vote upon a proposal to approve and
adopt the Amended and Restated Agreement and Plan of Merger, dated as of April
24, 1996 (the "Merger Agreement"), between the Company and STX Acquisition
Corp. ("STX Acquisition"), a Delaware corporation formed by The Sterling
Group, Inc. ("TSG") and The Unicorn Group, L.L.C. ("Unicorn"), each a private
financial organization, to acquire a controlling interest in the Company. A
copy of the Merger Agreement is attached to the Proxy Statement as Annex A. On
July 15, 1996 (the "Record Date"), principals of TSG owned 897,000 shares of
Common Stock of the Company, representing approximately 1.6% of the issued and
outstanding shares.
Upon the terms and subject to the conditions of the Merger Agreement, at the
effective time of the transaction (the "Effective Time"): (a) STX Acquisition
will be merged with and into the Company (the "Merger"), with the Company
continuing as the surviving corporation (the "Surviving Corporation"); (b) the
current directors of the Company will resign and will be replaced by the
director candidates to be nominated by STX Acquisition (except for Mr. J.
Virgil Waggoner, none of the nominees of STX Acquisition are current members
of the Board of Directors of the Company); (c) substantially all of the
operating assets and associated liabilities of the Company will be transferred
to STX Chemicals Corp. ("Chemicals"), a wholly-owned subsidiary of the
Surviving Corporation; (d) the stockholders of the Company will be entitled to
(i) retain shares in the Surviving Corporation ("Rollover Shares") to the
extent that they make an election to do so (a "Rollover Election"), subject to
pro rata reduction in the event that Rollover Elections have been made to
retain more than an aggregate of 5.0 million Rollover Shares and (ii) receive
$12.00 cash for each share of Common Stock of the Company ("Common Stock") not
retained as a Rollover Share (the "Cash Payment"); and (e) the issued and
outstanding shares of common stock of STX Acquisition will be converted into
shares of common stock of the Surviving Corporation. Depending on the number
of Rollover Shares, the issued and outstanding shares of common stock of STX
Acquisition will be converted into up to 8,589,580 shares of common stock of
the Surviving Corporation, representing approximately 79% of the total
outstanding shares of the Surviving Corporation. TSG and Unicorn have advised
the Company that there are no current intentions to engage in a second step
transaction to eliminate minority shareholders following the Merger.
The affirmative vote of a majority of the issued and outstanding shares of
Common Stock entitled to vote thereon is required to approve and adopt the
Merger Agreement. Only holders of record of shares of Common Stock as of the
close of business on the Record Date are entitled to notice of and to vote at
the Special Meeting and any and all adjournments and postponements thereof.
Each of Messrs. Frank J. Hevrdejs and William C. Oehmig (stockholders of the
Company and principals of TSG), and Messrs. Gordon A. Cain, J. Virgil
Waggoner, and Robert W. Roten, entered into an Agreement and Irrevocable Proxy
(collectively, the "Irrevocable Proxies") with STX Acquisition as of April 24,
1996 pursuant to which each such stockholder appointed STX Acquisition and
certain officers of STX Acquisition, as proxy to vote his shares of Company
Common Stock in favor of the Merger Agreement at the Special Meeting. The
Irrevocable Proxies represent approximately 18% of the outstanding Common
Stock of the Company in the aggregate.
Shares of Common Stock owned by stockholders who have not voted in favor of
the Merger and who have otherwise properly exercised their rights for
appraisal of such shares in accordance with Section 262 of the Delaware
General Corporation Law ("DGCL") ("Dissenting Shares") will become, as of the
Effective Time, the right to receive such consideration as may be determined
to be due pursuant to Section 262 of the DGCL. Shares of Common Stock owned by
STX Acquisition or held in the Company's treasury will be canceled and
retired.
<PAGE>
Consummation of the Merger is subject to certain conditions, including the
completion of financing to provide an aggregate of approximately $840 million
which will be used to fund the Cash Payments, the repayment of outstanding
indebtedness, the purchase of other outstanding equity interests and estimated
transaction fees and expenses. Transaction costs are estimated at
approximately $40 million and will be paid by the Company. The financing
transactions will include debt and equity offerings and bank financings.
In order to induce STX Acquisition to execute the Merger Agreement and
consummate the transactions contemplated thereby, Messrs. Frank J. Hevrdejs,
William C. Oehmig, Gordon A. Cain, J. Virgil Waggoner and Robert W. Roten each
executed an Inducement Agreement with the Company dated as of April 24, 1996
(the "Inducement Agreement"). Pursuant to the Inducement Agreement, Messrs.
Cain, Waggoner and Roten each agreed to make Rollover Elections as to a
portion of their shares of Common Stock (amounting to an aggregate of
1,404,254 Rollover Shares), subject to pro rata reduction with Rollover
Elections made by other stockholders of the Company if the Maximum Rollover
Amount is exceeded. Messrs. Hevrdejs and Oehmig, each principals of TSG,
agreed to make Rollover Elections as to 100% of their Common Stock (amounting
to an aggregate of 897,000 Rollover Shares) which Rollover Elections would not
be subject to pro rata reduction. As a result of the Inducement Agreement, the
Merger is expected to be accounted for as a recapitalization. Unless the
Rollover Elections exceed the Maximum Rollover Amount, following the Merger,
Messrs. Cain, Waggoner and Roten would collectively own approximately 12.9% of
the outstanding shares of common stock in the Surviving Corporation and
Messrs. Hevrdejs and Oehmig would collectively own a minimum of 8.2% of the
outstanding shares of common stock in the Surviving Corporation.
The Company expects the liquidity of the Common Stock to be significantly
diminished after consummation of the Merger due to (i) the substantial
reduction in the number of outstanding shares (from approximately 55.7 million
shares prior to the Merger to approximately 10.9 million shares thereafter),
(ii) the delisting of the Common Stock from trading on the New York Stock
Exchange, and (iii) statutory and contractual restrictions on transfer of the
shares of the Surviving Corporation issued in exchange for common stock of STX
Acquisition.
A Special Committee (the "Special Committee") of the Board of Directors of
the Company (the "Board") unanimously recommended that the Board approve the
Merger Agreement, and the Board has unanimously approved the Merger Agreement
and the transactions contemplated thereby, including the Merger. The Board has
determined that the Merger is fair to, and in the best interests of, the
holders of the Common Stock and recommends that stockholders vote FOR the
approval and adoption of the Merger Agreement.
The recommendation of the Special Committee and the approval and
determination of the Board were based on a number of factors described in the
accompanying Proxy Statement (the "Proxy Statement"), including the opinion of
Lazard Freres & Co. LLC ("Lazard"), the financial advisor engaged by the
Special Committee, to the effect that, based upon and subject to various
considerations set forth in such opinion, as of the date of such opinion, the
consideration to be received by the holders of the Common Stock of the Company
in connection with the Merger was fair to such holders (other than TSG or any
of its affiliates) from a financial point of view. The opinion of Lazard is
included as Annex B to the Proxy Statement and should be read in its entirety.
PLEASE READ THE PROXY STATEMENT, WHICH PROVIDES A DETAILED DESCRIPTION OF
THE TERMS OF THE MERGER AND CERTAIN OTHER INFORMATION, BEFORE CASTING YOUR
VOTE.
Whether or not you plan to attend the Special Meeting in person and
regardless of the number of shares of Common Stock you own, you should
complete, sign, date and return the enclosed proxy card to the Transfer Agent
in the accompanying prepaid envelope marked "Proxy." You may, of course,
attend the Special Meeting and vote in person, even if you have previously
returned your proxy card. Authorization of the Merger requires the approval of
a majority of the issued and outstanding shares of Common Stock entitled to
vote thereon. A failure to vote will have the same effect as a vote against
the Merger. YOU ARE URGED, THEREFORE, TO SIGN, DATE AND RETURN THE ENCLOSED
PROXY CARD PROMPTLY. PLEASE NOTE THAT THE PROXY CARD MUST BE RECEIVED AT OR
PRIOR TO THE SPECIAL MEETING FOR YOUR SHARES TO BE VOTED BY PROXY AT THE
SPECIAL MEETING.
2
<PAGE>
If you wish to make a Rollover Election with respect to any or all of your
shares of Common Stock, you should complete, sign, date and return the
enclosed Rollover Election Form (together with stock certificates representing
a number of shares at least equal to the number of shares as to which your
Rollover Election is made) to the Exchange Agent in the accompanying prepaid
envelope marked "Election Form." A failure to execute a Rollover Election Form
and submit stock certificates representing a sufficient number of shares of
Common Stock will result in your being entitled only to receive the Cash
Payment for all shares you hold on the Record Date, unless you have perfected
your appraisal rights under the DGCL. PLEASE NOTE THAT THE ROLLOVER ELECTION
FORM AND STOCK CERTIFICATES MUST BE RECEIVED BY THE EXCHANGE AGENT, KEYCORP
SHAREHOLDER SERVICES, INC., NO LATER THAN 5:00 P.M., NEW YORK TIME, ON AUGUST
15, 1996, THE DAY BEFORE THE DATE OF THE SPECIAL MEETING. YOU ARE URGED,
THEREFORE, TO SIGN, DATE AND RETURN THE ROLLOVER ELECTION FORM AND STOCK
CERTIFICATES PROMPTLY IF YOU WISH TO MAKE A ROLLOVER ELECTION.
Sincerely,
Gordon A. Cain
Chairman of the Board
J. Virgil Waggoner
President and Chief Executive
Officer
3
<PAGE>
YOUR VOTE IS IMPORTANT--PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY PROMPTLY,
WHETHER OR NOT YOU PLAN TO ATTEND THE STERLING CHEMICALS, INC. SPECIAL
MEETING.
STERLING CHEMICALS, INC.
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 20, 1996
----------------
To the Stockholders of Sterling Chemicals, Inc.:
Notice is hereby given that a Special Meeting (the "Special Meeting") of
stockholders of Sterling Chemicals, Inc. (the "Company") will be held on
August 20, 1996, at 2:00 p.m., Central Time, at Texas Commerce Center
Auditorium, 601 Travis Street, Houston, Texas 77002 for the following
purposes:
I. To consider and vote upon a proposal to approve and adopt the Amended
and Restated Agreement and Plan of Merger, dated as of April 24, 1996 (the
"Merger Agreement"), between the Company and STX Acquisition Corp. ("STX
Acquisition"), a Delaware corporation formed by The Sterling Group, Inc.
("TSG") and The Unicorn Group, L.L.C. ("Unicorn"), each a private financial
organization, to acquire a controlling interest in the Company. Upon the
terms and subject to the conditions of the Merger Agreement, at the
effective time of the transaction (the "Effective Time"): (a) STX
Acquisition will be merged with and into the Company (the "Merger"), with
the Company continuing as the surviving corporation (the "Surviving
Corporation"); (b) the current directors of the Company will resign and
will be replaced by the director candidates to be nominated by STX
Acquisition (except for Mr. J. Virgil Waggoner, none of the nominees of STX
Acquisition are current members of the Board of Directors of the Company);
(c) substantially all of the operating assets and associated liabilities of
the Company will be transferred to STX Chemicals Corp. ("Chemicals"), a
wholly-owned subsidiary of the Surviving Corporation; (d) the stockholders
of the Company will be entitled to (i) retain shares in the Surviving
Corporation ("Rollover Shares") to the extent that they make an election to
do so (a "Rollover Election"), subject to pro rata reduction in the event
that Rollover Elections have been made to retain more than an aggregate of
5.0 million Rollover Shares (the "Maximum Rollover Amount") and (ii)
receive $12.00 cash for each share of Common Stock of the Company ("Common
Stock") not retained as a Rollover Share (the "Cash Payment"); and (e) the
issued and outstanding shares of common stock of STX Acquisition will be
converted into shares of common stock of the Surviving Corporation.
Depending on the number of Rollover Shares, the issued and outstanding
shares of common stock of STX Acquisition will be converted into up to
8,589,580 shares of common stock of the Surviving Corporation, representing
approximately 79% of the total outstanding shares of the Surviving
Corporation.
II. To transact such other business as may properly come before the
Special Meeting, including any and all adjournments and postponements
thereof.
A copy of the Merger Agreement appears as Annex A to, and is described in,
the accompanying Proxy Statement (the "Proxy Statement").
A Special Committee (the "Special Committee") of the Board of Directors of
the Company (the "Board") unanimously recommended that the Board approve the
Merger Agreement, and the Board has unanimously approved the Merger Agreement
and the transactions contemplated thereby, including the Merger. The Board has
determined that the Merger is fair to, and in the best interests of, the
holders of the Common Stock and recommends that stockholders vote FOR the
approval and adoption of the Merger Agreement.
The recommendation of the Special Committee and the approval and
determination of the Board were based on a number of factors described in the
Proxy Statement, including the opinion of Lazard Freres & Co. LLC ("Lazard"),
the financial advisor engaged by the Special Committee, to the effect that,
based upon and subject to various considerations set forth in such opinion, as
of the date of such opinion, the consideration to be received by the holders
of the Common Stock of the Company in connection with the Merger was fair to
such holders (other than TSG or any of its affiliates) from a financial point
of view. The opinion of Lazard is included as Annex B to the Proxy Statement
and should be read in its entirety.
<PAGE>
PLEASE READ THE PROXY STATEMENT, WHICH PROVIDES A DETAILED DESCRIPTION OF
THE TERMS OF THE MERGER AND CERTAIN OTHER INFORMATION, BEFORE CASTING YOUR
VOTE.
Whether or not you plan to attend the Special Meeting in person and
regardless of the number of shares of Common Stock you own, you should
complete, sign, date and return the enclosed proxy card to the Transfer Agent
in the accompanying prepaid envelope marked "Proxy." You may, of course,
attend the Special Meeting and vote in person, even if you have previously
returned your proxy card. Approval and adoption of the Merger Agreement
requires the approval of the holders of at least a majority of the issued and
outstanding shares of Common Stock entitled to vote thereon. A failure to vote
will have the same effect as a vote against the Merger. YOU ARE URGED,
THEREFORE, TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY. PLEASE
NOTE THAT THE PROXY CARD MUST BE RECEIVED AT OR PRIOR TO THE SPECIAL MEETING
FOR YOUR SHARES TO BE VOTED BY PROXY AT THE SPECIAL MEETING.
If you wish to make a Rollover Election with respect to any or all of your
shares of Common Stock, you should complete, sign, date and return the
enclosed Rollover Election Form (together with stock certificates representing
a number of shares at least equal to the number of shares as to which your
Rollover Election is made) to the Exchange Agent in the accompanying prepaid
envelope marked "Election Form." A failure to execute a Rollover Election Form
and submit stock certificates representing a sufficient number of shares of
Common Stock will result in your being entitled only to receive the Cash
Payment for all shares you hold on the Record Date (as defined below), unless
you have perfected your appraisal rights under the Delaware General
Corporation Law ("DGCL"). PLEASE NOTE THAT THE ROLLOVER ELECTION FORM AND
STOCK CERTIFICATES MUST BE RECEIVED BY THE EXCHANGE AGENT, KEYCORP SHAREHOLDER
SERVICES, INC., NO LATER THAN 5:00 P.M., NEW YORK TIME, ON AUGUST 15, 1996,
THE DAY BEFORE THE DATE OF THE SPECIAL MEETING. YOU ARE URGED, THEREFORE, TO
SIGN, DATE AND RETURN THE ROLLOVER ELECTION FORM AND STOCK CERTIFICATES
PROMPTLY IF YOU WISH TO MAKE A ROLLOVER ELECTION.
Under Section 251 of the DGCL, the affirmative vote of a majority of the
issued and outstanding shares of Common Stock entitled to vote thereon is
required to approve and adopt the Merger Agreement. Only holders of record of
shares of Common Stock as of the close of business on July 15, 1996 (the
"Record Date") are entitled to notice of and to vote at the Special Meeting
and any and all adjournments and postponements thereof. Each of Messrs. Frank
J. Hevrdejs, William C. Oehmig, J. Virgil Waggoner, Robert W. Roten and Gordon
A. Cain entered into an Agreement and Irrevocable Proxy (collectively, the
"Irrevocable Proxies") with STX Acquisition as of April 24, 1996 pursuant to
which each such stockholder appointed STX Acquisition and certain officers of
STX Acquisition as proxy to vote his shares of Company Common Stock in favor
of the Merger Agreement. The Irrevocable Proxies represent approximately 18%
of the outstanding Common Stock of the Company in the aggregate.
Under the DGCL, stockholders of the Company have the right to dissent from
the Merger and demand appraisal rights for their shares of Common Stock,
provided that the Merger is consummated and such stockholders comply with the
requirements of Section 262 of the DGCL. See "THE MERGER--Appraisal Rights of
Dissenting Stockholders" in the Proxy Statement for a description of the
rights of dissenting stockholders and a discussion of the procedures which
must be followed by dissenting stockholders of the Company to obtain appraisal
of their shares of Common Stock.
Sincerely,
F. Maxwell Evans
Secretary
Houston, Texas
July 19, 1996
2
<PAGE>
STERLING CHEMICALS, INC.
1200 SMITH STREET, SUITE 1900
HOUSTON, TEXAS 77002-4312
----------------
PROXY STATEMENT
----------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 20, 1996
INTRODUCTORY STATEMENT
This proxy statement ("Proxy Statement") is being furnished to the
stockholders of Sterling Chemicals, Inc., a Delaware corporation (the
"Company"), in connection with the solicitation of proxies by the Board of
Directors of the Company (the "Board") for use at a Special Meeting of
Stockholders (the "Special Meeting") to be held on August 20, 1996, at 2:00
p.m., Central Time, at Texas Commerce Center Auditorium, 601 Travis Street,
Houston, Texas 77002.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Amended and Restated Agreement and Plan of
Merger, dated as of April 24, 1996 (the "Merger Agreement"), between the
Company and STX Acquisition Corp. ("STX Acquisition"), a Delaware corporation
formed at the direction of an investor group led by The Sterling Group, Inc.
("TSG") and The Unicorn Group, L.L.C. ("Unicorn"), each a private financial
organization, in order to acquire a controlling interest in the Company. Upon
the terms and subject to the conditions of the Merger Agreement, at the
effective time of the transaction (the "Effective Time"): (a) STX Acquisition
will be merged with and into the Company (the "Merger"), with the Company
continuing as the surviving corporation (the "Surviving Corporation"); (b) the
current directors of the Company will resign and will be replaced by the
director candidates to be nominated by STX Acquisition (except for Mr. J.
Virgil Waggoner, none of the nominees of STX Acquisition are current members
of the Board of Directors of the Company); (c) substantially all of the
operating assets and associated liabilities of the Company will be transferred
to STX Chemicals Corp. ("Chemicals"), a wholly-owned subsidiary of the
Surviving Corporation; (d) the stockholders of the Company will be entitled to
(i) retain shares in the Surviving Corporation ("Rollover Shares") to the
extent that they make an election to do so (a "Rollover Election"), subject to
pro rata reduction in the event that Rollover Elections have been made to
retain more than an aggregate of 5.0 million Rollover Shares (the "Maximum
Rollover Amount") and (ii) receive $12.00 cash for each share of Common Stock
of the Company ("Common Stock") not retained as a Rollover Share (the "Cash
Payment"); and (e) the issued and outstanding shares of common stock of STX
Acquisition will be converted into shares of common stock of the Surviving
Corporation. Depending on the number of Rollover Shares, the issued and
outstanding shares of common stock of STX Acquisition will be converted into
up to 8,589,580 shares of common stock of the Surviving Corporation,
representing approximately 79% of the total outstanding shares of the
Surviving Corporation.
Shares of Common Stock owned by stockholders who have not voted in favor of
the Merger and who have otherwise properly exercised their rights for
appraisal of such shares in accordance with Section 262 of the Delaware
General Corporation Law ("DGCL") ("Dissenting Shares") will become, as of the
Effective Time, the right to receive such consideration as may be determined
to be due pursuant to Section 262 of the DGCL. Shares of Common Stock owned by
STX Acquisition or held in the Company's treasury will be canceled and
retired. See "THE MERGER--Appraisal Rights of Dissenting Stockholders."
<PAGE>
In order to induce STX Acquisition to execute the Merger Agreement and
consummate the transactions contemplated thereby, Messrs. Frank J. Hevrdejs,
William C. Oehmig, Gordon A. Cain, J. Virgil Waggoner and Robert W. Roten each
executed an Inducement Agreement with the Company dated as of April 24, 1996
(the "Inducement Agreement"). Pursuant to the Inducement Agreement, Messrs.
Cain, Waggoner and Roten each agreed to make Rollover Elections as to a
portion of their shares of Common Stock (amounting to an aggregate of
1,404,254 Rollover Shares), subject to pro rata reduction with Rollover
Elections made by other stockholders of the Company if the Maximum Rollover
Amount is exceeded. Messrs. Hevrdejs and Oehmig, each principals of TSG,
agreed to make Rollover Elections as to 100% of their Common Stock (amounting
to an aggregate of 897,000 Rollover Shares) which Rollover Elections would not
be subject to pro rata reduction. As a result of the Inducement Agreement, the
Merger is expected to be accounted for as a recapitalization. Unless the
Rollover Elections exceed the Maximum Rollover Amount, following the Merger,
Messrs. Cain, Waggoner and Roten would collectively own approximately 12.9% of
the outstanding shares of common stock in the Surviving Corporation and
Messrs. Hevrdejs and Oehmig would collectively own a minimum of 8.2% of the
outstanding shares of common stock in the Surviving Corporation. See "THE
MERGER--Summary of the Terms of Related Agreements."
A copy of the Merger Agreement is included as Annex A hereto. The summaries
of the portions of the Merger Agreement set forth in this Proxy Statement do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the text of the Merger Agreement.
The Company expects the liquidity of the Common Stock to be significantly
diminished after consummation of the Merger due to (i) the substantial
reduction in the number of outstanding shares (from approximately 55.7 million
shares prior to the Merger to approximately 10.9 million shares thereafter),
(ii) the delisting of the Common Stock from trading on the New York Stock
Exchange, and (iii) statutory and contractual restrictions on transfer of the
shares issued in the Merger in exchange for common stock of STX Acquisition.
The affirmative vote of a majority of the issued and outstanding shares of
Common Stock entitled to vote thereon is required to adopt the Merger
Agreement. Only holders of record of shares of Common Stock at the close of
business on July 15, 1996 (the "Record Date") are entitled to notice of and to
vote at the Special Meeting and any and all adjournments and postponements
thereof. Certain of the Company's stockholders have entered into an Agreement
and Irrevocable Proxy (collectively, the "Irrevocable Proxies"), pursuant to
which each such stockholder appoints STX Acquisition and certain officers of
STX Acquisition as his proxy to, among other things, vote his shares of the
Company Common Stock in favor of the Merger Agreement. The Irrevocable Proxies
represent approximately 18% of the outstanding Common Stock of the Company in
the aggregate. See "THE SPECIAL MEETING--Votes Required."
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER.
This Proxy Statement is first being mailed to the Company's stockholders on
or about July 19, 1996. The information herein concerning the Company and its
advisors has been furnished by the Company. The information herein concerning
TSG, Unicorn, STX Acquisition, their respective directors, officers and
affiliates and the financing to be obtained in connection with the Merger has
been furnished by TSG, Unicorn and STX Acquisition.
----------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS
OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
----------------
THE DATE OF THIS PROXY STATEMENT IS JULY 19, 1996
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................................................... 1
Parties to the Transaction............................................... 1
Transaction Sponsors..................................................... 2
Background............................................................... 2
Terms of the Merger...................................................... 3
Financing Arrangements................................................... 4
Recommendation of the Board; Fairness of the Merger...................... 5
Opinion of Financial Advisor............................................. 5
Certain Litigation....................................................... 6
Effective Time of the Merger............................................. 6
Conditions to Consummation of the Merger................................. 6
No Solicitation; Fiduciary Duties........................................ 7
Termination; Fees and Expenses........................................... 7
Special Meeting; Date, Time, Place and Purpose of the Meeting............ 8
Votes Required........................................................... 8
Appraisal Rights of Dissenting Stockholders.............................. 9
Terms of Related Agreements.............................................. 9
Risks and Effects of the Merger.......................................... 9
Certain Tax Consequences of the Merger................................... 11
Interests of Certain Persons in the Merger............................... 12
Market Prices; Dividends................................................. 13
Summary Historical Consolidated Financial Data........................... 14
Summary Pro Forma Financial Data......................................... 15
THE COMPANY................................................................ 16
Business Strategy........................................................ 17
THE SPECIAL MEETING........................................................ 17
Purpose; Record Date; Voting at the Special Meeting...................... 17
Votes Required........................................................... 17
Rollover Elections....................................................... 18
Revocation and Use of Proxies; Solicitation.............................. 19
Solicitation; Fees and Expenses.......................................... 19
SPECIAL FACTORS............................................................ 19
Background............................................................... 19
Fairness of the Merger................................................... 25
Purpose and Structure of the Transaction................................. 26
Recommendation of the Board.............................................. 27
Opinion of Financial Advisor............................................. 27
Accounting Treatment..................................................... 31
Certain Tax Consequences of the Merger................................... 31
Risks and Effects of the Merger.......................................... 37
The Company's Business After the Merger.................................. 41
Differences in the Rights of Holders of Rollover Shares.................. 43
THE MERGER................................................................. 44
Terms of the Merger...................................................... 44
Interests of Certain Persons in the Merger............................... 48
Certain Litigation....................................................... 52
Effective Time of the Merger............................................. 52
Regulatory Approvals..................................................... 52
Summary of the Terms of Related Agreements............................... 52
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Source and Amount of Funds................................................ 54
Appraisal Rights of Dissenting Stockholders............................... 59
MARKET PRICES; DIVIDENDS.................................................... 61
SELECTED HISTORICAL FINANCIAL DATA.......................................... 63
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION........... 64
CAPITALIZATION.............................................................. 70
AMENDMENTS TO CERTIFICATE OF INCORPORATION AND BYLAWS....................... 71
Change in Certificate of Incorporation and Bylaws......................... 71
Name...................................................................... 71
Common Stock.............................................................. 71
Preferred Stock........................................................... 71
Number, Election and Removal of Directors................................. 71
Limitation of Access of Stockholders to Books and Records................. 72
Limitation on Directors and Officers Liability............................ 72
Action and Meetings of Stockholders....................................... 73
Amendment of Bylaws....................................................... 73
Amendment of Restated Charter............................................. 73
Section 203............................................................... 73
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS................. 74
DIRECTORS AND EXECUTIVE OFFICERS OF THE SURVIVING CORPORATION............... 76
CERTAIN FINANCIAL PROJECTIONS............................................... 78
INDEPENDENT PUBLIC ACCOUNTANTS.............................................. 83
FEES AND EXPENSES........................................................... 83
ADDITIONAL INFORMATION...................................................... 84
INCORPORATION BY REFERENCE.................................................. 84
OTHER MATTERS............................................................... 85
ANNEX A AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER ................ A-1
ANNEX B FAIRNESS OPINION OF LAZARD FRERES & CO. LLC....................... B-1
ANNEX C SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW............... C-1
ANNEX D OFFICERS AND DIRECTORS OF TSG AND STX ACQUISITION................. D-1
</TABLE>
ii
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement. This Summary does not purport to be complete and
should be read in conjunction with, and is qualified in its entirety by
reference to, the more detailed information appearing elsewhere or incorporated
by reference in this Proxy Statement and the Annexes hereto. Stockholders are
urged to read this Proxy Statement, including such Annexes, in its entirety.
PARTIES TO THE TRANSACTION
Sterling Chemicals, Inc. Sterling Chemicals, Inc. (the "Company" or
"Surviving Corporation") is one of North America's leading producers of
selected commodity petrochemicals, used in the production of a wide array of
consumer goods and industrial products, and pulp chemicals used in paper
manufacturing. The Company ranks among the top three North American producers
in terms of rated production capacity for each of its primary products,
including styrene, acrylonitrile, acetic acid and sodium chlorate. Other
products manufactured by the Company include methanol, plasticizers, tertiary
butylamine, sodium cyanide and sodium chlorite. The Company manufactures all of
its petrochemicals at a single facility in Texas City, Texas (the "Texas City
Plant"). The Company's pulp chemicals are currently produced at four plants in
Canada. A fifth plant, under construction in Valdosta, Georgia, is scheduled to
begin production in late 1996.
The Company began operations approximately 10 years ago when an operating
facility of Monsanto Company was purchased by the Company in a leveraged buyout
led by Messrs. Gordon A. Cain and J. Virgil Waggoner. The address of the
Company's principal executive office is 1200 Smith Street, Suite 1900, Houston,
Texas 77002-4312.
STX Acquisition Corp. STX Acquisition Corp. ("STX Acquisition") is a Delaware
corporation recently formed at the direction of an investor group led by The
Sterling Group, Inc. ("TSG") and The Unicorn Group, L.L.C. ("Unicorn") for the
purpose of effecting the Merger. STX Acquisition currently has no material
assets and has not engaged in any activities except in connection with the
Merger Agreement and the transactions contemplated thereby. Pursuant to the
Merger Agreement, STX Acquisition has commenced a private placement of its
common stock (the "Equity Private Placement"), which will represent an equity
contribution of up to approximately $103.1 million (subject to reduction
depending upon the number of Rollover Shares retained in the Merger), and will
commence a public offering (the "Units Offering") of Units consisting of Senior
Secured Discount Notes Due 2008 (the "Discount Notes") and Warrants to acquire
shares of common stock of the Surviving Corporation (the "Warrants"). The Units
Offering will provide proceeds of $100 million. See "THE MERGER--Sources and
Amount of Funds." The address of STX Acquisition's principal office is Eight
Greenway Plaza, Suite 702, Houston, Texas 77046.
STX Chemicals Corp. STX Chemicals Corp., a Delaware corporation
("Chemicals"), is a wholly-owned subsidiary of STX Acquisition. Chemicals
currently has no material assets and has not engaged in any activities except
in connection with the Merger Agreement and the transactions contemplated
thereby. Pursuant to the Merger Agreement, Chemicals will commence a public
offering (the "Notes Offering" and together with the Units Offering, the
"Offerings") of $275 million principal amount of Senior Subordinated Notes Due
2006 (the "Notes"), and will obtain $456.5 million of bank financing (the
"Credit Facility") consisting of (i) a $100 million revolving credit facility,
and (ii) two term loans and an ESOP term loan totaling $356.5 million. At the
Effective Time, the Company will transfer substantially all of its operating
assets and associated liabilities to Chemicals which, as a result of the
Merger, will have become a wholly-owned subsidiary of the Surviving Corporation
renamed "Sterling Chemicals, Inc." Following the Merger, the business and
operations currently conducted by the Company will be conducted by Chemicals.
The address of Chemicals' principal office is Eight Greenway Plaza, Suite 702,
Houston, Texas 77046.
<PAGE>
TRANSACTION SPONSORS
The Sterling Group, Inc. ("TSG") is a Texas-based private financial
organization engaged in the acquisition and ownership of operating businesses.
Since its formation in 1982, TSG has completed 32 acquisitions for a total
consideration of approximately $5.5 billion. Eleven of such acquisitions,
representing approximately $3.5 billion in total consideration, have involved
companies in various segments of the chemical industry. TSG promotes employee
ownership through the use of employee stock ownership plans, direct equity
ownership by management and key employees as well as profit sharing plans which
typically include all full-time employees. The address of TSG's principal
executive offices is Eight Greenway Plaza, Suite 702, Houston, Texas 77046. The
Unicorn Group, L.L.C. ("Unicorn") is a New Jersey-based private financial
organization engaged in the acquisition of businesses. Since its formation in
1984, Unicorn has originated investments in over 40 entrepreneurial companies
primarily in chemicals and related industries. Mr. Frank P. Diassi, the current
Managing General Partner of Unicorn, will be the Chairman of the Board of both
the Surviving Corporation and Chemicals, and Frank J. Hevrdejs, the President
and a principal of TSG, and Hunter Nelson, a principal of TSG, will both be
directors of the Surviving Corporation and Chemicals following the consummation
of the Merger. The address of Unicorn's principal executive offices is 6
Commerce Drive, Cranford, New Jersey 07016.
Mr. Gordon A. Cain, the Company's Chairman of the Board and Mr. Frank J.
Hevrdejs were the founders of TSG. In 1992, Mr. Cain made a decision to reduce
his level of business activity. By December 1993, Mr. Cain had sold all of his
stock in TSG and resigned as an officer and director of TSG, and in 1993 he
sold the remainder of his stock. Since that time, Mr. Cain has had no equity or
other financial interest in TSG. TSG is currently controlled by Mr. Hevrdejs
and Mr. William C. Oehmig, who is the husband of Mr. Cain's stepdaughter. On
the Record Date (as defined below), principals of TSG owned 897,000 shares of
Common Stock of the Company, representing approximately 1.6% of the outstanding
shares, and as of the date of the Merger Agreement owned 100% of the common
stock of STX Acquisition.
The Company, TSG and Unicorn do not believe that any affiliates of the
Company are also affiliated with either TSG or Unicorn.
BACKGROUND
Beginning in early 1995, the Company engaged in discussions with two
prospective industry purchasers, both of whom conducted an initial due
diligence review of the Company. Negotiations proceeded with both prospective
purchasers, but were terminated by the prospective purchasers by early March
1995. The Company then determined to discontinue active pursuit of a sale. In
October 1995, the Company was advised by TSG of its interest in a possible
purchase of the Company. In November 1995, in view of TSG's indication of
interest in acquiring the Company and several other indications of interest,
the Board determined that it should consider various alternatives to maximize
stockholder value. On November 10, 1995 the Board appointed a Special Committee
(the "Special Committee") to independently consider and evaluate a possible
sale of the Company and any other strategic alternatives available to the
Company to maximize stockholder value. In December 1995, the Special Committee,
together with its financial advisor, Lazard Freres & Co. LLC ("Lazard"), and
the Board discussed valuations of the Company under different alternatives,
including a sale or recapitalization of the Company, as well as under certain
operating strategies. Lazard then conducted a test of the market on a broad
basis to determine the level of interest in a possible sale of the Company, as
well as an ongoing review of all strategic alternatives. In December 1995,
Lazard began to solicit bids through an auction process from a broad range of
financial and industrial buyers. The Company publicly announced on January 29,
1996 that it was engaged in an examination of strategic alternatives, including
a sale of the Company, and that the Company had engaged in preliminary
conversations with several potential bidders. The public announcement generated
interest from a number of potential bidders, and as a result, the Company
extended its deadline for the submission of final bids from February 29, 1996
to March 29, 1996.
On April 2, 1996, the Company reviewed the status of firm bids received,
which included only one bid for the purchase of the Company as a whole (the $12
per share bid by TSG and Unicorn) and bids by two other
2
<PAGE>
parties for the separate purchases of the pulp and petrochemicals businesses of
the Company. The Special Committee determined that the bid from TSG and Unicorn
represented the highest and best bid made, and recommended to the Board that a
transaction with TSG and Unicorn be pursued. The Board directed the Company to
commence negotiations with TSG and Unicorn. On April 15, 1996, the Company
received an indication of interest from the Huntsman Corporation at $12 per
share subject to due diligence and board approval. In light of the definitive
$12 per share in hand from TSG and Unicorn, the Special Committee determined
not to pursue the Huntsman proposal. Huntsman withdrew its indication of
interest on April 29, 1996.
On April 24, 1996, the Special Committee recommended, and the Board
unanimously approved, the Merger Agreement and the Merger, and the Merger
Agreement was executed by the Company and STX Acquisition on April 25, 1996. On
June 11, 1996, an amendment to the Merger Agreement was executed by the Company
and STX Acquisition. See "SPECIAL FACTORS--Background."
TERMS OF THE MERGER
General. At the Effective Time, STX Acquisition will be merged with and into
the Company, with the Company continuing as the Surviving Corporation, and
substantially all of the operating assets and associated liabilities of the
Company will be transferred to Chemicals. Also at the Effective Time, the
current directors of the Company will resign and will be replaced by the
director candidates to be nominated by STX Acquisition. Except for Mr. J.
Virgil Waggoner, none of these candidates are current members of the Board of
Directors of the Company. All members of the Company's current management will
continue as such after the Effective Time with the exception of Mr. J. Virgil
Waggoner (who will be nominated by STX Acquisition to serve as a director and
Vice-Chairman of the Surviving Corporation's Board of Directors after the
Effective Time). See "DIRECTORS AND EXECUTIVE OFFICERS OF THE SURVIVING
CORPORATION."
Transaction Costs. Transaction costs are estimated at approximately $40
million and will be paid by the Company.
Cash Payment. At the Effective Time, each share of Common Stock held by the
Company's stockholders (other than Rollover Shares and Dissenting Shares) will
automatically be converted into the right to receive $12.00 (the "Cash
Payment"). The Cash Payment will be made as promptly as practicable following
the Effective Time upon receipt by KeyCorp Shareholder Services, Inc. (the
"Exchange Agent") of certificates representing the shares of Common Stock held
by such stockholders. No interest will be paid or accrued on the Cash Payment.
See "THE MERGER--Terms of the Merger."
Rollover Shares. In lieu of receiving the Cash Payment, stockholders may
choose to maintain an equity interest in the Surviving Corporation by making an
election (a "Rollover Election") to retain all or a portion of their shares of
Common Stock as shares in the Surviving Corporation ("Rollover Shares"),
subject to pro rata reduction in the event Rollover Elections exceed 5.0
million Rollover Shares (the "Maximum Rollover Amount"). A Rollover Election
may be made by any person who is a record holder of Common Stock on August 15,
1996, the business day before the Special Meeting (the "Election Date"),
regardless of whether such person returns a proxy or votes for or against the
approval and adoption of the Merger Agreement or abstains from voting at the
Special Meeting. Rollover Elections shall be made only by completing, executing
and delivering the Rollover Election Form enclosed with this Proxy Statement,
together with the certificates representing at least the number of Rollover
Shares elected, duly endorsed by the record holder, to the Exchange Agent by
5:00 p.m., New York Time, on the Election Date.
Issuance of Common Stock to STX Acquisition Stockholders. At the Effective
Time, the issued and outstanding shares of common stock of STX Acquisition will
be converted into shares of common stock of the Surviving Corporation.
Depending on the number of Rollover Shares, the common stock of STX Acquisition
will be converted into up to 8,589,580 shares of common stock of the Surviving
Corporation, representing approximately 79% of the total outstanding shares of
the Surviving Corporation.
3
<PAGE>
FINANCING ARRANGEMENTS
Pursuant to the terms of the Merger Agreement, STX Acquisition and Chemicals
are required to consummate certain related financings simultaneously with the
Effective Time of the Merger. The Company may terminate the Merger Agreement if
STX Acquisition has not arranged the required financing and satisfied the
applicable funding obligations by August 31, 1996. The financing for the Merger
will be provided through the Offerings together with borrowings pursuant to the
Credit Facility and the proceeds from the Equity Private Placement
(collectively, the "Financing").
Pursuant to the Merger Agreement, Chemicals is required to negotiate and
enter into the Credit Facility with Texas Commerce Bank National Association,
as administrative agent, and Credit Suisse and Chase Securities Inc. as co-
arrangers. It is currently anticipated that the Credit Facility will consist of
(i) a six and one half year $100.0 million revolving credit facility (the
"Revolving Credit Facility"), (ii) a six and one half year $200.0 million term
loan and an eight year $150.0 million term loan (the "Term Loans") and (iii) a
four year $6.5 million ESOP term loan (the "ESOP Term Loan"), proceeds of which
will be used to fund a new Employee Stock Ownership Plan (the "New ESOP"). The
terms of the Credit Facility cannot be modified or amended in any material
respect without prior consultation with the Company.
Additional financing for the Merger is to be provided pursuant to the Notes
Offering by Chemicals and the Units Offering by STX Acquisition. The Notes will
consist of $275 million of Senior Subordinated Notes Due 2006. The Units will
consist of $100 million in initial proceeds of Senior Secured Discount Notes
Due 2008 and Warrants. The Notes and the Units will be registered under a
Registration Statement filed with the Securities and Exchange Commission (File
No. 333-4343).
Equity financing for the Merger is to be provided pursuant to commitments
from a group of investors to purchase a maximum of $103.1 million of Common
Stock of STX Acquisition in the Equity Private Placement. Purchasers in the
Equity Private Placement are expected to include an investor group formed by
TSG and Unicorn and the New ESOP. The New ESOP will acquire its shares with the
proceeds of a $6.5 million loan from Chemicals (the "Chemicals ESOP Loan"). It
is anticipated that upon consummation of the Merger, investors in the Equity
Private Placement, including principals of TSG and Unicorn, and certain
principal stockholders of the Company, including Messrs. Gordon A. Cain, J.
Virgil Waggoner and Robert W. Roten, will own at least 75% of common stock of
the Surviving Corporation, assuming the Maximum Rollover Amount. Investors who
are expected to own more than 5% of the outstanding common stock of the
Surviving Corporation following the Merger are identified under "STOCK
OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS." The commitments to
purchase pursuant to the Equity Private Placement may not be amended or
modified in any material respect without prior consultation with the Company.
SOURCES AND USES OF FUNDS
The following table sets forth the estimated sources and uses of funds to
effect the Merger, as if the Merger occurred on June 30, 1996.
<TABLE>
<CAPTION>
SOURCE OF FUNDS DOLLARS IN MILLIONS
--------------- -------------------
<S> <C>
Credit Facility (a)................................... $361.9
Notes Offering........................................ 275.0
Units Offering........................................ 100.0
Equity Private Placement (b).......................... 103.1
------
Total............................................... $840.0
======
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
USE OF FUNDS
------------
<S> <C>
Purchase of Company Common Stock (c).............................. $640.7
Purchase of other equity interests (d)............................ 14.6
Refinance outstanding debt (e).................................... 138.2
Chemicals ESOP Loan (f)........................................... 6.5
Estimated transaction expenses and fees (g)....................... 40.0
------
Total........................................................... $840.0
======
</TABLE>
- --------
(a) Consists of amounts under the Term Loans, the Revolving Credit Facility and
the ESOP Term Loan.
(b) Represents proceeds from the sale of STX Acquisition common stock to
investors in the Equity Private Placement, assuming the minimum number of
Rollover Shares. The amount of cash provided through the Equity Private
Placement may be reduced to $70.7 million if the Maximum Rollover Amount is
retained by existing stockholders.
(c) Represents the funding of the purchase of Company Common Stock, at $12.00
per share assuming the minimum number of Rollover Shares. The amount of
funding required to purchase the Company Common Stock may be reduced to
$608.3 million if the Maximum Rollover Amount is retained by existing
stockholders.
(d) Pursuant to the terms of the Merger Agreement, stock appreciation rights
("SARs"), phantom stock and restricted stock will be converted at the time
of consummation of the Merger into rights to receive cash.
(e) Consists of $107.2 million outstanding under the Company's current credit
facility and $31.0 million outstanding under a credit facility associated
with the Company's Valdosta, Georgia sodium chlorate plant.
(f) For a description of the Chemicals ESOP Loan, see "Special Factors--The
Company's Business After the Merger."
(g) Estimated expenses and fees include underwriters' discounts, advisory fees,
bank fees, legal and accounting fees, printing costs and other transaction
expenses incurred in connection with the Merger and the Financing.
As a result of the Merger, the Surviving Corporation will have increased cash
requirements for debt service relating to the Notes, the Discount Notes and the
Credit Facility. Such cash requirements would have been $47.7 million for the
nine months ended June 30, 1996 on a pro forma basis. Such cash requirements
are expected to be funded with internally generated funds and, to the extent
necessary, with borrowings under the Revolving Credit Facility. As of June 30,
1996, on a pro forma basis, the Surviving Corporation's total indebtedness as a
percentage of total capitalization was 160%.
RECOMMENDATION OF THE BOARD; FAIRNESS OF THE MERGER
On April 24, 1996 the Special Committee unanimously recommended that the
Board approve the Merger Agreement and the Board unanimously approved the
Merger Agreement and the transactions contemplated thereby, including the
Merger. The Board has determined that the Merger Agreement is fair to, and in
the best interests of, the stockholders of the Company and recommends that the
stockholders vote FOR the approval and adoption of the Merger Agreement and the
Merger. In considering its alternatives, including the maximization of
shareholder value through internal operating strategies, the Special Committee
took into account a number of factors, including the Company's $200 million
capital program, and concluded that maximum value would best be achieved by a
sale of the Company. For a discussion of the factors considered by the Special
Committee and the Board in reaching their recommendation and determination, see
"SPECIAL FACTORS--Recommendation of the Board," "--Fairness of the Merger" and
"--Opinion of Financial Advisor."
OPINION OF FINANCIAL ADVISOR
Lazard was retained by the Special Committee in November 1995 (after an
interview process with several other investment banking firms) to act as
financial advisor to the Special Committee in connection with possible
transactions and evaluation of alternatives available to the Company to enhance
stockholder value. Lazard has delivered to the Special Committee its written
opinion dated April 24, 1996, to the effect that, based upon and subject to
various considerations set forth in such opinion, as at the date of such
opinion the consideration to be received by the holders of Common Stock of the
Company in connection with the Merger was fair to such holders (other than TSG
or any of its affiliates) from a financial point of view. The full text of
Lazard's opinion,
5
<PAGE>
including the procedures followed, the matters considered and the assumptions
made by Lazard, is included as Annex B to this Proxy Statement and should be
read in its entirety. For a description of such opinion, see "SPECIAL FACTORS--
Opinion of Financial Advisor." Mr. Frank J. Pizzitola, a member of the Special
Committee, is a Limited Managing Director of Lazard. Mr. Pizzitola has no
operational or management responsibility at Lazard, and played no role in the
Special Committee's interview of Lazard or its subsequent selection of Lazard
as its financial advisor.
CERTAIN LITIGATION
Six putative class action complaints relating to the proposed Merger and the
events leading up to the Board's recommendation of the approval thereof, were
filed in the Court of Chancery for the State of Delaware, New Castle County,
Delaware in April and May 1996. A seventh putative class action complaint
relating to the same matters was filed in the District Court of Harris County,
Texas in May 1996. See "THE MERGER--Certain Litigation."
EFFECTIVE TIME OF THE MERGER
The Merger will become effective (the "Effective Time") when a certificate of
merger (the "Certificate of Merger") is duly filed with the Secretary of State
of the State of Delaware in accordance with the Delaware General Corporation
Law ("DGCL") or at such later time as may be specified in the Certificate of
Merger. The filing of the Certificate of Merger will be made after all
conditions to the consummation of the Merger as set forth in the Merger
Agreement have been satisfied or waived. See "THE MERGER--Effective Time of the
Merger."
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of the Company and STX Acquisition to effect the Merger are
subject to the fulfillment at or prior to the closing of the transactions
pursuant to the Merger Agreement (the "Closing") of certain conditions,
including the following: (a) at the Special Meeting, the Merger Agreement shall
have been adopted by the affirmative vote of the holders of a majority of the
issued and outstanding shares of Common Stock entitled to vote thereon; (b) no
governmental authority shall have enacted, issued, promulgated, enforced or
entered any statute, law, rule, regulation, executive order, decree, injunction
or other order that has the effect of making the Merger illegal or otherwise
preventing or prohibiting the consummation of the Merger and other transactions
contemplated by the Merger Agreement; (c) any waiting period applicable to the
consummation of the Merger under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, shall have terminated or expired; (d) the registration
statement relating to the Offerings (the "Registration Statement") shall have
become effective; and (e) all governmental approvals legally required for the
consummation of the Merger shall have been obtained and be in effect on the
date of Closing (the "Closing Date").
In addition, the obligation of STX Acquisition to effect the Merger is
subject to the fulfillment at or prior to the Closing of certain other
conditions, including the accuracy of representations and warranties of the
Company, the performance or compliance by the Company with all agreements and
obligations required by the Merger Agreement, the delivery to STX Acquisition
of legal opinions of Piper & Marbury L.L.P. and/or F. Maxwell Evans, the
delivery of comfort letters from Arthur Andersen LLP and/or Coopers & Lybrand
L.L.P., the absence of any material adverse changes in the business,
operations, properties, conditions or prospects of the Company and the
Subsidiaries, taken as a whole (excluding matters of general applicability or
matters generally affecting any of the industries in which the Company or any
of its Subsidiaries (as defined in the Merger Agreement) conduct business), and
the cancellation by the Company of certain stock options and other rights to
acquire stock, SARs and phantom stock. The obligation of STX Acquisition to
effect the Merger is also conditioned upon its having obtained the Financing
contemplated by the Merger Agreement. As of June 24, 1996, STX Acquisition
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<PAGE>
delivered to the Company the Definitive Equity Documents and Definitive Bank
Loan Documents establishing its equity commitments and bank credit facilities.
See "THE MERGER--Terms of the Merger--Conditions to the Consummation of the
Merger."
The obligation of the Company to effect the Merger is also subject to the
fulfillment at or prior to the Closing of certain other conditions, including
the accuracy of representations and warranties of STX Acquisition, the
performance or compliance by STX Acquisition of all agreements and obligations
required by the Merger Agreement, the stockholders of STX Acquisition having
entered into a tag-along agreement and the delivery to the Company of the legal
opinion of Andrews & Kurth L.L.P. and/or Richards, Layton & Finger relating to
the Merger. Either STX Acquisition or the Company might choose to waive one or
more of the conditions in the Merger Agreement including those conditions
discussed above, although it is unlikely that certain material conditions will
be waived. For a description of all material conditions to closing, see "THE
MERGER--Terms of the Merger--Conditions to the Consummation of the Merger."
NO SOLICITATION; FIDUCIARY DUTIES
Under the Merger Agreement, the Company agreed that it would immediately
cease any ongoing discussions or negotiations with any party (other than STX
Acquisition) regarding any acquisition or purchase of the Company or any of its
Subsidiaries (an "Acquisition Transaction"), and that, until the Effective Time
or the earlier termination of the Merger Agreement, neither the Company nor any
Subsidiary would solicit or participate in any discussions or otherwise
facilitate any Acquisition Transaction, including providing any non-public
information to any third party. However, if the Board of Directors determines
(a) after consultation with the Company's independent financial advisors, that
providing non-public information to a financially capable person (a "Potential
Acquiror") could lead to an Acquisition Transaction more favorable to the
Company's stockholders than the Merger, and (b) after consultation with outside
legal counsel, that there is a significant risk that the failure to provide
such non-public information to such Potential Acquiror would constitute a
breach of the Board's fiduciary duty to the Company's stockholders, the Company
may furnish non-public information to a Potential Acquiror and may participate
in negotiations with such Potential Acquiror regarding an Acquisition
Transaction (any proposal from a Potential Acquiror relating to an Acquisition
Transaction being referred to as a "Takeover Proposal").
If the Board of Directors determines (a) after consultation with the
Company's financial advisors, that a Takeover Proposal would be more favorable
to the Company's stockholders than the Merger, and (b) after consultation with
outside legal counsel, that there is a significant risk that the failure to
take any such action would constitute a breach of the Board's fiduciary duties
to the Company's stockholders, then the Board or the Company may withdraw its
approval of the Merger Agreement and the Merger. The Board may then cause the
Company to accept or enter into an agreement with respect to the Takeover
Proposal, provided that (i) the Company gives STX Acquisition seven days prior
written notice of the Takeover Proposal, (ii) the Takeover Proposal relates to
the acquisition of more than 50% of the shares of Company Common Stock then
outstanding or substantially all of the assets of the Company and its
Subsidiaries, and (iii) the Company pays STX Acquisition a breakup fee in the
amount of $8 million. The Company otherwise agrees that neither it nor the
Board of Directors shall withdraw or modify its approval of the Merger
Agreement or the Merger, approve any Takeover Proposal, or cause the Company to
enter into any agreement with respect to any Takeover Proposal. See "THE
MERGER--Terms of the Merger--No Solicitation and Related Matters."
TERMINATION; FEES AND EXPENSES
The Merger Agreement may be terminated and abandoned at any time prior to the
Effective Time, whether before or after approval by the stockholders of the
Company, by either STX Acquisition or the Company if (i) the Company's
stockholders do not approve the Merger at the Special Meeting, (ii) there is a
failure to close by October 31, 1996 (which failure is not the fault of the
terminating party), (iii) the Company accepts a Takeover
7
<PAGE>
Proposal and pays an $8 million breakup fee to STX Acquisition, (iv) the other
party to the transaction remains in default of any of its covenants for 30 days
after notice of such default is given by the terminating party, or such other
party has breached any representation or warranty which cannot be cured prior
to October 31, 1996 or (v) the Merger is enjoined by court order.
The Merger Agreement may also be terminated by STX Acquisition if holders of
more than ten percent (10%) of the Company's Common Stock demand appraisal
rights.
The Merger Agreement may also be terminated by the Company if (i) by August
31, 1996, STX Acquisition has not arranged the Financing and satisfied the
funding conditions with respect thereto, (ii) STX Acquisition notifies the
Company that it does not believe it will be able to arrange the Financing by
October 31, 1996, (iii) any definitive bank loan document which is necessary in
order for STX Acquisition to obtain the Financing is terminated (other than by
STX Acquisition) prior to October 31, 1996 and STX Acquisition fails to replace
the same within 15 days, or (iv) any definitive equity document which is
necessary in order for STX Acquisition to obtain the Financing is terminated
(other than by STX Acquisition) prior to October 31, 1996 and STX Acquisition
fails to replace the same within 15 days. See "THE MERGER--Terms of the
Merger--Termination."
SPECIAL MEETING; DATE, TIME, PLACE AND PURPOSE OF THE MEETING
The Special Meeting will be held on August 20, 1996, at 2:00 p.m., Central
Time, at Texas Commerce Center Auditorium, 601 Travis Street, Houston, Texas
77002. At the Special Meeting, stockholders of the Company will be asked to
consider and vote upon a proposal to approve and adopt the Merger Agreement.
The Board has fixed the close of business on July 15, 1996 as the record date
(the "Record Date") for the determination of stockholders entitled to notice of
and to vote at the Special Meeting and any and all adjournments and
postponements thereof. See "THE SPECIAL MEETING--Purpose; Record Date; Voting
at the Special Meeting."
VOTES REQUIRED
The presence, in person or represented by proxy, of a majority of the shares
of Common Stock entitled to vote at the Special Meeting is necessary to
constitute a quorum at the Special Meeting. Approval and adoption of the Merger
Agreement and the Merger requires, under Section 251 of the DGCL, the
affirmative vote of a majority of the shares of Common Stock issued and
outstanding on the Record Date and entitled to vote thereon. Only stockholders
of record at the close of business on the Record Date are entitled to notice of
and to vote at the Special Meeting or any adjournments or postponements
thereof. On the Record Date, 55,689,991 shares of Common Stock, held by
approximately 1,458 holders of record, were issued and outstanding and entitled
to vote at the Special Meeting. Each of Messrs. Frank J. Hevrdejs, William C.
Oehmig, J. Virgil Waggoner, Robert W. Roten and Gordon A. Cain entered into an
Agreement and Irrevocable Proxy (collectively, the "Irrevocable Proxies") with
STX Acquisition as of April 24, 1996, pursuant to which each such stockholder
individually appointed STX Acquisition and certain of its officers as his proxy
to call and attend meetings of the stockholders of the Company, to execute
written consents and to vote the shares of the Company Common Stock owned by
such stockholder which he is entitled to vote at any meeting of the
stockholders of the Company, provided that any vote or consent taken under the
authority of such proxy shall be solely for the purposes of adopting and
approving the Merger and the Merger Agreement, or rejecting any proposal for
any other merger agreement or any other transaction for the sale of the Company
or its assets or any other transaction intended to frustrate or impair the
right or ability of STX Acquisition or the Company to consummate the Merger.
The Irrevocable Proxies represent approximately 18% of the outstanding Common
Stock of the Company in the aggregate. A total of approximately 23.0% of the
outstanding Common Stock of the Company is beneficially owned by senior
officers and directors of the Company as a group. In addition, employees of the
Company, including the senior officers, beneficially own approximately 10.8% of
the Company's outstanding Common Stock through the Company's ESOP. Except for
shares represented by the Irrevocable Proxies described above, there are no
commitments or understandings regarding how any of these shares will be voted.
See "THE SPECIAL MEETING--Votes Required."
8
<PAGE>
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
Under the Section 262 of DGCL, if the Merger is effected, holders of shares
of Common Stock who have not voted in favor of the Merger and who have
otherwise properly exercised their rights for appraisal of such shares
("Dissenting Shares") will be entitled to appraisal rights in connection with
the Merger. See "THE MERGER--Appraisal Rights of Dissenting Stockholders" and
Annex C to this Proxy Statement.
TERMS OF RELATED AGREEMENTS
Certain related agreements were entered in connection with the execution of
the Merger Agreement. The following is a summary of the material terms of such
agreements.
Inducement Agreement. In order to induce STX Acquisition to execute the
Merger Agreement and consummate the transactions contemplated thereby, Messrs.
Frank J. Hevrdejs, William C. Oehmig, Gordon A. Cain, J. Virgil Waggoner and
Robert W. Roten each executed an Inducement Agreement with the Company dated as
of April 24, 1996 (the "Inducement Agreement"). Pursuant to the Inducement
Agreement, Messrs. Cain, Waggoner and Roten each agreed to make Rollover
Elections as to a portion of their shares of Common Stock (amounting to an
aggregate of 1,404,254 Rollover Shares), subject to pro rata reduction with
Rollover Elections made by other stockholders of the Company if the Maximum
Rollover Amount is exceeded. Messrs. Hevrdejs and Oehmig, each principals of
TSG, agreed to make Rollover Elections as to 100% of their Common Stock
(amounting to an aggregate of 897,000 Rollover Shares) which Rollover Elections
would not be subject to pro rata reduction. As a result of the Inducement
Agreement, the Merger is expected to be accounted for as a recapitalization.
Unless the Rollover Elections exceed the Maximum Rollover Amount, following the
Merger, Messrs. Cain, Waggoner and Roten would collectively own approximately
12.9% of the outstanding shares of common stock in the Surviving Corporation
and Messrs. Hevrdejs and Oehmig would collectively own a minimum of 8.2% of the
outstanding shares of common stock in the Surviving Corporation.
Tag-Along Agreement. The stockholders of STX Acquisition will, as a condition
to the Company's obligation to effect the Merger, enter into a tag-along
agreement (the "Tag-Along Agreement") providing that each record stockholder of
the Company who has retained Rollover Shares will be permitted, under specified
circumstances involving a change of control, to transfer his shares on the same
terms and conditions applicable to any transfer of 51% or more of the shares of
common stock of the Surviving Corporation then outstanding by any STX
Acquisition stockholder (or stockholders acting together) party to the Tag-
Along Agreement.
RISKS AND EFFECTS OF THE MERGER
In considering the matters set forth in this Proxy Statement, including the
decision of whether to make a Rollover Election (with respect to all or any
portion of their shares of Common Stock), stockholders of the Company should
carefully consider, among other things, the significant risks and factors
described below which are associated with the Company and which will
significantly increase the risks associated with, and may otherwise adversely
affect the value of, a continuing investment in the Surviving Corporation. See
"SPECIAL FACTORS--Risks and Effects of the Merger."
Control by Certain Stockholders. Upon consummation of the Merger, the
investors in the Equity Private Placement, including principals of TSG and
Unicorn, and certain principal stockholders of the Company will own at least
75% of the outstanding shares of common stock in the Surviving Corporation.
These investors and stockholders will enter into a stockholders agreement (the
"Stockholders Agreement"), the effect of which will be to subject the transfer
of such shares to certain rights of first refusal. Such stockholders will
collectively have the ability to exercise control over the business and affairs
of the Surviving Corporation, including the ability to elect all of the Board
of Directors, the power to determine the management of the business and the
power to determine the outcome of corporate actions requiring stockholders'
approval. TSG and Unicorn have advised the
9
<PAGE>
Company that there are no current intentions to engage in a second step
transaction to eliminate minority shareholders following the Merger.
Limited Liquidity in Rollover Shares. The Company expects the liquidity of
the Common Stock to be significantly diminished after consummation of the
Merger due to (i) the substantial reduction in the number of outstanding shares
(from approximately 55,690,000 shares prior to the Merger to approximately
10,890,834 shares thereafter), (ii) the delisting of the Common Stock from
trading on the New York Stock Exchange, and (iii) restrictions on transfer of
the shares of the Surviving Corporation issued in exchange for stock of STX
Acquisition, which restrictions will be set forth in the Stockholders Agreement
and under applicable securities law.
High Financial Leverage. If the Closing had occurred on June 30, 1996, the
Surviving Corporation, on a consolidated basis, would have had indebtedness of
$736.9 million and stockholders' equity of $(276.2) million, and Chemicals
would have had indebtedness of $636.9 million and stockholders' equity of
$(179.2) million. In addition, on a pro forma basis for the nine months ended
June 30, 1996, the Surviving Corporation would have had a ratio of earnings to
fixed charges of 1.0 to 1.0. The Surviving Corporation will not be required to
make interest payments on the Discount Notes prior to 2002, but there can be no
assurance that the Surviving Corporation will have adequate cash available at
that time and thereafter to make the scheduled semi-annual interest payments.
The high degree of leverage of the Surviving Corporation and Chemicals will
have important consequences to holders of Rollover Shares, including the
following: (i) the ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, general corporate purposes
or other purposes, if needed, may be impaired; (ii) a substantial portion of
cash flow from operations will be dedicated to the payment of interest,
principal and other repayment obligations, thereby reducing the funds available
for operations and any future business opportunities; and (iii) the degree of
leverage may make the Surviving Corporation and Chemicals more vulnerable to a
downturn in its business or the economy generally. Any inability of the
Surviving Corporation or Chemicals to service their respective obligations
could have a significant adverse effect on the market value and marketability
of the Rollover Shares.
The Credit Facility and the Notes indenture and the Discount Notes indenture
entered into in connection with the Offerings (collectively, the "Indentures")
contain numerous financial and operating covenants, including, but not limited
to, restrictions on the Surviving Corporation's and Chemicals' ability to incur
indebtedness, pay dividends, create liens, sell assets, engage in certain
mergers and acquisitions and refinance existing indebtedness. The ability of
the Surviving Corporation and Chemicals to comply with such covenants and other
terms of the Credit Agreement and the Indentures, and to satisfy its other debt
obligations will depend on the future performance of the Surviving Corporation.
Future Dilution From Warrant Exercises. In connection with the Units
Offering, Warrants will be offered with the Discount Notes. Such Warrants and
the underlying Common Stock will be dilutive to the holders of Common Stock
following the Merger. Because the number of Warrants to be issued in the Units
Offering will not be established until final pricing terms of the Units are
determined, the amount of such dilution is not currently known.
Equity in Surviving Corporation. Upon consummation of the Merger, all of the
equity of the Surviving Corporation will be owned by the stockholders who
retain Rollover Shares and the investors in the Equity Private Placement.
Stockholders who do not retain Rollover Shares will have no continuing equity
interest in the Surviving Corporation, and will no longer participate in any
earnings or growth of the Surviving Corporation. Similarly, such persons will
no longer face a risk of a decline in the value of the Common Stock.
Raw Material Prices and Availability. The Company does not currently produce
many of its major raw materials (benzene, ethylene, propylene, ammonia and
methanol). Price fluctuation and the dependence on one or several significant
suppliers could result in the Surviving Corporation being required to incur
increased costs for its raw materials, which could have a material adverse
effect on the results of operations of the Surviving Corporation.
10
<PAGE>
Cyclical Markets for Products; Dependence on Key Products. The prices of the
Company's petrochemical and pulp chemical products have been cyclical and
sensitive to overall supply relative to demand, the level of general business
activity and the availability and price of feedstocks. Certain styrene monomer
producers have announced plans to add significant production capacity over the
next few years. The Company expects that prices for styrene will decline from
current levels until global demand for styrene increases sufficiently to absorb
such additional production capacity, and such declines could adversely affect
the Surviving Corporation's results of operations.
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 could
materially adversely affect the Surviving Corporation.
Ability to Complete Acquisitions. A significant element of the Surviving
Corporation's business strategy is to pursue strategic acquisitions that either
expand or complement the Company's products or markets. The financing for such
acquisitions will likely affect the Surviving Corporation's debt or equity
capitalization. The terms of the Indentures and the Credit Facility will limit
the Surviving Corporation's ability to incur additional debt to finance such
acquisitions.
Highly Competitive Industry. The industry in which the Company operates is
highly competitive. The entrance of new competitors into the industry and the
addition by existing competitors of new capacity may reduce the Surviving
Corporation'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
Surviving Corporation's ability to obtain higher profit margins, even during
periods of increased demand for the Surviving Corporation's products.
Environment and Safety. The Company's operations involve the handling,
production, transportation and disposal of materials classified as hazardous or
toxic and are subject to extensive federal, state and local regulatory
requirements relating to environmental affairs, waste management, health and
safety and chemical products. 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.
Long-Term Contracts. The Company sells substantial portions of its styrene
and acrylonitrile production under long-term contracts, and all of its acetic
acid, plasticizers, tertiary butylamine and sodium cyanide production under
long-term contracts with single customers. 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 Surviving Corporation.
Foreign Operations, Country Risks and Exchange Rate Fluctuations. Over 14% of
the Company's revenues are derived from Canadian operations and 52% are derived
from export sales. International operations and exports to foreign markets are
subject to a number of special risks, and 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
Surviving Corporation.
CERTAIN TAX CONSEQUENCES OF THE MERGER
The Merger will have no U.S. federal income tax consequences for stockholders
who retain all of their Common Stock and receive no cash. Because the Maximum
Rollover Amount is limited to 5.0 million shares, and stockholders making a
Rollover Election will be subject to pro rata reduction in the event that
aggregate Rollover Elections exceed the Maximum Rollover Amount, there can be
no assurance that a stockholder will be able to retain all shares of Common
Stock for which such stockholder makes a Rollover Election. To the extent that
a stockholder receives cash for some or all of such stockholder's Common Stock,
a portion of such cash will generally give rise to capital gain or loss to the
extent such cash is attributable to shares of Common Stock deemed sold pursuant
to the Merger, and the remainder of such cash will either give rise to capital
gain or loss or will be treated as dividend income, depending upon the
relationship between the stockholder's ownership
11
<PAGE>
interest (both actual and constructive) in the Company immediately before and
immediately after the Merger. To the extent that the receipt of cash gives rise
to capital gain or loss, such gain or loss generally will be long-term capital
gain or loss if the Common Stock is held by the stockholder for more than one
year. The foregoing discussion does not address every federal income tax
concern which may be applicable to a particular stockholder. Each stockholder
is urged to consult such stockholder's own tax advisor to determine the tax
consequences to such stockholder, in the light of its particular circumstances,
of the disposition of Common Stock pursuant to the Merger. See "SPECIAL
FACTORS--Certain Tax Consequences of the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Special Committee and the Board
with respect to the Merger, stockholders should be aware that certain members
of the Board and of management of the Company have certain interests which may
present them with potential conflicts of interests in connection with the
Merger. See "THE MERGER--Interests of Certain Persons in the Merger."
Certain executive officers, directors and stockholders of the Company have
entered into Inducement Agreements pursuant to which they have agreed to make
Rollover Elections with respect to all or a portion of their shares of Common
Stock.
Although the senior officers and directors of the Company will have an
opportunity to elect to retain Rollover Shares in the same fashion as other
shareholders, no senior officer or director of the Company will be
participating in the Equity Private Placement other than Mr. Jim P. Wise, Vice
President--Finance and Chief Financial Officer and Mr. Robert O. McAlister,
Vice President--Human Resources. Mr. Wise intends to purchase 800 shares in the
Equity Private Placement representing an investment of $96,000. Mr. McAlister
intends to purchase 1,071 shares in the Equity Private Placement representing
an investment of $128,520.
Certain executive officers and directors own stock options ("Options"), SARs,
phantom stock and/or restricted stock with respect to the Common Stock. At the
Effective Time: (i) all of the Options and SARs will be cancelled and the
holders thereof will be entitled to receive cash in an amount equal to $12.00
less the Option exercise price or SAR grant price, as the case may be; (ii)
each phantom stock right will convert into the right to receive $12.00; and
(iii) all restricted stock awards will fully vest and shares of Common Stock
covered by such awards will be treated in the same manner as all other shares
of Common Stock in the Merger.
The Company has adopted an Amended and Restated Consolidated Termination Pay
Plan for All Salaried Employees of Sterling Chemicals, Inc. and its
Subsidiaries, which generally provides that if any full time salaried
employee's employment is terminated by the Company for any reason other than
for cause, or the employee is requested to accept a new job which is less than
equivalent to such employee's job immediately prior to the change of control in
terms of compensation, level, responsibilities or credits, such employee shall
be entitled to receive termination pay equal to either 36 months' pay (for
certain members of senior management), or 24 months' pay (for all other
salaried employees), as well as certain other payments and benefits for such
periods.
Other interests of certain persons in the Merger include the following: (i)
employees of the Company who continue their employment with the Surviving
Corporation will receive benefits substantially as favorable as those currently
supplied by the Company for a period of at least two years after the Closing
Date; (ii) Mr. J. Virgil Waggoner will become a director and Vice Chairman of
the Board of the Surviving Corporation; (iii) Mr. Robert W. Roten will become a
director and the President and Chief Executive Officer of the Surviving
Corporation; (iv) a lump sum payment will be made to Jim P. Wise, the Company's
Chief Financial Officer, pursuant to his employment agreement with the Company;
and (v) the Surviving Corporation will indemnify all officers, directors and
employees of the Company and its Subsidiaries against all losses and
liabilities based on the fact that such person is or was a director, officer or
employee of the Company or any of its Subsidiaries and arising out of acts or
omissions occurring prior to and including the Effective Time to the fullest
extent permitted by the DGCL, and the Surviving Corporation will maintain the
current policies of directors' and officers' liability insurance with respect
to matters occurring prior to the Effective Time for a period of no less than
six years.
12
<PAGE>
Relationships with TSG. TSG was founded in 1982 by Messrs. Gordon A. Cain and
Frank J. Hevrdejs. In 1992, Mr. Cain made a decision to reduce his level of
business activity. By December 1993, Mr. Cain had sold all of his stock in TSG
and resigned as an officer and director. Since that time, Mr. Cain has had no
equity or other financial interest in TSG, although at TSG's invitation he has
invested in three transactions organized by TSG. For marketing purposes, Mr.
Cain was described as Chairman Emeritus of TSG until November 1995, but since
December 1992 has had no role in TSG's ongoing operations. TSG is currently
controlled by Messrs. Hevrdejs and William C. Oehmig, the husband of Mr. Cain's
stepdaughter. Messrs. Cain and William A. McMinn assist TSG as senior advisors
on selected transactions. Although Mr. McMinn has received certain advisory
fees for such services, Mr. Cain has not. Neither Mr. Cain nor Mr. McMinn
participated in any such capacity in connection with the Merger. TSG and Mr.
McMinn recently assisted Mr. Cain with the acquisition of a company in a
transaction unrelated to the Merger. Messrs. Cain, Waggoner and McMinn, along
with principals of TSG, invested in such transaction. Messrs. Cain and McMinn
are members of the Board of Directors of the surviving corporation in such
transaction. Messrs. Cain and McMinn also sublease office space from TSG,
either directly or through companies with which they are affiliated. Messrs.
Cain and McMinn, along with J. Virgil Waggoner, Robert W. Roten, the Company's
Executive Vice-President, and Richard K. Crump, a Vice-President of the
Company, have previously co-invested with principals of TSG in several
transactions. In 1986, the Company's Texas City petrochemical facility was
purchased by the Company from Monsanto Company in a leveraged buyout led by Mr.
Cain (at which time he was a director and principal stockholder of TSG) and Mr.
Waggoner. On the Record Date, principals of TSG owned 897,000 shares of Common
Stock of the Company, representing approximately 1.6% of the outstanding
shares. As of the date of the Merger Agreement principals of TSG owned 100% of
the common stock of STX Acquisition.
MARKET PRICES; DIVIDENDS
The Common Stock is listed on the New York Stock Exchange ("NYSE"). As of
January 26, 1996, the last full trading day prior to the announcement that the
Company was considering its strategic alternatives including the sale of the
Company, the high and low sales prices of the Common Stock, as reported by the
NYSE, were $9 1/2 and $8 7/8, respectively. The high and low sales prices of
the Common Stock, as reported by the NYSE, for the period January 2, 1996
through January 26, 1996 were $9 3/8 and $8, respectively. As of April 24,
1996, the last full trading prior to the announcement by the Company of the
execution of the Merger Agreement, the high and low sales prices of the Common
Stock, as reported by the NYSE, were $13 and $12 3/4, respectively.
On July 15, 1996, the high and low sales prices of the Common Stock, as
reported by the NYSE, were $11 1/2 and $11 1/8, respectively.
The following table sets forth for the fiscal quarters shown, the high and
low sales prices for the Company's Common Stock, as reported by the NYSE:
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
Third Quarter 1994......................................... $10 $ 5 1/2
Fourth Quarter 1994........................................ 13 3/4 9
First Quarter 1995......................................... 13 7/8 9 3/4
Second Quarter 1995........................................ 14 10 7/8
Third Quarter 1995......................................... 13 10 1/4
Fourth Quarter 1995........................................ 12 7/8 8 1/4
First Quarter 1996......................................... 9 1/4 7 1/2
Second Quarter 1996........................................ 13 8
Third Quarter 1996......................................... 13 1/8 11 1/8
</TABLE>
The Company has not paid dividends on the Company Stock since fiscal 1993.
Under the Merger Agreement, the Company has agreed not to pay any dividends on
the Common Stock prior to the Effective Time. Pursuant to the Credit Agreement
and the Indentures to be entered into in connection with the Financing of the
13
<PAGE>
Merger, the Surviving Corporation's ability to pay cash dividends will be
materially restricted. See "THE MERGER--Source and Amount of Funds."
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table presents summary historical financial data for the
Company. The data should be read in conjunction with the historical
Consolidated Financial Statements and Notes thereto of the Company, certain of
which are incorporated by reference elsewhere in this Proxy Statement. The
consolidated financial information set forth below (i) at year end and for each
of the years in the five-year period ended September 30, 1995 has been derived
from audited consolidated financial statements of the Company and (ii) as of
June 30, 1995 and June 30, 1996 and for the nine-month periods then ended has
been derived from unaudited consolidated financial statements of the Company,
which, in the opinion of management, have been prepared on a basis consistent
with the audited consolidated financial statements of the Company and contain
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the interim financial position and results. The
results of operations for such interim periods are not necessarily indicative
of the results of operations for any other interim periods or for the year as a
whole. See "ADDITIONAL INFORMATION" and "INCORPORATION BY REFERENCE."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
---------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ -------- ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $542.7 $430.5 $518.8 $700.8 $1,030.2 $843.1 $600.7
Cost of goods sold...... 472.4 402.6 477.9 606.9 758.6 597.7 508.7
------ ------ ------ ------ -------- ------ ------
Gross profit.......... 70.3 27.9 40.9 93.9 271.6 245.4 92.0
Selling, general and
administrative
expenses............... 9.7 10.3 25.5 24.4 31.7 24.5 23.8
SAR program expenses
(benefit).............. -- -- -- 21.8 (2.8) 1.6 6.2
------ ------ ------ ------ -------- ------ ------
Income from
operations........... 60.6 17.6 15.4 47.7 242.7 219.3 62.0
Interest and debt
related expenses, net
of interest income..... 6.1 8.4 22.4 22.1 14.6 12.7 4.4
Other (income) expense.. -- -- -- (2.6) -- -- 3.7
------ ------ ------ ------ -------- ------ ------
Income (loss) before
taxes and
extraordinary item... 54.5 9.2 (7.0) 28.2 228.1 206.6 53.9
Provision (benefit) for
income taxes........... 17.7 4.7 (1.6) 9.1 75.0 68.5 18.3
------ ------ ------ ------ -------- ------ ------
Income (loss) before
extraordinary item
and change in
accounting principle. 36.8 4.5 (5.4) 19.1 153.1 138.1 35.6
Cumulative effect of
change in accounting
for post-retirement
benefits other than
pensions............... -- (10.4) -- -- -- -- --
Extraordinary item, loss
on early extinguishment
of debt, net of tax.... -- -- -- -- (3.1) (3.1) --
------ ------ ------ ------ -------- ------ ------
Net income (loss)..... $ 36.8 $ (5.9) $ (5.4) $ 19.1 $ 150.0 $135.0 $ 35.6
====== ====== ====== ====== ======== ====== ======
PER SHARE DATA:
Income (loss) before
extraordinary item and
change in accounting
principle............. $ 0.67 $ 0.08 $(0.10) $ 0.34 $ 2.76 $ 2.48 $ 0.64
Cumulative effect of
change in accounting
for post-retirement
benefits other than
pensions.............. -- (0.19) -- -- -- -- --
Extraordinary item..... -- -- -- -- (0.06) (0.06) --
------ ------ ------ ------ -------- ------ ------
Net income (loss) per
share on a fully
diluted basis......... $ 0.67 $(0.11) $(0.10) $ 0.34 $ 2.70 $ 2.42 $ 0.64
====== ====== ====== ====== ======== ====== ======
Book value per share... $ 2.04 $ 1.59 $ 1.27 $ 1.61 $ 4.30 $ 3.99 $ 4.90
OTHER DATA:
Ratio of earnings to
fixed charges(a)....... 7.1x 1.8x -- 2.1x 11.9x 14.0x 5.9x
Deficiency of earnings
to cover fixed charges. -- -- $ 7.3 -- -- -- --
BALANCE SHEET DATA:
Total assets............ $362.5 $608.5 $546.8 $580.9 $ 609.9 $620.6 $659.0
Total long-term debt
(including current
portion)............... 72.6 300.2 263.9 192.6 103.6 128.7 138.2
Working capital......... 28.6 56.8 31.0 20.8 74.6 88.3 83.0
Stockholders' equity.... 112.2 87.3 70.3 89.7 239.3 222.2 273.1
</TABLE>
- --------
(a) 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.
14
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA
The pro forma statement of operations presented below for the year ended
September 30, 1995 and the nine months ended June 30, 1996 have been derived
from the unaudited pro forma financial statements included elsewhere herein,
and give effect to the Merger as if it had occurred on October 1, 1994. The pro
forma consolidated balance sheet data at June 30, 1996 presented below has been
derived from the unaudited pro forma consolidated balance sheet of Chemicals
and the Surviving Corporation included elsewhere herein and give effect to the
Merger as if it had occurred on June 30, 1996.
The summary pro forma financial data do not necessarily represent what
Chemicals' or the Surviving Corporation's financial position and results of
operations would have been if the Merger had actually been completed as of the
dates indicated and are not intended to project Chemicals' and the Surviving
Corporation'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 the Company, the pro forma
financial statements of Chemicals and the Surviving Corporation, "SELECTED
HISTORICAL FINANCIAL DATA" and "PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS AND
OTHER INFORMATION."
The pro forma adjustments were applied to the respective historical financial
statements to reflect and account for the Merger as a recapitalization.
Accordingly, the historical basis of the Company's assets and liabilities has
not been impacted by the Merger.
<TABLE>
<CAPTION>
CHEMICALS SURVIVING CORPORATION
---------------------- ----------------------
NINE NINE
MONTHS MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30, SEPTEMBER 30, JUNE 30,
1995 1996 1995 1996
------------- -------- ------------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $1,030.2 $ 600.8 $1,030.2 $ 600.8
Cost of goods sold............... 759.0 509.1 759.0 509.1
-------- ------- -------- -------
Gross profit..................... 271.2 91.7 271.2 91.7
Selling, general and
administrative expenses......... 31.7 23.8 31.7 23.8
-------- ------- -------- -------
Income from operations.......... 239.5 67.9 239.5 67.9
Interest expense, net............ 64.7 48.1 78.4 58.4
Other expense.................... -- 3.7 -- 3.7
-------- ------- -------- -------
Income from continuing
operations before income taxes. 174.8 16.1 161.1 5.8
Provision for income taxes....... 56.3 5.0 51.5 1.3
-------- ------- -------- -------
Income from continuing
operations.................... $ 118.5 $ 11.1 $ 109.6 $ 4.5
======== ======= ======== =======
Income per share from continuing
operations...................... $ 10.59 $ .43
Book value per share............. $ (29.93) $(26.69)
BALANCE SHEET DATA:
Total assets..................... $ 691.4 $ 694.4
Total long-term debt (including
current portion)................ 636.9 736.9
Working capital.................. 103.3 103.3
Total stockholders' equity....... (179.2) (276.2)
OTHER DATA:
Ratio of earnings to fixed
charges......................... 3.5x 1.3x 2.9x 1.0x
</TABLE>
15
<PAGE>
THE COMPANY
The Company is one of North America's leading producers of selected
commodity petrochemicals used in the production of a wide array of consumer
goods and industrial products, and pulp chemicals used in paper manufacturing.
The Company ranks among the top three North American producers in terms of
rated production capacity for each of its primary products, including styrene,
acrylonitrile, acetic acid and sodium chlorate. Other products manufactured by
the Company include methanol, plasticizers, tertiary butylamine, sodium
cyanide and sodium chlorite. The Company manufactures all of its
petrochemicals at the Texas City Plant. The Company's pulp chemicals are
currently produced at four plants in Canada. A fifth plant, under construction
in Valdosta, Georgia, is scheduled to begin production in late 1996.
In recent years, the Company has pursued a strategy of growth and product
diversification. In 1992, the Company acquired its pulp chemicals business
which has current sodium chlorate production capacity of 350,000 tons. In
1995, the Company began a three-year, $200 million capacity expansion and
upgrade program, which is approximately 50% complete. Through this program,
the Company will have expanded its total petrochemical production capacity by
approximately 1.4 billion pounds, including capacity additions of 200 million
pounds of styrene, 200 million pounds of acetic acid and 150 million gallons
(approximately 995 million pounds) of methanol. In addition, the Company is
expanding its sodium chlorate production capacity by 110,000 tons, or 30%, by
constructing a new facility in Valdosta, Georgia. Through this strategy, the
Company has sought to capitalize on the continuing secular growth in global
demand for its key products, while reducing its sensitivity to the cyclicality
of the markets for any particular product.
Styrene. The Company is the third largest North American producer of styrene
monomer, a chemical intermediate utilized in the production of plastic and
synthetic rubbers used in packaging, housewares, automotive components,
luggage, toys and building products. The Company's styrene unit is one of the
largest in the world and has an annual rated production capacity of 1.7
billion pounds, following a recent debottlenecking, which represents
approximately 12% of total North American capacity. In fiscal 1995, the
styrene unit operated at an average utilization rate of 96% and generated
revenues of $467 million, which represented approximately 45% of the Company's
total revenues.
Acrylonitrile. The Company is the second largest global producer of
acrylonitrile, the principal raw material for acrylic fibers used in textiles
and industrial applications. The Company's acrylonitrile unit has an annual
rated production capacity of 740 million pounds, which represents
approximately 21% of total North American capacity. In fiscal 1995, the
acrylonitrile unit operated at an average utilization rate of 96% and
generated revenues of $251 million, which represented approximately 24% of the
Company's total revenues.
Acetic Acid. The Company is the third largest North American producer of
acetic acid, a product made from carbon monoxide and methanol. Acetic acid is
primarily used in the manufacture of intermediate products, such as vinyl
acetate monomer, which are used to produce various consumer products,
including adhesives, glue, cigarette filters and surface coatings. Following a
200 million pound capacity expansion completed in May 1996, the Company's
acetic acid unit has an annual rated production capacity of approximately 800
million pounds, which represents approximately 17% of total North American
capacity. In fiscal 1995, the acetic acid unit operated at an average
utilization rate of 107% and generated revenues of $94 million, which
represented approximately 9% of the Company's total revenues.
Sodium Chlorate. Upon completion of its Valdosta, Georgia plant, the Company
will be the second largest North American producer of sodium chlorate, which
is converted to chlorine dioxide for use in the pulp bleaching process. The
Company's four sodium chlorate plants have an aggregate annual rated
production capacity of 350,000 tons, and the Valdosta, Georgia plant,
scheduled to begin production in late 1996, will increase the Company's total
annual capacity by 30% to nearly 460,000 tons. Following completion of the
Valdosta plant, the Company will account for approximately 22% of North
American sodium chlorate capacity. In addition, the Company's ERCO Systems
Group is the worldwide leader in the design, sale and technical service of
large scale chlorine dioxide generators, which are used to convert sodium
chlorate to chlorine dioxide.
16
<PAGE>
Since the mid-1980s, North American demand for sodium chlorate has grown at an
average annual rate of approximately 10%, as pulp manufacturers are
substituting chlorine dioxide for elemental chlorine in bleaching applications
in anticipation of environmental regulations that would eliminate the use of
elemental chlorine in pulp manufacturing. In fiscal 1995, the Company's sodium
chlorate plants operated at a weighted average utilization rate of 97% and its
pulp chemicals business generated revenues of $144 million, which represented
approximately 14% of the Company's total revenues.
BUSINESS STRATEGY
The Company's business strategy is to capitalize on its competitive market
position to take advantage of periods of tight supply and high prices and
margins for its primary products, which historically have occurred on a
cyclical basis, and to expand its production capacity to capture future growth
opportunities in the petrochemical and pulp chemical industries. Key elements
of this strategy are to: (i) maintain a competitive cost position in
petrochemicals by investing in new technology and equipment; (ii) pursue low
cost expansions in petrochemicals, such as its recent 30% expansion of acetic
acid capacity and construction of a world-scale 150 million gallon methanol
plant; (iii) pursue growth opportunities in pulp chemicals through the current
construction of additional capacity; (iv) continue to build strong industry
partnerships in petrochemicals through securing long-term supply contracts
with key customers; and (v) after the Merger, implement a more 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.
THE SPECIAL MEETING
PURPOSE; RECORD DATE; VOTING AT THE SPECIAL MEETING
The Special Meeting will be held on August 20, 1996 at 2:00 p.m., Central
Time, at the Texas Commerce Center Auditorium, 601 Travis Street, Houston,
Texas 77002.
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve and adopt the Merger Agreement, dated as of April 24, 1996 and as
amended as of June 11, 1996, between the Company and STX Acquisition (the
"Merger Agreement"). See "THE MERGER--Terms of the Merger." The Company does
not know of any matters other than those set forth herein which may come
before the Special Meeting. If any other matters are properly presented to the
Special Meeting for action, it is intended that the persons named in the proxy
will vote in accordance with their best judgment on such matters.
The Board has fixed the close of business on July 15, 1996 as the Record
Date for the determination of stockholders entitled to notice of and to vote
at the Special Meeting or any adjournment or postponement thereof. On the
Record Date, 55,689,991 shares of Common Stock were outstanding and owned of
record by 1,458 persons (the "Record Stockholders").
All proxies in the enclosed form of proxy that are properly executed and
returned to the Transfer Agent at or prior to the Special Meeting will be
voted at the Special Meeting or any adjournment or postponement thereof in
accordance with the instructions thereon. All executed but unmarked proxies
will be voted FOR approval and adoption of the Merger Agreement and the
Merger.
Stockholders have the right to dissent from the Merger Agreement and,
subject to certain conditions provided under Section 262 of the DGCL, to
receive payment for the fair value of their shares of Common Stock. See "THE
MERGER--Appraisal Rights of Dissenting Stockholders" and Annex C to this Proxy
Statement.
VOTES REQUIRED
The presence, in person or represented by proxy, of a majority of the shares
of Common Stock entitled to vote at the Special Meeting is necessary to
constitute a quorum at the Special Meeting. Approval and adoption of the
Merger Agreement and the Merger requires, under Section 251 of the DGCL, the
affirmative vote of a
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majority of the shares of Common Stock issued and outstanding on the Record
Date entitled to vote thereon. Only stockholders of record at the close of
business on the Record Date are entitled to notice of and to vote at the
Special Meeting or any and all adjournments and postponements thereof. As of
the Record Date, 55,689,991 shares of Common Stock, held by approximately
1,458 holders of record, were issued and outstanding and entitled to vote at
the Special Meeting. Shares of Common Stock represented at the Special Meeting
by a properly executed, dated and returned proxy will be treated as present at
the Special Meeting for purposes of determining a quorum, without regard to
whether the proxy is marked as casting a vote or abstaining. Proxies relating
to "street name" shares that are properly executed and returned by brokers
will be counted as shares present for purposes of determining the presence of
a quorum, but will not be treated as shares having voted at the Special
Meeting as to the Merger Agreement and the Merger if authority to vote is
withheld by the broker (a "broker non-vote"). Abstentions will be recorded as
such by the Inspectors of Election for the Special Meeting. In light of the
treatment of abstentions and broker non-votes and the fact that the
affirmative vote required to authorize and adopt the Merger Agreement and the
Merger is a stated percentage of the total number of outstanding shares of
Common Stock on the Record Date and entitled to vote thereon, abstentions and
broker non-votes (as well as any other failure to vote shares of Common Stock)
will have the same effect as votes against the approval and adoption of the
Merger Agreement and the Merger. THE EFFECT OF FAILING TO PROPERLY EXECUTE AND
RETURN A PROXY CARD OR TO VOTE AT THE SPECIAL MEETING WILL BE THE SAME AS
VOTING AGAINST THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
MERGER.
Each of Messrs. Frank J. Hevrdejs, William C. Oehmig, Gordon A. Cain, J.
Virgil Waggoner, and Robert W. Roten entered into the Irrevocable Proxies with
STX Acquisition, pursuant to which each such stockholder individually appoints
STX Acquisition and certain of its officers as his proxy to call and attend
meetings of the stockholders of the Company, to execute written consents and
to vote the shares of Common Stock which such stockholder owns and is entitled
to vote at any meeting of the stockholders of the Company, provided that any
vote or consent taken under the authority of such proxy shall be solely for
the purposes of adopting and approving of the Merger and the Merger Agreement,
or rejecting any proposal for any other merger agreement or any other
transaction for the sale of the Company or its assets, or any other
transaction intended to frustrate or impair the right or ability of STX
Acquisition or the Company to consummate the Merger. Each Irrevocable Proxy
terminates upon the earlier of the Effective Time, the date of termination of
the Merger Agreement in accordance with its terms, or the date upon which
written notice of termination of the Irrevocable Proxy is given by STX
Acquisition to the stockholder who is a party to the Irrevocable Proxy. The
Irrevocable Proxies represent, in the aggregate, approximately 18% of the
outstanding Common Stock of the Company. A total of approximately 23.0% of the
outstanding Common Stock of the Company is beneficially owned by senior
officers and directors of the Company as a group. In addition, employees of
the Company, including the senior officers, beneficially own approximately
10.8% of the Company's outstanding Common Stock through the Company's ESOP.
Except for shares represented by the Irrevocable Proxies described above,
there are no commitments or understandings regarding how any of these shares
will be voted.
ROLLOVER ELECTIONS
A Rollover Election may be made by any person who is a record holder of
Common Stock on August 15, 1996, the business day before the Special Meeting
(the "Election Date"), REGARDLESS OF WHETHER SUCH PERSON RETURNS A PROXY OR
VOTES FOR OR AGAINST THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT OR
ABSTAINS FROM VOTING AT THE SPECIAL MEETING. Rollover Elections shall be made
only by completing, executing and delivering the Rollover Election Form
enclosed with this Proxy Statement, together with the Certificates, duly
endorsed by the record holder representing the shares of Common Stock subject
to the Rollover Election, to KeyCorp Shareholder Services, Inc. (the "Exchange
Agent") by 5:00 p.m., New York Time, on the Election Date. All Rollover
Elections in the enclosed Rollover Election Form that are properly executed
and returned to the Exchange Agent will be honored by the Company, subject to
pro rata reduction among the stockholders making Rollover Elections to the
extent necessary to reduce the number of Rollover Shares to the Maximum
Rollover Amount. Any Rollover Election may be revoked by any stockholder who
has given written notice received on or before the Election Date by the
Exchange Agent. Shares of Common Stock as to which
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Rollover Elections have not been made or have been revoked or which exceed the
Maximum Rollover Amount will automatically be converted into the right to
receive the Cash Payment.
REVOCATION AND USE OF PROXIES; SOLICITATION
Shares of Common Stock which are represented by properly executed, dated and
returned proxies, unless such proxies shall have previously been properly
revoked, will be voted in accordance with the instructions indicated in such
proxies. If no contrary instructions are indicated, such shares will be voted
FOR approval and adoption of the Merger Agreement and in the discretion of the
proxy holder as to any other matter which may properly come before the Special
Meeting. Any proxy which votes against approval and adoption of the Merger
Agreement will be so counted and will not be used to vote for any adjournment
of the Special Meeting. Any other matter which may properly come before the
Special Meeting at which a quorum is present for such purpose requires the
affirmative vote of at least a majority of the shares of Common Stock present,
in person or by proxy. A stockholder who has given a proxy may revoke it at
any time prior to its use at the Special Meeting by delivering a written
notice of revocation of the proxy being revoked, or by submission of a
properly executed proxy bearing a later date than the proxy being revoked, to
the Secretary of the Company at 1200 Smith Street, Suite 1900, Houston, Texas
77002-4312, or by voting the Common Stock covered thereby in person at the
Special Meeting.
SOLICITATION; FEES AND EXPENSES
In addition to soliciting proxies by mail, officers, employees and agents of
the Company, without receiving additional compensation therefor, may solicit
proxies personally or by telephone, telegram or other forms of wire or
facsimile communication. The Company has also retained Georgeson & Company,
Inc. as its proxy solicitor in connection with the Special Meeting. The fee
for such services will not be more than approximately $8,000 plus out-of-
pocket expenses. Any questions or requests for assistance regarding proxies
and related materials may be directed in writing to Georgeson & Company, Inc.
at Wall Street Plaza, New York, New York 10005 or by telephone at (800) 223-
2064. The Company will bear the cost of the Special Meeting and of soliciting
proxies therefor, including the expense of preparing and printing this Proxy
Statement and the proxies solicited hereby and any filing fees incurred in
connection with this Proxy Statement, including the reasonable expenses
incurred by brokerage houses, custodians, nominees and fiduciaries in
forwarding proxy material to the beneficial owners of shares of Common Stock.
Other fees and expenses incurred in connection with the Merger, including
certain filing fees, will be borne by either the Company or STX Acquisition.
SPECIAL FACTORS
BACKGROUND
During the period of January through March 1994, Mr. Gordon A. Cain, the
Chairman of the Company's Board of Directors, initiated contact with two
prospective purchasers within the industry relating to a possible sale or
merger of the Company. These contacts did not result in any further
discussions until October 1994, when Messrs. Cain and J. Virgil Waggoner, the
Company's President and Chief Executive Officer, renewed contacts with the two
prospective industry purchasers with whom informal contact continued through
the end of the year. There was also brief contact with a third industry
purchaser initiated by Mr. Cain in October 1994, which did not lead to further
substantive discussions relating to a possible sale or merger of the Company.
Beginning in 1995, the Company engaged in discussions with the same two
prospective industry purchasers contacted in October 1994, both of whom
conducted an initial due diligence document review of the Company.
Negotiations proceeded with both prospective purchasers which, in the case of
one purchaser, proceeded to a draft merger agreement. However, all
negotiations were terminated by the prospective purchasers by early March
1995. Both prospective purchasers declined to discuss their reasons for
discontinuing negotiations. The Company then determined to discontinue active
pursuit of a sale.
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In early October 1995, Mr. Cain was advised by TSG of its interest in a
possible purchase of the Company, which Mr. Cain reported to the Company's
Board at its October 25, 1995 meeting. Approximately one week prior to the
October 25, 1995 Board meeting, Mr. Frank J. Hevrdejs, a principal of TSG,
telephoned Mr. Waggoner to indicate that TSG was interested in making a
proposal for the purchase of the Company; while Mr. Hevrdejs indicated that no
offer was being made, he indicated a possible price level of $11 per share.
Representatives of TSG and the Company met at TSG's request on October 31,
1995 at the offices of TSG to discuss TSG's intention to form an investor
group in conjunction with Unicorn to purchase the Company. The TSG
representatives attending the meeting included individuals with CS First
Boston Corporation, TSG's investment advisor, Chase Securities Inc. and Credit
Suisse (both financing sources for TSG) and principals of TSG, including Mr.
Hevrdejs, Ms. Susan Rheney, Mr. Hunter Nelson and Mr. William C. Oehmig. A
partner of Andrews & Kurth, L.L.P., counsel to TSG, also attended.
Representatives of the Company included Mr. F. Maxwell Evans, the Company's
Vice President and General Counsel, Mr. Waggoner and Mr. Jim P. Wise, the
Company's Vice President-Finance and Chief Financial Officer. Representatives
of Chemical Securities, Inc. also attended the meeting with the Company,
although Chemical Securities, Inc. at no time was engaged by the Company in
connection with the transaction or otherwise. A partner of Piper & Marbury
L.L.P ("Piper & Marbury") also attended as counsel to the Company.
At the meeting, TSG made a detailed presentation for the possible
acquisition of the Company at a price of $11 per share, including the
anticipated timing and financing structure. TSG suggested the execution of a
letter of intent binding the Company to negotiate exclusively with TSG to be
followed by the execution of a definitive merger agreement. Immediately
following the presentation, TSG was advised by the Company that it could not
consider any negotiations for a purchase of the Company or any other
transaction until the matter was fully considered by the Board.
Following the October 25 Board meeting, Mr. Wise, at Mr. Waggoner's
direction, contacted a potential industry purchaser, which indicated interest
in a possible transaction. Contact was also made by Mr. Waggoner with another
industry purchaser, and on November 2, 1995, Messrs. Cain, Waggoner and Wise
met with officers of one of the potential industry purchaser to discuss a
possible transaction. After discussions with Mr. Waggoner, Mr. James J.
Kerley, a director of the Company, also contacted a potential financial
purchaser, and on November 8, Messrs. Waggoner, Kerley and Wise met with
principals of the potential financial purchaser to discuss a possible
transaction. Both meetings were preliminary in nature, and relatively little
substantive information was exchanged. Each of the three potential purchasers
commenced some due diligence, and participated in the preliminary phases of
the auction process coordinated by Lazard as described below.
The Board met telephonically on November 10, 1995. The October 31, 1995
meeting with TSG and the Company's other contacts with all potential
purchasers were reported to the Board. Mr. Cain then suggested to the Board
that because of his previous association with TSG, a Special Committee of the
Board should be appointed to independently consider and evaluate the possible
sale of the Company and all other transactions and strategies to maximize
shareholder value. Mr. Waggoner also reported that while senior management of
the Company might be asked to participate in any purchase by a financial
buyer, management would not become an independent bidder. A representative of
Piper & Marbury discussed with the Board the role of the Special Committee and
the importance of the Special Committee independently evaluating the Company's
alternatives. The Board also agreed that the Special Committee should retain a
financial advisor and legal counsel and would have the authority to make its
own arrangements in that connection. The Board also agreed that the Special
Committee would consist of the outside members of the Board other than Mr.
Cain. Messrs. Knowland, Portal, McMinn, Pizzitola and Kerley were then
appointed to the Special Committee and the members of the Special Committee
thereafter selected Mr. Kerley to serve as Chairman of the Special Committee.
The Board was aware of Mr. McMinn's previous investment participation with TSG
in several transactions, but decided to include him on the Special Committee
because of his experience in the chemicals industry, his long-term association
with the Company and its Texas City plant and his geographic proximity to the
Company's offices. In addition, the residence of Messrs. Portal and Knowland
outside the United States in Europe made it desirable to have at least
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three Special Committee members available in the United States to constitute a
majority of the Special Committee. Finally, four of the five Special Committee
members had no relationships with TSG and could control the Special Committee.
Despite the fact that they are not residents of the United States, Messrs.
Knowland and Portal were present at each meeting of the Special Committee and
were material participants in the Special Committee's ongoing process.
The Special Committee of the Board met on November 20 for the purpose of
selecting outside counsel and a financial advisor for the Special Committee.
After interviewing Piper & Marbury and another law firm, the Special Committee
retained Piper & Marbury as counsel to the Special Committee. In selecting
Piper & Marbury to serve as its counsel, the Special Committee took the
following factors into consideration: (i) Piper & Marbury's engagement by the
Company began at about May, 1995, and there was therefore no long standing
relationship with the Company or any of its senior management; (ii) prior to
its selection as Special Committee Counsel, Piper & Marbury had advised the
Company's senior management that it could not represent any member of
management in any management led offer or management participation with any
bidder; (iii) Piper & Marbury had developed some familiarity with the Company
and its business, which an alternative outside counsel would not have; and
(iv) the Special Committee believed that the interests of the Company and the
Special Committee in any transaction were aligned and that selection of Piper
& Marbury as its counsel presented no conflict. Neither the Company nor the
Special Committee considered the engagement of the Company's existing outside
counsel for the transaction, in part because of that firm's long-standing
relationship with members of senior management and certain members of the
Company's Board. The Special Committee also interviewed four investment
banking firms, and elected to retain Lazard Freres & Co. LLC ("Lazard") as
financial advisor to the Special Committee. The Special Committee was guided
in this decision by (i) Lazard's experience and reputation in the chemicals
industry, (ii) its perception that Lazard was not as transactionally oriented
as the other firms interviewed and would be willing to thoroughly investigate
a strategic alternative in addition to a possible sale of the Company and
(iii) its conclusion that the Lazard presentation was superior to the
presentations given by the other firms interviewed. Mr. Pizzitola explained to
the other members of the Special Committee that while he had retired as an
active principal of Lazard, he was designated by Lazard as a Limited Managing
Director. Mr. Pizzitola and the Special Committee agreed that he not attend
the presentation by Lazard or vote on the selection of the financial advisor.
Mr. Pizzitola further agreed in writing that his compensation from Lazard
would not in any way be affected by the Special Committee's retention of
Lazard as its financial advisor. Mr. Pizzitola advised the Special Committee
that he had neither operational nor management responsibility at Lazard, and
would not participate in Lazard's work for the Special Committee, the Board or
the Company except as a member of the Special Committee and the Board. Because
of these factors, and the absence of any material financial interest of Mr.
Pizzitola in any possible outcome of the Special Committee's assignment, the
Special Committee concluded that Lazard could be viewed as independent.
Following the conclusion of the Special Committee's meeting on November 21,
Mr. Kerley and representatives of Piper & Marbury met with representatives of
Lazard to establish a timetable for evaluation of the Company's strategic
alternatives. The Special Committee also instructed the Company's management
and the Board that all contacts with potential purchasers were to be
coordinated through Lazard.
The Special Committee met with Lazard on December 18, 1995. Lazard described
a possible range of values for the Company under different alternatives,
including a sale of the Company, a recapitalization and the pursuit by the
Company of certain operating strategies. The Special Committee and Lazard
discussed the relative merits, and resulting value ranges, of the pursuit of
internally managed alternatives, as opposed to a sale of the Company. The
Special Committee also considered the Company's book value and liquidation
value. The Special Committee believed that the Company's book value would not
be a meaningful indication of fair market value because values in the
commodity chemicals industry typically are a function of cash flow and
earnings. Further, historical costs (as indicated by book value) would not be
indicative of going concern value which the Special Committee believed was
better reflected in the range of market price of the Company's stock and its
assessment of the Company's possible long term value. The Special Committee
likewise believed that liquidation value would not be indicative of the
Company's value. The Special Committee also took into account the Company's
$200
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million capital program in evaluating going concern value and the pursuit of
internally managed operating strategies. The principal components of the
program included the construction of the Valdosta chlorate plant ($55
million), construction of a methanol plant ($33 million) and ongoing
maintenance projects directed at quality and cost improvements ($112 million).
While the Valdosta plant and the methanol plant would increase the Company's
production capacity and output and possibly enhance the Company's long-term
profitability, both chlorate and methanol pricing is cyclical and heavily
influenced by market capacity and demand. Any benefits realized from the
Company's quality and cost improvements would not be immediate; the programs
could be subject to cost overruns and start up delays. The Special Committee
concluded that the long-term value to shareholders possibly achievable through
internally managed strategies may be outweighed by the immediate value to
shareholders of a sale at that time because of the significant risks that
internally managed strategies would not achieve the intended results. To
further evaluate the alternatives available to the Company, the Special
Committee authorized a test of the market on a broad basis to determine the
level of interest in a possible sale of the Company, and an ongoing review of
all strategic alternatives. The Special Committee also reviewed Mr. Kerley's
summary of his and Mr. Knowland's meeting with senior members of the Company's
management (which had occurred on the preceding Sunday, December 17) in which
each management member was asked to discuss his view of the Company's possible
operating strategies, and the possibility of the Company initiating a
leveraged self-recapitalization and share repurchase program. At such meeting,
it was generally acknowledged by members of management that while different
operating strategies such as pursuit of acquisitions, development of
additional capacity and development of further production efficiencies might
enhance the Company's profitability and value, the cyclicality of the
Company's industry and risks that such strategies might not be implemented
meant that there was no assurance that the Company's long-term value would be
materially enhanced. Management members were not asked about their interest in
participating in any leveraged buyout.
The Special Committee meeting of December 18 was followed by a meeting with
the full Board on the same day. The Company's strategic alternatives as
discussed by the Special Committee and Lazard were discussed with the Board,
and the relative merits of different strategic alternatives were again
discussed. In connection with a further market test of interest in a purchase
of the Company, the Board discussed a list of potential purchasers, both
strategic and financial, and the four parties that had already conducted a
preliminary due diligence review. The Board approved the Special Committee's
recommendation that a market test be conducted, and that Lazard be permitted
to solicit preliminary bids for the purchase of all or parts of the Company
and to compare the value indicated by the market test against the Company's
ability to realize value for its stockholders by pursuing alternatives other
than a sale. Lazard then identified companies that Lazard believed would be
likely candidates for acquiring the Company, worked with management of the
Company and its counsel in preparing a Confidential Offering Memorandum (the
"Memorandum") for delivery to potential acquirors, prepared an analysis of the
Company and the market for its securities to provide a basis for evaluating
any offers received by the Company, and assisted management of the Company to
develop an auction process in the event the Special Committee ultimately
decided that a sale of the Company was in the best interests of the Company
and its stockholders. The auction process would also involve several steps,
including the identification of potential acquirors, an informal approach to
the potential acquirors to determine their interest in participating in the
process, the delivery of the Memorandum to those potential acquirors which
indicated a desire to participate in the process, the receipt of preliminary
indications of interest from the potential acquirors, detailed on-site due
diligence by potential acquirors with indications of interests of a magnitude
deemed acceptable to the Board, and the receipt of preliminary bid proposals.
Between December 18, 1995 and January 26, 1996, Lazard, with the
participation of Piper & Marbury and members of the Special Committee prepared
a confidential memorandum for distribution to interested parties, oversaw due
diligence, and generally supervised the process agreed upon by the Special
Committee for the solicitation of indications of interest. Preliminary bids
were received from several companies in the petrochemical and pulp chemical
industry and several financial buyers. Because the bids were preliminary, each
was highly conditional. For example, all bids were subject to additional due
diligence and no preliminary bid constituted a firm offer. During this period,
and throughout the entire process as supervised by the Special
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Committee, TSG was treated in the same manner as all other interested parties
admitted to the process. TSG was not advised by Lazard or the Special
Committee of the details of any competing bid at any time in the process.
On January 26, 1996, members of the Special Committee and the Board met with
Piper & Marbury and Lazard to review preliminary bids received. TSG and
Unicorn presented a preliminary bid of $11.25 per share. After reviewing the
preliminary bids received and the conditional nature of many of those bids,
the Special Committee determined with the advice of Lazard that stockholder
value could best be maximized through an expansion of the bid process and a
public announcement so that all potential buyers would be aware of the
Company's interest in a possible sale, not just those likely buyers previously
contacted, and that Lazard should solicit additional bids through an auction
process from a broad range of financial and industrial buyers. On January 29,
1996, the Company publicly announced that the Company was engaged in an
examination of its strategic alternatives, including a possible sale of the
Company, and that the Company had engaged in preliminary conversations with
several potential bidders. The process continued with several additional
bidders who conducted due diligence reviews and site visits to the Company's
plants.
On February 22, 1996, the Special Committee met to review the status of
potential bids for purchase of part or all of the Company. The Committee also
reviewed with Lazard its recommendations as to how the balance of the process
of reviewing the Company's alternatives should be conducted. The Special
Committee reviewed the status of bidders for the Company at that point, and
the fact that the January 29, 1996 announcement had resulted in Lazard's
receipt of indications of interest from a number of additional potential
acquirors. Because of the late entry of certain qualified potential bidders,
the Special Committee accepted Lazard's recommendation that the auction
process be continued past the original deadline for submission of final bids
which had been fixed at February 29, 1996. The Special Committee decided that
final bids would be accepted until March 29, 1996, and all potential acquirors
then participating in the process were so advised.
The Special Committee met at the offices of Lazard on April 1 and 2, 1996 to
review the status of bids received for the purchase of all or parts of the
Company. Lazard reviewed with the Special Committee the bid solicitation
process that had been followed, and the list of potential bidders that had
been in contact with Lazard. Lazard reported that firm bids had been received
only from TSG and Unicorn for the purchase of the Company as a whole, and from
two other bidders for the purchase of the pulp chemicals and the
petrochemicals operations of the Company, respectively. The bids were then
reviewed in detail, including respective financial terms, demonstrated
financing capabilities and other conditions to closing. Lazard pointed out
that the TSG/Unicorn bid and the bid for the petrochemicals business of the
Company were conditioned on financing, and that, although the bid for pulp
chemicals was not conditioned on financing, the bidder, as a practical matter,
would have to raise significant financing to conclude a transaction. The offer
received for the petrochemical operations represented a net value (after
deductions for debt and other liabilities) of $272.4 million. A total of $313
million was offered for the pulp chemical operations. The pulp chemicals offer
was subsequently increased to $330 million. The combined value of the two bids
equalled $602.4 million representing a value of approximately $10.81 per share
on a combined basis. The total value indicated did not take into account the
negative income tax consequences to the Company of a separate sale of the pulp
chemicals operations, nor were certain other liabilities addressed. All
material elements of the bids received were fully discussed. Lazard also
discussed with the Special Committee the possibility of the Company engaging
in alternative transactions, including a self-recapitalization.
Following the Special Committee's meeting, the Board met on April 2 to
review those items discussed by the Special Committee, and to hear the Special
Committee's report and recommendation. Representatives of Lazard reviewed all
of the bids received, the history of the bidding process and the alternatives
available to the Company, including a self-recapitalization. The terms of the
bids were fully discussed. The Board agreed to accept the Special Committee's
recommendation that the $12 per share bid presented by TSG and Unicorn was the
best current alternative for maximizing shareholder value. The Special
Committee recommended to the Board, and the Board agreed, to pursue a
transaction with TSG and Unicorn on the basis of their March 29 bid. The
TSG/Unicorn bid included a requirement that the Company's stockholders agree
to retain approximately 8%
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of their shares as Rollover Shares. The Special Committee was of the
definitive view that the Company's stockholders should have the right to
receive all cash. It was also agreed that the Company, with the assistance of
Lazard, should take preliminary steps to pursue a recapitalization in the
event that ongoing negotiations with TSG and Unicorn for a definitive
transaction were unsuccessful.
The Special Committee next met by telephone on Tuesday, April 9, 1996.
Lazard reviewed with the Special Committee the status of ongoing discussions
with two additional possible bidders for the Company as a whole who had not
made a bid by the March 29 deadline, but had indicated interest in possibly
making a bid. Lazard reported that the bidder for pulp chemicals had increased
its price, but that the bidder for petrochemicals had not. The combined value
of the two bids was still inferior to the $12 per share bid received from TSG
and Unicorn. Lazard also reported receipt of another bid after April 2, 1996
for a separate purchase of the Company's pulp chemicals operations at $240
million, a price substantially below the other bid received an April 2, 1996
for a separate purchase of the pulp chemicals operations. The Special
Committee also concluded that since bids had not been received from the two
additional possible bidders for the Company as a whole, the auction process
had not resulted in further material developments. Mr. Kerley suggested to the
Special Committee that he and Lazard meet with representatives of TSG and
Unicorn and their financing sources to discuss financing and other issues
relative to possibly improving the terms of their bid.
On the day following the April 9 telephonic meeting of the Special
Committee, Mr. Kerley and representatives of Lazard met with representatives
of TSG and Unicorn to discuss the financing for the TSG/Unicorn bid. TSG and
Unicorn agreed that their offer would be modified to allow public stockholders
(other than those stockholders subject to the Inducement Agreement) to receive
cash of $12 a share in lieu of being required to retain any stock. This
modification was in response to Mr. Kerley's insistence on behalf of the
Special Committee that any transaction allow any public stockholder who
desired it to receive all cash. In the two weeks following that meeting, the
advisors of the Special Committee went forward with the negotiation of a
definitive Merger Agreement with TSG/Unicorn. This included the exchange and
negotiation of a number of Merger Agreement drafts, and a number of drafting
and negotiating meetings in Houston, Texas at the offices of Andrews & Kurth
L.L.P., counsel to TSG and Unicorn. A number of material terms of the
TSG/Unicorn bid were further negotiated, including financing conditions,
provisions of the fiduciary out and non-solicitation sections of the Merger
Agreement, the Tag-Along Agreement and provisions allowing the Company to
terminate the contract if TSG and Unicorn were unable to secure certain
financing commitments by specified dates. Preliminary merger agreement drafts
were circulated to the Company's Board for its review.
On April 15, the Company received a letter, by facsimile, from the Huntsman
Corporation ("Huntsman") which provided a preliminary indication of interest
in acquiring the Company for $12 per share. The indication of interest was
subject to due diligence and board approval. The Special Committee, with the
advice of Lazard, believed that Huntsman would be unable to conduct sufficient
due diligence to provide a definitive offer, rather than an indication of
interest, prior to the April 25, 1996 deadline for execution of a merger
agreement set by TSG and Unicorn. Huntsman had in fact indicated that its due
diligence would require several weeks. With negotiations with TSG and Unicorn
at a final stage, the Special Committee determined that it would not be in the
best interests of stockholders to jeopardize a definitive offer in hand in
favor of a proposal that would require extensive due diligence and time-
consuming negotiations and had no assurance of resulting in a higher price.
The Special Committee also determined that the $8 million break up fee
contemplated in the draft merger agreement payable to STX Acquisition upon
acceptance of another offer was not at a level high enough to deter any
possible interested party and should allow it to consider and accept any
materially better offer after execution of the Merger Agreement. The Company's
pending litigation with Huntsman was not a material consideration in the
Special Committee's decision not to pursue the Huntsman indication of
interest. Huntsman withdrew its indication of interest on April 29, 1996.
A draft of the merger agreement was substantially completed on April 23,
1996. The Special Committee met on the morning of April 24 and unanimously
decided to recommend approval of the merger agreement to the Board. The Board
also met on the morning of April 24 to consider authorizing the Company to
enter into the merger agreement. At the Board meeting, Lazard discussed its
fairness opinion which was delivered to the Board at the meeting, and reviewed
discussions with TSG and Unicorn and the other actual or potential bidders
subsequent to the Board's April 2 meeting. Counsel to the Special Committee
discussed the principal terms of
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the merger agreement. Lazard also presented a summary of the various financial
analyses it had performed and advised the Board that the price offered by TSG
and Unicorn of $12 per share compared favorably with the range of values
determined from its analyses. After further discussion, the Merger Agreement
and transactions contemplated thereby were unanimously approved by the Board.
Following the April 24 Board meeting, there was further negotiation among
representatives of TSG, Unicorn and the Company. The Merger Agreement was
executed the following day, April 25, 1996.
FAIRNESS OF THE MERGER
In determining to approve and recommend the Merger Agreement, the Special
Committee and the Board considered a number of factors, including the
following (which constitute all material factors considered): (i) historical
and current market prices of the Company's Common Stock including the fact
that the $12 per share price in the Merger represented a premium of
approximately 30% over the closing sales price for the Common Stock as
reported on the NYSE on January 26, 1996, the last trading day prior to the
public announcement by the Company announcing that the Company was considering
its strategic alternatives, including a possible sale of the Company and the
fact the Common Stock had not traded above $12 per share since July 12, 1995
through the Company's January 29, 1996 public announcement having ranged
widely in price from a high and low of $14 1/8 and $7 3/8 in calendar 1995 to
a high and low of $13 1/8 and $7 7/8 in calendar 1996, and that $12 per share
thus represented a price in the upper range of the stock trading range for the
two year period preceding the Merger; (ii) presentations of Lazard at numerous
meetings of the Special Committee and the opinion of Lazard dated April 24,
1996 to the effect that, based upon and subject to various considerations set
forth in such opinion, as of the date of such opinion, the consideration to be
received by holders of the Common Stock of the Company in connection with the
Merger was fair to such holders (other than TSG or any of its affiliates) from
a financial point of view; (iii) the Board's belief, based upon the sale
process that was conducted, that alternative acquisition transactions were not
likely to provide values to the stockholders of the Company in excess of the
$12 per share cash price in the Merger and that further delay in selecting a
purchaser would risk loss of the proposal from TSG and Unicorn; (iv) that the
Merger Agreement permits the Company to terminate the Merger Agreement or take
certain other actions after payment of an $8 million breakup fee to STX
Acquisition if any person has proposed an Acquisition Transaction for the
Company and the Board reasonably determines in good faith, based on the advice
of its outside, independent financial advisor and legal advisor that such
action, including termination of the Merger Agreement, would result in a more
favorable Acquisition Transaction and that a failure to do so constituted a
significant risk of breach of fiduciary duty to the Company's stockholders;
(v) the Board's belief that any recapitalization transaction that might
achieve values to the stockholders of the Company equal to or in excess of the
$12 per share cash price in the Merger would allow a share repurchase of only
approximately 60% of the Company's outstanding shares, require the Company to
incur significant indebtedness and result in outstanding Common Stock after a
share repurchase which could have a trading range below $12 per share; (vi)
information with respect to the financial condition, results of operations,
business and prospects of the Company, including the prospects of the Company
if it were to remain independent, and current industry, economic and market
conditions; (vii) the nature of the financing commitments and highly confident
letters with respect to the Merger, including the institutions providing the
commitments and the conditions to the obligations of such institutions to fund
such commitments (see "THE MERGER--Source and Amount of Funds"); (viii) the
fact that in the Merger stockholders have the right to receive cash and/or
Rollover Shares (subject to proration under certain circumstances), such that
the Company's stockholders can elect to retain an equity investment in the
Company; (ix) the terms and conditions of the Merger Agreement, including the
fact that the Merger Agreement does not include a due diligence condition to
the consummation of the Merger; and (x) the likelihood that required state,
federal and Canadian regulatory approvals would be obtained. The Special
Committee and Board also specifically took into consideration the possibility
that the pursuit of long-term internally managed strategies, including a
recapitalization, might yield long-term values in excess of the present value
of $12 in cash per share. It was concluded that the possibility of realizing
long-term values with a present value in excess of $12 per share, taking into
account the risks that such values would not be achieved, were outweighed by
the immediate realization of $12 per share in cash and the opportunity for
shareholders who were so inclined to continue an
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investment in the Company with Rollover Shares (particularly in light of the
inherent unreliability of forecasting for the Company and the industry). While
the Rollover Election is limited to an aggregate of 5.0 million shares, the
Special Committee determined that this limitation on a continued equity
investment was acceptable in light of each stockholder's right to receive all
cash. Although the senior officers and directors of the Company will have an
opportunity to elect to retain Rollover Shares in the same fashion as other
shareholders, no senior officer or director of the Company will be
participating in the Equity Private Placement other than Mr. Jim P. Wise, Vice
President--Finance and Chief Financial Officer and Mr. Robert O. McAlister,
Vice President-- Human Resources. Mr. Wise intends to purchase 800 shares in
the Equity Private Placement representing an investment of $96,000. Mr.
McAlister intends to purchase 1,071 shares in the Equity Private Placement
representing an investment of $128,520. The Special Committee did not consider
the interests of the senior officers and directors of the Company in the
Merger except to the extent such interests were aligned with the interests of
shareholders generally. The Special Committee did not believe it necessary to
update the Lazard fairness opinion.
The Special Committee's decision not to pursue the April 15, 1996 Huntsman
indication of interest (received some 2 1/2 months after the Company's January
29, 1996 announcement) was based upon a number of factors including: (i) the
Special Committee's conclusion that the Huntsman indication of interest was
not a definitive offer, (ii) subsequent indications from Huntsman that due
diligence could be time consuming and extensive with no assurance of continued
interest, (iii) the possibility that the proposed Huntsman price could be
decreased, as well as increased, following due diligence, (iv) the possibility
that the TSG/Unicorn offer would be jeopardized or withdrawn, with no
subsequent assurance that any agreement would be concluded with Huntsman, (v)
its conclusion that the $8 million breakup fee was not material to any bidder,
including Huntsman, who chose to pursue a transaction after the Merger
Agreement was executed (on April 26, 1996 the Company filed a Current Report
on Form 8-K which included a copy of the Merger Agreement), (vi) its further
conclusion that an executed Merger Agreement at $12 per share which preserved
the Company's ability to accept a materially higher offer was clearly
preferable to the pursuit of an indication of interest which was not an offer
and which could materially delay or prevent a definitive agreement at $12 per
share, and (vii) TSG's and Unicorn's indication to the Company that their
offer would be withdrawn if a definitive agreement was not executed by April
25, 1996.
The foregoing discussion represents the material factors considered and
given weight by the Board but is not intended to be exhaustive. In view of the
variety of facts considered in connection with its evaluation of the Merger,
the Board did not find it practicable to and did not quantify or otherwise
assign relative weight to the specific factors considered in reaching its
determination. In particular, the Board noted that the $12 per share offered
by TSG and Unicorn was lower than the expected case in certain of Lazard's
valuations, but determined that certain other factors, particularly including
the value of the Company indicated by the auction conducted by Lazard, should
be given greater weight than such valuations. In addition, individual members
of the Board may have given different weight to different factors.
PURPOSE AND STRUCTURE OF THE TRANSACTION
The purpose of the Merger is to maximize stockholder value. In pursuing this
objective, the Board considered various alternatives, including a sale of the
Company, a recapitalization and the pursuit by the Company of certain
operating strategies. In approving the Merger, the Board took into account the
Company's dependence on adequate raw material supply, lack of product
diversity, lack of downstream integration, strategic size relative to its
competition and the resulting impact of these factors on long-term stockholder
value. See "SPECIAL FACTORS--The Company's Business after the Merger." The
Company further believes that the public market has undervalued the Common
Stock of the Company, as indicated by the premium of the Cash Payment over the
trading prices of the Common Stock prior to the Company's January 29, 1996
announcement of its examination of a possible sale of the Company.
The Special Committee considered the issue of whether it was more desirable
from the standpoint of maximizing shareholder value to approve the proposed
Merger, or to remain independent and seek to increase
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shareholder value through future operations or a future sale of the Company.
In this analysis, the Special Committee considered management's expected case
and downside case forecasts for each of the Company's two primary operating
businesses, the historical cyclicality of the Company's business and the
potential impact of a business downturn on the results of operations of the
Company, and the risk that the Company's actual results might not meet the
expected, or downside, forecasts taking into account the inherent
unreliability of projections and forecasts for the Company and the industry.
The Special Committee also took into account TSG's and Unicorn's indication
that their offer would be withdrawn by April 25, 1996 if the Merger was not
approved and a Merger Agreement executed, and the possibility that given the
results of the Company's sale process, stockholders might not receive a
comparable value through another sale or pursuit of other strategic
alternatives. See "--Opinion of Financial Advisor."
The Special Committee and the Board ensured that the Merger was structured:
(i) to permit the Company to terminate the Merger Agreement or take certain
other actions after payment of an $8 million breakup fee to STX Acquisition if
any person proposed an Acquisition Transaction for the Company and the Board
reasonably determined in good faith, based on the advice of its outside,
independent financial advisor and legal advisor that such action, including
termination of the Merger Agreement, would result in a more favorable
Acquisition Transaction and that failure to do so constituted a significant
risk of breach of fiduciary duty to the Company's stockholders; and (ii) to
give the Company's stockholders the right to receive cash and/or Rollover
Shares, subject to proration under certain circumstances. The Special
Committee and the Board recognized that although the Merger is not structured
to require the approval of the unaffiliated stockholders of the Company,
appraisal rights are available to stockholders who have not voted in favor of
the Merger and who have otherwise properly exercised their rights for
appraisal.
Because of the appointment of the Special Committee and the engagement of
its outside, independent financial advisor and legal advisor, the Board did
not appoint an unaffiliated representative, other than the Special Committee,
to act solely on behalf of unaffiliated stockholders, for the purpose of
negotiating the terms of the Merger Agreement or preparing a report concerning
the fairness of the Merger.
RECOMMENDATION OF THE BOARD
On April 24, 1996, the members of the Special Committee unanimously
recommended that the Board approve the Merger Agreement. Later that day, the
Board unanimously approved the Merger Agreement and the transactions
contemplated thereby, including the Merger, and determined that the Merger is
fair to, and in the best interests of, holders of the Common Stock. THE BOARD
UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE FOR THE APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT. All members of the Company's executive
management support the Merger, but no officer of the Company has made a formal
recommendation in support of or opposed to the Merger. Certain members of the
Board and of management of the Company have certain interests which may
present them with potential conflicts of interest in connection with the
Merger. See "THE MERGER--Interests of Certain Persons in the Merger."
OPINION OF FINANCIAL ADVISOR
Lazard has delivered its written opinion to the Special Committee dated
April 24, 1996, to the effect that, based upon and subject to various
considerations set forth in such opinion, as of the date of such opinion the
consideration to be received by the holders of the Common Stock of the Company
in connection with the Merger was fair to such holders (other than TSG or any
of its affiliates) from a financial point of view. No limitations were imposed
by the Special Committee upon Lazard with respect to the investigations made
or the procedures followed by Lazard in rendering its opinion.
THE FULL TEXT OF THE OPINION OF LAZARD DATED APRIL 24, 1996, WHICH SETS
FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS ANNEX B TO THIS PROXY STATEMENT AND IS INCORPORATED
HEREIN BY REFERENCE. THE COMPANY'S STOCKHOLDERS ARE URGED
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<PAGE>
TO READ SUCH OPINION CAREFULLY AND IN ITS ENTIRETY. LAZARD'S OPINION WAS
DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE
CONSIDERATION TO BE RECEIVED BY THE STOCKHOLDERS OF THE COMPANY, WAS FOR THE
INFORMATION OF THE SPECIAL COMMITTEE, AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY STOCKHOLDER OF THE COMPANY AS TO HOW SUCH STOCKHOLDER SHOULD VOTE OR
WHAT FORM OF MERGER CONSIDERATION SUCH STOCKHOLDER SHOULD ELECT TO RECEIVE.
THE SUMMARY OF THE OPINION OF LAZARD SET FORTH IN THIS PROXY STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, Lazard, among other things, (i) reviewed the
financial terms of the Merger Agreement; (ii) analyzed certain historical
business and financial information relating to the Company, including the
Annual Reports to Stockholders and Annual Reports on Form 10-K of the Company
for the five fiscal years ended September 30, 1995 and the Quarterly Report on
Form 10-Q of the Company for the quarter ended December 31, 1995; (iii)
reviewed various financial forecasts and other data provided to Lazard by the
Company relating to the Company's businesses; (iv) held discussions with
members of the senior management of the Company with respect to the businesses
of the Company and the strategic objectives of the Company; (v) reviewed
public information with respect to certain other companies in lines of
businesses Lazard believed to be generally comparable to the businesses of the
Company; (vi) reviewed the financial terms of certain business combinations
involving companies in lines of businesses Lazard believed to be generally
comparable to those of the Company, and in other industries generally; (vii)
reviewed the historical stock prices and trading volumes of the Company's
Common Stock; and (viii) conducted such other financial studies, analyses and
investigations as Lazard deemed appropriate.
In connection with its review, Lazard relied upon the accuracy and
completeness of the financial and other information provided to it by, among
others, the Company, and did not assume any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of the Company, nor was Lazard provided with
any such valuation or appraisal. With respect to financial forecasts, Lazard
assumed that such financial forecasts were reasonably prepared on bases
reflecting the best available estimates and judgments of the Company as to the
future financial performance of the Company. Lazard assumed no responsibility
for and expressed no view as to such forecasts or the assumptions on which
they were based.
The Special Committee and the Board reviewed financial information,
including projections, delivered to Lazard by the Company for material
accuracy and completeness. See "CERTAIN FINANCIAL PROJECTIONS" beginning on
page 78. In the case of projections delivered to Lazard by the Company's
management, the Special Committee and Lazard recognized that the cyclical and
volatile nature of the chemical commodities industry in which the Company
operates, coupled with the Company's operating leverage (which can make small
changes in pricing or costs material to profitability), makes any forecasts or
projections inherently unreliable as demonstrated by the historical
significant and short-term fluctuations in the Company's performance. Subject
to the preceding sentence, the Special Committee and the Board considered
Lazard's reliance on the information delivered to be reasonable. The Special
Committee and the Board also independently reviewed the principal
methodologies and assumptions used by Lazard in reaching its fairness opinion.
Lazard's opinion was necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to it as
of, the date of its opinion. Lazard did not assume any responsibility to
update or revise its opinion, and does not expect to do so. Lazard's opinion
did not address the Company's underlying business decision to effect the
Merger. Lazard expressed no opinion as to the likely trading range for the
common stock of the Surviving Corporation following the consummation of the
Merger, which may vary depending upon, among other factors, changes in
interest rates, dividend rates, market conditions, general economic conditions
and other factors that generally influence the price of securities. In
rendering its opinion, Lazard assumed that the Merger would be consummated on
the terms described in the
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Merger Agreement, without any waiver of any material terms or conditions by
the Company or STX Acquisition, and that obtaining the necessary regulatory
approvals for the Merger would not have an adverse effect on the Company or
STX Acquisition.
In arriving at its opinion and making its presentation to the Special
Committee at the April 24, 1996 meeting of such committee, Lazard considered
and discussed certain financial analyses and other factors. At its
presentation on April 24, 1996, Lazard presented a summary of results obtained
by using several different valuation methods (such summary together with
Lazard's presentation thereof are collectively referred to as the "Lazard
Presentation").
The following paragraphs summarize the Lazard Presentation:
Market Test. Lazard, as financial advisor to the Special Committee,
contacted or received unsolicited communications from in excess of 35
potential purchasers in connection with the sale of the Company or either of
its two primary operating businesses. Such potential purchasers included a
broad range of companies in the chemical industry as well as a number of
financial buyers. Although a number of potential buyers indicated interest and
a few potential buyers made conditional offers to purchase one or both of the
primary operating businesses, after analyzing such indications of interest and
offers (including offers for each of the Company's two primary operating
businesses and the potential tax payment or other costs that would be incurred
in connection with any break-up of such businesses), it was determined that
the proposal of TSG was the most favorable received. Lazard did not disclose
the specific terms of any indication of interest or conditional offer by a
potential purchaser to any other potential purchaser. Lazard noted that it
believed that the results of these discussions with numerous potential
purchasers were the most important factors underlying its fairness opinion.
Discounted Cash Flow Analysis. Using an unleveraged discounted cash flow
("DCF") methodology, Lazard estimated the present value of future free cash
flows of the Company if the Company were to perform on a stand-alone basis
(without giving effect to the Merger) in accordance with management's expected
case and downside case forecasts for each of the Company's two primary
operating businesses. Free cash flow represents the amount of cash generated
and available for principal, interest and dividend payments after providing
for ongoing business operations. Lazard aggregated (i) the present value of
the projected free cash flow for the 1996 to 2000 fiscal years derived from
the Company's projections with (ii) the present value of the range of terminal
values described below. The range of terminal values was calculated by
applying multiples of 4.0x to 5.0x to the Company's projected five-year
average earnings before interest, taxes, depreciation and amortization
("EBITDA"). This range of terminal values represented the Company's value
beyond the fiscal year ending September 30, 2000. As part of the DCF analysis,
Lazard used discount rates of 10.0% to 13.0%. After subtracting from the total
enterprise value the estimated net debt of $136.0 million projected at July
31, 1996, the DCF analysis resulted in an expected case equity value reference
range for the Company Common Stock of $12.20 to $16.28 per share and a
pessimistic case equity value reference range for the Company Common Stock of
$8.56 to $11.64 per share. Lazard concluded that, given the uncertain outlook
for the Company's businesses and the high volatility associated with the
Company's businesses, the $12 per share bid by TSG was within the range of
expectations of the DCF analysis.
Leveraged Buyout Analysis. Lazard performed a leveraged buyout ("LBO")
analysis of the Company, utilizing expected case and downside case projections
provided by management of the Company for fiscal years 1996 through 2000 and
assuming the leveraged capital structure proposed by TSG ($368.5 million of
senior bank debt, $275.0 million of subordinated debt, $100.0 million of
discount notes and $130.7 million of equity). Based on management projections,
Lazard calculated the Company's projected EBITDA for each of fiscal years 1996
through 2000 and calculated the terminal value of the Company using multiples
of 4.0x to 5.0x of projected EBITDA for fiscal year 2000. Lazard then
subtracted from the terminal value the projected net debt at the end of fiscal
year 2000 (based on TSG's proposed structure) of $378.8 million to arrive at
the terminal value for the Company's equity. The present value of the terminal
equity value was calculated using discount rates from 25.0% to 35.0%. This LBO
analysis resulted in an expected case equity value reference range for the
Common Stock of the Company after the LBO of $13.25 to $25.73 per share and a
pessimistic case equity value reference
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<PAGE>
range for the Common Stock of the Company after the LBO of $4.33 to $11.89 per
share. Given the factors described above in connection with the DCF analysis,
Lazard concluded that the $12 per share bid by TSG was within the range of
expectations of the LBO analysis.
Comparable Public Company Analysis. Lazard compared certain publicly
available financial, operating and stock market performance data of selected
publicly traded companies in the U.S. petrochemicals industry with the
financial, operating and stock market performance of the Company. The publicly
traded companies reviewed by Lazard in this analysis were Geon Company,
Georgia Gulf Corporation, Lyondell Petrochemical Company, Rexene Corporation
and Union Carbide Corporation. Lazard examined, among other things, multiples
of market capitalization (defined as market value of common equity plus net
indebtedness, preferred stock and minority interests, based on April 19, 1996
closing stock prices) to latest twelve-month EBITDA (which ranged from 2.6x to
4.9x); market capitalization to estimated 1996 EBITDA (which ranged from 3.2x
to 7.1x); market capitalization to latest twelve-month EBIT (which ranged from
3.0x to 6.0x); market capitalization to estimated 1996 EBIT (which ranged from
3.8x to 10.2x); market capitalization to latest twelve-month revenues (which
ranged from 0.6x to 1.6x); and market capitalization to estimated 1996
revenues (which ranged from 0.7x to 1.7x). The earnings and revenues estimates
were derived from published research reports of certain analysts covering the
selected companies. Lazard then compared these multiples for the selected
companies to corresponding multiples for the Company calculated based on the
offer by TSG. Lazard noted that such multiples for the Company were within the
ranges of those for the selected companies. Because of the differences between
the comparable companies and the petrochemical business of the Company, and
the absence of any comparable company to the Company's pulp chemical business,
as described below, Lazard did not consider the comparable company valuation
to be as relevant as certain of the other valuation methodologies described
herein.
Historical Stock Prices. Lazard reviewed the trading prices of the Company's
Common Stock prior to the Company's January 29, 1996 press release in which it
stated that it was exploring alternatives to enhance shareholder value. Lazard
noted that the Company Common Stock closed at $8.25 per share on January 24,
1996, that on January 25, 1996 an analyst raised its rating on the Company to
"buy" from "neutral" and that for the three trading days prior to the January
29, 1996 announcement (January 24, 25 and 26) the Company's Common Stock
closed at $8.25, $9.38 and $9.25 per share, respectively. Lazard noted that
the $12.00 per share price of the TSG offer represents a 45% premium to the
January 24 unaffected closing stock price of $8.25. Although Lazard reviewed
historical trading prices of the Company's Common Stock, including trading
prices prior to the three day period preceding the Company's announcement, in
rendering its fairness opinion Lazard gave less weight to trading prices than
to certain other factors, including the market test described above.
Comparable Transactions. Lazard also reviewed the consideration paid or to
be paid in other acquisitions of petrochemicals and pulp chemicals businesses.
In performing this analysis Lazard noted, as described below, that there were
limited direct comparable transactions relating to the Company's businesses.
Accordingly, given such circumstances, Lazard concluded that the equity value
for the Company Common Stock derived from the comparable transactions analysis
was not attainable as of the date of its opinion.
In arriving at its opinion and in preparing the Lazard Presentation, Lazard
performed a variety of financial analyses, the material portions of which are
summarized above. The summary set forth above does not purport to be a
complete description of the analyses performed by Lazard. In addition, Lazard
believes that its analyses must be considered as a whole and that selecting
portions of such analyses and the factors considered by it, without
considering all of such analyses and factors, could create an incomplete view
of the process underlying its analyses set forth in the opinion and the Lazard
Presentation. The preparation of a fairness opinion is a complex process and
is not necessarily susceptible to partial analysis or summary description.
With regard to the comparable transaction and the comparable public company
analyses summarized above, Lazard selected comparable transactions and public
companies on the basis of various factors, including the size of the public
company and similarity of the line of business; however, no public company
utilized as a comparison is identical to the Company or the business for which
a comparison is being made. In particular, Lazard noted, among other things,
that certain of the comparable companies were more diversified than the
Company, had a broader
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geographical base than the Company, and were engaged in different businesses
from the Company, and that there were no public companies directly comparable
to the Company's pulp chemicals business. In addition, Lazard noted similar
limitations in its analysis of comparable transactions. Accordingly, an
analysis of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies and other factors that could
affect the acquisition or public trading value of the comparable companies to
which the Company or its businesses are being compared.
In performing its analyses, Lazard made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the Company's control. Any estimates
contained in such analyses are not necessarily indicative of future results or
values, which may be significantly more or less than such estimates. Estimates
of values of companies or parts of companies do not purport to be appraisals
or to necessarily reflect the price at which such companies or parts may
actually be sold, and such estimates are inherently subject to uncertainty.
Lazard is an internationally recognized investment banking firm that
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions. The Special Committee selected
Lazard to act as its financial advisor on the basis of Lazard's international
reputation and a competitive selection process. In 1988, Lazard acted as co-
manager for an equity offering of the Company's securities. In addition, Mr.
Frank Pizzitola, a Limited Managing Director of Lazard, is a member of the
Board of Directors of the Company.
Pursuant to a letter agreement dated as of December 1, 1995, between the
Special Committee and Lazard, Lazard agreed to act as financial advisor to the
Special Committee in connection with strategic alternatives available to the
Company, including the possible sale of the Company. The Special Committee
agreed that the Company would pay Lazard a fee of $250,000, which was paid
upon execution of such letter agreement, and a fee (to which the $250,000 fee
is to be credited) of 0.5% of the aggregate consideration paid for the equity
or assets of the Company in the event of a sale of all or a substantial
portion of the Company or its assets (including the Merger), payable upon
consummation of any such transaction. The Company estimates that the maximum
amount of such fee will not be more than $3.5 million. The Special Committee
also agreed that the Company would reimburse Lazard for all of its reasonable
out-of-pocket expenses, including the reasonable fees and expenses of any
legal counsel, and would indemnify Lazard and certain related persons against
certain liabilities, including certain liabilities under the federal
securities laws relating to, or arising out of, its engagement.
As noted under the caption "SPECIAL FACTORS--Recommendation of the Board,"
"--Fairness of the Merger," the fairness opinion of Lazard was only one of
many factors considered by the Special Committee in recommending approval of
the Merger Agreement.
ACCOUNTING TREATMENT
The Merger will be accounted for as a recapitalization. Accordingly, the
historical basis of the Company's assets and liabilities will not be impacted
by the Merger transaction.
CERTAIN TAX CONSEQUENCES OF THE MERGER
This discussion is a general summary of the material United States federal
income tax ("U.S. federal income tax") consequences of the Merger to Company
stockholders and does not purport to be a complete analysis or discussion of
all potential tax considerations or consequences relevant to a decision
whether to vote for the approval of the Merger, or whether to tender all or
part of a Company stockholder's Common Stock. The discussion does not address
all aspects of U.S. federal income taxation that may be applicable to Company
stockholders in light of their status or personal investment circumstances,
nor does it address the U.S. federal income tax consequences of the Merger
that are applicable to Company stockholders subject to special U.S. federal
income tax treatment including (without limitation) foreign persons, insurance
companies, tax-exempt entities, retirement plans, dealers in securities,
persons who acquired their Common Stock pursuant to the
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exercise of employee stock options or otherwise as compensation, and persons
who hold their Common Stock as part of a "straddle," "hedge" or "conversion
transaction." The discussion addresses neither the effect of any applicable
state, local or foreign tax laws, nor the effect of any federal tax laws other
than those pertaining to the U.S. federal income tax. THE FOLLOWING IS A
GENERAL DISCUSSION OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER TO CERTAIN COMPANY STOCKHOLDERS AND IS INCLUDED FOR GENERAL INFORMATION
ONLY. THE FOLLOWING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS
AND CIRCUMSTANCES OF EACH COMPANY STOCKHOLDER'S TAX STATUS AND ATTRIBUTES. AS
A RESULT, THE U.S. FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE FOLLOWING
DISCUSSION MAY NOT APPLY TO EACH COMPANY STOCKHOLDER. ACCORDINGLY, COMPANY
STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL,
STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL
AND OTHER TAX LAWS.
The discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), regulations proposed or promulgated thereunder, and current
administrative interpretations and judicial precedents relating thereto, all
of which are subject to change. Any such change, which may or may not be
retroactive, could alter the tax consequences discussed herein. The discussion
is also based on certain customary assumptions regarding the factual
circumstances that will exist at the Effective Time of the Merger. If any of
these factual assumptions is inaccurate, the tax consequences of the Merger
could differ from those described herein. The discussion assumes that shares
of Common Stock are held as capital assets (within the meaning of Section 1221
of the Code) at the Effective Time, and that the Company and Chemicals will
join in the making of a consolidated return for U.S. federal income tax
purposes.
Characterization of the Merger for U.S. Federal Income Tax Purposes. For
U.S. federal income tax purposes, STX Acquisition will be disregarded as a
transitory entity, and the Merger of STX Acquisition with and into the Company
will be treated as a sale of a portion of a tendering stockholder's Common
Stock in connection with the Merger and as a redemption of a portion of the
stockholder's Common Stock by the Company. The number of shares of Common
Stock disposed of by a stockholder pursuant to the Merger that will be treated
as sold in the Merger will be equal to the total number of shares surrendered
by the stockholder multiplied by (a) the amount of cash contributed to STX
Acquisition in the Equity Private Placement in exchange for STX Acquisition
stock divided by (b) the aggregate amount of cash paid to stockholders
pursuant to the Merger. The remainder of the stockholder's shares of Common
Stock disposed of in the Merger will be treated as redeemed by the Company.
Because the Maximum Rollover Amount is limited to 5.0 million shares, and
stockholders making a Rollover Election will be subject to pro rata reduction
in the event Rollover Elections exceed the Maximum Rollover Amount, there can
be no assurance that a stockholder making a Rollover Election will be able to
retain all of his shares of Common Stock. See "Stockholders Receiving Cash"
below for a discussion of the consequences of cash being deemed paid in
redemption of Common Stock. Stockholders should note that the Internal Revenue
Service (the "Service") may attempt to recharacterize the tax treatment of the
Merger. If any such recharacterization by the Service were judically
sustained, the consequences of the Merger could, perhaps materially, differ
from those described herein.
Stockholders Receiving Cash. As described more fully below, the U.S. federal
income tax consequences of the Merger with respect to a particular stockholder
who receives cash (including cash paid to dissenters and cash paid in lieu of
fractional shares) will depend upon, among other things, (i) the extent to
which a stockholder is deemed to have sold his Common Stock in the Merger or
is deemed to have had its Stock redeemed by the Company and (ii) whether the
redemption of a holder's Common Stock by the Company will qualify as a sale or
exchange under Section 302 of the Code. First, to the extent that a
stockholder is considered to have sold Common Stock in the Merger, such
stockholder will recognize either capital gain or loss equal to the difference
between (i) the number of shares treated as sold in the Merger multiplied by
$12, and (ii) the stockholder's adjusted tax basis in such shares. Such gain
or loss generally will be long-term capital gain or loss if the Common Stock
has been held by the stockholder for more than one year. Second, a stockholder
also will recognize either
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capital gain or loss equal to the difference between (i) the number of shares
treated as redeemed by the Company multiplied by $12, and (ii) the
stockholder's adjusted tax basis in such Common Stock, if such redemption is
treated as a sale or exchange under Section 302 of the Code with respect to
such stockholder. Such gain or loss will also generally be long-term capital
gain or loss if the Common Stock has been held by the stockholder for more
than one year.
Under Section 302 of the Code, a redemption of Common Stock pursuant to the
Merger will, as a general rule, be treated as a sale or exchange if the
redemption (a) results in a "complete termination" of the stockholder's
interest in the Company, (b) is "substantially disproportionate" with respect
to the stockholder, or (c) is "not essentially equivalent to a dividend" with
respect to the stockholder. In determining whether any of these Section 302
tests is satisfied, stockholders must take into account not only the Common
Stock that they actually own, but also any Common Stock they are "deemed" to
own under the constructive ownership rules set forth in Section 318 of the
Code. Pursuant to these constructive ownership rules, a stockholder will be
deemed to own stock that is actually or constructively owned by certain
members of his or her family (spouse, children, grandchildren and parents) and
other related parties including, for example, certain entities in which such
stockholder has a direct or indirect interest (including partnerships,
estates, trusts and corporations), as well as shares of stock that such
stockholder (or a related person) has the right to acquire upon exercise of an
option or conversion right (including options held pursuant to the Company's
Omnibus Stock and Incentive Plan). In addition, if a stockholder lives in a
community property state, the community property laws of that state may have
an effect on the constructive ownership rules. Stockholders who live in a
community property state should consult their own advisors with respect to the
impact of community property laws on the constructive ownership rules. Section
302(c)(2) of the Code provides certain exceptions to the family attribution
rules for the purpose of determining a "complete termination." If a
stockholder intends to rely upon these exceptions, the stockholder must file a
"waiver of family attribution" statement with his tax return and must comply
with certain other requirements set forth in the Code.
The redemption of a stockholder's Common Stock will result in a "complete
termination" of a stockholder's interest in the Company if either (a) all the
Common Stock actually and constructively owned by the stockholder is redeemed
or sold pursuant to the Merger or (b) all of the Common Stock actually owned
by the stockholder is redeemed or sold pursuant to the Merger and the
stockholder is eligible to waive, and does effectively waive in accordance
with Section 302(c) of the Code, attribution of all Common Stock which
otherwise would be considered to be constructively owned by such stockholder.
Such waiver of attribution applies only to Common Stock that would be
attributed to a stockholder from members of such stockholder's family.
Stockholders should consult their own tax advisors with respect to the
application of the "complete termination" test to their particular facts and
circumstances.
The redemption of a stockholder's Common Stock will be "substantially
disproportionate" with respect to such stockholder if the percentage of Common
Stock actually and constructively owned by such stockholder immediately
following the Merger is less than 80% of the percentage of Common Stock
actually and constructively owned by such stockholder immediately prior to the
Merger and is less than 50% of the total Common Stock outstanding after the
Merger. Stockholders should consult their own tax advisors with respect to the
application of the "substantially disproportionate" test to their particular
facts and circumstances. Waiver of family attribution is not available in
applying the "substantially disproportionate" test.
Even if the redemption of a stockholder's Common Stock fails to satisfy the
"complete termination" test and the "substantially disproportionate" test
described above, the redemption of a stockholder's Common Stock may
nevertheless satisfy the "not essentially equivalent to a dividend" test if
the stockholder's redemption of Common Stock pursuant to the Merger results in
a "meaningful reduction" in such stockholder's proportionate Common Stock
interest in the Company. Whether the receipt of cash by a stockholder will be
considered "not essentially equivalent to a dividend" will depend upon such
stockholder's particular facts and circumstances. No general guidelines
indicating the facts and circumstances under which a redemption will be
considered to produce a meaningful reduction in proportionate interest have
been provided by the courts or issued by the Service.
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However, the Service has indicated in Revenue Ruling 76-385 that a minority
stockholder (i.e., a holder who exercises no control over corporate affairs
and whose proportionate stock interest is minimal in relation to the number of
shares outstanding) generally is treated as having had a "meaningful
reduction" in his stock interest if a cash payment reduces such stockholder's
actual and constructive stock ownership by a relatively small amount.
Stockholders should consult with their own tax advisors as to the application
of this test in their particular situation. Waiver of family attribution is
not available in the context of the "not essentially equivalent to a dividend"
test.
In assessing whether the redemption of a stockholder's Common Stock
satisfies the "substantially disproportionate" test or the "not essentially
equivalent to a dividend" test described above, stockholders should consider
the fact that the Merger will substantially reduce the number of outstanding
shares of Common Stock. As a result, if a stockholder elects to retain a
portion of its Common Stock, the stockholder's percentage interest in the
Common Stock of the Company may not be reduced even if the stockholder
receives cash for a substantial portion of his Common Stock. Based on the
number of shares of Common Stock that are expected to remain outstanding after
the Merger, if a stockholder were to retain approximately 20% or more of the
shares of Common Stock that the stockholder owned prior to the Merger, the
stockholder's percentage interest in the Common Stock of the Company would not
be reduced as a result of the Merger. Stockholders should consult their own
tax advisors as to the impact of the reduction in the outstanding shares of
Common Stock on the application of the "substantially disproportionate" and
"not essentially equivalent to a dividend" tests described above.
If a stockholder cannot satisfy any of the three tests described above and
to the extent the Company has sufficient current and/or accumulated earnings
and profits, such stockholder will be treated as having received a dividend
which will be includable in gross income (and treated as ordinary income) in
an amount equal to the cash received, and the stockholders' basis in the
Common Stock disposed of will not offset the amount of cash received, but
instead will be reallocated to shares of Common Stock still held by such
stockholder or, although the matter is not free from doubt, if no shares are
actually owned, reallocated to those shares constructively owned, under
certain circumstances.
To the extent that one of the three tests described above is satisfied, the
stockholder will be treated as having sold his Common Stock, which will
generally give rise to long-term capital gain or loss if the Common Stock has
been held by the stockholder for more than one year. While the marginal tax
rates for dividends and capital gains are the same for corporate stockholders,
the current maximum U.S. federal income tax rate on ordinary income of
individuals (39.6%) exceeds the maximum tax rate on long-term capital gains
(28%). In addition, capital gain can generally be offset by any capital loss
that a stockholder may have incurred, whereas capital loss of a corporation
may not offset ordinary income and capital loss of an individual can only
offset ordinary income to the extent of $3,000 per year (subject to
carryover). There are presently pending various proposals to reduce the tax
rate that would apply to long-term capital gains. At this time, it is not
possible to predict whether such proposals will ultimately be enacted, and if
so, to what extent such a reduced rate would have retroactive effect and
therefore apply to a disposition of Common Stock pursuant to the Merger.
In the case of a corporate stockholder, if the cash paid is treated as a
dividend, such dividend income may be eligible for the 70% dividends-received
deduction. The dividends-received deduction is subject to certain limitations,
and may not be available if the corporate stockholder does not satisfy certain
holding period requirements with respect to the Common Stock or if the Common
Stock is treated as "debt financed portfolio Stock" within the meaning of Code
Section 246A(c). Further, recently proposed legislation would, if enacted into
law, reduce the dividends-received deduction percentage. Additionally, if a
dividends-received deduction is available, the dividend may be treated as an
"extraordinary dividend" under Section 1059(a) of the Code, in which case a
corporate stockholder's adjusted tax basis in the Common Stock retained by
such stockholder would be reduced, but not below zero, by the amount of the
nontaxed portion of such dividend. Any amount of the nontaxed portion of the
dividend in excess of the corporate stockholder's adjusted tax basis generally
will be subject to tax upon a sale or other taxable disposition of the Common
Stock. In addition, under the adjusted
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current earnings rules of the alternative minimum tax provisions of the Code,
and depending upon a corporate holder's particular tax situation, up to 75% of
any dividends received deduction may be added back in the computation of
alternative minimum taxable income. Corporate stockholders are urged to
consult their own tax advisors as to the effect of Section 1059 of the Code on
the adjusted tax basis of their Common Stock, and the effect of the
alternative minimum tax and recently proposed legislation on the availability
and/or the amount of the dividends-received deduction.
BECAUSE THE DETERMINATION OF WHETHER THE RECEIPT OF CASH WILL BE TREATED AS
HAVING THE EFFECT OF THE DISTRIBUTION OF A DIVIDEND WILL GENERALLY DEPEND UPON
THE FACTS AND CIRCUMSTANCES OF EACH COMPANY STOCKHOLDER, COMPANY STOCKHOLDERS
ARE STRONGLY ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX
TREATMENT OF CASH RECEIVED IN THE MERGER.
The ability to elect the type of consideration to be received pursuant to
the Merger affords each stockholder some flexibility in selecting the type of
consideration that will best serve his or her personal tax and financial
planning needs. However, each stockholder should be aware that his or her
ability to satisfy (or, alternatively, fail to satisfy) any of the foregoing
tests and thereby avoid (or, alternatively, obtain) dividend treatment may be
affected by the various adjustments, pro-rations and allocations of the Merger
Consideration. If the Maximum Rollover Amount is exceeded so that a pro rata
reduction is triggered, shareholders may receive more cash than may be
anticipated at the time a Rollover Election is made.
Stockholders Retaining Stock and Receiving No Cash. The Merger will have no
U.S. federal income tax consequences for stockholders who retain their Common
Stock and receive no cash. Accordingly, a stockholder will not recognize any
gain or loss on any Common Stock retained by such stockholder.
Stockholders Retaining a Portion of their Common Stock and Receiving Cash.
To the extent that a stockholder elects to retain a portion of its Common
Stock and exchange a portion of its Common Stock for cash, or to the extent a
stockholder receives cash in exchange for some portion of its Common Stock as
a result of proration, the tax treatment of the stockholder's receipt of such
cash will be the same as set forth above under Stockholders Receiving Cash.
As described above under Stockholders Retaining Common Stock and Receiving
No Cash, the Merger will have no tax consequences to a stockholder (and, thus,
a stockholder will not recognize any gain or loss as a result of the Merger),
to the extent such stockholder retains Common Stock. However, as described
more fully above under Stockholders Receiving Cash, a stockholder's retention
of Common Stock may, under certain circumstances, cause the cash received by
such stockholder pursuant to the Merger to be treated as a dividend for U.S.
federal income tax purposes.
Cancellation of Options, SARs and Phantom Stock. To the extent that a holder
of an Option, SAR or Phantom Stock receives cash upon the cancellation of such
Option, SAR or Phantom Stock, such cash will give rise to compensation income
(taxable at ordinary income rates) and will be subject to applicable
employment tax withholding.
Tax Treatment of Employee Stock Ownership Plan. Whether the shares of Common
Stock held by the Company's Employee Stock Ownership Plan (the "ESOP") are
retained or are cashed out, there should be no tax effect on the ESOP, because
the ESOP is a tax-exempt entity.
Tax Treatment of Stockholders Participating in Employee Stock Ownership
Plan. Whether the shares of Common Stock held for an employee's benefit by the
ESOP are retained or are cashed out, there should be no immediate tax effect
to such employee. Further, whether an employee elects to retain or cash out
ESOP shares should have no impact on the tax treatment applicable to such
employee's non-ESOP shares. In addition, the Code provides favorable tax rules
for certain distributions from the ESOP, including distributions of Common
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Stock. Therefore, any distributions of Common Stock from the ESOP will be
subject to special rules which may result in a different tax treatment to
stockholders receiving such distributions from the treatment described herein.
However, distributions from the ESOP will not be made as result of the Merger,
but will be made in the regular course upon the death, disability, retirement,
or other termination of an ESOP participant.
Foreign Stockholders--Withholding. The following is a general discussion of
certain U.S. federal income tax consequences of the Merger to foreign
stockholders. For this purpose, a "foreign stockholder" is any person who is,
for U.S. federal income tax purposes, a foreign corporation, a non-resident
alien individual, a foreign partnership or certain foreign estates or trusts.
In the case of any foreign stockholder, the Exchange Agent will withhold 30%
of the amount paid to redeem the Common Stock of such stockholder in order to
satisfy certain U.S. withholding requirements, unless such foreign stockholder
proves in a manner satisfactory to the Company and the Exchange Agent that
either (i) the redemption of its Common Stock pursuant to the Merger will
qualify as a sale or exchange under Section 302 of the Code, rather than as a
dividend for U.S. federal income tax purposes, in which case no withholding
will be required, (ii) the foreign stockholder is eligible for a reduced tax
treaty rate with respect to dividend income, in which case the Exchange Agent
will withhold at the reduced treaty rate or (iii) no U.S. withholding is
otherwise required.
In addition, the Company can give no assurances that it is not a "United
States Real Property Holding Corporation" within the meaning of Section
897(c)(2) of the Code. Consequently, the Exchange Agent will withhold 10% of
the amount paid to purchase or redeem a foreign stockholder's Common Stock if
the foreign stockholder cannot prove, in a manner satisfactory to the Company
and the Exchange Agent, that it did not own 5% or more of the Stock of the
Company at any time during the previous five years and such purchase or
redemption qualifies as a sale or exchange for federal income tax purposes.
Foreign stockholders should consult their own tax advisors regarding the
application of these withholding rules.
Information Reporting and Backup Withholding. The Company must report
annually to the IRS and to each stockholder the amount of dividends paid to
such stockholder and the backup withholding tax, if any, withheld with respect
to such dividends. Copies of these information returns also may be made
available to the tax authorities in the country in which a foreign stockholder
resides under the provisions of an applicable income tax treaty.
Backup withholding (which generally is a withholding tax imposed at the rate
of 31% on certain payments to persons that fail to furnish certain information
under the United States information reporting requirements) generally will not
apply to dividends paid to a foreign stockholder at an address outside the
United States (unless the payor has knowledge that the payee is a U.S.
person).
Payment of the proceeds of a sale of Common Stock by or through a United
States office of a broker is subject to both backup withholding and
information reporting unless the beneficial owner certifies under penalties of
perjury that it is a foreign stockholder, or otherwise establishes an
exemption. In general, backup withholding and information reporting will not
apply to a payment of the proceeds of a sale of Common Stock by or through a
foreign office of a broker. If, however, such broker is, for United States
federal income tax purposes, a U.S. person, a controlled foreign corporation,
or a foreign person that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States, such
payments will be subject to information reporting, but not backup withholding,
unless (1) such broker has documentary evidence in its records that the
beneficial owner is a foreign holder and certain other conditions are met, or
(2) the beneficial owner otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against the holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
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Proposed Regulations have been issued by the Treasury Department which are
scheduled to be effective for payments made after December 31, 1997, and which
would change certain aspects of the backup withholding and information
reporting rules and their application to the Common Stock. Stockholders should
consult their own tax advisors with respect to the effect that such Proposed
Regulations could have on their particular circumstances.
THE FOREGOING DISCUSSION DOES NOT ADDRESS EVERY FEDERAL INCOME TAX CONCERN
WHICH MAY BE APPLICABLE TO A PARTICULAR STOCKHOLDER. EACH STOCKHOLDER IS URGED
TO CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR TO DETERMINE THE TAX
CONSEQUENCES TO SUCH STOCKHOLDER, IN THE LIGHT OF ITS PARTICULAR
CIRCUMSTANCES, OF THE DISPOSITION OF COMMON STOCK PURSUANT TO THE MERGER.
RISKS AND EFFECTS OF THE MERGER
In considering the matters set forth in this Proxy Statement, including the
decision of whether to make a Rollover Election (with respect to all or any
portion of the shares of Common Stock held by a stockholder), stockholders of
the Company should carefully consider, among other things, the significant
risks and factors described below that are associated with the Company and
that may significantly increase the risks associated with a continuing common
stock investment in the Surviving Corporation.
Control by Certain Stockholders. Upon consummation of the Merger, the
investors in the Equity Private Placement, including principals of TSG and
Unicorn, and certain principal stockholders of the Company will own at least
75% of the outstanding shares of Surviving Corporation Common Stock. These
investors and stockholders will enter into a Stockholders Agreement, the
effect of which will be to subject the transfer of such shares to certain
rights of first refusal. Such stockholders collectively will have the ability
to exercise control over the business and affairs of the Surviving
Corporation, including the ability to elect all of the Board of Directors, the
power to determine the management of the business and the power to determine
the outcome of corporate actions requiring stockholders' approval. TSG and
Unicorn have advised the Company that there are no current intentions to
engage in a second step transaction to eliminate minority shareholders
following the Merger.
Limited Liquidity of Rollover Shares. The Company expects the liquidity of
the Common Stock to be significantly diminished after consummation of the
Merger due to (i) the substantial reduction in the number of outstanding
shares (from approximately 55,690,000 shares prior to the Merger to
approximately 10,890,834 shares thereafter), (ii) the delisting of the Common
Stock from trading on the New York Stock Exchange, and (iii) statutory and
contractual restrictions on transfer of the shares of Common Stock of the
Surviving Corporation issued in exchange for Common Stock of STX Acquisition.
As a result of the foregoing, the Company expects that the market for the
Common Stock retained as Rollover Shares will be extremely limited and that an
active market will not develop.
High Financial Leverage. After giving effect to the Financing, the Surviving
Corporation and its subsidiaries will have interest expenses and principal
repayment obligations at a level significantly higher than the Company's
present obligations under its indebtedness. If the Merger had occurred at June
30, 1996, the Surviving Corporation, on a consolidated basis, would have had
indebtedness of $736.9 million and stockholders' equity of $(276.2) million,
and Chemicals would have had indebtedness of $636.9 million and stockholders'
equity of $(179.2) million. In addition, on a pro forma basis for the nine
months ended June 30, 1996, the Surviving Corporation would have had a ratio
of earnings to fixed charges of 1.0 to 1.0. The Surviving Corporation will not
be required to make interest payments on the Discount Notes prior to 2002, but
there can be no assurance that the Surviving Corporation will have adequate
cash available at that time and thereafter to make the scheduled semi-annual
interest payments. The high degree of leverage of the Surviving Corporation
and Chemicals will have important consequences to holders of the Rollover
Shares, including the following: (i) the ability of the Surviving Corporation
and Chemicals to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes or
other purposes, if needed, may be
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impaired; (ii) a substantial portion of cash flow from operations will be
dedicated to the payment of interest, principal and other repayment
obligations, thereby reducing the funds available for operations and any
future business opportunities; (iii) the degree of leverage may make the
Company more vulnerable to a downturn in its business or the economy
generally; and (iv) the terms of such indebtedness will materially restrict
the Surviving Corporation's ability to pay cash dividends. Any inability of
the Surviving Corporation or Chemicals to service their respective obligations
could have a significant adverse effect on the market value and marketability
of the Rollover Shares.
The Credit Agreement and the Indentures contain numerous financial and
operating covenants, including, but not limited to, restrictions on the
Surviving Corporation's and Chemicals' ability to incur indebtedness, pay
dividends, create liens, sell assets, engage in certain mergers and
acquisitions and refinance existing indebtedness. The ability of the Surviving
Corporation and Chemicals to comply with such covenants and other terms of the
Credit Agreement and the Indentures will depend on the future performance of
the Surviving Corporation.
Future Dilution From Warrant Exercises. In connection with the Units
Offering, Warrants will be offered with the Discount Notes. Such Warrants and
the underlying Common Stock will be dilutive to the holders of Common Stock
following the Merger. Because the number of Warrants to be issued in the Units
Offering will not be established until final pricing terms of the Units are
determined, the amount of such dilution is not currently known.
Equity in Surviving Corporation. Upon consummation of the Merger, all of the
equity of the Surviving Corporation will be owned by the stockholders who
retain Rollover Shares and the investors in the Equity Private Placement.
Stockholders who do not retain Rollover Shares will have no continuing equity
interest in the Surviving Corporation, and will no longer participate in any
earnings or growth of the Surviving Corporation. Similarly, such persons will
no longer face a risk of a decline in the value of the Common Stock.
Petrochemical Raw Material Prices and Availability. For each of the
Company's petrochemical products, the cost of raw materials and utilities is
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
Surviving Corporation's business. The Company does not produce many of its
major raw materials (benzene, ethylene, propylene, ammonia, methanol),
although the Company has a methanol plant under construction at Texas City,
which is anticipated to begin production in July 1996. These materials are all
commodity petrochemicals and the price for each can fluctuate widely for a
variety of reasons, including changes in the availability of these products
because of major capacity additions or significant plant operating problems. A
number of the Company's raw material suppliers provide the Company with a
significant amount of its raw materials, and if one significant supplier or a
number of significant suppliers were unable to meet their obligations under
present supply arrangements, or if such arrangements could not be renewed upon
expiration, the Company could be required to incur increased costs for its raw
materials. The ability to pass on increases in raw material prices to the
Company's customers is, to a large extent, dependent on market conditions.
There may be periods of time in which increases in feedstock prices are not
recovered by the Company due to an inability to increase the selling prices of
its products because of weakness in demand for, or oversupply of, such
products, and therefore, certain increases in raw materials prices may have a
material adverse effect on the results of operations of the Company.
Cyclical Markets for Products; Dependence on Key Products. The Company's
business consists of the production and sale of styrene monomer,
acrylonitrile, acetic acid and other petrochemicals, as well as certain pulp
chemicals. The Company's two primary petrochemical products are styrene and
acrylonitrile, which accounted for 45% and 24% of the Company's 1995 revenues,
respectively. Historically, the prices of the Company's petrochemical and pulp
chemical products have been cyclical and sensitive to overall supply relative
to demand, the level of general business activity and the availability and
price of feedstocks. In the past, the Company's products have experienced
market tightness accompanied by higher prices and periods of oversupply
accompanied by lower prices. Certain styrene monomer producers have announced
plans to add significant production capacity over the next several years,
particularly in the Far East. Current global production capacity for styrene
is estimated to be approximately 40 billion pounds and the Company believes
that approximately 7.2
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billion pounds of capacity will be added by competitors in the next two years,
including an estimated 3.5 billion pounds in 1997 and 3.7 billion pounds in
1998. Although less than 5% of such additional capacity is expected to be
added on the U.S. Gulf Coast, where the Company operates, the Company expects
that prices for styrene will decline from current levels until global demand
for styrene increases sufficiently to absorb such additional production
capacity, and such declines could adversely affect the Company's results of
operations. In addition, the Company expects competitors to increase
production capacity of acrylonitrile during the next two years, and such
increases could adversely affect prices for acrylonitrile. In any event, the
prices for the Company's products are expected to fluctuate in the future, and
any prolonged or severe softness in the market for any of its principal
products will adversely affect the Company.
Dependence on Texas City Plant. All of the Company's petrochemicals,
including all of its styrene and acrylonitrile, are produced at the Texas City
Plant. Significant unscheduled downtime at the Texas City Plant due to
equipment breakdowns, interruptions in the supply of raw materials or natural
gas, power failures, natural forces or any other cause, including the normal
hazards associated with the production of petrochemicals, could materially
adversely affect the Company. Although the Company maintains insurance,
including business interruption insurance, that it considers to be adequate
under the circumstances, there can be no assurance that a significant
interruption in the operation of a facility would not have a material adverse
effect on the Company's financial condition and results of operations.
Ability to Complete Acquisitions. A significant element of the Company's
business strategy is to pursue strategic acquisitions that either expand or
complement the Company's products or markets. The financing for such
acquisitions will likely affect the Surviving Corporation's debt or equity
capitalization. There can be no assurance that the Surviving Corporation will
be able to identify and make acquisitions on terms favorable to it or that the
Surviving Corporation will be able to obtain financing for such acquisitions
on terms the Surviving Corporation finds acceptable. In addition, the terms of
the Indentures and the Credit Facility will limit the Surviving Corporation's
ability to incur additional debt to finance such acquisitions.
Highly Competitive Industries. 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
Surviving Corporation'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 Surviving Corporation's ability to obtain higher profit margins,
even during periods of increased demand for the Surviving Corporation's
products.
Environmental and Safety. The Company's operations involve the handling,
production, transportation and disposal of materials classified as hazardous
or toxic and are subject to extensive federal, state and local regulatory
requirements relating to environmental affairs, waste management, health and
safety and chemical products. Operating permits are or may be required for the
operation of some of the Company's operating units and chemical waste disposal
operations, and these permits are subject to revocation, modification and
renewal. Governmental authorities have the power to enforce compliance with
these regulations and permits, and violators are subject to fines, injunctions
or both. Third parties may also have the right to sue to enforce compliance.
Management believes that the Company's operations are in compliance in all
material respects with applicable environmental laws. However, the operations
of a chemical manufacturing facility entail some risk of environmental damage,
and there can be no assurance that material costs or liabilities will not be
incurred. Moreover, it is possible that other developments, such as
increasingly strict requirements of environmental laws and enforcement
policies, could bring into question the handling, manufacture, use, emission
or disposal of substances or pollutants by the Company. There can be no
assurance that past or future operations will not result in remedial
obligations or 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.
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The Company's pulp chemical business is sensitive to potential environmental
regulation. In general, proposed environmental regulations support
substitution of chlorine dioxide, which is produced from sodium chlorate, for
elemental chlorine in the pulp bleaching process. Certain environmental groups
are encouraging passage of regulations which restrict the amount of Absorbable
Organic Halides ("AOX") or chlorine derivatives in bleach plant effluent.
Increased substitution of chlorine dioxide for elemental chlorine in the pulp
bleaching process significantly reduces the amount of AOX and chlorine
derivatives in bleach plant effluent. As long as there is no outright ban on
chlorine containing compounds, regulations restricting AOX or chlorine
derivatives in bleach plant effluent should favor the use of chlorine dioxide,
thus sodium chlorate. However, any significant ban on chlorine containing
compounds could have a material adverse effect on the Surviving Corporation's
financial condition and results of operations.
Long-Term Contracts. The Company sells substantial portions of its styrene
and acrylonitrile production under long-term contracts, and all of its acetic
acid, plasticizers, tertiary butylamine and sodium cyanide production under
long-term contracts with single customers. These contracts are intended to
provide some stability if demand for or prices of the Company's products
decline significantly, but also limit the Company's ability to take full
advantage of attractive market conditions during periods of higher prices for
these products. During fiscal 1995 a significant portion of the Company's
production from the Texas City Plant was dedicated to multi-year contracts
with Monsanto Company, subsidiaries of The British Petroleum Company P.L.C.
("BP"), BASF Corporation, Mitsubishi International Corporation ("Mitsubishi")
Flexsys America L.P. (a joint venture between Monsanto and Akzo Nobel NV) and
E.I. du Pont de Nemours and Company. Revenues from BP and Mitsubishi accounted
for approximately 16% and 13%, respectively, of the Company's fiscal 1995
revenues. Under certain market conditions, the loss of one or more of these
customers or a material reduction in the amount of product purchased by one or
more of them could have a material adverse effect on the Surviving
Corporation.
Foreign Operations, Country Risks and Exchange Rate Fluctuations. Over 14%
of the Company's revenues are derived from Canadian operations and 52% are
derived from export sales. International operations and exports to foreign
markets are subject to a number of special risks, including currency exchange
rate fluctuations, trade barriers, exchange controls, national and regional
labor strikes, political risks and risks of increases in duties, taxes and
governmental royalties, as well as changes in laws and policies governing
operations of foreign-based companies. In addition, earnings of foreign
subsidiaries and intercompany payments are subject to foreign income tax rules
that may reduce cash flow available to meet required debt service and other
obligations of the Company.
Since the Company derives most of its pulp chemicals revenues from
production and sales by subsidiaries within Canada, the Company has organized
its subsidiary structure and its operations in part based on certain
assumptions about various Canadian tax (including, among others, income tax
and withholding tax) laws, currency exchange and capital repatriation laws and
other relevant laws. While the Company believes that such assumptions are
correct, there can be no assurance that Canadian taxing or other authorities
will reach the same conclusion. If such assumptions are incorrect, or if
Canada were to change or modify such laws or the current interpretation
thereof, the Company may suffer adverse tax and financial consequences.
A portion of the Company's expenses and sales are denominated in foreign
currencies, and accordingly, the Company's revenues, cash flows and earnings
may be affected by fluctuations in certain foreign exchange rates, principally
between the United States dollar and the Canadian dollar, which may also have
adverse tax effects. In addition, because a portion of the Company's sales,
cost of goods sold and other expenses are denominated in Canadian dollars, the
Company has a translation exposure to fluctuations in the Canadian dollar
against the U.S. dollar. These currency fluctuations could have a material
impact on the Company as increases in the value of the Canadian dollar have
the effect of increasing the U.S. dollar equivalent of cost of goods sold and
other expenses with respect to the Company's Canadian production facilities.
The Company enters into forward foreign exchange contracts to hedge such
exposure for periods consistent with its committed exposure, but does not
engage in currency speculation.
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THE COMPANY'S BUSINESS AFTER THE MERGER
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 this strategy are as
follows:
Maintain Competitive Cost Position in Petrochemicals. The Company is
currently upgrading and modernizing the Texas City Plant as part of its
strategy of increasing its competitiveness by investing in new technology
and equipment. The plant modernization effort at Texas City includes a
significant capital commitment for replacing the older control technology
in the styrene, acrylonitrile and acetic acid units with state-of-the-art
distributive control systems, which should result in increased efficiencies
and stronger operating fundamentals. The Company believes that the Texas
City Plant enjoys certain cost advantages due to economies of scale and its
proximity to sources of its principal raw materials.
Pursue Low Cost Expansions in Petrochemicals. The Company is finalizing
significant capacity expansions in its petrochemicals business, including
the expansion of its acetic acid unit and construction of a new methanol
plant. The acetic acid expansion was completed in May 1996 and increased
capacity by more than 30% to nearly 800 million pounds per year. In
conjunction with this expansion, the Company is constructing a world-scale
150 million gallon methanol facility scheduled to begin production in
September 1996. Capital investment will be shared equally by the Company
and BP. The Company will be entitled to 60% of the methanol production and
BP will be entitled to the remaining 40% of production. Approximately one-
half of the total methanol production will be used as a raw material in the
Company's acetic acid unit, replacing methanol currently purchased from
third parties. The Company believes that both its acetic acid expansion and
new methanol plant construction will be completed for significantly less
than the typical capital cost of a new plant.
Pursue Growth Opportunities in Pulp Chemicals. The Company's strategy in
pulp chemicals is to capture a significant portion of the growing North
American demand for sodium chlorate derivatives in pulp bleaching
applications. To this end, the Company is constructing a new 110,000 ton
per year sodium chlorate plant in Valdosta, Georgia, scheduled to begin
production in late 1996. The new facility will increase the Company's total
annual sodium chlorate capacity by 30% to nearly 460,000 tons. The plant
site was selected because of its proximity to existing customers (currently
being supplied by the Company's Canadian plants) and its access to
competitively priced electricity, which represents the most significant
variable production cost in sodium chlorate manufacturing. In addition to
the Valdosta plant, the Company has recently debottlenecked each of its
four Canadian sodium chlorate plants to add incremental production
capacity.
Continue to Build Strong Industry Partnerships in Petrochemicals. The
Company plans to build on its strategy of securing long-term supply
contracts with key customers. The Company believes that it must provide
high quality products and superior customer service to maintain these long-
term relationships and has implemented management practices to insure
continuous improvement in these areas. Approximately 25% of the Company's
styrene and 40% of its acrylonitrile are manufactured under long-term
conversion agreements and 100% of its acetic acid, plasticizers and
tertiary butylamine are sold under long-term contracts which provide for
production cost reimbursement plus profit sharing. The Company believes
such agreements help insulate its operating performance, to some extent,
from the effects of declining markets and changes in raw material prices,
while allowing it to share in the benefits of favorable market conditions.
In addition, the Company's long-term, high volume focus allows it to
maintain relatively low selling, general and administrative expenses.
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Implement a Focused Acquisition Strategy. The Surviving Corporation will
pursue a disciplined acquisition strategy focusing on chemical businesses
and assets which produce either:
. The same products as the Company presently manufactures, further
strengthening its market position and providing cost efficiencies in
its base businesses;
. Products which provide upstream or downstream integration from the
Company's base businesses, enhancing the Company's manufacturing
position within a product chain; or
. Products which are complementary to the Company's base businesses,
further diversifying the Company's product and market positions and
reducing its overall sensitivity to economic cycles and pricing
fluctuations.
Employee Benefits. Pursuant to the Merger Agreement, the Surviving
Corporation will provide or cause to be provided to those employees of the
Company and its Subsidiaries who continue their employment after the Effective
Time with benefits (including participation in an employee stock ownership
plan) which, in the good faith determination of the Surviving Corporation, are
substantially as favorable in the aggregate as those currently provided by the
Company, subject to such modification as may be required by applicable law,
for a period of at least two years after the Closing Date. Following the
Merger, the Surviving Corporation will have the following employee benefits
plans:
Pension Plans. The Company has maintained a defined benefit Salaried
Employees' Pension Plan (the "Salaried Pension Plan") covering
substantially all salaried employees, including executive officers, an
Hourly Paid Employees' Pension Plan (the "Hourly Pension Plan") covering
substantially all hourly paid employees, a Pension Benefit Equalization
Plan (the "Equalization Plan"), and a Supplemental Employee Retirement Plan
(the "Supplemental Plan"). The Salaried Pension Plan, the Hourly Pension
Plan, the Equalization Plan, and the Supplemental Plan, as well as similar
plans for Canadian employees, will remain in place following the Merger.
Welfare Plans. The Company has maintained Welfare Plans for medical
benefits, dental benefits, prescription drug benefits, life insurance,
disability income and flexible spending accounts. These Welfare Plans will
remain in place after the Merger.
Employee Stock Ownership Plan. In connection with the Merger, a New ESOP
will be established which covers substantially all full time eligible
employees. The New ESOP will borrow $6.5 million from Chemicals (the
"Chemicals ESOP Loan") and use the proceeds therefrom to purchase shares of
STX Acquisition common stock at the Closing of the Merger which will be
converted into 541,662 shares of Surviving Corporation common stock. The
Chemicals ESOP Loan is payable in 16 equal quarterly installments, and
bears interest at interest rates based on the Base Rate (as defined in the
Credit Agreement) or the Eurodollar Rate (as defined) plus a margin. The
shares of STX Acquisition common stock to be purchased by the New ESOP will
be pledged as security for the ESOP Term Loan (the "ESOP Pledge"), and such
shares will be released and allocated to New ESOP participants' accounts as
the ESOP Term Loan is discharged. It is anticipated that the annual
employer contributions to the New ESOP will be in amounts sufficient to
enable the New ESOP to discharge its indebtedness under the Chemicals ESOP
Loan. Shares released under the ESOP Pledge will be allocated to each
participant based on his or her compensation relative to all compensation
for all New ESOP participants. Until the Chemicals ESOP Loan is paid in
full, contributions will be used to pay the outstanding principal and
interest on the Chemicals ESOP Loan. Distributions from the New ESOP will
be made in cash or Surviving Corporation common stock upon a participant's
retirement (as contemplated under the New ESOP), death, disability or
termination of employment. If Surviving Corporation common stock is
distributed to a participant, the participant may, within two 60-day
periods, require Chemicals to purchase all or a portion of such Surviving
Corporation common stock at its fair market value as determined by an
independent appraiser as of an annual valuation date (the "Put Options").
The first 60-day period commences on the date the participant receives a
distribution of Surviving Corporation common stock and the second 60-day
period commences a year from such date. Pursuant to an Employee
Stockholders Agreement to be entered into by each participant, if a
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participant fails to exercise either of the two Put Options, the
participant may transfer the shares of Surviving Corporation common stock
only upon receipt of a bona fide third party offer and only after first
offering the shares to the New ESOP, then to the Surviving Corporation, and
then to all other employee stockholders party to such Employee Stockholders
Agreement or the Stockholders Agreement. Employees of the Surviving
Corporation will own approximately 5% of the Surviving Corporation's
outstanding common stock through the New ESOP after the Merger.
Savings Plan. The Savings and Investment Plan (the "Savings Plan") covers
substantially all full time employees of Chemicals, including executive
officers, and will be amended and continued after the Merger. The Savings
Plan is designed to qualify under Section 401(a) of the Code. Each
participant has the option to defer taxation on 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 contribute up to a maximum
of 15% of eligible earnings to the Savings Plan, subject to certain
limitations set forth in the Code for certain highly compensated employees.
A "highly compensated" participant, as defined in Section 414(q) of the
Code, can contribute no more than the allowable percentage as determined by
discrimination testing.
Stock Option Plan. The Surviving Corporation expects to adopt a stock
option plan (the "Option Plan") after the Merger. The Option Plan will be
administered by the Compensation Committee of the Board of Directors (the
"Committee"). Option grants under the Option Plan may be made to directors
and employees selected by the Committee. The Committee may provide that the
options will vest immediately or in increments over a period of time.
Profit Sharing Plan. Chemicals expects to establish a Profit Sharing Plan
covering all full time employees, including executive officers. The Profit
Sharing Plan will be administered by the Committee. Amounts paid under the
Profit Sharing Plan will constitute taxable income in the year received and
will be based on Chemicals' financial performance over a period of time to
be determined. The Committee will determine a percentage of the amount by
which the Surviving Corporation's earnings before depreciation,
amortization, interest and taxes (and before profit sharing) exceed a
minimum level. If earnings exceed this minimum level, Chemicals may make
distributions to employees. The Committee may change the amount set aside
for profit sharing and the proportion of such amount allocated to an
individual employee or group of employees. The Profit Sharing Plan will not
be qualified under Section 401(a) of the Code.
DIFFERENCES IN THE RIGHTS OF HOLDERS OF ROLLOVER SHARES
The Merger Agreement provides that the Certificate of Incorporation of the
Company will be amended at the Effective Time to read in its entirety as set
forth on Exhibit B to the Merger Agreement. See "AMENDMENTS TO CERTIFICATION
OF INCORPORATION."
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THE MERGER
TERMS OF THE MERGER
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is included as Annex A to this Proxy Statement.
Such summary is qualified in its entirety by reference to the Merger
Agreement.
General. The Merger Agreement sets forth the terms and conditions upon and
subject to which the Merger is to be effected. If the Merger Agreement is
approved and adopted by the stockholders in accordance with the DGCL and the
other conditions contained in the Merger Agreement are satisfied or waived,
STX Acquisition will be merged with and into the Company, with the Company
continuing as the Surviving Corporation. As a result of the Merger, at the
Effective Time, Chemicals will become a wholly-owned subsidiary of the
Company, and, at the Effective Time, the Company will transfer substantially
all of its operating assets and associated liabilities to Chemicals.
Consideration Paid to Record Stockholders. Pursuant to the Merger Agreement,
the Company's stockholders, (other than those stockholders who have not voted
in favor of the Merger and who have otherwise properly exercised their rights
for appraisal of such shares in accordance with Section 262 of the DGCL), will
receive the following consideration in the Merger:
Cash Payment. Pursuant to the Merger Agreement, at the Effective Time,
each share of Common Stock then outstanding, except Dissenting Shares,
Rollover Shares and shares of Common Stock owned by STX Acquisition or held
in the Company's treasury, will automatically be converted into the right
to receive a $12.00 Cash Payment from the Surviving Corporation. No
interest will accrue or be paid on the Cash Payment. Assuming Rollover
Elections for the Maximum Rollover Amount have been made, the Company's
stockholders will receive an aggregate of approximately $608.3 million in
Cash Payments. Upon surrender of certificates representing shares of Common
Stock and other required documents to the Exchange Agent, the Exchange
Agent will distribute by bank check the cash price of $12.00 per share for
each share represented by such certificates to the holder thereof.
Rollover Shares. Pursuant to the Merger Agreement, Record Stockholders
may make a Rollover Election as to all or a portion of their shares of
Common Stock, which election will, subject to pro rata reduction in the
event the Maximum Rollover Amount is exceeded, entitle the stockholder to
convert each Rollover Share into the right to retain a share of common
stock of the Surviving Corporation. A Rollover Election may be made by any
person who is a record holder of Common Stock on the Election Date. If the
Maximum Rollover Amount has been exceeded, the existing stockholders of the
Company will beneficially own approximately 46% of the common stock of the
Surviving Corporation at the Effective Time.
Issuance of Common Stock to STX Acquisition Stockholders. At the Effective
Time, the issued and outstanding shares of common stock of STX Acquisition
will be converted into shares of common stock of the Surviving Corporation.
Assuming the minimum number of Rollover Shares, the common stock of STX
Acquisition will be converted into up to 8,589,580 shares of common stock of
the Surviving Corporation, representing approximately 79% of the total
outstanding shares of the Surviving Corporation. Assuming the Maximum Rollover
Amount, existing shareholders who are not affiliates of the Company, TSG or
Unicorn would own approximately 25% of the total outstanding shares of the
Surviving Corporation.
Asset Transfer. Pursuant to the terms of the Merger Agreement, at the
Effective Time, the Company will transfer substantially all of the operating
assets and associated liabilities to Chemicals, and Chemicals will expressly
assume and agree to pay, perform and discharge when due any and all
liabilities of the Company related to such assets and properties. If the
conveyance of any particular asset or property (i) would be ineffective as
between the Company and Chemicals without the consent of any third party, (ii)
would cause the impairment or loss of ownership of such asset or property,
(iii) would result in any material penalty or other detriment to the Company
or Chemicals or (iv) is prohibited by law or any judgment, order or decree of
any government or
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governmental agency, then such asset or property will not be conveyed until
such time as such consent has been obtained or such circumstance has been
rectified.
Conditions to Consummation of the Merger. Under the Merger Agreement, the
obligations of the Company and STX Acquisition to effect the Merger are
subject to the fulfillment at or prior to the Closing Date of certain
conditions, including the following: (a) at the Special Meeting, the Merger
Agreement shall have been approved by the affirmative vote of the holders of a
majority of the issued and outstanding shares of Common Stock entitled to vote
thereon; (b) no governmental authority shall have enacted or issued any
statute, rule, regulation, executive order, decree, injunction or other order
or legal restraint that has the effect of making the Merger illegal or
otherwise preventing or prohibiting the consummation of the Merger and other
transactions contemplated by the Merger Agreement; (c) any waiting period
under the HSR Act (as defined below) shall have terminated or expired; (d) the
Registration Statement shall have become effective and no stop order
suspending such effectiveness shall have been issued and remain in effect; and
(e) all governmental approvals legally required for the consummation of the
merger shall have been obtained and be in effect on the Closing Date.
In addition, the obligation of STX Acquisition to effect the Merger and to
perform its obligations contemplated thereby is subject to the prior
fulfillment of certain other conditions, including: (a) the accuracy of the
representations and warranties of the Company set forth in the Merger
Agreement; (b) performance or compliance by the Company with all conditions,
agreements and obligations required by the Merger Agreement to be complied
with by it on or prior to the Closing Date; (c) STX Acquisition having
received the legal opinion(s) of Piper & Marbury and/or F. Maxwell Evans,
counsel for the Company; (d) STX Acquisition having received comfort letters
from Arthur Andersen LLP and/or Coopers & Lybrand L.L.P.; (e) there having
been no material adverse change in the business, operations, properties,
assets, condition, results of operations or prospects of the Company and its
subsidiaries, taken as a whole (excluding effects in such prospects caused by
economic, tax or other matters of general applicability or matters generally
affecting any of the industries in which the Company or any of its
subsidiaries conduct business); (f) STX Acquisition having obtained the
Financing; and (g) the Company having received from each holder of stock
options and other rights to acquire shares of Common Stock of the Company,
SARs, and phantom shares, an instrument in writing effectively canceling such
rights.
The obligation of the Company to effect the Merger is also subject to the
prior fulfillment of certain other conditions, including: (a) the accuracy of
the representations and warranties of STX Acquisition set forth in the Merger
Agreement; (b) performance or compliance by STX Acquisition with all
conditions, agreements and obligations required by the Merger Agreement to be
complied with by it on or prior to the Closing Date; (c) the stockholders of
STX Acquisition having entered into the Tag-Along Agreement; and (d) the
Company having received legal opinion(s) of Andrews & Kurth L.L.P. and/or
Richards, Layton & Finger.
Under the Merger Agreement, the Company and STX Acquisition may waive any of
the conditions to their respective obligations to close the Merger. While it
is anticipated that none of such conditions will be waived, it is possible
that either party could elect to waive any condition under Section 8.02 or
Section 8.03, as the case may be. However, it is unlikely that (i) either
party would waive delivery of the required legal opinions, (ii) the Company
would waive execution of the Tag-Along Agreement, or (iii) STX Acquisition
would waive the completion of the financing arrangements relative to the
Merger.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the Company and STX Acquisition, including
representations and warranties of each such party as to: (a) their (i) due
organization, valid existence and good standing, (ii) corporate power and
authority to execute and deliver the Merger Agreement and to consummate the
transactions contemplated thereby, and (iii) due and valid authorization and
approval of the Merger Agreement, subject, in the case of the Company, to the
approval of the
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Merger Agreement and the Merger by the stockholders of the Company in
accordance with the DGCL and the Merger Agreement; (b) the absence of the need
for governmental approvals and consents in connection with the Merger
Agreement; (c) the absence of any violation, breach, termination,
acceleration, default or creation of a lien under any contract to which it is
a party or its Charter or Bylaws of the Company; and (d) the accuracy of
information supplied.
The Company has further represented and warranted to STX Acquisition as to,
among other things: (a) its capitalization; (b) its filings under the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended, since September 30, 1994 (the "Company SEC Documents"); (c) the
absence of certain undisclosed liabilities; (d) the absence of certain
material adverse changes since September 30, 1995; (e) certain bankruptcy
matters; (f) certain tax, employee benefit, labor, intellectual property and
environmental matters and certain material contracts; and (g) compliance with
applicable laws and the absence of certain litigation.
None of the representations or warranties of the Company or STX Acquisition
will survive the Effective Time.
Certain Covenants. The Company and STX Acquisition covenanted as to certain
matters in the Merger Agreement, including, among others, the following:
Conduct of Business of the Company. The Merger Agreement provides that,
except as otherwise expressly provided therein or agreed to in writing by
STX Acquisition, during the period from April 24, 1996 to the Effective
Time, the Company and each of its Subsidiaries will conduct its operations
according to its ordinary course of business consistent with past practice,
and the Company and each of its Subsidiaries will use its reasonable best
efforts to preserve intact its business organization, to keep available the
services of its officers and employees and to maintain existing
relationships. In addition, the Merger Agreement further provides that,
except as disclosed therein or agreed to in writing by STX Acquisition,
neither the Company nor any of its Subsidiaries will: amend its charter or
bylaws; split, combine or reclassify any shares of its capital stock or
declare, set aside or pay any dividend with respect thereto; issue or agree
to issue any additional shares or securities convertible into or
exercisable or exchangeable for, or other rights of any kind to acquire,
any shares of its capital stock; or acquire or agree to acquire any
business or division thereof of any person. Additionally, except in the
ordinary course of business until the Effective Time, neither the Company
nor any of its Subsidiaries will sell, lease, encumber or in any other way
dispose of any of its assets; incur or guarantee additional indebtedness in
excess of $5 million on a consolidated basis; settle any claims,
liabilities or losses, including tax liabilities in excess of $1.5 million;
modify or terminate any material contract to which it is a party;
materially modify or commit to materially modify any of its accounting
procedures; or make or commit to make any capital expenditure which, when
added to all other capital expenditures made after September 30, 1995 and
prior to the Effective Time, exceeds $10 million. The Company has also
agreed to confer with STX Acquisition on a regular basis concerning
operational matters and to give STX Acquisition prompt notice of any event
which has resulted or could reasonably be expected to result in a breach of
any representation or warranty or a Material Adverse Effect.
No Solicitation and Related Matters. Under the Merger Agreement, the
Company agreed that prior to the Effective Time it would cease any
discussions or negotiations with any parties (other than STX Acquisition)
relating to the direct or indirect acquisition or purchase of all or any
substantial amount of the business or assets of the Company or any of its
Subsidiaries, or any Common Stock or other equity interest of the Company
or any of its Subsidiaries, whether by merger, consolidation, business
combination, sale of assets, sale of securities, tender offer, exchange
offer, recapitalization, liquidation, dissolution or otherwise, and whether
for cash, securities or any other consideration or combination thereof (an
"Acquisition Transaction"). The Company has also agreed not to solicit,
initiate or encourage (including by way of furnishing information) or to
take any other action to facilitate any Acquisition Transaction, and the
Company has also agreed to use its reasonable best efforts to cause its
officers, directors, employees, and other representatives not to solicit,
initiate or encourage or to participate in any discussions in connection
with any Acquisition Transaction. However, if the Board reasonably
determines in good faith after
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consultation with its outside independent financial advisors that providing
information to a financially capable person could lead to an Acquisition
Transaction more favorable to the stockholders of the Company than the
Merger, and after consultation with outside legal counsel, reasonably
determines in good faith that there is a significant risk that failure to
provide information would constitute a breach of fiduciary duty to the
Company's stockholders, the Company may, in response to any offer or
proposal for an Acquisition Transaction ("Takeover Proposal") furnish
information to any potential acquirer and participate in negotiations for a
Takeover Proposal. The Company has further agreed that neither it nor its
Board will withdraw, modify, or propose to withdraw or modify the Board's
recommendation of the Agreement or the Merger or recommend any Takeover
Proposal unless the Board reasonably determines in good faith after
consultation with its financial advisor that a Takeover Proposal is more
favorable to the stockholders of the Company than the Merger and in the
best interests of the stockholders of the Company and after consultation
with its outside legal counsel that there is significant risk that the
failure to take such action would constitute a breach of duty to the
Company's stockholders. In the event that the Board decided to withdraw its
approval or recommendation of the Agreement and the Merger, or approve or
cause to be accepted a Takeover Proposal, the Company is required to
provide STX Acquisition written notice of its receipt of the Take Over
Proposal seven (7) days prior to its formal acceptance of a Takeover
Proposal, and is required to pay STX Acquisition or its designee a breakup
fee of $8 million. In order for the Board to accept any Takeover Proposal,
the Takeover Proposal must relate either to the acquisition of more than
fifty percent (50%) of the shares of Company Common Stock outstanding, or
substantially all of the assets of the Company and its Subsidiaries.
Employee Matters. For a description of the treatment in the Merger of
Options, SARs and restricted stock awards under the Omnibus Plan and
certain agreements among the parties relating to employee compensation and
benefits, see "THE MERGER--Interests of Certain Persons in the Merger."
Dissenting Shares; Shares of Common Stock Owned by STX Acquisition or
Held in Treasury. Dissenting Shares will become the right to receive such
consideration as may be determined to be due pursuant to Section 262 of the
DGCL. Shares of Common Stock owned by STX Acquisition or held in the
Company's treasury will be canceled and retired without any consideration
paid therefor. See "--Appraisal Rights of Dissenting Stockholders" and
Annex C to this Proxy Statement.
Termination. Upon termination, the Merger Agreement will become void and
have no effect, without liability on the part of any party thereto (except
for the breakup fee described above), except that termination of the Merger
Agreement shall not relieve any party from liability for any willful breach
any representation, warranty, covenant or agreement contained in the Merger
Agreement or its obligation to pay its own expenses and costs.
The Company and STX Acquisition can mutually consent in writing to
terminate the Merger Agreement and abandon the Merger at any time prior to
the Effective Time, whether before or after the approval by the
stockholders of the Company. STX Acquisition can terminate the Merger
Agreement prior to the Effective Time in the event that the holders of more
than 10% of the issued and outstanding shares of Common Stock entitled to
vote on the adoption of the Agreement have properly demanded appraisal of
such shares in accordance with Section 262 of the DGCL. The Company can
terminate the Merger Agreement prior to the Effective Time if STX
Acquisition has not arranged the Financing and satisfied its funding
conditions with respect thereto by August 31, 1996.
Additionally, the Merger Agreement can be terminated and the Merger
abandoned prior to the Effective Time by either party if: (i) the Merger is
not consummated on or before October 31, 1996 other than due to a material
breach of any representation, warranty, agreement or covenant contained in
the Merger Agreement, or otherwise on account of delay or default by the
party seeking to terminate the Merger Agreement; (ii) the Merger Agreement
or Merger is enjoined by a final, nonappealable court order not entered by
the party seeking to terminate the Merger Agreement and such party shall
have used reasonable means to prevent the entry of such order, (iii) the
approval and adoption of the Merger Agreement by the stockholders of the
Company at the Special Meeting (or any adjournments thereof) is not
obtained, unless
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due to delay or default on the part of the party seeking to terminate the
Merger Agreement; (iv) the Company accepts a Takeover Proposal in
accordance with the terms of the Merger Agreement; (v) the party not
seeking to terminate the Merger Agreement (a) fails to perform in any
material respect any of its covenants in the Merger Agreement and (b) does
not cure such default in all material respects within 30 days after the
notice of such default is given to such party; or (vi) the party not
seeking to terminate the Merger Agreement shall have breached any of its
representations and warranties set forth in the Merger Agreement, which
breach cannot be cured prior to the Closing and has not been waived by the
party seeking to terminate the Merger Agreement.
Fees and Expenses. Each party has agreed to bear its own expenses and
costs in connection with the Merger Agreement and the transactions
contemplated thereby, whether or not the Merger is consummated, subject to
the provisions of the breakup fee described above.
Extension and Waivers. The Merger Agreement provides that, at any time
prior to the Effective Time, the Company, on the one hand, and STX
Acquisition, on the other hand, may in writing (i) extend the time for the
performance of any of the obligations or other acts of the other party;
(ii) waive any inaccuracies in the representations and warranties of the
other party contained in the Merger Agreement or in any document,
certificate or writing delivered pursuant thereto; or (iii) waive
compliance by the other party with any of the agreements or conditions
contained in the Merger Agreement. The failure of any party to assert any
of its rights will not constitute a waiver of such rights.
Amendments. Under the Merger Agreement, subject to applicable law, the
Merger Agreement may be amended only by written agreement of STX
Acquisition and the Company at any time prior to the Effective Time with
respect to any of the terms contained therein, except that after the Merger
Agreement and the Merger have been approved and adopted by the stockholders
of the Company pursuant to the Merger Agreement, no such amendment shall be
made which by applicable law requires further stockholder approval unless
such further approval shall have been obtained.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board with respect to the Merger,
stockholders should be aware that the members of the Board and certain members
of management of the Company at the time of the Board's approval of the Merger
Agreement and the Merger had, and currently have, certain interests which may
present them with potential conflicts of interests in connection with the
Merger. The members of the Special Committee and the Board were aware of these
potential conflicts and considered them along with the other matters described
under "SPECIAL FACTORS--Fairness of the Merger."
Relationships with TSG. TSG was founded in 1982 by Messrs. Gordon A. Cain
and Frank J. Hevrdejs. In 1992, Mr. Cain made a decision to reduce his level
of business activity. By December 1993, Mr. Cain had sold all of his stock in
TSG and resigned as an officer and director. Since that time, Mr. Cain has had
no equity or other financial interest in TSG, although at TSG's invitation he
has invested in three transactions organized by TSG. For marketing purposes,
Mr. Cain was described as Chairman Emeritus of TSG until November 1995, but
since December 1992 has had no role in TSG's ongoing operations. TSG
discontinued its description of Mr. Cain as Chairman Emeritus because of its
interest in a possible transaction with the Company. TSG is currently
controlled by Messrs. Hevrdejs and William C. Oehmig, the husband of Mr.
Cain's stepdaughter. Messrs. Cain and William A. McMinn assist TSG as senior
advisors on selected transactions. Although Mr. McMinn has received certain
advisory fees for such services, Mr. Cain has not. Neither Mr. Cain nor Mr.
McMinn participated in any such capacity in connection with the Merger. TSG
and Mr. McMinn recently assisted Mr. Cain with the acquisition of a company in
a transaction unrelated to the Merger and similar assistance may be provided
with respect to future transactions. Messrs. Cain, Waggoner and McMinn, along
with principals of TSG, invested in such transaction. Messrs. Cain and McMinn
are members of the Board of Directors of the surviving corporation in such
transaction. Messrs. Cain and McMinn also sublease office space from TSG,
either directly or through companies with which they are affiliated. Messrs.
Cain and McMinn, along with Mr. J. Virgil Waggoner, Robert W. Roten, the
Company's Executive Vice-President, and Richard K. Crump, a Vice-President in
the Company,
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have previously co-invested with principals of TSG in several transactions.
Approximately 10 years ago, the Company's Texas City petrochemical facility
was purchased by the Company from Monsanto Company in a leveraged buyout led
by Mr. Cain (at which time he was a director and principal stockholder of TSG)
and Mr. Waggoner. On the Record Date, principals of TSG owned 897,000 shares
of Common Stock of the Company, representing approximately 1.6% of the
outstanding shares. As of the date of the Merger Agreement principals of TSG
owned 100% of the common stock of STX Acquisition.
Continuing Equity Interest of Certain Persons. Certain directors and
executive officers of the Company and others will have continuing equity
interests in the Surviving Corporation following the Merger. Messrs. Frank J.
Hevrdejs and William C. Oehmig (stockholders of the Company and principals of
TSG) and Messrs. Gordon A. Cain, J. Virgil Waggoner, and Robert W. Roten, each
executed an Inducement Agreement. Pursuant to the Inducement Agreement,
Messrs. Cain, Waggoner and Roten each agreed to make Rollover Elections as to
a portion of their shares of Common Stock (an aggregate of 1,404,254 Rollover
Shares), subject to pro rata reduction with Rollover Elections made by other
stockholders of the Company if the Maximum Rollover Amount is exceeded.
Messrs. Hevrdejs and Oehmig agreed to make Rollover Elections as to 100% of
their Common Stock (an aggregate of 897,000 Rollover Shares) provided that
their Rollover Shares will not be subject to pro rata reduction. Assuming
Rollover Elections do not exceed the Maximum Rollover Amount, following the
Merger, Messrs. Cain, Waggoner and Roten would collectively own approximately
12.9% of the outstanding shares of common stock of the Surviving Corporation
and Messrs. Hevrdejs and Oehmig would collectively own a minimum of 8.2% of
such outstanding shares.
Although the senior officers and directors of the Company will have an
opportunity to elect to retain Rollover Shares in the same fashion as other
shareholders, no senior officer or director of the Company will be
participating in the Equity Private Placement other than Mr. Jim P. Wise, Vice
President--Finance and Chief Financial Officer and Mr. Robert O. McAlister,
Vice President--Human Resources. Mr. Wise intends to purchase 800 shares in
the Equity Private Placement representing an investment of $96,000. Mr.
McAlister intends to purchase 1,071 shares in the Equity Private Placement
representing an investment of $128,520.
Omnibus Stock and Incentive Plan. Certain executive officers and directors
of the Company have previously received Options, SARs, and/or phantom stock
pursuant to the Company's Omnibus Stock and Incentive Plan (the "Omnibus
Plan"), which plan will be terminated at the Effective Time. Pursuant to the
Merger Agreement, at the Effective Time, each outstanding Option and each SAR
will be canceled and the holder of each such Option and/or SAR will be
entitled to receive in respect thereof an amount in cash equal to (i) in the
case of each share of Common Stock subject to an Option, the excess of $12.00
over the exercise price for one share of Common Stock payable upon exercise of
such Option and (ii) in the case of each SAR, the excess of $12.00 over the
grant price. Also at the Effective Time of the Merger, each share of phantom
stock will convert into the right to receive $12.00. The executive officers
and directors named in the table below held the number of outstanding Options
and SARs indicated as of the date of this Proxy Statement, and will receive
the indicated aggregate amounts before federal and state income taxes in
respect of such Options and SARs pursuant to the Omnibus Plan. No Options or
SARs have been granted to executive officers or directors under the Omnibus
Plan since October 1995.
<TABLE>
<CAPTION>
OPTIONS EXERCISE SARS GRANT AMOUNT
NAME OUTSTANDING PRICE OUTSTANDING PRICE OF PAYMENT
---- ----------- -------- ----------- ----- ----------
<S> <C> <C> <C> <C> <C>
James J. Kerley......... -- $ -- 20,000 $ 4 $ 160,000
William A. McMinn....... -- -- 20,000 4 160,000
Gilbert M. A. Portal.... -- -- 20,000 4 160,000
Frank J. Pizzitola...... -- -- 20,000 4 160,000
Raymond R. Knowland..... -- -- 20,000 4 160,000
Robert N. Bannon........ 15,000 13 3/8 131,250 4 1,050,000
Richard K. Crump........ 15,000 13 3/8 -- -- 0
Jim P. Wise............. 12,500 13 3/8 -- -- 0
F. Maxwell Evans........ 10,000 13 3/8 118,130 4 945,040
Robert O. McAlister..... 10,000 13 3/8 108,500 4 868,000
Robert W. Roten......... 20,000 13 3/8 -- -- 0
</TABLE>
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Further, all restricted stock awards will vest and shares of Common Stock
covered by such awards will be treated under the Merger Agreement in the same
manner as other shares of Common Stock. The executive officers named in the
table below have been granted the number of shares of restricted stock
indicated as of the date of this Proxy Statement which were, as of the date of
this Proxy Statement, unvested to the extent set forth below:
<TABLE>
<CAPTION>
NAME DATE OF GRANT PERCENT UNVESTED RESTRICTED SHARES GRANTED
---- ------------- ---------------- -------------------------
<S> <C> <C> <C>
F. Maxwell Evans........ 09/01/92 40% 33,750
Jim P. Wise............. 10/01/94 80% 13,850
</TABLE>
Benefit Arrangements. Pursuant to the Merger Agreement, the Surviving
Corporation, shall provide employees of the Surviving Corporation and the
Subsidiaries who continue their employment after the Effective Time with
benefits (including participation in an employee stock ownership plan) which,
in the good faith determination of the Surviving Corporation, are
substantially as favorable in the aggregate as those currently provided by the
Company, subject to such modification as may be required by applicable law,
for a period of at least two years after the Closing Date.
In addition to the above agreements, pursuant to the employment agreement
entered into between the Company and Jim P. Wise, Vice President--Finance and
Chief Financial Officer of the Company, Mr. Wise will be entitled to receive a
lump sum payment equal to his base pay, minus withholdings or other payroll
deductions, for the remainder of the term of the agreement (which expires on
September 26, 1997) upon a change in control of the Company. The lump sum
payment will be added on Mr. Wise's base pay at the rate in effect at the time
of the change in control. The payment is the sole amount that Mr. Wise is
entitled to receive regarding the termination of the employment agreement,
however, it is in addition to any amounts that Mr. Wise would be entitled to
receive under the Company's Consolidated Termination Pay Plan for Salaried
Employees (discussed below).
Prior to the Effective Date, the current directors of the Company will
resign and will be replaced by director candidates nominated by STX
Acquisition. Except for J. Virgil Waggoner, none of these candidates currently
serve on the Board of Directors of the Company. The Merger Agreement further
provides that the current officers of STX Acquisition immediately prior to the
Effective Time will be the officers of the Surviving Corporation after the
Merger. After the Effective Time, Mr. Waggoner will be the Vice Chairman of
the Board of the Surviving Corporation and Mr. Robert W. Roten will be a
director and the President and Chief Executive Officer of the Surviving
Corporation. For information concerning the directors and officers of the
Surviving Corporation following the Merger, see "DIRECTORS AND EXECUTIVE
OFFICERS OF THE SURVIVING CORPORATION."
Consolidated Termination Pay Plan. On May 20, 1996, the Company adopted an
Amended and Restated Consolidated Termination Pay Plan for All Salaried
Employees of Sterling Chemicals, Inc. and its Subsidiaries, (the "Consolidated
Plan"), which supersedes and replaces all prior termination pay plans,
including the Termination Pay Plan for Salaried Employees Who are Members of
the Management Committee or Senior Management, the Termination Pay Plan for
Salaried Employees and the Termination Pay Plan for Salaried Employees of
Sterling Pulp Chemicals, Ltd. (collectively, the "Prior Plans").
The Consolidated Plan provides that if, upon the occurrence of a "change of
control" and within the 24-month period following a "change of control", the
employment of any full time salaried employee of the Company (or any wholly-
owned direct or indirect subsidiary thereof, or any successor entity thereto)
is terminated for any reason (other than the employee's death, disability,
resignation, 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
this plan is defined as a "Triggering Event."
The termination pay payable to any eligible employee following a Triggering
Event is equal to 36 months' pay (for certain members of senior management),
or 24 months' pay (for all other salaried employees) (such
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period being referred to in either case as the "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. Termination pay
under the Prior Plans was equal to 12 to 24 months' pay, and was payable in a
lump sum.
In addition to the termination pay, an affected employee shall receive
continued medical, health, dental and term life insurance for the Termination
Pay Period, shall receive cash in a lump sum equal to any portion of the
employees' accounts in the ESOP or Amended and Restated Savings and Investment
Plan which would have been forfeited due to the Triggering Event, and the
present value as of the date of the Triggering Event of the actuarial
equivalent of the accrued benefit forfeited on account of the Triggering Event
under the Salaried Employees' Pension Plan, the Amended and Restated
Supplemental Employee Retirement Plan and the Pension Benefit Equalization
Plan, or other similar plans in effect for Canadian employees.
Upon a Triggering Event, the affected employee shall also receive an amount
equal to the projected amount of profit sharing that would have been received
by the affected employee under the Amended and Restated Salaried Employees'
Profit Sharing Plan during the Termination Pay Period. Said amount shall be
payable in 24 or 36 equal monthly installments, depending on the length of the
employee's Termination Pay Period. Under the Prior Plans, said amount would
have been equal to that which would have been received by the affected
employee during the 12 to 24 month period in which termination pay was paid,
and would have been payable in a lump sum.
The Consolidated Plan also provides for outplacement services and gross-up
payments for any excise tax imposed by Section 4999 of the Code or any
interest or penalty thereon.
For purposes of the Consolidated Plan, a "change of control" means (a) the
acquisition of or the ownership of 50% or more of the total voting stock of
the Company then issued and outstanding, by any person or group of affiliated
persons, or entities not affiliated with the Company as of April 24, 1996,
either with or without the consent of the Company, or (b) individuals who were
members of the Board of the Company immediately prior to a meeting of the
stockholders of the Company involving a contest for the election of directors
do not constitute a majority of the Board immediately following such election
unless the election of such new directors was recommended to the stockholders
by the management of the Company, or (c) in addition to (a) and (b) above,
with respect to employees of Sterling Pulp Chemicals, Ltd. and Sterling Pulp
Chemicals US, Inc., only, the acquisition of or the ownership of fifty percent
(50%) or more of the total voting stock of Sterling Pulp Chemicals, Ltd. or
Sterling Canada, Inc. The Merger will constitute a "change of control" under
the Consolidated Plan. However, as there are currently no plans to terminate
any employees covered under the Consolidated Plan, no payments are expected to
be made under such plan in connection with the Merger.
Indemnification and Insurance. Pursuant to the Merger Agreement, from and
after the Effective Time, the Surviving Corporation will indemnify and hold
harmless each officer, director or employee of the Company or any of its
Subsidiaries (collectively, the "Indemnified Parties") against all claims,
losses or liabilities in connection with any claim based in whole or in part
on the fact that such Indemnified Party is or was a director, officer or
employee of the Company or any of its Subsidiaries and arising out of acts or
omissions occurring prior to and including the Effective Time to the fullest
extent permitted by the DGCL. In addition, the Certificate of Incorporation
and Bylaws of the Surviving Corporation and its Subsidiaries will include
provisions for limitation of liability of directors and indemnification of
Indemnified Parties to the fullest extent permitted under the applicable law
and shall not permit the amendment of such provisions in any manner adverse to
the Indemnified Parties, as the case may be, without the prior written consent
of such persons, for a period of six years from and after the Effective Time.
Further, in the event any such Indemnified Party is or becomes involved during
the six-year period after the Effective Time, in any capacity in any action,
proceeding or investigation in connection with any matter occurring prior to,
and including, the Effective Time, the Surviving Corporation will pay as
incurred such Indemnified Party's reasonable legal and other expenses incurred
in connection therewith. Finally, for a period of no less than six years after
the Effective Time, the Surviving Corporation will cause to be maintained,
with respect to matters occurring prior to the Effective Time, the current
policies of directors'
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<PAGE>
and officers' liability insurance maintained by the Company or, if not
available, an equivalent policy or policies for all present and former
officers and directors of the Company and the Subsidiaries having terms and
conditions no less advantageous than those in effect on the date of the Merger
Agreement.
CERTAIN LITIGATION
Six putative class action complaints relating to the proposed Merger and the
events leading up to the Board's recommendation of the approval thereof were
filed in the Court of Chancery for the State of Delaware, New Castle County,
Delaware in April and May 1996. A seventh putative class action complaint
relating to the same matters was filed in the District Court of Harris County,
Texas in May 1996. By order dated May 22, 1996, the Court of Chancery
consolidated the six actions that had been filed in Delaware. The Company,
each of its directors, TSG, Unicorn, and STX Acquisition are named as
defendants in the Delaware actions. The Company and each of its directors are
named as defendants in the Texas action. All of the complaints generally
allege that the course of conduct taken by the directors in considering the
Company's strategic alternatives and recommending the Merger has been in
violation of the fiduciary duties to the Company's stockholders and seek
injunctive relief and unspecified damages. The Company believes that these
actions are without merit and has instructed legal counsel to vigorously
defend each action.
EFFECTIVE TIME OF THE MERGER
If the Merger is approved at the Special Meeting, the Closing Date will be
the second business day after such stockholder approval and the other
conditions to the Merger have been satisfied or waived. The Merger will become
effective upon filing of the Certificate of Merger with the Secretary of State
of Delaware which is expected to occur on the Closing Date. See "THE MERGER--
Terms of the Merger--Conditions of the Merger."
REGULATORY APPROVALS
The obligations of the Company and STX Acquisition to consummate the Merger
are subject to the effectiveness under the Securities Act, of the Registration
Statement filed by STX Acquisition and Chemicals to register the Securities to
be issued in the Offerings. Such Registration Statement is expected to be
effective on or prior to the date of the Special Meeting. The obligations of
the Company and STX Acquisition to consummate the Merger are also subject to
the expiration or earlier termination of any waiting period applicable to the
Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
SUMMARY OF THE TERMS OF RELATED AGREEMENTS
Certain related agreements were entered in connection with the execution of
the Merger Agreement. The following is a summary of the material terms of such
agreements.
Inducement Agreement. In order to induce STX Acquisition to execute the
Merger Agreement and consummate the transactions contemplated thereby, Messrs.
Frank J. Hevrdejs and William C. Oehmig (stockholders of the Company and
principals of TSG) and Mr. Gordon A. Cain, the Chairman of the Board of
Directors of the Company, Mr. J. Virgil Waggoner, a director and the Chief
Executive Officer of the Company, and Mr. Robert W. Roten, Chief Operating
Officer of the Company each executed an Inducement Agreement. Pursuant to the
Inducement Agreement, Messrs. Cain, Waggoner and Roten each agreed to make
Rollover Elections as to a portion of their shares of Common Stock (an
aggregate of 1,404,254 Rollover Shares), subject to pro rata reduction with
Rollover Elections made by other stockholders of the Company if the Maximum
Rollover Amount is exceeded. Messrs. Hevrdejs and Oehmig each agreed to make
Rollover Elections as to 100% of their Common Stock (an aggregate of 897,000
Rollover Shares) provided that their Rollover Shares would not be subject to
pro rata reduction. Assuming Rollover Elections do not exceed the Maximum
Rollover Amount, Messrs. Cain, Waggoner and Roten would collectively own
approximately 12.9% of the outstanding shares of common stock in the Surviving
Corporation and Rollover Shares retained by Messrs. Hevrdejs and Oehmig would
own a minimum of 8.2% of the outstanding shares of common stock in the
Surviving Corporation.
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<PAGE>
Tag-Along Agreement. The Merger Agreement provides that as a condition of
Closing the stockholders of STX Acquisition immediately prior to the Effective
Time shall have executed and delivered a Tag-Along Agreement in the form
attached to the Merger Agreement (the "Tag-Along Agreement"). In general,
under the Tag-Along Agreement, if any STX Acquisition stockholder party to the
Tag-Along Agreement (an "Obligor") proposes (either acting alone or with other
Obligors, in one or more transactions) to transfer 51% or more of the
Company's Common Stock outstanding after the Effective Time, each person
retaining Rollover Shares is allowed to participate, pro rata, in any transfer
with the Obligors, on the same price per share and economic terms and
conditions applicable to the Obligors. The Tag-Along Agreement allows certain
transfers by Obligors outside of the Tag-Along Agreement which do not require
that notice be given, or that rights to participate be allowed to
beneficiaries under the Tag-Along Agreement. The Tag-Along Agreement
terminates on the fifth anniversary of the date of the Tag-Along Agreement,
which would be on or about the date of the Effective Time.
Stockholder Agreement. Purchasers of shares in the Equity Private Placement
will become parties to a Stockholder Agreement (the "Stockholder Agreement"),
which restricts transfers of shares of Surviving Corporation common stock
owned by a stockholder other than (i) Rollover Shares (except with respect to
such shares held by parties to the Inducement Agreement), and (ii) shares
distributed to such stockholder by the New ESOP or the Company's existing
Employee Stock Ownership Plan. Except for certain permitted transfers, and
subject to the Control Provision (as defined) and the Material Agreement
Provision (as defined), the Stockholders Agreement permits the stockholders
who are parties thereto (the "Holders") to transfer their shares of common
stock or any interest therein only upon receipt of a bona fide third party
offer and after first offering such shares to the New ESOP, then to the
Surviving Corporation and finally to the other Holders (the "Eligible
Offerees"). Subject to the Control Provision and the Material Agreement
Provision, the Stockholders Agreement permits the Holders to transfer their
shares of common stock or an interest therein, without first receiving a bona
fide third party offer and first offering the shares to the Eligible Offerees,
only if the transfer is: (1) between Holders; (2) by any Holder to the New
ESOP or the Surviving Corporation; (3) by any Holder to a wholly-owned
subsidiary corporation or parent corporation of such Holder and vice versa;
(4) by any individual Holder during such Holder's lifetime to a guardian of
his estate, to his spouse during marriage and not incident to a divorce, or to
certain relatives of such Holder or spouse, and to trusts for the benefit of
such Holder, his spouse, or certain relatives of such Holder or spouse, and
vice versa; (5) to the estate, heirs, beneficiaries or legatees of any
individual Holder upon his death; (6) by certain investors that are Holders to
their Associates (as defined), or the officers, directors, shareholders or
employees and certain consultants of such Holders, and certain of their
relatives and their Associates; (7) by any Holder at a price per share of
$12.00 until there has been a New ESOP valuation of the common stock at which
time the price shall be the New ESOP valuation of such common stock, to any
person who has become a director, officer or employee of the Company after the
date of the Merger; (8) by a Holder to a bank or other financial institution
for the purpose of securing a loan to a Holder to purchase shares of Common
Stock; (9) by the New ESOP to New ESOP participants, alternate payees and
beneficiaries to the extent required by law or the provisions of the New ESOP;
(10) to certain charitable organizations; (11) with the consent of the
Company, by any Holder to a qualified retirement plan sponsored by the Holder
or any corporation controlling, controlled by or under common control with
such Holder; (12) by any such qualified retirement plan to participants,
alternate payees and beneficiaries to the extent required by law; (13) made,
within one year after the Closing Date, by TSG, William C. Oehmig or Frank J.
Hevrdejs in transactions exempt from registration under the Securities Act;
(14) by any Holder which is a partnership, corporation or limited liability
company to the equity holders of such Holder as a distribution pursuant to
law, its organization documents or its dissolution; (15) by a Holder pursuant
to such Holder's rights under any registration rights agreement to which the
Company is a party or by which it is bound; or (16) by a Holder that is an
investment fund or account which is managed by an investment advisor to the
investment advisor or another fund or account managed by such advisor, and
vice versa.
The purchase price of shares of common stock under the Stockholders
Agreement is (1) the price contained in the bona fide third party offer in the
event of such an offer or (2) the fair market value of the shares being
purchased, as last determined under the New ESOP (or if no such determination
has yet been made, $12.00 per share), in the event of any other purchase
thereunder.
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The Stockholders Agreement contains a provision (the "Material Agreement
Provision") prohibiting the stockholders who are parties thereto from
transferring shares of common stock if, in the reasonable judgment of the
Surviving Corporation, the transfer would cause a material breach, default,
event of default or acceleration of payments under any agreement to which the
Surviving Corporation or any of its subsidiaries is a party and under which
the indebtedness or liability of the Surviving Corporation exceeds $1.0
million.
The Stockholders Agreement contains provisions (the "Control Provision")
respecting Control Dispositions, as defined below. The Control Provision
prohibits any stockholder who is a party to the Stockholders Agreement from
initiating the acceptance of a Control Disposition offer without first
complying with the right of first refusal provisions in the Stockholders
Agreement. After compliance with applicable right of first refusal provisions
in the Stockholders Agreement, a stockholder who desires to, and is permitted
to, initiate the acceptance of a Control Disposition offer (the "Initiating
Stockholder") must give to each other holder of common stock who is a party to
the Stockholders Agreement the option to participate in the proposed Control
Disposition on a pro rata basis.
A Control Disposition is defined as any disposition or series of related
dispositions which would have the effect of transferring to any transferee or
group more than (i) 40% of the then outstanding shares of common stock, or
(ii) 15% of the shares of common stock then outstanding if thereafter the
proposed transferee would directly or indirectly have beneficial ownership of
50% or more of all of the then outstanding common stock.
By becoming a party to the Stockholders Agreement, Holders also become bound
by the Tag-Along Agreement described above. The Tag-Along Agreement provides
that if any of such Holders propose to transfer, sell or otherwise dispose of
(a "Transfer") in the aggregate 51% or more of the Surviving Corporation
common stock then issued and outstanding, the other holders of the Surviving
Corporation common stock will have the right to participate in such Transfer
on a pro rata basis.
The Stockholders Agreement requires that, at any time that the Surviving
Corporation is engaged in an underwritten public offering of its securities,
each stockholder who is a party thereto refrain from making any disposition of
common stock on a securities exchange or in the over-the-counter or any other
public trading market for the period of time requested by the Surviving
Corporation.
The Stockholders Agreement will terminate upon any of the following events:
(i) the dissolution of the Surviving Corporation; (ii) any event that reduces
the number of Holders to one in accordance with the terms thereof; (iii) a
registered public offering of Common Stock (excluding certain offerings)
resulting in net proceeds to the Company of not less than $75 million; (iv)
the written agreement of at least the Required Voting Percentage (as defined);
or (v) 10 years after the Closing Date; except that the provisions of the
Stockholders Agreement applicable to Control Dispositions that also constitute
a Transfer that is subject to the Tag-Along Agreement shall remain in force
and effect for so long as the Tag-Along Agreement remains in force and effect.
SOURCE AND AMOUNT OF FUNDS
Financing Activities. Pursuant to the terms of the Merger Agreement, STX
Acquisition and Chemicals are required to consummate certain related
financings simultaneously with the Closing of the Merger. The Company may
terminate the Merger Agreement if STX Acquisition has not arranged the
required financing and satisfied the applicable funding obligations by August
31, 1996. The financing for the Merger will be provided through the proceeds
from the Equity Private Placement, the Offerings and borrowings under the
Credit Facility.
54
<PAGE>
Sources and Uses of Funds.
The following table sets forth the estimated sources and uses of funds
required to effect the Merger, as if the Merger had occurred on June 30, 1996:
<TABLE>
<CAPTION>
SOURCES OF FUNDS DOLLARS IN MILLIONS
---------------- -------------------
<S> <C>
Credit Facility (a)................................... $361.9
Notes Offering ....................................... 275.0
Units Offering........................................ 100.0
Equity Private Placement (b).......................... 103.1
------
Total............................................... $840.0
======
<CAPTION>
USE OF FUNDS
------------
<S> <C>
Purchase of Company Common Stock (c).................. $640.7
Purchase of other equity interests (d)................ 14.6
Refinance outstanding debt (e)........................ 138.2
ESOP Term Loan (f).................................... 6.5
Estimated transaction expenses and fees (g)........... 40.0
------
Total............................................... $840.0
======
</TABLE>
- --------
(a) Consists of amounts under the Term Loans, the Revolving Credit Facility
and the ESOP Term Loan.
(b) Represents proceeds from the sale of STX Acquisition common stock to
investors in the Equity Private Placement, assuming the minimum number of
Rollover Shares. The amount of cash provided through the Equity Private
Placement may be reduced to $70.7 million if the Maximum Rollover Amount
is retained by existing stockholders.
(c) Represents the funding of the purchase of Company Common Stock, at $12.00
per share, from stockholders who receive cash in the Merger, assuming the
minimum number of Rollover Shares. The amount of funding required to
purchase the Company Common Stock may be reduced to $608.3 million if the
Maximum Rollover Amount is retained by existing stockholders.
(d) Pursuant to the terms of the Merger Agreement, SARs, phantom stock and
restricted stock will be converted at the time of consummation of the
Merger into rights to receive cash.
(e) Consists of $107.2 million outstanding under the Company's current credit
facility and $31.0 million outstanding under a credit facility associated
with the Company's Valdosta, Georgia sodium chlorate plant.
(f) For a description of the ESOP Term Loan, see "SPECIAL FACTORS--Conduct of
the Company's Business After the Merger."
(g) Estimated expenses and fees include underwriters' discounts, advisory
fees, bank fees, legal and accounting fees, printing costs and other
transaction expenses.
Equity Private Placement. Upon consummation of the Merger, STX Acquisition
will complete a private placement of shares of its common stock, which will
represent an equity contribution of approximately $103.1 million, assuming the
minimum number of Rollover Shares. This amount may be reduced to $70.7 million
if the Maximum Rollover Amount is retained by existing stockholders.
Purchasers of shares in the Equity Private Placement are expected to include
an investor group formed by TSG and Unicorn and the New ESOP. The New ESOP
will acquire its shares with the proceeds from the $6.5 million Chemicals ESOP
Loan. Upon consummation of the Transaction, the investors in the Equity
Private Placement, including principals of TSG and Unicorn, and certain
principal stockholders of the Company, including Messrs. Gordon A. Cain, J.
Virgil Waggoner and Robert W. Roten, will control the Company through the
ownership of at least approximately 75% of the outstanding shares of Surviving
Corporation common stock, assuming the Maximum Rollover Amount.
Although the senior officers and directors of the Company will have an
opportunity to elect to retain Rollover Shares in the same fashion as other
shareholders, no senior officer or director of the Company will be
participating in the Equity Private Placement other than Mr. Jim P. Wise, Vice
President--Finance and Chief Financial Officer and Mr. Robert O. McAlister,
Vice President--Human Resources. Mr. Wise intends to purchase 800 shares in
the Equity Private Placement representing an investment of $96,000. Mr.
McAlister intends to purchase 1, 071 shares in the Equity Private Placement
representing an investment of $128,520.
Units Offering. Simultaneously with the Closing of the Merger, STX
Acquisition will complete the Units Offering, which will provide initial
proceeds of $100 million from the sale of Units consisting of Senior Secured
55
<PAGE>
Discount Notes Due 2008 and Warrants to acquire shares of Common Stock of the
Surviving Corporation. The Notes and the Units will be registered under a
Registration Statement filed with the Securities and Exchange Commission (File
No. 333-4343).
The Discount Notes. The Discount Notes will be issued under an Indenture
between STX Acquisition and Fleet National Bank, as trustee (the "Discount
Notes Indenture"). The terms of the Discount Notes will include those stated
in the Discount Notes Indenture and those made a part of the Discount Notes
Indenture by reference to the Trust Indenture Act of 1939 as in effect on the
date of the Discount Notes Indenture. The following summary of certain
provisions of the Discount Notes Indenture does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, all of the
provisions of the Discount Notes Indenture. The form of the Discount Notes
Indenture is included as an exhibit to the Registration Statement filed by STX
Acquisition and Chemicals in connection with the Units Offering and the Notes
Offering. The terms of the Discount Notes Indenture are still being negotiated
and are subject to change.
The Discount Notes will be senior secured obligations of the Surviving
Corporation and will rank pari passu in right of payment with all senior
indebtedness of the Surviving Corporation and will be senior in right of
payment to any subordinated indebtedness of the Surviving Corporation incurred
after the Effective Time. From and after the Merger, the Surviving Corporation
will be a holding company conducting virtually all of its business through
Chemicals and other subsidiaries and having no source of operating cash flow
other than from dividends and distributions from Chemicals and other
subsidiaries. Chemicals will have no obligation to pay any amount due on the
Discount Notes and will not guarantee the Discount Notes. Therefore, the
Discount Notes will be effectively subordinated to all liabilities of the
Surviving Corporation's subsidiaries, including the Notes and trade payables.
Any rights of the Surviving Corporation and its creditors, including the
holders of the Discount Notes, to participate in the assets of any of the
Surviving Corporation's subsidiaries, including Chemicals, will be subject to
the prior claims of that subsidiary's creditors (including trade creditors).
See "--The Notes."
The Discount Notes will mature on the twelfth anniversary of the date of
issuance. Cash interest will not accrue on the Discount Notes prior to the
fifth anniversary of the date of issuance. Thereafter, interest on the
Discount Notes will accrue and will be payable in cash semi-annually. The
Discount Notes will be redeemable, at the option of the Surviving Corporation
at any time, in whole or in part, on or after the fifth anniversary of the
date of issuance at specified redemption prices. Up to 35% of the Accreted
Value of the Discount Notes will be redeemable on or prior to the third
anniversary of the date of issuance, at the option of the Surviving
Corporation, from the net proceeds of one or more Public Equity Offerings (as
defined in the Discount Notes Indenture). Upon a Change of Control of the
Surviving Corporation (as defined in the Discount Notes Indenture), each
holder of the Discount Notes will have the right to require the Surviving
Corporation to repurchase all or any part of such holder's Discount Notes at
101% of the Accreted Value (as defined in the Discount Notes Indenture)
thereof, plus accrued interest to the date of repurchase.
The Discount Notes Indenture contains certain covenants that, among other
things, will limit the ability of the Surviving Corporation to pay dividends
or make certain other restricted payments, incur additional indebtedness,
engage in transactions with affiliates, incur liens, engage in asset sales and
engage in sale and leaseback transactions. The Discount Notes Indenture will
also restrict the Surviving Corporation's ability to consolidate or merge
with, or transfer all or substantially all of its assets to another person.
The Warrants. Each Warrant will entitle the holder to acquire shares of
Surviving Corporation common stock at an exercise price of $.01 per share. The
Warrants will be exercisable beginning on the first anniversary of date of
issuance and at any time thereafter prior to the twelfth anniversary date. The
number of shares of Surviving Corporation common stock to be acquired upon
exercise of each Warrant will be adjusted upon, among other things, certain
dividends or other distributions of Surviving Corporation common stock or a
combination or reclassification of the Surviving Corporation. Warrant holders
will have no rights as stockholders. The actual number of Warrants to be
issued in the Units Offering will not be established until the final pricing
terms of the Units are determined.
56
<PAGE>
The Notes.
The Notes will be issued under an Indenture between Chemicals and Fleet
National Bank, as trustee thereunder (the "Notes Indenture"). The terms of the
Notes will include those stated in the Notes Indenture and those made a part
of the Notes Indenture by reference to the Trust Indenture Act of 1939 as in
effect on the date of the Notes Indenture. The following summary of certain
provisions of the Notes Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all of the
provisions of the Notes Indenture. The form of the Notes Indenture is included
as an exhibit to the Registration Statement on Form S-1 (No. 333-04343) filed
by STX Acquisition and Chemicals in connection with the Units Offering and the
Notes Offering. The terms of the Notes Indenture are still being negotiated
and are subject to change.
The Notes will be unsecured senior subordinated obligations of Chemicals and
will be subordinated in right of payment to all present and future senior
indebtedness of Chemicals, including borrowings under the Credit Facility. As
of June 30, 1996, after giving pro forma effect to the Merger, the Offerings
and the Credit Facility, Chemicals would have had $361.9 million in senior
indebtedness.
The Notes will mature on the tenth anniversary of the date of issuance.
Interest on the Notes will be payable semi-annually. The Notes will be
redeemable, at the option of Chemicals at any time, in whole or in part, on or
after the fifth anniversary of the date of issuance, at specified redemption
prices. In addition, on or prior to the third anniversary of the date of
issuance, Chemicals may, at its option, redeem up to 35% of the original
principal amount of the Notes with the net proceeds of one or more Public
Equity Offerings. Upon a Change of Control of Chemicals (as defined in the
Notes Indenture), each holder of the Notes will have the right to require
Chemicals to repurchase all or any part of such holder's Notes at 101% of the
principal amount thereof, plus accrued interest to the date of repurchase.
The Notes Indenture contains certain covenants that, among other things,
will limit the ability of Chemicals to pay dividends or make certain other
restricted payments, incur additional indebtedness, engage in transactions
with affiliates, incur liens, and engage in asset sales. The Notes Indenture
will also restrict Chemicals' ability to consolidate or merge with, or
transfer all or substantially all of its assets to another person.
The Credit Facility.
As part of the Merger, Chemicals has entered into a Credit Agreement (the
"Credit Agreement") with Texas Commerce Bank National Association, as
administrative agent (the "Agent"), for a syndicate of lenders, and Credit
Suisse and Chase Securities Inc. as co-arrangers. Funding of the Credit
Facility is subject to (i) there being no Material Adverse Effect (as defined
in the Credit Agreement), (ii) the closing of the Offerings and the Equity
Private Placement and (iii) the consummation of the Merger. The following
description summarizes certain provisions of the Credit Agreement; the
description does not purport to be complete and is subject to, and qualified
in its entirety by reference to, the provisions of the Credit Agreement,
including the definitions therein of certain terms.
The Credit Agreement provides for (i) a six and one half year revolving
credit facility providing for up to $100.0 million in revolving loans (the
"Revolving Credit Facility"), (ii) a term loan facility providing for up to
$350.0 million in term loans ("Term Loans") consisting of (x) a six and one
half year term loan of $200.0 million and (y) an eight year term loan of
$150.0 million and (iii) a four year $6.5 million ESOP Term Loan.
At closing it is anticipated that Chemicals will borrow all of the Term
Loans. The proceeds from such borrowings will be used to (i) finance the
Merger (ii) refinance certain existing indebtedness of the Company and (iii)
finance the payment of certain fees and expenses related to the Merger and the
related financings. Additionally, at the Closing, Chemicals will borrow the
entire amount of the ESOP Term Loan and lend those funds to the New ESOP,
which will use such funds to purchase STX Acquisition common stock.
57
<PAGE>
The Credit Agreement requires the principal amount of the Term Loans to be
amortized in quarterly installments, beginning with the fiscal quarter ending
on December 31, 1996, plus additional mandatory prepayments based upon
consolidated excess cash flow. The ESOP Term Loan will be amortized in 16
equal quarterly installment amounts of $406,250 during its four-year term. The
Revolving Credit Facility is a six and one half year revolving line of credit
to Chemicals. Advances under the Revolving Credit Facility will be subject to
a Borrowing Base (as defined) consisting of 85% of eligible accounts
receivable and 65% of eligible inventory with an inventory cap of 50% of the
Borrowing Base.
Under the Credit Agreement, Chemicals is permitted to make optional
prepayments without premium or penalty. Prepayments of borrowings must be
accompanied by payments of all breakage costs and lenders, expenses or losses,
if any, incurred as a result of such prepayment.
Chemicals' obligations under Credit Facility will be secured by a first
priority lien on the capital stock of Chemicals' domestic subsidiaries, 65% of
the capital stock of its foreign subsidiaries and substantially all of the
domestic assets of Chemicals, including without limitation, accounts
receivable, inventory, intangibles and fixed assets and assignments of certain
material leases, licenses and contracts. In addition, the Credit Facility is
secured by a pledge by Holdings of all of the capital stock of Chemicals. A
second lien on the capital stock of Chemicals will be permitted to secure the
obligations under the Discount Notes.
The domestic subsidiaries of Chemicals will guarantee the obligations under
the Credit Facility. The six and one half year term loan, the ESOP Term Loan
and the Revolving Credit Facility initially bear interest at a rate per annum
of, at Chemicals' option, either the Eurodollar Rate (as defined) plus 2.5% or
the Base Rate (as defined) plus 1.5%. The applicable margin will be reduced
based upon Chemicals' ratio of total outstanding debt at the end of each
fiscal quarter to EBITDA for the four quarter period ending on such quarter.
The eight year term loan will bear interest at the Eurodollar Rate plus 3.0%
or the Base Rate plus 2.0%.
The Credit Agreement contains numerous financial and operating covenants,
including, but not limited to, restriction on Chemicals' ability to incur
indebtedness, pay dividends, create liens, sell assets, engage in mergers and
acquisitions and refinance existing indebtedness. The Credit Agreement also
requires Chemicals to satisfy certain financial covenants and tests. In
addition, the Credit Agreement includes various circumstances that will
constitute, subject in certain cases to notice and grace periods, an event of
default thereunder.
The Credit Agreement requires Chemicals to pay the following fees in
connection with the maintenance of the Credit Agreement: (i) commitment fees
to be paid to the lenders in amounts equal to 1/2 of 1% per annum (decreasing
to .375 of 1% depending on the debt to EBITDA ratio) on the unused commitment
under the Revolving Credit Facility payable quarterly in arrears until such
time as the Revolving Credit Facility matures, and (ii) an annual
administration fee to the Agent. In addition, at closing Chemicals will pay
various fees and closing costs in connection with the origination and
syndication of the Credit Facility.
Chemicals will also be required to reimburse the Agent for all reasonable
out-of-pocket costs and expenses incurred in the preparation, documentation,
syndication and administration of the Credit Agreement and to reimburse the
lenders for all out-of-pocket costs and expenses incurred in connection with
the enforcement of their rights after a default under the Credit Agreement.
Chemicals agreed to indemnify the Agent and the lenders, certain of their
affiliates, and their respective officers, directors, employees, agents and
attorneys against certain liabilities arising out of or relating to the Credit
Agreement and the transactions contemplated thereby.
As provided for in the Credit Agreement, Sterling Pulp Chemicals, Ltd.
("Sterling Pulp") will enter into a revolving credit facility (the "Canadian
Revolver") with a Canadian financial institution to be determined. The
Canadian Revolver is expected to provide for revolving credit and bank
overdraft loans up to an aggregate of approximately $15 million, subject to a
borrowing base limitation. The Canadian Revolver will be secured by a first
lien on the inventory and accounts receivable of Sterling Pulp. The amount
available under the Canadian Revolver will represent a sub-limit under the
$100 million Revolving Credit Facility.
As a result of the Merger, the Surviving Corporation will have increased
cash requirements for debt service relating to the Notes, the Discount Notes
and the Credit Facility. Such cash requirements would have been $47.7 million
for the nine months ended June 30, 1996 on a pro forma basis. Such cash
requirements are expected to be funded with internally generated funds and, to
the extent necessary, with borrowings under the Revolving Credit Facility. As
of June 30, 1996, on a pro forma basis the Surviving Corporation's total
indebtedness as a percentage of total capitalization was 160%.
58
<PAGE>
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
Record holders of shares of Common Stock are entitled to appraisal rights
under Section 262 of the DGCL ("Section 262") in connection with the Merger.
The following discussion is not a complete statement of the law pertaining to
appraisal rights under the DGCL and is qualified in its entirety by reference
to the full text of Section 262 which is reprinted in its entirety as Annex C
to this Proxy Statement. Except as set forth herein and in Annex C, holders of
shares of Common Stock will not be entitled to appraisal rights in connection
with the Merger.
Under the DGCL, record holders of shares of Common Stock who follow the
procedures set forth in Section 262 and who have not voted in favor of the
Merger will be entitled to have their shares of Common Stock appraised by the
Delaware Court of Chancery and to receive payment of the "fair value" of such
shares, exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, as
determined by such court.
Under Section 262, where a merger agreement is to be submitted for adoption
at a meeting of stockholders, as in the case of the Special Meeting, not less
than 20 days prior to such meeting, the Company must notify each of the
holders of Common Stock at the close of business on the record date for such
meeting that such appraisal rights are available and include in each such
notice a copy of Section 262. This Proxy Statement constitutes such notice for
purposes of the Special Meeting. Any stockholder of record who wishes to
exercise appraisal rights should review the following discussion and Annex C
carefully because failure timely and properly to comply with the procedures
specified in Section 262 may result in the loss of appraisal rights under the
DGCL.
A holder of shares of Common Stock wishing to exercise appraisal rights must
deliver to the Company, before the vote on the authorization and adoption of
the Merger Agreement at the Special Meeting, a written demand for appraisal of
such holder's shares of Common Stock. In addition, a holder of shares of
Common Stock wishing to exercise appraisal rights must hold of record such
shares on the date the written demand for appraisal is made and must continue
to hold such shares through the Effective Time.
Only a holder of record of shares of Common Stock is entitled to assert
appraisal rights for the shares of Common Stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder
of record fully and correctly, as the holder's name appears on the stock
certificates.
If shares of Common Stock are owned of record in a fiduciary capacity, such
as by a trustee, guardian or custodian, execution of the demand for appraisal
should be made in that capacity, and if the shares of Common Stock are owned
of record by more than one person, as in a joint tenancy or tenancy in common,
the demand should be executed by or on behalf of all joint owners. An
authorized agent, including one for two or more joint owners, may execute the
demand for appraisal on behalf of a holder of record; however, the agent must
identify the record owner or owners and expressly disclose the fact that, in
executing the demand, he or she is acting as agent for such owner or owners. A
record holder such as a broker who holds Common Stock as nominee for several
beneficial owners may exercise appraisal rights with respect to the Common
Stock held for one or more beneficial owners while not exercising such rights
with respect to the Common Stock held for other beneficial owners; in such
case, the written demand should set forth the number of shares as to which
appraisal is sought and where no number of shares is expressly mentioned the
demand will be presumed to cover all Common Stock held in the name of the
record owner. Holders of Common Stock who hold their shares in brokerage
accounts or other nominee forms and who wish to exercise appraisal rights are
urged to consult with their brokers to determine the appropriate procedures
for the making of a demand for appraisal by such nominee. All written demands
for appraisal of Common Stock should be sent or delivered to Sterling
Chemicals, Inc., 1200 Smith Street, Suite 1900, Houston, Texas 77002-4312,
Attention: Secretary, so as to be received before the vote on the
authorization and adoption of the Merger Agreement and the Merger at the
Special Meeting.
Within 10 days after the Effective Time, the Company, as the Surviving
Corporation, must send a notice as to the effectiveness of the Merger to each
person who has submitted a timely written demand for appraisal and
59
<PAGE>
has not voted in favor of or consented to the Merger. Within 120 days after
the Effective Time, but not thereafter, the Company, or any holder of shares
of Common Stock entitled to appraisal rights under Section 262 who has
complied with the foregoing procedures, may file a petition in the Delaware
Court of Chancery demanding a determination of the fair value of such shares.
The Company is not under any obligation, and has no present intention, to file
a petition with respect to the appraisal of the fair value of the shares of
Common Stock. Accordingly, it is the obligation of the stockholders to
initiate all necessary action to perfect their appraisal rights within the
time prescribed in Section 262.
Within 120 days after the Effective Time, any record holder of shares of
Common Stock who has complied with the requirements for exercise of appraisal
rights will be entitled, upon written request, to receive from the Company a
statement setting forth the aggregate number of shares of Common Stock with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such statements must be mailed within 10
days after a written request therefor has been received by the Company or
within 10 days after expiration of the period for delivery of demands for
appraisal, whichever is later.
If a petition for appraisal is timely filed, the Delaware Court of Chancery
(the "Court") will fix a time and place for the hearing of such petition, and,
if so ordered by the Court, notice of such hearing will be given to the
Company and the stockholders who have complied with the procedures for
perfection of their appraisal rights. At the hearing on such petition, the
Court will determine the holders of shares of Common Stock entitled to
appraisal rights and will appraise the "fair value" of the shares of Common
Stock, exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. Holders considering
seeking appraisal should be aware that the fair value of the shares of Common
Stock as determined under Section 262 could be more than, the same as or less
than the value of the Merger consideration that they would otherwise receive
if they did not seek appraisal of their shares of Common Stock. The Delaware
Supreme Court has stated that "proof of value by any techniques or methods
which are generally considered acceptable in the financial community and are
otherwise admissible in court" should be considered in the appraisal
proceedings. The Court will also determine the amount of interest, if any, to
be paid upon the amounts to be received by persons whose shares of Common
Stock have been appraised. The costs of the action may be determined by the
Court and taxed upon the parties as the Court deems equitable. The Court may
also order that all or a portion of the expenses incurred by any holder of
shares of Common Stock in connection with an appraisal, including without
limitation, reasonable attorneys' fees and the fees and expenses of experts
utilized in the appraisal proceeding, be charged pro rata against the value of
all of the shares of Common Stock entitled to appraisal. No appraisal
proceeding in the Court will be dismissed with respect to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
Any holder of shares of Common Stock who has duly demanded an appraisal in
compliance with Section 262 will not, after Effective Time, be entitled to
vote the shares of Common Stock subject to such demand for any purpose or be
entitled to the payment of dividends or other distributions on those shares
(except dividends or other distributions payable to holders of record of
shares of Common Stock as of a date prior to the Effective Time).
If any holder of Common Stock who demands appraisal of shares under Section
262 fails to perfect, or effectively withdraws or loses, the right to
appraisal, as provided in the DGCL, the shares of Common Stock of such holder
will be converted into the right to receive the Merger consideration in
accordance with the Merger Agreement. A holder of shares of Common Stock will
fail to perfect, or effectively lose, the right to appraisal if no petition
for appraisal is filed within 120 days after the Effective Time. A holder may
withdraw a demand for appraisal by delivering to the Company a written
withdrawal of the demand for appraisal and acceptance of the Merger, at any
time within 60 days after the Effective Time.
FAILURE TO STRICTLY FOLLOW THE REQUIREMENTS AND CONDITIONS OF SECTION 262 OF
THE DGCL FOR PERFECTING APPRAISAL RIGHTS WILL RESULT IN THE LOSS OF SUCH
RIGHTS.
60
<PAGE>
The foregoing is a summary of certain of the provisions of Section 262 of
the DGCL and is qualified in its entirety by the reference to the full text of
such Section, a copy of which is included as Annex C to this Proxy Statement.
MARKET PRICES; DIVIDENDS
The Common Stock is listed on the NYSE. As of January 26, 1996, the last
full trading day prior to the announcement that the Company was considering
its strategic alternatives including the sale of the Company, the high and low
sales prices of the Common Stock, as reported by the NYSE, were $9 1/2 and $8
7/8, respectively. The high and low sales prices of the Common Stock, as
reported by NYSE, for the period January 2, 1996 through January 26, 1996 were
$9 3/8 and $8, respectively. As of April 24, 1996, the last full trading prior
to the announcement by the Company of the execution of the Merger Agreement,
the high and low sales prices of the Common Stock, as reported by the NYSE,
were $13 and $12 3/4, respectively.
On July 15, 1996, the high and low sales prices of the Common Stock, as
reported by the NYSE, were $11 1/2 and $11 1/8, respectively.
The following table sets forth for the fiscal quarters shown, the high and
low sales prices for the Company's Common Stock, as reported by the NYSE:
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
Third Quarter 1994......................................... $10 $ 5 1/2
Fourth Quarter 1994........................................ 13 3/4 9
First Quarter 1995......................................... 13 7/8 9 3/4
Second Quarter 1995........................................ 14 10 7/8
Third Quarter 1995......................................... 13 10 1/4
Fourth Quarter 1995........................................ 12 7/8 8 1/4
First Quarter 1996......................................... 9 1/4 7 1/2
Second Quarter 1996........................................ 13 8
Third Quarter 1996......................................... 13 1/8 11 1/8
</TABLE>
The following tables set forth the daily high and low closing prices for the
Company's Common Stock, as reported by the NYSE, for the periods indicated.
61
<PAGE>
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
LOW HIGH
------ ------
<S> <C> <C>
1992.............................................................. $3.875 $5.125
1993.............................................................. 3.125 5.000
1994 First Quarter................................................ 3.375 4.500
Second Quarter............................................... 4.000 6.750
Third Quarter................................................ 5.500 10.000
Fourth Quarter............................................... 9.000 13.750
1995 First Quarter................................................ 9.750 13.875
Second Quarter............................................... 10.875 14.000
Third Quarter................................................ 10.250 13.000
Fourth Quarter............................................... 8.250 12.875
1996 First Quarter................................................ 7.500 9.250
Second Quarter............................................... 8.000 13.000
Third Quarter................................................ 11.125 13.000
</TABLE>
The Company has not paid dividends on the Company Stock since fiscal 1993.
Under the Merger Agreement, the Company has agreed not to pay any dividends on
the Common Stock prior to the Effective Time. Pursuant to the Credit Agreement
and the Indentures to be entered into in connection with the Financing of the
Merger, the Surviving Corporation's ability to pay cash dividends will be
materially restricted. See "THE MERGER--Source and Amount of Funds."
62
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected consolidated financial information set forth below has been
derived from previously published consolidated financial statements of the
Company, which are incorporated by reference elsewhere in this Proxy
Statement, and should be read in conjunction with, and is qualified in its
entirety by reference to, such consolidated financial statements and their
accompanying notes. The consolidated financial information set forth below (i)
as of year end and for each of the years in the five-year period ended
September 30, 1995 has been derived from audited consolidated financial
statements of the Company and (ii) as of June 30, 1995 and June 30, 1996 and
for the nine-month periods then ended has been derived from unaudited
consolidated financial statements of the Company, which, in the opinion of
management, have been prepared on a basis consistent with the audited
consolidated financial statements of the Company and contain all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation of the interim financial position and results of operations. The
interim period results of operations presented are not necessarily indicative
of the results to be expected for the full year. See "ADDITIONAL INFORMATION"
and "INCORPORATION BY REFERENCE."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
---------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ -------- ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $542.7 $430.5 $518.8 $700.8 $1,030.2 $843.1 $600.7
Cost of goods sold...... 472.4 402.6 477.9 606.9 758.6 597.7 508.7
------ ------ ------ ------ -------- ------ ------
Gross profit.......... 70.3 27.9 40.9 93.9 271.6 245.4 92.0
Selling, general and
administrative
expenses............... 9.7 10.3 25.5 24.4 31.7 24.5 23.8
SAR program expenses
(benefit).............. -- -- -- 21.8 (2.8) 1.6 6.2
------ ------ ------ ------ -------- ------ ------
Income from
operations........... 60.6 17.6 15.4 47.7 242.7 219.3 62.0
Interest and debt
related expenses, net
of interest income..... 6.1 8.4 22.4 22.1 14.6 12.7 4.4
Other (income) expense.. -- -- -- (2.6) -- -- 3.7
------ ------ ------ ------ -------- ------ ------
Income (loss) before
taxes and
extraordinary item... 54.5 9.2 (7.0) 28.2 228.1 206.6 53.9
Provision (benefit) for
income taxes........... 17.7 4.7 (1.6) 9.1 75.0 68.5 18.3
------ ------ ------ ------ -------- ------ ------
Income (loss) before
extraordinary item
and change in
accounting principle. 36.8 4.5 (5.4) 19.1 153.1 138.1 35.6
Cumulative effect of
change in accounting
for post-retirement
benefits other than
pensions............... -- (10.4) -- -- -- -- --
Extraordinary item, loss
on early extinguishment
of debt, net of tax.... -- -- -- -- (3.1) (3.1) --
------ ------ ------ ------ -------- ------ ------
Net income (loss)..... $ 36.8 $ (5.9) $ (5.4) $ 19.1 $ 150.0 $135.0 $ 35.6
====== ====== ====== ====== ======== ====== ======
Per share data:
Income (loss) before
extraordinary item and
change in accounting
principle............. $ 0.67 $ 0.08 $(0.10) $ 0.34 $ 2.76 $ 2.48 $ 0.64
Cumulative effect of
change in accounting
for post-retirement
benefits other than
pensions.............. -- (0.19) -- -- -- -- --
Extraordinary item..... -- -- -- -- (0.06) (0.06) --
------ ------ ------ ------ -------- ------ ------
Net income (loss) per
share on a fully
diluted basis......... $ 0.67 $(0.11) $(0.10) $ 0.34 $ 2.70 $ 2.42 $ 0.64
====== ====== ====== ====== ======== ====== ======
Book value per share... $ 2.04 $ 1.59 $ 1.27 $ 1.61 $ 4.30 $ 3.99 $ 4.90
OTHER DATA:
Ratio of earnings to
fixed charges(a)....... 7.1x 1.8x -- 2.1x 11.9x 14.0x 5.9x
Deficiency of earnings
to cover fixed charges. -- -- $ 7.3 -- -- -- --
BALANCE SHEET DATA:
Total assets............ $362.5 $608.5 $546.8 $580.9 $ 609.9 $620.6 $659.0
Total long-term debt
(including current
portion)............... 72.6 300.2 263.9 192.6 103.6 128.7 138.2
Working capital......... 28.6 56.8 31.0 20.8 74.6 88.3 83.0
Stockholders' equity.... 112.2 87.3 70.3 89.7 239.3 222.2 273.1
</TABLE>
- --------
(a) 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.
63
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION
The pro forma statements of operations presented below for the year ended
September 30, 1995, and the nine months ended June 30, 1996, have been derived
from the financial statements incorporated by reference herein and give effect
to the Merger and related Financing as if they had occurred on October 1,
1994. The pro forma consolidated balance sheet at June 30, 1996, presented
below has been derived from the unaudited consolidated balance sheet
incorporated by reference herein and gives effect to the Merger and related
Financing as if they had occurred on June 30, 1996. The summary pro forma
consolidated financial data do not necessarily represent what such entities'
financial position or results of operations would have been if the Merger and
related Financing had actually been completed as of the dates indicated and
are not intended to project such entities' financial position or results of
operations for any future period or as of any date. The information presented
below should be read in conjunction with the historical Consolidated Financial
Statements of the Company and its subsidiaries and the related notes thereto
incorporated by reference in this Proxy Statement.
The pro forma adjustments were applied to the respective historical
financial statements to reflect and account for the Merger as a
recapitalization. Accordingly, the historical basis of the Company's assets
and liabilities has not been impacted by the Merger.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THE SURVIVING
COMPANY PRO FORMA CHEMICALS PRO FORMA CORPORATION
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues................ $1,030.2 $1,030.2 $1,030.2
Cost of goods sold...... 758.6 0.4 (a) 759.0 759.0
-------- ------ -------- ----- --------
Gross Profit.......... 271.6 (0.4) 271.2 271.2
Selling, general and
administrative
expenses............... 28.9 2.8 (b) 31.7 31.7
-------- ------ -------- ----- --------
Income from
operations........... 242.7 (3.2) 239.5 239.5
Interest expense, net... 14.6 50.1 (c) 64.7 13.7 (c) 78.4
-------- ------ -------- ----- --------
Income from continuing
operations before
income taxes......... 228.1 (53.3) 174.8 (13.7) 161.1
Provision (benefit) for
income taxes........... 75.0 (18.7)(d) 56.3 (4.8)(d) 51.5
-------- ------ -------- ----- --------
Income from continuing
operations........... $ 153.1 $(34.6) $ 118.5 $(8.9) $ 109.6
======== ====== ======== ===== ========
Income per share from
continuing operations
on a fully diluted
basis.................. $ 2.76 $ 10.59
Weighted average common
shares outstanding..... 55.674 10.349(e)
Book value per share.... $ 4.30 $ (29.93)
Other data:
Ratio of earnings to
fixed charges(f)....... 11.9x 3.5x 2.9x
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Statements
64
<PAGE>
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1996
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THE SURVIVING
COMPANY PRO FORMA CHEMICALS PRO FORMA CORPORATION
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues................ $600.8 $600.8 $ 600.8
Cost of goods sold...... 508.8 0.3 (a) 509.1 509.1
------ ------ ------ ----- -------
Gross Profit.......... 92.0 (0.3) 91.7 91.7
Selling, general and
administrative
expenses............... 30.0 (6.2)(b) 23.8 23.8
------ ------ ------ ----- -------
Income from
operations........... 62.0 5.9 67.9 67.9
Interest expense, net... 4.4 43.7 (c) 48.1 10.3 (c) 58.4
Other expense........... 3.7 3.7 3.7
------ ------ ------ ----- -------
Income (loss) from
continuing operations
before income taxes.. 53.9 (37.8) 16.1 (10.3) 5.8
Provision (benefit) for
income taxes........... 18.2 (13.2)(d) 5.0 (3.7)(d) 1.3
------ ------ ------ ----- -------
Income (loss) from
continuing
operations........... $ 35.7 $(24.6) $ 11.1 $(6.6) $ 4.5
====== ====== ====== ===== =======
Income per share from
continuing operations
on a fully diluted
basis.................. $ 0.64 $ 0.43
Weighted average common
shares outstanding..... 55.685 10.349 (e)
Book value per share.... $ 4.90 $(26.69)
Other data:
Ratio of earnings to
fixed charges(f)....... 5.8x 1.3x 1.0x
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Statements
65
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
THE SURVIVING
COMPANY PRO FORMA CHEMICALS PRO FORMA CORPORATION
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 6.5 $ -- $ 6.5 $ -- $ 6.5
Accounts receivable... 149.1 149.1 149.1
Inventories........... 47.6 47.6 47.6
Prepaid expenses...... 7.9 7.9 7.9
Deferred income taxes. 8.3 8.3 8.3
------ ------ ------ ------ ------
Total current
assets............. 219.4 -- 219.4 -- 219.4
Property, plant and
equipment, net......... 350.8 350.8 350.8
Other assets............ 88.8 32.4 (g) 121.2 3.0 (g) 124.2
------ ------ ------ ------ ------
Total............... $659.0 $ 32.4 $691.4 $ 3.0 $694.4
====== ====== ====== ====== ======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 60.6 $ -- $ 60.6 $ -- $ 60.6
Accrued expenses...... 57.9 (2.8)(h) 55.1 55.1
Current portion of
long-term debt....... 17.9 (17.9)(i) -- --
------ ------ ------ ------ ------
Total current
liabilities........ 136.4 (20.7) 115.7 -- 115.7
Long-term debt.......... 120.3 516.6 (i) 636.9 100.0 (i) 736.9
Deferred income taxes... 46.3 (5.3)(j) 41.0 41.0
Deferred credits and
other liabilities...... 82.9 (5.9)(h) 77.0 77.0
Common stock held by New
ESOP................... -- -- 6.5 (k) 6.5
Less: Unearned
compensation......... -- -- (6.5)(l) (6.5)
Stockholders' equity:
Common stock.......... 0.6 (0.5)(m) 0.1 0.1
Warrants.............. -- -- -- (n) --
Additional paid-in
capital (deficit).... 33.2 (208.9)(o) (175.7) (386.8)(p) (562.5)
Retained earnings
(deficit)............ 310.7 (314.3)(q) (3.6) 310.7 (r) 307.1
Pension adjustment.... (1.6) 1.6 (o) -- (1.6)(s) (1.6)
Accumulated
translation
adjustment........... (19.3) 19.3 (o) -- (19.3)(s) (19.3)
Deferred compensation. (0.1) 0.1 (h) -- --
------ ------ ------ ------ ------
323.5 (502.7) (179.2) (97.0) (276.2)
Treasury stock........ (50.4) 50.4 (t) -- --
------ ------ ------ ------ ------
Stockholders' equity.. 273.1 (452.3) (179.2) (97.0) (276.2)
------ ------ ------ ------ ------
Total............... $659.0 $ 32.4 $691.4 $ 3.0 $694.4
====== ====== ====== ====== ======
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Statements
66
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 1995 AND AS OF AND FOR THE NINE MONTHS ENDED
JUNE 30, 1996
(DOLLARS IN MILLIONS)
(UNAUDITED)
The pro forma financial data have been derived by the application of pro
forma adjustments to the Company's historical financial statements for the
periods noted. The Merger has been accounted for as a recapitalization which
will have no impact on the historical basis of assets and liabilities. The pro
forma financial data assume there are no dissenting shareholders to the Merger.
(a) Represents the amortization of organization cost pursuant to the
Merger.
(b) Represents the elimination of compensation benefit (expense)
associated with the Company's SAR plan, which will be terminated in
connection with the Merger. The adjustment amounts represent the SAR plan
compensation benefit (expense) recorded in the Company's historical
financial statements.
(c) Represents the elimination of interest expense related to the
historical debt outstanding and the incurrence of interest expense related
to the issuance of the Credit Facility, the Notes, and the Discount Notes
as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30,
1995 1996
------------- -----------
<S> <C> <C>
Surviving Corporation
Discount Notes (i)........................... $ 13.5 $10.1
Amortization of deferred financing costs..... 0.2 0.2
------ -----
Total Surviving Corporation................ $ 13.7 $10.3
====== =====
Chemicals
Interest expense on the Company's historical
debt........................................ $(14.8) $(6.9)
Amortization of historical deferred financing
costs....................................... (2.0) (0.9)
Interest expense on the Credit Facility (ii). 29.6 23.1
Interest expense on the Notes (iii).......... 32.3 24.2
Amortization of deferred financing costs..... 4.5 3.8
Commitment Fee............................... 0.5 0.4
------ -----
Total Chemicals............................ $ 50.1 $43.7
====== =====
</TABLE>
--------
(i) For purposes of the pro forma statement of operations, the
effective annual interest rate is assumed to equal 13.5%. A 1% change
in the interest rate payable on the outstanding balance under the
Discount Notes would change annual interest expense and cash interest
expense by $1.0 million and $0, respectively, before the effect of
income taxes.
(ii) For purposes of the pro forma statement of operations, the
effective annual interest rate is assumed to equal 8.5%. A 1% change in
the interest rate payable on the outstanding balance under the Credit
Facility would change each of annual interest expense and cash interest
expense by $3.6 million before the effect of income taxes.
(iii) For purposes of the pro forma statement of operations, the
effective annual interest rate is assumed to equal 11.75%. A 1% change
in the interest rate payable on the outstanding balance under the Notes
would change each of annual interest expense and cash interest expense
by $2.8 million before the effect of income taxes.
(d) Represents the tax effect of the pro forma adjustments at a 35%
statutory rate.
67
<PAGE>
(e) Weighted average shares outstanding after giving effect to the Merger
and related Financing represents the 10.891 million shares of Surviving
Corporation Common Stock issued less the 0.542 million shares of Surviving
Corporation Common Stock held by the New ESOP, which are not considered
outstanding for earnings per share calculations until they are allocated to
New ESOP plan participants.
(f) For purposes of computing this ratio, 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.
(g) Represents the capitalization of organization and deferred financing
costs related to the Merger, net of expensing the historical deferred
financing costs as follows:
<TABLE>
<S> <C> <C>
Chemicals
Organization and debt financing costs........................ $35.4
Historical debt financing costs.............................. (3.0)
-----
Total Chemicals............................................ $32.4
=====
Surviving Corporation
Debt financing costs......................................... $ 3.0
===== ===
</TABLE>
(h) Represents the settlement of obligations pursuant to the Company's
SARs, phantom stock and restricted stock, which will be terminated in
connection with the Merger.
(i) Represents the repayment of the Company's historical debt outstanding
and the incurrence of debt relating to the Credit Facility, the issuance of
the Notes, and the issuance of the Discount Notes as follows:
<TABLE>
<S> <C>
Surviving Corporation
Discount Notes................................................ $ 100.0
Warrants (n).................................................. --
-------
Total Surviving Corporation................................. $ 100.0
=======
Chemicals
Repayment of historical Debt outstanding...................... $(138.2)
Credit Facility............................................... 361.9
Notes......................................................... 275.0
-------
Total Chemicals............................................. $ 498.7
=======
</TABLE>
Subject to the borrowing base (as defined), the unused portion of the
$100 million Revolving Credit Facility will be available for working
capital and general corporate purposes, including funding $8.7 million of
current maturities on the Term Loans.
(j) Represents the deferred tax impact of expensing historical deferred
financing costs and settlement of obligations pursuant to the Company's
SARs, phantom stock and restricted stock.
(k) Represents the proceeds from the purchase of 0.542 million shares of
Surviving Corporation Common Stock by the New ESOP in connection with the
Merger. Common stock held by the New ESOP has been classified outside of
permanent equity because, under certain conditions, participants can
require Chemicals to purchase for cash common stock distributed to them by
the New ESOP.
(l) Represents unearned compensation expense related to Surviving
Corporation Common Stock held by the New ESOP.
(m) Represents the net effect of the Merger and related financings on the
60.327 million shares issued at $.01 par value per share. There will be
10.891 million shares issued subsequent to the Merger.
68
<PAGE>
(n) The Warrants to be issued in connection with the Units Offering,
which will be valued upon determination of the terms of the Units Offering,
have not been valued and therefore have not been included as dilutive
securities in calculating income per share from continuing operations on a
fully diluted basis in the pro forma financial statements.
(o) Represents (i) the contribution to Chemicals of the Company's net
assets, except for $0.1 million attributable to common stock; net of (ii)
cash advanced to the Surviving Corporation, comprising the new debt
proceeds, net of debt issue and organization costs, repayment of historical
Debt and settlement of obligations pursuant to the Company's SARs, phantom
stock and restricted stock.
(p) Represents amounts distributed to convert to cash 53.389 million
shares of the Company's common stock for total consideration of $640.7
million; net of the issuance of 8.048 million shares in the Equity Private
Placement for total consideration of $96.6 million; plus $1.6 million in
equity financing costs as a result of the Merger and related financings;
plus historical amounts of retained earnings, pension adjustment and
accumulated translation adjustment; net of the cash advanced to the
Surviving Corporation per note (o). The pro forma consolidated financial
statements have been prepared under the assumption that all outstanding
shares of common stock are converted to cash, except for the 2.301 million
Rollover Shares, the minimum number of Rollover Shares.
(q) Represents the contribution of the Company's net assets to Chemicals,
net of the write-off of historical deferred financing costs and settlement
of obligations pursuant to the Company's SARs, phantom stock and restricted
stock, after tax effects.
(r) Represents the Company's historical retained earnings.
(s) Represents reinstatement of historical amounts of pension adjustment
and accumulated translation adjustment.
(t) Represents the cancellation of the 4.64 million shares of treasury
stock.
69
<PAGE>
CAPITALIZATION
The following table sets forth (i) the unaudited consolidated historical
capitalization of the Company, (ii) the unaudited consolidated pro forma
capitalization of Chemicals as adjusted to give effect to the Merger, and
(iii) the unaudited consolidated pro forma capitalization of the Surviving
Corporation as adjusted to give effect to the Merger. See "PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS" and the Company's consolidated financial
statements and their accompanying notes incorporated by reference herein.
<TABLE>
<CAPTION>
JUNE 30, 1996(A)
---------------------------------
(DOLLARS IN MILLIONS)
ACTUAL AS ADJUSTED
----------- ---------------------
SURVIVING
THE COMPANY CHEMICALS CORPORATION
----------- --------- -----------
<S> <C> <C> <C>
Long-term debt:
Existing credit facility................... $107.2 $ -- $ --
Construction loan facility................. 31.0 -- --
Credit Facility............................ -- 361.9 361.9
Notes...................................... -- 275.0 275.0
Discount Notes............................. -- -- 100.0
------ ------ ------
Total long-term debt (b)..................... 138.2 636.9 736.9(c)
Common stock held by New ESOP................ -- -- 6.5
Less: Unearned compensation................ -- -- (6.5)
Stockholders' equity:
Common stock (d)........................... 0.6 0.1 0.1
Warrants (e)............................... -- -- --
Additional paid-in capital (deficit) (f)... 33.2 (175.7) (562.5)
Retained earnings (deficit)................ 310.7 (3.6) 307.1
Pension adjustment......................... (1.6) -- (1.6)
Accumulated translation adjustment......... (19.3) -- (19.3)
Deferred compensation (g).................. (0.1) -- --
Treasury stock (h)......................... (50.4) -- --
------ ------ ------
Total stockholders' equity............... 273.1 (179.2) (276.2)
------ ------ ------
Total capitalization......................... $411.3 $457.7 $460.7
====== ====== ======
</TABLE>
- --------
(a) The Merger will be accounted for as a recapitalization due to the number
of Rollover Shares to be retained by existing stockholders. Consequently,
the Merger will have no impact on the historical basis of the Company's
assets and liabilities. In addition to the adjustments reflected in the
capitalization table, there will be adjustments to reduce current and
long-term accrued liabilities to reflect payments to employees and
directors of the Company for obligations under the Company's incentive
plans.
(b) Includes pro forma current maturities of approximately $8.7 million.
(c) Upon consummation of the Merger, Chemicals will make a subordinated loan
to the Surviving Corporation of approximately $448.7 million, representing
the net proceeds of the Notes Offering and amounts initially borrowed
under the Term Loans after repayment of existing indebtedness, purchase of
certain equity interests and payment of Merger expenses. Such loan is
reflected in additional paid-in capital of Chemicals and eliminated in
consolidation.
(d) Represents the net effect of the Merger and related financings on the
60.327 million shares issued at $.01 par value per share. There will be
10.891 million shares issued subsequent to the Merger.
(e) Warrants to be issued in connection with the Units Offering, which will be
valued upon determination of the terms of the Units Offering, have not
been valued in the table above.
(f) Reflects the consideration to be paid to the stockholders in the Merger
plus the canceled treasury stock and fees and expenses of the Merger which
are allocated to equity accounts. Netted against these items are the
additional paid-in capital contributed by STX Acquisition, amounts
allocated to par value of Surviving Corporation Common Stock as a result
of the Merger and the historical amount of additional paid-in capital.
(g) Eliminates the unvested portion of the restricted stock which was issued
under the Company's Omnibus Stock and Incentive Plan.
(h) Treasury stock of the Company is eliminated in connection with the Merger.
70
<PAGE>
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Immediately after the Effective Time, the authorized capital stock of the
Surviving Corporation will consist of 20 million shares of common stock, par
value $.01 per share. Immediately after the Effective Time, there will be
approximately 10.9 million shares of Common Stock issued and outstanding.
Additionally, at the Effective Time, the Surviving Corporation will have
reserved additional shares of Common Stock for issuances upon exercise of the
Warrants granted in the Units Offering.
CHANGE IN CERTIFICATE OF INCORPORATION AND BYLAWS
At the Effective Time, the Restated Certificate of Incorporation of the
Company (the "Charter") as in effect on the date thereof shall be amended to
read in its entirety (the "Restated Charter") as set forth in Exhibit B to the
Merger Agreement. A discussion of certain provisions of the Restated Charter
that differ materially from the Charter follows.
NAME
After the filing of the Restated Charter, the name of the Surviving
Corporation shall be "Sterling Chemicals Holdings, Inc."
COMMON STOCK
Number of Shares Authorized. The number of shares of Common Stock that the
Surviving Corporation shall be authorized to issue shall be reduced to 20
million shares under the Restated Charter from 150 million shares under the
Charter.
No Cumulative Voting. The rights to cumulative voting for the election of
directors provided in Section 214 of the Delaware General Corporation Law (the
"DGCL") shall be expressly denied by the Restated Charter.
PREFERRED STOCK
Number of Shares Authorized. The number of shares of "blank check" preferred
stock (the "Preferred Stock") that the Surviving Corporation shall be
authorized to issue shall be reduced to two million shares under the Restated
Charter from 25 million shares in the Charter.
Possible Adverse Effect. Because the Surviving Corporation's Board of
Directors shall have the authority to issue, and to determine the rights,
preferences and powers, including voting rights, of the shares of the
Preferred Stock without any further vote or action by the Surviving
Corporation's stockholders, the rights of the holders of Common Stock will be
subject to and may be adversely affected by the rights of the holders of any
Preferred Stock that may be issued in the future. In addition, the issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Surviving Corporation.
Par Value Per Share. The par value per share of Preferred Stock shall be
reduced from $1.00 per share in the Charter to $0.01 per share in the Restated
Charter.
NUMBER, ELECTION AND REMOVAL OF DIRECTORS
Number of Directors. Under the Restated Charter, the number of directors of
the Surviving Corporation shall be from time to time fixed exclusively by the
Board of Directors in accordance with, and subject to the limitations set
forth in, the bylaws of the Surviving Corporation (the "Bylaws"); provided,
however, that the
71
<PAGE>
Board of Directors shall at all times consist of a minimum of three and a
maximum of 15 members, subject, however, to increases above 15 members as may
be required in order to permit the holders of any series of Preferred Stock to
exercise their right (if any) to elect additional directors under special
circumstances.
Nominations of Directors. Nominations of persons for election to the Board
of Directors may be made by or at the direction of the Board of Directors, in
accordance with the procedures for the nomination of directors set forth in
the Bylaws.
Removal of Directors. No director may be removed before the expiration of
his term of office except by the affirmative vote of the holders of not less
than a majority of the issued and outstanding shares of capital stock of the
Surviving Corporation entitled to vote generally in an election of directors,
voting together as a single class. No recommendation that a director be
removed may be made to the Surviving Corporation's stockholders unless set
forth in a recommendation adopted by the affirmative vote of not less than
two-thirds of the whole Board of Directors.
Vacancies and New Directorships. Any vacancies or newly-created
directorships may be filled only by a majority (or such higher percentage as
may be specified in the Bylaws) of the directors remaining in office. Each
director so appointed shall hold office until his successor is elected and
qualified or until his earlier death, resignation or removal.
LIMITATION OF ACCESS OF STOCKHOLDERS TO BOOKS AND RECORDS
The Board of Directors is expressly authorized and empowered to determine
from time to time whether and to what extent, and at what times and places,
and under what conditions and regulations, the accounts and books of the
Surviving Corporation, or any of them, shall be open to inspection of
stockholders and, except as so determined or as expressly provided in the
Restated Charter or in any Preferred Stock designation, no stockholder shall
have any right to inspect any account, book or document of the Surviving
Corporation other that such rights as may be conferred by applicable law.
LIMITATION ON DIRECTORS AND OFFICERS LIABILITY
The DGCL authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by such
legislation, directors are accountable to corporations and their stockholders
for monetary damages for conduct constituting gross negligence in the exercise
of their duty of care. Although the DGCL does not change directors' duty of
care, it enables corporations to limit available relief to equitable remedies
such as injunction or rescission.
The Restated Charter limits the liability of the Surviving Corporation's
directors to the Surviving Corporation or its stockholders (in their capacity
as directors but not in their capacity as officers) to the fullest extent
permitted by the DGCL. Specifically, directors of the Surviving Corporation
will not be personally liable for monetary damages for breach of a director's
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Surviving 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 DGCL,
or (iv) for any transaction from which the director derived an improper
personal benefit.
The inclusion of this provision in the Restated Charter may have the effect
of reducing the likelihood of derivative litigation against directors and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefited the Surviving Corporation and its
stockholders.
72
<PAGE>
ACTION AND MEETINGS OF STOCKHOLDERS
No action shall be taken by the stockholders of the Surviving Corporation
except at an annual meeting or special meeting of stockholders called by the
Board of Directors or by such officer of the Surviving Corporation authorized
by the Board of Directors to call meetings of the stockholders. Stockholders
shall not be entitled to act by unanimous written consent or to call a meeting
of stockholders except as otherwise provided by law or in the Preferred Stock
designation creating any series of Preferred Stock. Stockholders shall have
the right to propose business for consideration at any meeting of
stockholders, but only as may be expressly provided in, and then only in
compliance with, the Bylaws.
AMENDMENT OF BYLAWS
The Board of Directors is expressly authorized to adopt, alter, amend or
repeal the Bylaws. The Surviving Corporation's stockholders shall have the
power to alter, amend, expand or repeal the Bylaws but only by the affirmative
vote of the holders of two-thirds of the issued and outstanding shares of the
Surviving Corporation's capital stock entitled to vote generally at an
election of directors, voting together as a single class.
AMENDMENT OF RESTATED CHARTER
Article VIII of the Restated Charter provides that the provisions of Article
III (the provisions relating the election, removal and number of the members
of the Board of Directors), Article IV (the provisions relating to the
adoption and amendment of the Bylaws), Article V (the provisions relating to
actions and meetings of the stockholders) and Article VII may be amended or
repealed only by the affirmative vote of the holders of two-thirds of the
issued and outstanding shares of the Surviving Corporation's capital stock
entitled to vote generally at an election of directors, voting together as a
single class.
SECTION 203
Section 203 of the DGCL restricts certain transactions between a corporation
organized under Delaware law (or its majority-owned subsidiaries) and any
person holding 15% or more of the corporation's outstanding voting stock,
together with the affiliates or associates of such person (an "Interested
Stockholder"). Although a corporation may, at its option, exclude itself from
the coverage of Section 203, the Charter does not contain, and the Restated
Charter shall not contain, such a provision.
Section 203 generally prohibits a publicly held Delaware corporation from
engaging in the following transactions with an Interested Stockholder, for a
period of three years from the date the stockholder becomes an Interested
Stockholder (unless certain conditions, described below, are met): (a) all
mergers or consolidations, (b) sales, leases, exchanges or other transfers of
10% or more of the aggregate assets of the corporation, (c) issuances or
transfers by the corporation of any stock of the corporation which would have
the effect of increasing the Interested Stockholder's proportionate share of
the stock of any class or series of the corporation, (d) any other transaction
which has the effect of increasing the proportionate share of the stock of any
class or series of the corporation which is owned by the Interested
Stockholder, and (e) receipt by the Interested Stockholder of the benefit
(except proportionately as a stockholder) of loans, advances, guarantees,
pledges or other financial benefits provided by the corporation.
The three-year ban does not apply if either the proposed transaction or the
transaction by which the Interested Stockholder became an Interested
Stockholder is approved by the board of directors of the corporation prior to
the date such stockholder becomes an Interested Stockholder. Additionally, an
Interested Stockholder may avoid the statutory restriction if, upon the
consummation of the transaction whereby such stockholder becomes an Interested
Stockholder, the stockholder owns at least 85% of the outstanding voting stock
of the corporation without regard to those shares owned by the corporation's
directors who are also officers or certain employee stock plans. Business
combinations are also permitted within the three-year period if approved by
the board of directors and authorized at an annual or special meeting of
stockholders, by the holders of at least two-thirds of the outstanding voting
stock not owned by the Interested Stockholder. In addition, any transaction is
73
<PAGE>
exempt from the statutory ban if it is proposed at a time when the corporation
has proposed, and a majority of certain continuing directors of the
corporation have approved, a transaction with a party which is not an
Interested Stockholder of the corporation (or who becomes such with board
approval) if the proposed transaction involves (a) certain mergers or
consolidations involving the corporation, (b) a sale or other transfer of over
50% of the aggregate assets of the corporation, or (c) a tender or exchange
offer for 50% or more of the outstanding voting stock of the corporation.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
HISTORICAL
The following table sets forth the beneficial ownership, as such term is
defined under Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), of the Common Stock as of July 15, 1996, by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each senior officer of the Company, and (iv) all of the directors and senior
officers as a group. Unless otherwise indicated, each of the stockholders has
sole voting and investment power with respect to the shares beneficially
owned.
<TABLE>
<CAPTION>
TOTAL
BENEFICIAL PERCENT OF
SHARES HELD OWNERSHIP OF OUTSTANDING
NAME OF BENEFICIAL OWNER IN ESOP(1) COMMON STOCK COMMON STOCK
- ------------------------ ----------- ------------ ------------
<S> <C> <C> <C>
Gordon A. Cain......................... -- 6,632,850(2) 11.9%
J. Virgil Waggoner..................... 77,311 4,113,033(3) 7.4
William A. McMinn...................... -- 84,579 *
James J. Kerley........................ -- 144,579 *
Gilbert M. A. Portal................... -- -- --
Frank J. Pizzitola..................... -- 10,000 *
Raymond R. Knowland.................... -- 2,500 *
Robert W. Roten........................ 49,084 997,232 1.8
Robert N. Bannon....................... 28,937 163,085 *
Richard K. Crump....................... 37,391 476,533 *
Jim P. Wise............................ 419 26,269 *
F. Maxwell Evans....................... 2,178 47,741 *
Robert O. McAlister.................... 4,311 36,461 *
Stewart H. Yonts....................... 20,602 72,776 *
All senior officers and directors of
the Company as a group
(14 persons).......................... 220,233 12,807,638(4) 23.0
</TABLE>
- --------
* Less than 1%
(1) Represents shares over which the individual has sole voting power, held by
Merrill Lynch Trust Company of Texas ("Merrill Lynch"), as trustee of the
Sterling Chemicals, Inc. Employee Stock Ownership Plan ("ESOP") as of July
15, 1996 and allocated to the participant's account.
(2) Includes 375,000 shares held in Mr. Cain's Keogh Plan, over which Mr. Cain
has sole voting power and includes 2,100,000 shares held by a private
family foundation for which Mr. Cain serves as the Chairman of the Board
of Trustees and has shared voting and disposition powers.
(3) Includes 50,604 shares held by Mr. Waggoner's wife.
(4) Includes 220,233 shares held by Merrill Lynch, as trustee of the ESOP and
allocated through July 15, 1996 to the accounts of such officers.
Employees of the Company, including the Company's senior officers, own
6,010,518 shares of Common Stock through the ESOP, which represents 10.8% of
the outstanding shares. These shares are held of record by Merrill Lynch, as
trustee of the ESOP. The ESOP shares are allocated to the account of the
employee who has sole voting power over such shares.
74
<PAGE>
AFTER THE MERGER
The Equity Private Placement will be consummated simultaneously with the
Merger and shares of STX Acquisition common stock purchased in the Equity
Private Placement will be converted into a certain number of shares of common
stock of the Surviving Corporation. In connection with the Equity Private
Placement, the purchasers therein and certain other stockholders of the
Company have agreed to enter into a Stockholders Agreement which restricts
transfer of shares of common stock of the Surviving Corporation held by such
stockholders (with certain exceptions) unless such shares are first offered to
the New ESOP, the Surviving Corporation and finally to the other stockholders
party to the agreement. In addition, the agreement restricts the ability of
any stockholder who is a party to the agreement to initiate a disposition of a
control position in the Surviving Corporation without first complying with the
right of first refusal provisions. It is anticipated that upon consummation of
the Merger, investors in the Equity Private Placement including affiliates of
TSG and Unicorn and certain principal stockholders of the Company will own at
least approximately 75% of the common stock of the Surviving Corporation
assuming the Maximum Rollover Amount.
As of the date hereof, it is expected that upon consummation of the Merger
each of (i) various funds and accounts advised by The Clipper Group, L.P.,
(ii) Koch Equities, Inc., (iii) Fayez Sarofim & Co., (iv) Olympus Growth Fund
II, L.P., (v) Frank J. Hevrdejs and (vi) Frank P. Diassi will beneficially own
5% or greater of the outstanding capital stock of the Surviving Corporation.
In addition, William C. Oehmig, Hunter Nelson and Susan O. Rheney, principals
of TSG, will invest in the Equity Private Placement and be stockholders of the
Surviving Corporation. A Voting Agreement among TSG, Koch Equities and the The
Clipper Group, L.P. will provide for each of such parties to vote their shares
of the Surviving Corporation common stock in favor of a nominee to the Board
of Directors of the Surviving Corporation to be selected by each of Koch
Equities Inc. and The Clipper Group L.P. The rights of Koch Equities Inc. and
The Clipper Group, L.P. to select a nominee under such Voting Agreement are
terminated in the event their ownership of the Surviving Corporation common
stock represents less than 5% of the total outstanding shares of the Surviving
Corporation common stock. In addition, persons who will acquire 10% or more of
the Surviving Corporation common stock pursuant to the Equity Private
Placement and certain other stockholders will be parties to a Registration
Rights Agreement providing certain piggyback and demand registration rights to
such stockholders.
Although the senior officers and directors of the Company will have an
opportunity to elect to retain Rollover Shares in the same fashion as other
shareholders, no senior officer or director of the Company will be
participating in the Equity Private Placement other than Mr. Jim P. Wise, Vice
President--Finance and Chief Financial Officer and Mr. Robert O. McAlister,
Vice President--Human Resources. Mr. Wise intends to purchase 800 shares in
the Equity Private Placement representing an investment of $96,000. Mr.
McAlister intends to purchase 1,071 shares in the Equity Private Placement
representing an investment of $128,520. No other current senior officer or
director of the Company is affiliated with any of the investors in the Equity
Private Placement.
75
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE SURVIVING CORPORATION
The Merger Agreement provides that the current directors of the Company will
be asked to resign and they will be replaced by the current directors of STX
Acquisition and other director candidates to be nominated by STX Acquisition.
Except for J. Virgil Waggoner, none of these candidates will come from the
current Board of Directors of the Company. The Merger Agreement further
provides that the current officers of the Company immediately prior to the
Effective Time will be the officers of the Surviving Corporation after the
Merger. The directors and executive officers of the Surviving Corporation
following the Merger will include:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Frank P. Diassi.................. 63 Chairman of the Board of Directors
Robert W. Roten.................. 62 President, Chief Executive Officer and Director
Jim P. Wise...................... 52 Vice President--Finance and Chief Financial Officer
Richard K. Crump................. 50 Vice President--Commercial
Robert N. Bannon................. 51 Vice President--Operations, President Sterling Pulp Chemicals,
Ltd.
F. Maxwell Evans................. 51 Vice President, General Counsel and Secretary
Robert O. McAlister.............. 56 Vice President--Human Resources and Administration
Stewart H. Yonts................. 50 Treasurer
J. Virgil Waggoner............... 68 Director (Vice Chairman)
Frank J. Hevrdejs................ 50 Director
Hunter Nelson.................... 43 Director
</TABLE>
Frank P. Diassi. Mr. Diassi is currently Managing General Partner of
Unicorn, a private financial organization. He organized Unicorn in 1984 and
has originated investments in over 40 entrepreneurial companies. Prior to
forming Unicorn, Mr. Diassi organized and operated several businesses ranging
from chemical distribution to the manufacturing of organic chemicals and
detergent products. In addition, he had a number of years of executive
experience with the petrochemical department of Continental Oil Company. He
has been Chairman of the Board of Hawkeye Chemical Company and was a founding
director of Arcadian Corporation, the largest nitrogen fertilizer company in
the Western hemisphere. Mr. Diassi currently serves as Chairman of the Board
of Software Plus, Inc. In addition, he serves on the Board of Mail-Well, Inc.
and several private companies. In 1991, Unicorn Ventures, Ltd. and Unicorn
Ventures II, L.P. (the "Ventures"), small business investment companies acting
under license of the Small Business Administration (the "SBA"), and of which
Unicorn was the managing general partner, filed for reorganization under
Chapter 11 of the Federal Bankruptcy Code. The Ventures were successfully
reorganized in 1995 pursuant to a plan which included full payment of general
creditors and a restructuring of the secured debt held by the SBA.
Robert W. Roten. Mr. Roten spent the first 25 years of his career with
Monsanto Company and served as Vice President for sales and marketing for El
Paso Products Company from 1981 to 1983. Mr. Roten was President of Materials
Exchange, Inc., a Houston-based petrochemical and plastics marketing firm,
from 1983 until 1986. He served as Vice President--Commercial of the Company
from August 1986 until September 1991, when he became Vice President--
Corporate Development. Mr. Roten became Executive Vice President and Chief
Operating Officer of the Company in April 1993.
Jim P. Wise. Mr. Wise was employed by Transco Energy Company as Executive
Vice President, Chief Financial Officer and a member of the Board of Directors
from November 1982 until September 1991. From September 1991 to July 1994, he
was Chairman and Chief Executive Officer of Neostar Group, Inc., a private
investment banking and financial advisory firm. From July 1994 to September
1994, he was Senior Vice President and Chief Financial Officer of U.S.
Delivery Systems, Inc. Mr. Wise joined the Company on September 26, 1994 as
Vice President--Finance and Chief Financial Officer.
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.
76
<PAGE>
Robert N. Bannon. Mr. Bannon was employed by Monsanto Company for 15 years,
most recently as Manager, Strategic Operations--Sales. He became a Director in
the Company's Commercial Department in August 1986. He became the Director of
Manufacturing for the Company in October 1989, and served in that capacity
until he became Vice President--Operations in October 1991. Mr. Bannon has
been the President of Sterling Pulp Chemicals, Ltd. since August 1992 and is a
Director of Mainland Bank in Texas City, Texas.
F. Maxwell Evans. Mr. Evans joined the law firm of Bracewell & Patterson of
Houston, Texas in 1973 and was a partner in the firm from 1979 through
December 1991. He received an L.L.M. in Environmental Law in August 1992. He
became General Counsel and Secretary of the Company on September 1, 1992 and
was promoted to Vice President, General Counsel and Secretary on July 26,
1995.
Robert O. McAlister. Mr. McAlister was employed by Champlin Petroleum
Company, a subsidiary of Union Pacific Corporation from 1974 to 1987 where he
held a variety of positions in Human Resources, Marketing and Strategic
Planning. In 1987, he joined Champlin Refining and Chemicals, Inc., a joint
venture between Champlin Petroleum and PDVSA, the national oil company of
Venezuela, as Vice President of Human Resources. He joined the Company in 1991
as Director of Human Resources and was promoted to Vice President--Human
Resources and Administration on July 26, 1995.
Stewart H. Yonts. Mr. Yonts was employed by Tenneco, Inc. from 1976 to 1980,
last serving as Tax Counsel. Mr. Yonts was Tax Manager of Home Petroleum
Corporation from 1980 to 1982 and Director of Taxes of MCO Resources, Inc., a
natural resources company, from 1982 to 1986. He joined the Company as Tax
Manager in August 1986 and served as Manager of Taxes and Benefits Accounting
from November 1989 until he became the Treasurer on October 1, 1994.
J. Virgil Waggoner. Mr. Waggoner has served as President of the Company
since 1986. From 1950 to 1980 Mr. Waggoner was employed by Monsanto Company,
last serving as Group Vice President and Managing Director of Monsanto's
Plastics and Resins Company. Mr. Waggoner was President of El Paso Products
Company (now a subsidiary of Rexene Corporation), a commodity chemicals and
plastics company, from 1980 to 1983 and was a self-employed industry
consultant from 1983 to 1986. Mr. Waggoner has been on the Boards of Directors
of Kirby Corporation and Mail-Well, Inc. since July 1993 and February 1994,
respectively.
Frank J. Hevrdejs. Mr. Hevrdejs is a principal and President of TSG, which
he co-founded in 1982. Mr. Hevrdejs has actively participated in acquisitions
of over 40 businesses in the past 15 years. He is Chairman of First Sterling
Ventures Corp., an investment company, Enduro Holdings, Inc., a structural and
electrical manufacturing company, and Fibreglass Holdings, Inc., a truck
accessory manufacturer. He is also a board member of Mail-Well, Inc., an
envelope manufacturer and commercial printer, Purina Mills, Inc., an animal
feed producer, and Eagle U.S.A., an air-freight company.
Hunter Nelson. Mr. Nelson is currently a principal with TSG. Prior to
joining TSG in 1989, he served as vice president of administration and general
counsel of Fiber Industries, Inc., a producer of polyester fibers. Mr. Nelson
was previously a partner in the law firm of Andrews & Kurth L.L.P.
specializing in general corporate and securities law. Mr. Nelson serves on the
board of Sterling Diagnostic Imaging, Inc. and several other private
companies.
In addition to the above named directors, the following individuals are
expected to become directors as a result of significant purchases of STX
Acquisition Common Stock in the Equity Private Placement by entities with
which they are affiliated.
George B. Gregory. Age 33. Mr. Gregory is a Managing Director in the Koch
Equities group of Koch Industries, Inc. where he is responsible for leading
the chemical investment and acquisitions effort. Prior to joining Koch
Equities, Mr. Gregory worked as a consultant for Monitor Company and as a
chemist for E.I. duPont de Nemours & Company.
Robert B. Calhoun. Age 53. Mr. Calhoun has been President of Clipper Asset
Management Corporation, the sole general partner of The Clipper Group, L.P., a
private investment firm, since 1991, and of Clipper Capital Corporation, the
sole general partner of Clipper Capital Partners, L.P., an affiliated private
investment firm, since 1993. From 1975 to 1991, Mr. Calhoun was a Managing
Director of CS First Boston Corporation. Mr. Calhoun
77
<PAGE>
is also a director of HighwayMaster Communications, Inc., Avondale
Incorporated and Interstate Bakeries Corporation.
CERTAIN FINANCIAL PROJECTIONS
The Company does not, as a matter of course, publicly disclose projections
as to future revenues, earnings or other financial information. Certain
projections (the "Projections") were prepared by management of the Company and
furnished to its directors, the Special Committee and to Lazard in the course
of the Special Committee's examination of the Company's strategic
alternatives. The Projections were used by Lazard in connection with its
evaluation of the Merger and other proposals and alternatives considered by
the Special Committee. The Projections are not included in this Proxy
Statement to induce any stockholder to vote for the authorization and adoption
of the Merger Agreement or to influence any stockholder with respect to the
Rollover Election. None of the Company, or any of its financial advisors or
any of their respective directors or officers, assumes any responsibility as a
result of their inclusion in this Proxy Statement for the accuracy of the
Projections. The Projections were based upon a variety of assumptions,
including those set forth below. Such assumptions involve judgments with
respect to, among other things, future economic, competitive and regulatory
conditions, financial market conditions and future business decisions, all of
which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. While the Company believes that the
assumptions underlying the Projections were reasonable when made, the
Projections include fiscal 1996 results that are not reasonably achievable
under current circumstances. The commodity chemicals industry in which the
Company operates is cyclical and volatile in nature and the Company's
operating leverage can result in small changes in pricing or costs having a
material effect on profitability; any projections must accordingly be deemed
inherently unreliable. Accordingly, it is expected that there will be
differences between actual and projected results, and actual results may be
materially higher or lower than projected results.
The Projections below were not prepared with a view to public disclosure or
compliance with published guidelines of the SEC, nor were they prepared in
accordance with the guidelines established by the American Institute of
Certified Public Accountants for preparation and presentation of financial
projections. In addition, the Projections do not purport to present operations
in accordance with generally accepted accounting principles and have not been
audited, compiled or otherwise examined by Arthur Andersen LLP ("Arthur
Andersen"), the Company's independent accountants, or by any other independent
accountants. Accordingly, neither Arthur Andersen nor any other independent
accountants assume responsibility for the Projections presented below.
Set forth below is certain projected consolidated income statement
information for the years ending September 30, 1996 through September 30, 2000
and certain projected consolidated balance sheet information as of September
30, for each year in the period 1996 through 2000. The Projections for the
years ending September 30, 1996 through September 30, 1998 were prepared by
management of the Company. The Projections for the years ending September 30,
1999 and September 30, 2000 were prepared by Lazard and reviewed by management
of the Company. The expected case and downside case Projections, as utilized
by the Special Committee for these periods, are presented below. In view of
expectations regarding worldwide capacity additions and market conditions as
they existed at the time, the Special Committee, management of the Company and
Lazard believed that the expected case and downside case Projections
adequately bounded the Company's expected range of performance. Therefore, no
upside case projections were considered by the Special Committee. The
significant assumptions underlying the Projections are described in the notes
following the Projections. The Projections were prepared several months ago
and must be reviewed in light of the Company's more recent financial
performance. In addition, the Projections do not take into account the
consummation of the Merger (including the Financing).
AS A GENERAL MATTER, THE PROJECTIONS ARE FORWARD LOOKING STATEMENTS AND
ACTUAL RESULTS COULD DIFFER MATERIALLY AS A RESULT OF ANY OR ALL OF THE
FACTORS AFFECTING THE COMPANY'S BUSINESS THAT HAVE BEEN IDENTIFIED ELSEWHERE
IN THIS PROXY STATEMENT OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN.
78
<PAGE>
THE PROJECTIONS SET FORTH BELOW ARE INCLUDED SOLELY BECAUSE SUCH PROJECTIONS
WERE CONSIDERED BY THE SPECIAL COMMITTEE IN THE COURSE OF THE SPECIAL
COMMITTEE'S EVALUATION OF THE COMPANY'S STRATEGIC ALTERNATIVES. THE
PROJECTIONS FOR THE FISCAL YEARS 1996, 1997 AND 1998 WERE DEVELOPED, HOWEVER,
DURING FISCAL 1995 IN CONNECTION WITH THE COMPANY'S INTERNAL THREE-YEAR PLAN
AND, TOGETHER WITH THE PROJECTIONS FOR FISCAL 1999 AND 2000, WERE SUBSEQUENTLY
REVISED DURING THE AUCTION PROCESS. SINCE THAT TIME, MARKET CONDITIONS FOR
STYRENE AND ACRYLONITRILE HAVE WEAKENED, AND SUCH WEAKNESS HAS BEEN REFLECTED
IN THE COMPANY'S RECENT RESULTS. THE PROJECTIONS REFLECTED FISCAL 1996 EBITDA
OF $187.9 MILLION, BUT ACTUAL EBITDA FOR THE NINE MONTHS ENDED JUNE 30, 1996
WAS ONLY $100 MILLION. ACCORDINGLY, THE FISCAL 1996 EBITDA REFLECTED IN THE
PROJECTIONS IS NOT REASONABLY ATTAINABLE GIVEN RECENT OPERATING RESULTS.
READERS ARE STRONGLY CAUTIONED THAT THE PROJECTIONS SHOULD NOT BE RELIED UPON
AS A CURRENT ESTIMATE BY MANAGEMENT OF PROJECTED OPERATING RESULTS.
COMPANY EXPECTED CASE
<TABLE>
<CAPTION>
PROJECTED
-------------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- -------
(DOLLARS IN MILLIONS EXCEPT PER SHARE
DATE)
<S> <C> <C> <C> <C> <C>
Petrochemicals EBITDA..... $ 126.1 $ 122.3 $ 76.3 $117.7 $133.1
Pulp chemicals EBITDA..... 61.8 85.8 104.4 102.9 94.7
------- ------- ------- ------- -------
Operating EBITDA.......... 187.9 208.1 180.6 220.7 227.8
Cost savings.............. -- -- -- -- --
Total EBITDA.............. 187.9 208.1 180.6 220.7 227.8
Less depreciation......... (39.1) (52.8) (55.1) (55.1) (55.1)
------- ------- ------- ------- -------
EBIT.................... 148.8 155.3 125.6 165.6 172.7
SAR's & other income...... (2.7) (2.5) (1.2) (1.2) (1.2)
Interest income (expense). (10.2) (3.6) 10.7 27.9 47.5
------- ------- ------- ------- -------
Pretax income........... 135.9 149.3 135.1 192.3 219.0
Income taxes.............. (47.6) (52.2) (47.3) (67.3) (76.7)
------- ------- ------- ------- -------
Net income.............. $ 88.3 $ 97.0 $ 87.8 $125.0 $142.4
------- ------- ------- ------- -------
E.P.S................... $ 1.59 $ 1.74 $ 1.58 $ 2.24 $ 2.56
Shares outstanding...... 55.7 55.7 55.7 55.7 55.7
------- ------- ------- ------- -------
Plus: deferred taxes...... $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: depreciation &
amortization............. 39.1 52.8 55.1 55.1 55.1
Less: change in working
capital.................. (29.7) (3.2) 18.0 (1.5) 0.4
Less: capital
expenditures............. (104.2) (47.5) (31.5) (25.0) (25.0)
------- ------- ------- ------- -------
Free cash flow.......... $ 3.7 $111.4 $137.5 $160.8 $179.5
======= ======= ======= ======= =======
Cash & investments........ $ 0.0 $24.6 $162.1 $322.9 $502.4
------- ------- ------- ------- -------
Total debt................ $ 86.8 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Net debt.................. $ 86.8 $ (24.6) $(162.1) $(322.9) $(502.4)
Stockholders' equity...... $ 327.6 $ 424.6 $ 512.5 $ 637.5 $ 779.8
</TABLE>
See accompanying notes to Certain Financial Projections.
79
<PAGE>
COMPANY DOWNSIDE CASE
<TABLE>
<CAPTION>
PROJECTED
----------------------------------------
1996 1997 1998 1999 2000
------ ------ ------ ------- -------
(DOLLARS IN MILLIONS EXCEPT PER
SHARE DATA)
<S> <C> <C> <C> <C> <C>
Petrochemicals EBITDA................. $101.1 $ 71.2 $ 41.8 $ 79.9 $ 94.9
Pulp chemicals EBITDA................. 61.8 72.0 78.4 90.0 82.5
------ ------ ------ ------- -------
Operating EBITDA...................... 162.9 143.2 120.2 170.0 177.4
Cost savings.......................... -- -- -- -- --
Total EBITDA.......................... 162.9 143.2 120.2 170.0 177.4
Less: depreciation.................... (39.1) (52.1) (53.4) (53.4) (53.4)
------ ------ ------ ------- -------
EBIT................................ 123.8 91.1 66.8 116.5 123.9
SAR's & other income.................. (2.7) (2.5) (1.2) (1.2) (1.2)
Interest income (expense)............. (11.2) (7.2) 3.3 15.7 30.2
------ ------ ------ ------- -------
Pretax income....................... 109.9 81.4 68.8 131.1 153.0
Income taxes.......................... (38.5) (28.5) (24.1) (45.9) (53.5)
------ ------ ------ ------- -------
Net income.......................... $ 71.4 $ 52.9 $ 44.7 $ 85.2 $ 99.4
------ ------ ------ ------- -------
E.P.S............................... $ 1.28 $ 0.95 $ 0.80 $ 1.53 $ 1.79
Shares outstanding.................. 55.7 55.7 55.7 55.7 55.7
------ ------ ------ ------- -------
Plus: deferred taxes.................. $ 10.2 $ 12.3 $ 8.1 $ 7.2 $ 6.7
Plus: depreciation & amortization..... 39.1 52.1 53.4 53.4 53.4
Less: change in working capital....... (29.7) (3.2) 18.0 (3.4) 0.4
Less: capital expenditures............ (104.2) (31.7) (25.0) (25.0) (25.0)
------ ------ ------ ------- -------
Free cash flow...................... $(13.2) $ 82.4 $ 99.3 $ 177.4 $ 135.0
====== ====== ====== ======= =======
Cash & investments.................... $ 0.0 $ 0.0 $ 78.0 $ 195.4 $ 330.5
------ ------ ------ ------- -------
Total debt............................ $103.7 $ 21.3 $ 0.0 $ 0.0 $ 0.0
Net debt.............................. $103.7 $ 21.3 $(78.0) $(195.4) $(330.5)
Stockholders' equity.................. $310.7 $363.6 $408.4 $ 493.6 $ 593.0
</TABLE>
See accompanying notes to Certain Financial Projections.
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NOTES TO CERTAIN FINANCIAL PROJECTIONS
Assumptions used in formulating the Projections included the following:
I. General
(a) Petrochemical business will generally be moving down in the business
cycle.
(b) Pulp chemicals will be moving into a period of strong growth in demand
and margins.
(c) Strong financial capital structure in all cases with debt capacity
available and cash buildup available for growth or other shareholder
wealth options.
(d) Significant investment in growth and modernization of all plant
facilities.
(1)Methanol Plant -- 150M gallons.
(2)Acetic Plant -- two expansion to 1.0 billion lbs.
(3)Plasticizers Expansion -- 10% capacity increase.
(4)Styrene -- expanded capacity to 1.7 billion lbs.
(5)Valdosta Chlorate Plant -- 110,000 short tons.
II. Expected Case
(a) Markets
(1)Petrochemicals
(i)Slow to moderate growth in U.S. and global economy during forecast
period.
(ii) Current Far East disruption in supply/demand balance in styrene is
temporary and styrene shows gradual improvement during first
quarter of fiscal 1996 with good supply/demand balance through
third quarter of fiscal 1996 and then trailing off during fourth
quarter. Sharp drop in demand and margins for styrene in 1997 and
1998 as a result of new worldwide capacity.
(iii) Acrylonitrile demand will continue to support strong margins in
fiscal 1996 and 1997 with a drop off in demand and margins to
historical levels in 1998.
(2)Pulp Chemicals
(i) Strong growth rate for sodium chlorate through 1998, with Valdosta
plant on-stream in the first quarter of fiscal 1997.
(3)Sales Volumes
(i) Styrene 1450 Mlbs Average Annual Volume (90% of Capacity 1996, 80%
- 85% of Capacity 1997 - 1998).
Export Volumes 50%
Domestic Volumes 50%
(ii)Acrylonitrile 674 Mlbs Average Annual Volume (91% of Capacity)
Export Volumes 55%
Domestic Volumes 45%
(4)Capital Projects
Methanol Plant FY 1996 $ 26 million
Acetic Expansion FY 1996 $ 3 million
Valdosta Chlorate PlantFY 1997 $ 54 million
Total Capital Expenditures
1996-98 $183 million
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III. Downside Case
(a) Markets
(1)Petrochemicals
(i) Weak growth rates in U.S. and global markets during forecast
period.
(ii) Extended demand/supply interruptions in Far East in styrene with
modest improvement during second half of 1996. Margins continue to
decline in fiscal 1997 and 1998 as a result of new worldwide
capacity.
(iii) All fiber markets weaken during forecast period with
acrylonitrile margins near historical pre-1995 level during
forecast period.
(2)Pulp Chemicals
(i) Slower growth rate for sodium chlorate during forecast period with
Valdosta plant on-stream in fiscal 1997.
(3)Sales Volumes
(i) Styrene 1450 Mlbs Average Annual Volume (90% of Capacity 1996, 80%
- 85% of Capacity 1997, 1998)
Export Volumes 50%
Domestic Volumes 50%
(ii) Acrylonitrile 632 Mlbs Average Annual Volume (85% of Capacity)
Export Volumes 51%
Domestic Volumes 49%
(4)Capital Projects
Methanol Plant FY 1996 $ 26 million
Acetic Expansion FY 1996 $ 3 million
Valdosta Chlorate Plant
FY 1997
$ 54 million
Total Capital Expenditures
1996-98 $161 million
82
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), independent auditors,
audited and reported on the consolidated financial statements of the Company
and its subsidiaries for its fiscal year ended September 30, 1995. Such
financial statements have been incorporated by reference in this Proxy
Statement in reliance upon such report.
On October 25, 1995, the Audit Committee of the Board of Directors of the
Company recommended and the Board of Directors of the Company approved the
engagement of the firm of Arthur Andersen LLP ("Arthur Andersen") as its
independent auditors for the year ending September 30, 1996, to replace the
firm of Coopers & Lybrand. The termination by the Company of the engagement of
Coopers & Lybrand was effective upon the completion of the audit for the year
ended September 30, 1995, and the filing of the Company's Annual Report on
Form 10-K for such year. The appointment of Arthur Andersen as the Company's
independent auditors for the fiscal year ending September 30, 1996 was
ratified by the stockholders at the 1996 Annual Meeting of Stockholders.
During the two most recent fiscal years and the subsequent period through
December 18, 1995, the date of filing of the Company's Annual Report on Form
10-K, there were no disagreements with Coopers & Lybrand on any matter of
accounting principles or practices, financial statement disclosure, or audit
scope or procedures, which disagreements, if not resolved to their
satisfaction, would have caused them to make reference in connection with
their report to the subject matter of the disagreement.
During the two most recent fiscal years and the subsequent period through
December 18, 1995, the date of filing of the Company's Annual Report on Form
10-K, the Company has not been advised by Coopers & Lybrand of any of the
reportable events listed in Item 304(a)(1)(v)(A) through (D) of SEC Regulation
S-K and during such period the Company has not consulted with Arthur Andersen
regarding any matter referenced under Item 304(a)(2) of SEC Regulation S-K.
The audit reports of Coopers & Lybrand on the consolidated financial
statements of the Company as of and for the fiscal years ended September 30,
1995 and 1994, did not contain any adverse opinion or disclaimer of opinion,
nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles, except for an explanatory paragraph noting that the
Company changed its method of accounting for income taxes effective October 1,
1993.
Representatives of Arthur Andersen and Coopers & Lybrand are expected to be
present at the Special Meeting, will be given an opportunity to make a
statement, if they desire to do so, and will be available to respond to
appropriate questions.
FEES AND EXPENSES
The Merger Agreement provides that TSG and STX Acquisition, on the one hand,
and the Company, on the other hand, will bear their respective expenses
incurred in connection with the contemplated sale of the Company, except in
certain circumstances specified in the Merger Agreement relating to the
termination thereof. See "THE MERGER--Terms of the Merger--Fees and Expenses."
The estimated expenses incurred and to be incurred by the Company, TSG and STX
Acquisition in connection with the Merger and the related transactions are as
follows:
<TABLE>
<S> <C>
Advisory, investment banking and commercial banking fees(1)... 36,500,000
Filing fees................................................... 300,000
Legal fees(2)................................................. 2,200,000
Printing and mailing fees..................................... 400,000
Accounting fees............................................... 600,000
-----------
Total......................................................... $40,000,000
===========
</TABLE>
83
<PAGE>
- --------
(1) Includes an aggregate $12.0 million fee payable to TSG and Unicorn.
(2) Includes the fees and estimated expenses of counsel to the Board and the
Special Committee (see "SPECIAL FACTORS--Background") and counsel to TSG
and STX Acquisition. Does not include fees and disbursements in connection
with the litigation described in "THE MERGER--Certain Litigation" or any
other litigation that may relate to the Merger.
ADDITIONAL INFORMATION
The Company, TSG and STX Acquisition have filed a Schedule 13E-3 with the
SEC with respect to the Merger. As permitted by the rules and regulations
under the Exchange Act, this Proxy Statement omits certain information
contained in the Schedule 13E-3. The Company is subject to the informational
requirements of the Exchange Act and in accordance therewith files periodic
reports, proxy statements and other information with the SEC. The Schedule
13E-3 and the respective exhibits thereto, as well as such reports, proxy
statements and other information, may be inspected and copied at the SEC's
offices, without charge, or copies thereof may be obtained from the SEC upon
payment of prescribed rates. Copies of the Schedule 13E-3 may also be obtained
without charge by calling the Company's Secretary at (713) 650-3700.
Statements contained in this Proxy Statement concerning documents filed with
the SEC as exhibits to the Schedule 13E-3 or included with this Proxy
Statement as annexes are necessarily incomplete and are, in each instance,
qualified by reference to such exhibit or annex.
INCORPORATION BY REFERENCE
The following documents filed by the Company with the SEC are incorporated
herein by reference:
1. Annual Report on Form 10-K for the fiscal year ended September 30, 1995,
as amended by Form 10-K/A dated April 5, 1996.
2. Quarterly Reports on Form 10-Q for the quarters ended December 31, 1995
and March 31, 1996.
3. Current Reports on Form 8-K dated December 18, 1995, April 26, 1996 (as
amended June 14, 1996), and June 25, 1996 (as amended June 27, 1996).
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), or 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement and prior to the date of the Special Meeting shall be deemed
incorporated by reference into this Proxy Statement and to be a part hereof
from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Proxy Statement to
the extent that a statement contained herein, or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Proxy Statement.
A copy of the documents incorporated herein by reference (without exhibits,
unless such exhibits are specifically incorporated by reference into the
information incorporated by reference herein) that are not delivered herewith
will be provided, without charge, to each person, including each beneficial
owner, to whom a copy of this Proxy Statement is delivered, upon written or
oral request of such person and by first class mail or other equally prompt
means within one business day of receipt of request. Requests should be
directed to Sterling Chemicals, Inc., 1200 Smith Street, Suite 1900, Houston,
Texas 77002-4312., attention: Office of the Secretary, telephone number (713)
650-3700.
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<PAGE>
OTHER MATTERS
The Board of Directors of the Company does not intend to bring any other
matters before the Special Meeting and does not know of any other matters that
may be brought before the Special Meeting by others. If any other matter
should come before the Special Meeting, the persons named in the enclosed
proxy will have discretionary authority to vote the shares of Common Stock
thereby represented in accordance with their best judgment.
The Surviving Corporation will hold its 1997 Annual Meeting of Stockholders
in accordance with the Surviving Corporation's amended Bylaws and the DGCL.
Stockholder proposals intended to be presented at the 1997 Annual Meeting of
Stockholders must have been received by the Surviving Corporation at its
principal executive offices not later than August 23, 1996 for inclusion in
the proxy materials for the 1997 Annual Meeting.
85
<PAGE>
ANNEX A
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
This Amended and Restated Agreement and Plan of Merger, dated as of April
24, 1996 and amended as of June 11, 1996, is between STX Acquisition Corp., a
Delaware corporation ("Newco"), and Sterling Chemicals, Inc., a Delaware
corporation (the "Company").
Whereas, the Board of Directors of Newco has approved the merger (the
"Merger") of Newco with and into the Company in accordance with the General
Corporation Law of the State of Delaware (the "DGCL") upon the terms and
subject to the conditions set forth herein;
Whereas, the Board of Directors of the Company has (i) approved this
Agreement and the transactions contemplated hereby, (ii) determined that the
consideration to be paid for the outstanding shares of the Company's common
stock, par value $.01 per share, (the "Company Common Stock") in the Merger is
fair to and in the best interests of the stockholders of the Company and (iii)
resolved to recommend to the stockholders of the Company that they vote in
favor of adoption of this Agreement;
Whereas, in order to induce Newco to enter into this Agreement, certain
stockholders of the Company are, contemporaneously with the execution and
delivery of this Agreement, executing and delivering to Newco an Agreement and
Irrevocable Proxy evidencing their agreement to vote their shares of Company
Common Stock in favor of the Merger;
Whereas, in order to ensure that sufficient cash will be available to
convert all shares of Company Common Stock that the holders thereof desire to
have converted into cash, certain stockholders of the Company, at the request
of and as an accommodation to the Company are, contemporaneously with the
execution and delivery of this Agreement, executing and delivering to the
Company an Inducement Agreement (the "Inducement Agreement") evidencing their
agreement to make Rollover Elections (as defined below) with respect to all or
a portion of the shares of Company Common Stock held by such stockholders; and
Whereas, the Board of Directors of the Company has unanimously approved the
execution and delivery of each Agreement and Irrevocable Proxy referred to
above and the Inducement Agreement and the transactions contemplated thereby,
respectively.
Now, Therefore, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Newco and the Company hereby agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.01. Certain Defined Terms. Capitalized terms used in this
Agreement shall have the following respective meanings, except as otherwise
provided herein or as the context shall otherwise require:
"Acquisition Transaction" has the meaning specified in Section 6.02(a).
"Agreement" means this Amended and Restated Agreement and Plan of Merger.
"Benefit Plan" has the meaning specified in Section 4.09A(a).
"Business Day" means any day on which commercial banks are not authorized
or required to close in New York, New York.
"Canadian Plans" has the meaning specified in Section 4.09B(a).
"CERCLA" has the meaning specified in the definition of Environmental
Laws.
"Certificate of Merger" has the meaning specified in Section 2.03(a).
A-1
<PAGE>
"Claim" means any claim, demand, investigation, cause of action, suit,
default, assessment, litigation, third party action, arbitral proceeding or
proceeding by or before any Governmental Authority or any other Person.
"Closing" has the meaning specified in Section 2.02.
"Closing Date" has the meaning specified in Section 2.02.
"Code" means the Internal Revenue Code of 1986, and any successor statute
of similar import, together with the regulations thereunder.
"Commonly Controlled Entity" has the meaning specified in Section
4.09A(c).
"Company" has the meaning specified in the introductory paragraph of this
Agreement.
"Company Certificates" means certificates that immediately prior to the
Effective Time represented outstanding shares of Company Common Stock.
"Company Common Stock" has the meaning specified in the recitals of this
Agreement.
"Company Disclosure Schedule" has the meaning specified in the
introductory sentence of Article IV.
"Company Financial Statements" has the meaning specified in Section 4.05.
"Company Permits" has the meaning specified in Section 4.13(a).
"Company Required SEC Filings" means any and all forms, reports,
schedules, registration statements and other documents required to be filed
by the Company with the SEC in connection with the transactions
contemplated by this Agreement.
"Company Required Statutory Approvals" means the following insofar as
they relate to the consummation by the Company of the transactions
contemplated by this Agreement: (i) the filings, permits, authorizations,
consents and approvals required under the Securities Act, the Exchange Act
(including the filing of the Company Required SEC Filings and the Proxy
Statement with the SEC) and any State securities Laws (ii) the orders,
filings, permits, notices, authorizations, consents and approvals required
under the Competition Act, the Investment Canada Act and any securities
Laws of any Province or territory of Canada, (iii) the filings required by
the HSR Act, (iv) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and (v) any required filings
with or approvals from applicable state environmental authorities, public
service commissions and public utility commissions.
"Company SEC Documents" has the meaning specified in Section 4.05.
"Company Stockholder Approval" has the meaning specified in Section 4.26.
"Competition Act" means the Competition Act (Canada) R.S.C. 1985c.34.
"Confidentiality Agreement" has the meaning specified in Section 7.02(b).
"Contract" means any agreement, lease, license, evidence of indebtedness,
mortgage, deed of trust, note, bond, indenture, security agreement,
commitment, instrument, understanding or other contract, obligation or
arrangement of any kind.
"Definitive Bank Loan Documents" has the meaning specified in Section
7.07(c).
"Definitive Equity Documents" has the meaning specified in Section
7.07(d).
"DGCL" has the meaning specified in the recitals of this Agreement.
A-2
<PAGE>
"Dissenting Shares" has the meaning specified in Section 3.01(d).
"Effective Time" has the meaning specified in Section 2.03(b).
"Electing Shares" has the meaning specified in Section 3.01(c)(i).
"Election Date" has the meaning specified in Section 3.02(a).
"Environmental Law" means any Law relating to the use, storage,
treatment, sale, transportation, processing, handling, labeling,
production, manufacture, release or disposal of Hazardous Substances,
including, without limitation, (i) any common law that may impose liability
or obligations for injuries or damages due to the presence of or exposure
to any Hazardous Substance, (ii) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. (S) 9601 et seq., as
amended by the Superfund Amendment and Reauthorization Act of 1986
("CERCLA"), (iii) the Federal Water Pollution Control Act, 33 U.S.C.
(S) 1251 et seq., (iv) the Solid Waste Disposal Act of 1976, 42 U.S.C.
(S) 6901 et seq., (v) the Clean Air Act, 42 U.S.C. (S) 7401 et seq., (vi)
the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq., (vii) the
Hazardous Materials Transportation Act, 49 Ap. U.S.C.A. (S) 1801 et seq.,
(viii) the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.
(S) 136 et seq., and (ix) comparable state and local Laws.
"Environmental Permits" means any permit required or issued under any
Environmental Law.
"Equity Plans" means the Omnibus Stock Plan and all other contracts,
commitments, plans, programs or arrangements providing for the issuance or
grant of any Stock Acquisition Rights or any capital stock (restricted or
otherwise), stock appreciation rights, phantom stock or other equity
interests in the Company or any Subsidiary, including stock purchase plans.
"ERISA" means the Employee Retirement Income Security Act of 1974 and any
successor statute of similar import, together with the regulations
thereunder, in each case as in effect from time to time. References to
sections of ERISA shall be construed to also refer to any successor
sections.
"Exchange Act" means the Securities Exchange Act of 1934 and the rules
and regulations promulgated thereunder.
"Exchange Agent" has the meaning specified in Section 3.02(b).
"Exchange Fund" has the meaning specified in Section 3.04(e).
"Financing" has the meaning specified in Section 7.07(a)(i).
"Financing Letters" has the meaning specified in Section 7.07(a)(i).
"Form of Election" has the meaning specified in Section 3.02(c).
"GAAP" means (i) when used with respect to any Subsidiary which is
organized under the Laws of Canada or any Province thereof, generally
accepted Canadian accounting principles, applied on a consistent basis
(except for changes made due to the implementation of new or revised
standards issued by the Canadian Institute of Chartered Accountants), and
which are applicable in the circumstances as of the date in question, and
(ii) in all other cases, generally accepted United States accounting
principles, applied on a consistent basis (except for changes made due to
the implementation of new or revised standards issued by the Financial
Accounting Standards Board), and which are applicable in the circumstances
as of the date in question. Accounting principles are applied on a
"consistent basis" when the accounting principles observed in a current
period are comparable in all material respects to those accounting
principles applied in a preceding period.
"Governmental Approval" means any authorization, consent, approval,
license, franchise, lease, ruling, tariff, rate, permit, certificate or
exemption of, or filing or registration with, any Governmental Authority.
A-3
<PAGE>
"Governmental Authority" means (i) any nation or government, (ii) any
federal, state, county, province, city, town, municipality, local or other
political subdivision thereof or thereto, (iii) any court, tribunal,
department, commission, board, bureau, instrumentality, agency, council,
arbitrator or other entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government and
(iv) any other governmental entity, agency or authority having or
exercising jurisdiction over any relevant Person, item or matter.
"Hazardous Substance" means any substance, whether liquid, solid or gas,
listed, defined, designated or classified as hazardous, toxic, radioactive
or dangerous, defined in or under any applicable Environmental Law, whether
by type or by quantity. Hazardous Substance includes, without limitation,
(i) any "hazardous substance" as defined in CERCLA and (ii) any "hazardous
waste" as defined in the Resource Conservation and Recovery Act.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
15 U.S.C. (S) 18a.
"Hysop Agreement" means that certain Stock Bonus Agreement dated as of
August 28, 1995 between Gary Hysop and Sterling Pulp Chemicals, Ltd., a
corporation incorporated under the Laws of Ontario, Canada and a wholly-
owned indirect subsidiary of the Company.
"Indemnified Parties" has the meaning specified in Section 7.09(a).
"Inducement Agreement" has the meaning specified in the recitals of this
Agreement.
"Intellectual Property" has the meaning specified in Section 4.19(b).
"Investment Canada Act" means the Investment Canada Act R.S.C. 1985c.28.
"IRS" means the Internal Revenue Service.
"Laws" means (i) all laws, statutes, rules, requirements, awards,
regulations, ordinances, orders, writs, injunctions, decisions,
determinations, directives or decrees and other pronouncements having the
effect of law and (ii) all contracts or agreements with any Governmental
Authority relating to compliance with the matters described in clause (i)
above.
"Lazard" has the meaning specified in Section 4.17.
"Liability" means, with respect to any Person, any indebtedness,
obligation and other liability of such Person, whether absolute, accrued,
contingent, fixed or otherwise, or whether due or to become due, including
liabilities for Taxes, material forward or long-term commitments, or
unrealized or anticipated Losses from any unfavorable Contracts or
commitments.
"Lien" means (i) any lien, charge, mortgage, pledge, hypothecation,
assignment, security interest, assessment, levy or encumbrance of any kind
or nature whatsoever (whether voluntary or involuntary, affirmative or
negative, and whether imposed or created by Contract, operation of Law or
otherwise) in, on, of or with respect to any properties or assets of the
applicable Person, whether now owned or hereafter acquired, (ii) any
Contract to give any of the foregoing and (iii) any conditional sale or
other title retention agreement and any financing lease having
substantially the same effect as any of the foregoing.
"Losses" means any and all damages (including consequential, punitive and
exemplary), fines, penalties, judgments, deficiencies, losses, costs and
expenses, including court costs, reasonable fees of attorneys, accountants
and other experts and other reasonable expenses of any Claim.
"Mandatory Rollover Shares" has the meaning specified in Section 3.03(a).
"Material Adverse Effect" means a material adverse effect on (i) the
business, operations, assets, condition (financial or otherwise) or results
of operations of the Company and the Subsidiaries taken as a whole, (ii)
the prospects of the Company and the Subsidiaries taken as a whole
(excluding any effect on such prospects caused by economic, tax or other
matters of general applicability or matters generally
A-4
<PAGE>
affecting any of the industries in which the Company or any of the
Subsidiaries conducts business), (iii) the Company's ability to comply with
or satisfy in any material respect any material covenant, condition or
agreement to be complied with or satisfied by it under this Agreement or
(iv) the Company's ability to consummate the Merger by the Outside Date.
"Maximum Amount" has the meaning specified in Section 7.06(c).
"Maximum Rollover Number" has the meaning specified in Section 3.03.
"Merger" has the meaning specified in the recitals of this Agreement.
"Merger Consideration" has the meaning specified in Section 3.01(c).
"Newco" has the meaning specified in the introductory paragraph of this
Agreement.
"Newco Common Stock" has the meaning specified in Section 3.01(a).
"Newco Disclosure Schedule" has the meaning specified in the introductory
sentence of Article V.
"Newco Required Statutory Approvals" means the following insofar as they
relate to the consummation by Newco of the transactions contemplated by
this Agreement: (i) the filings, permits, authorizations, consents and
approvals required under the Securities Act, the Exchange Act (including
the filing of the Newco SEC Filings with the SEC) and any State securities
Laws (ii) the orders, filings, permits, notices, authorizations, consents
and approvals required under the Competition Act, the Investment Canada Act
and any securities Laws of any Province or territory of Canada, (iii) the
filings required by the HSR Act, (iv) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware and (v) any
required filings with or approvals from applicable state environmental
authorities, public service commissions and public utility commissions.
"Newco SEC Filings" means any and all forms, reports, schedules,
registration statements and other documents filed by Newco with the SEC in
connection with the transactions contemplated by this Agreement.
"Newco Stockholder Approval" has the meaning specified in Section 5.08.
"Omnibus Stock Plan" has the meaning specified in Section 4.02(c).
"Operating Sub" has the meaning specified in Section 7.12.
"Operating Sub SEC Filings" means any and all forms, reports, schedules,
registration statements and other documents filed by Operating Sub with the
SEC in connection with the transactions contemplated by this Agreement.
"Outside Date" means October 31, 1996 or such subsequent date as the
Parties may mutually agree upon in writing.
"Parties" means the Company and Newco.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"Pension Plan" has the meaning specified in Section 4.09A(a).
"Person" means any individual, firm, corporation, trust, association,
company, limited liability company, joint stock company, partnership, joint
venture, Governmental Authority or other entity or enterprise.
"Phantom Stock Amount" has the meaning specified in Section 7.06(b).
"Potential Acquiror" has the meaning specified in Section 6.02(a).
"Proxy Statement" means the proxy statement (or proxy statement and
prospectus, as the case may be) to be distributed in connection with the
Stockholders Meeting.
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<PAGE>
"Registration Statements" means the Company Required SEC Filings, if any,
that constitute registration statements filed with the SEC pursuant to the
Securities Act and the Newco SEC Filings and the Operating Sub SEC Filings
that constitute registration statements filed with the SEC pursuant to the
Securities Act.
"Restricted Stock" has the meaning specified in Section 7.06(d).
"Rollover Election" has the meaning specified in Section 3.02(a).
"Rollover Proration Factor" has the meaning specified in Section 3.03(b).
"Rollover Share" has the meaning specified in Section 3.01(c)(i).
"SAR" has the meaning specified in Section 7.06(b).
"SEC" means the Securities and Exchange Commission of the United States
or any successor thereof.
"Securities Act" means the Securities Act of 1933 and the rules and
regulations promulgated thereunder.
"Spread Amount" has the meaning specified in Section 7.06(b).
"Stock Acquisition Rights" means (i) all options, warrants, calls,
subscriptions or other rights of any nature to acquire any shares of
capital stock of, or any other equity interests in, the Company or any
Subsidiary and (ii) all securities convertible into or exchangeable for
such shares or equity interests or obligating the Company or any Subsidiary
to grant, extend or enter into any such option, warrant, call, subscription
or other right, agreement or commitment; provided, however, that the term
"Stock Acquisition Rights" shall not include SARs, phantom stock and
restricted stock grants.
"Stockholders Meeting" has the meaning specified in Section 7.01(a).
"Subsidiary" means (i) any corporation, partnership, joint venture,
limited liability company or other entity of which at least a majority of
the outstanding voting stock of which is owned by the Company, directly or
indirectly, and (ii) any corporation, partnership, joint venture, limited
liability company or other entity in which the Company, directly or
indirectly, owns more than a 50% equity interest. As used above, "voting
stock" means, in the case of any entity, stock or other voting interests
having ordinary voting power, in the absence of contingencies, to elect a
majority of the board of directors or any similar governing body of such
entity or, if there are no such directors or similar governing body, having
a majority of the general voting power with respect to the policies and
activities of such entity.
"Surviving Corporation" has the meaning specified in Section 2.01.
"Surviving Corporation Common Stock" means the common stock, par value
$0.01 per share, of the Surviving Corporation.
"Takeover Proposal" has the meaning specified in Section 6.02(a).
"Taxes" means any and all taxes, assessments, imposts, deductions,
charges, withholdings, Claims and levies assessed or imposed by any
Governmental Authority and all Liabilities with respect thereto, including
any sales, use, occupation, transfer, stock transfer, real property
transfer, export, recording, gains, stamp, documentary, income, windfall
profits, franchise, license, excise, payroll, social security, withholding,
service, service use and property taxes, charges and similar levies and
fees.
"Welfare Plan" has the meaning specified in Section 4.09A(a).
Section 1.02. Interpretation. In this Agreement, unless a clear contrary
intention appears:
(a) the words "hereof," "herein" and "hereunder" and words of similar
import refer to this Agreement as a whole and not to any particular
provision of this Agreement;
(b) reference to any gender includes each other gender and the neuter;
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(c) all terms defined in the singular shall have the same meanings in the
plural and vice versa;
(d) reference to any Person includes such Person's heirs, executors,
personal representatives, administrators, successors and assigns; provided,
however, that nothing contained in this clause (d) is intended to authorize
any assignment not otherwise permitted by this Agreement;
(e) reference to a Person in a particular capacity or capacities excludes
such Person in any other capacity;
(f) reference to any Contract means such Contract as amended,
supplemented or modified from time to time in accordance with the terms
thereof;
(g) all references to Articles, Sections and Exhibits shall be deemed to
be references to the Articles and Sections of this Agreement and the
Exhibits attached hereto which are made a part hereof and incorporated
herein by reference;
(h) the word "including" (and with correlative meaning "include") means
including, without limiting the generality of any description preceding
such term;
(i) with respect to the determination of any period of time, the word
"from" means "from and including" and the words "to" and "until" each means
"to but excluding";
(j) the captions and headings contained in this Agreement shall not be
considered or given any effect in construing the provisions hereof if any
question of intent should arise;
(k) reference to any Law or any Governmental Approval means such Law or
Governmental Approval as amended, modified, codified, reenacted,
supplemented or superseded in whole or in part, and in effect from time to
time;
(l) accounting terms used but not defined herein shall be construed in
accordance with GAAP, and whenever the character or amount of any asset,
Liability or item of income or expense is required to be determined, or any
consolidation or accounting computation is required to be made, such
determination or computation shall be made in accordance with GAAP;
(m) all computations and calculations to be made hereunder in accordance
with GAAP shall be made by utilizing such allocations, conventions and
methods as are consistent with GAAP and have been utilized by the Company
prior to the date hereof or which may be subsequently adopted by the
Company in accordance with GAAP except as otherwise provided herein;
(n) the word "knowledge", when used in any representation, covenant or
warranty of the Company contained herein, means the actual knowledge of any
officer, director, plant manager or business unit manager of, or other
person performing similar functions for, the Company or any of the
Subsidiaries and, when used in any representation, covenant or warranty of
Newco contained herein, means the actual knowledge of any officer, director
or employee of Newco;
(o) where any provision of this Agreement refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provision
shall be applicable whether such action is taken directly or indirectly by
such Person; and
(p) no provision of this Agreement shall be interpreted or construed
against either Party solely because that Party or its legal representative
drafted such provision.
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ARTICLE II
THE MERGER
Section 2.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement and in accordance with the DGCL, Newco shall be merged
with and into the Company at the Effective Time. Following the Effective Time,
the separate corporate existence of Newco shall cease and the Company shall
continue as the surviving corporation (the "Surviving Corporation") and shall
succeed to and assume all the rights and obligations of Newco in accordance
with the DGCL.
Section 2.02. Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. (local time) on the second Business Day after satisfaction
or waiver of the conditions set forth in Article VIII at the offices of
Andrews & Kurth L.L.P., 600 Travis, 4200 Texas Commerce Tower, Houston, Texas
77002, unless another time, date or place is agreed to in writing by the
Parties. The date on which the Closing occurs is referred to in this Agreement
as the "Closing Date".
Section 2.03. Effective Time. (a) Subject to the provisions of this
Agreement, as soon as practicable on or after the Closing Date, the Parties
shall file a certificate of merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware, in a form mutually acceptable to
the Parties, executed in accordance with the relevant provisions of the DGCL.
(b) The Merger shall become effective at such time as the Certificate of
Merger is duly filed with the Secretary of State of the State of Delaware
unless a subsequent time shall be specified in the Certificate of Merger, in
which case the Merger shall become effective at such subsequent time. The time
the Merger becomes effective is referred to in this Agreement as the
"Effective Time".
Section 2.04. Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL.
Section 2.05. Certificate of Incorporation and By-Laws. (a) At the Effective
Time, the Restated Certificate of Incorporation of the Company, as in effect
on the date thereof, shall be amended to read in its entirety as set forth in
Exhibit B and, as so amended, shall be the certificate of incorporation of the
Surviving Corporation after the Effective Time until thereafter changed or
amended as provided therein or by the DGCL.
(b) The By-laws of the Company, as in effect immediately prior to the
Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by the DGCL.
Section 2.06. Directors. The directors of Newco immediately prior to the
Effective Time shall be the directors of the Surviving Corporation and shall
serve until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.
Section 2.07. Officers. The officers of Newco immediately prior to the
Effective Time shall be the officers of the Surviving Corporation and shall
serve until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
Section 3.01. Effect on Capital Stock. As of the Effective Time, by virtue
of the Merger and without any action on the part of the Company, Newco, any
holder of capital stock of the Company or any holder of capital stock of
Newco, the following events shall occur:
(a) Common Stock of Newco. Each share of common stock, par value $0.01
per share, of Newco ("Newco Common Stock") issued and outstanding
immediately prior to the Effective Time shall be automatically converted
into that number of fully paid and nonassessable shares of Surviving
Corporation
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Common Stock equal to the quotient obtained by dividing (i) 10,890,834
minus the aggregate number of whole Rollover Shares by (ii) the aggregate
number of issued and outstanding shares of Newco Common Stock immediately
prior to the Effective Time.
(b) Cancellation of Treasury Stock and Newco-Owned Company Common Stock.
Each share of Company Common Stock that is owned by the Company, any
wholly-owned Subsidiary or Newco shall be automatically canceled and
retired and shall cease to exist, and no cash, Surviving Corporation Common
Stock or other consideration shall be delivered or deliverable in exchange
therefor.
(c) Conversion (or Retention) of Company Common Stock. Except as
otherwise provided herein and subject to Sections 3.01(d), 3.03 and
3.04(c):
(i) the holder of each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time with respect to
which an election to retain Surviving Corporation Common Stock has been
effectively made and not revoked or lost pursuant to Section 3.02
("Electing Shares"), shall have the right to retain one fully paid and
nonassessable share of Surviving Corporation Common Stock (a "Rollover
Share") which shall remain outstanding and, except as expressly
provided herein, unaffected by the Merger; and
(ii) each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than Electing Shares),
shall be automatically converted into the right to receive $12.00 in
cash from the Surviving Corporation following the Merger.
As used herein, "Merger Consideration" means, in the case of each share of
Company Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares of Company Common Stock referred to in
Section 3.01(b)), the consideration described with respect to such share in
clause (i) or (ii) above, as applicable.
(d) Shares of Dissenting Stockholders. Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock that are issued
and outstanding immediately prior to the Effective Time and are held by
stockholders who have (i) not voted such shares in favor of the adoption of
this Agreement and (ii) properly demanded appraisal of such shares in
accordance with Section 262 of the DGCL (the "Dissenting Shares") shall not
be retained or converted as described in Section 3.01(c) but shall become
the right to receive such consideration as may be determined to be due to
such stockholders pursuant to Section 262 of the DGCL. If, after the
Effective Time, any such stockholder withdraws his demand for appraisal or
fails to perfect or otherwise loses his right of appraisal, in any case
pursuant to the DGCL, his Dissenting Shares shall be deemed to be converted
as of the Effective Time into the right to receive the Merger Consideration
(without any interest thereon) as provided in Section 3.01(c)(ii). Promptly
upon receiving any demands for appraisal, withdrawals of demands for
appraisal or any other instrument served pursuant to Section 262 of the
DGCL, the Company shall so notify Newco and shall give Newco the
opportunity to participate in and direct all negotiations and proceedings
with respect to any such appraisal demands. The Company shall not, without
the prior written consent of Newco, make any payment with respect to, or
settle, offer to settle or otherwise negotiate, any such appraisal demands.
In no event shall any holder of Company Common Stock have any appraisal
rights except to the extent provided in Section 262 of the DGCL.
(e) Cancellation and Retirement of Company Common Stock. (i) As of the
Effective Time, all shares of Company Common Stock (other than Dissenting
Shares and shares referred to in Section 3.01(b) and Electing Shares
retained as Rollover Shares), issued and outstanding immediately prior to
the Effective Time shall no longer be outstanding and shall be
automatically canceled and retired and shall cease to exist, and each
holder of a Company Certificate shall, to the extent such Company
Certificate immediately prior to the Effective Time represented such
shares, cease to have any rights with respect thereto, except the right to
receive cash (without interest) in accordance with Sections 3.01(c)(ii) and
3.04.
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(ii) All cash paid upon the surrender for exchange of Company
Certificates in accordance with this Article III (including cash paid in
lieu of fractional shares of Surviving Corporation Common Stock) shall be
deemed to have been paid in full satisfaction of all rights pertaining to
the shares of Company Common Stock exchanged for cash theretofore
represented by such Company Certificates.
(f) Withholding Tax. The right of any stockholder to receive the Merger
Consideration as provided in Section 3.01(c)(ii), 3.03(d) or 3.04(c) shall
be subject to and reduced by the amount of any required withholding
obligation for Taxes.
Section 3.02. Company Common Stock Elections. (a) Each Person who, on or
prior to the third Business Day preceding the Stockholders Meeting (the
"Election Date"), is a record holder of shares of Company Common Stock will be
entitled, with respect to all or any portion of his shares, to make an
unconditional election (a "Rollover Election") on or prior to the Election
Date to retain Electing Shares as Rollover Shares, on the basis hereinafter
set forth. All shares of Company Common Stock with respect to which the holder
thereof does not make a Rollover Election on or before the Election Date in
accordance with the provisions of this Section 3.02 shall be converted, as of
the Effective Time, into the right to receive the Merger Consideration
described in Section 3.01(c)(ii).
(b) Prior to the mailing of the Proxy Statement, Newco shall appoint a bank
or trust company reasonably acceptable to the Company to act as exchange agent
(together with such other agent or agents as may be hereafter appointed by
Newco for this purpose, the "Exchange Agent") for the delivery and/or payment
of the Merger Consideration.
(c) The Company shall prepare and mail a form of election, which form shall
be subject to the reasonable approval of Newco (the "Form of Election"), with
the Proxy Statement to the record holders of Company Common Stock as of the
record date for the Stockholders Meeting, which Form of Election shall be used
by each record holder of shares of Company Common Stock who wishes to make a
Rollover Election. The Company will use its reasonable best efforts to make
the Form of Election and the Proxy Statement available to all Persons who
become holders of Company Common Stock during the period between such record
date and the Election Date. Any Rollover Election shall have been properly
made only if the Exchange Agent shall have received at its designated office
by 5:00 p.m., New York time, on the Election Date, a Form of Election properly
completed and signed and accompanied by Company Certificates for the shares of
Company Common Stock to which such Form of Election relates, duly endorsed in
blank or otherwise in form acceptable for transfer on the books of the Company
(or by an appropriate guarantee of delivery of such certificates as set forth
in such Form of Election from a firm which is a member 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; provided, however, that such Company
Certificates are in fact delivered to the Exchange Agent within three trading
days on the New York Stock Exchange after the date of execution of such
guarantee of delivery).
(d) Any Form of Election may be revoked by the stockholder submitting it to
the Exchange Agent only by written notice received by the Exchange Agent (i)
prior to 5:00 p.m., New York time, on the Election Date or (ii) after the
Election Date, if (and only to the extent that) the Exchange Agent is legally
required to permit revocations and the Effective Time shall not have occurred
prior to such date. In addition, all Forms of Election shall automatically be
revoked if the Exchange Agent is notified in writing by the Parties that the
Merger Agreement has been terminated. If a Form of Election is revoked as
aforesaid, the Company Certificate or Certificates (or guarantee of delivery,
as appropriate) for the shares of Company Common Stock to which such Form of
Election relates shall be promptly returned by the Exchange Agent to the
stockholder submitting the same.
(e) The determination of the Exchange Agent shall be binding as to whether
or not Rollover Elections have been properly made or revoked pursuant to this
Section 3.02 with respect to shares of Company Common Stock and when elections
and revocations were received by the Exchange Agent. If the Exchange Agent
determines that any Rollover Election was not properly made with respect to
shares of Company Common Stock, such
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shares shall be treated by the Exchange Agent as shares which are not Electing
Shares, and such shares shall be exchanged in the Merger for cash pursuant to
Section 3.01(c)(ii) and Section 3.04(b). The Exchange Agent shall also make
all computations as to the allocation and the proration contemplated by
Section 3.03, and any such computation shall be conclusive and binding on the
holders of shares of Company Common Stock. The Exchange Agent may, with the
consent of the Parties (which shall not be unreasonably withheld), make such
rules as are consistent with this Section 3.02 for the implementation of the
elections provided for herein as the Exchange Agent shall deem necessary or
desirable fully to effect such elections.
Section 3.03. Proration. Notwithstanding anything in this Agreement to the
contrary, the aggregate number of shares of Company Common Stock to be
retained as Rollover Shares pursuant to Section 3.01(c)(i) shall not exceed
5,000,000 (the "Maximum Rollover Number"). If the number of Electing Shares
exceeds the Maximum Rollover Number, then each Electing Share shall be
retained as Rollover Shares or converted into the right to receive cash in
accordance with Section 3.01(c) in the following manner:
(a) each stockholder that committed to make a Rollover Election with
respect to 100% of the shares of Company Common Stock held by such
stockholder pursuant to the terms of the Inducement Agreement shall have
the right to retain all of such shares as Rollover Shares (collectively,
the "Mandatory Rollover Shares");
(b) a proration factor (the "Rollover Proration Factor") shall be
determined by dividing (i) the Maximum Rollover Number minus the aggregate
number of Mandatory Rollover Shares by (ii) the total number of Electing
Shares minus the aggregate number of Mandatory Rollover Shares;
(c) the number of Electing Shares covered by each Rollover Election
(other than Rollover Elections with respect to Mandatory Rollover Shares)
which the holder making such Rollover Election shall have the right to
retain as Rollover Shares shall be determined by multiplying the Rollover
Proration Factor by the total number of Electing Shares (other than
Mandatory Rollover Shares) covered by such Rollover Election; and
(d) all Electing Shares, other than those shares which the holder thereof
has the right to retain as Rollover Shares in accordance with clauses (a)
and (c) above, shall be converted into the right to receive cash (as if
such shares were not Electing Shares) in accordance with Section
3.01(c)(ii).
If the number of Electing Shares is less than the Maximum Rollover Number,
then each holder of Electing Shares shall have the right to retain all of such
Electing Shares as Rollover Shares in accordance with Section 3.01(c)(i).
Section 3.04. Exchange of Certificates. (a) Exchange Fund. At or prior to
the Effective Time, Newco shall, or shall cause the Surviving Corporation to,
make available to the Exchange Agent funds sufficient for the payment of the
Merger Consideration payable pursuant to Section 3.01(c)(ii) upon surrender of
Company Certificates by the Company's stockholders as described in Sections
3.02(c) and 3.04(b), it being understood that any and all interest earned on
funds made available to the Exchange Agent pursuant to this Agreement shall be
for the account of, and shall remain the property of, Newco.
(b) Exchange Procedures. (i) As soon as practicable after the Effective
Time, each holder of an outstanding Company Certificate or Certificates shall,
upon surrender to the Exchange Agent of such Company Certificate or
Certificates and acceptance thereof by the Exchange Agent as described below
and in Section 3.02(c), be entitled to receive a certificate or certificates
representing the number of full Rollover Shares, if any, which the holder of
such shares of Company Common Stock has the right to retain pursuant to this
Agreement and the amount of cash, if any, into which the number of shares
(including fractional shares) of Company Common Stock previously represented
by such Company Certificate or Certificates surrendered shall have been
converted pursuant to this Agreement. The Exchange Agent shall accept such
Company Certificates upon compliance with such reasonable terms and conditions
as the Exchange Agent may impose to effect an orderly exchange thereof in
accordance with normal exchange practices.
(ii) If delivery or payment of the Merger Consideration is to be made or
paid to a Person other than the Person in whose name a surrendered Company
Certificate is registered, it shall be a condition of such delivery
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or payment that the Company Certificate so surrendered shall be properly
endorsed, with signature guaranteed or otherwise in proper form for transfer
and that the Person requesting such delivery or payment shall have paid to the
Company or its transfer agent any transfer or other Taxes required by reason
of such delivery or payment to a Person other than the registered holder of
the Company Certificate surrendered or shall have established to the
satisfaction of the Company or its transfer agent that such Taxes either have
been paid or are not payable.
(iii) Until surrendered and exchanged in accordance with this Section
3.04(b), each Company Certificate (other than Company Certificates
representing Dissenting Shares) shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender and
exchange the Merger Consideration as provided for in this Article III, without
any interest thereon.
(c) No Fractional Shares. (i) No certificates or scrip representing
fractional Rollover Shares shall be issued in connection with the Merger, and
such fractional share interests will not entitle the owner thereof to vote or
to any rights of a stockholder of the Surviving Corporation.
(ii) Notwithstanding any other provision of this Agreement, each holder of
shares of Company Common Stock who would otherwise have been entitled to
retain a fraction of a Rollover Share (after taking into account all shares of
Company Common Stock delivered by such holder) shall be entitled to receive
from the Exchange Agent, in lieu thereof, a cash payment (without interest)
equal to such fraction multiplied by $12.00.
(d) Distributions with Respect to the Unexchanged Shares. No dividends or
other distributions with a record date after the Effective Time shall be paid
with respect to Rollover Shares to the holder of any Company Certificate for
corresponding Electing Shares and no cash payment in lieu of fractional shares
shall be paid to any such holder pursuant to Section 3.04(c) until the
surrender and exchange of such Company Certificate in accordance with this
Article III. Subject to the effect of applicable Laws, following surrender and
exchange of any such Company Certificate, there shall be paid to the holder of
the certificate representing whole Rollover Shares issued in connection
therewith, without interest, (i) as soon as practicable after the later of the
Effective Time or such surrender and exchange, the amount of any cash payable
in lieu of a fractional Rollover Share to which such holder is entitled
pursuant to Section 3.04(c) and the proportionate amount of dividends or other
distributions with a record date after the Effective Time theretofore paid
with respect to such whole Rollover Shares and (ii) at the appropriate payment
date, the proportionate amount of dividends or other distributions with a
record date after the Effective Time but prior to such surrender and exchange
and a payment date subsequent to such surrender and exchange payable with
respect to such whole Rollover Shares.
(e) Termination of Exchange Fund. Any portion of the Merger Consideration
deposited with the Exchange Agent pursuant to this Section 3.04 (the "Exchange
Fund") which remains undistributed to the holders of the Company Certificates
for six months after the Effective Time shall be delivered to the Surviving
Corporation, upon demand, and any holders of shares of Company Common Stock
prior to the Merger who have not theretofore complied with this Article III
shall thereafter look only to the Surviving Corporation and only as general
creditors thereof for payment of their claim for cash (if any), Rollover
Shares (if any), any cash in lieu of fractional Rollover Shares and any
dividends or distributions with respect to whole Rollover Shares to which such
holders may be entitled.
(f) No Liability. Neither Party nor the Exchange Agent shall be liable to
any Person in respect of any Rollover Shares (or dividends or distributions
with respect thereto) or cash from the Exchange Fund delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
Law. If any Company Certificate shall not have been surrendered prior to one
year after the Effective Time (or immediately prior to such earlier date on
which any cash, if any, any cash in lieu of fractional Rollover Shares or any
dividends or distributions with respect to Rollover Shares in respect of such
Company Certificate would otherwise escheat to or become the property of any
Governmental Authority), any such cash, dividends or distributions in respect
of such Company Certificate shall, to the extent permitted by applicable Law,
become the property of the Surviving Corporation, free and clear of all Claims
or interests of any Person previously entitled thereto.
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(g) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by the Surviving Corporation. Any
interest and other income resulting from such investments shall be paid to the
Surviving Corporation.
Section 3.05. Closing of the Company's Transfer Books. After the date on
which the Effective Time occurs, there shall be no further transfer on the
books of the Company or its transfer agent of Company Certificates and if
Company Certificates are presented to the Surviving Corporation for transfer,
they shall be canceled and exchanged for the Merger Consideration in
accordance with this Article III.
Section 3.06. Relative Rights and Privileges of Shares. The Rollover Shares
and the shares of Surviving Corporation Common Stock issued in exchange for
shares of Newco Common Stock will constitute shares of the same class.
Accordingly, after the Effective Time, the holder of each Rollover Share and
the holder of each share of Surviving Corporation Common Stock issued in
exchange for shares of Newco Common Stock shall be entitled to the same
relative rights and privileges under the DGCL and the Certificate of
Incorporation or Bylaws of the Surviving Corporation.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as otherwise set forth on the disclosure schedule heretofore
delivered by the Company to Newco which makes reference to this Agreement (the
"Company Disclosure Schedule"), the Company represents and warrants to Newco
as follows:
Section 4.01. Organization. (a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and corporate authority and all
necessary Governmental Approvals to own, lease and operate its properties and
to carry on its business as now being conducted, except where the failure to
have such Governmental Approvals would not, when taken together with all such
other failures, have a Material Adverse Effect. Each Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and corporate authority and all necessary Governmental Approvals to own,
lease and operate its properties and to carry on its business as now being
conducted, except where the failure to have such Governmental Approvals would
not, when taken together with all such other failures, have a Material Adverse
Effect.
(b) The Company and each Subsidiary is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to
be so duly qualified or licensed and in good standing would not, when taken
together with all other such failures, have a Material Adverse Effect.
(c) The Company has made available to Newco complete and correct copies of
the Certificate of Incorporation and By-laws and other comparable
organizational documents of the Company and each Subsidiary, in each case as
amended to the date of this Agreement. The respective Certificates of
Incorporation and By-laws or such other organizational documents of the
Subsidiaries do not contain any provision limiting or otherwise restricting
the ability of the Company to control the Subsidiaries.
(d) The Company Disclosure Schedule contains an accurate and complete list
of all Subsidiaries. All the outstanding shares of capital stock of each
Subsidiary are owned by the Company or by another wholly-owned Subsidiary,
free and clear of all Liens, and are duly authorized, validly issued, fully
paid, nonassessable and free of any preemptive rights in respect thereto.
Section 4.02. Capitalization. (a) The authorized capital stock of the
Company consists of (i) 150,000,000 shares of Company Common Stock, of which
55,689,991 shares are issued and outstanding on the date hereof
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and 4,636,863 shares are issued and held in treasury on the date hereof and
(ii) 25,000,000 shares of preferred stock, par value $1.00 per share, none of
which is issued and outstanding or held in treasury on the date hereof. All of
the outstanding shares of Company Common Stock are duly authorized, validly
issued, fully paid and nonassessable and free of any preemptive rights in
respect thereto.
(b) The authorized and issued and outstanding capital stock of each
Subsidiary is as described in the Company Disclosure Schedule. All of such
outstanding shares are duly authorized, validly issued, fully paid and
nonassessable and are free of any preemptive rights in respect thereto.
(c) The Company has heretofore furnished to Newco a complete and correct
copy of the Company's Omnibus Stock and Incentive Plan ("Omnibus Stock Plan")
and the Hysop Agreement. As of the date hereof, there are no unexercised Stock
Acquisition Rights outstanding except for options issued under the Omnibus
Stock Plan to acquire an aggregate of 82,500 shares of Company Common Stock,
none of which are immediately exercisable, and the rights of Gary Hysop to
receive "Bonus Shares" under the Hysop Agreement.
(d) Except as set forth in this Section 4.02, as of the date hereof, (i) no
shares of capital stock or other voting securities of the Company are
outstanding, (ii) no equity equivalents, interests in the ownership of the
Company or other similar rights are outstanding and (iii) there are no
existing Equity Plans or Stock Acquisition Rights. As of the date hereof,
there are no outstanding contractual obligations of the Company or any
Subsidiary to repurchase, redeem or otherwise acquire any shares of capital
stock or other securities of the Company or any Subsidiary.
Section 4.03. Authority. (a) The Company has the requisite corporate power
and authority to execute and deliver this Agreement and, subject to the
Company Stockholder Approval and the Company Required Statutory Approvals, to
consummate the transactions contemplated hereby. Upon obtaining the Company
Stockholder Approval, the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will
have been duly authorized by all necessary corporate action on the part of the
Company and no other corporate proceedings on the part of the Company will be
necessary to authorize this Agreement or to consummate such transactions. No
vote of the Company's stockholders is required to approve this Agreement or
the other transactions contemplated hereby except for the Company Stockholder
Approval.
(b) This Agreement has been duly executed and delivered by the Company and,
assuming this Agreement constitutes a valid and binding obligation of Newco,
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except that (i) such enforcement may
be subject to bankruptcy, insolvency, moratorium or similar Laws affecting
creditors' rights and (ii) the remedy of specific performance and injunctive
and other forms of equitable relief are subject to certain equitable defenses
and to the discretion of the court before which any proceedings therefor may
be brought. Without limitation of the foregoing, each of the covenants and
obligations of the Company set forth in Articles VI, VII and X is valid,
binding and enforceable as aforesaid notwithstanding the absence of the
Company Stockholder Approval.
Section 4.04. Consents and Approvals; No Violations. (a) The execution and
delivery of this Agreement by the Company do not violate, conflict with or
result in any breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance required
by, or result in a right of termination or acceleration under, or give rise to
any obligation to make payments or provide compensation under, or result in
the creation of any Lien upon any of the properties of the Company or any
Subsidiary, under any of the terms, conditions or provisions of (i) the
Certificate of Incorporation or By-laws of the Company or of the equivalent
organizational documents of any Subsidiary, (ii) any Law, permit or license
applicable to the Company or any of its properties or to any Subsidiary or any
of its properties or (iii) any Contract to which the Company or any of the
Subsidiaries is now a party or by which the Company or any of the Subsidiaries
or any of their respective properties may be bound or affected. Neither the
performance of this Agreement by the Company nor the consummation by the
Company of the transactions contemplated hereby will result in any violation,
conflict, breach, default, termination, acceleration of performance or
creation of any Liens, or give rise to any right in any third party or cause
any such right to become exercisable, under any of the terms, conditions or
provisions described in clauses (i) through
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(iii) above. Excluded from the foregoing sentences of this paragraph (a),
insofar as they apply to the terms, conditions or provisions described in
clauses (ii) and (iii) of the first sentence of this paragraph (a), are such
violations, conflicts, breaches, defaults, terminations, accelerations,
payments, compensations or creations of Liens that, individually or in the
aggregate, would not have a Material Adverse Effect.
(b) Except for the Company Required Statutory Approvals, no Governmental
Approval is necessary for the execution and delivery of this Agreement by the
Company or the consummation by the Company of the transactions contemplated
hereby, other than Governmental Approvals which, if not made or obtained (as
the case may be), would not, individually or in the aggregate, have a Material
Adverse Effect.
Section 4.05. SEC Reports and Financial Statements. The Company and each of
the Subsidiaries has filed with the SEC, and has heretofore made available to
Newco true and complete copies of, all forms, reports, schedules, statements
and other documents (including exhibits, amendments and supplements thereto)
required to be filed by it under the Exchange Act or the Securities Act since
September 30, 1994 (such forms, reports, schedules, statements and other
documents, to the extent filed and publicly available prior to the date of
this Agreement, other than preliminary filings, are referred to herein as the
"Company SEC Documents"). The Company SEC Documents, at the time filed (a) did
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and (b) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be.
The Company SEC Documents include all filings necessary to correct any Company
SEC Document which, subsequent to its time of filing, (i) contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein not
misleading, and (ii) no longer complied in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the
case may be. The financial statements of the Company included in the Company
SEC Documents (the "Company Financial Statements") comply as to form in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, as permitted by Form 10-Q of the SEC) and
fairly present (subject, in the case of the unaudited statements, to normal,
recurring audit adjustments) the consolidated financial position of the
Company and its consolidated Subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended.
Section 4.06. Absence of Certain Changes or Events. Except as contemplated
by or otherwise described in this Agreement, during the period commencing on
September 30, 1995 and ending on the date hereof, the Company and the
Subsidiaries have conducted their respective businesses only in the ordinary
course, and there has not been:
(a) any event or events having a Material Adverse Effect,
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to the capital stock (or any other equity
interest) of the Company or any Subsidiary or any redemption, purchase or
other acquisition of any of such capital stock (or any other equity
interest),
(c) any split, combination or reclassification of any capital stock (or
any other equity interest) of the Company or any Subsidiary or any issuance
or the authorization of any issuance of any other securities in respect of,
in lieu of or in substitution for, shares of such capital stock (or other
equity interest),
(d) any granting by the Company or any of the Subsidiaries to any officer
of the Company or any of the Subsidiaries of any increase in compensation,
except in the ordinary course of business (including in connection with
promotions) consistent with prior practice or as was required under
employment agreements in effect as of September 30, 1995,
(e) any granting by the Company or any of the Subsidiaries to any officer
of the Company or any of the Subsidiaries of any increase in severance or
termination pay, except as part of a standard employment
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package to any Person promoted or hired (but not including the five most
senior officers), or as was required under employment, severance or
termination agreements in effect as of September 30, 1995,
(f) any entry by the Company or any of the Subsidiaries into any
employment, severance or termination agreement with any officer of the
Company or any of the Subsidiaries,
(g) any increase in benefits available under or establishment of any
Benefit Plan or Canadian Plan (including the granting of stock options,
stock appreciation rights, performance awards or restricted stock awards or
the amendment or acceleration of vesting of any existing stock options,
stock appreciation rights, performance awards or restricted stock awards
but excluding any amendment accelerating vesting of existing stock
options), except in the ordinary course of business consistent with past
practice,
(h) (i) any damage, destruction or loss to physical properties owned or
used by the Company or any of the Subsidiaries, whether or not covered by
insurance, that has or reasonably could be expected to have a Material
Adverse Effect, (ii) any reevaluation by the Company or any of the
Subsidiaries of any of its material assets or (iii) any material change or
commitment to make any material change in accounting methods, principles or
practices by the Company or any Subsidiary,
(i) any amendment or proposal to amend the Certificate of Incorporation
or By-laws or comparable organizational documents of the Company or any
Subsidiary,
(j) any acquisition of or agreement to acquire (by merger, consolidation,
acquisition of stock or assets or by any other manner) any business or any
corporation, partnership, association or other business organization or
division thereof by the Company or any Subsidiary or any investment or
agreement to make any investment (by purchase of stock, contribution to
capital, property transfer or purchase of property or otherwise) in any
other Person by the Company or any Subsidiary,
(k) any sale, lease, license, encumbrance or other disposition of, or
agreement to sell, lease, license, encumber or otherwise dispose of, any
material asset of the Company or any Subsidiary, except in the ordinary
course of business consistent with prior practice,
(l) any incurrence (which shall not be deemed to include entering into
credit agreements, lines of credit or similar arrangements until borrowings
are made under such arrangements) of any indebtedness for borrowed money
(other than borrowings and reborrowings in the ordinary course of business
under revolving credit facilities which were in existence prior to the date
hereof) or guarantee of any such indebtedness or issuance or sale of any
debt securities or warrants or rights to acquire any debt securities of the
Company or any of the Subsidiaries or guarantee of any debt securities of
others by the Company or any Subsidiary,
(m) any tax election, or settlement or compromise of any income tax
liability of the Company or any of its Subsidiaries, that has had or could
reasonably be expected to have a Material Adverse Effect or that involved
or calls for the payment by or to the Company or any Subsidiary of more
than $1,500,000,
(n) any payment, discharge, settlement or satisfaction of any Claims,
Liabilities or Losses, other than the payment, discharge or satisfaction,
in the ordinary course of business consistent with past practice or in
accordance with their respective terms, of Liabilities recognized or
disclosed in the most recent balance sheet (or the notes thereto) of the
Company included in the Company Financial Statements or incurred since the
date of such balance sheet in the ordinary course of business consistent
with past practice, or any waiver of the benefits of, or agreement to
modify in any manner, any confidentiality, standstill or similar agreement
to which the Company or any of the Subsidiaries is a party,
(o) any modification, amendment or termination of any material Contract
to which the Company or any Subsidiary is a party or any waiver, release or
assignment of any material rights or Claims of the Company or any
Subsidiary, or
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(p) any capital expenditure or commitment to make capital expenditures by
the Company or any Subsidiary in an amount which, when added to the
aggregate amount of all other capital expenditures made or committed to be
made by the Company and all the Subsidiaries since September 30, 1995,
exceeds $10,000,000.
Section 4.07. No Undisclosed Liabilities, etc. Except as set forth in the
Company Financial Statements, neither the Company nor any of the Subsidiaries
has any Liabilities of any nature that would be required by GAAP to be
reflected on a consolidated balance sheet of the Company and the Subsidiaries
(including the notes thereto), except for Liabilities incurred since September
30, 1995 that, individually or in the aggregate, have not had and could not
reasonably be expected to have a Material Adverse Effect. Except as set forth
in the Company SEC Documents, there does not exist any fact, circumstance,
condition or matter that has had a Material Adverse Effect or in the future
may (so far as the Company can now reasonably foresee) have a Material Adverse
Effect other than economic, tax or other matters of general applicability or
matters generally affecting any of the industries in which the Company or any
of the Subsidiaries conduct business.
Section 4.08. Company Required SEC Filings. (a) None of the Company Required
SEC Filings, as of the date filed with or declared effective by the SEC or as
of the date mailed to the stockholders of the Company, the time of the
Stockholders Meeting or the Effective Time, will contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading,
except that no representation or warranty is made by the Company with respect
to statements made or incorporated by reference therein based on information
supplied by Newco or Operating Sub specifically for inclusion or incorporation
by reference therein. Each of the Company Required SEC Filings will, as of
such specified dates and times, comply as to form in all material respects
with all applicable Laws, including the Securities Act and the Exchange Act.
(b) None of the information provided by the Company or any Subsidiary
specifically for inclusion or incorporation by reference in any Newco SEC
Filing or any Operating Sub SEC Filing will, as of the date filed with or
declared effective by the SEC or at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading.
Section 4.09A. Employee Benefits. (a) Except as would not individually or in
the aggregate have a Material Adverse Effect: (i) each "employee pension
benefit plan" (as defined in Section 3(2) of ERISA) (a "Pension Plan") , each
"employee welfare benefit plan" (as defined in Section 3(1) of ERISA) (a
"Welfare Plan") and each other plan, arrangement or policy (written or oral)
relating to stock options, stock purchases, compensation, deferred
compensation, bonuses, severance, fringe benefits or other employee benefits,
in each case maintained or contributed to, or required to be maintained or
contributed to, by the Company or any of the Subsidiaries organized under the
Laws of any State of the United States for the benefit of any present or
former employee, officer or director of the Company or any such Subsidiary
(each of the foregoing, including the Pension Plans and the Welfare Plans, a
"Benefit Plan") has been administered in accordance with its terms and in
compliance with the applicable provisions of ERISA, the Code, all other
applicable Laws and all applicable collective bargaining agreements; (ii)
there has been no "prohibited transaction" (as defined in Section 406 of ERISA
or Section 4975 of the Code) with respect to any Benefit Plan; (iii) no
liability to the PBGC has been or is expected to be incurred with respect to
any Benefit Plan; (iv) no Pension Plan had an "accumulated funding deficiency"
(as defined in Section 302 of ERISA), whether or not waived, as of the last
day of the end of the most recent plan year ending prior to the date of this
Agreement; (v) the fair market value of the assets of each Pension Plan
exceeds the present value of the "benefit liabilities" (as defined in Section
4001(a)(16) of ERISA) under such Pension Plan as of the end of the most recent
plan year with respect to such Pension Plan ending prior to the date of this
Agreement, calculated on the basis of the actuarial assumptions used in the
most recent actuarial valuation for such Pension Plan as of the date of this
Agreement; (vi) no notice of a "reportable event" (as defined in Section 4043
of ERISA) for which the 30-day reporting requirement has not been waived has
been required to be filed for any Pension Plan within the 12-month period
ending on the date of this Agreement; (vii) neither the Company nor any of its
Subsidiaries has provided, or is required to provide, security to any Pension
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Plan pursuant to Section 401(a)(29) of the Code; (viii) each Benefit Plan
which is intended to be "qualified" within the meaning of Section 401(a) of
the Code has been determined by the IRS to be so qualified and such
determination has not been modified, revoked or limited by failure to satisfy
any condition thereof or by a subsequent amendment thereto or a failure to
amend, except that it may be necessary to make additional amendments
retroactively to maintain the "qualified" status of such Benefit Plan; and
(ix) neither the PBGC nor any plan administrator has instituted proceedings to
terminate any of the Benefit Plans subject to Title IV of ERISA other than in
a "standard termination" described in Section 4041(b) of ERISA.
(b) An accurate and complete list of all Benefit Plans is included in the
Company Disclosure Schedule as Schedule 4.09A. Such Schedule 4.09A identifies
the method of funding (including any individual accounting) for all post-
retirement medical or life insurance benefits for the employees of the Company
and the Subsidiaries and discloses the funded status of such plans. With
respect to each of the Benefit Plans, the Company has made available to Newco
a true and correct copy of (i) the most recent annual report on Form 5500
filed with the IRS, (ii) such Benefit Plan, (iii) each trust agreement and
insurance Contract relating to such Benefit Plan, (iv) the most recent summary
plan description for such Benefit Plan, (v) the most recent actuarial report
or valuation if such Benefit Plan is subject to Title IV of ERISA, (vi) the
most recent determination letter issued by the IRS if such Benefit Plan is
intended to be qualified under Section 401(a) of the Code and (vii) any open
requests for rulings or determination letters that pertain to such Benefit
Plan. Other than has been identified on Schedule 4.09A of the Company
Disclosure Schedule, full payment has been made (or proper accruals have been
established to the extent required by GAAP) for all contributions which are
required or for which benefits have accrued prior to the Effective Time under
the terms of each Benefit Plan and for all liabilities which have accrued
prior to the Effective Time under each Benefit Plan.
(c) None of the Company or any other Person that, together with the Company,
is treated as a single employer under Section 414 of the Code (each, including
the Company, a "Commonly Controlled Entity") has incurred any liability to a
Pension Plan under Title IV of ERISA (other than for contributions not yet
due) or to the PBGC (other than for payment of premiums not yet due), which
liability has not been fully paid.
(d) No Commonly Controlled Entity is required to contribute to any
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) or has
withdrawn from any multiemployer plan where such withdrawal has resulted or
could result in any "withdrawal liability" (within the meaning of Section 4201
of ERISA) that has not been fully paid.
(e) Each Benefit Plan that is a Welfare Plan may be amended or terminated at
any time after the Effective Time by the Surviving Corporation or any of the
Subsidiaries (as the case may be) without liability to any Person.
Section 4.09B. Canadian Employee Benefits. (a) Except as set forth in
Schedule 4.09B, there are no employee pension or retirement plans, profit
sharing plans, bonus plans, savings plans, deferred compensation plans, stock
option plans, hospitalization plans, insurance plans or other employee benefit
plans, agreements or arrangements maintained by any Subsidiary organized under
the Laws of Canada or any Province thereof for any of its present or former
employee, officer or director (all such plans, agreements and arrangements are
collectively referred to herein as the "Canadian Plans"). Except as would not
individually or in the aggregate have a Material Adverse Effect: (i) each of
the Canadian Plans has been administered in accordance with its terms and in
compliance with all applicable Laws (including, if applicable, the Pension
Benefits Act (Ontario) and the Income Tax Act (Canada)) and all applicable
collective bargaining agreements; and (ii) to the knowledge of the Company,
all Liabilities under each of the Canadian Plans that is a pension plan (as
defined in the Pension Benefits Act (Ontario)) are fully funded, on a going
concern basis, in accordance with the terms of the Canadian Plans, regulatory
requirements as outlined by the Pension Benefits Act (Ontario), administrative
requirements of the Pension Commission of Ontario and the most recent
actuarial report filed with the Pension Commission of Ontario in respect of
the pension plan. Schedule 4.09B identifies the method of funding (including
any individual accounting) for all Canadian Plans providing post-retirement
medical or life insurance benefits and discloses the funded status of such
plans. With respect to each of the Canadian Plans, the Company has made
available to Newco a true and complete copy of (A) the most recent annual
information form filed with the Pension
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Commission of Ontario and Revenue Canada Taxation, if applicable, (B) such
Canadian Plan, (C) each trust agreement and insurance contract relating to
such Canadian Plan, if applicable, (D) the most recent summary plan
description for such Canadian Plan, if applicable, (E) the most recent
actuarial report or valuation if such a report is required to be prepared by
Law, and (F) any letter issued by Revenue Canada Taxation confirming
registration of such Canadian Plan under the Income Tax Act (Canada). Other
than has been identified in Schedule 4.09B, full payment has been made (or
proper accruals have been established to the extent required by GAAP) for all
contributions which are required or for which benefits have been accrued prior
to Closing under the terms of each of the Canadian Plans and for all
Liabilities which have accrued prior to the Effective Time under each of the
Canadian Plans.
(b) None of the Company or any of the Subsidiaries is required to contribute
to any "multi-employer pension plan" (as defined in the Pension Benefits Act
(Ontario)) or has withdrawn from any such plan but remains liable to make
contributions to such plan.
(c) Each of the Canadian Plans that is not a pension plan (as defined in the
Pension Benefits Act (Ontario)) may be amended and terminated at any time
after the Effective Time by the Surviving Corporation or any of the
Subsidiaries without liability to any Person.
Section 4.10. Other Compensation Arrangements. Neither the Company nor any
of the Subsidiaries is a party to any (a) consulting agreement with any
present or former director, officer or employee of the Company or any
Subsidiary not terminable without giving more than 60 calendar days notice
involving the payment of more than $500,000 per annum in the aggregate for all
such consulting agreements, (b) union or collective bargaining agreement, (c)
agreement with any director, officer or employee, any of the benefits of which
are contingent, or the terms of which are materially affected or altered, upon
the occurrence of a transaction involving the Company of the nature
contemplated by this Agreement, (d) agreement with any director, officer or
employee providing any term of employment or compensation guarantee extending
for a period longer than two years or (e) Equity Plan, any of the benefits of
which will be increased or affected, or the vesting of the benefits of which
will be accelerated or affected, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement.
Section 4.11. Labor Matters. There are no pending or, to the knowledge of
the Company, threatened labor disputes, labor controversies, strikes or work
stoppages in respect of any collective bargaining unit or other group of
employees of the Company or any of the Subsidiaries other than those, if any,
which (individually or in the aggregate) could not reasonably be expected to
have a Material Adverse Effect. To the knowledge of the Company, there are no
organizational efforts presently being made involving any of the presently
unorganized employees of the Company or any Subsidiary which could reasonably
be expected to have a Material Adverse Effect.
Section 4.12. Litigation. The Company has not received any notice of, nor
does it have knowledge of, any pending or threatened suit, claim, action,
proceeding or investigation before any Governmental Authority or arbitrator
against the Company or any of the Subsidiaries, and neither the Company nor
any of the Subsidiaries is subject to any outstanding order, writ, injunction
or decree, in any such case that seeks to restrain the consummation of the
Merger or which could reasonably be expected to have a Material Adverse
Effect.
Section 4.13. Compliance with Applicable Law. (a) The Company and the
Subsidiaries hold, and are in compliance with the terms of, all permits,
licenses, variances, exemptions, orders and approvals of all Governmental
Authorities necessary for the lawful conduct of their respective businesses as
currently conducted (collectively, the "Company Permits"), except for failures
to hold or be in compliance with the terms of such Company Permits that would
not, individually or in the aggregate, have a Material Adverse Effect.
(b) Neither the Company nor any of the Subsidiaries is in violation of or
has been given notice or been charged with any violation of any Law, except
for possible violations that, individually or in the aggregate, would
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not have a Material Adverse Effect. No investigation or review by any
Governmental Authority with respect to the Company or any of the Subsidiaries
is pending or, to the knowledge of the Company, threatened, nor has any
Governmental Authority indicated an intention to conduct any such
investigation or review, other than, in each case, those the outcome of which
could not be reasonably expected to have a Material Adverse Effect.
Notwithstanding anything in this Section 4.13, no representation is made under
this Section 4.13 with respect to Environmental Laws or Environmental Permits,
it being understood that any representation relating to Environmental Laws and
Environmental Permits is being made exclusively in Section 4.14.
Section 4.14. Environmental Matters. (a) Except as would not have a Material
Adverse Effect:
(i) each of the Company and the Subsidiaries is and has been in
compliance with all applicable Environmental Laws and Environmental
Permits;
(ii) neither the Company nor any of the Subsidiaries has received any
written notices, demand letters or written requests for information from
any Governmental Authority or any third party indicating that the Company
or any Subsidiary is or may be in violation of, or liable under, any
Environmental Law or Environmental Permit;
(iii) there are no civil, criminal or administrative actions, suits,
demands, claims, hearings, investigation or proceedings pending or, to the
knowledge of the Company, threatened against the Company or any of the
Subsidiaries alleging that they may be in violation of, or liable under,
any Environmental Law or Environmental Permit; and
(iv) no reports have been filed, or are required to be filed, with any
Governmental Authority by the Company or any of the Subsidiaries concerning
the release of any Hazardous Substance or the violation of any
Environmental Law or Environmental Permit.
(b) None of the assets currently, or which have ever in the past been,
owned, operated or leased by the Company or any Subsidiary is currently on or
has ever been on, or, to the knowledge of the Company or any Subsidiary, is or
has ever been proposed for listing on, any federal or state "superfund" or
"super lien" list, including CERCLA, and neither the Company nor any
Subsidiary is currently taking, nor has it ever been required to take, any
material corrective action with respect to any of its assets under the
Resource Conservation and Recovery Act or any other Environmental Law.
Section 4.15. Tax Matters. (a) The Company and each of the Subsidiaries has
filed all Federal income tax returns and all other tax returns and reports
required to be filed by it on or before the Effective Time other than those
returns the failure of which to file would not have a Material Adverse Effect.
All such returns are complete and correct in all material respects. The
Company and each of the Subsidiaries has paid (or the Company has paid on the
Subsidiaries' behalf) all Taxes shown as due on such returns or adequate
provision has been made for any such Taxes on the Company's latest balance
sheet included in the Company Financial Statements in accordance with GAAP.
(b) To the knowledge of the Company, no tax return of the Company or any of
its Subsidiaries is under audit or examination by any taxing authority. No
notice of such an audit or examination has been received by the Company or any
of the Subsidiaries other than those which, singly or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect. Any deficiency
resulting from any audit or examination relating to Taxes by any taxing
authority has been paid, except for deficiencies being contested in good
faith. The Federal income tax returns of the Company and each of the
Subsidiaries consolidated in such returns have been examined by and settled
with the IRS for all years, or all years are otherwise closed, through 1990.
(c) There are no assessments or notices of deficiency or proposed
assessments with respect to any Taxes of the Company or any of the
Subsidiaries (or for which the Company or any of the Subsidiaries is liable)
other than those which, singly or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
(d) Neither the Company nor any of the Subsidiaries has made or entered
into, or holds any assets subject to, a consent filed pursuant to Section
341(f) of the Code and the regulations thereunder.
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(e) No Liens for Taxes exist with respect to any assets of the Company or
any of the Subsidiaries, except for statutory liens for Taxes not yet due.
(f) None of the Company or any of the Subsidiaries is a party to or is bound
by any tax sharing agreement, tax indemnity obligation or similar agreement,
arrangement or practice with respect to Taxes (including any advance pricing
agreement, closing agreement or other agreement relating to Taxes with any
taxing authority).
(g) The disallowance of a deduction under Section 162(m) of the Code for
employee remuneration will not apply to any amount paid or payable by the
Company or any of the Subsidiaries under any Contract, Benefit Plan, program,
arrangement or understanding currently in effect.
(h) Any amount or other entitlement that could be received (whether in cash
or assets or the vesting of assets) as a result of any of the transactions
contemplated by this Agreement by any employee, officer or director of the
Company or any of its affiliates who is a "disqualified individual" (as such
term is defined in proposed Treasury Regulation Section 1.280G-1) under any
employment, severance or termination agreement, other compensation arrangement
or Benefit Plan currently in effect would not be characterized as an "excess
parachute payment" (as such term is defined in Section 280G(b)(1) of the
Code).
(i) There is no unresolved issue of law or fact arising out of a notice of
deficiency, proposed deficiency or assessment from the IRS or any other taxing
authority with respect to Taxes of the Company or any Subsidiary which, singly
or in the aggregate, could have a Material Adverse Effect.
(j) The liabilities and reserves for Taxes reflected in the latest Company
balance sheet included in the Company Financial Statements are adequate to
cover all Taxes for all periods at or prior to the Effective Time.
Section 4.16. Board Approvals. The Board of Directors of the Company has
approved the Inducement Agreement and each Agreement and Irrevocable Proxy
described in the recitals hereto, the Merger and this Agreement.
Section 4.17. Brokers. No broker, investment banker, financial advisor or
other Person, other than Lazard Freres & Co. LLC ("Lazard"), the fees and
expenses of which will be paid by the Company, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company. The Company has provided Newco true and
correct copies of all agreements between the Company and Lazard.
Section 4.18. Opinion of Financial Advisor. The Board of Directors of the
Company has received the opinion of Lazard, to the effect that the
consideration to be received by the Company's stockholders in the Merger is
fair to such stockholders from a financial point of view.
Section 4.19. Intellectual Property. (a) Except to the extent that the
inaccuracy of any of the following (or the circumstances giving rise to such
inaccuracy), individually and in the aggregate, would not have a Material
Adverse Effect:
(i) the Company and each of the Subsidiaries owns, or is licensed or
otherwise has the right to use (in each case, free and clear of any Liens),
all Intellectual Property used in the conduct of its business as currently
conducted;
(ii) the Company has not received any notice of, nor does it otherwise
have knowledge of, any pending or threatened Claims that the Company or any
of the Subsidiaries is infringing on or otherwise violating the rights of
any Person with regard to any Intellectual Property owned by and/or
licensed to the Company or any of the Subsidiaries;
(iii) to the knowledge of the Company, no Person is infringing on or
otherwise violating any right of the Company or any of the Subsidiaries
with respect to any Intellectual Property owned by and/or licensed to the
Company or any of the Subsidiaries;
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(iv) to the knowledge of the Company, none of the former or current
members of management or key personnel of the Company or any of the
Subsidiaries, including all former and current employees, agents,
consultants and contractors who have contributed to or participated in the
conception and development of Intellectual Property of the Company or any
of the Subsidiaries has asserted in writing any Claim against the Company
or any of the Subsidiaries claiming proprietary rights to any Intellectual
Property of the Company or any of the Subsidiaries; and
(v) the execution and delivery of this Agreement, compliance with its
terms and the consummation of the transactions contemplated hereby do not
and will not conflict with or result in any violation or default (with or
without notice or lapse of time or both), or right of termination or
cancellation of any Intellectual Property right or obligation, or the loss
or encumbrance of any Intellectual Property or benefit related thereto, or
result in or require the creation, imposition or extension of any Lien upon
any Intellectual Property or right.
(b) For purposes of this Agreement, "Intellectual Property" means, with
respect to any Person, all (i) trademarks and service marks (registered or
unregistered), (ii) assumed names and trade names, (iii) the goodwill
associated with the foregoing, (iv) registrations in any jurisdiction of, and
applications in any jurisdiction to register, the foregoing, including any
extension, modification or renewal of any such registration or application,
(v) inventions, discoveries and ideas, whether patented, patentable or not in
any jurisdiction, (vi) trade secrets and confidential information, (vii)
writings and other copyrightable works, (viii) registration or applications
for registration of copyrights in any jurisdiction, and any renewals or
extensions thereof and (ix) licenses relating to the foregoing, in each case,
owned, held or licensed by such Person.
Section 4.20. No Default. Neither the Company nor any of its Subsidiaries is
in default or breach of any Contract to which it is a party and, to the
knowledge of the Company, there exists no condition which, with the giving of
notice or lapse of time or both would constitute such a default or breach,
except for conditions, defaults and breaches which individually and in the
aggregate do not, and could not reasonably be expected to, have a Material
Adverse Effect.
Section 4.21. Enforceability of Contracts. Except as would not have a
Material Adverse Effect, all Contracts to which the Company or any Subsidiary
is a party have been duly executed and delivered by it and, assuming such
Contracts constitute valid and binding obligations of the other parties
thereto, constitute its valid and binding obligations, enforceable against it
in accordance with their terms, except that (a) such enforcement may be
subject to bankruptcy, insolvency, moratorium or similar Laws affecting
creditors' rights and (b) the remedy of specific performance and injunctive
and other forms of equitable relief are subject to certain equitable defenses
and to the discretion of the court before which any proceedings therefor may
be brought.
Section 4.22. Absence of Voting Agreements. Except as provided in this
Agreement, to the knowledge of the Company, there exist no voting trusts,
proxies or voting agreements relating to any shares of capital stock (or any
other equity interests) of the Company or any of the Subsidiaries.
Section 4.23. Title to Assets. The Company and each of the Subsidiaries has
good and indefeasible title in fee simple to all of its real property and good
title to all of its leasehold interests and other properties as reflected in
the most recent balance sheet included in the Company Financial Statements,
other than such properties that have been disposed of in the ordinary course
of business since the date of such balance sheet, free and clear of all Liens
except (a) statutory liens for Taxes not yet due, (b) such imperfections in
title, easements and Liens, if any, as are not substantial in character,
amount or extent and do not materially detract from the value or interfere
with the present use of the property subject thereto or affected thereby or
otherwise materially impair the business operations of the Company or any
Subsidiary as presently carried on, (c) Liens existing on the date hereof
securing indebtedness for borrowed money reflected in such balance sheet and
(d) other matters which, singly or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect. All leases under which the Company
or any Subsidiary leases any real or personal property are in good standing,
valid and effective in accordance with their terms, and there are not, under
any of such leases, any existing default on the part of the Company or any
Subsidiary or, to the knowledge of the Company, any other party thereto or, to
the knowledge
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of the Company, any event which, with notice or lapse of time or both would
have become a default, other than defaults under such leases which, singly or
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
Section 4.24. Insurance. The Company Disclosure Schedule sets forth a
complete list of all insurance policies currently in force for which the
Company and the Subsidiaries paid or are obligated to pay all or any part of
the premiums. All such policies are in full force and effect on the date of
this Agreement, and all premiums due thereon have been paid, the Company and
the Subsidiaries have complied with the provisions of each applicable policy
and, to the knowledge of the Company, there are no pending claims against any
such insurance by the Company or any of the Subsidiaries as to which insurers
have denied liability (although insurers have in many instances and as a
matter of course undertaken defense subject to reservation of rights to deny
liability), except for such failure to pay premiums, non-compliance claims or
other matters that, alone or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect. The Company Disclosure Schedule
sets forth a complete and accurate list and description of all self-insurance
arrangements which are required to be maintained by applicable Law affecting
the Company or any of the Subsidiaries, and such self-insurance arrangements
are in full force and effect and are in compliance with all requirements of
applicable Law where the failure to comply could reasonably be expected to
have a Material Adverse Effect.
Section 4.25. Condition of Company Properties. Since September 30, 1995, the
facilities of the Company and the Subsidiaries have been maintained in a
manner consistent with past practice.
Section 4.26. Company Stockholder Approval. The affirmative vote of
stockholders of the Company required for the approval and adoption of this
Agreement, the Merger and the transfer of assets contemplated by Section 7.12
is a majority of the issued and outstanding shares of Company Common Stock
entitled to vote thereon (the "Company Stockholder Approval").
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF NEWCO
Except as otherwise set forth on the disclosure schedule heretofore
delivered by Newco to the Company which makes reference to this Agreement (the
"Newco Disclosure Schedule"), Newco represents and warrants to the Company as
follows:
Section 5.01. Organization. Newco is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware and has
all requisite corporate power and corporate authority and all necessary
Governmental Approvals to own, lease and operate its properties and to carry
on its business as now being conducted, except where the failure to have such
Governmental Approvals would not, when taken together with all such other
failures, have a Material Adverse Effect. Newco is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so duly qualified or licensed and in good standing would
not, when taken together with all other such failures, have a Material Adverse
Effect. Newco has made available to the Company complete and correct copies of
its Certificate of Incorporation and By-laws, in each case as amended to the
date of this Agreement.
Section 5.02. Capitalization. The authorized capital stock of Newco consists
of 900,000 shares of Newco Common Stock, of which 84 shares are issued and
outstanding on the date hereof. All of the outstanding shares of Newco Common
Stock are duly authorized, validly issued, fully paid and nonassessable and
free of any preemptive rights in respect thereto. Except as set forth in this
Section 5.02, as of the date hereof, (a) no shares of capital stock or other
voting securities of Newco are outstanding and (b) no equity equivalents,
interests in the ownership of Newco or other similar rights are outstanding.
Section 5.03. Authority. (a) Newco has the requisite corporate power and
authority to execute and deliver this Agreement and, subject to the Newco
Stockholder Approval and the Newco Required Statutory Approvals,
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to consummate the transactions contemplated hereby. Upon obtaining the Newco
Stockholder Approval, the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Newco
and no other corporate proceedings on the part of Newco are necessary to
authorize this Agreement or to consummate such transactions. No vote of
Newco's stockholders is required to approve this Agreement or the other
transactions contemplated hereby except for the Newco Stockholder Approval. No
vote of Newco stockholders is required to approve this Agreement or the other
transactions contemplated hereby other than those which have been obtained or
made and are in full force and effect.
(b) This Agreement has been duly executed and delivered by Newco and,
assuming this Agreement constitutes a valid and binding obligation of the
Company, constitutes a valid and binding obligation of Newco enforceable
against it in accordance with its terms, except (i) that such enforcement may
be subject to bankruptcy, insolvency, moratorium or similar Laws affecting
creditors' rights and (ii) that the remedy of specific performance and
injunctive and other forms of equitable relief are subject to certain
equitable defenses and to the discretion of the court before which any
proceedings therefor may be brought. Without limitation of the foregoing, each
of the covenants and obligations of Newco set forth in Articles VII and X is
valid, binding and enforceable as aforesaid notwithstanding the absence of the
Newco Stockholder Approval.
Section 5.04. Consents and Approvals; No Violations. (a) The execution and
delivery of this Agreement by Newco do not violate, conflict with or result in
any breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or give rise to any
obligation to make payments or provide compensation under, or result in the
creation of any Lien upon any of the properties of Newco, under any of the
terms, conditions or provisions of (i) the Certificate of Incorporation or By-
laws of Newco, (ii) any Law, permit or license applicable to Newco or any of
its properties or (iii) any Contract to which Newco is now a party or by which
Newco or any of its properties may be bound or affected. Neither the
performance of this Agreement by Newco nor the consummation by Newco of the
transactions contemplated hereby will result in any violation, conflict,
breach, termination, acceleration or creation or any Liens under any of the
terms, conditions or provisions described in clauses (i) through (iii) above,
subject, in the case of the terms, conditions or provisions described in
clause (ii) above, to obtaining (prior to the Effective Time) the Newco
Required Statutory Approvals. Excluded from the foregoing sentences of this
paragraph (a), insofar as they apply to the terms, conditions or provisions
described in clauses (ii) and (iii) of the first sentence of this paragraph
(a), are such violations, conflicts, breaches, defaults, terminations,
accelerations, payments, compensations or creations of Liens that,
individually or in the aggregate, would not prevent or delay beyond the
Outside Date the consummation of the Merger.
(b) Except for the Newco Required Statutory Approvals, no declaration,
filing or registration with, or notice to, or authorization, consent or
approval of, any Governmental Authority is necessary for the execution and
delivery of this Agreement by Newco or the consummation by Newco of the
transactions contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if not
made or obtained (as the case may be), would not, individually or in the
aggregate, prevent or delay beyond the Outside Date the consummation of the
Merger.
Section 5.05. Company Required SEC Filings. None of the information supplied
or to be supplied by Newco or Operating Sub specifically for inclusion or
incorporation by reference in any Company Required SEC Filing will, as of the
date filed with or declared effective by the SEC or at the time of mailing to
the Company's stockholders or at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading.
Section 5.06. Interim Operations of Newco. Newco was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as
contemplated hereby. Prior to the Effective Time, Newco will (a) not engage in
any business activities other than the business activities contemplated hereby
(including business activities contemplated by or
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reasonably incident to the Financing and the Newco SEC Filings) and (b)
conduct its operations only as contemplated hereby (including operations
contemplated by or reasonably incident to the Financing and the Newco SEC
Filings). As of the date hereof, Newco has no subsidiaries and, during the
period commencing with the date hereof and ending at the Effective Time, Newco
will have no subsidiaries other than Operating Sub and other directly or
indirectly wholly-owned subsidiaries of Newco, the formation of which are
deemed necessary or desirable by Newco in connection with the consummation of
the transactions contemplated hereby. As of the date of this Agreement, Newco
has no affiliates (which term, for purposes of this sentence only, has the
meaning specified in Section 2 of the Competition Act) with assets in Canada
or with gross revenues from sales in, from or into Canada.
Section 5.07. Brokers. No broker, investment banker, financial advisor or
other Person, other than The Sterling Group, Inc., The Unicorn Group and CS
First Boston Corporation, the fees and expenses of which will be paid by
Newco, is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Newco.
Section 5.08. Newco Stockholder Approval. The affirmative vote of
stockholders of Newco required for the approval and adoption of this Agreement
and the Merger is a majority of the issued and outstanding shares of Newco
Common Stock entitled to vote thereon (the "Newco Stockholder Approval").
ARTICLE VI
CERTAIN COVENANTS
Section 6.01. Conduct of Company Business Pending the Merger. From the date
hereof until the Effective Time, the Company will perform and observe, and
will cause each of the Subsidiaries to perform and observe, each of the
following covenants in all respects, except (i) as expressly contemplated or
permitted by this Agreement, (ii) as expressly set forth in the Company
Disclosure Schedule or (iii) to the extent that Newco shall otherwise consent
in writing:
(a) Ordinary Course. The Company shall, and shall cause each of the
Subsidiaries to, (i) carry on its business in the usual, regular and
ordinary course and consistent with past practice, (ii) use all reasonable
efforts to preserve intact its present business organizations, keep
available the services of its present officers and employees and preserve
its good will and relationships with customers, suppliers and others having
business dealings with it and (iii) not engage in any action with the
intent to adversely impact the transactions contemplated by this Agreement.
(b) Dividends; Changes in Stock. The Company shall not, and it shall not
permit any of the Subsidiaries to, (i) declare, set aside or pay any
dividends on or make other distributions in respect of any of its capital
stock (or any other equity interest) other than dividends and other
distributions payable to the Company or any wholly-owned Subsidiary, (ii)
split, combine or reclassify any of its capital stock (or any other equity
interest) or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock (or any other equity interest) or (iii) repurchase, redeem or
otherwise acquire, or offer to repurchase, redeem or otherwise acquire, any
shares of its capital stock (or any other equity interest), other than
repurchases, redemptions or other acquisition of shares of capital stock by
any Subsidiary organized under the Laws of Canada or any Province thereof
in the ordinary course of business consistent with past practice.
(c) Issuance of Securities. The Company shall not, and it shall not
permit any of the Subsidiaries to, issue, deliver, sell or dispose of, or
authorize or propose the issuance, delivery, sale or disposition of, any
shares of its capital stock (or any other equity interest), any Stock
Acquisition Rights, any stock appreciation rights, any phantom stock or any
restricted stock other than (i) the issuance of shares of Company Common
Stock upon the exercise of stock options granted under the Omnibus Stock
Plan and outstanding on the date of this Agreement and in accordance with
the present terms of such options and (ii) issuances by a
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Subsidiary of its capital stock (or any other equity interest) to the
Company or any wholly-owned Subsidiary; provided, however, that for
purposes of this Section 6.01(c), the vesting of any SAR, the payment of
any amount in connection with the discharge of any phantom stock upon the
resignation or retirement from the Company or any Subsidiary by the holder
thereof and the actions contemplated by Section 7.06 shall not constitute
the issuance, delivery, sale or other disposition of any shares of capital
stock, Stock Acquisition Rights, stock appreciation right, phantom stock or
restricted stock.
(d) Compensation of Officers. The Company shall not, and it shall not
permit any of the Subsidiaries to, (i) grant to any officer of the Company
or any of the Subsidiaries (A) any increase in compensation, except in the
ordinary course of business (including in connection with promotions)
consistent with prior practice or as was required under employment
agreements in effect as of the date hereof or (B) any increase in severance
or termination pay, except as part of a standard employment package to any
Person promoted or hired (but not including the five most senior officers),
or as was required under employment, severance or termination agreements in
effect as of the date hereof, or (ii) enter into any employment, severance
or termination agreement with any officer of the Company or any of the
Subsidiaries; provided, however, that nothing contained in this Section
6.01(d) shall prohibit any of the Subsidiaries from replacing any of its
existing officers that resign or otherwise terminate their position as an
officer of such Subsidiary on terms and in a manner customary for such
Subsidiary provided that the Company gives notice of such action to Newco
in reasonable detail prior to such replacement.
(e) Benefit Plans. Except as provided in paragraph (c) above, the Company
shall not, and it shall not permit any of the Subsidiaries to, increase the
benefits available under or establish any Benefit Plan or Canadian Plan
(other than amendments to Welfare Plans and their Canadian counterparts in
the ordinary course of business and increases in compensation payable to
non-officer employees of the Company or any Subsidiary in the ordinary
course of business consistent with past practice), including the granting
of stock options, stock appreciation rights, performance awards or
restricted stock awards or the amendment or acceleration of vesting of any
existing stock options, stock appreciation rights, performance awards or
restricted stock awards.
(f) Governing Documents. The Company shall not, and it shall not permit
any of the Subsidiaries to, amend or propose to amend its Certificate of
Incorporation or By-laws or comparable organizational documents.
(g) No Acquisitions. The Company shall not, and it shall not permit any
of the Subsidiaries to, (i) acquire or agree to acquire (by merger,
consolidation, acquisition of stock or assets or by any other manner) any
business or any corporation, partnership, association or other business
organization or division thereof or (ii) except in the ordinary course of
business, make or agree to make any investment (by purchase of stock,
contribution to capital, property transfer or purchase of property or
otherwise) in any other Person.
(h) No Dispositions. The Company shall not, and it shall not permit any
of the Subsidiaries to, sell, lease, license, encumber or otherwise dispose
of, or agree to sell, lease, license, encumber or otherwise dispose of, any
of its assets, except in the ordinary course of business consistent with
prior practice.
(i) Indebtedness. The Company shall not, and it shall not permit any of
the Subsidiaries to:
(i) incur (which shall not be deemed to include entering into credit
agreements, lines of credit or similar arrangements until borrowings
are made under such arrangements) any indebtedness for borrowed money;
(ii) guarantee any such indebtedness;
(iii) issue or sell any debt securities or warrants or rights to
acquire any debt securities of the Company or any of the Subsidiaries;
or
(iv) guarantee any debt securities of others,
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except in the ordinary course of business consistent with prior practice
and which, in any event, when added to the aggregate amount of all such
incurrences, guarantees, issuances and sales made or committed to be made
by the Company and all the Subsidiaries after the date hereof, does not
exceed $5,000,000; provided, however, that such $5,000,000 limit shall not
be applicable to or otherwise affected by borrowings and reborrowings in
the ordinary course of business under revolving credit facilities which
were in existence prior to the date hereof.
(j) Advise of Changes; Filings. The Company shall confer on a regular and
frequent basis with Newco to report generally on operational matters and
shall promptly advise Newco orally and in writing of any events causing a
Material Adverse Effect or which may reasonably be expected to have a
Material Adverse Effect. The Company shall promptly provide to Newco (or
its counsel) copies of all filings made by the Company with any
Governmental Authority in connection with this Agreement and the
transactions contemplated hereby.
(k) Tax Matters. From the date of this Agreement, the Company shall not
make any tax election, or settle or compromise any income tax liability of
the Company or any of its Subsidiaries, that would have a Material Adverse
Effect or that involves a payment by or to the Company or any Subsidiary of
more than $1,500,000. The Company shall, before filing or causing to be
filed any material tax return of the Company or any of the Subsidiaries,
consult with Newco and its advisors as to the material positions and
elections that may be taken or made with respect to such return.
(l) Discharge of Liabilities. The Company shall not, and it shall not
permit any of the Subsidiaries to, pay, discharge, settle or satisfy any
Claims, Liabilities or Losses, other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their respective terms, of Liabilities
recognized or disclosed in the most recent balance sheet (or the notes
thereto) of the Company included in the Company Financial Statements or
incurred since the date of such balance sheet in the ordinary course of
business consistent with past practice, or waive the benefits of, or agree
to modify in any manner, any confidentiality, standstill or similar
agreement to which the Company or any of the Subsidiaries is a party.
(m) Material Contracts. Except in the ordinary course of business, the
Company shall not, and it shall not permit any of the Subsidiaries to,
modify, amend or terminate any material Contract to which the Company or
such Subsidiary is a party or waive, release or assign any material rights
or Claims.
(n) Capital Expenditures. Except in the ordinary course of business or as
set forth in the Company Disclosure Schedule, the Company shall not, and it
shall not permit any of the Subsidiaries to, make or commit to make any
capital expenditure in an amount which, when added to the aggregate amount
of all other capital expenditures made or committed to be made by the
Company and all the Subsidiaries after the date hereof, exceeds
$10,000,000.
(o) Accounting Procedures. Except as required by GAAP or applicable Law,
the Company shall not, and it shall not permit any of the Subsidiaries to,
make or commit to make any material changes in its accounting procedures.
(p) Other Matters. The Company shall not, and it shall not permit any of
the Subsidiaries to, take or agree to take any action that (i) would result
in any of the Company's representations and warranties contained in this
Agreement that are qualified as to materiality becoming untrue, (ii) would
result in any of such representations and warranties that are not so
qualified becoming untrue in any material respect or (iii) to the Company's
knowledge, could reasonably be expected to have a Material Adverse Effect.
Section 6.02. No Solicitation. (a) The Company shall immediately cease any
discussions or negotiations with any parties (other than Newco) that may be
ongoing with respect to the direct or indirect acquisition or purchase of all
or any substantial amount of the business or assets of the Company or any of
the Subsidiaries or any capital stock or other equity interests of the Company
or any of the Subsidiaries, whether by merger, consolidation, business
combination, sale of assets, sale of securities, tender offer, exchange offer,
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recapitalization, liquidation, dissolution or otherwise, and whether for cash,
securities or any other consideration or combination thereof (an "Acquisition
Transaction"). After the date hereof and prior to the Effective Time or
earlier termination of this Agreement:
(i) the Company shall not, and shall not permit any of the Subsidiaries
to, (A) solicit, initiate, encourage (including by way of furnishing
information) or take any other action to facilitate any Acquisition
Transaction or (B) participate in any discussions or negotiations regarding
any Acquisition Transaction, and
(ii) the Company shall, and shall cause each of the Subsidiaries to, use
its reasonable best efforts to cause its officers, directors and employees
and any investment banker, financial advisor, attorney, accountant or other
agent or representative retained by it to not, (A) solicit, initiate,
encourage (including by way of furnishing information) or take any other
action to facilitate any Acquisition Transaction or (B) participate in any
discussions or negotiations regarding any Acquisition Transaction;
provided, however, that if, at any time prior to the Effective Time or the
earlier termination of this Agreement, the Board of Directors of the Company
reasonably determines in good faith, (1) after consultation with one or more
of the Company's independent financial advisors, that providing confidential
or non-public information to a financially capable Person (a "Potential
Acquiror") could lead to an Acquisition Transaction more favorable to the
stockholders of the Company than the Merger and (2) after consultation with
the Company's outside legal counsel, that there is a significant risk that the
failure to provide such confidential or non-public information to such
Potential Acquiror would constitute a breach of its fiduciary duty to the
stockholders of the Company, the Company may, in response to a Takeover
Proposal received by the Company after the date hereof and subject to
compliance with Section 6.02(c), (x) furnish confidential or non-public
information with respect to the Company to such Potential Acquiror pursuant to
a customary confidentiality agreement and (y) participate in negotiations with
such Potential Acquiror regarding such Takeover Proposal. As used herein,
"Takeover Proposal" means any proposal or offer (regardless of when received
or made) from a Potential Acquiror relating to an Acquisition Transaction.
(b) Except as set forth in this Section 6.02(b), neither the Board of
Directors of the Company nor any committee thereof shall (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Newco, the
approval or recommendation by such Board of Directors or such committee of
this Agreement or the Merger, (ii) approve or recommend to the stockholders of
the Company, or propose to approve or recommend to the stockholders of the
Company, any Takeover Proposal or (iii) cause the Company to accept or enter
into any agreement with respect to any Takeover Proposal; provided, however,
that nothing contained in this Section 6.02(b) will prohibit the Company from
entering into any confidentiality agreement or taking any other action
incidental to the actions permitted pursuant to the proviso to paragraph (a)
above so long as the Company does not accept a Takeover Proposal.
Notwithstanding the foregoing, in the event that, prior to the Effective Time
or the earlier termination of this Agreement, the Board of Directors of the
Company reasonably determines in good faith:
(1) after consultation with its financial advisor, that a Takeover
Proposal made to the Company after the date hereof is more favorable to the
stockholders of the Company than the Merger and that acceptance of such
Takeover Proposal is in the best interests of the stockholders of the
Company, and
(2) after consultation with its outside legal counsel, that there is a
significant risk that the failure to take any such action would constitute
a breach of its fiduciary duties to the Company's stockholders,
the Board of Directors of the Company may withdraw or modify its approval or
recommendation of this Agreement and the Merger, approve or recommend such
Takeover Proposal or cause the Company to accept the Takeover Proposal and/or
enter into an agreement with respect to such Takeover Proposal; provided,
however, that the Board of Directors of the Company may only take any such
action if:
(A) at least seven days prior to the formal acceptance of such Takeover
Proposal, the Company shall have furnished Newco with a written notice
advising Newco that the Board of Directors of the Company
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has received such Takeover Proposal and enclosing a copy of such Takeover
Proposal or a description (in reasonable detail) of the material terms and
conditions thereof and identifying the Potential Acquiror making such
Takeover Proposal,
(B) such Takeover Proposal relates to the acquisition by such Potential
Acquiror, for consideration consisting of cash and/or securities, of more
than 50% of the shares of Company Common Stock then outstanding or all or
substantially all the assets of the Company and the Subsidiaries, and
(C) the Company shall, prior to or simultaneously with the taking of such
action, have paid or pay to Newco or its designee the break-up fee referred
to in Section 9.02.
(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) of this Section 6.02, if the Company determines to provide any
confidential or non-public information or negotiate as described in the
proviso to paragraph (a) above, or if it receives any request for confidential
or non-public information or any Takeover Proposal, the Company shall
immediately (i) advise Newco orally and in writing that information is to be
provided, that negotiations with respect to an Acquisition Transaction are to
take place or that such request or Takeover Proposal has been received, (ii)
inform Newco orally and in writing of the identity of the Person making such
request or Takeover Proposal and (iii) furnish to Newco either a copy of such
request or Takeover Proposal or a description (in reasonable detail) of the
material terms and conditions thereof. The Company will keep Newco informed of
the status and principal terms of any such request or Takeover Proposal in a
manner that will provide Newco with sufficient and timely knowledge of such
status and terms and permit Newco meaningfully to respond thereto.
(d) Nothing contained in this Section 6.02 shall prohibit the Company from
taking and disclosing to its stockholders a position contemplated by Rule 14e-
2(a) promulgated under the Exchange Act or from making any disclosure to the
Company's stockholders if the Board of Directors of the Company determines in
good faith, after consultation with the Company's outside legal counsel, that
there is a significant risk that the failure to make such disclosure would
constitute a breach of its fiduciary duty to the stockholders of the Company
under applicable Law; provided, however, that neither the Company nor its
Board of Directors nor any committee thereof shall, except as permitted by
Section 6.02(b), (i) withdraw or modify, or propose to withdraw or modify, in
a manner adverse to Newco, the approval or recommendation by such Board of
Directors or such committee of this Agreement or the Merger, (ii) approve or
recommend, or propose to approve or recommend, any Takeover Proposal or (iii)
cause the Company to accept or enter into any agreement with respect to any
Takeover Proposal.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.01. Stockholder Approval; SEC Filings; Proxy Statement. (a) The
Company will, as soon as practicable following the execution of this
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "Stockholders Meeting") for the purpose of obtaining the
Company Stockholder Approval. Subject to Section 6.02(b), the Company will,
through its Board of Directors, recommend to its stockholders that they
approve and adopt this Agreement and the Merger. Subject to the fiduciary
duties of the Board of Directors of the Company under applicable law, the
Company shall use its reasonable best efforts to obtain the Company
Stockholder Approval as soon as practicable.
(b) As soon as practicable following the execution of this Agreement, the
Company will prepare and file with the SEC a preliminary form of the Proxy
Statement and any other Company Required SEC Filings (provided that the
Company shall not make any filing with the SEC pursuant to the Securities Act
relating to the Merger until after the date contemplated in Section 7.07(d)
for the delivery of the Definitive Equity Documents) and will use its
reasonable best efforts to (i) respond to any comments of the SEC or its
staff, (ii) have any Company Required SEC Filings declared effective by the
SEC (if required) as promptly as practicable and (iii) cause the Proxy
Statement to be mailed to the Company's stockholders as promptly as
practicable after responding to all such comments to the satisfaction of the
SEC or its staff. The Company shall also take any action required to be
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taken under applicable state "Blue-Sky" or other securities Laws in connection
with the performance of the Company's obligations pursuant to this Agreement.
The Company will notify Newco promptly of the receipt of any comments from the
SEC or its staff and of any request by the SEC or its staff for amendments or
supplements to any of the Company Required SEC Filings or for additional
information and will supply Newco with copies of all correspondence between
the Company or any of its representatives, on the one hand, and the SEC or its
staff, on the other hand, with respect to the Company Required SEC Filings or
the Merger. If at any time prior to the Stockholders Meeting there shall occur
any event that should be set forth in an amendment or supplement to any of the
Company Required SEC Filings, the Company will promptly prepare and file with
the SEC and/or mail to its stockholders such an amendment or supplement. If at
any time prior to the Effective Time, any event shall occur with respect to
the Company or any Subsidiary, information with respect to which should be set
forth in an amendment or supplement to any of the Newco SEC Filings or
Operating Sub SEC Filings in order to make the information contained therein
with respect to the Company or any Subsidiary not misleading, the Company
shall, and shall cause the Subsidiaries to, provide Newco with such
information. Each of the Company and Newco shall, and Newco shall cause
Operating Sub to, take all reasonable actions and promptly supply such
information to the other as is reasonably requested of any of them, and shall
otherwise cooperate with each other in connection with the matters described
in this Section 7.01(b).
(c) As soon as practicable following the execution of this Agreement, Newco
will, and will cause Operating Sub to, prepare and file with the SEC such of
the Newco SEC Filings and Operating Sub SEC Filings as it deems necessary in
connection with the Financing and Newco will, and will cause Operating Sub to,
use its reasonable best efforts to (i) respond to any comments of the SEC or
its staff, and (ii) have such Newco SEC Filings and Operating Sub SEC Filings
declared effective by the SEC (if required) as promptly as practicable. Newco
shall also take, and cause Operating Sub to take, any action required to be
taken under applicable state "Blue-Sky" or other securities Laws in connection
with the issuance by Newco or Operating Sub of securities in connection with
the Financing. If at any time prior to the Effective Time, any event shall
occur with respect to Newco or Operating Sub, information with respect to
which should be set forth in an amendment or supplement to any of the Company
Required SEC Filings in order to make the information contained therein with
respect to Newco or Operating Sub not misleading, Newco shall, and shall cause
Operating Sub to, provide the Company with such information. Each of the
Company and Newco shall take all reasonable actions and promptly supply such
information to the other as is reasonably requested of any of them, and shall
otherwise cooperate with each other in connection with the matters described
in this Section 7.01(c).
(d) Newco will, as soon as practicable following the execution of this
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders for the purpose of obtaining the Newco Stockholder Approval or
obtain the Newco Stockholder Approval by written consent. Subject to the
fiduciary duties of the Board of Directors of Newco, Newco will, through its
Board of Directors, recommend to its stockholders that they approve and adopt
this Agreement and the Merger and use its reasonable best efforts to obtain
the Newco Stockholder Approval as soon as practicable.
Section 7.02. Access to Information. (a) Upon reasonable notice, the Company
shall afford to Newco and to the officers, employees, independent accountants,
counsel and other representatives of Newco full access, during normal business
hours during the period prior to the Effective Time, to all its properties,
books, Contracts, commitments and records and, during such period, the Company
shall (and shall cause each of the Subsidiaries to) furnish promptly to Newco
(i) a copy of each report, schedule, registration statement and other document
filed or received by it during such period pursuant to the requirements of the
Federal securities laws, (ii) a copy of each return and other document filed
or received by it during such period pursuant to the requirements of the
Federal tax laws and (iii) all other information concerning its business,
properties and personnel as Newco may reasonably request. Neither the Company
nor any Subsidiary shall be liable to any Person who enters on or inspects any
of the properties of the Company or any Subsidiary pursuant to the terms of
this Agreement for any costs, damages, expenses, liabilities or obligations
arising out of or resulting from such entry or inspection unless caused by the
gross negligence or willful misconduct of the Company or any Subsidiary.
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(b) Newco acknowledges receipt of a copy of that certain Confidentiality
Agreement dated as of November 10, 1995 between the Company and The Sterling
Group, Inc. (as amended, the "Confidentiality Agreement") and agrees that any
and all information, correspondence, documents and other materials provided or
made available to Newco by or on behalf of the Company or any Subsidiary
pursuant to or in connection with this Agreement shall be subject to the
confidentiality requirements of the Confidentiality Agreement, the same as if
Newco were originally a party thereto; provided, however, that notwithstanding
the foregoing, in no event shall Newco be prohibited from making any
disclosure that is necessary or appropriate in order to obtain the Financing
or to satisfy or comply with any covenant, condition or agreement to be
satisfied or complied with by it or Operating Sub under this Agreement.
(c) No investigation pursuant to this Section 7.02 or any other provision of
this Agreement shall affect any representations or warranties of the Parties
herein or the conditions to the obligations of the Parties hereunder.
(d) The foregoing shall not require the Company to permit any inspection, or
to disclose any information, which in the reasonable judgment of the Company
would result in the disclosure of any trade secrets of third parties or
violate any obligation of the Company with respect to confidentiality if the
Company shall have used its reasonable best efforts to obtain the consent of
such third party to such inspection or disclosure.
Section 7.03. Reasonable Efforts. Each Party agrees to use its reasonable
best efforts to take, and Newco agrees to cause Operating Sub to use its
reasonable best efforts to take, (a) all reasonable actions necessary to
comply promptly with all legal requirements which may be imposed on it with
respect to the Merger (which actions shall include, without limitation,
furnishing all information required under the HSR Act and in connection with
Governmental Approvals) and will promptly cooperate with and furnish
information to the other Party in connection with any such requirements
imposed upon it or any of its affiliates in connection with the Merger and (b)
all reasonable actions necessary to obtain (and will cooperate with the other
Party or with the Parties in obtaining) any consent, authorization, order or
approval of, or any exemption by, any Governmental Authority or other public
or private third party required to be obtained or made by it in connection
with the Merger or the taking of any action contemplated thereby or by this
Agreement.
Section 7.04. Notification of Certain Matters. Each of the Parties agrees to
give prompt notice to the other of, and to use its reasonable best efforts to
prevent or promptly remedy, (a) the occurrence or failure to occur or the
impending or threatened occurrence or failure to occur, of any event which
occurrence or failure to occur would be to likely be to cause any of its
representations or warranties in this Agreement to be untrue or inaccurate in
any material respect at any time from the date hereof to the Effective Time
and (b) any material failure on its part to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 7.04 shall not limit or otherwise affect the remedies available
hereunder to the Party receiving such notice.
Section 7.05. Publicity. Neither Party shall issue any press release or
otherwise make any public announcement with respect to this Agreement or the
subject matter hereof without first consulting with the other Party.
Section 7.06. Stock Acquisition Rights, etc. (a) Immediately prior to the
Effective Time, the Company shall take such action (including, without
limitation, the adoption of appropriate resolutions by the Board of Directors
of the Company or a committee thereof) as may be necessary to cause the
Employee Share Purchase Plan referred to in Schedule 4.09B of the Company
Disclosure Schedule and each Stock Acquisition Right (including, without
limitation, unexercised stock options outstanding under the Omnibus Stock
Plan) to be automatically canceled as of the Effective Time, without any
consideration being delivered or deliverable in exchange therefor.
(b) Prior to the Effective Time, the Company shall take such action
(including, without limitation, the adoption of appropriate resolutions by the
Board of Directors of the Company or a committee thereof) as may be necessary
to:
(i) cause each stock appreciation right then outstanding under any Equity
Plan (a "SAR") to be automatically converted as of the Effective Time into
the right to receive a cash payment in an amount (the
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"Spread Amount") equal to the excess, if any, of $12.00 over the base price
provided for in such SAR unless, in the case of each such SAR, the holder
thereof, the Company and Newco mutually agree otherwise in writing;
(ii) cause each share of outstanding phantom stock to be automatically
converted as of the Effective Time into the right to receive a cash payment
in the amount of $12 (the "Phantom Stock Amount"); and
(iii) cause the rights of Gary Hysop under the Hysop Agreement to be
terminated in exchange for a payment in an amount not to exceed $50,000.
As of the Effective Time, the Company shall pay or cause to be paid the Spread
Amounts to the holders of the SARs and the Phantom Stock Amounts to the
holders of phantom stock, net of any amount of Taxes required to be withheld
by applicable Law. No interest shall accrue or be payable with respect to any
Spread Amount or Phantom Stock Amount.
(c) The Company represents and warrants to Newco that the Spread Amounts and
the Phantom Stock Amounts will not in the aggregate exceed an amount equal to
the Maximum Amount. The Company further represents and warrants to Newco that,
upon taking of the actions specified paragraphs (a) and (b) above, immediately
following the Effective Time, (i) no Stock Acquisition Rights or any stock
appreciation rights or phantom stock relating to the Company or any of the
Subsidiaries shall be outstanding and (ii) no participant in the Omnibus Stock
Plan or any other Equity Plan shall have the right thereunder to acquire any
Stock Acquisition Rights or any such stock appreciation rights or phantom
stock. For purposes of this Agreement, "Maximum Amount" means (i) at any time
prior to September 1, 1996, $15,000,000, and (ii) at any time on or after
September 1, 1996, $16,750,000.
(d) Immediately prior to the Effective Time, the Company shall take such
action (including, without limitation, the adoption of appropriate resolutions
by the Board of Directors of the Company or a committee thereof) as may be
necessary to cause all outstanding shares of restricted stock issued under the
Omnibus Plan ("Restricted Stock") to be immediately and fully vested,
notwithstanding any provision of the Omnibus Plan or any agreement between the
Company and any holder of Restricted Stock to the contrary.
(e) Except as otherwise agreed to by the Parties, (i) each Equity Plan shall
terminate as of the Effective Time and (ii) the Company shall ensure that
following the Effective Time no Stock Acquisition Right or any stock
appreciation right or phantom stock relating to the Company or any of the
Subsidiaries shall be outstanding and that no participant in the Omnibus Stock
Plan or any other Equity Plan shall have any right thereunder to acquire any
Stock Acquisition Right or any such stock appreciation right or phantom stock.
Section 7.07. Financing Arrangements. (a) Newco represents and warrants to
the Company that (i) Newco has, contemporaneously with its execution hereof
under cover letter identifying the same as such, delivered to the Company true
and complete copies of letters (the "Financing Letters") from certain
commercial banks, investment banks and other financing sources describing
their interests in participating in the financing (debt and equity) required
by Newco to consummate the Merger in accordance with this Agreement (the
"Financing") and (ii) as of the date hereof, none of the Financing Letters has
been withdrawn or terminated nor is Newco aware of any plan or intention to
withdraw or terminate any of the Financing Letters. Newco will promptly advise
the Company if any Financing Letter is withdrawn or terminated.
(b) Newco further covenants and agrees with the Company that it will use its
reasonable best efforts to obtain the Financing by the Outside Date on terms
and conditions which are reasonably satisfactory to Newco. Newco will promptly
advise the Company if Newco becomes aware of the occurrence of any event which
Newco believes may have a materially adverse effect on the ability of Newco to
obtain the Financing as contemplated by the preceding sentence.
(c) Newco will use its reasonable best efforts to negotiate and enter into,
on or before June 24, 1996, definitive loan agreements or other similar
documents establishing the bank credit facilities contemplated by the
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Financing Letters (collectively, the "Definitive Bank Loan Documents"). Newco
will provide the Company with true and complete copies of the Definitive Bank
Loan Documents promptly upon the execution and delivery thereof and will
promptly advise the Company if any of the Definitive Bank Loan Documents are
terminated or amended in any material respect or if Newco becomes aware of any
event or occurrence which Newco believes may have a material adverse effect on
the ability of Newco or the Company to satisfy, on or prior to the Outside
Date, the conditions set forth in the Definitive Bank Loan Documents for
funding thereunder. Newco will consult with the Company regarding such funding
conditions prior to the execution and delivery of the Definitive Bank Loan
Documents. Newco will not modify or amend in any material respect the
Definitive Bank Loan Documents without first consulting with the Company.
Newco agrees that, insofar as they impose obligations on the Company prior to
the Effective Time, the Definitive Bank Loan Documents shall be reasonably
acceptable to the Company.
(d) Newco will use its reasonable best efforts to negotiate and enter into,
within 30 days after the Company has filed with the SEC a preliminary Proxy
Statement, definitive subscription agreements in substantially the form
customarily used in transactions sponsored by The Sterling Group, Inc.
(collectively, the "Definitive Equity Documents") containing commitments from
financial sources to provide that portion of the equity financing contemplated
by the Financing Letters equal to $96,574,952. Newco will provide the Company
with true and complete copies of the Definitive Equity Documents promptly upon
the execution and delivery thereof. Newco will not modify or amend in any
material respect the Definitive Equity Documents without first consulting with
the Company.
(e) The Company will, and will cause each of the Subsidiaries to, take all
reasonable actions reasonably requested by Newco to obtain, and otherwise
cooperate with Newco in obtaining, the Financing. Without limitation of the
foregoing but subject to Section 7.02(b), the Company shall, and shall cause
the Subsidiaries, to (i) afford Newco and Newco's lenders, underwriters,
placement agents, financial advisors, stockholders, attorneys, accountants and
other representatives such access to its officers, directors, employees,
agents, attorneys, accountants, assets, books and records as Newco may
reasonably request in connection with the Financing, (ii) furnish, or cause to
be furnished, to Newco and Newco's lenders, underwriters, placement agents,
financial advisors, stockholders, attorneys, accountants and other
representatives all financial, operating and other data and information,
opinions of counsel and "comfort letters" as Newco may reasonably request in
connection with the Financing, (iii) provide reasonable assistance to Newco to
satisfy, at or before the Outside Date, all requirements of the Definitive
Bank Loan Documents and the Definitive Equity Documents which are conditions
to funding thereunder and (iv) participate, to the extent reasonably requested
by Newco, in customary marketing efforts to obtain the participation of
financial institutions in any syndication of the credit facilities
contemplated by the Financing and to sell the securities contemplated by the
Financing, including road shows, meetings with bankers and similar activities.
Section 7.08. Fees and Expenses. Except as otherwise provided herein, all
fees and expenses incurred in connection with the Merger, this Agreement and
the transactions contemplated by this Agreement shall be paid by the Party
incurring such fees or expenses, whether or not the Merger is consummated.
Section 7.09. Indemnification; Insurance. (a) From and after the Effective
Time, the Surviving Corporation shall indemnify and hold harmless each Person
who is, or has been at any time prior to the date hereof or who becomes prior
to the Effective Time, an officer, director or employee of the Company or any
of the Subsidiaries (collectively, the "Indemnified Parties") against all
Claims, Losses or Liabilities in connection with any Claim based in whole or
in part on the fact that such Indemnified Party is or was a director, officer
or employee of the Company or any of the Subsidiaries and arising out of the
acts or omissions occurring prior to and including the Effective Time
(including but not limited to the transactions contemplated by this Agreement)
to the fullest extent permitted by the DGCL.
(b) Newco shall, subject to obtaining any approvals required to be obtained
from the Company or its stockholders, cause the Certificate of Incorporation
and By-laws of the Surviving Corporation and the Subsidiaries to include
provisions for the limitation of liability of directors and indemnification of
the
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Indemnified Parties to the fullest extent permitted under applicable Law and
shall not permit the amendment of such provisions in any manner adverse to the
Indemnified Parties, as the case may be, without the prior written consent of
such Persons, for a period of six years from and after the Effective Time.
(c) Without limitation of the foregoing, in the event any such Indemnified
Party is or becomes involved, during the six-year period after the Effective
Time, in any capacity in any action, proceeding or investigation in connection
with any matter, including, without limitation, the transactions contemplated
by this Agreement, arising out of events occurring prior to, and including,
the Effective Time, the Surviving Corporation will pay as incurred such
Indemnified Party's reasonable legal and other expenses (including the cost of
any investigation and preparation) incurred in connection therewith. The
Surviving Corporation shall pay all reasonable expenses, including attorneys'
fees, that may be incurred by any Indemnified Party in enforcing the indemnity
and other obligations provided for in this Section 7.09.
(d) For a period of no less than six years after the Effective Time, the
Surviving Corporation shall cause to be maintained, with respect to matters
arising out of events occurring prior to the Effective Time, the current
policies of directors' and officers' liability insurance maintained by the
Company or, if not available, an equivalent policy or policies for all present
and former officers and directors of the Company and the Subsidiaries having
terms and conditions no less advantageous than those in effect on the date
hereof.
(e) Any determination to be made as to whether any Indemnified Party has met
any standard of conduct imposed by Law shall be made by legal counsel
reasonably acceptable to such Indemnified Party and the Surviving Corporation,
retained at the Surviving Corporation's expense.
(f) This Section 7.09 is intended to benefit the Indemnified Parties and
their respective heirs, executors and personal representatives and shall be
binding on the successors and assigns of the Surviving Corporation.
Section 7.10. Certain Litigation. Except in the ordinary course of business
or as set forth in the Company Disclosure Schedule, the Company agrees that it
will not settle any material litigation currently pending, or commenced after
the date hereof, against the Company or any of its directors, without the
prior written consent of Newco, which consent shall not be unreasonably
withheld.
Section 7.11. Employee Matters. The Surviving Corporation shall provide
those employees of the Company and the Subsidiaries who continue their
employment after the Effective Time with benefits (including participation in
an employee stock ownership plan) which, in the good faith determination of
the Surviving Corporation, are substantially as favorable in the aggregate as
those currently provided by the Company, subject to such modification as may
be required by applicable Law, for a period of at least two years after the
Closing Date.
Section 7.12. Operating Subsidiary. As soon as practicable after the
execution of this Agreement, Newco shall form a new Delaware corporate
subsidiary ("Operating Sub"). On or prior to the Closing Date, the Company
shall execute and deliver to Operating Sub conveyance documents, in form and
substance reasonably satisfactory to Newco, providing for the conveyance of
all of the assets and properties of the Company to the Operating Sub (a)
subject to all related Liens and Liabilities, (b) conditioned upon the
consummation of the Merger and (c) effective as of the Effective Time;
provided, however, that the conveyance documents shall in any event provide
(i) that Operating Sub, in connection with, and as partial consideration for,
such conveyance, expressly assumes and agrees to pay, perform and discharge
when due, any and all Liabilities of the Company related to such assets and
properties and (ii) that, if the conveyance of any of such asset or
properties:
(A) would be ineffective as between the Company and Operating Sub without
the consent of any third Person;
(B) would serve as a cause for terminating, invalidating or materially
impairing such asset or property;
(C) would cause or serve as a cause for the loss of the ownership of such
asset or property;
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(D) would result in any material penalty or other detriment to the
Company or Operating Sub; or
(E) is prohibited by Law or any judgment, order or decree of any
Governmental Authority,
then, in such event, such asset or property shall be excluded from such
conveyance until such time as such consent has been obtained or such
circumstance has been rectified, at which time the title to such asset or
property shall automatically become vested in Operating Sub by virtue of such
conveyance without any other conveyance or other action by the Company or
Operating Sub. In addition, such conveyance documents shall provide that, at
any time during which any of such assets or properties is excluded from such
conveyance pursuant to the immediately preceding sentence, the Company or the
Surviving Corporation, as the case may be, shall hold such asset or property
for the exclusive use and benefit of Operating Sub and shall use its
reasonable best efforts, at its sole cost and expense, to obtain such consents
as are necessary to give effect to the conveyance of such asset or property,
or rights and interests substantially equivalent to such asset or property, to
Operating Sub.
ARTICLE VIII
CONDITIONS
Section 8.01. Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each Party to effect the Merger shall be subject
to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The Company Stockholder Approval shall have
been obtained.
(b) No Injunctions or Restraints. No statute, rule, regulation or
executive order shall have been enacted or issued by a Governmental
Authority, and no decree, temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other Governmental Authority, and no other legal restraint
or prohibition preventing the consummation of the Merger or making the
consummation of the Merger illegal shall be in effect; provided, however,
that each of the Parties shall have used reasonable efforts to prevent the
entry of any such injunction or other order or decree and to appeal as
promptly as possible any injunction or other order or decree that may be
entered.
(c) Waiting Period. Any waiting period applicable to the consummation of
the Merger under the HSR Act shall have terminated or expired.
(d) Registration Statements. Each of the Registration Statements shall
have become effective in accordance with the provisions of the Securities
Act and no stop order suspending such effectiveness shall have been issued
and remain in effect and no proceeding for that purpose shall have been
instituted by the SEC or any state Governmental Authorities.
(e) Governmental Consents. All Governmental Approvals legally required
for the consummation of the Merger and the transactions contemplated hereby
shall have been obtained and be in effect on the Closing Date.
Section 8.02. Conditions to Obligation of the Company to Effect the Merger.
Unless waived in writing by the Company, the obligation of the Company to
effect the Merger shall be subject to the fulfillment at or prior to the
Closing Date of the following additional conditions:
(a) Accuracy of Representations and Warranties. All representations and
warranties of Newco contained in Article V of this Agreement shall be true
and correct in all material respects on and as of the date hereof and on
and as of the Closing Date, with the same force and effect as though made
on and as of the Closing Date, except for any representations and
warranties made as of a specified date, which shall be true and correct in
all material respects as of the specified date.
(b) Performance of Obligations. Newco shall have performed or complied
with, in all material respects, all conditions and all material
obligations, agreements and covenants contained herein which are to be
performed or complied with by it on or prior to the Closing Date.
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(c) Compliance Certificate. The Company shall have received a certificate
of the Chairman of the Board, the President or a Vice President of Newco
certifying as to fulfillment of the conditions specified in Section 8.02(a)
and (b).
(d) Tag-Along Agreement. The stockholders of Newco immediately prior to
the Effective Time shall have executed and delivered a Tag-Along Agreement
in substantially the form of Exhibit A.
(e) Legal Opinion. The Company shall have received an opinion or opinions
of Andrews & Kurth L.L.P. and/or Richards, Layton & Finger, counsel for
Newco, reasonably satisfactory to the Company, dated the Closing Date and
covering the due incorporation of Newco, the binding nature of this
Agreement, the effectiveness of the Merger and such other matters as may be
reasonably requested by the Company.
Section 8.03. Conditions to Obligations of Newco to Effect the Merger.
Unless waived in writing by Newco, the obligation of Newco to effect the
Merger shall be subject to the fulfillment at or prior to the Closing Date of
the additional following conditions:
(a) Accuracy of Representations and Warranties. All representations and
warranties of the Company contained in Article IV of this Agreement shall
be true and correct in all material respects on and as of the date hereof
and on and as of the Closing Date, with the same force and effect as though
made on and as of the Closing Date, except for any representations and
warranties made as of a specified date, which shall be true and correct in
all material respects as of the specified date.
(b) Performance of Obligations. The Company shall have performed or
complied with, in all material respects, all conditions and material
obligations, agreements and covenants contained herein which are to be
performed or complied with by it on or prior to the Closing Date.
(c) Compliance Certificate. Newco shall have received a certificate of
the Chairman of the Board, the President or a Vice President of the Company
certifying as to fulfillment of the conditions specified in Section 8.03(a)
and (b).
(d) Legal Opinion. Newco shall have received an opinion or opinions of
Piper & Marbury L.L.P. and/or F. Maxwell Evans, counsel for the Company,
reasonably satisfactory to Newco, dated the Closing Date and covering the
due incorporation of the Company, the binding nature of this Agreement, the
effectiveness of the Merger, the validity of the Company Common Stock to be
exchanged in the Merger and such other matters as may be reasonably
requested by Newco.
(e) Comfort Letters. Newco shall have received "comfort" letters in
customary form from Arthur Anderson L.L.P. and/or Coopers & Lybrand L.L.P.,
certified public accountants for the Company, dated the effective time of
each of the Registration Statements and the Closing Date (or such other
date reasonably acceptable to Newco) with respect to financial statements
and other information derived from the Company's accounting records with
respect to the Company and the Subsidiaries included in the Registration
Statements and any subsequent changes in specified balance sheet and income
statement items, including total assets, working capital, total
stockholders' equity and total revenues and the total and per share amounts
of net income.
(f) No Material Adverse Change. Since the date hereof, there shall have
been no changes that constitute, and no event or events (including, without
limitation, litigation developments) shall have occurred which have
resulted in or constitute, a material adverse change in (i) the business,
operations, properties, assets, condition (financial or other) or results
of operations of the Company and the Subsidiaries, taken as a whole or (ii)
the prospects of the Company and the Subsidiaries, taken as a whole
(excluding any effects on such prospects caused by economic, tax or other
matters of general applicability or matters generally affecting any of the
industries in which the Company or any of the Subsidiaries conduct
business).
(g) Financing. Newco shall have obtained the Financing as contemplated by
Section 7.07.
(h) Stock Acquisition Rights and SARs. The Company shall have received
(i) from each holder of a stock option referred to in Section 7.06(a) an
instrument in writing (reasonably satisfactory to Newco)
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effectively canceling such Stock Acquisition Right as contemplated by
Section 7.06(a), (ii) from each holder of an SAR an instrument in writing
(reasonably satisfactory to Newco) effectively canceling, subject to
receiving the Spread Amount, such SAR as contemplated by Section
7.06(b)(i), (iii) from each holder of any phantom share an instrument in
writing (reasonably acceptable to Newco) effectively canceling, subject to
receiving the Phantom Stock Amount, such phantom share as contemplated by
Section 7.06(b)(ii), and (iv) from the Company and Gary Hysop, an
instrument in writing (reasonably acceptable to Newco) effectively
canceling, subject to receiving the amount referred to in Section
7.06(b)(iii), the Hysop Agreement.
ARTICLE IX
TERMINATION AND AMENDMENT
Section 9.01. Termination. This Agreement may be terminated as set forth
below at any time prior to the Closing Date, whether before or after the
Company Stockholder Approval or the Newco Stockholder Approval has been
obtained:
(a) by mutual written consent of Newco and the Company;
(b) by Newco, if
(i) the Company Stockholder Approval is not obtained at the
Stockholders Meeting (or any adjournment thereof) unless due to delay
or default on the part of Newco;
(ii) the Merger has not been consummated by the Outside Date, unless
the failure to so consummate the Merger by such time is due to a breach
of any representation or warranty contained in this Agreement or a
material breach of any material agreement or covenant contained in this
Agreement by, or otherwise on account of material delay or default on
the part of, Newco;
(iii) the Merger is enjoined by a final, non-appealable court order
not entered at the request or with the support of Newco and Newco shall
have used reasonable efforts to prevent the entry of such order;
(iv) the Company accepts a Takeover Proposal in accordance with
Section 6.02(b);
(v) the Company (A) fails to perform in any material respect any of
its material covenants in this Agreement and (B) does not cure such
default in all material respects within 30 days after notice of such
default is given to the Company by Newco;
(vi) the Company shall have breached any of its representations and
warranties set forth in this Agreement, which breach cannot be cured
prior to the Outside Date and has not been waived by Newco; or
(vii) more than 10% of the issued and outstanding shares of Company
Common Stock entitled to vote upon the adoption of this Agreement shall
have properly demanded (and not withdrawn) appraisal of such shares in
accordance with Section 262 of the DGCL with respect to the Merger; or
(c) by the Company, if:
(i) the Company Stockholder Approval is not obtained at the
Stockholders Meeting (or any adjournment thereof) unless due to delay
or default on the part of the Company or any Subsidiary;
(ii) by August 31, 1996, Newco has not arranged the Financing as
contemplated by Section 7.07(b) and satisfied the funding conditions
with respect thereto (other than the conditions which are to be
performed or satisfied by the Company or any Subsidiary) unless the
failure to so arrange the Financing or satisfy such funding conditions
by such date is due to a breach of any representation or warranty
contained in this Agreement or a material breach of any material
agreement or covenant contained in this Agreement by, or otherwise on
account of material delay or default on the part of, the
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Company or any Subsidiary; provided, however, that the Company may
terminate this Agreement pursuant to this clause (ii) only if the
Company provides Newco with written notice of its election to terminate
this Agreement pursuant to this clause (ii), which notice by the
Company must be given by the close of business on the seventh Business
Day following the later to occur of (A) August 31, 1996 or (B) the
giving of notice by Newco to the Company of the Company's right to
terminate this Agreement pursuant to this clause (ii), and then only if
(1) the giving of such notice by the Company has been approved by the
Board of Directors of the Company and (2) such notice by the Company
states that the Company is entitled to terminate this Agreement
pursuant to this clause (ii);
(iii) the Merger has not been consummated by the Outside Date, unless
the failure to so consummate the Merger by such time is due to a breach
of any representation or warranty contained in this Agreement or a
material breach of any material agreement or covenant contained in this
Agreement by, or otherwise on account of material delay or default on
the part of, the Company or any Subsidiary;
(iv) the Merger is enjoined by a final, non-appealable court order
not entered at the request or with the support of the Company or any
Subsidiary and the Company shall have used reasonable efforts to
prevent the entry of such order;
(v) the Company accepts a Takeover Proposal in accordance with
Section 6.02(b);
(vi) Newco (A) fails to perform in any material respect any of its
material covenants in this Agreement and (B) does not cure such default
in all material respects within 30 days after notice of such default is
given to Newco by the Company;
(vii) Newco shall have breached any of its representations and
warranties set forth in this Agreement, which breach cannot be cured
prior to the Outside Date and has not been waived by the Company;
(viii) Newco notifies the Company, pursuant to Section 7.07(b), that
Newco does not believe it will be able to arrange the Financing by the
Outside Date for reasons other than a delay or default by the Company
or any Subsidiary;
(ix) Newco fails to enter into the Definitive Bank Loan Documents on
or before June 24, 1996 as contemplated by Section 7.07(c) unless such
failure is due (in whole or in part) to a delay or default on the part
of the Company or any of the Subsidiaries or to the material breach of
any of the Company's representations or warranties contained herein;
provided, however, that the Company may terminate this Agreement
pursuant to this clause (ix) only if the Company provides Newco with
written notice of its election to terminate this Agreement pursuant to
this clause (ix), which notice by the Company must be given by the
close of business on the seventh Business Day following the later to
occur of (A) the date by which the Definitive Bank Loan Documents were
contemplated to be executed pursuant to Section 7.07(c) or (B) the
giving of notice by Newco to the Company of the Company's right to
terminate this Agreement pursuant to this clause (ix), and then only if
(1) the giving of such notice by the Company has been approved by the
Board of Directors of the Company and (2) such notice by the Company
states that the Company is entitled to terminate this Agreement
pursuant to this clause (ix); or
(x) (A) any Definitive Bank Loan Document is terminated (other than
by Newco) prior to the Outside Date for any reason other than a delay
or default on the part of the Company or any of the Subsidiaries or the
material breach of any of the Company's representations or warranties
contained herein and (B) Newco fails, for any reason other than a delay
or default on the part of the Company or any of the Subsidiaries or the
material breach of any of the Company's representations or warranties
contained herein, to provide one or more substitute or replacement
Definitive Bank Loan Documents within 15 days after the date of such
termination; provided, however, that this clause (x) shall not apply to
the termination of any Definitive Bank Loan Agreement which is not
necessary in order for Newco to obtain the Financing by the Outside
Date as contemplated by the first sentence of Section 7.07(b);
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(xi) Newco fails to enter into the Definitive Equity Documents on or
before the date contemplated in Section 7.07(d) unless such failure is
due (in whole or in part) to a delay or default on the part of the
Company or any of the Subsidiaries or to the material breach of any of
the Company's representations or warranties contained herein; provided,
however, that the Company may terminate this Agreement pursuant to this
clause (x) only if the Company provides Newco with written notice of
its election to terminate this Agreement pursuant to this clause (x),
which notice by the Company must be given by the close of business on
the seventh Business Day following the later to occur of (A) the date
by which the Definitive Equity Documents were contemplated to be
executed pursuant to Section 7.07(d) or (B) the giving of notice by
Newco to the Company of the Company's right to terminate this Agreement
pursuant to this clause (x), and then only if (1) the giving of such
notice by the Company has been approved by the Board of Directors of
the Company and (2) such notice by the Company states that the Company
is entitled to terminate this Agreement pursuant to this clause (x); or
(xii) (A) any Definitive Equity Document is terminated (other than by
Newco) prior to the Outside Date for any reason other than a delay or
default on the part of the Company or any of the Subsidiaries or the
material breach of any of the Company's representations or warranties
contained herein and (B) Newco fails, for any reason other than a delay
or default on the part of the Company or any of the Subsidiaries or the
material breach of any of the Company's representations or warranties
contained herein, to provide one or more substitute or replacement
Definitive Equity Documents within 15 days after the date of such
termination; provided, however, that this clause (xii) shall not apply
to the termination of any Definitive Equity Document which is not
necessary in order for Newco to obtain the Financing by the Outside
Date as contemplated by the first sentence of Section 7.07(b).
Section 9.02. Effect of Termination. In the event of termination of this
Agreement by either Newco or the Company, as provided in Section 9.01, this
Agreement shall forthwith become void and there shall be no liability on the
part of Newco or the Company or their respective officers or directors, except
that (a) Section 4.17, Section 5.07, Section 7.08, this Section 9.02 and
Article X shall survive any such termination, (b) Section 7.05 shall survive
any such termination for a period of one year following such termination, (c)
if Newco terminates this Agreement pursuant to Section 9.01(b)(iv) or if the
Company terminates this Agreement pursuant to Section 9.01(c)(v), then the
Company shall promptly pay to Newco or its designee a break-up fee in the
amount of $8,000,000, and (d) if the break-up fee referred to clause (c) above
is payable by the Company to Newco or its designee, Section 6.02(b) shall
survive any such termination until such time as such break-up fee has been
paid by the Company to Newco or its designee; provided, however, that nothing
herein shall relieve either Party for liability for any willful breach of any
representation, warranty, covenant or agreement of such party contained
herein.
Section 9.03. Amendment. This Agreement may be amended by action taken by
the Parties' respective Boards of Directors or pursuant to authority granted
by such Boards of Directors, at any time before or after the Company
Stockholder Approval or the Newco Stockholder Approval has been obtained;
provided, however, that no amendment to this Agreement shall be made after the
Company Stockholder Approval or the Newco Stockholder Approval has been
obtained which by applicable Law requires further approval by the Company's or
Newco's stockholders, respectively, unless such further approval shall have
been obtained in accordance with applicable Law. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
Parties.
Section 9.04. Extension; Waiver. At any time prior to the Effective Time,
either Party may, to the extent legally allowed (a) extend the time for the
performance of any of the obligations or other acts of the other Party, (b)
waive any inaccuracies in the representations and warranties contained herein
or in any document delivered pursuant hereto or (c) subject to the proviso of
Section 9.03, waive compliance with any of the agreements or conditions
contained herein. Any agreement on the part of a Party to any such extension
or waiver shall be valid only if set forth in a written instrument signed on
behalf of such Party by one of its duly authorized officers. The failure of
either Party to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of these rights.
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ARTICLE X
MISCELLANEOUS
Section 10.01. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time. This
Section 10.01 shall not limit any covenant or agreement of the Parties which
by its terms contemplates performance after the Effective Time of the Merger,
which covenants or agreements shall survive the consummation of the Merger.
Section 10.02. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or mailed by registered or certified mail (return receipt
requested) to the Parties at the following addresses (or at such other address
for a Party as shall be specified by like notice):
(a) if to Newco, to:
c/o The Sterling Group, Inc.
Eight Greenway Plaza, Suite 702
Houston, Texas 77046
Attention: Frank J. Hevrdejs
Telephone Number: (713) 877-8257
Facsimile Number: (713) 877-1824
with a copy to:
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
600 Travis
Houston, Texas 77002
Attention: David G. Elkins
Telephone Number: (713) 220-4364
Facsimile Number: (713) 220-4285
(b) if to the Company, to:
Sterling Chemicals, Inc.
1200 Smith Street
Suite 1900
Houston, Texas 77002
Attention: F. Maxwell Evans, General Counsel
Telephone Number: (713) 654-9507
Facsimile Number: (713) 654-9577
with a copy to:
Piper & Marbury L.L.P.
36 South Charles Street
Baltimore, Maryland 21201
Attention: Earl S. Wellschlager
Telephone Number: (410) 576-1747
Facsimile Number: (410) 576-1700
Section 10.03. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of the Parties and delivered to the other Party, it being understood that both
Parties need not sign the same counterpart.
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Section 10.04. Entire Agreement; No Third Party Beneficiaries. This
Agreement (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the Parties with
respect to the subject matter hereof and (b) except as provided in Sections
7.06(b), 7.06(d), 7.09 and 7.11, is not intended to confer upon any Person
other than the Parties any rights or remedies hereunder.
Section 10.05. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law.
Section 10.06. Severability. If any term, provision, covenant or restriction
contained in this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions
contained in this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
Section 10.07. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by either of the Parties
(whether by operation of Law or otherwise) without the prior written consent
of the other Party. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the Parties and
their respective successors and assigns.
In Witness Whereof, Newco and the Company have caused this Agreement to be
signed by their respective duly authorized officers as of the date first
written above.
STX Acquisition Corp.
By: _________________________________
Frank J. Hevrdejs, President
Sterling Chemicals, Inc.
By: _________________________________
J. Virgil Waggoner, President and
Chief
Executive Officer
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EXHIBIT A
TAG-ALONG AGREEMENT
This Tag-Along Agreement dated as of , 1996 is by the
undersigned (the "Obligors") in favor of and for the benefit of the
Beneficiaries (as hereinafter defined).
PRELIMINARY STATEMENTS
1. Effective as of the date hereof, STX Acquisition Corp., a Delaware
corporation ("Newco"), merged (the "Merger") into Sterling Chemicals, Inc.,
a Delaware corporation (the "Company"), pursuant to that certain Agreement
and Plan of Merger between Newco and the Company dated as of April 24, 1996
(the "Merger Agreement").
2. Pursuant to the Merger Agreement, certain of the stockholders of the
Company retained all or a portion of the shares of common stock, par value
$0.01 per share, of the Company ("Company Common Stock") held by them
immediately prior to the Merger rather than have such shares converted into
cash in connection with the Merger (such retained shares of Company Common
Stock being herein called the "Rollover Shares").
3. Pursuant to the Merger Agreement, the outstanding shares of common stock,
par value $0.01 per share, of Newco ("Newco Common Stock") were converted
into shares of Company Common Stock. Each of the Obligors (i) was the owner
of shares of Newco Common Stock and (ii) as a result of the conversion of
those shares into Company Common Stock as aforesaid, is now the owner of
the number of shares of Company Common Stock set forth below such Obligor's
name on the signature pages hereof.
4. This Agreement is being entered into pursuant to Section 8.02(d) of the
Merger Agreement.
NOW, THEREFORE, in consideration of the premises and the covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each Obligor, severally with
respect to itself only, hereby agrees as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.01. Certain Defined Terms. Capitalized terms used in this
Agreement shall have the following respective meanings, except as otherwise
provided herein or as the context shall otherwise require:
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with such Person. The term
"control" (including, with correlative meaning, the terms "controlling",
"controlled by" and "under common control with") means the possession,
directly or indirectly, of the power to direct or cause direction of the
management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.
"Agreement" means this Tag-Along Agreement, as the same may hereafter be
amended, modified or restated and in effect from time to time.
"Beneficiaries" means each Person (other than any Obligor) who retained
Rollover Shares in connection with the Merger, including such Person's
permitted assigns.
"Company" has the meaning specified in the Preliminary Statements of this
Agreement.
"Company Common Stock" has the meaning specified in the Preliminary
Statements of this Agreement.
"Disputants" has the meaning specified in Section 4.02(a).
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"Maximum Amount" has the meaning specified in Section 2.01(b).
"Merger" has the meaning specified in the Preliminary Statements of this
Agreement.
"Merger Agreement" has the meaning specified in the Preliminary
Statements of this Agreement.
"Newco" has the meaning specified in the Preliminary Statements of this
Agreement.
"Newco Common Stock" has the meaning specified in the Preliminary
Statements of this Agreement.
"Obligors" has the meaning specified in the introductory paragraph of
this Agreement.
"Participating Beneficiary" has the meaning specified in Section 2.01(d).
"Person" means any individual, firm, corporation, trust, association,
company, limited liability company, joint stock company, partnership, joint
venture, governmental authority or other entity or enterprise.
"Proposed Transaction" has the meaning specified in Section 2.01(a).
"Purchaser" has the meaning specified in Section 2.01(b).
"Restricted Shares" means the shares of Company Common Stock into which
the shares of Newco Common Stock owned by the Obligors have been converted
pursuant to the Merger.
"Rollover Shares" has the meaning specified in the Preliminary Statements
of this Agreement.
"Sellers" has the meaning specified in Section 2.01(a).
"Tag-Along Notice" has the meaning specified in Section 2.01(c).
"Transfer" means, with respect to the Restricted Shares of any Obligor,
any direct or indirect sale, assignment or other disposition of such
Restricted Shares by such Obligor; provided, however, that such term shall
not include any sale, assignment or other disposition by such Obligor:
(a) to one or more other Obligors or to the Company;
(b) to any Affiliate of such Obligor;
(c) if such Obligor is a natural person, to (i) a guardian of the
estate of such Obligor or (ii) an inter vivos trust primarily for the
benefit of such Obligor and/or such Obligor's immediate family;
(d) if such Obligor is a natural person, to an executor,
administrator or guardian of the estate of such Obligor or to the
heirs, distributees or legatees of such Obligor under the will of such
Obligor or pursuant to the laws of descent and distribution;
(e) to a Person who acquires such Restricted Shares by operation of
law (including pursuant to a property settlement agreement, plan or
arrangement approved or ordered by any court);
(f) pursuant to a gift or charitable contribution;
(g) pursuant to a public distribution registered under the Securities
Act of 1933, as amended (the "Securities Act"), or a sale on the open
market through a "brokers' transaction (as that term is defined in
subsection (g) of Rule 144 promulgated under the Securities Act);
(h) pursuant to Rule 144 promulgated under the Securities Act;
(i) pursuant to a mortgage, pledge or other encumbrance;
(j) pursuant to bankruptcy or insolvency proceedings or any judicial
order, legal process, execution or attachment;
(k) pursuant to a tender or exchange offer or a merger, consolidation
or other similar transaction open to all stockholders of the Company on
a pro rata basis at the same price per share and on the same economic
terms; or
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(l) if shares of Company Common Stock are listed on any national
securities exchange or reported on The Nasdaq Stock Market, in a
transaction where the purchase price per Restricted Share being
transferred is less than or equal to the then-current market price per
share.
"Transfer Notice" has the meaning specified in Section 2.01(a).
Section 1.02. Interpretation. In this Agreement, unless a clear contrary
intention appears:
(a) the words "hereof," "herein" and "hereunder" and words of similar
import refer to this Agreement as a whole and not to any particular
provision of this Agreement;
(b) reference to any gender includes each other gender and the neuter;
(c) all terms defined in the singular shall have the same meanings in the
plural and vice versa;
(d) reference to any Person includes such Person's heirs, executors,
personal representatives, administrators, successors and assigns; provided,
however, that nothing contained in this clause (d) is intended to authorize
any assignment not otherwise permitted by this Agreement;
(e) reference to a Person in a particular capacity excludes such Person
in any other capacity or individually;
(f) all references to Articles and Sections shall be deemed to be
references to the Articles and Sections of this Agreement;
(g) the word "including" (and with correlative meaning "include") means
including, without limiting the generality of any description preceding
such term;
(h) with respect to the determination of any period of time, the word
"from" means "from and including" and the words "to" and "until" each means
"to but excluding";
(i) the captions and headings contained in this Agreement shall not be
considered or given any effect in construing the provisions hereof if any
question of intent should arise;
(j) where any provision of this Agreement refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provision
shall be applicable whether such action is taken directly or indirectly by
such Person; and
(k) no provision of this Agreement shall be interpreted or construed
against any Person solely because that Person or its legal representative
drafted such provision.
ARTICLE II
TAG-ALONG RIGHTS
Section 2.01. Tag-Along Rights. (a) In the event that, at any time during
the term of this Agreement, any Obligor acting alone or two or more of the
Obligors acting in concert (the "Sellers", whether one or more) propose to
Transfer, in a single transaction or series of related transactions,
Restricted Shares representing in the aggregate 51% or more of all of the
shares of Company Common Stock then issued and outstanding (on a fully-diluted
basis), the Sellers shall give, or cause to be given, written notice (a
"Transfer Notice") to the Beneficiaries of such proposed Transfer (a "Proposed
Transaction"). For purposes of this Agreement, two or more Obligors will be
deemed to be acting in concert when they act jointly or on a coordinated basis
pursuant to any express or tacit agreement, arrangement or understanding.
(b) Each Transfer Notice shall (i) specify the total number of Restricted
Shares proposed to be disposed of in the Proposed Transaction (the "Maximum
Amount"), (ii) specify the proposed purchase price for such Restricted Shares,
(iii) describe the portion of such purchase price payable at the closing of
such Proposed Transaction, (iv) describe the amount and any terms of any
delayed payment of such purchase price, (v) describe
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the security (if any) for any such deferred payment and (vi) identify the
prospective purchaser of the Restricted Shares proposed to be disposed of in
the Proposed Transaction (the "Purchaser").
(c) Each Beneficiary shall have the right to participate in the Proposed
Transaction described in a Transfer Notice on a pro rata basis and at the same
price per share and on the same economic terms and conditions applicable to
the Sellers, but only if such Beneficiary gives the Sellers written notice of
such Beneficiary's desire to so participate within 15 days after receipt of
the applicable Transfer Notice by such Beneficiary (a "Tag-Along Notice"). The
failure of any Beneficiary to provide the Sellers with a Tag-Along Notice
within such 15-day period shall be deemed for all purposes of this Agreement
to be an irrevocable election by such Beneficiary to not participate in the
relevant Proposed Transaction. Each Tag-Along Notice shall (A) specify the
number of Rollover Shares owned by the relevant Beneficiary which such
Beneficiary desires to include in relevant Proposed Transaction (the
"Participating Shares"), (B) contain an irrevocable agreement of such
Beneficiary to sell the Participating Shares to the Purchaser pursuant to the
terms of the Transfer Notice and this Agreement and (C) contain a
representation of such Beneficiary to the effect that the agreement referred
to in the foregoing clause (B) constitutes a legal, valid and binding
obligation of such Beneficiary, enforceable against such Beneficiary in
accordance with its terms.
(d) If any Beneficiary shall have given a Tag-Along notice in accordance
with paragraph (c) above (a "Participating Beneficiary"), the Sellers shall
not Transfer any Restricted Shares to the Purchaser as contemplated by the
relevant Transfer Notice unless each Participating Beneficiary is permitted to
include in the Proposed Transaction, on terms no less favorable than those
applicable to the Sellers, that number of Rollover Shares then owned by such
Participating Beneficiary determined by multiplying (i) the number of
Participating Shares of such Participating Beneficiary by (ii) a fraction
having a numerator equal to the Maximum Amount and a denominator equal to the
total number of Restricted Shares then owned by the Sellers providing such
Transfer Notice.
Section 2.02. Terms of Transfer of Rollover Shares. Any transfer of Rollover
Shares pursuant to Section 2.01 shall be made at the same price per share and
on the same terms and conditions as are set forth in the applicable Transfer
Notice and such transfer shall be closed concurrently with the Transfer to the
Purchaser of the Restricted Shares described in the Transfer Notice.
Section 2.03. Costs and Expenses. All reasonable costs and expenses incurred
in connection with any transfer made pursuant to Section 2.01, including all
costs and disbursements, finders' fees or brokerage commissions and the fees
and disbursements of a single counsel representing all shares of Company
Common Stock to be transferred in connection therewith, shall be allocated pro
rata among the Sellers and the Participating Beneficiaries based on the number
of shares of Company Common Stock sold by each of them.
Section 2.04. Application to Transferees. Any transferee that acquires any
Restricted Shares pursuant to clause (a), (b), (c), (d), (e) or (f) of the
definition herein of Transfer (other than pursuant to a gift or charitable
contribution to non-profit organization exempt under Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended) shall take such Restricted Shares
subject to the terms and conditions of this Agreement. All other transferees
of any Restricted Shares shall take such Restricted Shares free from the terms
of this Agreement.
ARTICLE III
TERMINATION
Section 3.01. Termination. This Agreement shall terminate with respect to
any Beneficiary in the event that such Beneficiary delivers a Tag-Along Notice
to any Seller and thereafter defaults on its obligation to transfer any
Rollover Shares which such Beneficiary has elected to transfer at the closing
of the Proposed Transaction described in the applicable Transfer Notice. This
Agreement shall automatically terminate with respect to all Beneficiaries on
the fifth anniversary of the date of this Agreement.
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Section 3.02. Effect of Termination. In the event of any termination of this
Agreement, this Agreement shall become void and there shall be no liability on
the part of any Obligor hereunder; provided, however, that nothing herein
shall relieve any Obligor for liability for any willful breach hereof prior to
such termination.
ARTICLE IV
MISCELLANEOUS
Section 4.01. Notices. Any and all notices, requests or other communications
hereunder shall be given in writing and delivered by: (a) regular, overnight
or registered or certified mail (return receipt requested), with first class
postage prepaid; (b) hand delivery; (c) facsimile transmission; or (d)
overnight courier service, to the Parties at the following addresses or
facsimile numbers:
(i) if to any Obligor, to the address set forth below such Obligor's name
on the signature pages hereof; and
(ii) if to the Beneficiaries, to the names and addresses of the
Beneficiaries as they appear on the stock transfer records of the Company,
or at such other address or number as shall be designated in a notice by any
Obligor to the Beneficiaries, given in accordance with this Section 4.01.
Except as otherwise provided in this Agreement, all such communications shall
be deemed to have been duly given (A) in the case of a notice sent by regular
mail, three business days after it is duly deposited in the mails, (B) in the
case of a notice sent by registered or certified mail, on the date receipted
for (or refused) on the return receipt, (C) in the case of a notice delivered
by hand, when personally delivered, (D) in the case of a notice sent by
facsimile, upon transmission subject to telephone confirmation of receipt, and
(E) in the case of a notice sent by overnight mail or overnight courier
service, the date delivered at the designated address.
Section 4.02. Dispute Resolution. (a) In the event of any dispute between
the Obligors (or any of them), on the one hand, and any Beneficiaries (or any
of them), on the other hand, with respect to any matter covered by this
Agreement (including whether the provisions of this Agreement have been
complied with), the applicable Obligors and Beneficiaries (the "Disputants")
shall first use their best efforts to resolve such dispute between themselves.
If the Disputants are unable to resolve the dispute within 15 days, such
dispute shall be submitted to mediation in accordance with the Commercial
Mediation Rules of the American Arbitration Association. The Disputants will
jointly appoint a mutually acceptable mediator, seeking assistance in such
regard from the American Arbitration Association if they are unable to agree
upon such appointment within ten days following the 15-day period referred to
above. Upon appointment of the mediator, the Disputants agree to participate
in good faith in the mediation and negotiations relating thereto for 20 days.
If the Disputants are not successful in resolving the dispute through
mediation within such 20-day period, either Disputant may submit the dispute
to arbitration in accordance with the following provisions of this Section
4.02. The fees and expenses of the mediator shall be borne by the non-
prevailing party or, in the event there is no clear prevailing party, as the
mediator deems appropriate.
(b) To submit a dispute to arbitration as contemplated by paragraph (a)
above, a Disputant must give written notice to the other Disputant, in which
event the dispute shall be settled by arbitration in accordance with the
Expedited Procedures of the Commercial Arbitration Rules of the American
Arbitration Association except as otherwise provided below. The arbitrators
shall have sole discretion with regard to the admissibility of evidence. Each
Disputant shall have the right to be represented by counsel. All rulings of
the arbitrators shall be in writing, shall be determined by at least a
majority of their number and shall be delivered to the Disputants. The fees
and expenses of the arbitrators shall be borne by the non-prevailing Disputant
or, in the event there is no clear prevailing Disputant, as the arbitrators
deem appropriate.
(c) In the event there is any disputed question of law involved in any
arbitration proceeding hereunder, such as the proper legal interpretation of
any provision of this Agreement, the arbitrators shall make separate and
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distinct findings of all facts material to the disputed question of law to be
decided and, on the basis of the facts so found, express their conclusion of
the question of law. The facts so found shall be conclusive and binding on the
Disputants, but any legal conclusion reached by the arbitrators from such
facts may be submitted by either Disputant to the courts of the State of
Delaware for final determination by initiation of a civil action in the manner
provided by law, and the Obligors and the Beneficiaries hereby consent and
submit themselves to the jurisdiction of such courts for such purpose. Such
action, to be valid, must be commenced within 20 days after receipt of the
arbitrators' decision. If no civil action is commenced within such 20-day
period, the legal conclusion reached by the arbitrators shall be conclusive
and binding on the Disputants. Any such civil action shall be submitted, heard
and determined solely on the basis of the facts found by the arbitrators.
Neither of the Disputants shall, or shall be entitled to, submit any
additional or different facts for consideration by the court. In the event any
civil action is commenced under this paragraph (c), the party who prevails or
substantially prevails (as determined by the court) in such civil action shall
be entitled to recover from the other party all of its fees and expenses,
including reasonable attorney's fees and court costs, incurred in connection
with such action and on appeal.
(d) Except as limited by paragraph (c) above, the Disputants agree that
judgment upon the award rendered by the arbitrators may be entered in any
court of competent jurisdiction, and the Disputants hereby consent and submit
themselves to the jurisdiction of the courts of the State of Delaware for
purposes of the enforcement of any arbitration award. In the event legal
proceedings are commenced to enforce the rights awarded in any arbitration
proceeding hereunder, the party who prevails or substantially prevails (as
determined by the court) in such legal proceeding shall be entitled to recover
from the other party all of its fees and expenses, including reasonable
attorneys' fees and costs of court, incurred in connection with such legal
proceeding and on appeal.
(e) All arbitration and mediation conferences and hearings pursuant to this
Section 4.02 shall be conducted in Wilmington, Delaware or at such other place
as the Disputants may mutually agree.
Section 4.03. Benefit and Burden. This Agreement shall inure to the benefit
of and shall be binding upon, the Obligors and the Beneficiaries and their
respective executors, personal representatives, administrators, successors,
heirs, distributees, devisees, legatees and permitted assigns.
Section 4.04. No Third Party Rights. Nothing in this Agreement shall be
deemed to create any right in any creditor or other Person other than the
Obligors and the Beneficiaries and their respective heirs, executors,
administrators, personal representatives and permitted assigns, and this
Agreement shall not be construed in any respect to be a contract in whole or
in part for the benefit of any other Person.
Section 4.05. Assignments. Neither this Agreement nor any right, interest or
obligation hereunder may be assigned (i) by any Obligor, without the prior
written consent of the Beneficiaries or (ii) by any Beneficiary, except in
connection with the transfer of Rollover Shares to such assignee.
Section 4.06. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same document.
Section 4.07. Governing Law. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
Section 4.08. Entire Agreement. This Agreement sets forth all of the
promises, agreements, conditions, understandings, warranties and
representations between the Parties with respect to the subject matter of this
Agreement, and supersedes all prior agreements, arrangements and
understandings between the Parties (whether written, oral or otherwise) with
respect to the subject matter hereof. There are no promises, agreements,
conditions, understandings, warranties or representations, oral or written,
express or implied, between the Parties concerning the subject matter hereof
except as set forth herein.
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IN WITNESS WHEREOF, the Obligors have executed this Agreement as of the date
first above written.
OBLIGORS:
By: _________________________________
Printed Name: _______________________
Title: ______________________________
Number of Restricted Shares: ________
Address:
_____________________________________
_____________________________________
_____________________________________
Telephone Number: ___________________
Facsimile Number: ___________________
_____________________________________
Spouse (if applicable)
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EXHIBIT B
RESTATED CERTIFICATE OF INCORPORATION
OF
STERLING CHEMICALS, INC.
ARTICLE I
NAME, REGISTRATION AND PURPOSE
Section 1.01. Name. The name of the Corporation is "Sterling Chemicals
Holdings, Inc.".
Section 1.02. Registered Office and Registered Agent. The registered office
of the Corporation in the State of Delaware is located at Corporation Trust
Center, 1209 Orange Street in the City of Wilmington, County of New Castle.
The name of the registered agent of the Corporation at such address is The
Corporation Trust Company.
Section 1.03. Purpose. The purpose for which the Corporation is organized is
to engage in any lawful acts and activities for which corporations may be
organized under the General Corporation Law of the State of Delaware ("DGCL"),
and the Corporation shall have the power to perform all lawful acts and
activities.
ARTICLE II
CAPITALIZATION
Section 2.01. Authorized Capital. (a) The total number of shares of stock
that the Corporation shall have the authority to issue is 22,000,000 shares of
capital stock, consisting of (i) 2,000,000 shares of preferred stock, par
value $0.01 per share (the "Preferred Stock"), and (ii) 20,000,000 shares of
common stock, par value $0.01 per share (the "Common Stock").
(b) Subject to the provisions of this Certificate of Incorporation and the
Preferred Stock Designation (as defined below) creating any series of
Preferred Stock, the Corporation may issue shares of its capital stock from
time to time for such consideration (not less than the par value thereof) as
may be fixed by the Board of Directors of the Corporation (the "Board of
Directors"), which is expressly authorized to fix the same in its absolute
discretion subject to the foregoing conditions. Shares so issued for which the
consideration shall have been paid or delivered to the Corporation shall be
deemed fully paid stock and shall not be liable to any further call or
assessment thereon, and the holders of such shares shall not be liable for any
further payments in respect of such shares.
(c) The right to cumulate votes for the election of directors as provided in
Section 214 of the DGCL shall not be granted and is hereby expressly denied.
Section 2.02. Preferred Stock. (a) The Preferred Stock may be issued from
time to time in one or more series. Authority is hereby expressly granted to
and vested in the Board of Directors to authorize from time to time the
issuance of Preferred Stock in one or more series. With respect to each series
of Preferred Stock authorized by it, the Board of Directors shall be
authorized to establish by resolution or resolutions, and by filing a
certificate pursuant to the applicable law of the State of Delaware (a
"Preferred Stock Designation"), the following to the fullest extent now or
hereafter permitted by the DGCL:
(i) the designation of such series;
(ii) the number of shares to constitute such series;
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(iii) whether such series is to have voting rights (full, special or
limited) or is to be without voting rights;
(iv) if such series is to have voting rights, whether or not such series
is to be entitled to vote as a separate class either alone or together with
the holders of the Common Stock or one or more other series of Preferred
Stock;
(v) the preferences and relative, participating, optional, conversion or
other special rights (if any) of such series and the qualifications,
limitations or restrictions (if any) with respect to such series;
(vi) the redemption rights and price(s), if any, of such series, and
whether or not the shares of such series shall be subject to the operation
of retirement or sinking funds to be applied to the purchase or redemption
of such shares for retirement and, if such retirement or sinking funds or
funds are to be established, the periodic amount thereof and the terms and
provisions relative to the operation thereof;
(vii) the dividend rights and preferences (if any) of such series,
including, without limitation, (A) the rates of dividends payable thereon,
(B) the conditions upon which and the time when such dividends are payable,
(C) whether or not such dividends shall be cumulative or noncumulative and,
if cumulative, the date or dates from which such dividends shall accumulate
and (D) whether or not the payment of such dividends shall be preferred to
the payment of dividends payable on the Common Stock or any other series of
Preferred Stock;
(viii) the preferences (if any), and the amounts thereof, which the
holders of such series shall be entitled to receive upon the voluntary or
involuntary liquidation, dissolution or winding-up of, or upon any
distribution of the assets of, the Corporation;
(ix) whether or not the shares of such series, at the option of the
Corporation or the holders thereof or upon the happening of any specified
event, shall be convertible into or exchangeable for (A) shares of Common
Stock, (B) shares of any other series of Preferred Stock or (C) any other
stock or securities of the Corporation;
(x) if such series is to be convertible or exchangeable, the price or
prices or ratio or ratios or rate or rates at which such conversion or
exchange may be made and the terms and conditions (if any) upon which such
price or prices or ratio or ratios or rate or rates may be adjusted; and
(xi) such other rights, powers and preferences with respect to such
series as may to the Board of Directors seem advisable.
Any series of Preferred Stock may vary from any other series of Preferred
Stock in any or all of the foregoing respects and in any other manner.
(b) The Board of Directors may, with respect to any existing series of
Preferred Stock but subject to the Preferred Stock Designation creating such
series, (i) increase the number of shares of Preferred Stock designated for
such series by a resolution adding to such series authorized and unissued
shares of Preferred Stock not designated for any other series or (ii) decrease
the number of shares of Preferred Stock designated for any existing series by
a resolution subtracting from such series shares of Preferred Stock designated
such series (but not below the number of shares of such series then
outstanding), and the shares so subtracted shall become authorized, unissued
and undesignated shares of Preferred Stock.
(c) No vote of the holders of the Common Stock or the Preferred Stock shall,
unless otherwise expressly provided in a Preferred Stock Designation, be a
prerequisite to the issuance of any shares of any series of the Preferred
Stock authorized by and complying with the conditions of this Certificate of
Incorporation. Shares of any series of Preferred Stock that have been
authorized for issuance pursuant to this Certificate of Incorporation and that
have been issued and reacquired in any manner by the Corporation (including
upon conversion or exchange thereof) shall be restored to the status of
authorized and unissued shares of Preferred Stock and may be reissued as part
of a new series of Preferred Stock to be created by resolution or resolutions
of the Board of Directors and a Preferred Stock Designation as set forth
above.
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Section 2.03. Common Stock. (a) The holders of shares of the Common Stock
shall be entitled to vote upon all matters submitted to a vote of the common
stockholders of the Corporation and shall be entitled to one vote for each
share of the Common Stock held.
(b) Subject to the prior rights and preferences (if any) applicable to
shares of Preferred Stock of any series, the holders of shares of the Common
Stock shall be entitled to receive such dividends (payable in cash, stock or
otherwise) as may be declared thereon by the Board of Directors at any time
and from time to time out of any funds of the Corporation legally available
therefor.
(c) In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, after payment or provision for payment of the
debts and other liabilities of the Corporation, and subject to the
preferential or other rights (if any) of the holders of shares of the
Preferred Stock in respect thereof, the holders of shares of the Common Stock
shall be entitled to receive all the remaining assets of the Corporation
available for distribution to its stockholders, ratably in proportion to the
number of shares of the Common Stock held by them. For purposes of this
paragraph (c), a liquidation, dissolution or winding-up of the Corporation
shall not be deemed to be occasioned by or to include (i) any consolidation or
merger of the Corporation with or into another corporation or other entity or
(ii) a sale, lease, exchange or conveyance of all or a part of the assets of
the Corporation.
Section 2.04. Stock Options, Warrants, etc. Unless otherwise expressly
prohibited in a Preferred Stock Designation creating any series of Preferred
Stock, the Corporation shall have authority to create and issue warrants,
rights and options entitling the holders thereof to purchase from the
Corporation shares of the Corporation's capital stock of any class or series
or other securities of the Corporation for such consideration and to such
persons, firms or corporations as the Board of Directors, in its sole
discretion, may determine, setting aside from the authorized but unissued
stock of the Corporation the requisite number of shares for issuance upon the
exercise of such warrants, rights or options. Such warrants, rights and
options shall be evidenced by one or more instruments approved by the Board of
Directors. The Board of Directors shall be empowered to set the exercise
price, duration, time for exercise and other terms of such warrants, rights or
options; provided, however, that the consideration to be received for any
shares of capital stock subject thereto shall not be less than the par value
thereof.
ARTICLE III
DIRECTORS
Section 3.01. Number and Term. The number of directors of the Corporation
shall from time to time be fixed exclusively by the Board of Directors in
accordance with, and subject to the limitations set forth in, the bylaws of
the Corporation (the "Bylaws"); provided, however, that the Board of Directors
shall at all times consist of a minimum of three and a maximum of fifteen
members, subject, however, to increases above fifteen members as may required
in order to permit the holders of any series of Preferred Stock to exercise
their right (if any) to elect additional directors under specified
circumstances. No decrease in the number of directors shall have the effect of
shortening the term of any incumbent director. Anything in this Certificate of
Incorporation or the Bylaws to the contrary notwithstanding, each director
shall hold office until his successor is elected and qualified or until his
earlier death, resignation or removal.
Section 3.02. Nomination and Election. (a) Nominations of persons for
election or reelection to the Board of Directors may be made by or at the
direction of the Board of Directors. The Bylaws may set forth procedures for
the nomination of persons for election or reelection to the Board of Directors
and only persons who are nominated in accordance with such procedures (if any)
shall be eligible for election or reelection as directors of the Corporation;
provided, however, that such procedures shall not infringe upon (i) the right
of the Board of Directors to nominate persons for election or reelection to
the Board of Directors or (ii) the rights of the holders of any series of
Preferred Stock, voting separately by class or series, to elect additional
directors under specified circumstances.
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(b) Each director shall be elected in accordance with this Certificate of
Incorporation, the Bylaws and applicable law. Election of directors by the
Corporation's stockholders need not be by written ballot unless the Bylaws so
provide.
Section 3.03. Removal. No director may be removed except by the affirmative
vote of the holders of not less than a majority in voting power of all the
outstanding shares of capital stock of the Corporation entitled to vote
generally in an election of directors, voting together as a single class. The
Board of Directors may not remove any director, and no recommendation by the
Board of Directors that a director be removed may be made to the Corporation's
stockholders unless such recommendation is set forth in a resolution adopted
by the affirmative vote of not less than two-thirds of the whole Board of
Directors.
Section 3.04. Vacancies. (a) In case any vacancy shall occur on the Board of
Directors because of death, resignation or removal, such vacancy may be filled
only by a majority (or such higher percentage as may be specified in the
Bylaws) of the directors remaining in office (though less than a quorum), and
the director so appointed shall serve for the unexpired term of his
predecessor or until his successor is elected and qualified or until his
earlier death, resignation or removal. If there are no directors then in
office, an election of directors may be held in the manner provided by
applicable law.
(b) Any newly-created directorship resulting from any increase in the number
of directors may be filled only by a majority (or such higher percentage as
may be specified in the Bylaws) of the directors then in office (though less
than a quorum). Each director so appointed shall hold office until his
successor is elected and qualified or until his earlier death, resignation or
removal.
(c) Except as expressly provided in this Certificate of Incorporation or as
otherwise provided by applicable law, stockholders of the Corporation shall
not have the right to fill vacancies or newly-created directorships on the
Board of Directors.
Section 3.05. Subject to Rights of Holders of Preferred Stock.
Notwithstanding the foregoing provisions of this Article III, if the Preferred
Stock Designation creating any series of Preferred Stock entitles the holders
of such Preferred Stock, voting separately by class or series, to elect
additional directors under specified circumstances, then all provisions of
such Preferred Stock Designation relating to the nomination, election, term of
office, removal, filling of vacancies and other features of such directorships
shall, as to such directorships, govern and control over any conflicting
provisions of this Article III.
Section 3.06. Limitation of Access of Stockholders to Books and Records. In
furtherance of, and not in limitation of, the powers conferred by law, the
Board of Directors is expressly authorized and empowered to determine from
time to time whether and to what extent, and at what times and places, and
under what conditions and regulations, the accounts and books of the
Corporation, or any of them, shall be open to inspection of stockholders and,
except as so determined or as expressly provided in this Certificate of
Incorporation or in any Preferred Stock Designation, no stockholder shall have
any right to inspect any account, book or document of the Corporation other
than such rights as may be conferred by applicable law.
Section 3.07. Limitation of Personal Liability. (a) No person who is or was
a director of the Corporation shall be personally 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 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 DGCL or (iv) for any transaction from
which the director derived an improper personal benefit.
(b) If the DGCL is hereafter amended to authorize corporate action further
limiting or eliminating the personal liability of directors, then the personal
liability of the directors to the Corporation or its stockholders shall be
limited or eliminated to the full extent permitted by the DGCL, as so amended
from time to time.
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ARTICLE IV
AMENDMENT OF BYLAWS
The Board of Directors is expressly authorized and empowered to adopt,
alter, amend or repeal the Bylaws. Stockholders of the Corporation shall have
the power to alter, amend, expand or repeal the Bylaws but only by the
affirmative vote of the holders of not less than 66- 2/3% in voting power of
all outstanding shares of capital stock of the Corporation entitled to vote
generally at an election of directors, voting together as a single class.
ARTICLE V
ACTIONS AND MEETINGS OF STOCKHOLDERS
Section 5.01. No Action by Written Consent. No action shall be taken by the
stockholders of the Corporation except at an annual or special meeting of
stockholders. Stockholders of the Corporation may not act by written consent
in lieu of a meeting.
Section 5.02. Meetings. (a) Meetings of the stockholders of the Corporation
(whether annual or special) may only be called by the Board of Directors or
such officer or officers of the Corporation as the Board of Directors may from
time to time authorize to call meetings of the stockholders of the
Corporation. Stockholders of the Corporation shall not be entitled to call any
meeting of stockholders or to require the Board of Directors or any officer or
officers of the Corporation to call a meeting of stockholders except as
otherwise expressly provided by law or in the Preferred Stock Designation
creating any series of Preferred Stock.
(b) Stockholders of the Corporation shall have the right to propose business
for consideration at any meeting of stockholders but only as may be expressly
provided in, and then only in compliance with, the Bylaws.
(c) Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice or waivers of notice of such
meeting. The person presiding at a meeting of stockholders may determine
whether business has been properly brought before the meeting and, if the
facts so warrant, such person may refuse to transact any business at such
meeting which has not been properly brought before such meeting.
Section 5.03. Appoint and Remove Officers, etc. The stockholders of the
Corporation shall have no right or power to appoint or remove officers of the
Corporation nor to abrogate the power of the Board of Directors to elect and
remove officers of the Corporation. Except as provided in Section 3.03, the
stockholders of the Corporation shall have no power to appoint or remove
directors as members of committees of the Board of Directors nor to abrogate
the power of the Board of Directors to establish one or more such committees
or the power of any such committee to exercise the powers and authority of the
Board of Directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation (i) shall indemnify, to the fullest extent permitted by
applicable law, each person who is or was a director or officer of the
Corporation and each person who, at the request of the Board of Directors of
the Corporation or an officer of the Corporation, is or was a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, and (ii) may indemnify each employee and agent of the Corporation
and all other persons whom the Corporation is authorized to indemnify under
the provisions of the DGCL. Without limiting the generality or effect of the
foregoing, the Corporation may enter into one or more agreements with any
person which provide for indemnification greater or different than that
provided in this Section 6.01.
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ARTICLE VII
ELECTION TO BE GOVERNED BY SECTION 203 OF THE DGCL
The Corporation hereby elects to be governed by Section 203 of the DGCL;
provided, however, that the provisions of this Article VII shall not apply to
restrict a business combination between the Corporation and an interested
stockholder (as defined in Section 203 of the DGCL) of the Corporation if
either (i) such business combination was approved by the Board of Directors
prior to the time that such stockholder became an interested stockholder or
(ii) such stockholder became an interested stockholder as a result of, and at
or prior to the effective time of, a transaction which was approved by the
Board of Directors prior to the time that such stockholder became an
interested stockholder.
ARTICLE VIII
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend, alter, change or repeal any
provisions contained in this Certificate of Incorporation or a Preferred Stock
Designation, in the manner now or hereafter prescribed by applicable law, and
all rights, preferences and privileges conferred upon stockholders, directors
or any other persons by and pursuant to this Certificate of Incorporation are
granted subject to this reservation. Notwithstanding the foregoing or any
other provision of this Certificate of Incorporation or any provision of law
that might otherwise permit a lesser or no vote, the provisions of this
Article VIII and of Articles III, IV and V may not be repealed or amended in
any respect, and no provision inconsistent with any such provision or imposing
cumulative voting in the election of directors may be added to this
Certificate of Incorporation, unless such action is approved by the
affirmative vote of the holders of not less than 66 2/3% in voting power of
all outstanding shares of capital stock of the Corporation entitled to vote
generally at an election of directors, voting together as a single class;
provided, however, that any amendment or repeal of Section 3.07 or Article VI
of this Certificate of Incorporation shall not adversely affect any right or
protection existing thereunder in respect of any act or omission occurring
prior to such amendment or repeal and, provided further, that no Preferred
Stock Designation shall be amended after the issuance of any shares of the
series of Preferred Stock created thereby, except in accordance with the terms
of such Preferred Stock Designation and the requirements of applicable law.
ARTICLE IX
VOTING REQUIREMENTS NOT EXCLUSIVE
The voting requirements contained in this Certificate of Incorporation shall
be in addition to the voting requirements imposed by law or by the Preferred
Stock Designation creating any series of Preferred Stock.
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ANNEX B
FAIRNESS OPINION OF LAZARD FRERES & CO. LLC
Lazard Freres & Co. LLC
April 24, 1996
Special Committee of the Board of Directors
Sterling Chemicals, Inc.
1200 Smith Avenue
Suite 1900
Houston, Texas 77002
Dear Members of the Special Committee:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of Sterling Chemicals, Inc. (the "Company") of the
consideration to be received by such stockholders in connection with the
proposed merger (the "Merger") of STX Acquisition Corp. ("Newco"), an
affiliate of The Sterling Group, Inc., with and into the Company pursuant to
the Agreement and Plan of Merger dated as of April 24, 1996 between Newco and
the Company (the "Merger Agreement"). Pursuant to the Merger Agreement, each
issued and outstanding share of common stock of the Company ("Company Common
Stock") will be converted into the right to receive $12.00 in cash unless the
holder elects to retain one share of common stock of the surviving corporation
in the Merger ("Surviving Corporation Common Stock"), in which event (subject
to proration if holders of more than 5,000,000 shares of Company Common Stock
so elect) such share shall be so retained. In connection with this opinion, we
have:
(i) Reviewed the financial terms of the Merger Agreement;
(ii) Analyzed certain historical business and financial information
relating to the Company, including the Annual Reports to Stockholders and
Annual Reports on Form 10-K of the Company for the five fiscal years ended
September 30, 1995 and the Quarterly Report on Form 10-Q of the Company for
the quarter ended December 31, 1995;
(iii) Reviewed various financial forecasts and other data provided to us
by the Company relating to the Company's businesses;
(iv) Held discussions with members of the senior management of the
Company with respect to the businesses and prospects of the Company, and
the strategic objectives of the Company;
(v) Reviewed public information with respect to certain other companies
in lines of business we believe to be generally comparable to the
businesses of the Company;
(vi) Reviewed the financial terms of certain business combinations
involving companies in lines of businesses we believe to be generally
comparable to those of the Company, and in other industries generally;
(vii) Reviewed the historical stock prices and trading volumes of the
Company's Common Stock; and
(viii) Conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have not reviewed any proxy statement or similar document that may be
prepared for use in connection with the Merger.
We have relied upon the accuracy and completeness of the foregoing
information, and have not assumed any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of the Company. With respect to financial
forecasts, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of management
of the Company as to the future financial performance of the Company. We
assume no responsibility for and express no view as to such forecasts or the
assumptions on which they are based.
B-1
<PAGE>
Special Committee of the Board of Directors
April 24, 1996
Page 2
Further, our opinion is necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof and we assume no responsibility to update or revise our
opinion based upon circumstances or events occurring after the date hereof.
Our opinion does not address the Company's underlying business decision to
effect the Merger or constitute a recommendation to any holder of Company
Common Stock as to how such holder should vote with respect to the Merger or
as to what form of merger consideration such holder should elect to receive.
Our opinion as expressed below does not imply any conclusion as to the likely
trading range for the Surviving Corporation Common Stock following the
consummation of the Merger, which may vary depending upon, among other
factors, changes in interest rates, dividend rates, market conditions, general
economic conditions and other factors that generally influence the price of
securities.
In rendering our opinion, we have assumed that the Merger will be
consummated on the terms described in the Merger Agreement, without any waiver
of any material terms or conditions by the Company or Newco and that obtaining
the necessary regulatory approvals for the Merger will not have an adverse
effect on the Company or Newco.
Lazard Freres & Co. LLC ("Lazard") is acting as financial advisor to the
Special Committee in connection with the Merger and will receive a fee for our
services, a substantial portion of which is contingent upon the closing of the
Merger.
In the past, Lazard has performed investment banking services for the
Company and has received fees for such services. Also, a Limited Managing
Director of Lazard is a member of the Board of Directors of the Company.
Our engagement and the opinion expressed herein are for the benefit of the
Special Committee of the Company's Board of Directors. It is understood that,
except for inclusion in a proxy statement relating to the Merger, this letter
may not be disclosed or otherwise referred to without our prior consent,
except as may otherwise be required by law or by a court of competent
jurisdiction.
Based on and subject to the foregoing, we are of the opinion that the
consideration to be received by the stockholders of the Company in connection
with the Merger is fair to such stockholders (other than The Sterling Group,
Inc. or any of its affiliates) from a financial point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By: /s/ Ali E. Wambold
Managing Director
B-2
<PAGE>
ANNEX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
DELAWARE--GENERAL CORPORATION LAW
(S) 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to (S) 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock
corporation and also a member of record of a nonstock corporation; the words
"stock" and "share" mean and include what is ordinarily meant by those words
and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)(S) 251 (other than a merger effected pursuant to
subsection (g) of (S) 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S) 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
C-1
<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation that are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Any stockholder entitled to appraisal rights may, within
twenty days after the date of mailing of such notice, demand in writing
from the surviving or resulting corporation the appraisal of such holder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger or
consolidation either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send a second notice to all such holders on or
within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only to be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such
holder's shares in accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such notice has
been given shall in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the stockholders entitled
to receive such notice, each constituent corporation may fix in advance, a
record date that shall be not more than 10 days prior to the date the
notice is given; provided that, if the notice is given on or after the
effective date of the merger or consolidation,
C-2
<PAGE>
the record date shall be the effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date shall be
the close of business on the next day preceding the day on which the notice
is given. If the merger or consolidation was approved pursuant to (S) 228
or 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the
C-3
<PAGE>
proceeding. Upon application by the surviving or resulting corporation or by
any stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
C-4
<PAGE>
ANNEX D
OFFICERS AND DIRECTORS OF TSG AND STX ACQUISITION
The following table sets forth the name, principal occupation or employment
at the present time and during the past five years, and beneficial ownership
of securities of the Company of each director and each executive officer of
TSG and STX Acquisition. Each person listed below is a citizen of the United
States and the business address of each such person is Eight Greenway Plaza,
Suite 702, Houston, Texas 77046.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP OF
COMPANY COMMON PRINCIPAL OCCUPATION
NAME STOCK AND PAST EMPLOYMENT
---- -------------- --------------------
<C> <C> <S>
Frank J. Hevrdejs....... 597,000 shares Principal and President of TSG, which he co-
founded in 1982. Mr. Hevrdejs 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, Inc., an envelope manufacturer and
commercial printer, Purina Mills, Inc., an
animal feed producer, and Eagle U.S.A., an air
freight company. Mr Hevrdejs also serves as
sole director and President of STX Acquisition.
Hunter Nelson........... None Principal and Vice President of TSG since 1989.
Mr. Nelson is a director of Sterling Diagnostic
Imaging, Inc. and several other private
companies. Mr. Nelson also serves as Vice
President, Secretary and Treasurer of STX
Acquisition.
William C. Oehmig....... 300,000 shares Principal and Vice President of TSG since 1985.
Mr. Oehmig currently serves as a director of PM
Holdings Corporation, Purina Mills, Inc. and
the Vanderbilt University Alumni Association.
Susan O. Rheney......... None Principal and Vice President of TSG since
February 1992. Ms. Rheney worked as an
independent financial consultant from December
1990 to January 1992. She is also a director of
Mail-Well, Inc.
John D. Hawkins......... None Vice President of TSG since April 1996 and
Associate of TSG from 1992 to 1996. Mr. Hawkins
serves as Vice President, Assistant Secretary
and Assistant Treasurer of STX Acquisition.
</TABLE>
D-1
<PAGE>
P R O X Y
STERLING CHEMICALS, INC.
PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF STOCKHOLDERS
AUGUST 20, 1996
The undersigned hereby appoints each of Jim P. Wise and F. Maxwell Evans,
proxies with full power of substitution, with the powers (each having full
power to act without the other) the undersigned would possess if personally
present, to vote, as designated below, all shares of the $.01 par value Common
Stock held by the undersigned in Sterling Chemicals, Inc. (the "Company") at
the Special Meeting of Stockholders to be held on August 20, 1996 (the "Special
Meeting"), and at any adjournment or postponement thereof.
This proxy is solicited on behalf of the Board of Directors of the Company and
will be voted FOR Proposal 1 below unless otherwise indicated.
You are encouraged to specify your choices by marking the appropriate boxes,
SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in
accordance with the Board of Directors' recommendations. The Proxies cannot
vote your share unless you sign and return this card.
SEE REVERSE
SIDE
<PAGE>
[x] Please mark your SHARES IN YOUR NAME REINVESTMENT SHARES
votes as in this
example.
FOR AGAINST ABSTAIN
1. The approval and adoption of the Amended [ ] [ ] [ ]
and Restated Agreement and Plan of
Merger, dated as of April 24, 1996,
between the Company and STX Acquisition
Corp.
2. In their discretion, the proxies are
authorized to vote upon any other
matter that may come before the Special
Meeting or any adjournment or postponement
thereof.
SIGNATURE(S) DATE
---------------------------------------- -----------
SIGNATURE(S) DATE
---------------------------------------- -----------
NOTE: Please sign exactly as name appears hereon. Joint owners
should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title
as such.
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