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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
COMMISSION FILE NUMBER 1-10059
STERLING CHEMICALS HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 76-0185186
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1200 SMITH STREET, SUITE 1900
HOUSTON, TEXAS 77002-4312 (713) 650-3700
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK,
PAR VALUE $.01 PER SHARE
COMMISSION FILE NUMBER 333-04343-01
STERLING CHEMICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 76-0502785
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1200 SMITH STREET SUITE 1900
HOUSTON, TEXAS 77002-4312 (713) 650-3700
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
STERLING CHEMICALS, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
J(1)(a) AND (b) OF FORM 10-K, AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT PROVIDED FOR BY GENERAL INSTRUCTION J(2) OF FORM 10-K
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Indicate by check mark whether each of the registrants (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of each of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ ]
As of December 7, 1998, Sterling Chemicals Holdings, Inc. had 12,728,842
shares of common stock outstanding. As of such date, the aggregate market value
of such common stock held by nonaffiliates, based upon the last sales price of
these shares as reported on the OTC Electronic Bulletin Board maintained by the
National Association of Securities Dealers, Inc., was approximately $39 million.
As of December 7, 1998, all outstanding equity securities of Sterling Chemicals,
Inc. were owned by Sterling Chemicals Holdings, Inc.
Portions of the definitive Proxy Statement relating to the 1999 Annual
Meeting of Stockholders of Sterling Chemicals Holdings, Inc. are incorporated by
reference in Part III of this Form 10-K.
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TABLE OF CONTENTS
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PART I
Important Information Regarding this Form 10-K............................................. 1
Item 1. Business................................................................................... 2
Item 2. Properties................................................................................. 16
Item 3. Legal Proceedings.......................................................................... 16
Item 4. Submission of Matters to Vote of Security Holders.......................................... 18
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...................... 19
Item 6. Selected Financial Data of the Company..................................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 22
Item 7A. Qualitative and Quantitative Disclosure about Market Risk.................................. 36
Item 8. Financial Statements and Supplementary Data................................................ 37
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................................. 72
PART III
Item 10. Directors and Executive Officers of the Registrant......................................... 72
Item 11. Executive Compensation..................................................................... 72
Item 12. Security Ownership of Certain Beneficial Owners and Management............................. 72
Item 13. Certain Relationships and Related Transactions............................................. 72
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules and Reports on Form 8-K............... 73
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IMPORTANT INFORMATION REGARDING THIS FORM 10-K
Readers should consider the following information as they review this Form 10-K.
FORWARD-LOOKING STATEMENTS
This Form 10-K includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Form 10-K, including without
limitation the statements under "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
cyclicality of the Company's industry, current and future industry conditions
and the potential effects of such matters on the Company's business strategy,
results of operations and financial position, are forward-looking statements.
Although the Company believes that the expectations reflected in the
forward-looking statements contained herein are reasonable, no assurance can be
given that such expectations will prove to have been correct. Certain important
factors that could cause actual results to differ materially from expectations
("Cautionary Statements") are stated herein in conjunction with the
forward-looking statements or are included elsewhere in this Form 10-K. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Certain Known Events, Trends, Uncertainties and Risk Factors." All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.
SUBSEQUENT EVENTS, ETC.
All statements contained in this Form 10-K, including the forward-looking
statements discussed above, are made as of December 17, 1998, except for those
statements that are expressly made as of another date. The Company disclaims any
responsibility for the correctness of any information contained in this Form
10-K to the extent such information is affected or impacted by events,
circumstances, or developments occurring after December 17, 1998, or by the
passage of time after such date and, except as required by applicable securities
laws, does not intend to update such information.
DOCUMENT SUMMARIES
Statements contained in this Form 10-K describing documents and agreements
are provided in summary form only and such summaries are qualified in their
entirety by reference to the actual documents and agreements filed as exhibits
to this Form 10-K.
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PART I
This combined Form 10-K is separately filed by Sterling Chemicals Holdings,
Inc. ("Holdings") and Sterling Chemicals, Inc. ("Chemicals"). Information
contained herein relating to Chemicals is filed by Holdings and separately by
Chemicals on its own behalf. Unless otherwise indicated, Holdings and its
subsidiaries, including Chemicals, are collectively referred to as the
"Company."
ITEM 1. BUSINESS
The Company was organized as a Delaware corporation in 1986 and has its
principal executive offices in Houston, Texas. In connection with the Company's
August 1996 merger with STX Acquisition Corp. (the "Merger"), the Company
recapitalized and reorganized into a holding company whose only material asset
is the capital stock of Chemicals, its wholly owned operating subsidiary (the
"1996 Recapitalization"). Through Chemicals and its subsidiaries, the Company
manufactures seven commodity petrochemicals at its Texas City, Texas plant (the
"Texas City Plant"). Additionally, the Company manufactures chemicals for use
primarily in the pulp and paper industry at five plants in Canada and one plant
in Valdosta, Georgia (the "Valdosta Plant"), and manufactures acrylic fibers in
a plant near Pensacola, Florida (the "Santa Rosa Plant"). At its Texas City
Plant, the Company produces styrene, acrylonitrile, acetic acid, plasticizers,
methanol, tertiary butylamine ("TBA"), and sodium cyanide. The Company generally
sells its petrochemical products to customers for use in the manufacture of
other chemicals and products, which in turn are used in the production of a wide
array of consumer goods and industrial products. The Company produces regular
textile fibers, specialty textile fibers, and technical fibers at the Santa Rosa
Plant, as well as licensing its acrylic fibers manufacturing technology to
producers worldwide. Sodium chlorate is produced at the five plants in Canada
and at the Valdosta Plant. Sodium chlorite is produced at one of the Canadian
locations. In addition, chlor-alkali and calcium hypochlorite are produced at
one of the Canadian locations. The Company licenses, engineers, and oversees
construction of large-scale chlorine dioxide generators for the pulp and paper
industry as part of the pulp chemical business. These generators convert sodium
chlorate into chlorine dioxide at pulp mills.
The Company's business strategy is to become a premier producer of
chemicals with a strong market position in all major product and fist quartile
cost position in existing businesses, and to expand its production capacity to
capture future growth opportunities in the petrochemical, acrylic fibers, and
pulp chemical industries. Key elements of this strategy are to: (i) maintain a
competitive cost position by reducing costs and working capital and by investing
in new technology and equipment; (ii) pursue low cost expansions; (iii) pursue
growth opportunities through the construction of additional capacity; (iv)
continue to build strong industry partnerships through securing long-term supply
contracts with key customers; and (v) pursue a focused long-term acquisition
strategy, targeting chemical businesses and assets which will strengthen the
Company's existing market positions, provide upstream or downstream integration,
or produce complementary chemical products. The cyclicality of the markets for
the Company's primary products, however, also subjects the Company to periods of
overcapacity accompanied by lower prices and profit margins for such products.
In addition, the instruments governing the Company's outstanding debt limit the
Company's ability to incur additional debt to finance additional acquisitions
and other expenditures. These and other factors may limit the Company's ability
to successfully implement its business strategy.
RECENT DEVELOPMENTS
On March 30, 1998, the Company and BP Chemicals Inc. ("BP") established an
exclusive 50/50 acrylonitrile joint venture marketing company, ANEXCO LLC, to
service the acrylonitrile marketing needs of both partners in Asia and South
America beginning April 1, 1998. The Company and BP project annual sales by
ANEXCO LLC of approximately 500,000 metric tons of acrylonitrile with most
materials coming from the United States, supplemented by product from South
Africa.
The Company's methanol production facility at the Texas City Plant was shut
down in August 1998. This action was taken solely for economic reasons relating
to a significant disparity between domestic and foreign natural gas prices and
the resulting costing disadvantage to domestic methanol producers. The Company
has contracted with a third party to supply methanol to the Company through
January 31, 1999, for both its internal needs and to satisfy delivery
requirements under existing contractual commitments. The Company believes the
methanol production unit is capable of being restarted without significant
expense or delay; however, as of December 17, 1998 no decision had been made as
to if or when the unit will be restarted.
During fiscal 1998, 111 Company employees took early retirement under
voluntary severance programs established by the Company at the Texas City Plant.
The Company recorded a pre-tax charge of $6 million in fiscal
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1998 for costs associated with the workforce reductions. The Company anticipates
annual savings from such workforce reductions of approximately $6 million. In
addition, in September 1998, the Company reduced its pulp chemicals workforce by
25 employees and recorded a pre-tax charge of approximately $1 million. The
Company anticipates annual savings from such workforce reductions of
approximately $1 million. Additionally, a Multiskilling/CLAIR (Clean, Lubricate,
Adjust, Inspect & Repair) program, which improves work practices at the Texas
City Plant, has resulted in a reduction of contract maintenance workforce of
over 100 workers over the past two years. In November 1998, the Company further
reduced its workforce in its petrochemical business and corporate office by 60
employees and contractors at a pre-tax cost of approximately $2 million with
expected annual savings of approximately $5 million. The Company plans to pursue
additional cost reductions in 1999 through changes in its manufacturing
processes and workforce reductions.
In December 1998, the Company obtained certain amendments to the financial
covenants in the Company's Amended and Restated Credit Agreement. At no time was
the Company not in compliance with the covenants. The Company requested the
amendments based on its revised financial projections, and the amendments made
the financial covenants less restrictive through December 31, 1999.
In December 1998, the Company entered into separate Standby Purchase
Agreements (collectively, the "Purchase Agreements") with each of Gordon A.
Cain, William A. McMinn, James Crane, Mr. Diassi, Mr. Hevrdejs and Koch Capital
(collectively, the "Purchasers"). Pursuant to the terms of the Purchase
Agreements, the Purchasers committed to purchase up to 2.5 million shares of
Common Stock, at a price of $6.00 per share, if, as and when requested by the
Company at any time or from time to time prior to December 15, 2001. Under each
of the Purchasers Agreements, the Company may only require the Purchasers to
purchase such shares if it believes that such capital is necessary to maintain,
reestablish, or enhance its borrowing ability under the Company's revolving
credit facilities or to satisfy any requirement thereunder to raise additional
equity. To induce the Purchasers to enter into the Purchase Agreements, the
Company issued to them warrants to purchase an aggregate of 300,000 shares of
Common Stock at an exercise price of $6.00 per share. Pursuant to the Purchase
Agreements, the Company agreed to issue to the Purchasers additional warrants to
purchase up to 300,000 additional shares of Common Stock if, as and when they
purchase shares of Common Stock under the Purchase Agreements. Any shares of
Common Stock purchased under the Purchase Agreement and the warrants issued to
the Purchasers as contemplated by the Purchase Agreements will be subject to the
terms of the Amended and Restated Voting Agreement dated as of December 15,
1998, the Sterling Chemicals Holdings, Inc. Stockholders Agreement dated
effective as of August 21, 1996, as amended, and the Tag-Along Agreement dated
as of August 21, 1996, each of which is filed as an Exhibit to this Form 10-K.
SALES AND MARKETING
The Company primarily sells its petrochemical products pursuant to
multi-year contracts and spot transactions in both the domestic and export
markets through its commercial organization and sales force. The Company has
certain long-term agreements, which provide for the dedication of 100% of the
Company's production of acetic acid, plasticizers, TBA, and sodium cyanide, each
to one customer. The Company also has various sales and conversion agreements,
which dedicate to certain customers significant portions of the Company's
production of styrene, acrylonitrile, and methanol, the Company's major
petrochemical products. Some of these agreements generally provide for cost
recovery plus an agreed margin or element of profit based upon market price.
This long-term, high volume focus allows the Company to maintain relatively low
selling, general, and administrative expenses related to the marketing of its
petrochemical products. The Company competes on the basis of product price,
quality, and deliverability. Prices for the Company's commodity chemicals are
determined by market factors that are largely beyond the Company's control and,
except with respect to a number of its multi-year contracts, the Company
generally sells its products at prevailing market prices.
Some of the Company's multi-year contracts for its petrochemical products
are structured as conversion agreements, pursuant to which the customer
furnishes raw materials that the Company processes into finished products. In
exchange, the Company receives a fee typically designed to cover its fixed and
variable costs of production and to generally provide an element of profit
dependent on the existing market conditions for the product. These conversion
agreements allow the Company to maintain lower levels of working capital and, in
some cases, to gain access to certain improvements in manufacturing process
technology. The Company believes its conversion agreements help insulate the
Company to some extent from the effects of declining markets and changes in raw
material prices, while allowing it to share in the benefits of favorable market
conditions for most of the products sold under these arrangements. The balance
of the Company's petrochemical products are sold by its direct sales force.
The Company, through two wholly-owned subsidiaries (collectively, "Sterling
Fibers"), currently markets its acrylic fiber products to North American
customers through internal sales staff and to international customers through
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non-affiliated agents. Acrylic fiber products are priced based upon market
conditions, which include, but are not limited to, raw material costs, prices of
competing products and suppliers, and type of end use.
The Company sells sodium chlorate primarily in Canada and the United States
generally under one to five-year supply contracts, most of which provide for
minimum and maximum volumes or a percentage of requirements at market prices. In
addition, most sales contracts contain certain "meet or release" pricing clauses
and some contain restrictions on the amount of future price increases. Certain
contracts are evergreen and require advance notice before termination.
The Company markets chlorine dioxide generators worldwide to the pulp and
paper industry. The Company sells the technology and equipment, which it designs
and purchases from specific strategic alliance partners. In addition to being
paid for the technology and equipment, the Company receives royalties based on
the amount of chlorine dioxide produced by the generator, generally over a
ten-year period.
CONTRACTS
The Company's key multi-year contracts and conversion agreements, which
collectively accounted for 24% of the Company's fiscal 1998 revenues, are
described below:
Styrene-Bayer
The Company and Bayer Corporation ("Bayer"), a subsidiary of Bayer AG, are
currently operating under a conversion agreement effective through December 21,
2000. Under this agreement, the Company provides Bayer, subject to specified
minimum and maximum quantities, a major portion of Bayer's styrene requirements
for its manufacture of styrene-containing polymers. The agreement permits Bayer
to terminate its obligations upon twelve months' notice to the Company should
Bayer sell its business that uses styrene or assign the agreement (subject to
the Company's consent) to a third-party purchaser of the business. During fiscal
1998, the Company delivered approximately 9% of its styrene production pursuant
to this agreement.
Styrene-BP Chemicals
Effective April 1, 1994, the Company and BP entered into a styrene sales
and purchase agreement. The initial term of the agreement expired in December
1996. The Company and BP extended this agreement on substantially the same terms
but at approximately half of the original volume through June 30, 1999. During
fiscal 1998, the Company delivered approximately 6% of its styrene production to
BP pursuant to this agreement.
Acrylonitrile-Solutia
The Company and Solutia Inc., formerly the chemical business of Monsanto
Company ("Solutia"), are parties to a multi-year conversion agreement, pursuant
to which the Company delivered approximately 31% and 27% of its fiscal 1998 and
1997 acrylonitrile production, respectively. Solutia has recently announced that
it is constructing a new acrylonitrile production facility in Chocolate Bayou,
Texas, which is expected to have an annual capacity of 500 million pounds and
which is currently expected to begin production in the third calendar quarter of
2000. Solutia has elected to terminate the aforementioned agreement, effective
September 1, 2000.
Acrylonitrile-Cytec
In connection with the Company's acquisition of its acrylic fibers business
from Cytec Industries Inc. ("Cytec") on January 31, 1997 (the "AFB
Acquisition"), the Company assumed an existing supply contract for acrylonitrile
pursuant to which Sterling Fibers purchases its requirements for acrylonitrile
from Cytec. Upon the expiration of such supply contract on February 28, 2002,
the Company expects to supply all of Sterling Fibers' acrylonitrile requirements
from the Texas City Plant.
Acrylonitrile-BP Chemicals
In 1988, the Company entered into a long-term production agreement with BP,
under which BP contributed the majority of the capital expenditures required for
starting the third acrylonitrile reactor train at the Texas City Plant and has
the option to take up to approximately one-sixth of the Company's total
acrylonitrile capacity. This agreement was amended and restated during April
1998 to, among other things, encourage increased manufacturing and technical
cooperation. Under the agreement, BP furnishes the necessary raw materials and
pays the Company a conversion fee for the amount of acrylonitrile it takes and
reimburses the Company for a portion of the fixed costs related to
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acrylonitrile production at the Texas City Plant. During fiscal 1998, the
Company delivered approximately 17% of its acrylonitrile production to BP
pursuant to this agreement. The acrylonitrile reactor in which BP invested
capital incorporates certain BP technological improvements under a separate
license agreement. The Company has the right to incorporate these and any future
improvements into its other existing acrylonitrile reactors. To protect BP in
the event the Company defaults under the production agreement, BP has a first
security interest in the third reactor and related equipment and in the first
acrylonitrile produced in the three reactor units to the extent BP is entitled
to purchase the same under the production agreement. As previously discussed, in
April 1998 the Company and BP formed ANEXCO LLP for the purposes of jointly
marketing acrylonitrile in Asia and South America. The Company delivered
approximately 18% of its fiscal 1998 acrylonitrile production to ANEXCO LLC
pursuant to this agreement.
Acetic Acid-BP Chemicals
An agreement with BP that has been in effect since August 1986 currently
gives BP the exclusive right to purchase all of the Company's acetic acid
production until August 2016. Under the agreement, BP is obligated to make
certain unconditional monthly payments to the Company until August 2006 and to
reimburse the Company for operating costs. In addition, the Company is entitled
to receive annually a portion of the profits earned by BP from the sale of
acetic acid produced by the Company.
Methanol-BP Chemicals
In August 1996, the Company entered into a long-term production and sales
agreement with BP, under which BP contributed a significant portion of the
capital expenditures required for the reconstruction and capacity increase of
the Company's methanol production facility at the Texas City Plant and obtained
the right to receive a substantial portion of the Company's methanol production.
During fiscal 1998, the Company delivered approximately 40% of its methanol
production to BP pursuant to this agreement. The initial term of this agreement
expires July 31, 2016. The output of the methanol facility is marketed by BP to
the Company's acetic acid unit, the merchant market, and BP's worldwide acetic
acid business. Due to a significant disparity between domestic and foreign
natural gas prices and the resulting costing disadvantage to domestic methanol
producers, the Company shut down its methanol production facility in August
1998. The Company has contracted with a third party to supply methanol to the
Company through January 31, 1999 for both its internal needs and to satisfy
delivery requirements under existing contractual commitments. The Company
believes the methanol production unit is capable of being restarted without
significant expense or delay; however, as of December 17, 1998, no decision had
been made as to if or when the unit will be restarted.
Plasticizers-BASF
A product sales agreement has been in effect with BASF Corporation ("BASF")
since August 1, 1986, pursuant to which the Company sells all of its
plasticizers production to BASF. In November 1997, the Company signed a new 10
year agreement with BASF. The agreement expires at the end of 2007. BASF
provides certain raw materials to the Company and markets the plasticizers
produced by the Company. BASF is obligated to make certain quarterly payments to
the Company and reimburses the Company monthly for actual production costs. In
addition, the Company is entitled to a share of profit earned by BASF
attributable to the plasticizers supplied by the Company.
During fiscal 1998, BP accounted for approximately 12% of the Company's
revenues. No other single customer of the Company accounted for more than 10% of
the Company's revenues in fiscal 1998. For information regarding the Company's
export sales and domestic and foreign operations, see Note 9 of Item 8, "Notes
to Consolidated Financial Statements," which is hereby incorporated by
reference.
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PRODUCT SUMMARY
The Company's principal products and their primary end uses and raw
materials are set forth below.
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COMPANY PRODUCT INTERMEDIATE PRODUCTS PRIMARY END PRODUCTS RAW MATERIALS
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Petrochemicals
and Fibers
Styrene Polystyrene Building products, boat and automotive Ethylene and Benzene
ABS/SAN resins components, disposable cups and trays,
Styrene butadiene packaging and containers, housewares,
latex tires, audio and video cassettes,
Unsaturated polyester luggage,
resins children's toys, paper coating,
appliance
parts, and carpet backing
Acrylonitrile Acrylic fibers Apparel, furnishings, upholstery, Ammonia, Air, and Propylene
ABS/SAN resins household appliances, carpets,
plastics for automotive parts using
ABS and SAN polymers
Acetic Acid Vinyl acetate monomer Adhesives, cigarette filters, and Methanol, Carbon Monoxide
surface coatings
Methanol Acetic acid Adhesives, cigarette filters, and Natural Gas, Steam, and Carbon
MTBE surface coatings, gasoline oxygenate Dioxide
Formaldehyde and octane enhancer, plywood adhesives
Plasticizers Polyvinyl chloride Flexible plastics, such as shower Alpha-Olefins, Carbon
(PVC) curtains and liners, floor coverings, Monoxide, Hydrogen,
cable insulation, upholstery, and Orthoxylene, and Air
plastic molding
TBA NA Pesticides, solvents, Isobutylene and the
pharmaceuticals, and synthetic rubber Acrylonitrile by-product
Hydrogen Cyanide ("HCN")
Sodium Cyanide NA Electroplating and precious metals Sodium Hydroxide and
recovery by-product HCN
Regular Textile NA Apparel, fleece, hosiery, industrial, Acrylonitrile, Vinyl Acetate,
Fibers and sweaters Sodium Thiocyanate, Sodium
Bisulfate, and Finish Oil
Specialty Textile NA High-end hosiery, pile fabrics, and Acrylonitrile, Vinyl Acetate,
Fibers outdoor furniture Sodium Thiocyanate, Sodium
Bisulfate, and Finish Oil
Technical Fibers NA Friction materials (brake linings), Acrylonitrile, Vinyl Acetate,
gaskets, specialty papers, and Sodium Thiocyanate, Sodium
non-wovens Bisulfate, and Finish Oil
Pulp Chemicals
Sodium Chlorate Chlorine dioxide Bleaching agent for pulp production; Electricity, Salt, and Water
Downstream products include high
quality office and coated papers
Chlorine Dioxide NA Chlorine dioxide for use in the NA
Generators bleaching of pulp
Sodium Chlorite Chlorine dioxide Antimicrobial agent for municipal Sodium Chlorate and
water treatment, disinfectant for Hydrochloric Acid
fresh produce
Chlor-alkali
Caustic soda NA Bleaching and digesting agent for Electricity, Salt, and Water
pulp and paper
Chlorine NA Widely used in potable water and Electricity, Salt, and Water
wastewater treatment programs, as
well as swimming pools
Muriatic acid NA Stimulation agent in oil and gas Chlorine, Hydrogen, and Water
extraction operations
Calcium NA Sanitizing agent to control bacteria Lime,Water, Caustic Soda, and
Hypochlorite and algae in swimming pools Chlorine
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PRODUCTS
Petrochemicals and Fibers
Styrene. The Company is the third largest North American producer of
styrene. The Company's styrene unit, located at the Texas City Plant, is one of
the largest in the world and has an annual rated production capacity of 1.7
billion pounds, which represents approximately 12% of total North American
capacity. The Company sold approximately 34% of its styrene sales volumes
pursuant to conversion contracts during fiscal 1998. Approximately 40% of the
Company's styrene sales volumes were exported in fiscal 1998, principally to
Asia, either directly or pursuant to arrangements with large international
trading companies.
Acrylonitrile. The Company is the second largest global producer of
acrylonitrile. The Company's acrylonitrile unit, located at the Texas City
Plant, has an annual rated production capacity of 740 million pounds, which
represents approximately 22% of total North American capacity. The Company sold
approximately 45% of its acrylonitrile sales volumes pursuant to long-term
conversion agreements during fiscal 1998. Approximately 50% of the Company's
acrylonitrile production in fiscal 1998 was exported. ANEXCO LLC was formed by
the Company and BP to service their acrylonitrile marketing needs in Asia and
South America, beginning April 1, 1998. HCN is a by-product of acrylonitrile
manufacturing and is used by the Company as a raw material for the production of
TBA and sodium cyanide and is also burned as fuel.
Acetic Acid. The Company is the third largest North American producer of
acetic acid. The Company's acetic acid unit, located at the Texas City Plant,
has an annual rated production capacity of nearly 800 million pounds, which
represents approximately 11% of total North American capacity. All of the
Company's acetic acid production is sold to BP pursuant to a long-term contract
through 2016.
Methanol. In August 1996, the Company completed construction of a 150
million gallon per year methanol unit at the Texas City Plant. Capital
investment in the unit and production capacity are shared by the Company and BP.
Approximately 42% of the methanol production was used as a raw material in the
Company's acetic acid unit during fiscal 1998, replacing methanol that was
previously purchased from third parties. The remaining methanol is available for
the merchant market and for BP's worldwide acetic acid business. As previously
discussed, the Company shut down its methanol production facility in August
1998. The Company believes the methanol production unit is capable of being
restarted without significant expense or delay; however, as of December 17,
1998, no decision had been made as to if or when the unit will be restarted.
Plasticizers. The Company has an agreement with BASF pursuant to which the
Company sells all of its plasticizers production to BASF through 2007. The
Company's rated plasticizers capacity is 280 million pounds per year.
TBA. The Company produces HCN as a by-product of its acrylonitrile
manufacturing process. The Company uses a portion of its HCN to produce TBA,
which it sells to Flexsys America L.P. ("Flexsys") pursuant to a long-term
conversion agreement. The Company's rated capacity for TBA is 21 million pounds
per year.
Sodium Cyanide. At the Texas City Plant, the Company operates a sodium
cyanide unit, which is owned by E.I. du Pont de Nemours and Company ("DuPont").
The Company and DuPont have an agreement whereby the Company receives a fee for
operating the facility. The facility uses, as a raw material, HCN by-product
generated by the Company's acrylonitrile manufacturing process. The rated
capacity of this unit is 100 million pounds per year.
Acrylic Fibers. Sterling Fibers is the second largest producer of acrylic
fibers in North America. The Santa Rosa Plant has an annual rated production
capacity of 184 million pounds, which represents approximately 35% of total
North American capacity. Approximately 15% of the Company's acrylic fibers
production in fiscal 1998 was exported. Sterling Fibers produces regular textile
fibers, specialty textile fibers, and technical fibers. Regular textile fibers
are commodity fibers whose sales are primarily driven by price and service
rather than product characteristics. Specialty textile fibers are targeted for
specific applications or end uses and typically have higher margins than regular
textile fibers. Technical fibers are specially engineered for industrial,
non-textile uses and typically have higher margins than textile fibers.
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Pulp Chemicals
Sodium Chlorate. Sodium chlorate is manufactured by passing an electric
current through an undivided cell containing a solution of sodium chloride
(salt). Sodium chlorate is also used as a raw material to produce sodium
chlorite. The Company is the second largest producer of sodium chlorate in North
America. The Company's six sodium chlorate plants have an aggregate annual rated
production capacity of approximately 500,000 tons, which represents
approximately 23% of total North American sodium chlorate capacity.
Chlorine Dioxide Generators. Through its ERCO Systems Group ("ERCO"), the
Company is the largest worldwide supplier of patented technology for the
generators which certain pulp mills use to convert sodium chlorate into chlorine
dioxide. Each mill that uses chlorine dioxide requires at least one generator.
The Company receives revenue when a generator is sold to a mill and also
receives royalties from the mill after start-up, generally over a ten-year
period, based on the amount of chlorine dioxide produced by the generator. The
Company has supplied approximately two-thirds of all existing modern pulp mill
generators worldwide.
The research and development group of ERCO works to develop new and more
efficient generators. When pulp mills move to higher levels of substitution of
chlorine dioxide for elemental chlorine, they are usually required to upgrade
generator capacity or purchase new generator technology. Mills may also convert
to a newer generator to take advantage of efficiency advances and technological
improvements. Each upgrade or conversion requires a licensing agreement, which
generally provides for payment of an additional ten-year royalty.
Sodium Chlorite. The Company has a rated annual sodium chlorite capacity of
approximately 3,500 tons, which represents approximately 37% of total North
American capacity.
Chlor-alkali Products. The Company's rated chlorine capacity is 33,000
metric tons per year, which is less than 1% of North American elemental chlorine
capacity. The Company has caustic soda and muriatic acid production capacity of
37,000 and 45,000 metric tons per year, respectively.
Calcium Hypochlorite. The Company currently has rated calcium hypochlorite
production capacity of 8,500 metric tons per year. This volume represents 6% of
total North American capacity. All of the Company's calcium hypochlorite is
marketed by BioLab, Inc., a wholly-owned subsidiary of Great Lakes Chemical
Corporation, pursuant to a long-term sales and marketing agreement.
RAW MATERIALS FOR PRODUCTS AND ENERGY RESOURCES
For each of the Company's products, the combined cost of raw materials and
utilities is far greater than all other production costs combined. Thus, an
adequate supply of these materials at reasonable prices is critical to the
success of the Company's business. Most of the raw materials used by the Company
are supplied by others, and many of them are subject to wide price fluctuations
for a variety of reasons beyond the Company's control. Although the Company
believes that it will continue to be able to secure adequate supplies of its raw
materials and energy at acceptable prices to meet its requirements, there can be
no assurance that it will be able to do so.
Petrochemicals and Fibers
Styrene. The Company manufactures styrene from ethylene and benzene. The
Company converts benzene and ethylene into ethylbenzene, which is then processed
into styrene. Benzene and ethylene are both commodity petrochemicals and the
price for each can fluctuate widely due to significant changes in the
availability of these products. The Company has multi-year arrangements with
several ethylene suppliers that provide for its estimated requirements for
purchased ethylene at generally prevailing and competitive market prices. The
Company's conversion agreements require that the other parties to such
agreements furnish the Company with the ethylene and/or benzene necessary to
fulfill its conversion obligations. Approximately 16% and 23% of the Company's
fiscal 1998 benzene and ethylene requirements, respectively, were furnished by
customers pursuant to conversion arrangements.
Acrylonitrile. The Company produces acrylonitrile by reacting propylene and
ammonia over a solid-fluidized catalyst at low pressure. Propylene and ammonia
are both commodity chemicals and the price for each can fluctuate widely due to
significant changes in the availability of these products. The Company purchases
propylene and ammonia for use in the production of acrylonitrile for sale to
others. For acrylonitrile produced by the Company under conversion contracts,
the requisite propylene and/or ammonia is furnished to the Company by the
customers. Approximately 44% and 40% of the Company's fiscal 1998 propylene and
ammonia requirements, respectively, were furnished by customers pursuant to
conversion arrangements. If various customers for whom the Company now
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manufactures acrylonitrile under conversion arrangements were to cease
furnishing their own raw materials and seek only to purchase acrylonitrile from
the Company, the Company's requirements for purchased propylene and ammonia
could significantly increase.
HCN is a by-product of the acrylonitrile manufacturing process and is used
by the Company as a raw material for the production of TBA and sodium cyanide
and is also burned as fuel.
Acetic Acid. Acetic acid is manufactured primarily from carbon monoxide and
methanol. The Company normally produces all of the methanol required by its
acetic acid unit; however, the Company is currently purchasing its methanol
requirements from a third party due to the Company's shutdown of its methanol
production facility in August 1998. In 1996, Praxair Hydrogen Supply, Inc.
("Praxair") constructed a partial oxidation unit at the Texas City Plant that
supplies carbon monoxide to the Company for production of acetic acid.
Methanol. The Company produces methanol primarily from natural gas and
steam. The Company obtains its natural gas under various supply contracts. As
previously indicated, the Company's methanol production facility was shut down
in August 1998. The Company believes the methanol production unit is capable of
being restarted without significant expense or delay; however, as of December
17, 1998, no decision had been made as to if or when the unit will be restarted.
Plasticizers. The primary raw materials for plasticizers are alpha-olefins
and orthoxylene, which are supplied by BASF under its long-term contract with
the Company, which expires at the end of 2007.
TBA. The Company produces HCN as a by-product of its acrylonitrile
manufacturing process. The Company uses a portion of its HCN to produce TBA,
which it sells to Flexsys pursuant to a long-term conversion agreement. Flexsys
supplies the isobutylene, sulfuric acid, and caustic soda needed in the
Company's TBA operations.
Sodium Cyanide. Sodium cyanide is manufactured from the Company's
by-product HCN and caustic soda. DuPont supplies the caustic soda for sodium
cyanide production under its long-term contract with the Company.
Acrylic Fibers. Acrylonitrile is the most significant raw material used in
the production of acrylic fibers, representing approximately 50% of the total
cash cost of production. Pursuant to its supply agreement with Cytec, Sterling
Fibers will purchase all of its acrylonitrile requirements from Cytec until
February 28, 2002, after which time the Company expects to supply such
acrylonitrile requirements from the Texas City Plant.
Pulp Chemicals
Sodium Chlorate. The primary raw materials for the production of sodium
chlorate are electricity, salt, and water. Of these, electric power costs
typically represent approximately 65% of the variable cost of production of
sodium chlorate. Electric power is purchased by each of the Company's pulp
chemicals facilities pursuant to contracts with local electric utilities.
Consequently, the rates charged by local electric utilities are an important
competitive factor among sodium chlorate producers. On average, the Company's
electrical power costs at its pulp chemical facilities are believed to be
competitive with other producers in the areas in which it operates.
The Company purchases most of the sodium chloride (salt) that it uses in
the manufacture of sodium chlorate under requirements contracts with major
suppliers.
Chlor-alkali. The primary raw materials for the production of chlor-alkali
are salt, water, and electricity. The Company's plant near Saskatoon,
Saskatchewan, Canada (the "Saskatoon Plant") is located on top of a bed of
sodium chloride, or salt, and is solution-mined on site, supplying a
concentrated brine solution to the chlor-alkali manufacturing operations. The
other primary raw material is electrical power, which is supplied by the
Saskatchewan Power Corporation under a ten year agreement expiring December 5,
2001. After 2001, the agreement is renewable on a year to year basis. In a
secondary process, some of the chlorine reacts with by-product hydrogen to
produce hydrochloric acid.
Calcium Hypochlorite. The primary raw materials for calcium hypochlorite
are lime, water, caustic soda, and chlorine. Lime is purchased pursuant to a
long-term contract, while caustic soda and chlorine are produced at the
Saskatoon Plant. In the calcium hypochlorite process, fine powdered lime is
dissolved in water to produce a slurry. The slurry is then mixed with a caustic
soda solution in a batch reactor and chlorine gas is introduced on a carefully
controlled basis. From the resulting slurry the solid component, calcium
hypochlorite is centrifuged, dried, granulated, and screened to meet
specifications.
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TECHNOLOGY AND LICENSING
Petrochemicals and Fibers
In 1986, Monsanto Company ("Monsanto") granted the Company a nonexclusive,
irrevocable, and perpetual right and license to use Monsanto's technology and
other technology Monsanto acquired through third-party licenses in effect at the
time of the acquisition of the Texas City Plant. These licenses are used in the
production of styrene, acrylonitrile, methanol, TBA, acetic acid, and
plasticizers. During fiscal 1991, BP Chemicals Ltd. ("BPCL") purchased the
acetic acid technology from Monsanto (subject to existing licenses).
On December 30, 1997, the Company entered into an Acetic Acid Technology
Agreement with BP and BPCL, pursuant to which BPCL granted the Company a
non-exclusive, irrevocable, and perpetual right and license to use BPCL's acetic
acid technology at the Texas City Plant, including any new acetic technology
developed by BPCL at its acetic acid facilities in England during the term of
such agreement or pursuant to the research and development program provided by
BPCL under the terms of such agreement.
BPCL has also granted to the Company a nonexclusive, perpetual,
royalty-free license (except in the case of a breach of the related production
agreement) to use BPCL's acrylonitrile technology at the Texas City Plant as
part of the 1988 acrylonitrile expansion project. The Company and BPCL have
agreed to cross-license any technology or improvements relating to the
manufacture of acrylonitrile at the Texas City Plant.
The Company believes that the manufacturing processes that the Company
utilizes at the Texas City Plant are cost effective and competitive. Although
the Company does not engage in alternative process research with respect to the
Texas City Plant, it does monitor new technology developments and, when the
Company believes it is necessary, it will seek to obtain licenses for process
improvements.
Sterling Fibers owns substantially all of the technology used in its
acrylic fibers operations. Sterling Fibers licenses certain of its acrylic
fibers manufacturing technology to producers worldwide. The Company expects to
capitalize on increasing demand for this technology as developing countries seek
to increase acrylic fibers production capacity. Approximately 15% of the world's
total acrylic fibers capacity is based on Sterling Fibers' technology. The
competitiveness of Sterling Fibers with respect to its specialty textiles and
technical fibers products (which are its higher margin products) is maintained,
to a significant extent, through the exclusive ownership or use of certain
product and manufacturing technology. If competitors of Sterling Fibers gain
access to the use of similar technology, or render such technology obsolete
through the introduction of superior technology, the ability of Sterling Fibers
to compete would be materially affected in an adverse manner.
Pulp Chemicals
The Company produces sodium chlorate using state-of-the-art metal cell
technology. The principal technology business of the Company is the design,
sale, and technical service of custom-built patented chlorine dioxide
generators. The ERCO engineering group is involved in the technical support of
the Company's sales and marketing group through joint calling efforts which
define the scope of a project, as well as producing technical schedules and cost
estimates.
The Company performs detailed design of chlorine dioxide generators, which
are then fabricated by contractors. Plant installation, instrumentation testing,
and generator start-up are supervised by a joint engineering/technical service
team of the Company. Prior to 1996, the Company was involved in a number of
patent disputes with Akzo Nobel, N.V. regarding chlorine dioxide technology. In
1996, the parties reached a settlement of such disputes that allows licensees of
both the Company and Akzo Nobel, N.V. to operate their chlorine dioxide
generators within the broadest range of operating conditions.
The Company's pulp chemical research and development activities are carried
out at its Toronto, Ontario, laboratories. Activities include the development of
new or improved chlorine dioxide generation processes and research in new
technologies focusing on electrochemical and membrane technology related to
chlorine dioxide, including improvement of quality and reduction of quantity of
pulp mill effluents and treatment of municipal water supplies.
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COMPETITION AND INDUSTRY CONDITIONS
General
The industries in which the Company operates are highly competitive. Many
of the Company's competitors, particularly in the petrochemical industry, are
larger and have substantially greater financial resources than the Company.
Among the Company's competitors are some of the world's largest chemical
companies that have their own raw material resources. In addition, a significant
portion of the Company's business is based upon widely available technology. The
entrance of new competitors into the industry and the addition by existing
competitors of new capacity may reduce the Company's ability to maintain profit
margins or its ability to preserve its market share, or both. Such developments
could have a negative impact on the Company's ability to maintain existing
profit margins or to obtain higher profit margins, even during periods of
increased demand for the Company's products.
Many of the Company's primary competitors by product are set forth below:
Styrene Dow Chemical Company, Lyondell Chemical Company, Amoco
Chemical Company (a subsidiary of Amoco Corporation),
Chevron Chemical Company (a subsidiary of Chevron
Corporation), Cos-Mar (a joint venture of General
Electric Company and FINA Inc.), Nova Chemical Co., and
Huntsman Chemical Corporation
Acrylonitrile BP Chemicals Inc., Cytec Industries Inc., E.I. du Pont
de Nemours and Company, and Solutia Inc.
Acetic Acid Celanese Ltd., Eastman Chemical Company, and Millenium
Chemicals
Methanol Methanex Methanol Co., Borden Chemicals, Lyondell
Chemical Company, Celanese Ltd., and Beaumont Methanol
Plasticizers Exxon Corporation, Aristech Chemicals, and Eastman
Chemical Company
TBA BASF Corporation and Nitto Chemical Industry Co., Ltd.
Acrylic Fibers Solutia Inc.
Sodium Chlorate Akzo Nobel N.V., CXY Chemicals Ltd., Kerr-McGee
Corporation, and Huron Chemicals
Chlorine Dioxide
Generators Akzo Nobel, N. V.
Sodium Chlorite Vulcan Chemicals (a subsidiary of Vulcan Materials Co.)
Chlor-alkali Dow Chemical Company, OxyChem, and Pioneer Companies,
Inc.
Calcium
Hypochlorite Olin Corporation and PPG Industries
Historically, petrochemical industry profitability has been affected by
vigorous price competition, which may intensify due to, among other things, new
domestic and foreign industry capacity. The Company's businesses are subject to
changes in the world economy, including changes in currency exchange rates. In
general, weak economic conditions either in the United States or in the world
tend to reduce demand and put pressure on margins. In fiscal 1998, economic
events in various Asian countries negatively impacted the demand growth for the
Company's products and, along with increases in supply (particularly styrene,
acrylonitrile, and methanol) had a negative impact on sales volumes, prices, and
margins in fiscal 1998. Operations outside the United States are subject to the
economic and political risks inherent in the countries in which they operate.
Additionally, the export and domestic markets can be affected significantly by
import laws and regulations. During fiscal 1998, the Company's export sales were
approximately 28% of total revenues. It is not possible to predict accurately
how changes in raw material costs, market conditions, or other factors will
affect future sales volumes, prices, and margins for the Company's products.
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Petrochemicals and Fibers
Styrene. According to Chemical Marketing Associates, Inc. ("CMAI"), the
total North American capacity for styrene is 14.4 billion pounds per year. The
Company's rated capacity of 1.7 billion pounds per year represents approximately
12% of total North American capacity.
Styrene prices are cyclical and sensitive to overall supply relative to
demand and the level of general business activity. During 1994 and the first
half of 1995, the styrene industry ran at high utilization rates resulting from
demand growth from worldwide economic expansion resulting in high styrene prices
and margins. During the second half of 1995, styrene prices decreased
significantly as demand growth weakened. Increased capacity additions,
particularly in Asia, resulted in lower styrene prices and margins in 1996,
1997, and 1998. Economic events in various Asian countries in 1997 and 1998
reduced demand growth for styrene and, along with capacity increases in 1997 and
1998, resulted in lower prices and margins. Global production capacity for
styrene is estimated at approximately 45 billion pounds, including 6-7 billion
pounds of capacity which was added by competitors in 1997 and 1998. Average
styrene sales prices received by the Company declined by 41% from fiscal 1995 to
1996, 2% from fiscal 1996 to 1997, and 11% from fiscal 1997 to 1998.
Acrylonitrile. The acrylonitrile market exhibits characteristics in
capacity utilization, selling prices, and profit margins similar to those of
styrene. Moreover, as a result of the Company's high percentage of export
acrylonitrile sales, demand for the Company's acrylonitrile is most
significantly influenced by export customers, particularly those that supply
acrylic fiber to China. During 1995, strong demand for acrylic fiber and ABS
resins, particularly in China, increased demand for acrylonitrile resulting in
higher prices and margins. Acrylonitrile demand began to weaken in late 1995 for
the same reasons that caused the deterioration in the styrene market. Increased
acrylonitrile capacity in the United States and Asia and weakened demand growth
in Asian markets resulted in lower acrylonitrile prices and margins in 1996,
1997, and 1998. Global production capacity for acrylonitrile is estimated at
over 11 billion pounds, including 1 billion pounds which was added by
competitors in 1998. Solutia has recently announced that it is constructing a
new acrylonitrile production facility in Chocolate Bayou, Texas, which is
expected to have an annual capacity of 500 million pounds and which is currently
expected to begin production in the third calendar quarter of 2000. Average
acrylonitrile sales prices received by the Company declined by 29% from fiscal
1995 to 1996, 3% from fiscal 1996 to 1997, and 25% from fiscal 1997 to 1998.
Methanol. The methanol facility production capacity is shared by the
Company and BP. Approximately 42% of the methanol production was used as a raw
material in the Company's acetic acid unit in fiscal 1998. The remaining
methanol production was used for the merchant market. As previously indicated,
the methanol production facility was shut down in August 1998.
Other petrochemical products. The Company sells all of its acetic acid,
plasticizers, and TBA production to BP, BASF, and Flexsys, respectively,
pursuant to long-term contracts. In addition, the Company operates a sodium
cyanide unit, which is owned by DuPont.
Acrylic Fibers. There are only two manufacturers of acrylic fibers in North
America, Sterling Fibers and Solutia. In general, Sterling Fibers and Solutia
have mostly different customers and focus on different segments of the same
markets. Acrylic fibers also compete with other fibers, including cotton and
polyester. During fiscal 1998, Sterling Fibers experienced decreased sales
prices and margins due to a significant drop in the demand for its products as a
result of the economic events in various countries in Asia and increased
competition from European suppliers.
Pulp Chemicals
Sodium Chlorate. The primary derivative of sodium chlorate is chlorine
dioxide. Chlorine dioxide is a powerful and highly selective oxidizing agent
suitable for pulp bleaching. It has the ability to substantially reduce
hazardous substances, including dioxins and furans, in bleach plant effluent, as
well as produce high-brightness pulp with little or no damage to the cellulose
fiber.
Substitution of chlorine dioxide for elemental chlorine is driven primarily
by environmental concerns. By the end of 1997, approximately 80% to 85% of
Canadian bleach plant capacity and approximately 55% to 60% of United States
bleach plant capacity had been converted to elemental chlorine-free ("ECF"). On
November 14, 1997, the Environmental Protection Agency ("EPA") enacted
regulations that support substitution of chlorine dioxide, which is produced
from sodium chlorate, for elemental chlorine in the pulp bleaching process.
These regulations, commonly referred to as the "Cluster Rules", require
increased substitution of chlorine dioxide for elemental chlorine in the pulp
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bleaching process which significantly reduces the amount of absorbable organic
halides ("AOX") and chlorine derivatives in bleach plant effluent.
On May 7, 1998, several conservation groups and an Indian tribe instigated
litigation in the Court of Appeals for the Ninth Circuit (San Francisco)
challenging the EPA's passage of the Cluster Rules on the grounds that EPA
violated the Clean Water Act and the Administrative Procedures Act because EPA
did not adopt the "best available technology" and that the Cluster Rules
violated certain treaty rights of the Indian tribe. A representative of the
paper industry was permitted to intervene in such action on June 8, 1998. In
addition, three separate petitions were filed by industry representatives on
August 26, 1998 in the Fourth Circuit, the Eleventh Circuit and District of
Columbia Circuit challenging certain aspects of the Cluster Rules for reasons
generally supportive of industry's positions. On October 9, 1998, a motion to
consolidate all of such actions was filed in the Ninth Circuit and a stay of
further proceedings was ordered until November 30, 1998. The Ninth Circuit
approved the motion to consolidate and the actions filed in the District of
Columbia and Fourth Circuits have been transferred. The action in the Eleventh
Circuit has not yet been transferred by the Eleventh Circuit. The Company
believes that the industry's position in such actions is likely to prevail,
although no assurances can be given to that effect. Even if industry does
prevail in such actions, the existence of such actions adds a measure of
uncertainty as to rate of implementation of the Cluster Rules, which could
negatively affect the performance of the Company's sodium chlorate operations.
Historically, sodium chlorate has experienced cycles in capacity
utilization, selling prices, and profit margins. Since the mid-1980s, however,
North American demand for sodium chlorate has grown at an average annual rate of
approximately 10% as pulp mills have accelerated substitution of chlorine
dioxide for elemental chlorine in bleaching applications. In fiscal 1998, demand
for sodium chlorate did not increase at historical rates as a result of weak
market conditions and lower operating rates in the pulp and paper industry.
Chlor-alkali. Through one of its wholly-owned subsidiaries ("Sterling
Sask"), the Company has one of three Western Canadian chlor-alkali production
operations. Dow Chemicals Company, located in Fort Saskatchewan, Alberta, and
CXY Chemicals, Ltd., located in North Vancouver, British Columbia, are the
others. Sterling Sask competes in the regional Western Canadian market by
selling to small volume regional customers who prefer the higher quality product
produced by membrane technology. This technology and its proximity to its
customers give Sterling Sask a competitive advantage in terms of product
quality, product availability, service, and freight costs, and partially
mitigate the Sterling Sask business exposure to the severe price swings in the
overall North American market.
Calcium Hypochlorite. Calcium hypochlorite is manufactured by three North
American companies. The largest is Olin Corporation, followed by PPG Industries,
Inc. and Sterling Sask, with Sterling Sask representing approximately 6% of
total North American capacity. World markets are served primarily by production
from North America (56%) and Japan (22%). Major consuming countries include the
United States, Australia, and South Africa. Demand for calcium hypochlorite is
closely correlated with swimming pool starts (linked to economic growth) and
summer temperatures (hotter weather leads to increased consumption). Demand from
the pool sector is also highly seasonal, concentrated in the spring and summer
months.
For information regarding revenues for each of the Company's principal
products, see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations." For historical information presented on a
segmented basis for the Company's petrochemicals and fibers business and pulp
chemical business, see Note 9 of Item 8, "Notes to Consolidated Financial
Statements."
ENVIRONMENTAL MATTERS
General
The Company's operations involve the handling, production, transportation,
treatment, and disposal of materials that are classified as hazardous or toxic
waste and that are extensively regulated by environmental and health and safety
laws and regulations. Environmental permits required for the Company's
operations are subject to periodic renewal and can be revoked or modified for
cause or when new or revised environmental laws or permit requirements are
implemented. Changing and increasingly strict environmental laws, regulations,
and permit requirements can affect the manufacture, handling, processing,
distribution, and use of the Company's chemical products and, if so, the
Company's business and operations may be materially and adversely affected. In
addition, changes in the law, regulations, and permit requirements can cause the
Company to incur substantial costs in upgrading or redesigning its facilities
and processes, including its waste treatment, storage, disposal, and other waste
handling practices and equipment.
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At all of its facilities, the Company conducts environmental management
programs designed to maintain compliance with applicable environmental laws. The
Company routinely conducts inspection and surveillance programs designed to
detect and respond to leaks or spills of regulated hazardous substances and to
correct identified regulatory deficiencies. Likewise, the Company believes that
its procedures for waste handling are consistent with industry standards and
applicable laws and regulations. In addition, the Company believes that its
operations are consistent with good industry practice through participation in
the Responsible Care initiatives as a part of membership in the CMA (U.S.) and
the Canadian Chemical Producers Association. However, a business risk frequently
associated with chemical operations is the potential for personal injury and
property damage claims from nearby landowners and occupants. While the Company
believes that its business operations and facilities generally are operated in
compliance with all material aspects of applicable environmental and health and
safety laws, regulations, and disclosure requirements, there can be no assurance
that past practices and future operations will not result in material claims or
regulatory action, require material environmental expenditures, or result in
exposure or injury claims by employees and the public. Some risk of
environmental costs and liabilities are inherent in the operations and products
of the Company, as it is with other companies engaged in similar businesses.
The Company's operating expenditures for environmental matters, mostly
waste management and compliance, were approximately $52 million and $50 million
for fiscal 1998 and 1997, respectively. The Company also spent approximately $2
million and $3 million for environmentally related capital projects in fiscal
1998 and 1997, respectively. In fiscal 1999, the Company anticipates spending
approximately $2 million for capital projects related to waste management and
environmental compliance. There are no capital expenditures related to
remediation projected in fiscal 1999. The Company does not expect expenditures
for environmentally related capital projects in fiscal 2000 to differ materially
from fiscal 1999 expenditures.
In light of its historical expenditures and expected future results of
operations, the Company believes that it will have adequate resources to conduct
its operations in compliance with applicable environmental and health and safety
laws, regulations, and disclosure requirements. Nevertheless, the Company may be
required to make significant site and operational modifications that are not
currently contemplated in order to comply with changing facility permitting
requirements and regulatory standards. Additionally, the Company has incurred
and may yet incur liability for investigation and cleanup of waste or
contamination at its own facilities or at facilities operated by third parties
where the Company has disposed of waste. The Company continually reviews all
estimates of potential environmental liabilities but can give no assurances that
all potential liabilities arising out of the Company's past and present
operations have been identified and fully assessed or that the amount necessary
to investigate and remediate such conditions will not be significant to the
Company.
The Company believes that it would be able to recover certain losses that
may arise out of claims related to environmental conditions that existed at each
of its facilities which existed prior to their acquisition by the Company
through contractual indemnities and/or statutory law and common law principles,
although there can be no assurance that the Company would prevail against any
prior owner of any of its facilities with respect to any such claim.
Petrochemicals and Fibers
Air emissions from the Texas City Plant and the Santa Rosa Plant are
subject to certain permit requirements and self-implementing emission
limitations and standards under state and federal law. The Texas City Plant is
located in an area that the EPA has classified as not having attained the
ambient air quality standards for ozone, which is controlled by direct
regulation of volatile organic compounds ("VOCs") and nitrogen oxide ("NOx").
The Texas Natural Resource Conservation Commission has imposed strict
requirements on regulated facilities, including the Texas City Plant, to ensure
that the air quality control region would achieve the ambient air quality
standards for ozone. The Santa Rosa Plant is located in an area currently
designated as being in attainment for ozone under the Clean Air Act. The Texas
City Plant and the Santa Rosa Plant are subject to the federal government's June
1997 National Ambient Air Quality Standards ("NAAQS") which lower the ozone and
particulate matter ("PM") threshold for attainment. Local authorities also may
impose new ozone and PM standards. Compliance with these stricter standards may
substantially increase the Company's future NOx and PM control costs, the amount
and full impact of which cannot be determined at this time.
To reduce the risk of offsite consequences from unanticipated events, the
Company acquired a greenbelt buffer zone adjacent to the Texas City Plant in
1991 and, in connection with the AFB Acquisition, acquired greenbelt area for
the Santa Rosa Plant. The Company also participates in a regional air monitoring
network to monitor ambient air quality in the Texas City community. These
programs are part of the Company's commitment to the Responsible Care
initiatives of the CMA.
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A December 1994 Florida Department of Environmental Protection ("FDEP")
waiver for use of an onsite nonhazardous landfill applies to the Santa Rosa
Plant. This waiver was obtained in connection with Cytec's July 1994 petition
for a rulemaking to avoid a January 1995 rule prohibiting disposal of industrial
waste in other than a Class I landfill. Upon consummation of the AFB
Acquisition, Sterling Fibers succeeded to the rights of Cytec under that
petition and waiver. Should the petition be denied or the waiver be revoked
there are certain administrative options available to the Company. However, the
Company does not believe the additional cost of sending all of the Company's
waste to an offsite facility would have a material adverse impact on the
Company.
A settlement agreement entered into by the EPA, FDEP, and an environmental
group may also potentially apply to the Santa Rosa Plant. The settlement imposes
a no-migration standard for injection wells in underground drinking water zones
without regard to actual risk considerations. The Company, along with several
similarly situated companies, is contesting this no-migration settlement. In the
event that the no-migration rule becomes enforceable, Sterling Fibers may incur
material costs in redesigning its waste water handling systems.
Pulp Chemicals
The Company's pulp chemical business is sensitive to potential
environmental regulations. On November 14, 1997, the EPA enacted regulations
that support substitution of chlorine dioxide for elemental chlorine in paper
pulp bleaching processes to reduce the amount of AOX and other chlorine
derivatives in bleach plant effluent. Chlorine dioxide is produced from sodium
chlorate, which is one of the Company's pulp chemical products. Thus,
regulations restricting, but not altogether banning, AOX and other chlorine
derivatives in bleach plant effluent have a favorable effect on the Company's
business.
Conversely, a significant ban on all chlorine containing compounds could
have a materially adverse effect on the Company's financial condition and
results of operations. British Columbia has a regulation in place requiring
elimination of the use of all chlorine products, including chlorine dioxide, in
the bleaching process by the year 2002. The pulp and paper industry believes
that a ban of chlorine dioxide in the bleaching process will yield no measurable
environmental or public health benefit and is working to change this regulation
but there can be no assurance that the regulation will be changed. In the event
such a regulation is implemented, the Company would seek to sell the products it
manufactures at its British Columbia facility to customers in other markets. The
Company is not aware of any other laws or regulations in place in North America
which would restrict the use of such products for other purposes.
Four of the Canadian pulp chemicals facilities (the "Tenneco Facilities")
were acquired from Tenneco Canada, Inc. ("Tenneco") in 1992. Groundwater data
obtained during the acquisition of the Tenneco Facilities indicated elevated
concentrations of certain chemicals in the soil and groundwater. Prior to
completion of the acquisition, the Company conducted a focused baseline sampling
of groundwater conditions beneath the facilities and confirmed the previous
data. The Company has addressed or is addressing elevated soil or groundwater
concentrations of chemicals, which it has encountered from time to time at the
Tenneco Facilities. The Company also reviewed air emissions sources during the
acquisition of the Tenneco Facilities and considered all available dustfall and
vegetation stress studies. This review indicated emission excursion episodes at
specific locations in the scrubber systems at the Thunder Bay, Buckingham, and
Vancouver facilities. The conditions at the three sites have been addressed and
satisfactorily resolved. The Company believes that the Tenneco Facilities are
otherwise in compliance with all material aspects of permit requirements under
applicable provincial law.
For more information regarding the environmental risks faced by the
Company, including risks that affect the Company's ability to predict future
environmental expenditures and developments, see Item 7 "Managements Discussion
and Analysis of Financial Condition and Results of Operations-Certain Known
Events, Trends, Uncertainties, and Risk Factors-Environmental and Safety
Matters."
EMPLOYEES
As of September 30, 1998, the Company had approximately 1,500 employees,
including approximately 675 assigned to its petrochemicals division,
approximately 325 assigned to its acrylic fibers division, and approximately 500
assigned to its pulp chemicals division. Approximately 40% of the employees at
the Company's manufacturing facilities are covered by union agreements. The
primary union agreement at the Texas City Plant is with the Texas City, Texas
Metal Trades Council, AFL-CIO, of Galveston County, Texas. It covers all hourly
employees at the Texas City Plant and will expire in April 1999. The Company is
negotiating a new labor agreement with the union that the Company expects will
improve the competitiveness of the Texas City Plant, although no assurances can
be given to that effect. Employees at the Vancouver plant are represented by the
Pulp, Paper, and Woodworkers Union. The Vancouver labor agreement was
renegotiated in November 1997 and is subject to further renegotiation in
November
15
<PAGE> 18
2000. Employees at the Buckingham plant are represented by either the
Communications, Energy, and Paperworkers Union or an office and professional
workers union. Both Buckingham labor agreements were renegotiated in November
1997 and are subject to renegotiation in November 1999. Approximately 70% of the
employees at the Saskatoon Plant are represented by the Communications, Energy,
and Paperworkers of Canada. The collective agreement is a four year contract
expiring September 30, 2001. In April 1998, production and maintenance workers
at the Valdosta Plant voted to be represented by the United Paper Workers
International Union. The Company is negotiating a labor agreement at this
facility. The Company believes its relationship with its employees is generally
good. However, a strike by one or more of the unions representing the Company's
employees could have a materially adverse effect on the Company's financial
condition, results of operations, or cash flows.
INSURANCE
The Company maintains full replacement value insurance coverage for
property damage to all of its plants and business interruption insurance.
Although the Company carries such insurance, a significant interruption in the
operation of one or more of the Company's facilities could have a material
adverse effect on the Company's financial condition, results of operations, or
cash flows. The Company also maintains other insurance coverages for various
risks associated with its business. There can be no assurance that the Company
will not incur losses beyond the limits of, or outside the coverage of, its
insurance. From time to time various types of insurance for companies in the
chemical industry have been very expensive or, in some cases, unavailable. There
can be no assurance that in the future the Company will be able to maintain its
existing coverage or that the premiums will not increase substantially.
ITEM 2. PROPERTIES
The principal executive offices of the Company are located in Houston,
Texas, and are subleased through Citicorp, N.A.
The Texas City Plant is located approximately 45 miles south of Houston in
Texas City, Texas, on a 290-acre site on Galveston Bay near many other chemical
manufacturing complexes and refineries. The Company has facilities to load its
products in trucks, railcars, barges, and ocean-going tankers for shipment to
customers. The site offers room for future expansion and includes a greenbelt
around the northern edge of the plant site. The Company owns or leases all of
the real property which comprises the Texas City Plant and all of the facilities
and equipment located there, other than the sodium cyanide unit which is owned
by DuPont, a cogeneration facility owned by a joint venture between the Company
and Praxair Energy Resources, Inc., and the partial oxidation unit constructed
at the site by Praxair. The Company also owns storage facilities, approximately
200 rail cars, and an acetic acid barge in connection with the petrochemicals
business.
The Company owns all of the real property, which comprises the Santa Rosa
Plant and owns or leases all of the facilities and equipment located there. The
Santa Rosa Plant is located on 1,100 acres near Pensacola in Santa Rosa County,
Florida.
The Company's pulp chemicals business includes five manufacturing plants in
Canada and the Valdosta Plant. The Buckingham, Quebec and Vancouver, British
Columbia sites are approximately 20 acres each and are owned by the Company. The
plant located near Saskatoon, Saskatchewan, is on approximately 270 acres and is
owned by the Company. The Thunder Bay, Ontario, and Grande Prairie, Alberta,
sites are leased by the Company. The Valdosta Plant was constructed in
conjunction with, and is leased from, the Valdosta-Lowndes County Industrial
Authority. The Company also leases approximately 487 rail cars in connection
with its pulp chemicals business. Headquarters for the pulp chemicals operations
is located in Toronto, Ontario, in an approximately 50,000 square foot single
story office building owned by the Company. The building is situated on 6.56
acres owned by the Company.
The Company believes its properties and equipment are sufficient to conduct
the Company's business.
See Item 1 "Business" for other information required by this item.
ITEM 3. LEGAL PROCEEDINGS
Ammonia Release
On May 8, 1994, an ammonia release occurred at the Texas City Plant while a
reactor in the acrylonitrile unit was being restarted after a shutdown for
routine maintenance. Approximately 52 lawsuits and interventions involving
16
<PAGE> 19
approximately 6,000 plaintiffs were filed against the Company seeking an
unspecified amount of money for alleged damages from the ammonia release. Many
of these lawsuits were filed in April and early May 1996.
Approximately 2,600 of the plaintiffs agreed to submit their damage claims
to binding arbitration. A two week evidentiary hearing was conducted in July
1996 before a three judge panel to determine the amount of damages. On May 1,
1997, the three judge panel awarded the plaintiffs an amount of damages which
was well within the limits of the Company's insurance coverage.
Thirty-nine of the plaintiffs tried their cases to a jury in Harris County
District Court. After approximately five months of trial, the jury returned a
verdict on September 2, 1997. The total amount awarded for all 39 plaintiffs was
well within the limits of the Company's insurance coverage.
Approximately 5,500 of the claims in litigation have now been resolved or
are pending final resolution, and the Company continues to vigorously defend
against the claims of the approximately 500 remaining plaintiffs.
Cases Outstanding:
1. Otis Pointer Jr., individually and on behalf of all others similarly
situated, v. Sterling Chemicals, Inc., Paul Saunders, and an unknown
chemical operator; Cause No. 94CV0514; In the 56th Judicial District
Court of Galveston County, Texas ("Pointer").
2. Holly Benefiel, et al. v. Sterling Chemicals, Inc.; Cause No. 95CV0246;
In the 56th Judicial District Court of Galveston County, Texas.
3. Lilly Gordon, et al. v. Sterling Chemicals, Inc.; Cause No. 95-36592;
In the 281st Judicial District Court of Harris County, Texas
("Gordon").
4. Versell Allums, et al. v. Sterling Chemicals, Inc., Paul Saunders, and
an unknown chemical operator; Cause No. 95CV1017; In the 10th Judicial
District Court of Galveston County, Texas.
5. Lee Arvie, et al. v. Sterling Chemicals, Inc.; Cause No. 96CV0431; In
the 56th Judicial District Court of Galveston County, Texas.
6. Nita Moore, et al. v. Sterling Chemicals, Inc.; Cause No. 96-22420; In
the 270th Judicial District Court of Harris County, Texas.
7. Gloria Cotton, et al. v. Sterling Chemicals, Inc.; Cause No. 96CV0446;
In the 122nd Judicial District Court of Galveston County, Texas.
8. Timothy McClurkin, Sr. v. Sterling Chemicals, Inc.; Cause No. 96CV0451;
In the 56th Judicial District Court of Galveston County, Texas.
9. Allen E. Kitchens v. Sterling Chemicals, Inc., et al.; Cause No.
43,352; In the Galveston County Court, Galveston County, Texas.
The following ammonia lawsuits were settled or dismissed after September
30, 1997:
1. Maurice Benson, et al. v. Sterling Chemicals, Inc.; Cause No. 95CV1265;
In the 56th Judicial District Court of Galveston County, Texas.
2. Darrell Vick, et al. v. Sterling Chemicals, Inc.; Cause No. 95CV1262;
In the 122nd Judicial District Court of Galveston County, Texas.
3. Nathaniel Barron, et al. v. Sterling Chemicals, Inc., and Paul
Saunders; Cause No. 96CV0103; In the 10th Judicial District Court of
Galveston County, Texas.
4. Melton Avie, et al. v. Sterling Chemicals, Inc., BP America, Inc., BP
Chemicals America, Inc., n/k/a BP Chemicals, Inc., Allen Bolen,, and
Paul Saunders; Cause No. 96CV0377; In the 56th Judicial District Court
of Galveston County, Texas.
5. Earl Rivas and Rosie Rivas v. Sterling Chemicals, Inc., Sterling
Chemical Company, Sterling Chemical Company, Inc., B.P. Chemicals,
Inc., B.P. Chemicals America, Inc., Paul Saunders,, and Allan Bolen;
Cause No. 96CV0438; In the 10th Judicial District Court of Galveston
County, Texas.
6. Mattie Moses, et al. v. Sterling Chemicals, Inc.; Cause No. 96CV0458;
In the 56th Judicial District Court of Galveston County, Texas.
7. Prince Ella Green and James Green v. Sterling Chemicals, Inc.; Cause
No. 96CV0454; In the 212th Judicial District Court of Galveston County,
Texas.
8. Jacqueline Lynch, et al. v. Sterling Chemicals, Inc.; Cause No. 43353;
In the County Court at Law No. 2 of Galveston County, Texas.
9. Phyllis Joiner, et al. v. Sterling Chemicals, Inc.; Cause No. 56189; In
the Justice of the Precinct No. 1, Galveston County, Texas.
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<PAGE> 20
10. Patricia A. Glover v. Sterling Chemicals, Inc., Paul Saunders, Allen
Bolen, et al.; Cause No. 96CV0459; In the 212th Judicial District Court
of Galveston County, Texas.
11. Wayne R. Lee v. Sterling Chemicals, Inc.; Cause No. 96CV0467; In the
10th Judicial District Court of Galveston County, Texas.
12. Rodney Curry, et al. v. Sterling Chemicals, Inc.; Cause No. 95CV1263;
In the 122nd Judicial District Court of Galveston County, Texas.
13. Jayson Rhodes, et al. v. Sterling Chemicals, Inc.; Cause No. 95CV1266;
In the 10th Judicial District Court of Galveston County, Texas.
14. Bertha L. Anderson, et al. v. Sterling Chemicals, Inc.; Cause No.
96CV0440; In the 122nd Judicial District Court of Galveston County,
Texas
15. Carl Terry, et al. v. Sterling Chemicals, Inc. and Paul Saunders; Cause
No. 96CV0436; In the 212th Judicial District Court of Galveston County,
Texas.
16. Phyllis Cormier, et al. v. Sterling Chemicals, Inc.; Cause No.
96-023195; In the 269th Judicial District Court of Harris County,
Texas.
The Company does not believe the claims and litigation arising out of this
incident will have a material adverse effect on the Company's financial
condition, results or operations, or cash flows, although no assurances can be
given to that effect.
Nickel Carbonyl Release
On July 30, 1997, as the Company's methanol unit at the Texas City Plant
was being shut down for repair, nickel carbonyl was formed when carbon monoxide
reacted with nickel catalyst in the unit's reformer. After isolating the nickel
carbonyl within the methanol unit, the Company worked with the permission and
guidance of the Texas Natural Resources Conservation Commission to destroy the
nickel carbonyl by incineration on-site.
Prior to its incineration, several Company employees and contractor
employees may have been exposed to nickel carbonyl in the methanol unit. Sixteen
contractor employees allegedly exposed to nickel carbonyl are plaintiffs in a
lawsuit (Kurt Bodenshot, et. al. v. Sterling Chemicals, Inc.; Cause No.
97CV0966; In the 212th Judicial District Court of Galveston County, Texas)
against the Company seeking unspecified damages for personal injuries.
Additional claims and litigation against the Company relating to this incident
may ensue. The Company does not believe that the claims and litigation arising
out of this incident will have a material adverse effect on the Company's
financial condition, results of operations, or cash flows, although no
assurances can be given to that effect.
Ethylbenzene Release
On April 1, 1998, a chemical leak occurred when a line failed in the
ethylbenzene unit at the Texas City Plant. The released chemicals included
ethylbenzene, benzene, polyethylbenzene, and hydrochloric acid. The Company does
not believe any serious injuries were sustained, although a number of citizens
sought medical examinations at local hospitals after a precautionary alert was
given to neighboring communities. There is no lawsuit pending against the
Company based on this release, but the Company has received, and in some
instances resolved, claims from individuals for alleged damage from this
incident. The Company believes that its general liability insurance coverage is
sufficient to cover all costs and expenses related to this incident in excess of
the deductible.
Other Claims
The Company is subject to various other claims and legal actions that arise
in the ordinary course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
18
<PAGE> 21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for Holdings' common stock,
par value $.01 per share ("Common Stock"), although the Common Stock is traded
on the OTC Electronic Bulletin Board maintained by the National Association of
Securities Dealers, Inc. under the symbol "STXX." The following table sets forth
the high and low bid information of the Common Stock as reported on the OTC
Electronic Bulletin Board for the fiscal years ended September 30, 1998 and
1997.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1998 High $13 $12 $9 1/2 $ 9 1/8
Low $11 $8 $8 $ 7
1997 High $12 3/4 $12 1/2 $12 1/4 $ 13
Low $11 $11 $11 $ 11 3/8
</TABLE>
As of December 7, 1998, there were approximately 426 record holders of
Common Stock.
Holdings has not paid dividends on the Common Stock in any of the last
three fiscal years and does not anticipate paying dividends in the foreseeable
future. Any future determination as to the payment of dividends will be made at
the discretion of the Board of Directors of Holdings and will depend upon the
Company's operating results, financial condition, capital requirements, general
business conditions, and such other factors that the Board of Directors deems
relevant. In addition, the payment of dividends on the Common Stock is
restricted by the terms of the indenture governing Holding's 13 1/2% Senior
Secured Discount Notes Due 2008 ("13 1/2% Notes") and the terms of both series
of Holding's outstanding preferred stock. Holdings' subsidiaries (including
Chemicals) are parties to various debt agreements that limit their ability to
provide funds to Holdings by way of dividends, distributions, and advances.
19
<PAGE> 22
ITEM 6. SELECTED FINANCIAL DATA OF THE COMPANY
The following table sets forth selected financial data with respect to the
Company's consolidated financial condition and consolidated results of
operations and should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and related notes in Item 8 of
this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------
1998 1997 1996(1) 1995 1994
----------- ----------- ----------- ----------- -----------
OPERATING DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues $ 822,590 $ 908,787 $ 790,465 $ 1,030,198 $ 700,840
Gross profit 90,179 95,639 111,426 271,618 93,924
Net income (loss) attributable to
common stockholders (2) (48,579) (28,965) 31,604 150,049 19,132
Net cash provided by operating
activities 45,884 47,314 63,601 191,838 75,249
Net cash used in investing activities (26,622) (196,351) (95,957) (53,962) (9,737)
Net cash provided by (used in)
financing activities (15,238) 151,610 7,190 (109,017) (64,874)
EBITDA(3) 88,753 107,318 121,200 281,480 108,600
PER SHARE DATA:
Net income (loss) per common
share (3.99) (2.58) 0.62 2.70 0.34
Cash dividends -- -- -- -- --
BALANCE SHEET DATA:
Working capital $ 91,910 $ 120,104 $ 76,933 $ 74,620 $ 20,809
Total assets 765,956 878,971 689,684 609,939 580,925
Long-term debt (excluding current
maturities) 873,616 876,281 714,632 103,581 192,621
Redeemable preferred stock 18,249 15,793 -- -- --
Stockholders' equity (deficiency in
assets) (348,179) (288,528) (272,439) 239,318 89,734
</TABLE>
(1) See Note 1 of Notes to Consolidated Financial Statements for a
discussion of merger activities and related financing.
(2) During fiscal 1998, the Company recorded a pre-tax charge of $6 million
for costs associated with workforce reductions.
(3) EBITDA (earnings before interest, taxes, depreciation, amortization,
stock appreciation rights ("SARs"), and certain merger-related expenses) is
presented because it is a widely accepted financial indicator of a company's
ability to incur and service debt. It is not intended as an alternative measure
of performance to net income (loss). Because EBITDA excludes some, but not all,
items that affect net income (loss) and may vary among companies, the EBITDA
calculation presented above may not be comparable to similarly titled measures
of other companies. SARs expense (income) was $8,540, $(2,767), and $21,843 for
the years ended September 30, 1996, 1995 and 1994, respectively. Certain
merger-related expenses were $3,633 for the year ended September 30, 1996.
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<PAGE> 23
SELECTED FINANCIAL DATA FOR CHEMICALS
The following table sets forth selected financial data with respect to
Chemical's consolidated financial condition and consolidated results of
operations and should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Chemical's Consolidated Financial Statements and related notes in Item 8 of this
Form 10-K. All issued and outstanding shares of Chemicals are held by Holdings,
and accordingly, per share data is not presented.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, PERIOD FROM
------------------------ MAY 14, 1996 (DATE OF INCEPTION)
1998 1997 TO SEPTEMBER 30, 1996(1)
--------- --------- --------------------------------
OPERATING DATA: (Dollars in Thousands)
<S> <C> <C> <C>
Revenues $ 822,590 $ 908,787 $ 83,410
Gross profit 90,179 95,639 363
Net income (loss) (33,669) (14,851) 174
BALANCE SHEET DATA:
Working capital $ 92,008 $ 119,829 $ 77,299
Total assets 762,503 875,317 685,451
Long-term debt
(excluding current maturities) 745,720 768,870 619,875
Stockholder's equity
(deficiency in assets) (220,445) (175,587) (184,302)
</TABLE>
(1) See Note 1 of Notes to Consolidated Financial Statements for a
discussion of merger activities and related financing. Prior to August 21, 1996,
Chemicals had no operating activities, other than those related to merger
activities.
21
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Holdings is a holding company whose only material asset is its investment
in Chemicals. Holdings' only material liabilities are its obligation to repay
the 13 1/2% Notes, redeem its outstanding preferred stock, and certain other
contingent obligations. Chemicals directly or indirectly owns substantially all
of the consolidated operating assets, and is obligated for substantially all
remaining liabilities, of the Company. The Merger and related financings were
accounted for as a recapitalization, with no change in the basis of the assets
and liabilities of Chemicals. Other than the additional interest expense
associated with the 13 1/2% Notes, results of operations for the Company are
essentially the same as those for Chemicals. Accordingly, the discussion that
follows is applicable to both entities, except as specifically noted. A separate
discussion of the results of operations for Chemicals would not, in the opinion
of the Company, provide any additional meaningful information.
The primary markets in which the Company competes, especially styrene and
acrylonitrile, are cyclical and are sensitive to changes in the balance between
supply and demand, the price of raw materials, and the level of general
worldwide economic activity. Historically, these markets have experienced
alternating periods of tight supply and rising prices and profit margins,
followed by periods of large capacity additions resulting in overcapacity and
declining prices and profit margins. Large global capacity additions of styrene
and acrylonitrile were completed during 1997 and 1998. In addition, recent
events in the financial markets in certain Asian countries have impacted the
demand growth for the Company's products, particularly styrene and
acrylonitrile, resulting in a negative impact on sales volumes, prices, and
margins in fiscal 1998.
Styrene prices are cyclical and sensitive to overall supply relative to
demand and the level of general business activity. During 1994 and the first
half of 1995, the styrene industry ran at high utilization rates resulting from
demand growth from worldwide economic expansion resulting in high styrene prices
and margins. During the second half of 1995, styrene prices decreased
significantly as demand growth weakened. Increased capacity additions,
particularly in Asia, resulted in lower styrene prices and margins in 1996,
1997, and 1998. Economic events in various Asian countries in 1997 and 1998
reduced demand growth for styrene and, along with capacity increases in 1997 and
1998, resulted in lower prices and margins. Global production capacity for
styrene is estimated at approximately 45 billion pounds, including approximately
6-7 billion pounds of capacity which was added by competitors in 1997 and 1998.
Average styrene sales prices received by the Company declined by 41% from fiscal
1995 to 1996, 2% from fiscal 1996 to 1997, and 11% from fiscal 1997 to 1998.
The acrylonitrile market exhibits characteristics in capacity utilization,
selling prices, and profit margins similar to those of styrene. Moreover, as a
result of the Company's high percentage of export acrylonitrile sales, demand
for the Company's acrylonitrile is most significantly influenced by export
customers, particularly those that supply acrylic fiber to China. During 1995,
strong demand for acrylic fiber and ABS resins, particularly in China, increased
demand for acrylonitrile resulting in higher prices and margins. Acrylonitrile
demand began to weaken in late 1995 for the same reasons that caused the
deterioration in the styrene market. Increased acrylonitrile capacity in the
United States and Asia and weakened demand growth in Asian markets resulted in
lower acrylonitrile prices and margins in 1996, 1997, and 1998. Global
production capacity for acrylonitrile is estimated at over 11 billion pounds,
including one billion pounds which was added by competitors in 1998. Solutia has
recently announced that it is constructing a new acrylonitrile production
facility in Chocolate Bayou, Texas which is expected to have annual capacity of
500 million pounds and which is expected to begin production in the third
calendar quarter of 2000. Average acrylonitrile sales prices received by the
Company declined by 29% from fiscal 1995 to 1996, 3% from fiscal 1996 to 1997,
and 25% from fiscal 1997 to 1998.
The Company primarily sells its petrochemical products pursuant to
multi-year contracts and high volume spot transactions in both the domestic and
export markets. This long-term, high volume focus allows the Company to maintain
relatively low selling, general, and administrative expenses relating to product
marketing. Prices for the Company's commodity chemicals are determined by global
market factors, including changes in the cost of raw materials, that are largely
beyond the Company's control and, except with respect to certain of its
multi-year contracts, the Company generally sells its products at prevailing
market prices.
During the past five fiscal years, the Company's results of operations have
varied significantly from year to year primarily as a result of cyclical changes
in the markets for its primary products. The Company has attempted to stabilize
these fluctuations by manufacturing two primary product groups, petrochemicals
and fibers and pulp chemicals, which have historically been subject to different
market dynamics, including timing differences in their respective cyclical
upturns and downturns.
22
<PAGE> 25
In addition, the Company markets substantial volumes of petrochemicals
(approximately 52%, 50%, and 50% of total sales volumes in fiscal years 1998,
1997, and 1996, respectively) and generates substantial revenues (approximately
34%, 32%, and 36% of total revenues in fiscal years 1998, 1997, and 1996,
respectively) under conversion agreements. Under these agreements, the customer
furnishes raw materials that the Company processes in exchange for a fee
designed to cover its fixed and variable costs of production. The conversion
agreements allow the Company to maintain lower levels of working capital and, in
some cases, to gain access to certain improvements in manufacturing process
technology. The Company believes that its petrochemical conversion agreements
help insulate the Company to some extent from the effects of declining markets
and increases in raw material prices, while allowing it to share in the benefits
of favorable market conditions for most of the products sold under these
arrangements.
LIQUIDITY AND CAPITAL RESOURCES
Debt Structure. In July 1997, Chemicals entered into an Amended and
Restated Credit Agreement (as amended, the "Credit Agreement") with Chase Bank
of Texas, National Association (formerly named Texas Commerce Bank National
Association), individually and as administrative agent, Credit Suisse First
Boston, individually and as documentation agent, and certain other financial
institutions. As of September 30, 1998, Chemicals had outstanding under the
Credit Agreement three series of term loans (the "Term Loans") consisting of (a)
Tranche A term loans due March 31, 2003 in the aggregate principal amount of $76
million, (b) Tranche B term loans due September 30, 2004 in the aggregate
principal amount of $198 million, and (c) ESOP term loans due September 30, 2000
in the aggregate principal amount of $3 million. The Credit Agreement requires
that certain amounts of Excess Cash Flow (as defined therein) be used to prepay
amounts outstanding under the Term Loans. No such mandatory prepayment is
required in fiscal 1999.
The Credit Agreement establishes a revolving credit facility pursuant to
which Chemicals may borrow, repay, and reborrow funds for general corporate
purposes (the "Revolver"). The Revolver matures on March 31, 2003. As of
September 30, 1998, the Company had no amounts drawn and approximately $3
million in letters of credit outstanding under the Revolver. Availability of
credit under the Revolver is subject to a monthly borrowing base consisting of
85% of eligible accounts receivable and 65% of eligible inventory with an
inventory cap of 50% of the borrowing base. At September 30, 1998, and after
deducting approximately $3 million on account of outstanding letters of credit,
the borrowing base limited the total credit available under the Revolver to a
maximum of $118 million, up from $113 million at September 30, 1997. Although no
assurances can be given, the Company does not believe the borrowing base will
operate to prevent the Company from obtaining any credit that it may require
under the Revolver in the reasonably foreseeable future. Availability of credit
under the Revolver is also subject to the Company being in compliance with
numerous financial and operational covenants contained in the Credit Agreement.
The Company's ability to obtain additional financing in the future
(including amounts available under the Revolver) for working capital, capital
expenditures, acquisitions, and general corporate purposes, should it need to do
so, will be affected by the covenants in its various debt agreements (including,
without limitation, covenants that restrict the Company's ability to incur
indebtedness, pay dividends, create liens, sell assets, engage in mergers and
acquisitions, and refinance existing indebtedness, as well as covenants that
obligate the Company to maintain certain financial ratios) and by cash
requirements for debt service. Based on the Company's results of operations for
the four quarters ended September 30, 1998, these covenants operate to limit the
amount of additional debt (including amounts available under the Revolver) that
may be incurred by the Company. Notwithstanding these limitations, and although
no assurances can be given, the Company believes the credit available to it
under the Revolver, when added to its internally generated funds and other
sources of capital, will be sufficient to meet its liquidity needs in the
reasonably foreseeable future. Moreover, under limited circumstances, additional
indebtedness may be incurred by the Company to finance future acquisitions (i)
if the debt is incurred in Unrestricted Subsidiaries (as defined in the Credit
Agreement and the Company's indentures) or (ii) if the pro forma effect of such
acquisition has a sufficient positive impact on certain financial ratios. If the
Company makes an acquisition through an Unrestricted Subsidiary, however, the
Company's access to the cash flow of that entity is likely to be limited.
In April and December of 1998, the Company obtained certain amendments to
the financial covenants in the Credit Agreement which made the financial
covenants less restrictive through December 31, 1999. At no time was the Company
not in compliance with the covenants. The Company requested the amendments based
on its revised financial projections. Beginning March 31, 2000, certain of these
financial covenants become more restrictive, and therefore the Company will be
required to have significantly increased cash flows and operating results (or
obtain further amendments or waivers) in order to maintain compliance.
23
<PAGE> 26
In December 1998, the Company entered into separate Standby Purchase
Agreements (collectively, the "Purchase Agreements") with each of Gordon A.
Cain, William A. McMinn, James Crane, Mr. Diassi, Mr. Hevrdejs and Koch Capital
(collectively, the "Purchasers"). Pursuant to the terms of the Purchase
Agreements, the Purchasers committed to purchase up to 2.5 million shares of
Common Stock, at a price of $6.00 per share, if, as and when requested by the
Company at any time or from time to time prior to December 15, 2001. Under each
of the Purchasers Agreements, the Company may only require the Purchasers to
purchase such shares if it believes that such capital is necessary to maintain,
reestablish, or enhance its borrowing ability under the Company's revolving
credit facilities or to satisfy any requirement thereunder to raise additional
equity. To induce the Purchasers to enter into the Purchase Agreements, the
Company issued to them warrants to purchase an aggregate of 300,000 shares of
Common Stock at an exercise price of $6.00 per share. Pursuant to the Purchase
Agreements, the Company agreed to issue to the Purchasers additional warrants to
purchase up to 300,000 additional shares of Common Stock if, as and when they
purchase shares of Common Stock under the Purchase Agreements. Any shares of
Common Stock purchased under the Purchase Agreement and the warrants issued to
the Purchasers as contemplated by the Purchase Agreements will be subject to the
terms of the Amended and Restated Voting Agreement dated as of December 15,
1998, the Sterling Chemicals Holdings, Inc. Stockholders Agreement dated
effective as of August 21, 1996, as amended, and the Tag-Along Agreement dated
as of August 21, 1996, each of which is filed as an Exhibit to this Form 10-K.
The Company's ability to comply with the covenants and other terms of its
various debt agreements, meet its debt service obligations, and repay principal
when due will depend on the future performance of the Company, which is subject
to a number of risks and uncertainties. At September 30, 1998, the Company was
in compliance with its financial covenants and, based on its financial
projections, the Company believes that it will remain in compliance for the
reasonably foreseeable future, although no assurances can be given to that
effect. However, if weak market conditions (particularly in various Asian
countries) continue to negatively impact the sales prices, margins, and volumes
of the Company's products (particularly styrene, acrylonitrile, methanol, sodium
chlorate, and acrylic fibers), the Company may have difficulty remaining in
compliance with the financial covenants in certain of its debt agreements. If
the Company fails to remain in compliance with any financial covenants and if
appropriate amendments or waivers are not obtained, debt holders could pursue
remedies available to them under the relevant debt agreements. See "Certain
Known Events, Trends, Uncertainties, and Risk Factors".
The Company's loan documents contain provisions which restrict the payment
of advances, loans, and dividends from its subsidiaries (including Chemicals) to
Holdings. The most restrictive of those covenants limits such payments during
fiscal 1999 to approximately $2 million plus any amounts due to Holdings from
Chemicals under the intercompany tax sharing agreement. Such restriction is not
expected to limit Holdings' ability to meet its obligations in fiscal 1999.
In July 1997, Sterling Sask entered into a Credit Agreement (the "Sask
Credit Agreement") with The Chase Manahattan Bank of Canada, individually and as
administrative agent, and certain other financial institutions. As of September
30, 1998, Sterling Sask had outstanding under the Sask Credit Agreement two
series of term loans (the "Sask Term Loans") consisting of (a) Tranche A term
loans due June 30, 2003 in the aggregate principal amount of Cdn. $21 million
and (b) Tranche B term loans due June 30, 2005 in the aggregate principal amount
of $36 million. The Sask Credit Agreement requires that certain amounts of
Excess Cash Flow (as defined therein) be used to prepay amounts outstanding
under the Sask Term Loans. A mandatory prepayment in the amount of approximately
Cdn. $5 million will be required in fiscal 1999.
The Sask Credit Agreement provides for a revolving credit facility of Cdn.
$8 million to be used by Sterling Sask solely for its general corporate purposes
(the "Saskatoon Revolver"). No borrowings were outstanding under the Sask
Revolver as of September 30, 1998. Although no assurances can be given, the
Company believes the credit available to Sterling Sask under the Saskatoon
Revolver and the funds internally generated by Sterling Sask will be sufficient
to meet Sterling Sask's liquidity needs in the reasonably foreseeable future.
Because of restrictions in the Sask Credit Agreement, the Company will
generally not have access to the cash flows of Sterling Sask. In addition,
because of its designation as an Unrestricted Subsidiary under the Credit
Agreement and the indentures governing the 13 1/2% Notes, Chemical's 11 3/4%
Senior Subordinated Notes Due 2006 ("11 3/4% Notes"), and Chemicals' 11 1/4%
Senior Subordinated Notes Due 2007 ("11 1/4% Notes") (collectively, the
"Indentures"), Sterling Sask's results are not considered in determining the
Company's compliance with the covenants contained therein.
The Saskatoon Credit Agreement contains provisions, which restrict the
payment of advances, loans and dividends from Sterling Sask to Chemicals. The
most restrictive of the covenants limits such payments during fiscal 1999 to
less than $1 million, plus any amounts due to Chemicals or Holdings from
Sterling Sask under the intercompany tax sharing agreement.
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<PAGE> 27
At September 30, 1998, the Company's long-term debt (excluding current
maturities) was $874 million.
Working Capital. Working capital at September 30, 1998 was $92
million, a decrease of $28 million from September 30, 1997. This decrease
was the result of the following changes:
<TABLE>
<CAPTION>
Current Assets Current Liabilities
(In Millions) (In Millions)
<S> <C> <C> <C>
Cash and cash equivalents $ 3 Accounts payable $ 34
Inventories (15) Accrued liabilities 5
Accounts receivable (53) Current portion long-term debt (3)
Other 1 ---------
-------- $ 36
$ (64)
</TABLE>
( ) - Decrease in assets, increase in liabilities
Cash Flow. Net cash provided from operations was $46 million for fiscal
1998, a decrease of $1 million compared to fiscal 1997. The decreased earnings
during fiscal 1998 as compared to fiscal 1997 was offset by lower working
capital requirements as a result of lower raw materials prices, lower
receivables, and improved working capital management. Net cash flow used in
investing activities was $27 million in fiscal 1998 compared to $196 million in
fiscal 1997. The decrease was primarily due to the absence of the consummation
of any acquisitions in fiscal 1998, whereas both the AFB Acquisition and the
Saskatoon Acquisition were consummated in fiscal 1997. Net cash flow used in
financing activities was $15 million in fiscal 1998 as compared to net cash
flows provided by financing activities of $152 million in fiscal 1997. The
decrease in net cash flows from financing activities in fiscal 1998 as compared
to fiscal 1997 was primarily due to the inclusion of the proceeds from long-term
debt associated with the AFB Acquisition and the Saskatoon Acquisition in fiscal
1997.
Capital Expenditures. Capital expenditures for fiscal 1998, 1997, and 1996
were $27 million, $43 million, and $96 million, respectively. The fiscal 1998
capital expenditures were primarily related to routine safety, environmental,
and replacement capital. The fiscal 1997 capital expenditures were primarily for
construction costs related to the methanol unit and the Valdosta Plant, along
with the distributive control system upgrade at the acrylonitrile unit. In
addition, the Company incurred capital expenditures in fiscal 1997 for process
modernization in styrene and acrylonitrile, and routine safety, environmental,
and replacement capital in the Company's petrochemical, pulp chemical, and
fibers businesses. The fiscal 1996 capital expenditures were primarily for the
expansion of the acetic acid unit, construction of the methanol unit, and
construction of the Valdosta Plant. The acetic acid expansion was completed in
June 1996, the methanol unit was completed in August 1996, and the Valdosta
Plant came on stream in December 1996.
Capital expenditures are expected to be approximately $30 to $40 million in
fiscal 1999, with about $20 to $25 million dedicated to the petrochemical and
fibers businesses and $10 to $15 million dedicated to the pulp chemical
business. Capital expenditures will be primarily for process enhancements for
styrene, expansion of acetic acid, and routine safety, environmental, and
replacement capital.
The Company's capital expenditures for environmentally-related prevention,
containment, and process improvements were $2 million and $3 million for fiscal
years 1998 and 1997, respectively. The Company does not anticipate a material
increase in these types of expenditures during fiscal 1999, although no
assurances can be given to that effect. During fiscal years 1998 and 1997, the
Company did not incur any other infrequent or non-recurring material
environmental expenditures which were required under existing environmental
regulations. See "Certain Known Events, Trends, Uncertainties, and Risk Factors
- - Environmental and Safety Matters."
The Company routinely incurs expenses associated with hazardous substance
management and pollution prevention in ongoing operations. These operating
expenses include items such as depreciation on its waste treatment facilities,
outside waste management, fuel, electricity, and salaries. The amounts of these
operating expenses were approximately $52 million and $50 million for fiscal
years 1998 and 1997, respectively. The Company does not anticipate a material
increase in these types of expenses during fiscal 1999, although no assurances
can be given to that effect. The Company considers these types of environmental
expenditures normal operating expenses and includes them in cost of goods sold.
Foreign Exchange. The Company enters into forward foreign exchange
contracts to reduce risk due to Canadian dollar exchange rate movements. The
Company does not engage in currency speculation. The forward foreign exchange
contracts have varying maturities with none exceeding 18 months. The Company
makes net settlements of
25
<PAGE> 28
United States dollars for Canadian dollars at rates agreed to at inception of
the contracts. The Company had a notional amount of approximately $54 million
and $20 million of forward foreign exchange contracts outstanding to buy
Canadian dollars at September 30, 1998 and 1997, respectively. The deferred loss
on these forward foreign exchange contracts at September 30, 1998 was $5 million
and at September 30, 1997 was less than $1 million.
ACCOUNTING CHANGES
The Financial Accounting Standards Board (the "FASB") issued Statement of
Financial Accounting Standards ("SFAS") No 128, "Earnings Per Share" which
establishes standards for computing and presenting earnings per share ("EPS").
SFAS No. 128 replaces the presentation of primary EPS previously prescribed by
Accounting Principles Board ("APB") Opinion No. 15 with a presentation of basic
EPS, which is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding for the period. The
Statement also requires dual presentation of basic and diluted EPS. Diluted EPS
is computed similarly to fully diluted EPS pursuant to APB No. 15. Pro forma
basic and diluted EPS for all historical periods presented, assuming that SFAS
No. 128 was effective at the beginning of each such historical period, would not
be materially different from what has been presented using APB No. 15. The
Company adopted SFAS No. 128 for fiscal 1998 and has restated prior year amounts
to reflect adoption of the new standard.
SFAS No. 130, "Reporting Comprehensive Income," established standards for
reporting and displaying of comprehensive income and its components. SFAS No.
131, "Disclosure About Segments of an Enterprise and Related Information,"
establishes standards for the way that public business enterprises report
information about operating segments in interim and annual financial statements.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," establishes revisions to employers' disclosure about pension and
other post retirement benefit plans. Management is evaluating the disclosures
required when these three statements are adopted in the first quarter of fiscal
1999.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. Management is evaluating the disclosures
required when this statement is adopted in the first quarter of fiscal 2000.
CERTAIN KNOWN EVENTS, TRENDS, UNCERTAINTIES, AND RISK FACTORS
Raw Material Prices and Availability. For each of the Company's products,
the cost of raw materials and utilities is far greater than all other costs of
production combined. Therefore, an adequate supply of raw materials at
reasonable prices is critical to the success of the Company's business. Most of
the raw materials used by the Company are supplied by others, and many of them
are subject to wide price fluctuations for a variety of reasons beyond the
Company's control, including changes in the availability of these products
because of major capacity additions or significant plant operating problems.
Although no assurances can be given, the Company believes that it will continue
to secure adequate supplies of all its raw materials at acceptable prices. The
primary raw material for acrylic fibers is acrylonitrile, which is produced by
the Company. However, as part of the AFB Acquisition, the Company assumed an
existing acrylonitrile supply agreement, which expires February 28, 2002,
pursuant to which Sterling Fibers purchases all of the Santa Rosa Plant's
requirements for acrylonitrile from Cytec. Upon the expiration of such supply
contract, the Company expects to supply all of Sterling Fibers' acrylonitrile
requirements from the Texas City Plant.
Cyclical Markets for Products; Capacity Increases on Key Petrochemical
Products. The prices of the Company's petrochemical and fibers and pulp chemical
products are cyclical and sensitive to overall supply relative to demand and the
level of general business activity. Large global capacity additions of styrene
and acrylonitrile were completed in 1997 and 1998. For styrene, approximately
6-7 billion pounds of new capacity was added, and for acrylonitrile,
approximately one billion pounds of new capacity was added. The resulting impact
on prices and margins negatively impacted the Company's results in fiscal 1998.
The Company believes that these completed and announced global capacity
additions in styrene and acrylonitrile will result in continued overcapacity for
these markets in the foreseeable future.
Environmental and Safety Matters. The Company's operations involve the
handling, production, transportation, treatment, and disposal of materials that
are classified as hazardous or toxic waste and that are extensively regulated by
environmental and health and safety laws and regulations. Environmental permits
required for the Company's operations are subject to periodic renewal and can be
revoked or modified for cause or when new or revised environmental laws or
permit requirements are implemented. Changing and increasingly strict
environmental laws, regulations, and permit requirements can affect the
manufacture, handling, processing, distribution, and use of the
26
<PAGE> 29
Company's chemical products and, if so, the Company's business and operations
may be materially and adversely affected. In addition, changes in the law,
regulations, and permit requirements can cause the Company to incur substantial
costs in upgrading or redesigning its facilities and processes, including its
waste treatment, storage, disposal, and other waste handling practices and
equipment. For these reasons, the Company's estimates of future environmental
expenditures and liabilities are uncertain.
A business risk inherent in all chemical operations is the potential for
personal injury and property damage claims from nearby landowners and occupants.
While the Company believes that its business operations and facilities generally
are operated in compliance with all material aspects of applicable environmental
and health and safety laws, regulations, and disclosure requirements, there can
be no assurance that past practices and future operations will not result in
material claims or regulatory action, require material environmental
expenditures, or result in exposure or injury claims by employees and the
public. Some risk of environmental costs and liabilities are inherent in the
operations and products of the Company, as it is with other companies engaged in
similar businesses. In addition, a catastrophe at any of the Company's
facilities could result in liabilities to the Company in excess of its insurance
coverages.
The Company's pulp chemical business is sensitive to potential
environmental regulations. On November 14, 1997, the EPA enacted regulations,
commonly referred to as the "Cluster Rules", that support substitution of
chlorine dioxide for elemental chlorine in paper pulp bleaching processes to
reduce the amount of AOX and other chlorine derivatives in bleach plant
effluent. Chlorine dioxide is produced from sodium chlorate, which is one of the
Company's pulp chemical products. Thus, regulations restricting, but not
altogether banning, AOX and other chlorine derivatives in bleach plant effluent
have a favorable effect on the Company's business.
On May 7, 1998, several conservation groups and an Indian tribe instigated
litigation in the Court of Appeals for the Ninth Circuit (San Francisco)
challenging the EPA's passage of the Cluster Rules. See Item 1
"Business-Environmental Matters" for a more detailed discussion of this
litigation. The Company believes that the industry's position in such actions is
likely to prevail, although no assurances can be given to that effect. Even if
industry does prevail in such actions, the existence of such actions adds a
measure of uncertainty as to rate of implementation of the Cluster Rules, which
could negatively affect the performance of the Company's sodium chlorate
operations.
Any significant ban on all chlorine containing compounds could have a
materially adverse effect on the Company's financial condition and results of
operations. British Columbia has a regulation in place requiring elimination of
the use of all chlorine products, including chlorine dioxide, in the bleaching
process by the year 2002. The pulp and paper industry believes that a ban of
chlorine dioxide in the bleaching process will yield no measurable environmental
or public health benefit and is working to change this regulation but there can
be no assurance that the regulation will be changed. In the event such a
regulation is implemented, the Company would seek to sell the products it
manufactures at its British Columbia facility to customers in other markets. The
Company is not aware of any other laws or regulations in place in North America
which would restrict the use of such products for other purposes.
Legal Proceedings. The Company is currently a party to several legal
proceedings. See the information under "Legal Proceedings" in Note 7 to
Consolidated Financial Statements, which is incorporated by reference, for a
more detailed description of these proceedings. The Company is not able to
predict the final outcome of these proceedings, and there can be no assurance
that the ultimate resolution will not have a material adverse effect on the
Company's financial condition, results of operations, and/or liquidity.
Additional legal proceedings could be commenced against the Company in the
future. See "Environmental and Safety Matters." These proceedings could have a
material adverse effect on the Company's financial condition, results of
operations, and liquidity.
High Financial Leverage, Substantial Restrictions, and Covenants. The
Company had consolidated indebtedness of $883 million and deficiency in assets
of $348 million at September 30, 1998. The Company may in the future incur
additional debt in order to finance acquisitions or for general corporate
purposes. The Company's high degree of leverage could have important
consequences, including the following: (i) the ability to obtain additional
financing in the future (including amounts available under the Revolver) for
working capital, capital expenditures, acquisitions, general corporate purposes,
and other purposes, if needed, may be restricted; (ii) a substantial portion of
cash flow from operations will be dedicated to cover cash interest requirements,
thereby limiting the funds available for operations and any future business
opportunities; and (iii) the degree of leverage may make the Company more
vulnerable to a downturn in its businesses or the economy generally. There can
be no assurance that the Company's internally generated funds and availability
to credit will be sufficient to enable the Company to meet its debt service
obligations. For this and other reasons, the Company may determine to raise
additional equity capital through one or more public or private transactions.
Such transactions could be dilutive to all or a portion of the Company's common
stockholders and could adversely affect prevailing market prices of the
Company's common stock.
27
<PAGE> 30
The Company's debt instruments contain numerous financial and operating
covenants which (i) restrict the Company's ability to incur indebtedness, pay
dividends, create liens, sell assets, engage in certain mergers and
acquisitions, and refinance existing indebtedness, (ii) obligate the Company to
maintain certain financial ratios, including an interest coverage ratio, a
current ratio, a fixed charge coverage ratio, a leverage ratio, and a senior
debt leverage ratio, and (iii) may limit the Company's ability to carry out its
acquisition strategy. Certain of these ratios escalate over time, and therefore
the Company will be required to have increased cash flows and operating results
in future periods in order to maintain compliance with the terms of such debt
instruments. The instruments governing future debt of the Company, if any, may
also contain similar covenants. The ability of the Company to comply with such
covenants and other terms of its debt instruments and to satisfy its other debt
obligations will depend on the future performance of the Company, which is
subject to prevailing economic conditions and the risks and uncertainties
discussed herein, many of which are beyond its control. There can be no
assurance that the Company will be able to comply with such covenants and terms
in the future. The failure of the Company to comply with any of these covenants
would permit the lenders to accelerate the maturity of the indebtedness owing to
them and to exercise other remedies provided for in the debt instruments.
In the event of a change of control and under certain other circumstances,
Holdings will be required to offer to purchase all of its outstanding 13 1/2%
Notes and Chemicals will be required to offer to purchase all of its outstanding
11 1/4% Notes and 11 3/4% Notes, in each case subject to certain conditions, at
a price equal to 101% of the Accreted Value with respect to the 13 1/2% Notes,
and 101% of the principal amount thereof with respect to the 11 1/4% Notes and
11 3/4% Notes, plus accrued and unpaid interest, if any.
The markets for many of the Company's products are cyclical and sensitive
to the level of general business activity. See "Overview" and "Cyclical Markets
for Products; Capacity Increases on Key Petrochemical Products." Weakness in the
level of worldwide economic activity or in the markets for one or more of the
Company's major products could have a material adverse effect on the Company's
ability to meet its debt service obligations and comply with the restrictions
imposed by its debt instruments.
Assets Pledged to Secure Debt. The Company has granted liens on
substantially all of its assets to secure its senior debt. If an event of
default occurs, the lenders will have the right to foreclose upon such
collateral or to take other actions to protect their interests, in each case
without the approval of the Company or its stockholders. Foreclosure would
involve a disposal of substantially all the Company's assets and could result in
an investment loss.
Highly Competitive Industry. The industries in which the Company operates
are highly competitive. Many of the Company's competitors, particularly in the
petrochemical industry, are larger, are better capitalized, and have
substantially greater financial resources than the Company. Among the Company's
competitors are some of the world's largest chemical companies, many of whom
have their own raw material resources. In addition, a significant portion of the
Company's business is based upon widely available technology. The entrance of
new competitors into the industry and the addition by existing competitors of
new capacity may reduce the Company's ability to maintain profit margins or its
ability to preserve its market share, or both. Such developments could have a
negative impact on the Company's ability to maintain existing profit margins or
to obtain higher profit margins, even during periods of increased demand for the
Company's products. The competitiveness of Sterling Fibers with respect to its
specialty textiles and technical fibers products (which are its higher margin
products) is maintained, to a significant extent, through the exclusive
ownership or use of certain product and manufacturing technology. If competitors
of Sterling Fibers gain access to the use of similar technology, or render such
technology obsolete through the introduction of superior technology, the
financial condition of Sterling Fibers would be materially affected in an
adverse manner.
Dependence on Texas City Plant. All of the Company's petrochemicals,
including all of its styrene and acrylonitrile, are produced at the Texas City
Plant. Significant unscheduled downtime at the Texas City Plant due to equipment
breakdowns, interruptions in the supply of raw materials, power failures,
natural forces, or any other cause, including the normal hazards associated with
the production of petrochemicals, could have a material adverse effect on the
Company. Although the Company maintains insurance, including business
interruption insurance, that it considers to be adequate under the
circumstances, there can be no assurance that a significant interruption in the
operation of the Texas City Plant would not have a material adverse effect on
the Company's financial condition and results of operations.
Ability to Complete Acquisitions. An element of the Company's stated
business strategy is to pursue strategic acquisitions that either expand or
complement the Company's products. The financing for such acquisitions will
likely affect the Company's capitalization. There can be no assurance that the
Company will be able to identify and make acquisitions on terms favorable to it
or that the Company will be able to obtain financing for such acquisitions on
terms the Company finds acceptable. As of September 30, 1998, the financial
covenants contained in various debt instruments of the Company operate to limit
the amount of additional debt that may be incurred by the Company, although,
under certain
28
<PAGE> 31
circumstances, additional debt may be incurred by the Company to finance future
acquisitions if the debt is incurred in Unrestricted Subsidiaries or if the pro
forma effect of the acquisition has a sufficient positive impact on certain
financial ratios.
Long-Term Contracts and Significant Customers. The Company sells portions
of its styrene and acrylonitrile production under long-term contracts, and sells
all of its acetic acid and plasticizers production under long-term contracts
with single customers. These contracts are intended to provide some stability if
demand for or prices of these products decline significantly, but also limit the
Company's ability to take full advantage of attractive market conditions during
periods of higher prices for these products. During fiscal 1998, a significant
portion of the Company's production from the Texas City Plant was dedicated to
multi-year contracts with Solutia, Bayer, BP, and BASF. Under certain market
conditions, the loss of one or more of these customers or a material reduction
in the amount of product purchased by one or more of them could have a material
adverse effect on the Company. Solutia has elected to terminate an acrylonitrile
purchase agreement, effective September 1, 2000. The Company does not believe
this termination will have a material adverse effect on its financial condition,
results of operations, or cash flows, although no assurance can be given to that
effect.
Foreign Operations, Country Risks, and Exchange Rate Fluctuations.
Approximately 21% of the Company's fiscal 1998 revenues were derived from its
Canadian-based pulp chemicals business and approximately 28% were derived from
export sales. International operations and exports to foreign markets are
subject to a number of special risks, including currency exchange rate
fluctuations, trade barriers, exchange controls, national and regional labor
strikes, political risks, and risks of increases in duties, taxes, and
governmental royalties, as well as changes in laws and policies governing
operations of foreign-based companies. In addition, earnings of foreign
subsidiaries and intercompany payments are subject to foreign income tax rules
that may reduce cash flow available to meet required debt service and other
obligations of the Company.
Since the Company derives most of its pulp chemical revenues from
production and sales by subsidiaries within Canada, the Company has organized
its subsidiary structure and its operations in part based on certain assumptions
about various Canadian tax laws, currency exchange laws, 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 interpretations
thereof, the Company may suffer material adverse tax and financial consequences.
A portion of the Company's expenses and sales are denominated in Canadian
dollars and, accordingly, the Company's revenues, cash flows, and earnings may
be affected by fluctuations in the exchange rate between the United States
dollar and the Canadian dollar, which may also have material adverse tax
consequences. In addition, because a portion of the Company's sales, cost of
goods sold, and other expenses are denominated in Canadian dollars, the Company
has a translation exposure to fluctuations in the Canadian dollar against the
United States dollar. These currency fluctuations could have a material adverse
impact on the Company as increases in the value of the Canadian dollar have the
effect of increasing the United States dollar equivalent of cost of goods sold
and other expenses with respect to the Company's Canadian production facilities.
The Company enters into forward foreign exchange contracts to hedge such
exposure for periods consistent with its committed exposure, but does not engage
in currency speculation.
Subsidiary Operations. All of Holdings' operations are conducted, and all of
Holdings' assets are owned, by its subsidiaries (including Chemicals). The right
of Holdings, and thus the right of its stockholders, to participate in any
distribution of earnings or assets of Holdings' subsidiaries is subject to the
claims of creditors of such subsidiaries. Holdings' subsidiaries are parties to
various debt documents and other agreements that limit their ability to incur
additional indebtedness and to provide funds to Holdings by way of dividends,
distributions, and advances. A substantial portion of Chemicals' operations are
conducted, and a substantial portion of Chemicals' assets are owned, by its
subsidiaries. The right of Chemicals, and thus the right of its stockholder
(Holdings), to participate in any distribution of earnings or assets of
Chemicals' subsidiaries is subject to the claims of creditors of such
subsidiaries. Chemicals' subsidiaries are parties to various debt documents and
other agreements that limit their ability to incur additional indebtedness and
to provide funds to Chemicals by way of dividends, distributions, and advances.
Year 2000 Issue. Certain computer systems and other equipment with computer
chips store dates as two digits rather than four to define the applicable year
(e.g. 97 for 1997). Any clock or date recording mechanism (including date
sensitive software) which uses only two digits to represent the year may
interpret the digits "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing serious disruption of
operations. As is the case with most companies, the Company is in the process,
using both internal and external resources, of addressing the Year 2000 issue.
The Company is currently engaged in a comprehensive project intended to upgrade
its information technology (IT) systems (such as computer systems and software)
and non-IT systems (such as process
29
<PAGE> 32
control systems and other equipment that utilize embedded chips to control
various functions) to systems that will consistently and properly recognize the
Year 2000 and subsequent years.
The Company has conducted an inventory of its hardware and software and
made a preliminary assessment of the Year 2000 compliance of its business and
process control systems. This preliminary assessment determined which of the
Company's business and process control systems are critical to its business.
Those systems deemed to be critical were assigned a higher priority in the Year
2000 remediation effort as compared to other non-critical systems. In this phase
of the project, the Company discovered certain Year 2000 deficiencies in its
business systems and initiated plans to rectify such issues in the remediation
and replacement phase of the project. The preliminary assessment of the
Company's process control systems did not detect any material Year 2000
difficulties. The Company then engaged a nationally recognized independent
consultant to perform a more detailed survey of all of its business and process
control systems (both critical and non-critical) to confirm the absence of any
additional material Year 2000 deficiencies, which survey is scheduled to be
completed by December 31, 1998. In the event that the survey does reveal
additional material Year 2000 deficiencies, the Company plans to initiate the
remediation or replacement of such systems.
In the second phase of the Company's Year 2000 project, the Company
believes it is taking the necessary steps to rectify all material Year 2000
deficiencies. A major component of this effort involves the replacement of all
critical business systems, which may not be Year 2000 compliant with new
business systems intended to be Year 2000 compliant. All of such projects are
scheduled to be completed by mid-year 1999. If the Company's consultant
determines that any additional systems under review have material Year 2000
deficiencies, the Company plans to take appropriate remedial action.
The final phase of the Company's Year 2000 project involves testing all
critical systems to confirm that such systems will react properly to the advent
of the year 2000. The Company is in the process of conducting tests on all of
its current IT and non-IT systems that were not identified as having Year 2000
deficiencies and anticipates that all such testing will be completed by April 1,
1999. Once the remediation and replacement phase is completed, the Company will
conduct tests on all newly installed and updated systems to determine if they
are Year 2000 compliant. Such testing is expected to be completed by mid-year
1999.
The total estimated expense for the Company's Year 2000 compliance projects
is approximately $7 to $10 million, of which the Company has incurred
approximately $3 million through September 30, 1998. The Company has and will
fund such expense out of its operating cash flow and/or borrowings under its
credit facilities.
Irrespective of the efforts of the Company, certain Year 2000 problems,
such as processing failures, error messages, or incorrect data may still occur
in some of its computer systems if the Company receives programs and/or data
from third parties who are not Year 2000 compliant. Moreover, the Company's
business may be disrupted in other ways by Year 2000 problems of third parties,
which may affect, for example, the Company's ability to obtain needed materials
or deliver its products. The Company is in the process of determining whether
vendors, customers, and others with whom it deals are Year 2000 compliant and
has requested that such persons (other than those that the Company believes do
not have a material impact on the business of the Company or its operations)
complete and return surveys with respect to their Year 2000 issues. The Company
had not received any survey response which indicates that any of such persons
has any specific Year 2000 problems. However, no assurances can be given that a
Year 2000 problem will not occur for the Company as a result of a Year 2000
problem of a vendor or customer of the Company or some other person with whom
the Company deals.
While the Company's Year 2000 projects are expected to be successfully
completed by mid-year 1999, it is possible that one or more of such projects may
not be completed or that compliance efforts may be ineffective. A failure to
properly and timely correct any Year 2000 deficiencies would affect the Company
on several levels. If the Company's Year 2000 remediation efforts were to prove
unsuccessful, the Company might be unable to take orders, sell products, and
otherwise generally conduct its business. Since the Company's business is
characterized by large volume sales to a relatively limited number of customers,
the Company believes that, with the engagement of additional personnel, orders
could be processed and deliveries completed through manual means. In preparation
for such a scenario, the Company has outlined a contingency plan to guide the
hiring and training of additional personnel and the processing of paperwork by
manual means.
Although the Company believes that it is taking the appropriate courses of
action to ensure that it is Year 2000 compliant, there can be no assurance that
the actions discussed herein will have the anticipated results or that Year 2000
problems will not have a material adverse effect on the Company's financial
condition or results of operations. Specific factors which might affect the
success of the Company's Year 2000 efforts and the occurrence of Year 2000
disruption or expense include failure of the Company or its consultant to
properly identify deficient systems, the failure of the
30
<PAGE> 33
selected remedial action to adequately address the deficiencies, the failure of
the Company's consultant to complete the remediation in a timely manner (due to
shortages of qualified labor or other factors), unforeseen expenses related to
the remediation of existing systems or the transition to replacement systems,
and the failure of third parties to become compliant or to adequately notify the
Company of potential noncompliance.
Labor Relations. Approximately 40% of the Company's employees are covered
under various union contracts. Approximately 27% of the Company's employees are
covered by one union contract, which expires on May 1, 1999 (the "Texas City
Union Contract"). The Company is in the process of negotiating for a new union
contract to replace the existing Texas City Union Contract. The Company's
objective is for the new Texas City Union Contract to provide work rules and
other changes that are more favorable to the Company and that will improve the
competitiveness of the Texas City Plant. The Company is not able to predict if
it will be successful in replacing the existing Texas City Union Contract or, if
so, the extent to which the new contract will improve the competitiveness of the
Texas City Plant.
Although the Company believes its relationship with its employees is
generally good, a strike by one or more of the unions representing the Company's
employees could have a material adverse effect on the Company's financial
condition, results of operations, or cash flows.
31
<PAGE> 34
RESULTS OF OPERATIONS
The following table sets forth revenues, gross profit, and operating income
for the Company's primary segments for the years ended September 30, 1998, 1997,
and 1996.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1998 1997 1996
------ ------ ------
(Dollars in Millions)
<S> <C> <C> <C>
REVENUES:
Petrochemicals and Fibers ................. $ 622 $ 728 $ 633
Pulp Chemicals ............................ 201 181 157
------ ------ ------
$ 823 $ 909 $ 790
====== ====== ======
GROSS PROFIT:
Petrochemicals and Fibers ................. $ 31 $ 33 $ 53
Pulp Chemicals ............................ 59 63 58
------ ------ ------
$ 90 $ 96 $ 111
====== ====== ======
OPERATING INCOME (LOSS):
Petrochemicals and Fibers ................. $ (3) $ 11 $ 31
Pulp Chemicals ............................ 36 46 36
------ ------ ------
$ 33 $ 57 $ 67
====== ====== ======
</TABLE>
COMPARISON OF FISCAL 1998 TO FISCAL 1997
Revenues for fiscal 1998 were $823 million compared to revenues of $909
million for fiscal 1997, a decrease of 9%. The decrease in revenues resulted
primarily from lower styrene, acrylonitrile, and methanol sales prices and
reduced styrene sales volumes, partially offset by a full year of operations
from the AFB Acquisition and the Saskatoon Acquisition. Revenues excluding the
impact of the AFB Acquisition and the Saskatoon Acquisition would have been $676
million and $807 million for fiscal 1998 and 1997, respectively. A net loss of
$48.6 million, or $3.99 per share, was recorded for fiscal 1998 compared to a
net loss of $29.0 million, or $2.58 per share, for fiscal 1997. Increased losses
for fiscal 1998, as compared to fiscal 1997, were primarily due to: (i) reduced
styrene, acrylonitrile, sodium chlorate, and methanol margins, (ii) weak markets
in acrylic fibers, (iii) increased interest expense resulting from financings
related to the AFB Acquisition and the Saskatoon Acquisition, and the issuance
of the 11 1/4% Notes, the proceeds of which were used to prepay outstanding
indebtedness under the Term Loans, (iv) increased selling, general, and
administrative ("SG&A") expense, and (v) costs associated with workforce
reductions, all of which were partially offset by the results of the Sterling
Sask's operations.
Revenues, Cost of Goods, and Gross Profit
Petrochemicals and Fibers
For fiscal 1998, the Company's revenues from its petrochemical and fibers
businesses decreased to $622 million when compared to fiscal 1997 revenues of
$728 million. The 15% decrease in revenues was primarily due to reduced styrene,
acrylonitrile, and methanol sales prices and decreased styrene sales volumes.
The economic conditions in Asia negatively impacted market conditions in the
fiscal 1998 period, particularly for the Company's styrene, acrylonitrile, and
acrylic fibers products. The Company's petrochemicals and fibers businesses
recorded an operating loss of $3 million for fiscal 1998 compared to operating
income of $11 million for fiscal 1997. The decrease in operating results for
fiscal 1998, as compared to fiscal 1997, was primarily due to weaker operational
performance in styrene, acrylonitrile, and methanol, partially offset by
stronger performance in acetic acid.
Styrene revenues decreased 24% to $237 million in fiscal 1998, compared to
fiscal 1997. Styrene sales prices decreased 11% for fiscal 1998 as compared to
the prior year period. In addition, styrene sales volumes decreased 16% for
fiscal 1998 as compared to the prior year period. These decreases in sales
prices and volumes were primarily due to weaker market conditions, particularly
in Asia. The prices of styrene's major raw materials, benzene and ethylene, were
approximately 14% and 25% lower, respectively, during fiscal 1998 as compared to
fiscal 1997. Styrene margins decreased in fiscal 1998 compared to fiscal 1997,
as significantly lower sales prices more then offset the lower raw materials
costs.
Acrylonitrile revenues decreased 23% to $112 million in fiscal 1998,
compared to fiscal 1997. Acrylonitrile sales prices decreased 25% in fiscal
1998, as compared to the prior year period. The lower sales price was primarily
due to
32
<PAGE> 35
weaker market conditions, primarily in Asia. Acrylonitrile sales volumes
increased 2% in fiscal 1998, as compared to the prior year period. The prices of
acrylonitrile's major raw materials, propylene and ammonia, were approximately
28% and 25% lower, respectively, in fiscal 1998 as compared to the comparable
period in fiscal 1997. Acrylonitrile margins decreased in fiscal 1998 compared
to fiscal 1997, as significantly lower sales prices more then offset the lower
raw material costs.
Revenues from the Company's acrylic fibers business for fiscal 1998 were
$100 million. The Company consummated the AFB Acquisition on January 31, 1997
and recorded revenues of $92 million for fiscal 1997. Sterling Fibers
performance in fiscal 1998 was negatively impacted by weak market conditions,
particularly in Asia, and imports from European suppliers.
Revenues from the Company's other petrochemical products (including
methanol, acetic acid, plasticizers, TBA, and sodium cyanide) in fiscal 1998
decreased 5% to $173 million as compared to fiscal 1997. The decrease in
revenues was primarily due to a 16% decrease in methanol sales prices as a
result of overcapacity in the global methanol market, partially offset by better
operating performance in acetic acid. The Company's other petrochemical products
reported increased operating earnings in fiscal 1998 as compared to fiscal 1997.
The increase in operating earnings is primarily due to better operating
performance in acetic acid, partially offset by the aforementioned weaker
pricing in methanol.
Pulp Chemicals
Revenues from the Company's pulp chemical business for fiscal 1998
increased by approximately 11% to $201 million compared to fiscal 1997. The
increase in revenues was primarily due to an increase in sales volumes of sodium
chlorate of 12% compared to fiscal 1997. The increase in sales volumes was
primarily due to the additional volumes from the Saskatoon Acquisition in July
1997 and the startup of the Valdosta Plant in December 1996. Average sales
prices for sodium chlorate declined 7% in fiscal 1998, compared to fiscal 1997.
The decline in sodium chlorate sales prices was primarily due to decreased
demand as a result of lower pulp mill operating rates partially due to the
economic environment in various countries in Asia. The Company's pulp chemicals
business recorded operating earnings of $36 million in fiscal 1998, compared to
operating earnings of $46 million in fiscal 1997. The reduced operating earnings
in fiscal 1998 compared to fiscal 1997 is primarily due to reduced sodium
chlorate sales prices and higher energy costs in the current period, partially
offset by increased sodium chlorate sales volumes.
Selling, General and Administrative Expenses
SG&A expenses for fiscal 1998 totaled $51 million, compared to $38 million
in fiscal 1997. The increase was primarily due to SG&A expense related to the
new fibers business, the new Saskatoon chemical business, increased corporate
development activities, and costs associated with upgrades of certain of the
Company's information technology systems, which include Year 2000 compliance
activities.
Other Expenses
Other expense of $6 million in fiscal 1998 is related to the voluntary
severance programs offered by the Company in January and April 1998 at the Texas
City Plant.
Interest and Debt Related Expenses
Interest and debt related expense for fiscal 1998 increased $16 million
compared to fiscal 1997 primarily due to the additional debt incurred in the
connection with the AFB Acquisition and the Saskatoon Acquisition and the
issuance of the 11 1/4% Notes. The proceeds of the 11 1/4% Notes were used to
prepay outstanding indebtedness under the Term Loans.
Provision (Benefit) for Income Taxes
Benefit for income taxes for fiscal 1998 was $26 million, with an effective
tax rate of 36%, compared to $7 million, with an effective tax rate of 23%, for
fiscal 1997. The increase in the benefit was primarily the result of the
Company's pre-tax loss of approximately $72 million for fiscal 1998 compared to
a pre-tax loss of $31 million in fiscal 1997.
Extraordinary Item
The $4 million after-tax ($6 million pre-tax) extraordinary item in fiscal
1997 related to unamortized debt issue costs which were expensed in April 1997
as a result of the partial prepayment of the Term Loans.
33
<PAGE> 36
COMPARISON OF FISCAL 1997 TO FISCAL 1996
Revenues for fiscal 1997 were $909 million compared to revenues of $790
million for fiscal 1996, an increase of 15%. The increase in revenues resulted
primarily from eight months of operations from the AFB Acquisition, three months
of operations from the Saskatoon Acquisition, the startup of the Valdosta Plant
in December 1996, and the startup of the methanol unit in August 1996. A net
loss of $28 million, or $2.58 per share, was recorded in fiscal 1997 compared to
net income of $31.6 million, or $0.62 per share, in fiscal 1996. The net loss in
fiscal 1997 as compared to net income in fiscal 1996 was primarily due to
reduced styrene and acrylonitrile margins and volumes and increased interest
expense resulting from the financings related to the 1996 Recapitalization, the
AFB Acquisition, and the Saskatoon Acquisition, all partially offset by the
results of the acrylic fibers and Saskatoon operations.
Revenues, Cost of Goods, and Gross Profit
Petrochemicals and Fibers
For fiscal 1997, the Company's revenues from its petrochemical and fibers
businesses increased to $728 million, when compared to fiscal 1996 revenues of
$633 million. The AFB Acquisition and the new methanol unit had a positive
impact on revenues in fiscal 1997, partially offset by reduced styrene and
acrylonitrile average sales prices and sales volumes. The Company's
petrochemical and fibers businesses recorded operating income of $11 million in
fiscal 1997 as compared to $31 million in fiscal 1996. The decrease in operating
income was primarily due to weaker operational performance in styrene and
acrylonitrile, mostly offset by the positive impact of the methanol unit and the
AFB Acquisition.
Styrene revenues for fiscal 1997 decreased 4% as compared to fiscal 1996
due to average sales prices decreasing by approximately 2% primarily as a result
of weaker market conditions, particularly in the export market. In addition,
fiscal 1997 sales volumes decreased by approximately 5% as compared to fiscal
1996. The prices of styrene's major raw materials, benzene and ethylene, were
substantially higher during fiscal 1997 compared to fiscal 1996. Benzene prices
were approximately 10% higher while ethylene prices were approximately 18%
higher. These price escalations contributed significantly to the decline in
styrene margins as market conditions did not allow for sufficient styrene price
increases to compensate for these rising costs.
Acrylonitrile revenues for fiscal 1997 decreased 9% as a result of a
decline of approximately 6% in sales volumes and approximately 3% in average
sales prices. The 6% reduction in volumes in fiscal 1997 were primarily due to a
partial shutdown during the third quarter as a result of operating difficulties
following the completion of a capital project. The prices of propylene and
ammonia, which are the major raw materials used to make acrylonitrile, were
approximately 14% and 13% higher, respectively, in fiscal 1997 than in fiscal
1996. The combination of lower average sales prices and higher raw materials
costs resulted in lower acrylonitrile margins in fiscal 1997 as compared to
fiscal 1996.
Sterling Fibers recorded eight months of revenues of approximately $92
million since its acquisition on January 31, 1997.
Revenues during fiscal 1997 from the Company's other petrochemical products
(including methanol, acetic acid, plasticizers, TBA, and sodium cyanide)
increased approximately 23% when compared to fiscal 1996 revenues primarily due
to the impact of the methanol unit completion in August 1996, partially offset
by a decline in acetic acid revenues resulting from a procedural change in the
billings under the Company's production contract with BP and the recording of
related revenues. Prior to the startup of the Company's methanol unit, the
Company purchased the methanol used in the production of acetic acid. Under the
BP contract, such purchases were ultimately re-billed to BP and included in
acetic acid revenues. Methanol for acetic acid production is supplied by the
Company's methanol facility and is included in methanol revenues. In addition,
the Company's other petrochemical products reported increased operating earnings
in fiscal 1997 as compared to fiscal 1996, primarily due to the aforementioned
methanol unit completion and better operating performance in acetic acid.
Pulp Chemicals
Revenues from the Company's pulp chemical business for fiscal 1997
increased by approximately 15% to $181 million compared to fiscal 1996. The
increase in revenues was primarily due to an increase in sales revenues from
sodium chlorate of 17% compared to fiscal 1996, as a result of the startup of
the Valdosta Plant in fiscal 1997, and the additional revenues of the Saskatoon
Acquisition. Average sales prices for sodium chlorate declined 5% in fiscal 1997
34
<PAGE> 37
compared to fiscal 1996. Operating earnings for the pulp chemicals business were
$46 million for fiscal 1997 compared to $36 million in fiscal 1996. The increase
was primarily due to increased sales volumes of sodium chlorate.
Selling, General and Administrative Expenses
SG&A expenses for fiscal 1997 totaled $38 million, compared to $40 million
in fiscal 1996. This decrease was related to $4 million in SAR expenses, which
were paid, as a part of the Merger in fiscal 1996.
Interest and Debt Related Expenses
Interest and debt related expense for fiscal 1997 increased $76 million
compared to fiscal 1996 primarily due to the additional debt incurred in the
1996 Recapitalization, the AFB Acquisition, and the Saskatoon Acquisition.
Provision (Benefit) for Income Taxes
Provision (benefit) for income taxes for fiscal 1997 was $(7) million, with
an effective tax rate of 23%, compared to $17 million, with an effective tax
rate of 34% for fiscal 1996. The decrease in the provision was primarily the
result of the Company's pre-tax loss of approximately $31 million for fiscal
1997 compared to pre-tax income of $50 million in fiscal 1996.
Extraordinary Item
The $4 million after-tax ($6 million pre-tax) extraordinary item in fiscal
1997 related to unamortized debt issue costs which were expensed in April 1997
as a result of the partial prepayment of the Term Loans. The extraordinary item
in fiscal 1996 of $2 million after-tax ($3 million pre-tax) related to the loss
on early extinguishment of debt resulting from the 1996 Recapitalization.
35
<PAGE> 38
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The table below provides information about the Company's market sensitive
financial instruments and constitutes a "forward-looking statement." The
Company's major market risk exposure is changing interest rates, primarily in
the United States. Interest rate swaps may be used to adjust interest rate
exposure, when appropriate, based upon market conditions. A portion of the
Company's borrowings and transactions are denominated in foreign currencies
which exposes the Company to market risk associated with exchange rate
movements. The Company's policy generally is to hedge a portion of foreign
currency cash exposures through foreign exchange forward contracts. These
contracts are entered into with major financial institutions thereby minimizing
the risk of credit loss. All items described are non-trading and are stated in
U.S. dollars.
<TABLE>
<CAPTION>
FAIR
EXPECTED MATURITY DATES VALUE
(IN THOUSANDS) 1999 2000 2001 2002 2003 THEREAFTER TOTAL SEPTEMBER
---- ---- ---- ---- ---- ---------- ----- ----------
30, 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEBT
U.S. $ denominated $ 5,941 $ 13,202 $ 24,662 $ 31,442 $ 84,607 $ 708,979 $ 868,833 $ 767,046
Average interest rates
- fixed -- -- -- -- -- 12.2%
Average interest rates
- variable (a) (a) (a) (a) (a) (a)
Interest rate swaps $ 49,107 $ 31,250 $ 13,393 -- -- -- $ 2,251(b)
Canadian $ denominated $ 2,968 $ 1,938 $ 1,938 $ 3,035 $ 3,813 $ -- $ 13,692 $ 13,692
Average interest rates
- variable (c) (c) (c) (c) (c) --
FIRM COMMITMENTS, FORWARD
CONTRACTS
Contract notional amount
- U.S. $ sold $ 48,000 $ 6,000 -- -- -- -- $ 54,000 $ 49,300(d)
Average contractual
exchange rate 1.40 1.40 -- -- -- --
</TABLE>
(a) The Term Loans, the ESOP Loan, and the Revolver borrowings bear interest,
at Chemicals' option, at an annual rate of either the Eurodollar Rate or
the Base Rate plus an Applicable Margin ranging from 0.5% to 3.5% depending
upon the Company's Leverage Ratio (as defined in the Credit Agreement). The
"Base Rate" is equal to the greater of the Prime Rate as announced from
time to time by the agent bank, the "Federal Funds Effective Rate" plus
1/2% or the "Base CD Rate" plus 1% (as such terms are defined in the Credit
Agreement). At September 30, 1998, the interest rates in effect for the
Tranche A term loan, the Tranche B term loan, and the ESOP Loan were 7.8%,
8.3%, and 7.8%, respectively.
(b) Represents unrealized loss.
(c) The Sterling Sask Tranche A term loan and the Saskatoon Revolver borrowings
bear interest, at the Company's option, at an annual rate of either the
Bankers Acceptance Rate or the Base Rate plus an Applicable Margin ranging
from 1% to 2.5% depending upon the Company's Leverage Ratio (as defined in
the Saskatoon Credit Agreement). The Tranche B term loan bears interest, at
the Company's option, at an annual rate of either the Eurodollar Rate or
the Base Rate plus an Applicable Margin ranging from 0% to 2.5% depending
upon the Company's Leverage Ratio (as defined in the Saskatoon Credit
Agreement). The "Base Rate" for the Tranche A term loan and the Saskatoon
Revolver is equal to the greater of the Prime Rate for Canadian Dollar
commercial loans made in Canada, as announced from time to time by the
agent bank, or the rate for Canadian Dollar Bankers Acceptances accepted by
the agent with a term to maturity of 30 days plus 1% (as such terms are
defined in the Saskatoon Credit Agreement). The "Base Rate" for the Tranche
B term loan is equal to the greater of the Prime Rate as announced from
time to time by the agent bank, the "Federal Funds Effective Rate" plus1/2%
or the "Base CD Rate" plus 1% (as such terms are defined in the Saskatoon
Credit Agreement). At September 30, 1998, the interest rates in effect for
the Tranche A and Tranche B term loans were 8.2% and 8.4%, respectively.
(d) Represents notional amount less unrealized foreign exchange losses.
36
<PAGE> 39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STERLING CHEMICALS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues ................................................. $ 822,590 $ 908,787 $ 790,465
Cost of goods sold ....................................... 732,411 813,148 679,039
--------- --------- ---------
Gross profit ............................................. 90,179 95,639 111,426
Selling, general and administrative expenses ............. 51,427 38,170 40,305
Other expense ............................................ 5,962 -- --
Merger related expenses .................................. -- -- 3,633
Write-off of assets ...................................... -- -- 3,706
Interest and debt related expenses, net of interest income 104,455 88,901 13,380
--------- --------- ---------
Income (loss) before taxes and extraordinary item ........ (71,665) (31,432) 50,402
Provision (benefit) for income taxes .................... (25,546) (7,296) 16,898
--------- --------- ---------
Income (loss) before extraordinary item .................. (46,119) (24,136) 33,504
Extraordinary item, loss on early extinguishment of debt,
net of tax (Note 4) .................................. -- 3,924 1,900
--------- --------- ---------
Net income (loss) ........................................ (46,119) (28,060) 31,604
Preferred stock dividends ................................ 2,460 905 --
--------- --------- ---------
Net income (loss) attributable to common stockholders .... $ (48,579) $ (28,965) $ 31,604
========= ========= =========
Per share data:
Income (loss) before extraordinary item .................. $ (3.99) $ (2.23) $ 0.66
Extraordinary item ....................................... -- (0.35) (0.04)
--------- --------- ---------
Net income (loss) per common share ....................... $ (3.99) $ (2.58) $ 0.62
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
37
<PAGE> 40
STERLING CHEMICALS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................... $ 11,168 $ 7,958
Accounts receivable ......................................................... 114,571 167,248
Inventories ................................................................. 73,225 87,870
Prepaid expenses ............................................................ 15,571 10,956
Deferred income tax benefit ................................................. 5,140 10,005
--------- ---------
Total current assets ...................................................... 219,675 284,037
Property, plant and equipment, net ............................................. 450,315 492,036
Other assets ................................................................... 95,966 102,898
--------- ---------
Total assets .............................................................. $ 765,956 $ 878,971
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
Current liabilities:
Accounts payable ............................................................ $ 46,983 $ 80,658
Accrued liabilities ......................................................... 71,873 77,565
Current portion of long-term debt ........................................... 8,909 5,710
--------- ---------
Total current liabilities ................................................. 127,765 163,933
Long-term debt ................................................................. 873,616 876,281
Deferred income tax liability .................................................. 11,123 36,038
Deferred credits and other liabilities ......................................... 80,289 73,336
Common stock held by ESOP ...................................................... 5,938 7,688
Less: unearned compensation ................................................... (2,845) (5,570)
Redeemable preferred stock ..................................................... 18,249 15,793
Commitments and contingencies (Note 7) ......................................... -- --
Stockholders' equity (deficiency in assets):
Common stock, $.01 par value, 20,000,000 shares authorized, 12,273,000 shares
issued and 12,073,000 outstanding at September 30, 1998; and 11,942,000
shares
issued and 11,714,000 outstanding at September 30, 1997 ................... 123 120
Additional paid-in capital .................................................. (542,701) (542,485)
Retained earnings ........................................................... 229,590 277,691
Pension adjustment .......................................................... (121) (31)
Accumulated translation adjustment .......................................... (32,559) (21,093)
Deferred compensation ....................................................... (111) --
--------- ---------
(345,779) (285,798)
Treasury stock, at cost, 200,000 and 228,000 shares at September 30, 1998
and 1997, respectively .................................................... (2,400) (2,730)
--------- ---------
Total stockholders' equity (deficiency in assets) ....................... (348,179) (288,528)
--------- ---------
Total liabilities and stockholders' equity (deficiency in assets) ..... $ 765,956 $ 878,971
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
38
<PAGE> 41
STERLING CHEMICALS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL ACCUMULATED
COMMON STOCK PAID-IN RETAINED PENSION TRANSLATION DEFERRED TREASURY
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT COMPENSATION STOCK
------- ----- --------- --------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995 ... 60,327 $ 603 $ 33,269 $ 275,052 $ (1,556) $ (17,307) $ (129) $(50,614)
Net income ..................... -- -- -- 31,604 -- -- -- --
Redemption of common stock ..... (50,690) (507) (616,892) -- -- -- -- --
Common stock issued in
the 1996 Recapitalization .... 5,349 54 64,084 -- -- -- -- --
Employee stock purchase ........ 250 2 3,000 -- -- -- -- --
Stock warrants ................. -- -- 6,900 -- -- -- -- --
Translation adjustment ......... -- -- -- -- -- (1,817) -- --
Treasury stock transactions .... (4,637) (46) (50,438) -- -- -- -- 50,614
Amortization of deferred
compensation ................. -- -- -- -- -- -- 129 --
Pension adjustment ............. -- -- -- -- 1,556 -- -- --
------- ----- --------- --------- --------- ---------- --------- --------
Balance, September 30, 1996 ... 10,599 106 (560,077) 306,656 -- (19,124) -- --
Net loss ....................... -- -- -- (28,060) -- -- -- --
Common stock issued in
connection with AFB
Acquisition, net ............. 778 8 9,331 -- -- -- -- --
Preferred stock dividends ...... -- -- -- (905) -- -- -- --
Translation adjustment ......... -- -- -- -- -- (1,969) -- --
Employee stock purchase ........ (44) -- (531) -- -- -- -- --
Treasury stock purchases ....... (228) -- -- -- -- -- -- (2,730)
Common stock issued in
connection with the
Saskatoon Acquisition, net ... 609 6 6,379 -- -- -- -- --
Stock warrants ................ -- -- 2,413 -- -- -- -- --
Pension adjustment ............. -- -- -- -- (31) -- --
------- ----- --------- --------- --------- ---------- --------- --------
Balance, September 30, 1997 ... 11,714 120 (542,485) 277,691 (31) (21,093) -- (2,730)
Net loss ....................... -- -- -- (46,119) -- -- -- --
Common stock issued in
connection with the
exercise of warrants ......... 345 3 -- -- -- -- -- --
Preferred stock dividends ...... -- -- -- (2,460) -- -- -- --
Treasury shares issued
as restricted stock .......... 23 -- (48) -- -- -- (222) 270
Treasury shares issued to ESOP . -- -- (168) -- -- -- -- 168
Revaluation of ESOP shares to
independently appraised
market value ................. -- -- -- 478 -- -- -- --
Amortization of deferred
compensation ................. -- -- -- -- -- -- 111 --
Translation adjustment ......... -- -- -- -- -- (11,466) -- --
Treasury stock purchases ....... (9) -- -- -- -- -- -- (108)
Pension adjustment ............. -- -- -- -- (90) -- -- --
------- ----- --------- --------- --------- ---------- --------- --------
Balance, September 30, 1998 ... 12,073 $ 123 $(542,701) $ 229,590 $ (121) $ (32,559) $ (111) $ (2,400)
======= ===== ========= ========= ========= ========== ========= ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
39
<PAGE> 42
STERLING CHEMICALS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................... $(46,119) $ (28,060) $ 31,604
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization .................................. 55,963 49,849 41,539
Interest amortization .......................................... 4,376 4,163 1,163
Loss on disposal/write off of assets ........................... 353 241 3,706
Extraordinary item ............................................. -- 3,924 1,900
Deferred tax expense (benefit) ................................. (14,877) 2,866 4,172
Accrued compensation including SARs ............................ -- -- 8,984
Merger related expenses ........................................ -- -- 3,633
Discount notes amortization .................................... 16,878 15,499 1,656
Other .......................................................... 1,467 2,087 (3,766)
Change in assets/liabilities:
Accounts receivable ............................................ 44,419 (8,985) (18,297)
Inventories .................................................... 13,675 (6,674) 14,147
Prepaid expenses ............................................... (2,852) (7,767) (5,173)
Other assets ................................................... 654 (1,754) (8,900)
Accounts payable ............................................... (32,896) (1,424) (5,454)
Accrued liabilities ............................................ (9,300) 27,305 (7,018)
Other liabilities .............................................. 14,143 (3,956) (295)
-------- --------- ---------
Net cash provided by operating activities ........................... 45,884 47,314 63,601
-------- --------- ---------
Cash flows from investing activities:
Capital expenditures ........................................... (26,622) (43,428) (95,957)
Business acquisitions .......................................... -- (152,923) --
-------- --------- ---------
Net cash used in investing activities ............................... (26,622) (196,351) (95,957)
-------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt ................................... 59,862 375,260 800,350
Repayment of long-term debt .................................... (75,152) (236,104) (196,285)
Redemption of common stock ..................................... -- -- (616,160)
Purchase of other equity interests ............................. -- -- (14,587)
Issuance of common stock, net .................................. 3 18,721 64,040
Sale of warrants ............................................... -- 2,413 6,900
Debt issuance costs ............................................ -- (9,684) (33,070)
Other merger fees .............................................. -- -- (3,709)
Issuance of preferred stock .................................... -- 4,887 --
Purchase of treasury stock ..................................... (105) (3,256) --
Other .......................................................... 154 (627) (289)
-------- --------- ---------
Net cash provided by (used in) financing activities ................. (15,238) 151,610 7,190
Effect of United States /Canadian exchange rate on cash ............. (814) (224) (107)
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents ................ 3,210 2,349 (25,273)
Cash and cash equivalents - beginning of year ....................... 7,958 5,609 30,882
-------- --------- ---------
Cash and cash equivalents - end of year ............................. $ 11,168 $ 7,958 $ 5,609
======== ========= =========
Supplement disclosures of cash flow information:
Interest paid, net of interest income received ................. $(92,251) $ (60,387) $ (8,378)
Income taxes received (paid) ................................... 6,653 3,116 (15,618)
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
40
<PAGE> 43
STERLING CHEMICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------ MAY 14, 1996 (DATE OF INCEPTION)
1998 1997 TO SEPTEMBER 30, 1996 (1)
--------- --------- --------------------------------
<S> <C> <C> <C>
Revenues ............................................ $ 822,590 $ 908,787 $ 83,410
Cost of goods sold .................................. 732,411 813,148 83,047
--------- --------- --------
Gross profit ........................................ 90,179 95,639 363
Selling, general and administrative expenses ........ 50,231 37,475 3,426
Other expense ....................................... 5,962 -- --
Interest and debt related expenses .................. 86,618 72,931 1,615
Interest income from parent ......................... -- (1,692) (5,236)
--------- --------- --------
Income (loss) before taxes and extraordinary item ... (52,632) (13,075) 558
Provision (benefit) for income taxes ................ (18,963) (2,148) 384
--------- --------- --------
Income (loss) before extraordinary item ............. (33,669) (10,927) 174
Extraordinary item, loss on early extinguishment
of debt, net of tax (Note 4) ..................... -- 3,924 --
--------- --------- --------
Net income (loss) ................................... $ (33,669) $ (14,851) $ 174
========= ========= ========
</TABLE>
(1) See Note 1 of Notes to Consolidated Financial Statements for a
discussion of merger activities and related financing. Prior to August
21, 1996, Chemicals had no operating activities, other than those
related to merger activities.
The accompanying notes are an integral part of the
consolidated financial statements.
41
<PAGE> 44
STERLING CHEMICALS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................................... $ 11,159 $ 7,958
Accounts receivable ............................................... 116,398 167,898
Inventories ....................................................... 73,225 87,870
Prepaid expenses .................................................. 13,632 10,031
Deferred income tax benefit ....................................... 5,140 10,005
----------- -----------
Total current assets ............................................ 219,554 283,762
Property, plant and equipment, net ................................... 450,315 492,036
Other assets ......................................................... 92,634 99,519
----------- -----------
Total assets .................................................... $ 762,503 $ 875,317
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)
Current liabilities:
Accounts payable .................................................. $ 46,764 $ 80,658
Accrued liabilities ............................................... 71,873 77,565
Current portion of long-term debt ................................. 8,909 5,710
----------- -----------
Total current liabilities ......................................... 127,546 163,933
Long-term debt ....................................................... 745,720 768,870
Deferred income tax liability ........................................ 23,301 42,646
Deferred credits and other liabilities ............................... 83,288 73,337
Common stock held by ESOP ............................................ 5,938 7,688
Less: unearned compensation ......................................... (2,845) (5,570)
Commitments and contingencies ........................................ --
Stockholder's equity (deficiency in assets):
Common stock, $.01 par value ...................................... -- --
Additional paid-in capital ........................................ (139,786) (139,786)
Accumulated deficit ............................................... (47,868) (14,677)
Pension adjustment ................................................ (121) (31)
Accumulated translation adjustment ................................ (32,559) (21,093)
Deferred Compensation ............................................. (111) --
----------- -----------
Total stockholder's equity (deficiency in assets) ................. (220,445) (175,587)
----------- -----------
Total liabilities and stockholder's equity (deficiency in assets) . $ 762,503 $ 875,317
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
42
<PAGE> 45
STERLING CHEMICALS, INC.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL ACCUMULATED
COMMON STOCK PAID-IN ACCUMULATED PENSION DEFERRED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT COMPENSATION ADJUSTMENT
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, May 14,1996 ............. $ -- $ -- $ -- $ -- $ -- $ -- $ --
Common stock issued .............. 1 -- 1 -- -- -- --
Capital transfer, net ............ -- -- (165,353) -- (1,556) -- (20,194)
Net income ....................... -- -- -- 174 -- -- --
Pension adjustment ............... -- -- -- -- 1,556 -- --
Translation adjustment ........... -- -- -- -- -- -- 1,070
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 1996 ...... 1 -- (165,352) 174 -- -- (19,124)
Contribution from parent ......... -- -- 27,684 -- -- -- --
Net loss ......................... -- -- -- (14,851) -- -- --
Pension adjustment ............... -- -- -- -- (31) -- --
Earned ESOP shares ............... -- -- (2,118) -- -- -- --
Translation adjustment ........... -- -- -- -- -- -- (1,969)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 1997 ...... 1 -- (139,786) (14,677) (31) -- (21,093)
Net loss ......................... -- -- (33,669) -- -- --
Pension adjustment ............... -- -- -- (90) -- --
Establishment of restricted .... -- -- -- -- -- (222) --
stock
Revaluation of ESOP shares to
independently appraised market
value .......................... -- -- -- 478 -- -- --
Amortization of deferred
compensation ................... -- -- -- -- -- 111 --
Translation adjustment ........... -- -- -- -- -- (11,466)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 1998 ...... 1 -- (139,786) (47,868) (121) (111) (32,559)
========== ========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
43
<PAGE> 46
STERLING CHEMICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------ MAY 14, 1996 (DATE OF INCEPTION)
1998 1997 TO SEPTEMBER 30, 1996 (1)
---------- ---------- -------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................... $ (33,669) $ (14,851) $ 174
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization ..................... 59,151 53,680 4,801
Deferred tax expense (benefit) .................... (10,771) 7,847 1,457
Extraordinary item ................................ -- 3,924 --
Other ............................................. 2,020 2,173 (511)
Change in assets/liabilities:
Accounts receivable ............................... 45,484 (13,510) 164
Inventories ....................................... 13,675 (6,674) (468)
Prepaid expenses .................................. (1,838) (5,733) (2,428)
Other assets ...................................... 2,078 (2,271) 784
Accounts payable .................................. (35,102) (1,288) 7,025
Accrued liabilities ............................... (3,441) 27,218 (4,460)
Other liabilities ................................. 8,288 (3,941) (2,294)
---------- ---------- ----------
Net cash provided by operating activities ............ 45,875 46,574 4,244
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures .............................. (26,623) (43,428) (6,398)
Business acquisitions ............................. -- (152,923) --
---------- ---------- ----------
Net cash used in investing activities ................ (26,623) (196,351) (6,398)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt ...................... 59,862 375,260 637,900
Repayment of long-term debt ....................... (75,153) (236,104) (6,400)
Debt issuance costs ............................... -- (9,684) (27,939)
Intercompany financing ............................ 1 3,000 --
Distribution to parent ............................ -- -- (609,961)
Contribution from parent .......................... -- 22,286 14,165
Other ............................................. 54 (2,380) --
---------- ---------- ----------
Net cash provided by (used in) financing activities .. (15,236) 152,378 7,765
Effect of United States /Canadian exchange rate on . (815) (224) (30)
---------- ---------- ----------
cash
Net increase in cash and cash equivalents ............ 3,201 2,377 5,581
Cash and cash equivalents - beginning of period ...... 7,958 5,581 --
---------- ---------- ----------
Cash and cash equivalents - end of year .............. $ 11,159 $ 7,958 $ 5,581
========== ========== ==========
Supplement disclosures of cash flow information:
Interest paid, net of interest income received .... $ (92,279) $ (60,402) $ (2,655)
Income taxes received (paid) ...................... 6,653 3,116 (4,950)
</TABLE>
(1) See Note 1 of Notes to Consolidated Financial Statements for a
discussion of merger activities and related financing. Prior to August
21, 1996, Chemicals had no operating activities, other than those
related to merger activities.
The accompanying notes are an integral part of the
consolidated financial statements.
44
<PAGE> 47
STERLING CHEMICALS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. MERGER ACTIVITIES
Sterling Chemicals, Inc. (prior to the Merger, "Sterling") and STX
Acquisition Corp. ("STX Acquisition"), a Delaware corporation formed in April
1996 by an investor group led by The Sterling Group, Inc. ("TSG") and The
Unicorn Group L.L.C. ("Unicorn"), entered into an Amended and Restated Agreement
and Plan of Merger dated April 24, 1996 (the "Merger Agreement"). On August 20,
1996, the Merger Agreement was approved by a majority of the shares outstanding,
and on August 21, 1996, STX Acquisition merged with and into Sterling, changing
its name to Sterling Chemicals Holdings, Inc. ("Holdings"), and continuing as
the surviving corporation (the "Merger"). In connection with the Merger,
Holdings transferred all of its operating assets and liabilities, excluding its
13 1/2% Senior Discount Notes due 2008 (the "13 1/2% Notes"), to a wholly owned
subsidiary, STX Chemicals Corp., which at the time of the Merger changed its
name to Sterling Chemicals, Inc. (after the Merger, "Chemicals"). Holdings has
no direct subsidiaries other than Chemicals. As used in these notes, the term
"Company" refers to Sterling and its subsidiaries prior to the consummation of
the Merger and, following the Merger, to Holdings and its subsidiaries,
including Chemicals.
Each share of the Company's common stock outstanding immediately prior to
the Merger was converted (at the election of the holder thereof) into either
$12.00 cash or the right to retain such shares ("Rollover Shares"), with the
aggregate number of Rollover Shares limited to 5.0 million. As a result of the
Merger, on August 21, 1996, the former STX Acquisition stockholders held
approximately 5.3 million shares (49%), stockholders with Rollover Shares held
approximately 5.0 million shares (46%), and the Company's newly formed Employee
Stock Ownership Plan (the "ESOP") held approximately 542,000 shares (5%) of the
outstanding common shares of Holdings' common stock, par value $0.01 per share
("Holdings Common Stock").
The Merger was financed by the proceeds of (i) bank term loans of $356.5
million, including an ESOP term loan of $6.5 million, amounts drawn against a
revolving credit facility of $6.4 million, each pursuant to a new credit
agreement (the "Original Credit Agreement"), (ii) an offering by Chemicals of
$275.0 million of Chemicals' 11 3/4% Senior Subordinated Notes Due 2006 (the "11
3/4% Notes"), (iii) an offering of $191.8 million (initial proceeds of $100
million) representing 191,751 Units, with each unit consisting of one 13 1/2%
Note and one warrant to purchase three shares of Holdings Common Stock for $0.01
per share beginning in August 1997, (iv) equity raised by STX Acquisition of
approximately $70.7 million, and (v) cash on hand of $10.3 million. These
proceeds were used to redeem Sterling's common stock other than Rollover Shares
($608.3 million), purchase other equity interests (primarily stock appreciation
rights ("SARs")) ($14.6 million), repay debt outstanding prior to the Merger
($142.7 million), loan monies to the new ESOP ($6.5 million), and pay fees and
expenses ($46.8 million).
The Company has accounted for the Merger and related financing
(collectively the "1996 Recapitalization") as a series of debt and equity
transactions representing a recapitalization. Accordingly, the historical basis
of the Company's assets and liabilities have not been impacted by the 1996
Recapitalization.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company manufactures seven commodity petrochemicals at its Texas City,
Texas plant (the "Texas City Plant"). Additionally, the Company manufactures
chemicals for use primarily in the pulp and paper industry at five plants in
Canada and one plant in Valdosta, Georgia (the "Valdosta Plant"), and
manufactures acrylic fibers in a plant near Pensacola, Florida (the "Santa Rosa
Plant"). At its Texas City Plant, the Company produces styrene, acrylonitrile,
acetic acid, plasticizers, methanol, tertiary butylamine ("TBA"), and sodium
cyanide. The Company generally sells its petrochemical products to customers for
use in the manufacture of other chemicals and products, which in turn are used
in the production of a wide array of consumer goods and industrial products. The
Company produces regular textiles, specialty textiles, and technical fibers at
the Santa Rosa Plant, as well as licensing the acrylic fibers manufacturing
technology to producers worldwide. Sodium chlorate is produced at the five
plants in Canada and the Valdosta Plant. Sodium chlorite is produced at one of
the Canadian locations. In addition, chlor-alkali and calcium hypochlorite are
produced at one of the Canadian locations. The Company licenses, engineers, and
overseas construction of large-scale chlorine dioxide generators for the pulp
and paper industry as part of the pulp chemical business. These generators
convert sodium chlorate into chlorine dioxide at pulp mills.
The significant accounting policies of the Company are described below.
45
<PAGE> 48
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all wholly
owned and majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The Company's investment in a cogeneration
joint venture of a 50% equity interest and a 50/50 acrylonitrile marketing joint
venture are accounted for under the equity method with the Company's share of
the operating results of the joint ventures recorded in its Statement of
Operations.
CASH EQUIVALENTS
The Company considers all investments purchased with a remaining maturity
of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market; cost is determined
on the first-in, first-out basis except for stores and supplies, which are
valued at average cost.
The Company enters into agreements with other companies to exchange
chemical inventories in order to minimize working capital requirements and to
facilitate distribution logistics. Balances related to quantities due to or
payable by the Company are included in inventory.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Major renewals and
improvements, which extend the useful lives of the equipment, are capitalized.
Major planned maintenance expenses are accrued for during the periods prior to
the maintenance, while routine repair and maintenance expenses are charged to
operations as incurred. Disposals are removed at carrying cost less accumulated
depreciation with any resulting gain or loss reflected in operations.
Depreciation is provided using the straight-line method over estimated useful
lives ranging from 5 to 25 years with the predominant life of the plant and
equipment being 15 years. The Company capitalizes interest costs, which are
incurred as part of the cost of constructing major facilities and equipment. The
amount of interest capitalized for the fiscal years 1998, 1997, and 1996 was
$0.8 million, $3.8 million, and $4.1 million, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
Impairment tests of long lived assets are made when conditions indicate
their carrying cost may not be recoverable. Such impairment tests are based on a
comparison of undiscounted future cash flows or the market value of similar
assets to the carrying cost of the asset. If an impairment is indicated, the
asset value is written down to its estimated fair value.
PATENTS AND ROYALTIES
The cost of patents is amortized on a straight-line basis over their
estimated useful lives which approximates ten years. The Company capitalized the
value of the chlorine dioxide generator technology acquired in fiscal 1992 based
on the net present value of all estimated remaining royalty payments associated
with the technology. The resulting intangible amount is included in other assets
and is amortized over an average life for these royalty payments of ten years.
DEBT ISSUE COSTS
Debt issue costs relating to long-term debt are amortized using the
effective interest method and are included in other assets.
INCOME TAXES
Deferred income taxes are recorded to reflect the tax effect of the
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities at enacted rates.
46
<PAGE> 49
REVENUE RECOGNITION
The Company generates revenues through sales in the open market, raw
material conversion agreements, and long-term supply contracts. In addition, the
Company has entered into shared profit arrangements with respect to certain
petrochemical products. The Company recognizes revenue from sales in the open
market, raw material conversion agreements, and long-term supply contracts as
the products are shipped. Revenues from shared profit arrangements are estimated
and accrued monthly. Deferred credits are amortized over the life of the
contract which gave rise to them. The Company also generates revenues from the
construction and sale of chlorine dioxide generators, which are recognized using
the percentage of completion method. The Company also receives prepaid
royalties, which are recognized over a period, which is typically ten years. In
addition, the Company generates revenues from the sale of acrylic fibers
manufacturing technology to producers worldwide, which are recognized as earned.
FOREIGN EXCHANGE
Assets and liabilities denominated in Canadian dollars are translated into
United States dollars at year-end exchange rates and revenues and expenses are
translated at the average monthly exchange rates. Translation adjustments are
reported as a separate component of stockholders' equity, while transaction
gains and losses are included in operations when incurred.
The Company's Canadian subsidiaries enter into forward foreign exchange
contracts to minimize the short-term impact of Canadian dollar fluctuations on
certain of its Canadian dollar denominated commitments. Gains or losses on these
contracts are deferred and are included in operations in the same period in
which the related transactions are settled.
HEDGING
The Company periodically enters into contracts to hedge against the
volatility in natural gas prices, which is used in the production of styrene and
methanol. These transactions generally take the form of price collars, and are
placed with major financial institutions and industrial companies. The results
of the hedging transactions are included in Cost of Goods Sold as the related
production of styrene and methanol occurs.
EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", establishes standards for computing and presenting earnings per share
("EPS") and replaces the presentation of primary EPS previously prescribed with
a presentation of basic EPS, which is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. The statement also requires presentation of diluted EPS. Diluted
EPS is computed similarly to fully diluted EPS pursuant to Accounting Principles
Board Opinion No. 15. The Company adopted SFAS No. 128 for fiscal 1998 and has
restated prior year amounts to reflect adoption of the new standard. As losses
were incurred in fiscal 1998 and 1997 and there were an insignificant number of
options outstanding during fiscal 1996, basic and diluted EPS are the same
amount for these periods.
For purposes of computing net income (loss) per common share, net income
(loss) has been reduced by an amount equal to the fair market value of Released
Shares (as hereinafter defined) at the end of the period, minus the sum of the
amount previously recognized as compensation expense with respect to Released
Shares and the amount of depreciation/appreciation in value of Released Shares
in prior periods. This reduction results from the Company being required, under
certain circumstances, to purchase for cash common stock distributed to
participants by the ESOP. "Released Shares" are shares held by the ESOP but
allocated to employees. The weighted average number of outstanding shares and
computation of the net income (loss) per common share is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) attributable to common stockholders $ (48,579) $ (28,965) $ 31,604
Plus depreciation in value of Released Shares 298 -- --
---------- ---------- ----------
Net income (loss) for purpose of computing net income (loss) per share $ (48,281) $ (28,965) $ 31,604
========== ========== ==========
Net income (loss) per common share $ (3.99) $ (2.58) $ 0.62
========== ========== ==========
Weighted average shares outstanding 12,104 11,237 50,700
========== ========== ==========
</TABLE>
47
<PAGE> 50
CASH FLOW STATEMENT
During the fourth quarter of fiscal 1998, the Company elected to change
from the direct method of reporting net cash flows from operating activities to
the indirect method. Accordingly, the prior years statements of cash flows have
been conformed to the current year presentation.
ENVIRONMENTAL COSTS
Environmental costs are expensed unless the expenditures extend the
economic useful life of the assets. Costs that extend the economic life of the
assets are capitalized and depreciated over the remaining life of such assets.
Liabilities are recorded when environmental assessments and/or remedial efforts
are probable, and the cost can be reasonably estimated.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
In preparing disclosures about the fair value of financial instruments,
the Company has assumed that the carrying amount approximates fair value for
cash and cash equivalents, receivables, short-term borrowings, accounts payable
and certain accrued expenses because of the short maturities of those
instruments. The fair values of long-term debt instruments are estimated based
upon quoted market values (if applicable) or on the current interest rates
available to the Company for debt with similar terms and remaining maturities.
Considerable judgment is required in developing these estimates and,
accordingly, no assurance can be given that the estimated values presented
herein are indicative of the amounts that would be realized in a free market
exchange.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. Significant estimates include environmental reserves, litigation
contingencies, maintenance costs related to shut downs, taxes, and revenues.
Actual results could differ from these estimates.
RECLASSIFICATION
Certain amounts reported in the financial statements for the prior periods
have been reclassified to conform with the current financial statement
presentation with no effect on net income (loss) or stockholders' equity
(deficiency in assets).
48
<PAGE> 51
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1998 1997
---------- ----------
(Dollars in Thousands)
<S> <C> <C>
Inventories:
Finished products ............................... $ 42,436 $ 47,572
Raw materials ................................... 8,089 17,800
---------- ----------
Inventories at FIFO cost ........................... 50,525 65,372
---------- ----------
Inventories under exchange agreements ........... 3,031 2,179
Stores and supplies ............................. 19,669 20,319
---------- ----------
$ 73,225 $ 87,870
========== ==========
Property, plant and equipment:
Land ............................................ $ 12,897 $ 12,766
Buildings ....................................... 51,362 51,032
Plant and equipment ............................. 652,872 634,772
Construction in progress ........................ 30,506 43,856
Less: accumulated depreciation ................. (297,322) (250,390)
---------- ----------
$ 450,315 $ 492,036
========== ==========
Other assets:
Patents and technology, net ..................... $ 26,821 $ 32,918
Debt issue costs ................................ 28,248 32,472
Other ........................................... 40,897 37,508
---------- ----------
$ 95,966 $ 102,898
========== ==========
Accrued liabilities:
Repairs ......................................... $ 16,890 $ 19,205
Interest ........................................ 14,433 14,661
Property taxes .................................. 7,754 8,255
Other ........................................... 32,796 35,444
---------- ----------
$ 71,873 $ 77,565
========== ==========
Deferred credits and other liabilities:
Deferred revenue ................................ $ 15,168 $ 19,963
Accrued postretirement benefits ................. 37,663 33,448
Other ........................................... 27,458 19,925
---------- ----------
$ 80,289 $ 73,336
========== ==========
</TABLE>
4. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1998 1997
---------- ----------
(Dollars in Thousands)
<S> <C> <C>
Revolving credit facilities $ -- $ 9,400
Term loans 274,000 275,334
Saskatoon term loans 49,552 53,822
ESOP term loan 3,250 4,875
11 1/4% notes 152,816 153,148
11 3/4% notes 275,000 275,000
13 1/2% notes 127,907 110,412
---------- ----------
Total debt outstanding 882,525 881,991
========== ==========
Less:
Current maturities (8,909) (5,710)
---------- ----------
Total long-term debt $ 873,616 $ 876,281
========== ==========
</TABLE>
49
<PAGE> 52
TERM LOANS, REVOLVER AND ESOP LOANS
As part of the 1996 Recapitalization, Chemicals entered into the Original
Credit Agreement with Texas Commerce Bank National Association (now Chase Bank
of Texas, N.A., "Chase"), as agent bank for a syndicate of lenders. Funding
under the Original Credit Agreement occurred August 21, 1996, upon the
consummation of the Merger. The Original Credit Agreement provided for
facilities consisting of a six and one-half year revolving credit facility
providing for up to $100 million (subject to a monthly borrowing base
calculation) in revolving loans (the "Revolver"), a term loan facility
consisting of a six and one-half year $200 million Tranche A term loan and an
eight-year $150 million Tranche B term loan (the "Original Term Loans"), and a
four-year $6.5 million ESOP Term Loan (the "ESOP Loan").
On January 31, 1997, the Company acquired (the "AFB Acquisition") the
acrylic fibers business (the "AFB") of Cytec Industries Inc. ("Cytec") (see Note
8). In connection with the AFB Acquisition, Chemicals entered into a credit
agreement (the "Fibers Credit Agreement") with Chase, as agent bank for a
syndicate of lenders. Funding under the Fibers Credit Agreement occurred January
31, 1997, upon consummation of the AFB Acquisition. The Fibers Credit Agreement
provided for a term loan facility consisting of a $31 million Tranche A term
loan due June 30, 2003 and a $50 million Tranche B term loan due September 30,
2004 (the "Fibers Term Loans").
On April 7, 1997, Chemicals completed a private offering (the "11 1/4%
Notes Offering") of $150,000,000 of 11 1/4% Senior Subordinated Notes Due 2007
(the "11 1/4% Notes"). The 11 1/4% Notes are unsecured senior subordinated
obligations of Chemicals, ranking subordinate in right of payment to all
existing and future senior debt of Chemicals, but pari passu with the 11 3/4%
Notes and all future senior subordinated indebtedness. On July 7, 1997,
Chemicals completed a registered exchange offer, pursuant to which all of the 11
1/4% Notes were exchanged for publicly registered 11 1/4% Notes with
substantially similar terms.
The proceeds of the 11 1/4% Notes Offering were used to prepay outstanding
indebtedness under the Original Term Loans. In connection with such prepayments,
Chemicals and the requisite lenders under the Original Credit Agreement and the
Fibers Credit Agreement effected amendments to such agreements (the
"Amendments"). Among other things, the Amendments: (i) permitted and provided
for the issuance of the 11 1/4% Notes, (ii) adjusted the method of the
application of voluntary prepayments to allow the proceeds of the 11 1/4% Notes
Offering to be applied in a manner that significantly reduced required principal
payments, particularly over the next three years, (iii) amended certain
financial covenants to make them somewhat less restrictive, (iv) increased the
commitment under the Revolver by $25 million to $125 million, and (v) included a
new financial covenant with respect to the maintenance of a specified Senior
Debt Leverage Ratio (as defined in the Amendments). Unamortized debt issue costs
related to the Original Term Loans of approximately $6.0 million pre-tax, $3.9
million after-tax, were expensed in April 1997, and recorded as an extraordinary
loss from early extinguishment of debt.
In connection with the acquisition of substantially all of the assets of
Saskatoon Chemicals Ltd., a subsidiary of Weyerhauser Canada Ltd., the Company
consolidated and combined the Original Credit Agreement and the Fibers Credit
Agreement (as consolidated, the "Credit Agreement"), as well as the Original
Term Loans and the Fibers Term Loans (as consolidated, the "Term Loans").
The Term Loans, the ESOP Loan, and the Revolver borrowings bear interest,
at Chemicals' option, at an annual rate of either the Eurodollar Rate or the
Base Rate plus an Applicable Margin ranging from 0.5% to 3.5% depending upon the
Company's Leverage Ratio (as defined in the Credit Agreement). The "Base Rate"
is equal to the greater of the Prime Rate as announced from time to time by the
agent bank, the "Federal Funds Effective Rate" plus 1/2% or the "Base CD Rate"
plus 1% (as such terms are defined in the Credit Agreement). At September 30,
1998, the interest rates in effect for the Tranche A term loan, the Tranche B
term loan, and the ESOP Loan were 7.8%, 8.3%, and 7.8%, respectively. The Credit
Agreement also requires Chemicals to pay a commitment fee in the amounts of
3/8% or 1/2% of the unused commitment under the Revolver depending on the
Company's Leverage Ratio.
The Credit Agreement requires the principal amount of the Term Loans to be
amortized in quarterly installments of $333,333 beginning with the fiscal
quarter ending September 30, 1997, increasing in March 2000. The ESOP Loan will
be amortized in 12 equal quarterly installments of $406,250, with the last
payment in September 2000.
Chemicals' obligations under the Credit Agreement are secured by a first
priority lien on the capital stock of Chemicals' domestic subsidiaries, 65% of
the capital stock of its foreign subsidiaries and substantially all of the
domestic assets of Chemicals and its subsidiaries, including without limitation,
accounts receivable, inventory, intangibles and fixed assets, and assignments of
certain material leases, licenses, and contracts. In addition, the Credit
Agreement is secured by a pledge by Holdings of all of the capital stock of
Chemicals.
50
<PAGE> 53
The Credit Agreement contains numerous financial and operating covenants,
including, but not limited to, restrictions on Chemicals' ability to incur
indebtedness (including future borrowings under the Revolver), 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, upon occurrence and subject
in certain cases to notice and grace periods, an event of default thereunder.
During April and December 1998, the Company obtained certain amendments to
the financial covenants in the Credit Agreement. At no time was the Company not
in compliance with the covenants. The Company requested the amendments based on
its revised financial projections, and the amendments made the financial
covenants less restrictive through December 31, 1999. Under certain
circumstances, the amendments require the Company to raise up to $15 million in
additional stockholders' equity. As discussed in Note 12, the Company has made
provisions for such equity.
On July 10, 1997, Sterling Pulp Chemicals (Sask) Ltd. ("Sterling Sask"), an
indirect wholly owned subsidiary of Holdings and Chemicals, acquired
substantially all of the assets of Saskatoon Chemicals Ltd. ("Saskatoon
Chemicals"), a subsidiary of Weyerhauser Canada Ltd. (the "Saskatoon
Acquisition"). In connection with the Saskatoon Acquisition, Sterling Sask
entered into a credit agreement (the "Saskatoon Credit Agreement") with The
Chase Manhattan Bank of Canada, individually and as administrative agent.
Funding under the Saskatoon Credit Agreement occurred July 10, 1997, upon
consummation of the Saskatoon Acquisition. The Saskatoon Credit Agreement
provides for a revolving credit facility of Cdn. $8.0 million (the "Saskatoon
Revolver"), and a term loan facility consisting of Cdn. $21.2 million Tranche A
term loan due June 30, 2003, and $36.4 million Tranche B term loan due June 30,
2005 (the "Saskatoon Term Loans"). Advances under the Saskatoon Revolver are
subject to a borrowing base consisting of 85% of eligible accounts receivable
and 65% of eligible inventory with an inventory cap of 50% of the borrowing
base. At September 30, 1998, the borrowing base did not limit such available
credit and there were no borrowings outstanding under the Saskatoon Revolver.
Sterling Sasks' obligations under the Saskatoon Credit Agreement are secured by
substantially all of the assets of Sterling Sask. The Saskatoon Credit Agreement
requires Sterling Sask to satisfy certain financial covenants and tests. In
addition, the Saskatoon Credit Agreement requires that certain amounts of Excess
Cash Flow (as defined therein) be used to prepay amounts outstanding under the
Saskatoon Term Loans. A mandatory prepayment of Cdn. $5.3 million will be
required in fiscal 1999.
The Sterling Sask Tranche A term loan and the Saskatoon Revolver borrowings
bear interest, at the Company's option, at an annual rate of either the Bankers
Acceptance Rate or the Base Rate plus an Applicable Margin ranging from 1% to
2.5% depending upon the Company's Leverage Ratio (as defined in the Saskatoon
Credit Agreement). The Tranche B term loan bears interest, at the Company's
option, at an annual rate of either the Eurodollar Rate or the Base Rate plus an
Applicable Margin ranging from 0% to 2.5% depending upon the Company's Leverage
Ratio (as defined in the Saskatoon Credit Agreement). The "Base Rate" for the
Tranche A term loan and the Saskatoon Revolver is equal to the greater of the
Prime Rate for Canadian Dollar commercial loans made in Canada, as announced
from time to time by the agent bank, or the rate for Canadian Dollar Bankers
Acceptances accepted by the agent with a term to maturity of 30 days plus 1% (as
such terms are defined in the Saskatoon Credit Agreement). The "Base Rate" for
the Tranche B term loan is equal to the greater of the Prime Rate as announced
from time to time by the agent bank, the "Federal Funds Effective Rate" plus
1/2% or the "Base CD Rate" plus 1% (as such terms are defined in the Saskatoon
Credit Agreement). At September 30, 1998, the interest rates in effect for the
Tranche A and Tranche B term loans were 8.12% and 8.4%, respectively. The
Saskatoon Credit Agreement also requires Sterling Sask to pay a commitment fee
in the amount of 1/2% of the unused commitment under the Saskatoon Revolver.
At September 30, 1998, Chemicals had indebtedness of $274.0 million under
the Term Loans, $49.6 million under the Saskatoon Term Loans, and $3.3 million
under the ESOP Loan. The Revolver has a total commitment of $125 million. The
Revolver matures at March 31, 2003. As of September 30, 1998, the Company had no
amounts drawn and approximately $2.7 million in letters of credit outstanding
under the Revolver. Available credit under the Revolver for loans and letters of
credit is subject to a monthly borrowing base consisting of 85% of eligible
accounts receivable and 65% of eligible inventory with an inventory cap of 50%
of the borrowing base. At September 30, 1998, the borrowing base limited the
total credit available under the Revolver to a maximum of $120.9 million.
Accordingly and after giving effect to the $2.7 million of outstanding letters
of credit, as of September 30, 1998, the unused credit available under the
Revolver was $118.2 million, up from $113 million at September 30, 1997.
Availability of credit under the Revolver is subject to Chemicals being in
compliance with numerous financial and operational covenants contained in the
Credit Agreement. At September 30, 1998, Chemicals was in compliance with such
covenants. The failure of Chemicals to comply with these covenants would permit
the lenders to accelerate the maturity of the indebtedness under the Credit
Agreement and exercise other remedies, in each case without the approval of
Chemicals. In addition, based on the
51
<PAGE> 54
Company's results of operations for the four quarters ended September 30, 1998,
these covenants operate to limit the amount of additional debt (including
amounts available under the Revolver) that may be incurred by the Company.
DISCOUNT NOTES AND SUBORDINATED NOTES
As part of the 1996 Recapitalization, Chemicals also issued the 11 3/4%
Notes and Holdings issued $191.8 million ($100 million initial proceeds)
representing 191,751 Units, with each Unit consisting of one 13 1/2% Note and
one warrant to purchase three shares of Holdings Common Stock for $.01 per
share.
The 11 3/4% Notes bear interest at the annual rate of 11 3/4%, payable
semi-annually on February 15 and August 15 of each year commencing February 15,
1997. The 13 1/2% Notes will accrete interest until August 15, 2001, with no
interest payable in cash until February 15, 2002, at an annual rate of 13 1/2%,
compounded semi-annually. Commencing in 2002, interest will be payable
semi-annually on February 15 and August 15 of each year until maturity.
Except as otherwise provided below, the 11 3/4% Notes may not be redeemed
by Chemicals prior to August 15, 2001. From that date through August 15, 2004,
the 11 3/4% Notes may be redeemed at a premium of the principal amount thereof
at maturity varying between 105.875% and 101.958%. Subsequent to August 15,
2004, Chemicals may redeem the 11 3/4% Notes at their face value plus accrued
and unpaid interest. Prior to August 15, 1999, Chemicals may redeem in the
aggregate up to 35% of the original principal amount of the 11 3/4% Notes with
the proceeds of one or more public equity offerings, as defined. Such
redemptions may be made at a redemption price of 111.75% of the face value plus
accrued and unpaid interest to the redemption date. After such redemption, at
least $178.8 million aggregate principal amount of the 11 3/4% Notes must remain
outstanding.
Except as otherwise provided below, the 13 1/2% Notes may not be redeemed
by Holdings prior to August 15, 2001. From that date through August 15, 2006,
the 13 1/2% Notes may be redeemed at a premium of the principal amount thereof
at maturity varying between 106.75% and 101.35%. Subsequent to August 15, 2006,
the Company may redeem the 13 1/2% Notes at their principal amount plus accrued
interest. Prior to August 15, 1999, Holdings may redeem in the aggregate up to
35% of the Accreted Value (as defined in the Indenture) of the 13 1/2% Notes
with the proceeds of one or more public equity offerings, as defined. Such
redemptions may be made at a redemption price of 113.5% of the Accreted Value
plus accrued and unpaid interest to the redemption date. After such redemption,
at least $124.6 million aggregate principal amount of the 13 1/2% Notes must
remain outstanding.
The 11 1/4% Notes bear interest at the annual rate of 11 1/4%, payable
semi-annually on April 1 and October 1 of each year commencing October 1, 1997.
Except as otherwise provided below, the 11 1/4% Notes may not be redeemed by
Chemicals prior to April 1, 2002. From that date through April 1, 2005, the 11
1/4% Notes may be redeemed at a premium of the principal amount thereof at
maturity varying between 105.625% and 101.875%. Subsequent to April 1, 2005,
Chemicals may redeem the 11 1/4% Notes at their face value plus accrued and
unpaid interest. Prior to April 1, 2000, Chemicals may redeem in the aggregate
up to 35% of the original principal amount of the 11 1/4% Notes with the
proceeds of one or more public equity offerings, as defined. Such redemptions
may be made at a redemption price of 111.25% of the face value plus accrued and
unpaid interest to the redemption date. After such redemption, at least $97.5
million aggregate principal amount of the 11 1/4% Notes must remain outstanding.
The indentures governing the 11 1/4% Notes, 11 3/4% Notes, and 13 1/2%
Notes (the "Indentures") contain numerous financial and operating covenants,
including, but not limited to, restrictions on Chemicals' or Holdings' ability
to incur indebtedness, pay dividends, create liens, sell assets, engage in
mergers and acquisitions, and refinance existing indebtedness. In addition, the
Indentures include various circumstances that will constitute, upon occurrence
and subject in certain cases to notice and grace periods, an event of default
thereunder.
The Saskatoon Credit Agreement contains provisions, which restrict the
payment of advances, loans and dividends from Sterling Sask to Chemicals. The
most restrictive of the covenants limits such payments during fiscal 1999 to
approximately $0.5 million, plus any amounts due to Chemicals or Holdings from
Sterling Sask under the intercompany tax sharing agreement.
The Credit Agreement and the indenture for the 11 1/4% Notes and the 11
3/4% Notes contain provisions which restrict the payment of advances, loans, and
dividends from Chemicals to Holdings. The most restrictive of the covenants
limits such payments during fiscal 1999 to approximately $2.0 million, plus any
amounts due to Holdings from Chemicals under the intercompany tax sharing
agreement.
52
<PAGE> 55
DEBT MATURITIES
The estimated remaining principal payments on the outstanding Term Loans,
Saskatoon Term Loans, Revolver, and ESOP Loan are as follows:
<TABLE>
<CAPTION>
YEAR ENDING PRINCIPAL
SEPTEMBER 30, PAYMENTS
(Dollars in
Thousands)
<S> <C>
1999 ............................................................... $ 8,909
2000 ............................................................... 15,140
2001 ............................................................... 26,600
2002 ............................................................... 34,477
2003 ............................................................... 88,420
Thereafter .......................................................... 153,256
--------
Total Term Loans, Saskatoon Term Loans, Revolver and ESOP Loan ...... $326,802
========
</TABLE>
5. INCOME TAXES
A reconciliation of federal statutory income taxes to the Company's
effective tax provision (benefit) before extraordinary item follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1998 1997 1996
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Provision (benefit) for federal income tax at the statutory rate .. $(26,968) $(11,001) $ 17,641
Foreign sales corporation ......................................... -- -- (700)
State and foreign income taxes .................................... 1,422 3,782 1,529
Other ............................................................. -- (77) (1,572)
-------- -------- --------
Effective tax provision (benefit) ................................. $(25,546) $ (7,296) $ 16,898
======== ======== ========
</TABLE>
The provision (benefit) for income taxes is composed of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------
1998 1997 1996
-------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
From operations:
Current federal ..................... $ (5,900) $(6,131) $ 12,084
Deferred federal .................... (21,854) (9,211) (3,249)
Deferred foreign .................... 2,132 6,104 7,421
Current state ....................... 76 1,942 642
Deferred state ...................... -- -- --
-------- ------- --------
Total tax provision (benefit) ............ $(25,546) $(7,296) $ 16,898
======== ======= ========
</TABLE>
53
<PAGE> 56
The components of the Company's deferred income tax assets and liabilities
are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------
1998 1997
---------- ----------
(Dollars in Thousands)
<S> <C> <C>
Deferred tax assets:
Accrued liabilities ........................................ $ 23,177 $ 6,461
Accrued postretirement cost ................................ 10,010 12,350
Tax loss and credit carryforward ........................... 24,783 12,723
Foreign dividends .......................................... 15,490 11,764
Other ...................................................... 2,490 1,166
---------- ----------
Total deferred tax assets .................................. 75,950 44,464
---------- ----------
Less: current deferred income tax assets .................. 5,140 10,005
---------- ----------
Noncurrent deferred tax assets ............................. $ 70,810 $ 34,459
========== ==========
Deferred tax liabilities:
Property, plant and equipment .............................. $ 78,113 $ 67,996
Accrued pension cost ....................................... 2,211 1,665
Other ...................................................... 1,609 836
---------- ----------
Total deferred tax liabilities ............................. 81,933 70,497
---------- ----------
Net deferred tax liability ................................. $ 11,123 $ 36,038
========== ==========
</TABLE>
In fiscal 1998, the Company generated approximately $65 million in United
States net operating losses, of which $18 million will be carried back and
utilized in a prior fiscal year and $47 million will be carried forward and if
not utilized in future years, will expire in fiscal 2013. The Company also has
approximately Cdn. $12.9 million in Canadian tax credit carryforwards which will
expire from 1999 through 2004.
6. EMPLOYEE BENEFITS
The Company has established the following benefit plans:
RETIREMENT BENEFIT PLANS
The Company has non-contributory pension plans in the United States and
employer and employee contributory plans in Canada which cover all salaried and
wage employees. The benefits under these plans are based primarily on years of
service and employees' pay near retirement. For those Company employees who were
employed by the Company as of September 30, 1986, and were previously employed
by Monsanto, the Company recognizes their Monsanto pension years of service for
purposes of determining benefits under the Company's plans. For those Company
employees who were employed by the Company on August 21, 1992, and were
previously employed by Tenneco Inc., the Company recognizes their Tenneco Inc.
pension years of service for purposes of determining benefits under the
Company's plans. The Company's funding policy is consistent with the funding
requirements of federal law and regulations. Plan assets consist principally of
common stocks and government and corporate securities.
For those Company employees as of January 31, 1997, who: (i) were
previously employed by Cytec and (ii) elect to retire from the Company on or
before January 31, 1999, the Company supplements the standard pension payable
such that the employee's total combined pension from the Company and from the
Cytec Nonbargaining Employees' Retirement Plan equals the amount the employee
would have received had he or she remained an employee of Cytec until
retirement. The estimated liability for such supplements as of September 30,
1998 and 1997 is immaterial.
In accordance with generally accepted accounting principles, the Company
has recorded its additional minimum liability. In recognizing the additional
pension liability at September 30, 1998 and 1997, the Company recorded a net
reduction to stockholders' equity of $121,000 and $31,000, respectively.
54
<PAGE> 57
The components of pension expense for the years ended September 30, 1998,
1997, and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C>
Service cost (for benefits earned during the period) . $ 5,093 $ 4,857 $ 3,664
Interest cost on projected benefit obligation ........ 6,153 5,941 5,044
Actual return on plan assets and contributions ....... (75) (16,116) (6,001)
Deferral of asset gain (loss) ........................ (7,336) 10,107 1,050
Net amortization of unrecognized amounts ............. 906 831 926
--------- --------- ---------
Pension expense ...................................... $ 4,741 $ 5,620 $ 4,683
========= ========= =========
</TABLE>
Assumptions used in determining the projected benefit obligation and
pension cost for the periods were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Discount rates......................................................... 7.0% 7.75% 7.75%
Rates of increase in salary compensation level......................... 4.75% 5.25% 5.5%
Expected long-term rate of return on assets............................ 8.0% 8.5% 9.0%
</TABLE>
The funded status of the Company's pension plans as of the actuarial
valuation dates of August 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------- ----------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
------------ ------------ ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Actuarial present value of benefits based on service
to date and present pay levels:
Vested benefit obligation ............................ $ 70,634 $ 2,258 $ 62,396 $ 771
Non-vested benefit obligation ........................ 3,750 95 1,685 5
Accumulated benefit obligation ....................... 74,384 2,353 64,081 776
Plan assets at fair value ............................ 85,073 1,115 84,598 --
Plan assets in excess of (less than) accumulated
benefit obligation ................................ 10,689 (1,238) 20,517 (776)
Additional amounts related to projected salary
increases ......................................... 19,419 2,648 18,017 98
Plan assets more (less) than total projected benefit
obligation ........................................ (8,730) (1,410) 2,500 (874)
Unrecognized net (gain) loss resulting from plan
experience and changes in actuarial assumptions ... 7,880 266 (6,913) 40
Unrecognized prior service cost ...................... 5,689 177 6,370 3
Unrecognized transition obligation ................... 1,734 4 2,110 5
------------ ------------ ------------ ------------
Total prepaid (accrued) pension obligation ........... $ 6,573 $ (963) $ 4,067 $ (826)
============ ============ ============ ============
</TABLE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care benefits and life insurance
benefits for retired employees. Substantially all of the Company's employees
become eligible for these benefits at normal retirement age. The Company accrues
the cost of these benefits during the period in which the employee renders the
necessary service.
Health care benefits are provided to employees who retire from the Company
with ten or more years of service except for Canadian employees covered by
collective bargaining agreements. All of the Company's employees are eligible
for postretirement life insurance. Postretirement health care benefits for
United States plans are non-contributory. Benefit provisions for most hourly and
some salaried employees are subject to collective bargaining. In general, the
plans stipulate that retiree health care benefits are paid as covered expenses
are incurred. For United States employees, postretirement medical plan
deductibles are assumed to increase at the rate of the long-term consumer price
index. The components of postretirement benefits cost other than pensions for
the years ended September 30, 1998, 1997, and 1996 were as follows:
55
<PAGE> 58
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Service cost (for benefits earned during the period) . $ 1,466 $ 1,343 $ 1,155
Interest cost on projected benefit obligation ........ 2,818 2,494 1,985
Amortization of plan amendments ...................... 26 29 243
---------- ---------- ----------
$ 4,310 $ 3,866 $ 3,383
========== ========== ==========
</TABLE>
Actuarial assumptions used to determine costs and benefit obligations for
postretirement benefit plans other than pensions include an average discount
rate of 7.5% and an average rate of future increases in benefit compensation of
5.5%. The average assumed composite rate of future increases in per capita cost
of health care benefits (health care cost trend rate) was 8.8% for fiscal 1998,
exclusive of demographic changes, decreasing gradually to 5.5% by the year 2027.
These trend rates reflect current cost performance and the Company's expectation
that future rates will decline. Increasing the health care cost trend rate by
one percentage point would increase the accumulated postretirement benefit
obligation by $1.7 million and would increase annual aggregate service and
interest costs by $226,000.
The following sets forth the plans funded status reconciled with amounts
reported in the Company's consolidated balance sheet at September 30, 1998 and
1997.
Accumulated postretirement benefit obligation (APBO):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(Dollars in Thousands)
<S> <C> <C>
Retirees ........................................... $ 13,530 $ 10,723
Fully eligible active plan participants ............ 11,865 11,421
Other active plan participants ..................... 17,736 16,473
---------- ----------
Total APBO .................................... 43,131 38,617
Plan assets at fair value .......................... -- --
Unrecognized loss .................................. (5,303) (4,975)
Unrecognized prior service cost .................... (165) (194)
---------- ----------
Accrued postretirement benefit liability ........... $ 37,663 $ 33,448
========== ==========
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
In fiscal 1996, the Company established the 1996 Employee Stock Purchase
Plan. This plan authorized up to 250,000 shares of common stock to be issued to
key employees and management at an issue price of $12 per share. This plan
became effective as of September 19, 1996, and terminated on September 30, 1996.
All authorized shares were issued by the end of fiscal 1996.
EMPLOYEE STOCK OWNERSHIP TRUST
The original Employee Stock Ownership Trust (the "old ESOT") was formed to
invest primarily in the Company's common stock and included only participants
contributing to the Company's Savings and Investment Plan (the "Savings Plan").
The Company's contribution to the old ESOT was 60% of the participant's Savings
Plan contributions to the extent that such participant's contributions did not
exceed 7.5% of the employee's eligible earnings. The Company's contributions
were subject to a 20% per year vesting schedule commencing after one year of
service. The Company's contributions to the old ESOT for the year ended
September 30, 1996 was $1.7 million.
56
<PAGE> 59
An application for determination was filed with the Internal Revenue
Service terminating the old ESOT and assets were distributed to participants
during fiscal 1997.
In connection with the Merger, a new Employee Stock Ownership Trust (the
"new ESOT") was established which covers substantially all United States
employees. Allocations of shares of common stock will be made annually to
participants. The new ESOT primarily invests in shares of Holdings Common Stock
and borrowed $6.5 million from Chemicals pursuant to the ESOP Loan to purchase
approximately 542,000 shares of Holdings Common Stock. As more fully described
in Note 4, the ESOP Loan is payable in 16 quarterly installments during the
period beginning December 31, 1996, and ending September 30, 2000. The shares of
Holdings Common Stock purchased by the new ESOT have been pledged as security
for the ESOP Loan and such shares will be released and allocated to the new ESOT
participants' account as the ESOP Loan is discharged. Until the ESOP Loan is
paid in full, contributions to the new ESOT will be used to pay the outstanding
principal and interest on the ESOP Loan. In addition, during fiscal 1998 and
1997, the new ESOT purchased 14,000 and 99,000, respectively, shares of Holdings
Common Stock. In fiscal 1998 and 1997, 172,000 and 49,000, respectively, new
ESOT shares had been allocated to employees. The Company recorded $1.4 million
and $1.6 million of expense related to the new ESOT in fiscal 1998 and 1997,
respectively.
SAVINGS AND INVESTMENT PLAN
The Savings Plan covers substantially all United States employees,
including executive officers. The Savings Plan is qualified under Section 401(k)
of the Internal Revenue Code (the "Code"). Each participant has the option to
defer taxation of a portion of his or her earnings by directing the Company to
contribute a percentage of such earnings to the Savings Plan. A participant may
direct up to a maximum of 15% of eligible earnings to the Savings Plan, subject
to certain limitations set forth in the Code for "highly compensated"
participants, as defined in Section 414(q) of the Code. A participant's
contributions become distributable upon the termination of his or her
employment. The Company does not make any contribution to the Savings Plan.
PROFIT SHARING AND BONUS PLANS
In January 1997, the Board of Directors, upon recommendation of the
Compensation Committee, approved the establishment of a Profit Sharing Plan that
is designed to benefit all qualified employees, and a Bonus Plan that will
provide for bonuses to exempt salaried employees based on the Company's annual
financial performance.
Under the Company's previous profit sharing plans, expense for the year
ended September 30, 1996, was $2.8 million. No expenses for profit sharing or
bonuses were incurred in fiscal 1998 and 1997.
OMNIBUS STOCK AND INCENTIVE PLAN
Prior to the Merger, the Company had an Omnibus Stock and Incentive Plan
(the "Original Omnibus Plan"), under which the Company could grant to key
employees incentive and nonincentive stock options, SARs, restricted stock,
performance units, and performance shares. The terms and amounts of all awards
were determined by the Compensation Committee of the Board of Directors. Upon a
change of control of the Company, all awards granted under the plan were to
become fully vested and all performance based awards were to be paid at the
higher of performance goals or actual performance to date.
In fiscal 1993, the Company granted SARs to certain key employees and
directors. Total expense (benefit) was determined based on 3.6 million SARs
granted, the vesting period (five years beginning September 1992) and the
appreciation of the Company's stock price above the fair market value of the
Company's common stock on the date of grant of the SARs. In October 1994, the
Company amended the SAR program by modifying the vesting periods and limiting
the amount of appreciation for each SAR during each vesting period, thereby
limiting the Company's aggregate future expenses. The Company recorded expense
for the year ended September 30, 1996 of $8.5 million and paid $13.8 million in
August 1996, pursuant to the SARs, as amended. The expense for the SARs is
included in selling, general, and administrative expenses in the Company's
income statement.
All existing stock options and the Original Omnibus Plan were terminated in
connection with the Merger.
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<PAGE> 60
OMNIBUS STOCK AWARDS AND INCENTIVE PLAN
In April 1997, the Board of Directors approved the establishment of the
Omnibus Stock Awards and Incentive Plan (as amended, the "Omnibus Plan"). Under
the Omnibus Plan, the Company may grant to key employees incentive and
nonqualified stock options, SARs, restricted stock awards, performance awards,
and phantom stock awards. One million shares of the Company's stock are reserved
for issuance under the Omnibus Plan. The terms and amounts of the awards
(including vesting schedule) are determined by the Compensation Committee of the
Board of Directors. Substantially all of the outstanding stock options become
exercisable (vest) in equal annual installments beginning a year from date of
grant and ending in fiscal 2002. In the event of a change of control of the
Company or a qualified public offering of Holdings Common Stock, all awards will
immediately vest and become exercisable.
During fiscal 1998, the Company issued 23,000 restricted stock awards to
certain employees. The restricted stock awards vest 25% immediately and 25% per
year over the next three years.
NONQUALIFIED STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
Also in April 1997, the Board of Directors approved the establishment of
the Nonqualified Stock Option Plan for Non-Employee Directors (the "Nonqualified
Plan"). Each non-employee director of the Company is eligible to participate in
the Nonqualified Plan. Each eligible director on the date of adoption of the
Nonqualified Plan was granted an option to acquire 2,000 shares of Holdings
Common Stock (4,000 shares for the Vice-Chairman), and each eligible director
who is serving on the Board of Directors on each subsequent October 1st is
automatically granted an option to acquire 1,000 shares of Holdings Common Stock
(2,000 shares for the Vice-Chairman). All options expire ten years from date of
grant. All options are granted at the fair market value on the date of grant (as
determined by the Board of Directors) which vest and are exercisable
immediately. A total of 160,000 shares of Holdings Common Stock are reserved for
issuance under the Nonqualified Plan.
OUTSTANDING STOCK OPTIONS
A summary of the status of the Company's outstanding stock options as of
September 30, 1998 and 1997, and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
1998 1997
------------------------------- ------------------------------
WEIGHTED- WEIGHTED-
SHARES AVERAGE SHARES AVERAGE
(IN THOUSANDS) EXERCISE PRICE (IN THOUSANDS) EXERCISE PRICE
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 241 $ 12.00 -- --
Granted 489 $ 11.62 274 $ 12.00
Exercised -- -- --
Forfeited (38) $ 11.94 (33) $ 12.00
---------- ---------- ---------- ----------
Outstanding at end of year 692 $ 11.74 241 $ 12.00
========== ========== ========== ==========
Options exercisable at end of year 86 14
========== ==========
</TABLE>
The range of exercise prices for options outstanding at September 30, 1998,
was $9.50 - $12.00, with all exercisable options having an exercise price of
$12.00.
In addition, during fiscal 1998, the Company granted certain employees
rights to purchase an aggregate of 230,000 shares of Common Stock, at then
current market prices. These rights expired without being exercised.
In the first quarter of fiscal 1998, the Company elected to continue to
apply the intrinsic value method of accounting for stock-based compensation and
increase its footnote disclosure, as permitted by SFAS No. 123, "Accounting for
Stock-Based Compensation."
All stock options are granted at or above fair market value of the Holdings
Common Stock at the grant date. The weighted average fair value of the stock
options granted during fiscal 1998 and 1997 was $1.9 million and $0.5 million,
respectively. The fair value of each such stock option grant is estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for the grants in fiscal 1998: risk free
interest rate of 4.4%; expected dividend yield of 0.0%; expected life of ten
years; and expected volatility of 29%. Stock options generally expire ten years
from the date of grant and fully vest after five years. The outstanding stock
options at September 30, 1998, have a weighted average contractual life of
approximately 9 years.
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<PAGE> 61
In accordance with the intrinsic value method of stock-based compensation,
no compensation costs have been recognized for stock option awards described
above. Had compensation cost for all option issuances been determined consistent
with SFAS No. 123, it would not have had a material impact on the Company's pro
forma net loss and loss per share for fiscal 1998.
On December 14, 1998, the Company issued to all of its employees who held
stock options on that date new options with an exercise price of $6.00 per
share. The new options were issued in exchange for and cancellation of stock
options previously issued to those employees for the same number of shares, and
with the same vesting schedules, as the new stock options.
7. COMMITMENTS AND CONTINGENCIES
PRODUCT CONTRACTS
The Company has certain long-term agreements, which provide for the
dedication of 100% of the Company's production of acetic acid, plasticizers,
TBA, sodium cyanide, and calcium hypochlorite each to one customer. The Company
also has various sales and conversion agreements, which dedicate significant
portions of the Company's production of styrene, acrylonitrile, and methanol to
various customers. Some of these agreements generally provide for cost recovery
plus an agreed margin or element of profit based upon market price.
LEASE COMMITMENTS
The Company has entered into various long-term noncancellable operating
leases. Future minimum lease commitments at September 30, 1998, are as follows:
fiscal 1999 -- $4.9 million; fiscal 2000 -- $4.2 million; fiscal 2001 -- $4.0
million; fiscal 2002 -- $3.9 million; fiscal 2003 -- $3.3 million; and $8.1
million thereafter.
ENVIRONMENTAL AND SAFETY MATTERS
The Company's operations involve the handling, production, transportation,
treatment, and disposal of materials that are classified as hazardous or toxic
waste and that are extensively regulated by environmental and health and safety
laws and regulations. Environmental permits required for the Company's
operations are subject to periodic renewal and can be revoked or modified for
cause or when new or revised environmental laws or permit requirements are
implemented. Changing and increasingly strict environmental laws, regulations,
and permit requirements can affect the manufacture, handling, processing,
distribution, and use of the Company's chemical products and, if so, the
Company's business and operations may be materially and adversely affected. In
addition, changes in the law, regulations, and permit requirements can cause the
Company to incur substantial costs in upgrading or redesigning its facilities
and processes, including waste treatment, storage, disposal, and other waste
handling practices and equipment.
While the Company believes that its business operations and facilities
generally are operated in compliance with all material aspects of applicable
environmental and health and safety laws, regulations, and disclosure
requirements, there can be no assurance that past practices and future
operations will not result in material claims or regulatory action, require
material environmental expenditures, or result in exposure or injury claims by
employees and the public. Some risk of environmental costs and liabilities is
inherent in the operations and products of the Company, as it is with other
companies engaged in similar businesses. In addition, a catastrophic event at
any of the Company's facilities could result in liabilities to the Company
substantially in excess of its insurance coverages.
The Company's operating expenditures for environmental matters, mostly
waste management and compliance, were approximately $52 million, $50 million,
and $47 million for fiscal 1998, 1997, and 1996, respectively. The Company also
spent approximately $2 million and $3 million for environmentally related
capital projects in fiscal 1998 and 1997 respectively.
Any significant ban on all chlorine containing compounds could have a
materially adverse effect on the Company's financial condition and results of
operations. British Columbia has a regulation in place requiring elimination of
the use of all chlorine products, including chlorine dioxide, in the bleaching
process by the year 2002. Chlorine dioxide is produced from sodium chlorate,
which is one of the Company's pulp chemical products. The pulp and paper
industry believes that a ban of chlorine dioxide in the bleaching process will
yield no measurable environmental or public health benefit and is working to
change this regulation but there can be no assurance that the regulation will be
changed. In the event such a regulation is implemented, the Company would seek
to sell the products it manufactures at its British
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<PAGE> 62
Columbia facility to customers in other markets. The Company is not aware of any
other laws or regulations in place in North America, which would restrict the
use of such products for other purposes.
LEGAL PROCEEDINGS
Ammonia Release
On May 8, 1994, an ammonia release occurred at the Texas City Plant while a
reactor in the acrylonitrile unit was being restarted after a shutdown for
routine maintenance. Approximately 52 lawsuits and interventions involving
approximately 6,000 plaintiffs were filed against the Company seeking an
unspecified amount of money for alleged damages from the ammonia release.
Approximately 2,600 of the plaintiffs agreed to submit their damage claims
to binding arbitration. A two week evidentiary hearing was conducted in July
1996 before a three judge panel to determine the amount of damages. On May 1,
1997, the three judge panel awarded the plaintiffs an amount of damages which
was well within the limits of the Company's insurance coverage.
Thirty-nine of the plaintiffs tried their cases to a jury in Harris County
District Court. After approximately five months of trial, the jury returned a
verdict on September 2, 1997. The total amount awarded for all 39 plaintiffs was
well within the limits of the Company's insurance coverage.
Approximately 5,500 of the claims in litigation have now been resolved or
are pending final resolution and the Company continues to vigorously defend
against the claims of the approximately 500 remaining plaintiffs.
Nickel Carbonyl Release
On July 30, 1997, as the Company's methanol unit at the Texas City Plant
was being shut down for repair, nickel carbonyl was formed when carbon monoxide
reacted with nickel catalyst in the unit's reformer. After isolating the nickel
carbonyl within the methanol unit, the Company worked with the permission and
guidance of the Texas Natural Resources Conservation Commission to destroy the
nickel carbonyl by incineration on-site.
Prior to its incineration, several Company employees and contractor
employees may have been exposed to nickel carbonyl in the methanol unit. Sixteen
contractor employees allegedly exposed to nickel carbonyl are plaintiffs in a
lawsuit against the Company seeking unspecified damages for personal injuries.
Additional claims and litigation against the Company relating to this incident
may ensue.
Ethylbenzene Release
On April 1, 1998, a chemical leak occurred when a line failed in the
ethylbenzene unit at the Texas City Plant. The released chemicals included
ethylbenzene, benzene, polyethylbenzene, and hydrochloric acid. The Company does
not believe any serious injuries were sustained, although a number of citizens
sought medical examinations at local hospitals after a precautionary alert was
given to neighboring communities. There is no lawsuit pending against the
Company based on this release, but the Company has received, and in some
instances resolved, claims from individuals for alleged damage from this
incident.
Other Claims
The Company is subject to various other claims and legal actions that arise
in the ordinary course of its business.
LITIGATION CONTINGENCY
The Company has made estimates of the reasonably possible range of
liability with regard to its outstanding litigation for which it may incur
liability. These estimates are based on the Company's judgments using currently
available information as well as consultation with the Company's insurance
carriers and outside legal counsel. A number of the claims in these litigation
matters are covered by the Company's insurance policies or by third-party
indemnification of the Company. The Company, therefore, has also made estimates
of its probable recoveries under insurance policies or from third-party
indemnitors based on its understanding of its insurance policies and
indemnifications, discussions with its insurers and indemnitors, and
consultation with outside legal counsel, in addition to the Company's judgments.
Based on the foregoing, as of September 30, 1998, the Company has accrued
approximately $8.3 million as its estimate of aggregate contingent liability for
these matters and has also recorded
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<PAGE> 63
aggregate receivables from its insurers and third-party indemnitors of
approximately $6.6 million. At September 30, 1998, management estimates that the
aggregate reasonably possible range of loss for all litigation combined, in
addition to the amount accrued, is from $0 to $9 million. The Company believes
that this additional reasonably possible loss is substantially covered by
insurance.
While the Company has based its estimates on its evaluation of available
information to date and the other matters described above, much of the
litigation remains in the discovery stage and it is impossible to predict with
certainty the ultimate outcome. The Company will adjust its estimates as
necessary as additional information is developed and evaluated. However, the
Company believes that the final resolution of these contingencies will not have
a material adverse impact on the financial position, results of operations, or
cash flows of the Company.
The timing of probable insurance and indemnity recoveries, and payment of
liabilities, if any, is not expected to have a material adverse effect on the
financial position, results of operations, or cash flows of the Company.
8. BUSINESS ACQUISITIONS
On January 31, 1997, the Company acquired the AFB from Cytec. The AFB, now
owned by two wholly owned subsidiaries of the Company (collectively "Sterling
Fibers"), recorded sales of approximately $92 million during the eight months of
operations in fiscal 1997 and consists of an acrylic fibers plant located near
Pensacola, Florida, and several associated marketing and research offices.
Sterling Fibers is one of two acrylic fibers manufacturers in the United States.
Cytec supplies acrylonitrile to Sterling Fibers through a five-year supply
agreement ending in 2002. The acquisition was financed through the incurence of
$81 million of term debt under the Fibers Credit Agreement with substantially
the same lenders as those under the Original Credit Agreement, the issuance of
$10 million (liquidation value) of Series A "pay in kind" mandatory redeemable
preferred stock ("Series A Preferred") to Cytec, and the sale of $10 million of
Holdings Common Stock in a private placement. The Company used the purchase
method to account for the acquisition, and operating results of Sterling Fibers
beginning February 1, 1997, are included with those of the Company.
On July 10, 1997, Sterling Sask acquired substantially all of the assets of
Saskatoon Chemicals. The acquired assets include a manufacturing plant near
Saskatoon, Saskatchewan, which manufactures sodium chlorate, caustic soda,
calcium hypochlorite, chlorine, and hydrochloric acid. Total consideration of
$69.2 million was financed with: (i) approximately $54.6 million under a new
credit facility established by Sterling Sask with a group of lenders, (ii)
approximately $7.3 million pursuant to a private placement of Holdings Common
Stock, and (iii) approximately $7.3 million pursuant to a private placement of
Units, each Unit consisting of shares of Holdings' Series B "pay in kind"
mandatory Cumulative Redeemable Preferred Stock ("Series B Preferred") and
warrants to purchase shares of Holdings Common Stock. The Saskatoon Acquisition
was accounted for under the purchase method and operating results of Sterling
Sask beginning July 10, 1997, are included with those of the Company.
The following table presents the unaudited pro forma results of operations
of the Company as if the AFB Acquistion and the Saskatoon Acquisition had
occurred on October 1, 1995. The pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would have
occurred had the AFB Acquistion and the Saskatoon Acquisition been made at the
beginning of the fiscal year 1996 or of results which may occur in the future
(in thousands, except per share amounts).
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Twelve Months Twelve Months
Ended Ended
September 30, September 30,
1997 1996
--------------- ---------------
<S> <C> <C>
Revenues................................................. $ 988,000 $ 975,600
Income (loss) before extraordinary items................. $ (27,300) $ 39,400
Net income (loss) attributable to common stockholders.... $ (34,200) $ 34,400
Net income (loss) per common share....................... $ (2.85) $ 0.66
</TABLE>
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<PAGE> 64
9. SEGMENT AND GEOGRAPHIC INFORMATION:
Sales to individual customers constituting 10% or more of total revenues
and sales by segment were as follows (there were no sales to individual
customers constituting 10% or more of total revenues in fiscal 1997 and 1996):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1998 1997 1996
------------ ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C>
Major Customers:
British Petroleum plc and subsidiaries $ 100,610 * *
Export Sales:
Export revenues $ 233,165 $ 274,139 $ 267,153
Percentage of total revenues 28% 30% 34%
Export revenues (as a percent of total exports) by geographical area:
Asia 65% 56% 66%
Europe 16% 41% 34%
Other 19% 3% --
</TABLE>
* DOES NOT COMPRISE 10% OF TOTAL REVENUE FOR 1997 AND 1996, THEREFORE NOT
REPORTED.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1998 1997 1996
---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Segment Information (1)
Revenues:
Petrochemical and Fibers $ 621,605 $ 728,215 $ 633,754
Pulp 200,985 180,572 156,711
---------- ---------- ----------
Total $ 822,590 $ 908,787 $ 790,465
Operating income (loss):
Petrochemical and Fibers $ (3,442) $ 11,524 $ 31,891
Pulp 36,232 45,945 35,597
---------- ---------- ----------
Total $ 32,790 $ 57,469 $ 67,488
Depreciation and amortization expenses:
Petrochemical and Fibers $ 31,894 $ 32,762 $ 28,125
Pulp 24,069 21,250 14,577
---------- ---------- ----------
Total $ 55,963 $ 54,012 $ 42,702
Capital expenditures:
Petrochemical and Fibers $ 16,768 $ 22,664 $ 50,033
Pulp 9,854 20,764 45,924
---------- ---------- ----------
Total $ 26,622 $ 43,428 $ 95,957
Identifiable assets:
Petrochemicals and Fibers $ 474,426 $ 554,474 $ 457,273
Pulp 300,576 324,497 232,411
---------- ---------- ----------
Total $ 775,002 $ 878,971 $ 689,684
</TABLE>
(1) The petrochemical and fibers segment is based in the United States. The
pulp segment is primarily based in Canada.
10. FINANCIAL INSTRUMENTS
FOREIGN EXCHANGE
The Company enters into forward foreign exchange contracts to hedge
Canadian dollar currency transactions on a continuing basis for periods
consistent with its committed exposures. The forward foreign exchange contracts
have varying maturities with none exceeding 18 months. The Company makes net
settlements of United States dollars for Canadian dollars at rates agreed to at
inception of the contracts.
The Company enters into forward foreign exchange contracts to reduce risk
due to Canadian dollar exchange rate movements. The Company does not engage in
currency speculation. The Company had a notional amount of approximately $54
million and $20 million of forward foreign exchange contracts outstanding to buy
Canadian dollars at September 30, 1998 and 1997, respectively. The deferred loss
on these forward foreign exchange contracts at September 30, 1998 and 1997 was
$4.7 million and $0.3 million, respectively.
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GAS HEDGE
The Company hedged a portion of its natural gas to be used in the
production of styrene and methanol during fiscal 1998 and 1999. At September 30,
1998, the Company had primarily natural gas collar contracts on 900,000 MMbtu's
of natural gas per month for October 1998 through March 1999 with an average
"floor" price of $2.23 per MMbtu and an average "cap" price of $2.51 per MMbtu.
The Company's hedging agreements are settled on a monthly basis. All of the
Company's contracts specify the third-party index to be the inside FERC Houston
Ship Channel First of the Month Index Price. The Company had a net loss of $1.0
million and $0.1 million due to natural gas hedging contracts in fiscal 1998 and
1997, respectively, and an unrealized gain of $0.2 million at September 30,
1998.
INTEREST RATE SWAPS
The Company has entered into a declining balance interest rate swap
contract to hedge a portion of its interest rate risk that expires in January
2002. At September 30, 1998, the Company had a contractual notional amount of
$62.5 million outstanding with a fixed rate of 6.66% and a floating rate based
on LIBOR. The Company's interest rate swap is settled on a quarterly basis, with
the interest rate differential received or paid by the Company recognized as
adjustments to interest expense.
CONCENTRATION OF RISK
The Company sells its products primarily to companies involved in the
petrochemical, fiber, and pulp and paper manufacturing industries. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral for accounts receivable. However, letters of credit are
required by the Company on many of its export sales. The Company's credit losses
have been minimal.
The Company maintains cash deposits with major banks, which from time to
time may exceed federally insured limits. The Company periodically assesses the
financial condition of the institutions and believes that any possible loss is
minimal.
Approximately 40% of the Company's employees are covered by union
agreements. Approximately 27% of the Company's employees are covered by union
agreements, which could expire within one year.
INVESTMENTS
It is the policy of the Company to invest its excess cash in investment
instruments or securities whose value is not subject to market fluctuations such
as certificates of deposit, repurchase agreements, or Eurodollar deposits with
domestic or foreign banks or other financial institutions. Other permitted
investments include commercial paper of major United States corporations with
ratings of A1 by Standard & Poor's Ratings Group or P1 by Moody's Investor
Services, Inc., loan participations of major United States corporations with a
short term credit rating of A1/P1 and direct obligations of the United States
Government or its agencies. In addition, not more than $5 million will be
invested by the Company with any single bank, financial institution, or United
States corporation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reflected in the consolidated balance sheet for cash,
cash equivalents, and receivables approximate fair value as reported in the
balance sheet due to the short maturities. The following table presents the
carrying values and fair values of the Company's long-term debt at September 30,
1998.
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
-------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revolving credit facilities $ -- $ --
Term loans 274,000 274,000
Saskatoon term loans 49,552 49,552
ESOP term loans 3,250 3,250
11 1/4% Notes 152,816 126,645
11 3/4% Notes 275,000 238,453
13 1/2% Notes 127,907 88,838
</TABLE>
The fair values of the 13 1/2% Notes, 11 1/4% Notes, and 11 3/4% Notes are
based on quoted market prices.
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<PAGE> 66
At September 30, 1998, the outstanding natural gas hedging contracts had a
fair value of approximately $0.2 million gain and the foreign exchange contracts
had a fair value of $4.7 million loss. In addition, the interest rate swaps had
a fair market value of $2.3 million loss, based on the Company's estimate of
what it would have to pay to terminate the swap at September 30, 1998.
11. RELATED PARTY TRANSACTIONS
In connection with the 1996 Recapitalization, the Company paid TSG and
Unicorn one-time transaction fees of approximately $8.4 million and $4.4
million, respectively. T. Hunter Nelson and Frank J. Hevrdejs, members of the
Board of Directors of the Company, are principals of TSG and Frank P. Diassi,
Chairman of the Board of Directors of the Company, is a principal of Unicorn. In
addition, the Company paid TSG a one-time transaction fee of approximately $1.1
million in connection with the AFB Acquisition, and a fee of approximately $0.7
million in connection with the Saskatoon Acquisition.
Investment banking fees of approximately $3.3 million were paid as part of
the 1996 Recapitalization to Lazard Freres & Company ("Lazard"). A member of the
former Board of Directors is a Limited Managing Director of Lazard. However, the
Board member agreed not to receive any compensation from Lazard related to the
Merger.
Also in connection with the 1996 Recapitalization, Credit Suisse First
Boston Corporation ("CFSB") served as managing underwriter for the public
offering of the 13 1/2% Notes and 11 3/4% Notes and provided certain financial
advisory services to STX Acquisition and Chemicals, for which such firm received
underwriting discounts and commissions and financial advisory fees totaling
approximately $17 million. In addition, CSFB received net compensation of
approximately $1.0 million related to the 11 1/4% Notes Offering. John L.
Garcia, a director and stockholder of the Company, is a Managing Director of
CSFB.
Since October 1, 1991, the Company and certain affiliates of Koch
Industries have had ongoing commercial relationships in the ordinary course of
business, including, from time to time, supply of raw materials or sales of
petrochemicals and transportation of natural gas. For the fiscal year ended
September 30, 1998, 1997, and 1996 (i) product sales to and raw material
purchases from Koch Chemical, an indirect wholly-owned subsidiary of Koch
Industries, (ii) payments to John Zink Company, an indirect wholly-owned
subsidiary of Koch Industries, in consideration for certain contracting and
construction services performed at the Texas City Plant, and (iii) services for
the transportation of natural gas by Koch Gateway Pipeline Company to the Santa
Rosa Plant, each represented less than 5% of the Company's revenues.
In connection with the Saskatoon Acquisition, the Company paid a fee to
Clipper Capital Associates, Inc. ("Clipper") and Olympus Partners ("Olympus") of
$0.1 million to act as placement agents for the Series B Preferred Stock. Robert
Calhoun, a former director of the Company, is President of Clipper. Affiliates
of Clipper and Olympus are significant stockholders of the Company.
As of December 15, 1998, the Company entered into the Standby Purchase
Agreements with, and issued warrants to, Frank P. Diassi, Frank J. Hevrdejs, and
Koch Capital Services, Inc. as describe below in Footnote 12.
12. CAPITAL STOCK
The authorized shares of Holdings Common Stock at September 30, 1998 and
1997 was 20,000,000.
On January 31, 1997, the Company issued 778,232 additional shares of
Holdings Common Stock in connection with the AFB Acquisition. In addition, on
July 10, 1997, the Company issued 608,334 shares of Holdings Common Stock in
connection with the Saskatoon Acquisition.
In connection with the issuance of the 13 1/2% Notes (see Note 4), Holdings
issued 191,751 warrants to purchase three shares of Holdings Common Stock for
$0.01, exercisable beginning in August 1998 until August 2008. During fiscal
1998, 345,123 shares of Common Stock were issued as a result of 115,041 of these
warrants being exercised. In connection with the Saskatoon Acquisition, Holdings
also issued to holders of the Series B Preferred Stock warrants to purchase
201,048 shares of Holdings Common Stock for $0.01, exercisable beginning in July
1997 until December 2007. At September 30, 1998, warrants to purchase an
aggregate of 431,178 shares Holdings Common Stock were outstanding.
In December 1998, the Company entered into separate Standby Purchase
Agreements (collectively, the "Purchase Agreements") with each of Gordon A.
Cain, William A. McMinn, James Crane, Mr. Diassi, Mr. Hevrdejs and Koch
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<PAGE> 67
Capital (collectively, the "Purchasers"). Pursuant to the terms of the Purchase
Agreements, the Purchasers committed to purchase up to 2.5 million shares of
Common Stock, at a price of $6.00 per share, if, as and when requested by the
Company at any time or from time to time prior to December 15, 2001. Under each
of the Purchasers Agreements, the Company may only require the Purchasers to
purchase such shares if it believes that such capital is necessary to maintain,
reestablish, or enhance its borrowing ability under the Company's revolving
credit facilities or to satisfy any requirement thereunder to raise additional
equity. To induce the Purchasers to enter into the Purchase Agreements, the
Company issued to them warrants to purchase an aggregate of 300,000 shares of
Common Stock at an exercise price of $6.00 per share. Pursuant to the Purchase
Agreements, the Company agreed to issue to the Purchasers additional warrants to
purchase up to 300,000 additional shares of Common Stock if, as and when they
purchase shares of Common Stock under the Purchase Agreements. Any shares of
Common Stock purchased under the Purchase Agreement and the warrants issued to
the Purchasers as contemplated by the Purchase Agreements will be subject to the
terms of the Amended and Restated Voting Agreement dated as of December 15,
1998, the Sterling Chemicals Holdings, Inc. Stockholders Agreement dated
effective as of August 21, 1996, as amended, and the Tag-Along Agreement dated
as of August 21, 1996, each of which is filed as an Exhibit to this Form 10-K.
13. MANDATORY REDEEMABLE PREFERRED STOCK
In connection with the AFB Acquisition, the Company authorized 350,000
shares and issued 104,110 shares of non-voting Series A Preferred Stock with a
fair value and carrying value of $10.0 million. The Series A Preferred Stock has
a cumulative dividend rate of 10%, payable in kind semi-annually on January 1
and July 1 of each year commencing July 1, 1997. The Company may redeem all or
any number of shares of Series A Preferred Stock at any time with proper written
notice at a price of $100 per share plus accrued dividends. The holders of
Series A Preferred Stock may elect to have the Company redeem shares on any
dividend payment date after June 30, 2009 with proper written notice at a price
of $100 per share plus accrued dividends. The carrying value of the Series A
Preferred Stock at September 30, 1998 and 1997, was $11.8 million and $10.7
million, respectively (liquidation value of $100 per share).
In connection with the Saskatoon Acquisition, the Company authorized 58,000
shares and issued approximately 7,532 shares of non-voting Series B Preferred
Stock with a fair value of $4.9 million. The Series B Preferred Stock has a 14%
dividend rate through July 10, 2002, and thereafter a variable rate between 14%
and 18% depending on payment terms (as defined) until redeemed. The dividend is
payable in kind on January 1, April 1, July 1, and October 1 of each year
commencing October 1, 1997. The Company may redeem all or any number of shares
of Series B Preferred Stock at any time with proper written notice at a price of
$1,000 per share plus a premium ranging from 5% to 1% depending on the date of
redemption plus accrued dividends. The holders of Series B Preferred Stock may
elect to have the Company redeem shares on any dividend payment date after June
30, 2009, with proper written notice at a price of $1,000 per share plus accrued
dividends. The carrying value of the Series B Preferred Stock at September 30,
1998 and 1997, was $6.5 million and $5.1 million, respectively (liquidation
value of $1,000 per share). The difference in the carrying value and the
redemption amount will be accreted as a charge to retained earnings over the
holding period using the effective interest rate method.
14. NEW ACCOUNTING STANDARDS
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and displaying of comprehensive income and its components. SFAS No.
131, "Disclosure About Segments of an Enterprise and Related Information,"
establishes standards for the way that public business enterprises report
information about operating segments in interim and annual financial statements.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," establishes revisions to employers' disclosure about pension and
other post retirement benefit plans. Management is currently evaluating the
disclosures required when these three statements are adopted in the first
quarter of fiscal 1999. Adoption of these three statements will have no effect
on net income (loss).
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. Management is currently evaluating the
accounting impact and disclosures required when this statement is adopted in the
first quarter of fiscal 2000.
65
<PAGE> 68
STERLING CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Except as modified below, the Notes to the Company's Consolidated Financial
Statements are incorporated herein by reference insofar as they relate to
Chemicals.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH FLOWS
On August 21, 1996, Holdings transferred all of its operating assets and
liabilities (net $422.8 million) to Chemicals. At the same time, Chemicals
transferred $610 million in cash to Holdings.
INCOME TAXES
Chemicals is included in the consolidated federal tax return filed by its
parent, Holdings. A tax sharing agreement between Holdings and Chemicals defines
the computation of Chemicals' obligations to Holdings. Chemicals' provision for
income taxes is computed as if Chemicals and its subsidiaries file their annual
tax return on a separate company basis. Deferred income taxes are recorded to
reflect the tax effect of the temporary differences between the financial
reporting basis and the tax basis of Chemicals' assets and liabilities at
enacted rates.
EARNINGS PER SHARE
All issued and outstanding shares of Chemicals are held by Holdings, and
accordingly, earnings per share are not presented.
2. INCOME TAXES
A reconciliation of federal statutory income taxes to Chemicals' effective
tax provision (benefit) before extraordinary item follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------- MAY 14, 1996
1998 1997 TO SEPTEMBER 30, 1996
---------- ---------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Provision (benefit) for federal income tax at the statutory rate ..... $ (20,385) $ (4,576) $ 195
Foreign sales corporation ............................................ -- -- (116)
State and foreign income taxes ....................................... 1,422 3,782 115
Tax settlements and other ............................................ -- (1,354) 190
---------- ---------- ----------
Effective tax provision (benefit) .................................... (18,963) (2,148) $ 384
========== ========== ==========
</TABLE>
The provision (benefit) for income taxes is composed of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------- MAY 14, 1996
1998 1997 TO SEPTEMBER 30, 1996
---------- ---------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
From operations:
Current federal ................ $ (5,900) $ (5,959) $ (1,001)
Deferred federal ............... (15,271) (4,235) 1,457
Deferred foreign ............... 2,132 6,104 90
Current state .................. 76 1,942 (162)
---------- ---------- ----------
Total tax provision (benefit) .. (18,963) (2,148) $ 384
========== ========== ==========
</TABLE>
66
<PAGE> 69
The components of Chemicals' deferred income tax assets and liabilities are
summarized below:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1998 1997
---------- ----------
(Dollars in Thousands)
<S> <C> <C>
Deferred tax assets:
Accrued liabilities .................................. $ 12,074 $ 5,367
Accrued postretirement cost .......................... 10,010 12,350
Tax loss and credit carryforward and other ........... 24,783 7,209
Foreign dividends .................................... 15,490 11,764
Other ................................................ 2,490 1,166
---------- ----------
Total deferred tax assets ............................ 64,847 37,856
---------- ----------
Less: current deferred income tax asset ............. 5,140 10,005
---------- ----------
Noncurrent deferred tax assets ....................... $ 59,707 $ 27,851
========== ==========
Deferred tax liabilities:
Property, plant and equipment ........................ $ 78,113 $ 67,996
Accrued pension cost ................................. 2,211 1,665
Other ................................................ 2,684 836
---------- ----------
Total deferred tax liabilities ....................... 83,008 70,497
---------- ----------
Net deferred tax liability ........................... $ 23,301 $ 42,646
========== ==========
</TABLE>
In fiscal 1998, Chemicals generated approximately $48 million in United
States net operating losses, of which $18 million will be carried back and
utilized in a prior fiscal year and $30 million will be carried forward and if
not utilized in future years, will expire in fiscal 2013. Chemicals also has
approximately Cdn. $12.9 million in Canadian tax credit carry forwards which
will expire from 1999 through 2004.
67
<PAGE> 70
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Sterling Chemicals Holdings, Inc.
We have audited the consolidated balance sheets of Sterling Chemicals Holdings,
Inc. and subsidiaries as of September 30, 1998 and 1997, and the related
consolidated statements of operations, changes in stockholders' equity
(deficiency in assets) and cash flows for each of the three years in the period
ended September 30, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sterling Chemicals
Holdings, Inc. and subsidiaries as of September 30, 1998 and 1997 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1998 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
December 4, 1998 (December 17, 1998 as to Notes 4, 11, and 12)
Houston, Texas
68
<PAGE> 71
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of Sterling Chemicals, Inc.
We have audited the consolidated balance sheets of Sterling Chemicals, Inc. and
subsidiaries as of September 30, 1998 and 1997, and the related consolidated
statements of operations, changes in stockholder's equity (deficiency in assets)
and cash flows for the years ended September 30, 1998 and 1997 and for the
period from May 14, 1996 (date of incorporation) to September 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sterling
Chemicals, Inc. and subsidiaries as of September 30, 1998 and 1997 and the
consolidated results of their operations and their cash flows for the years
ended September 30, 1998 and 1997 and for the period from May 14, 1996 (date of
incorporation) to September 30, 1996 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
December 4, 1998 (December 17, 1998 as to Notes 4, 11, and 12)
Houston, Texas
69
<PAGE> 72
REPORT OF MANAGEMENT
Management is responsible for the preparation and content of the financial
statements and other information included in this annual report. The financial
statements have been prepared in conformity with generally accepted accounting
principles appropriate under the circumstances to reflect, in all material
respects, the substance of events and transactions that should be included. The
financial statements reflect management's judgments and estimates as to the
effects of events and transactions that are accounted for or disclosed.
Management maintains accounting systems which are supported by internal
accounting controls that provide reasonable assurance that assets are
safeguarded and that transactions are executed in accordance with management's
authorization and recorded properly to permit the preparation of financial
statements in accordance with generally accepted accounting principles. The
concept of reasonable assurance is based on the recognition that the cost of a
system of internal accounting controls should not exceed the benefits.
Deloitte & Touche LLP performed an independent audit of the Company's
financial statements for fiscal years 1998, 1997, and 1996, for the purpose of
determining that the statements are presented fairly and in accordance with
generally accepted accounting principles. The independent auditors are appointed
by the Board of Directors and meet regularly with the Audit and Compliance
Committee of the Board. The Audit and Compliance Committee of the Board of
Directors is composed solely of outside directors. The Audit and Compliance
Committee meets periodically with the Company's senior officers and independent
accountants to review the adequacy and reliability of the Company's accounting,
financial reporting, and internal controls.
Peter W. De Leeuw
President and Chief Executive Officer
Paul G. Vanderhoven
Controller - Principal Accounting Officer
December 17, 1998
70
<PAGE> 73
STERLING CHEMICALS HOLDINGS, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL FIRST SECOND THIRD FOURTH
YEAR QUARTER QUARTER QUARTER QUARTER
---- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues 1998 $ 230,236 $ 204,504 $ 205,414 $ 182,436
1997 186,926 239,763 239,244 242,854
Gross Profit 1998 22,497 14,388 25,604 27,690
1997 15,083 16,827 28,995 34,734
Loss before extraordinary items 1998 (10,145) (16,288) (13,118) (6,568)
1997 (7,198) (7,811) (5,453) (3,674)
Net loss (1) 1998 (10,145) (16,288) (13,118) (6,568)
1997 (7,198) (7,811) (9,377) (3,674)
Per Share Data:
Loss before extraordinary item 1998 $ (0.91) $ (1.37) $ (1.13) $ (0.60)
1997 (0.68) (0.72) (0.48) (0.35)
Net loss attributable to common stockholders 1998 (0.91) (1.37) (1.13) (0.60)
1997 (0.68) (0.72) (0.84) (0.35)
</TABLE>
- --------------------
(1) During the second and third quarters of fiscal 1998, the Company recorded
$3.0 million and $3.0 million, respectively, related to voluntary severance
programs offered by the Company at the Texas City Plant. During the third
quarter of fiscal 1997, the Company recorded a $3.9 million after-tax ($6.0
million pre-tax) extraordinary item related to unamortized debt issue costs
as a result of the partial prepayment of the Term Loans.
71
<PAGE> 74
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Proxy Statement for the Company's 1999 Annual Meeting of Stockholders
is incorporated herein by reference in response to this item.
ITEM 11. EXECUTIVE COMPENSATION
The Proxy Statement for the Company's 1999 Annual Meeting of Stockholders
is incorporated herein by reference in response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Proxy Statement for the Company's 1999 Annual Meeting of Stockholders
is incorporated herein by reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Proxy Statement for the Company's 1999 Annual Meeting of Stockholders
is incorporated herein by reference in response to this item.
72
<PAGE> 75
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits
1. Consolidated Financial Statements
<TABLE>
<CAPTION>
PAGE OF
THIS 10-K
---------
<S> <C>
Sterling Chemicals Holdings, Inc. Consolidated Statements of Operations for the fiscal
years ended September 30, 1998, 1997, and 1996............................................. 37
Sterling Chemicals Holdings, Inc. Consolidated Balance Sheets as of September 30, 1998
and 1997................................................................................... 38
Sterling Chemicals Holdings, Inc. Consolidated Statements of Changes in Stockholders' Equity..
(Deficiency in Assets) for the fiscal years ended September 30, 1998, 1997, and 1996...... 39
Sterling Chemicals Holdings, Inc. Consolidated Statements of Cash Flows for the fiscal
years ended September 30, 1998, 1997, and 1996............................................. 40
Sterling Chemicals, Inc. Consolidated Statements of Operations for the period from May
14, 1996 to September 30, 1996 and the fiscal years ended September 30, 1998 and 1997...... 41
Sterling Chemicals, Inc. Consolidated Balance Sheets as of September 30, 1998 and 1997........ 42
Sterling Chemicals, Inc. Consolidated Statements of Changes in Stockholder's Equity
(Deficiency in Assets) for the period from May 14, 1996 to September 30, 1996 and the
fiscal years ended September 30, 1998 and 1997............................................. 43
Sterling Chemicals, Inc. Consolidated Statements of Cash Flows for the period from May 14,
1996 to September 30, 1996 and the fiscal years ended September 30, 1998 and 1997.......... 44
Notes to Consolidated Financial Statements.................................................... 45
Reports of Independent Accountants............................................................ 68
Report of Management.......................................................................... 70
</TABLE>
2. All schedules for which provision is made in Regulation S-X of the
Securities and Exchange Commission are not required under the related
instruction or are inapplicable and, therefore, have been omitted.
73
<PAGE> 76
3. Exhibits
The following exhibits are filed as part of this Form 10-K:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
2.1 - Amended and Restated Agreement and Plan of Merger between
STX Acquisition Corp. and Sterling Chemicals, Inc. dated as
of April 24, 1996, incorporated by reference from the
Company's Current Report on Form 8-K dated April 24, 1996,
as amended by Form 8-K/A.
3.1 - Restated Certificate of Incorporation of Sterling Chemicals
Holdings, Inc., incorporated by reference from Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997.
3.2 - Certificate of Incorporation of Sterling Chemicals, Inc., as
amended, incorporated by reference from Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996.
3.3 - Restated Bylaws of Sterling Chemicals Holdings, Inc.,
incorporated by reference from Exhibit 3.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1996.
3.4 - Bylaws of Sterling Chemicals, Inc., incorporated by
reference from Exhibit 3.4 to the Registration Statement on
Form S-1 of STX Acquisition Corp. and STX Chemicals Corp.
(Registration No. 333-04343).
4.1 - Warrant Agreement (including form of Warrant) dated as of
August 15, 1996 between Sterling Chemicals Holdings, Inc.
and KeyCorp Shareholder Services, Inc. as Warrant Agent,
incorporated by reference from Exhibit 4.4 to the
Registration Statement on Form S-1 of STX Acquisition Corp.
and STX Chemicals Corp. (Registration No. 333-04343).
4.2 - Warrant Agreement dated as of July 10, 1997 between Sterling
Chemicals Holdings, Inc. and Harris Trust and Savings Bank
as Warrant Agent, incorporated by reference from Exhibit 4.1
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997.
**4.3 - Warrant Agreement dated as of December 15, 1998 between
Sterling Chemicals Holdings, Inc. and Harris Trust and
Savings Bank, as Warrant Agent.
**4.4 - Warrant Agreement dated as of December 15, 1998 executed by
Sterling Chemicals Holdings, Inc. in favor of Chase Bank of
Texas, National Association, Credit Suisse First Boston and
certain other financial institutions.
4.5 - Indenture dated as of August 15, 1996 between Sterling
Chemicals Holdings, Inc. and Fleet National Bank governing
the 13 1/2% Senior Secured Discount Notes Due 2008 of the
Company, incorporated by reference from Exhibit 4.5 to the
Registration Statement on Form S-1 of STX Acquisition Corp.
and STX Chemicals Corp. (Registration No. 333-04343).
4.5(a) - First Supplement Indenture dated October 1, 1997 governing
the 13 1/2 % Senior Secured Discount Notes Due 2008 of the
Company, incorporated by reference from Exhibit 4.2 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1998.
4.5(b) - Second Supplement Indenture dated March 16, 1998 governing
the 13 1/2 % Senior Secured Discount Notes Due 2008 of the
Company, incorporated by reference from Exhibit 4.3 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1998.
4.6 - Indenture dated as of August 15, 1996 between Sterling
Chemicals, Inc. and Fleet National Bank governing the 11
3/4% Senior Subordinated Notes Due 2006 of Sterling
Chemicals, Inc. (formerly known as STX Chemicals Corp.),
incorporated by reference from Exhibit 4.7 to the
Registration Statement on Form S-1 of STX Acquisition Corp.
and STX Chemicals Corp. (Registration No. 333-04343).
4.6(a) - First Supplement Indenture dated October 1, 1997 governing
the 11 3/4% Senior Subordinated Notes Due 2006 of Sterling
Chemicals, Inc., incorporated by reference from Exhibit 4.4
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1998.
4.6(b) - Second Supplement Indenture dated March 16, 1998 governing
the 11 3/4% Senior Subordinated Notes Due 2006 of Sterling
Chemicals, Inc., incorporated by reference from Exhibit 4.5
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1998.
74
<PAGE> 77
4.7 - Indenture dated as of April 7, 1997 between Sterling
Chemicals, Inc. and Fleet National Bank governing the 11
1/4% Senior Subordinated Notes due 2007 of Sterling
Chemicals, Inc., incorporated by reference from Exhibit 4.1
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997.
4.7(a) - First Supplement Indenture dated March 16, 1998 governing
the 11 1/4% Senior Subordinated Notes due 2007 of Sterling
Chemicals, Inc., incorporated by reference from Exhibit 4.6
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1998.
4.8 - Amended and Restated Credit Agreement dated July 10, 1997
among Sterling Chemicals, Inc. and Texas Commerce Bank
National Association, individually and as Administrative
Agent, Credit Suisse First Boston, individually and as
Documentation Agent, and the other lenders named therein,
incorporated by reference from Exhibit 4.6 to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1997.
4.8(a) - First Amendment to Amended and Restated Credit Agreement,
dated March 31, 1998, among Sterling Chemicals, Inc. and
Chase Bank of Texas, N.A., individually and as
Administrative Agent, Credit Suisse First Boston,
individually and as Documentation Agent, and the other
lenders named therein, incorporated by reference from
Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1998.
**4.8(b) - Second Amendment to Amended and Restated Credit Agreement,
dated December 15, 1998, among Sterling Chemicals, Inc. and
Chase Bank of Texas, National Association, individually and
as Administrative Agent, Credit Suisse First Boston,
individually and as Documentation Agent, and the other
lenders named therein.
4.9 - Sterling Chemicals Holdings, Inc. Stockholders Agreement
dated effective as of August 21, 1996, incorporated by
reference from Exhibit 4.10 to the Registration Statement on
Form S-1 of STX Acquisition Corp. and STX Chemicals Corp.
(Registration No. 333-04343).
4.9(a) - First Amendment to Sterling Chemicals Holdings, Inc.
Stockholders Agreement dated effective as of December 31,
1997, incorporated by reference from Exhibit 4.7 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1998.
**4.9(b) - Second Amendment to Sterling Chemicals Holdings, Inc.
Stockholders Agreement dated effective as of May 1, 1998.
4.10 - Registration Rights Agreement, incorporated by reference
from Exhibit 4.11 to the Registration Statement on Form S-1
of STX Acquisition Corp. and STX Chemicals Corp.
(Registration No. 333-04343).
4.11 - Amended and Restated Voting Agreement dated as of
January 22, 1997, incorporated by reference from Exhibit 4.5
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1998.
**4.11(a) - Amended and Restated Voting Agreement dated as of December
15, 1998.
4.12 - Tag-Along Agreement dated as of August 21, 1996 incorporated
by reference from Exhibit 4.13 to the Registration Statement
on Form S-1 of STX Acquisition Corp. and STX Chemicals Corp.
(Registration No. 333-04343).
4.13 - Intercreditor Agreement dated as of August 21, 1996 between
Texas Commerce Bank National Association and Fleet National
Bank, incorporated by reference from Exhibit 4.14 to the
Registration Statement on Form S-1 of STX Acquisition Corp.
and STX Chemicals Corp. (Registration No.333-04343).
4.14 - Security Agreement (Pledge) dated August 21, 1996 between
STX Acquisition Corp. and Texas Commerce Bank National
Association, incorporated by reference from Exhibit 4.15 to
the Registration Statement on Form S-1 of STX Acquisition
Corp. and STX Chemicals Corp. (Registration No. 333-04343).
4.14(a) - Second Amendment and Supplement to Security Agreement
(Pledge) dated January 31, 1997 between Sterling Chemicals
Holdings, Inc. and Texas Commerce Bank National Association,
incorporated by reference from Exhibit 4.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 1996.
+10.1 - Assets Purchase Agreement dated August 1, 1986, between
Monsanto Company and the Company, incorporated by reference
from Exhibit 10.1 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1992.
10.2 - Sterling Chemicals, Inc. Salaried Employees' Pension Plan
(Restated as of October 1, 1993), incorporated by reference
from Exhibit 10.6 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1993.
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<PAGE> 78
10.2(a) - Supplement to the Sterling Chemicals, Inc. Salaried
Employee's Pension Plan (Restated as of January 1, 1994),
incorporated by reference from Exhibit 10.6(a) to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994.
10.2(b) - First and Second Amendments to the Sterling Chemicals, Inc.
Salaried Employees' Pension Plan dated April 27, 1994 and
September 23, 1994, respectively, incorporated by reference
from Exhibit 10.6(b) to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1994.
10.3 - Sterling Chemicals, Inc. Hourly Paid Employees' Pension Plan
(Restated as of October 1, 1993), incorporated by reference
from Exhibit 10.8 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1993.
10.3(a) - Supplement to the Sterling Chemicals, Inc. Hourly Paid
Employee's Pension Plan (Restated as of January 1, 1994),
incorporated by reference from Exhibit 10.8(a) to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994.
10.3(b) - First Amendment to the Sterling Chemicals, Inc. Hourly Paid
Employees' Pension Plan dated April 27, 1994, incorporated
by reference from Exhibit 10.8(b) to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30,
1994.
10.3(c) - Sterling Chemicals, Inc. Amended and Restated Hourly Paid
Employees' Pension Plan (Effective as of May 1, 1996),
incorporated by reference from Exhibit 10.3(c) to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996.
10.4 - Sterling Chemicals, Inc. Amended and Restated Savings and
Investment Plan, incorporated by reference from Exhibit
10.10 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993.
10.4(a) - Supplements to the Sterling Chemicals, Inc. Savings and
Investment Plan for Hourly Paid Employees and Salaried
Employees, incorporated by reference from Exhibit 10.10(a)
to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1994.
10.4(b) - First and Second Amendments to the Sterling Chemicals, Inc.
Amended and Restated Savings and Investment Plan dated April
27, 1994 and October 26, 1994, respectively, incorporated by
reference from Exhibit 10.10(b) to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30,
1994.
10.5 - Sterling Chemicals, Inc. Pension Benefit Equalization Plan,
incorporated by reference from Exhibit 10.10 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-24020).
10.6 - Sterling Chemicals Employee Stock Ownership Plan (ESOP),
incorporated by reference from Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1996.
+10.7 - Styrene Monomer Conversion Contract dated November 3, 1995,
between Monsanto Company (subsequently assigned to Bayer
Corporation, a subsidiary of Bayer AG) and the Company,
incorporated by reference from Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995.
+10.8 - Production Agreement dated April 15, 1988 between BP
Chemicals Americas Inc. and the Company and First and Second
Amendment thereto, incorporated by reference from Exhibit
10.21 to the Company's Registration Statement on Form S-1
(Registration No. 33-24020).
+10.8(a) - Amended and Restated Production Agreement dated March 31,
1998, between BP Chemicals, Inc. and Sterling Chemicals,
Inc., incorporated by reference from Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1998.
+10.9 - Agreement dated May 2, 1988, between E.I. du Pont de Nemours
and Company and the Company, incorporated by reference from
Exhibit 10.22 to the Company's Registration Statement on
Form S-1 (Registration No. 33-24020).
+10.10 - Amended and Restated Product Sales Agreement dated January
1, 1997, between BASF Corporation and the Company,
incorporated by referenced from Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997.
10.11 - License Agreement dated August 1, 1986, between Monsanto
Company and the Company, incorporated by reference from
Exhibit 10.25 to the Company's Registration Statement on
Form S-1 (Registration No. 33-24020).
76
<PAGE> 79
+10.12 - Amended Lease and Production Agreement dated August 8, 1994,
between BP Chemicals Americas Inc. and the Company,
incorporated by reference from Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994.
+10.12(a)- Second Amended and Restated Production Agreement dated
effective as of August 1, 1996, between BP Chemicals Inc.
and Sterling Chemicals, Inc., incorporated by reference from
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1998.
10.13 - Form of Indemnity Agreement executed between the Company and
each of its officers and directors prior to the Merger,
incorporated by reference from Exhibit 10.30 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994.
10.14 - Form of Indemnity Agreement executed between the Company and
each of its officers and directors, incorporated by
reference from Exhibit 10.17 to the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1996.
10.15 - Sterling Chemicals, Inc. Amended and Restated Supplemental
Employee Retirement Plan, incorporated by reference from
Exhibit 10.34 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1989 (Commission
File Number 1-10059).
10.16 - Sterling Chemicals, Inc. Deferred Compensation Plan,
incorporated by reference from Exhibit 10.35 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1989 (Commission File Number 1-10059).
10.17 - Articles of Agreement between the Company, its successors
and assigns, and Texas City, Texas Metal Trades Council,
AFL-CIO Texas City, Texas, May 1, 1996 to May 1, 1999,
incorporated by reference from Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996.
10.18 - Conditional Performance Guaranty dated as of August 20,
1992, by Albright & Wilson, Ltd. in favor of Sterling Pulp
Chemicals, Ltd., Sterling Canada, Inc. and the Indemnities
identified in Section 10.2 of the Purchase Agreement,
incorporated by reference from Exhibit 10.38 to the
Company's Current Report on Form 8-K dated September 3,
1992.
10.19 - Performance Guaranty dated as of August 20, 1992, by the
Company in favor of Tenneco Canada Inc., Rio Linda Chemical
Co., Albright & Wilson Americas, Inc. and the Indemnities
identified in Section 10.3 of the Purchase Agreement,
incorporated by reference from Exhibit 10.39 to the
Company's Current Report on Form 8-K dated September 3,
1992.
+10.20 - Sales and Purchase Agreement dated April 1, 1994, between BP
Chemicals Ltd. and the Company, incorporated by reference
from Exhibit 10.48 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1994.
10.21 - Agreement between Sterling Pulp Chemicals Ltd., North
Vancouver, British Columbia, and Pulp, Paper and Woodworkers
of Canada Local 5 British Columbia effective December 1,
1994 to November 30, 1998, incorporated by reference from
Exhibit 10.50 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1994.
+10.22 - Methanol Production Agreement between BP Chemicals Inc. and
Sterling Chemicals, Inc. dated September 26, 1996,
incorporated by reference from Exhibit 10.33 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996.
10.23 - Consulting Agreement dated April 23, 1996, among The
Sterling Group, Inc., STX Acquisition Corp., and STX
Chemicals Corp, incorporated by reference from Exhibit 10.34
to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1996.
10.24 - Asset Purchase Agreement, dated December 23, 1996, among
Sterling Fibers, Inc., Sterling Chemicals, Inc., Sterling
Chemicals Holdings, Inc., Cytec Acrylic Fibers Inc., Cytec
Technology Corp., and Cytec Industries Inc., incorporated by
reference from Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended December
31, 1996.
10.25 - Sterling Chemicals Holdings, Inc. Omnibus Stock Awards and
Incentive Plan effective April 23, 1997, as amended,
incorporated by reference from Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1998.
+10.26 - Joint Venture Agreement dated March 31, 1998, between
Sterling Chemicals, Inc. and BP Chemicals, Inc.,
incorporated by reference from Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1998.
77
<PAGE> 80
++10.26(a)- First Amendment to Joint Venture Agreement dated effective
as of March 31, 1998 between Sterling Chemicals, Inc. and BP
Chemicals Inc.
**10.27 - Employment Agreement dated as of March 16, 1998 between
Peter W. De Leeuw and the Company.
**10.28 - Employment Agreement dated as of January 19, 1998 between
Gary M. Spitz and the Company.
**10.29 - Standby Purchase Agreement dated as of December 15, 1998
between Sterling Chemicals Holdings, Inc. and Frank P.
Diassi.
**10.30 - Standby Purchase Agreement dated as of December 15, 1998
between Sterling Chemicals Holdings, Inc. and Frank J.
Hevrdejs.
**10.31 - Standby Purchase Agreement dated as of December 15, 1998
between Sterling Chemicals Holdings, Inc. and Koch Capital
Services, Inc.
**21.1 - Subsidiaries of Sterling Chemicals Holdings, Inc.
**23.1 - Consent of Deloitte & Touche LLP
**27.1 - Financial Data Schedule - Sterling Chemicals Holdings, Inc.
**27.2 - Financial Data Schedule - Sterling Chemicals, Inc.
** Filed herewith.
+ Confidential treatment has been requested with respect to portions of this
Exhibit, and such request has been granted.
++ Filed herewith and confidential treatment has been requested with respect
to portions of this Exhibit.
(b) Reports on Form 8-K.
None.
78
<PAGE> 81
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANTS HAVE DULY CAUSED THIS REPORT TO BE SIGNED
ON THEIR BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
STERLING CHEMICALS HOLDINGS, INC.
STERLING CHEMICALS, INC.
(Registrants)
By /s/ PETER W. DE LEEUW
--------------------------------------
(Peter W. De Leeuw)
President and Chief Executive Officer
DATE: DECEMBER 17, 1998
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS
BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF EACH OF THE REGISTRANTS
AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ FRANK P. DIASSI Chairman of the Board of December 17, 1998
- -------------------------------------------- Directors
(Frank P. Diassi)
/s/ PETER W. DE LEEUW President, Chief Executive December 17, 1998
- -------------------------------------------- Officer and Director
(Peter W. De Leeuw) (principal executive officer)
/s/ GARY M. SPITZ Vice President-Finance and December 17, 1998
- -------------------------------------------- Chief Financial Officer
(Gary M. Spitz) (principal finance officer)
/s/ PAUL G. VANDERHOVEN Controller December 17, 1998
- -------------------------------------------- (principal accounting officer)
(Paul G. Vanderhoven)
/s/ ROBERT W. ROTEN Vice Chairman of the Board of December 17, 1998
- -------------------------------------------- Directors
(Robert W. Roten)
/s/ FRANK J. HEVRDEJS Director December 17, 1998
- --------------------------------------------
(Frank J. Hevrdejs)
/s/ T. HUNTER NELSON Director December 17, 1998
- --------------------------------------------
(T. Hunter Nelson)
/s/ JOHN L. GARCIA Director December 17, 1998
- --------------------------------------------
(John L. Garcia)
/s/ ALLAN R. DRAGONE Director December 17, 1998
- --------------------------------------------
(Allan R. Dragone)
/s/ GEORGE J. DAMIRIS Director December 17, 1998
- --------------------------------------------
(George J. Damiris)
/s/ ROLF H. TOWE Director December 17, 1998
- --------------------------------------------
(Rolf H. Towe)
</TABLE>
79
<PAGE> 82
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
2.1 - Amended and Restated Agreement and Plan of Merger between
STX Acquisition Corp. and Sterling Chemicals, Inc. dated as
of April 24, 1996, incorporated by reference from the
Company's Current Report on Form 8-K dated April 24, 1996,
as amended by Form 8-K/A.
3.1 - Restated Certificate of Incorporation of Sterling Chemicals
Holdings, Inc., incorporated by reference from Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997.
3.2 - Certificate of Incorporation of Sterling Chemicals, Inc., as
amended, incorporated by reference from Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996.
3.3 - Restated Bylaws of Sterling Chemicals Holdings, Inc.,
incorporated by reference from Exhibit 3.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1996.
3.4 - Bylaws of Sterling Chemicals, Inc., incorporated by
reference from Exhibit 3.4 to the Registration Statement on
Form S-1 of STX Acquisition Corp. and STX Chemicals Corp.
(Registration No. 333-04343).
4.1 - Warrant Agreement (including form of Warrant) dated as of
August 15, 1996 between Sterling Chemicals Holdings, Inc.
and KeyCorp Shareholder Services, Inc. as Warrant Agent,
incorporated by reference from Exhibit 4.4 to the
Registration Statement on Form S-1 of STX Acquisition Corp.
and STX Chemicals Corp. (Registration No. 333-04343).
4.2 - Warrant Agreement dated as of July 10, 1997 between Sterling
Chemicals Holdings, Inc. and Harris Trust and Savings Bank
as Warrant Agent, incorporated by reference from Exhibit 4.1
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997.
**4.3 - Warrant Agreement dated as of December 15, 1998 between
Sterling Chemicals Holdings, Inc. and Harris Trust and
Savings Bank, as Warrant Agent.
**4.4 - Warrant Agreement dated as of December 15, 1998 executed by
Sterling Chemicals Holdings, Inc. in favor of Chase Bank of
Texas, National Association, Credit Suisse First Boston and
certain other financial institutions.
4.5 - Indenture dated as of August 15, 1996 between Sterling
Chemicals Holdings, Inc. and Fleet National Bank governing
the 13 1/2% Senior Secured Discount Notes Due 2008 of the
Company, incorporated by reference from Exhibit 4.5 to the
Registration Statement on Form S-1 of STX Acquisition Corp.
and STX Chemicals Corp. (Registration No. 333-04343).
4.5(a) - First Supplement Indenture dated October 1, 1997 governing
the 13 1/2 % Senior Secured Discount Notes Due 2008 of the
Company, incorporated by reference from Exhibit 4.2 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1998.
4.5(b) - Second Supplement Indenture dated March 16, 1998 governing
the 13 1/2 % Senior Secured Discount Notes Due 2008 of the
Company, incorporated by reference from Exhibit 4.3 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1998.
4.6 - Indenture dated as of August 15, 1996 between Sterling
Chemicals, Inc. and Fleet National Bank governing the 11
3/4% Senior Subordinated Notes Due 2006 of Sterling
Chemicals, Inc. (formerly known as STX Chemicals Corp.),
incorporated by reference from Exhibit 4.7 to the
Registration Statement on Form S-1 of STX Acquisition Corp.
and STX Chemicals Corp. (Registration No. 333-04343).
4.6(a) - First Supplement Indenture dated October 1, 1997 governing
the 11 3/4% Senior Subordinated Notes Due 2006 of Sterling
Chemicals, Inc., incorporated by reference from Exhibit 4.4
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1998.
4.6(b) - Second Supplement Indenture dated March 16, 1998 governing
the 11 3/4% Senior Subordinated Notes Due 2006 of Sterling
Chemicals, Inc., incorporated by reference from Exhibit 4.5
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1998.
<PAGE> 83
4.7 - Indenture dated as of April 7, 1997 between Sterling
Chemicals, Inc. and Fleet National Bank governing the 11
1/4% Senior Subordinated Notes due 2007 of Sterling
Chemicals, Inc., incorporated by reference from Exhibit 4.1
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997.
4.7(a) - First Supplement Indenture dated March 16, 1998 governing
the 11 1/4% Senior Subordinated Notes due 2007 of Sterling
Chemicals, Inc., incorporated by reference from Exhibit 4.6
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1998.
4.8 - Amended and Restated Credit Agreement dated July 10, 1997
among Sterling Chemicals, Inc. and Texas Commerce Bank
National Association, individually and as Administrative
Agent, Credit Suisse First Boston, individually and as
Documentation Agent, and the other lenders named therein,
incorporated by reference from Exhibit 4.6 to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1997.
4.8(a) - First Amendment to Amended and Restated Credit Agreement,
dated March 31, 1998, among Sterling Chemicals, Inc. and
Chase Bank of Texas, N.A., individually and as
Administrative Agent, Credit Suisse First Boston,
individually and as Documentation Agent, and the other
lenders named therein, incorporated by reference from
Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1998.
**4.8(b) - Second Amendment to Amended and Restated Credit Agreement,
dated December 15, 1998, among Sterling Chemicals, Inc. and
Chase Bank of Texas, National Association, individually and
as Administrative Agent, Credit Suisse First Boston,
individually and as Documentation Agent, and the other
lenders named therein.
4.9 - Sterling Chemicals Holdings, Inc. Stockholders Agreement
dated effective as of August 21, 1996, incorporated by
reference from Exhibit 4.10 to the Registration Statement on
Form S-1 of STX Acquisition Corp. and STX Chemicals Corp.
(Registration No. 333-04343).
4.9(a) - First Amendment to Sterling Chemicals Holdings, Inc.
Stockholders Agreement dated effective as of December 31,
1997, incorporated by reference from Exhibit 4.7 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1998.
**4.9(b) - Second Amendment to Sterling Chemicals Holdings, Inc.
Stockholders Agreement dated effective as of May 1, 1998.
4.10 - Registration Rights Agreement, incorporated by reference
from Exhibit 4.11 to the Registration Statement on Form S-1
of STX Acquisition Corp. and STX Chemicals Corp.
(Registration No. 333-04343).
4.11 - Amended and Restated Voting Agreement dated as of
January 22, 1997, incorporated by reference from Exhibit 4.5
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1998.
**4.11(a) - Amended and Restated Voting Agreement dated as of December
15, 1998.
4.12 - Tag-Along Agreement dated as of August 21, 1996 incorporated
by reference from Exhibit 4.13 to the Registration Statement
on Form S-1 of STX Acquisition Corp. and STX Chemicals Corp.
(Registration No. 333-04343).
4.13 - Intercreditor Agreement dated as of August 21, 1996 between
Texas Commerce Bank National Association and Fleet National
Bank, incorporated by reference from Exhibit 4.14 to the
Registration Statement on Form S-1 of STX Acquisition Corp.
and STX Chemicals Corp. (Registration No.333-04343).
4.14 - Security Agreement (Pledge) dated August 21, 1996 between
STX Acquisition Corp. and Texas Commerce Bank National
Association, incorporated by reference from Exhibit 4.15 to
the Registration Statement on Form S-1 of STX Acquisition
Corp. and STX Chemicals Corp. (Registration No. 333-04343).
4.14(a) - Second Amendment and Supplement to Security Agreement
(Pledge) dated January 31, 1997 between Sterling Chemicals
Holdings, Inc. and Texas Commerce Bank National Association,
incorporated by reference from Exhibit 4.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 1996.
+10.1 - Assets Purchase Agreement dated August 1, 1986, between
Monsanto Company and the Company, incorporated by reference
from Exhibit 10.1 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1992.
10.2 - Sterling Chemicals, Inc. Salaried Employees' Pension Plan
(Restated as of October 1, 1993), incorporated by reference
from Exhibit 10.6 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1993.
<PAGE> 84
10.2(a) - Supplement to the Sterling Chemicals, Inc. Salaried
Employee's Pension Plan (Restated as of January 1, 1994),
incorporated by reference from Exhibit 10.6(a) to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994.
10.2(b) - First and Second Amendments to the Sterling Chemicals, Inc.
Salaried Employees' Pension Plan dated April 27, 1994 and
September 23, 1994, respectively, incorporated by reference
from Exhibit 10.6(b) to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1994.
10.3 - Sterling Chemicals, Inc. Hourly Paid Employees' Pension Plan
(Restated as of October 1, 1993), incorporated by reference
from Exhibit 10.8 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1993.
10.3(a) - Supplement to the Sterling Chemicals, Inc. Hourly Paid
Employee's Pension Plan (Restated as of January 1, 1994),
incorporated by reference from Exhibit 10.8(a) to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994.
10.3(b) - First Amendment to the Sterling Chemicals, Inc. Hourly Paid
Employees' Pension Plan dated April 27, 1994, incorporated
by reference from Exhibit 10.8(b) to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30,
1994.
10.3(c) - Sterling Chemicals, Inc. Amended and Restated Hourly Paid
Employees' Pension Plan (Effective as of May 1, 1996),
incorporated by reference from Exhibit 10.3(c) to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996.
10.4 - Sterling Chemicals, Inc. Amended and Restated Savings and
Investment Plan, incorporated by reference from Exhibit
10.10 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993.
10.4(a) - Supplements to the Sterling Chemicals, Inc. Savings and
Investment Plan for Hourly Paid Employees and Salaried
Employees, incorporated by reference from Exhibit 10.10(a)
to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1994.
10.4(b) - First and Second Amendments to the Sterling Chemicals, Inc.
Amended and Restated Savings and Investment Plan dated April
27, 1994 and October 26, 1994, respectively, incorporated by
reference from Exhibit 10.10(b) to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30,
1994.
10.5 - Sterling Chemicals, Inc. Pension Benefit Equalization Plan,
incorporated by reference from Exhibit 10.10 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-24020).
10.6 - Sterling Chemicals Employee Stock Ownership Plan (ESOP),
incorporated by reference from Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1996.
+10.7 - Styrene Monomer Conversion Contract dated November 3, 1995,
between Monsanto Company (subsequently assigned to Bayer
Corporation, a subsidiary of Bayer AG) and the Company,
incorporated by reference from Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995.
+10.8 - Production Agreement dated April 15, 1988 between BP
Chemicals Americas Inc. and the Company and First and Second
Amendment thereto, incorporated by reference from Exhibit
10.21 to the Company's Registration Statement on Form S-1
(Registration No. 33-24020).
+10.8(a) - Amended and Restated Production Agreement dated March 31,
1998, between BP Chemicals, Inc. and Sterling Chemicals,
Inc., incorporated by reference from Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1998.
+10.9 - Agreement dated May 2, 1988, between E.I. du Pont de Nemours
and Company and the Company, incorporated by reference from
Exhibit 10.22 to the Company's Registration Statement on
Form S-1 (Registration No. 33-24020).
+10.10 - Amended and Restated Product Sales Agreement dated January
1, 1997, between BASF Corporation and the Company,
incorporated by referenced from Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997.
10.11 - License Agreement dated August 1, 1986, between Monsanto
Company and the Company, incorporated by reference from
Exhibit 10.25 to the Company's Registration Statement on
Form S-1 (Registration No. 33-24020).
<PAGE> 85
+10.12 - Amended Lease and Production Agreement dated August 8, 1994,
between BP Chemicals Americas Inc. and the Company,
incorporated by reference from Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994.
+10.12(a)- Second Amended and Restated Production Agreement dated
effective as of August 1, 1996, between BP Chemicals Inc.
and Sterling Chemicals, Inc., incorporated by reference from
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1998.
10.13 - Form of Indemnity Agreement executed between the Company and
each of its officers and directors prior to the Merger,
incorporated by reference from Exhibit 10.30 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994.
10.14 - Form of Indemnity Agreement executed between the Company and
each of its officers and directors, incorporated by
reference from Exhibit 10.17 to the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1996.
10.15 - Sterling Chemicals, Inc. Amended and Restated Supplemental
Employee Retirement Plan, incorporated by reference from
Exhibit 10.34 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1989 (Commission
File Number 1-10059).
10.16 - Sterling Chemicals, Inc. Deferred Compensation Plan,
incorporated by reference from Exhibit 10.35 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1989 (Commission File Number 1-10059).
10.17 - Articles of Agreement between the Company, its successors
and assigns, and Texas City, Texas Metal Trades Council,
AFL-CIO Texas City, Texas, May 1, 1996 to May 1, 1999,
incorporated by reference from Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996.
10.18 - Conditional Performance Guaranty dated as of August 20,
1992, by Albright & Wilson, Ltd. in favor of Sterling Pulp
Chemicals, Ltd., Sterling Canada, Inc. and the Indemnities
identified in Section 10.2 of the Purchase Agreement,
incorporated by reference from Exhibit 10.38 to the
Company's Current Report on Form 8-K dated September 3,
1992.
10.19 - Performance Guaranty dated as of August 20, 1992, by the
Company in favor of Tenneco Canada Inc., Rio Linda Chemical
Co., Albright & Wilson Americas, Inc. and the Indemnities
identified in Section 10.3 of the Purchase Agreement,
incorporated by reference from Exhibit 10.39 to the
Company's Current Report on Form 8-K dated September 3,
1992.
+10.20 - Sales and Purchase Agreement dated April 1, 1994, between BP
Chemicals Ltd. and the Company, incorporated by reference
from Exhibit 10.48 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1994.
10.21 - Agreement between Sterling Pulp Chemicals Ltd., North
Vancouver, British Columbia, and Pulp, Paper and Woodworkers
of Canada Local 5 British Columbia effective December 1,
1994 to November 30, 1998, incorporated by reference from
Exhibit 10.50 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1994.
+10.22 - Methanol Production Agreement between BP Chemicals Inc. and
Sterling Chemicals, Inc. dated September 26, 1996,
incorporated by reference from Exhibit 10.33 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996.
10.23 - Consulting Agreement dated April 23, 1996, among The
Sterling Group, Inc., STX Acquisition Corp., and STX
Chemicals Corp, incorporated by reference from Exhibit 10.34
to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1996.
10.24 - Asset Purchase Agreement, dated December 23, 1996, among
Sterling Fibers, Inc., Sterling Chemicals, Inc., Sterling
Chemicals Holdings, Inc., Cytec Acrylic Fibers Inc., Cytec
Technology Corp., and Cytec Industries Inc., incorporated by
reference from Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended December
31, 1996.
10.25 - Sterling Chemicals Holdings, Inc. Omnibus Stock Awards and
Incentive Plan effective April 23, 1997, as amended,
incorporated by reference from Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1998.
+10.26 - Joint Venture Agreement dated March 31, 1998, between
Sterling Chemicals, Inc. and BP Chemicals, Inc.,
incorporated by reference from Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1998.
<PAGE> 86
++10.26(a)- First Amendment to Joint Venture Agreement dated effective
as of March 31, 1998 between Sterling Chemicals, Inc. and BP
Chemicals Inc.
**10.27 - Employment Agreement dated as of March 16, 1998 between
Peter W. De Leeuw and the Company.
**10.28 - Employment Agreement dated as of January 19, 1998 between
Gary M. Spitz and the Company.
**10.29 - Standby Purchase Agreement dated as of December 15, 1998
between Sterling Chemicals Holdings, Inc. and Frank P.
Diassi.
**10.30 - Standby Purchase Agreement dated as of December 15, 1998
between Sterling Chemicals Holdings, Inc. and Frank J.
Hevrdejs.
**10.31 - Standby Purchase Agreement dated as of December 15, 1998
between Sterling Chemicals Holdings, Inc. and Koch Capital
Services, Inc.
**21.1 - Subsidiaries of Sterling Chemicals Holdings, Inc.
**23.1 - Consent of Deloitte & Touche LLP
**27.1 - Financial Data Schedule - Sterling Chemicals Holdings, Inc.
**27.2 - Financial Data Schedule - Sterling Chemicals, Inc.
** Filed herewith.
+ Confidential treatment has been requested with respect to portions of this
Exhibit, and such request has been granted.
++ Filed herewith and confidential treatment has been requested with respect
to portions of this Exhibit.
(b) Reports on Form 8-K.
None.
<PAGE> 1
EXHIBIT 4.3
================================================================================
================================================================================
WARRANT AGREEMENT
BETWEEN
STERLING CHEMICALS HOLDINGS, INC.
AND
HARRIS TRUST AND SAVINGS BANK,
AS WARRANT AGENT
================================================================================
DATED AS OF DECEMBER 15, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE I - DEFINITIONS AND INTERPRETATION.................................................................. 1
Section 1.01 Certain Defined Terms............................................................. 1
Section 1.02 Interpretation.................................................................... 5
ARTICLE II - ORIGINAL ISSUE OF WARRANTS..................................................................... 6
Section 2.01 Form of Warrant Certificates...................................................... 6
Section 2.02 Legends........................................................................... 6
Section 2.03 Execution, Issuance and Delivery of Warrant Certificates.......................... 7
Section 2.04 Registration, Transfer and Exchange of Warrant Certificates....................... 7
Section 2.05 Surrender and Cancellation of Warrant Certificates................................ 8
ARTICLE III - EXERCISE PRICE; EXERCISE OF WARRANTS.......................................................... 8
Section 3.01 Exercise Price.................................................................... 8
Section 3.02 Exercise; Restrictions on Exercise................................................ 8
Section 3.03 Method of Exercise; Payment of Exercise Price..................................... 9
ARTICLE IV - ADJUSTMENTS.................................................................................... 10
Section 4.01 Adjustments....................................................................... 10
Section 4.02 Notice of Adjustment.............................................................. 16
Section 4.03 Statements on Warrants............................................................ 16
Section 4.04 Notice of Consolidation, Merger or Sale of
Substantially All Assets, Etc................................................ 16
Section 4.05 Fractional Interests.............................................................. 17
Section 4.06 Concerning All Adjustments........................................................ 17
ARTICLE V - LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT CERTIFICATES.................................. 17
ARTICLE VI - AUTHORIZATION AND RESERVATION OF COMMON STOCK;
PURCHASE OF WARRANTS..................................................... 18
Section 6.01 Reservation of Authorized Common Stock............................................ 18
Section 6.02 Purchase of Warrant by Holdings................................................... 18
ARTICLE VII - WARRANT HOLDERS NOT DEEMED STOCKHOLDERS....................................................... 19
</TABLE>
-i-
<PAGE> 3
<TABLE>
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ARTICLE VIII - THE WARRANT AGENT............................................................................ 19
Section 8.01 Appointment and Acceptance of Agency.............................................. 19
Section 8.02 Correctness of Statements; Distribution of Warrants............................... 19
Section 8.03 Use of Agents..................................................................... 19
Section 8.04 Proof of Actions Taken............................................................ 19
Section 8.05 Compensation; Indemnity........................................................... 20
Section 8.06 Legal Proceedings................................................................. 20
Section 8.07 Other Transactions Involving Holdings............................................. 20
Section 8.08 Actions as Agent.................................................................. 20
Section 8.09 Liability of Warrant Agent........................................................ 21
Section 8.10 Validity of Agreement............................................................. 21
Section 8.11 Acceptance of Instructions........................................................ 21
Section 8.12 Right to Consult and Rely Upon Counsel............................................ 22
Section 8.13 Change of Warrant Agent........................................................... 22
Section 8.14 Successor Warrant Agent........................................................... 23
Section 8.15 Other............................................................................. 23
ARTICLE IX - MISCELLANEOUS.................................................................................. 23
Section 9.01 Money Deposited with the Warrant Agent............................................ 23
Section 9.02 Payment of Taxes.................................................................. 23
Section 9.03 Merger, Consolidation or Sale of Assets of Holdings............................... 24
Section 9.04 Reports to Holders................................................................ 24
Section 9.05 Notices........................................................................... 24
Section 9.06 Governing Law..................................................................... 25
Section 9.07 Binding Effect.................................................................... 25
Section 9.08 Counterparts...................................................................... 25
Section 9.09 Amendments........................................................................ 25
Section 9.10 Common Stock Legend............................................................... 26
Section 9.11 Third Party Beneficiaries......................................................... 27
Exhibit A - Form of Warrant Certificate
</TABLE>
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<PAGE> 4
WARRANT AGREEMENT
THIS WARRANT AGREEMENT dated as of December 15, 1998 (this "Agreement")
is by and between STERLING CHEMICALS HOLDINGS, INC., a Delaware corporation
("Holdings"), and HARRIS TRUST AND SAVINGS BANK, as warrant agent (in such
capacity, the "Warrant Agent").
PRELIMINARY STATEMENTS
A. Concurrently with the execution hereof, Holdings is entering into a
Standby Purchase Agreement (collectively, the "Purchase Agreements")
with each of Gordon A. Cain, William A. McMinn, James Crane, Frank P.
Diassi, Frank J. Hevrdejs and Koch Capital Services, Inc.
(collectively, the "Purchasers").
B. Pursuant to the terms of, and subject to the conditions contained in,
the Purchase Agreements, Holdings has agreed to issue to the Purchasers
warrants (each, a "Warrant") entitling the holders thereof to purchase
shares of the common stock, par value $.01 per share, of Holdings at a
price of $6.00 per share.
C. Holdings wishes the Warrant Agent to act on its behalf, and the Warrant
Agent is willing to act on behalf of Holdings, in connection with the
issuance, exchange, transfer, substitution and exercise of Warrants.
D. Holdings desires to enter into this Agreement to set forth the terms
and conditions of the Warrants and the rights and obligations of
Holdings, the Warrant Agent and the registered holders of the Warrants
(the "Holders").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein and the Purchase Agreements, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Holdings and the Warrant Agent, intending to be legally
bound, 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:
"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
<PAGE> 5
common control with such Person. The term "control" (including, with correlative
meaning, the terms "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether though the
ownership of voting securities, by contract or otherwise.
"Business Day" means any day which is not a Saturday, a Sunday, or any
other day on which banking institutions are authorized or required to be closed
in the State of New York or Illinois or the state in which the principal
corporate trust office of the Warrant Agent is located.
"Closing Date" means December 15, 1998 or such other date as the
Purchasers and Holdings may agree.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $0.01 per share, of
Holdings, including any other capital stock into which such common stock may be
converted or reclassified or that may be issued in respect of, in exchange for,
or in substitution of, such common stock for reason of any stock splits, stock
dividends, distributions, mergers, consolidations or other like events.
"Current Market Value" means, with respect to any security (including
Common Stock), as of a specified date (the "date of calculation"):
(i) if such security is not registered under the Exchange Act,
the value of such security (A) as determined in good faith by the Board
of Directors of Holdings based upon the most recently completed
arm's-length transaction with respect to such security between Holdings
and a Person other than an Affiliate of Holdings, the closing of which
shall have occurred within the six months preceding the date of
calculation, (B) if no such transaction shall have occurred within such
six-month period, as most recently determined as of a date within the
six months preceding the date of calculation by an Independent
Financial Expert selected by Holdings, or (C) if no such determination
shall have been made within such six-month period or if Holdings so
chooses, as determined as of the date of calculation by an Independent
Financial Expert selected by Holdings; or
(ii) if such security is registered under the Exchange Act,
the average of the daily market prices of such security for the 20
consecutive trading days immediately preceding the date of calculation
or, if such security has been registered under the Securities Act for
less than 20 consecutive trading days before the date of calculation,
then the average of the daily market prices for all of the trading days
before the date of calculation for which daily market prices are
available; provided, however, that if the market price cannot be
calculated (as provided below), the Current Market Value of
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<PAGE> 6
such security shall be determined as if such security were not
registered under the Exchange Act.
For purposes of this Agreement, the term "market price" means, with respect to
any security for any trading day, (A) in the case of a security listed or
admitted to trading on any national securities exchange, the closing sales
price, regular way, on such day, or if no sale takes place on such day, the
average of the closing bid and asked prices on such day on the principal
national securities exchange on which such security is listed or admitted, as
determined by the Board of Directors of Holdings, in good faith, (B) in the case
of a security not then listed or admitted to trading on any national securities
exchange, the last reported sales price on such day, or if no sale takes place
on such day, the average of the closing bid and asked prices on such day, as
reported by a reputable quotation source designated by Holdings, or (C) in the
case of a security not then listed or admitted to trading on any national
securities exchange and as to which no such reported sales price or bid and
asked prices are available, the average of the reported high bid and low asked
prices on such day, as reported by a reputable quotation service, or a newspaper
of general circulation in the Borough of Manhattan, City and State of New York
customarily published on each Business Day, designated by Holdings, or, if there
shall be no bid and asked prices on such day, the average of the high bid and
low asked prices, as so reported, on the most recent day (not more than 30 days
prior to the date in question) for which prices have been so reported.
"Exchange Act" means the Securities Exchange Act of 1934.
"Exercise Price" has the meaning specified in Section 3.01.
"Expiration Date" means, with respect to any Warrant, the fifth
anniversary of its Issue Date.
"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.
"Holders" has the meaning specified in the Preliminary Statements of
this Agreement.
"Holdings" has the meaning specified in the opening paragraph of this
Agreement.
"Independent Financial Expert" means a nationally recognized investment
banking firm or appraisal firm which is not an Affiliate of Holdings.
"Issue Date" has the meaning specified in Section 2.03 hereof.
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<PAGE> 7
"Laws" means (i) all laws, statutes, rules, regulations, ordinances,
orders, writs, injunctions or decrees and other pronouncements having the effect
of law of any Governmental Authority and (ii) all Contracts with any
Governmental Authority relating to compliance with the matters described in (i)
above.
"Person" means any individual, limited liability company, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental Authority or other entity or
enterprise.
"Purchase Agreements" has the meaning specified in the Preliminary
Statements of this Agreement.
"Purchasers" has the meaning specified in the Preliminary Statements of
this Agreement.
"Registration Statement" refers to the registration statement to be
filed under the Securities Act as contemplated by that certain Registration
Rights Agreement dated as of August 21, 1996 among Holdings and the Persons
named therein.
"Right" means any right, option, warrant or convertible or exchangeable
security containing the right to subscribe for or acquire one or more shares of
Common Stock, excluding the Warrants.
"Securities Act" means the Securities Act of 1933.
"Spread" means, with respect to any Warrant, the Current Market Value
of the Underlying Securities issuable upon exercise of such Warrant (adjusted as
provided herein), less the Exercise Price of such Warrant.
"Underlying Securities" means the shares of Common Stock or other
securities or property issuable upon exercise of the Warrants.
"Value Report" has the meaning specified in Section 4.01(i).
"Warrant" has the meaning specified in the Preliminary Statements of
this Agreement.
"Warrant Agent" has the meaning specified in the opening paragraph
hereof.
"Warrant Certificates" has the meaning specified in Section 2.01.
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<PAGE> 8
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 or capacities
excludes such Person in any other capacity;
(f) reference to any contract or agreement means such contract or
agreement as amended, supplemented or modified from time to time in
accordance with the terms thereof;
(g) all references to Articles and Sections shall be deemed to be
references to the Articles and Sections of this Agreement;
(h) all references to Exhibits shall be deemed to be references to the
Exhibits attached hereto which are made a part hereof and incorporated
herein by reference;
(i) the word "including" (and with correlative meaning "include") means
including, without limiting the generality of any description preceding such
term;
(j) 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";
(k) 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;
(l) reference to any Law means such Law as amended, modified, codified,
reenacted, supplemented or superseded in whole or in part, and in effect
from time to time;
(m) 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
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<PAGE> 9
(n) no provision of this Agreement shall be interpreted or construed
against any Party solely because that Party or its legal representative
drafted such provision.
ARTICLE II
Original Issue Of Warrants
Section 2.01. Form of Warrant Certificates. The Warrants shall be
evidenced by certificates in registered form (the "Warrant Certificates"),
substantially in the form attached hereto as Exhibit A, and may have such
insertions, letters, numbers or other marks of identification and such legends
and endorsements stamped, printed, lithographed or engraved thereon as may,
consistently herewith, be determined to be necessary or appropriate by the
officers of Holdings executing such Warrant Certificates as evidenced by their
execution of the Warrant Certificates, or as may be required to comply with any
applicable Law or with any rule or regulation of any securities exchange or to
conform to usage. Each Warrant shall represent the right, subject to the
provisions of this Agreement and of the Warrant Certificate, to purchase one
share of Common Stock at the Execution Price, subject to adjustment pursuant to
the provisions of Section 4.01. The definitive Warrant Certificates shall be
typed, printed, lithographed or engraved or produced by any combination of these
methods or may be produced in any other manner permitted by applicable Law.
Section 2.02.Legends. Each Warrant shall bear the following legend:
THE COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF STERLING CHEMICALS
HOLDINGS, INC. (THE "COMMON STOCK") FOR WHICH THIS WARRANT IS
EXERCISABLE MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. ACCORDINGLY,
NO HOLDER SHALL BE ENTITLED TO EXERCISE SUCH HOLDER'S WARRANTS AT ANY
TIME UNLESS, AT THE TIME OF EXERCISE, (i) A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT RELATING TO THE SHARES OF COMMON STOCK
ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAS BEEN FILED WITH, AND
DECLARED EFFECTIVE BY, THE SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION"), AND NO STOP ORDER SUSPENDING THE EFFECTIVENESS OF SUCH
REGISTRATION STATEMENT HAS BEEN ISSUED BY THE COMMISSION, OR (ii) THE
ISSUANCE OF SUCH SHARES IS PERMITTED PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
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<PAGE> 10
Section 2.03. Execution, Issuance, Delivery of Warrant Certificates.
(a) Each Warrant Certificate, whenever issued, shall be dated as of the date of
countersignature thereof by the Warrant Agent (the "Issue Date"), either upon
initial issuance or upon exchange, substitution or transfer and shall be
executed on behalf of Holdings by its Chairman of the Board, Chief Executive
Officer, President or any Vice President, either manually or by facsimile
signature printed thereon. The Warrant Certificates shall be countersigned by
manual or facsimile signature of the Warrant Agent and shall not be valid for
any purpose unless so countersigned. In the event that any officer of Holdings
whose signature shall have been placed upon any of the Warrant Certificates
shall cease to be an officer of Holdings before countersignature by the Warrant
Agent and the issuance and delivery thereof, such Warrant Certificates may,
nevertheless, be countersigned by the Warrant Agent and issued and delivered
with the same force and effect as though such person had not ceased to be such
officer of Holdings.
(b) Holdings shall instruct the Warrant Agent to countersign, issue and
deliver, at the expense of Holdings, Warrant Certificates evidencing Warrants to
purchase an aggregate of up to 600,000 shares of Common Stock at the times
required by, and in accordance with the terms and conditions of, the Purchase
Agreements. The Warrant Agent shall, and is hereby authorized to, countersign,
issue and deliver Warrants as and when so instructed by Holdings. In addition,
the Warrant Agent is hereby authorized to countersign, issue and deliver Warrant
Certificates as required by Section 2.04, Section 3.03 or Article V.
Section 2.04. Registration, Transfer and Exchange of Warrant
Certificates. (a) The Warrant Agent shall maintain books , subject to such
reasonable regulations as it may prescribe, for the registration of Warrant
Certificates and transfers and exchanges of Warrant Certificates as provided in
this Agreement.
(b) A Holder may transfer its Warrants only by written application to
the Warrant Agent stating the name of the proposed transferee and otherwise
complying with the terms of this Agreement and all applicable Laws. No such
transfer shall be effected until, and such transferee shall succeed to the
rights of a Holder only upon, final acceptance and registration of the transfer
by the Warrant Agent in the register in accordance with this Agreement. Prior to
due presentation for registration of transfer, Holdings, the Warrant Agent and
any agent of Holdings may deem and treat the Person in whose name the Warrants
are registered as the absolute owner thereof for all purposes (notwithstanding
any notation of ownership or other writing thereon made by anyone), and neither
Holdings nor the Warrant Agent shall be affected by any notice to the contrary
or be bound to recognize any equitable or other claim to or in interest in any
Warrants on the part of any other Person and shall not be liable for any
registration of transfer of Warrants that are registered or to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with actual
knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration of transfer or with such knowledge of such facts
that its participation therein amount to bad faith. When Warrants are presented
to the Warrant Agent with a request to
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<PAGE> 11
register the transfer thereof or to exchange them for an equal number of
Warrants of other authorized denominations, the Warrant Agent shall register the
transfer or make the exchange as requested if the requirements of this Agreement
for such transaction are met. To permit registrations of transfers and
exchanges, Holdings shall execute Warrant Certificates at the Warrant Agent's
request. No service charge shall be made for any registration of transfer or
exchange of Warrants, but Holdings or the Warrant Agent may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection with any registration of transfer of Warrants.
(c) All Warrant Certificates issued upon any registration of transfer or
exchange of Warrants shall be the valid obligations of Holdings, evidencing the
same obligations, and entitled to the same benefits under this Agreement, as the
Warrant Certificates surrendered for registration of transfer or exchange.
Section 2.05. Surrender and Cancellation of Warrant Certificates. Any
Warrant Certificate surrendered for registration of transfer, exchange or
exercise of the Warrants represented thereby shall, if surrendered to Holdings,
be delivered to the Warrant Agent, and all Warrant Certificates surrendered or
so delivered to the Warrant Agent shall be promptly canceled by the Warrant
Agent and shall not be reissued by Holdings and, except as provided in Section
2.04 (in the case of a transfer or exchange), Section 3.03 (in the case of the
exercise of less than all the Warrants represented by the surrendered Warrant
Certificate) or Article V (in the case of a lost, stolen, destroyed or mutilated
Warrant Certificate), no Warrant Certificate shall be issued hereunder in lieu
thereof. On request of Holdings, the Warrant Agent shall destroy canceled
Warrant Certificates held by it and shall deliver its certificates of
destruction to Holdings. The Warrant Agent shall destroy all canceled Warrant
Certificates in accordance with its normal procedures.
ARTICLE III
Exercise Price; Exercise Of Warrants
Section 3.01. Exercise Price. Each Warrant Certificate shall, when
countersigned by the Warrant Agent, entitle the Holder thereof, subject to the
provisions of this Agreement and such Warrant Certificate, to purchase one share
of Common Stock (subject to adjustment as provided herein) for each Warrant
represented thereby at a purchase price (the "Exercise Price") of $6.00 per
share, payable in full at the time of purchase; provided, however, that, at the
option of the Holder thereof, payment of the Exercise Price may be satisfied
through the delivery and cancellation of additional Warrants having an aggregate
Spread equal to the aggregate Exercise Price of the Warrants being exercised.
The calculation of the Spread and the number of Warrants deliverable in payment
of the Exercise Price shall be verified by Holdings.
Section 3.02. Exercise; Restrictions on Exercise. (a) Each
outstanding Warrant may be exercised on any Business Day which is on or after
its Issue Date and on or before the
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<PAGE> 12
Expiration Date, but only if the Registration Statement is, at the time of
exercise, effective and available or the exercise of such Warrants is exempt
from the registration requirements of the Securities Act. Any Warrants not
exercised by 5:00 p.m., New York City time, on the Expiration Date shall expire
and all rights thereunder and all rights in respect thereof under this Agreement
shall automatically terminate at such time. Additionally, pursuant to Section
4.01(g), the Warrants may expire and all rights of the Holders of such Warrants
shall terminate in the event Holdings merges or consolidates with or sells all
or substantially all of its property and assets to any Person if the
consideration payable to the holders of shares of Common Stock in exchange for
their shares in connection with such merger, consolidation or sale consists
solely of cash or in the event of the dissolution, liquidation or winding up of
Holdings.
(b) Holdings shall give notice not less than 90 and not more than 120
days prior to the Expiration Date to the Holders of all then outstanding
Warrants to the effect that the Warrants will terminate and become void as of
5:00 p.m., New York City time, on the Expiration Date; provided, however, that
the Warrants will terminate and become void as of 5:00 p.m., New York City time,
on the Expiration Date irrespective of whether Holdings provides such notice.
(c) In the event a Holder exercises its Warrants at a time when the
Registration Statement is not effective and available, such Holder must furnish
to Holdings such certifications, legal opinions or other information as Holdings
may reasonably require to confirm that such exercise is being made pursuant to
an exemption from the registration requirements of the Securities Act.
Section 3.03. Method of Exercise: Payment of Exercise Price. (a) In
order to exercise any of the Warrants, the Holder thereof must surrender the
Warrant Certificate evidencing such Warrants to the Warrant Agent at its
corporate trust office set forth in Section 9.05 (with the Subscription Form set
forth in the Warrant Certificate duly executed), together with payment in full
of the Exercise Price then in effect for each share of Common Stock as to which
a Warrant is exercised and any applicable taxes that Holdings is not required to
pay pursuant to this Section 3.03, Sections 2.04(b), 3.03 or 9.02 or Article V.
Payment of the Exercise Price may be made by the Holder either (i) by wire
transfer or by certified or official bank or bank cashier's check payable to the
order of Holdings or (ii) through the delivery for cancellation of additional
Warrants having an aggregate Spread equal to the aggregate Exercise Price of the
Warrants being exercised. Upon the exercise of any Warrant, the Warrant Agent
shall promptly provide written notice of such exercise to Holdings, including
notice of the number of shares of Common Stock delivered upon the exercise of
such Warrant, and deliver all payments received upon exercise of such Warrant to
Holdings in such manner as Holdings shall instruct in writing.
(b) A Holder may exercise all or any number of whole Warrants
represented by a Warrant Certificate. If less than all of the Warrants
represented by a Warrant Certificate are exercised, such Warrant Certificate
shall be surrendered and a new Warrant Certificate of the same tenor and for the
number of Warrants which were not exercised shall be executed by Holdings and
delivered to the Warrant Agent. Upon receipt of any such Warrant Certificate
from
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<PAGE> 13
Holdings, the Warrant Agent shall (i) countersign such Warrant Certificate, (ii)
register such Warrant Certificate in such name or names as may be directed in
writing by the Holder and (iii) deliver such Warrant Certificate to the Person
or Persons entitled to receive the same.
(c) Upon the exercise of any Warrant and the surrender of the Warrant
Certificate evidencing such Warrant in conformity with the foregoing provisions,
the Warrant Agent shall instruct Holdings to (i) transfer promptly to or upon
the written order of the Holder of such Warrant Certificate, appropriate
evidence of ownership of any shares of Common Stock or other securities or
property (including money) to which it is entitled, registered or otherwise
placed in such name or names as may be directed in writing by the Holder, and
(ii) deliver such evidence of ownership and any other securities or property
(including money) to the Person or Persons entitled to receive the same
(together with an amount in cash in lieu of any fractional shares as provided in
Section 4.05); provided, however, that the Holder of such Warrant shall be
responsible for the payment of any transfer taxes or other governmental charges
imposed as the result of any change in the ownership of such Warrants or the
issuance of such shares of Common Stock or other securities or Warrants other
than to the registered owner of such Warrants.
(d) Upon the exercise of any Warrant, the Warrant Agent is hereby
authorized and directed to requisition from any transfer agent of the Common
Stock (and all such transfer agents are hereby irrevocably authorized to comply
with all such requests) certificates (bearing the legend set forth in Section
9.10, if applicable) for the necessary number of shares of Common Stock to which
the Holder of such Warrant may be entitled upon such exercise.
(e) Any Warrant which is exercised hereunder shall be deemed to have
been exercised immediately prior to the close of business on the date of the
surrender, as provided above, of the Warrant Certificate representing such
Warrant, together with payment in full of the Exercise Price and any applicable
taxes that Holdings is not required to pay pursuant to this Section 3.03,
Sections 2.04(b), 3.03 or 9.02 or Article V, and, for purposes of this
Agreement, the Person entitled to receive any shares of Common Stock or other
securities or property deliverable upon such exercise shall, as between such
Person and Holdings, be deemed to be the Holder of such shares of Common Stock
or other securities or property of record as of the close of business on such
date and shall be entitled to receive, and the Warrant Agent shall deliver to
such Person, any money, shares of Common Stock or other securities or property
to which he would have been entitled had he been a record holder on such date.
ARTICLE IV
Adjustments
Section 4.01. Adjustments. The number of shares of Common Stock
issuable upon exercise of each Warrant shall be subject to adjustment from time
to time as follows:
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<PAGE> 14
(a) Stock Dividends; Stock Splits; Reverse Stock Splits;
Reclassifications. In the event that Holdings after the date hereof (i) pays
a dividend or makes any other distribution with respect to its shares of
Common Stock in shares of any class or series of its capital stock, (ii)
subdivides its outstanding shares of Common Stock, (iii) combines its
outstanding shares of Common Stock into a smaller number of shares or (iv)
issues any shares of its capital stock in a reclassification of its shares
of Common Stock (other than a reclassification in connection with a merger,
consolidation or other business combination which will be governed by
Section 4.01(g)), then in any such case the number of shares of Common Stock
purchasable upon exercise of each Warrant immediately prior to the record
date for such dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be adjusted so that the
Holder of each Warrant shall be entitled to receive the kind and number of
shares of Common Stock or other securities of Holdings which such Holder
would have been entitled to receive after the happening of any of the events
described above had such Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto (with any
record date requirement being deemed to have been satisfied). An adjustment
made pursuant to this Section 4.01(a) shall become effective retroactively
immediately after the record date for such dividend or distribution or the
effective date of such subdivision, combination or reclassification, as the
case may be.
(b) Rights; Options; Warrants; Convertible or Exchangeable Securities.
In the event that Holdings after the date hereof issues any Rights (other
than a convertible or exchangeable security subject to Section 4.01(a)) to
all holders of its shares of Common Stock, entitling them to subscribe for
or purchase Common Stock at a price per share (determined, in the case of
such Rights, by dividing (i) the total amount receivable by Holdings in
consideration of the issuance of such Rights, if any, plus the total
consideration payable to Holdings upon exercise, conversion or exchange
thereof, by (ii) the total number of shares of Common Stock covered by such
Rights) which is lower (at the record date for such issuance) than the then
Current Market Value per share of Common Stock, then the number of shares of
Common Stock thereafter purchasable upon exercise of each Warrant shall be
determined by multiplying the number of shares of Common Stock theretofore
purchasable upon exercise of each Warrant by a fraction having (A) a
numerator equal to the number of shares of Common Stock outstanding
immediately prior to the issuance of such Rights plus the number of
additional shares of Common Stock offered for subscription or purchase or
issuable upon exercise, conversion or exchange, and (B) a denominator equal
to the number of shares of Common Stock outstanding immediately prior to the
issuance of such Rights plus the number of shares which the aggregate
offering price of the total number of shares of Common Stock so offered
would purchase at the then Current Market Value per share of Common Stock.
Such adjustment shall be made whenever such Rights are issued, and shall
become effective retroactively immediately after the record date for the
determination of stockholders entitled to receive such Rights.
(c) Issuance of Common Stock at Lower Values. In the event that
Holdings after the date hereof shall sell or issue any shares of Common
Stock or Right (excluding (i) any Right issued in any of the transactions
described in Section 4.01(a) or (b) above, (ii) any
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<PAGE> 15
shares of Common Stock issued pursuant to (x) any Rights outstanding on the
date of this Agreement, (y) a Right, if on the date such Right was issued,
the exercise, conversion or exchange price per share of Common Stock with
respect thereto was at least equal to the Current Market Value per share of
Common Stock on such date and (z) Rights (with respect to not more than an
aggregate of 10% of the outstanding shares of Common Stock) issued to
employees of Holdings and its subsidiaries and (iii) any Right issued as
consideration when any corporation or business is acquired, merged into or
becomes part of Holdings or a subsidiary of Holdings in an arm's-length
transaction between Holdings and a Person other than an Affiliate of
Holdings) at a price per share of Common Stock (determined, in the case of
such Right, by dividing (A) the total amount receivable by Holdings in
consideration of the sale and issuance of such Right, plus the total
consideration payable to Holdings upon exercise, conversion or exchange
thereof, by (B) the total number of shares of Common Stock covered by such
Right) that is lower than the Current Market Value per share of Common Stock
in effect immediately prior to such sale or issuance, then the number of
shares of Common Stock thereafter purchasable upon the exercise of each
Warrant shall be determined by multiplying the number of shares of Common
Stock theretofore purchasable upon exercise of such Warrant by a fraction,
the numerator of which shall be the number of shares of Common Stock
outstanding immediately after such sale or issuance and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such sale or issuance plus the number of shares of Common Stock
which the aggregate consideration received (determined as provided below)
for such sale or issuance would purchase at such Current Market Value per
share of Common Stock. For purposes of this Section 4.01(c), the shares of
Common Stock which the holder of any such Right shall be entitled to
subscribe for or purchase shall be deemed to be issued and outstanding as of
the date of such sale and issuance and the consideration received by
Holdings therefor shall be deemed to be the consideration received by
Holdings for such Right, plus the consideration or premiums stated in such
Right to be paid for the shares of Common Stock covered thereby. In the
event that Holdings shall sell and issue shares of Common Stock or any
Right, for a consideration consisting, in whole or in part, of property
other than cash or its equivalent, then in determining the "price per share
of Common Stock" and the "consideration received by Holdings" for purposes
of the first sentence of this Section 4.01(c), the Board of Directors of
Holdings shall determine, in good faith, the fair value of said property. In
the event that Holdings shall sell and issue any Right together with one or
more other securities as part of a unit at a price per unit, then in
determining the "price per share of Common Stock" and the "consideration
received by Holdings" for purposes of the first sentence of this Section
4.01(c), the Board of Directors of Holdings shall determine, in good faith,
the fair value of the Right then being sold as part of such unit.
(d) Distributions of Debt, Assets, Subscription Rights or Convertible
Securities. In the event that Holdings after the date hereof shall fix a
record date for the making of a distribution to all holders of shares of
Common Stock of evidences of its indebtedness, assets, cash dividends or
distributions (excluding dividends or distributions referred to in Section
4.01(a) and excluding distributions in connection with the dissolution,
liquidation
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or winding up of Holdings which will be governed by Section 4.01(g)) or
securities (excluding those referred to in Section 4.01(a), Section 4.01(b)
or Section 4.01(c)), then in each case the number of shares of Common Stock
purchasable after such record date upon the exercise of each Warrant shall
be determined by multiplying the number of shares of Common Stock
purchasable upon the exercise of such Warrant immediately prior to such
record date by a fraction, the numerator of which shall be the Current
Market Value per share of Common Stock immediately prior to the record date
for such distribution and the denominator of which shall be the Current
Market Value per share of Common Stock immediately prior to the record date
for such distribution less the then fair value (as determined in good faith
by the Board of Directors of Holdings) of the portion of the assets,
evidence of indebtedness, cash dividends or distributions or securities so
distributed applicable to one share of Common Stock. Such adjustment shall
be made whenever any such distribution is made, and shall become effective
on the date of distribution retroactive to the record date for the
determination of stockholders entitled to receive such distribution.
(e) Expiration of Rights, Options and Conversion Privileges. Upon the
expiration of any rights, options, warrants or conversion or exchange
privileges that have previously resulted in an adjustment hereunder, if any
thereof shall not have been exercised, the number of shares of Common Stock
issuable upon the exercise of each Warrant shall, upon such expiration, be
readjusted and shall thereafter, upon any future exercise, be such as they
would have been had they been originally adjusted (or had the original
adjustment not been required, as the case may be) as if (i) the only shares
of Common Stock so issued were the shares of Common Stock, if any, actually
issued or sold upon the exercise of such rights, options, warrants or
conversion or exchange rights and (ii) such shares of Common Stock, if any,
were issued or sold for the consideration actually received by Holdings upon
such exercise plus the consideration, if any, actually received by Holdings
for issuance, sale or grant of all such rights, options, warrants or
conversion or exchange rights whether or not exercised; provided, however,
that no such readjustment shall have the effect of decreasing the number of
shares issuable upon exercise of each Warrant by a number which exceeds the
amount or number of the adjustment initially made in respect to the
issuance, sale or grant of such rights, options, warrants or conversion or
exchange rights.
(f) De Minimis Adjustments. No adjustment in the number of shares of
Common Stock purchasable upon the exercise of any Warrant shall be required
unless such adjustment would require an increase or decrease of at least one
percent in the number of shares of Common Stock purchasable upon the
exercise of such Warrant; provided, however, that any adjustments which are
not required to be made by reason of this Section 4.01(f) shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this Section 4.01(f) shall be made to the nearest
one-thousandth of a share.
(g) Consolidation; Merger; Sale of Substantially All Assets. Subject to
the provisions of this Section 4.01(g), in case of the consolidation of
Holdings with, or merger of Holdings with or into, or of the sale of all or
substantially all of the properties and assets
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of Holdings to, any Person and in connection therewith consideration is
payable to holders of Common Stock (or other securities or property
purchasable upon exercise of Warrants) in exchange therefor, the Warrants
shall remain subject to the terms and conditions set forth in this Agreement
and each Warrant shall, after such consolidation, merger or sale, entitle
the Holder to receive upon exercise the number of shares of capital stock or
other securities or property (including cash) of Holdings, or of such Person
resulting from such consolidation or surviving such merger or to which such
sale shall be made, as the case may be, that would have been distributable
or payable on account of the shares of Common Stock (or other securities or
properties purchasable upon exercise of Warrants) if such Holder's Warrants
had been exercised immediately prior to such merger, consolidation or sale
(or, if applicable, the record date therefor); and in any such case the
provisions of this Agreement with respect to the rights and interests
thereafter of the Holders of Warrants shall be appropriately adjusted by the
Board of Directors of Holdings in good faith so as to be applicable, as
nearly as may reasonably be, to any shares of stock or other securities or
any property thereafter deliverable on the exercise of the Warrants.
Notwithstanding the foregoing, (i) if Holdings merges or consolidates with,
or sells all or substantially all of its property and assets to, another
Person and the consideration payable to the holders of shares of Common
Stock in exchange for their shares of Common Stock in such merger,
consolidation or sale consists solely of cash, or (ii) in the event of the
dissolution, liquidation or winding up of Holdings, then the Holders of each
Warrant shall be entitled to receive distributions on the date of such event
on an equal basis with holders of shares of Common Stock (or other
securities issuable upon exercise of such Warrant) as if such Warrant had
been exercised immediately prior to such event, less the Exercise Price.
Upon receipt of such payments, if any, the rights of a Holder hereunder with
respect to such Warrant shall terminate and cease and such Warrant shall
expire. In case of any such merger, consolidation or sale of assets, the
surviving or acquiring Person and, in the event of any dissolution,
liquidation or winding up of Holdings, Holdings shall deposit promptly with
the Warrant Agent the funds, if any, necessary to make such payments to the
Holders of the Warrants. After receipt of such deposit from such Person or
Holdings, the Warrant Agent shall make the appropriate payments to the
Holder of each Warrant, upon surrender of the Warrant Certificate evidencing
such Warrant, by delivering a check in such amount as is appropriate (or, in
the case of consideration other than cash, such other consideration as is
appropriate) to such Person or Persons as it may be directed in writing by
the Holder surrendering such Warrant.
(h) Other Adjustments. In addition to the foregoing adjustments,
Holdings may make any other adjustment to increase the number of Underlying
Securities issuable upon exercise of each Warrant as it may, in good faith,
deem desirable to protect the rights and benefits of the Holders. In
addition, Holdings may from time to time increase the number of Underlying
Securities issuable upon exercise of each Warrant; provided, however, that
any such increase must be effective for at least 30 calendar days, and must
be preceded by written notice of such increase to the Holders and the
Warrant Agent, which notice must be mailed at least 30 calendar days prior
to the effective date of such increase. Any such increase shall not alter or
adjust the Exercise Price.
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(i) Determination of Current Market Value and Related Deliveries.
(A) If at any time the Current Market Value of any security is
required to be calculated pursuant to the terms of this Agreement, the
determination of such Current Market Value, if calculated in accordance
with the terms of this Agreement, shall be conclusive and binding on all
Persons.
(B) If at any time the Current Market Value of any security is
required to be calculated pursuant to the terms of this Agreement, and
such Current Market Value is determined as if such security is not
registered under the Exchange Act:
(x) if the Current Market Value of such security is determined by
the Board of Directors of Holdings based upon the most recently
completed arm's-length transaction with respect to such
security, Holdings shall, as promptly as practicable, deliver to
the Warrant Agent a report specifying the amount of such Current
Market Value determination and containing a brief description of
the arm's-length transaction upon which such determination was
based;
(y) if the Current Market Value of such security is determined as of
a date within the six months preceding the date of calculation
by an Independent Financial Expert selected by Holdings,
Holdings shall, as promptly as practicable, deliver to the
Warrant Agent the value report of the Independent Financial
Expert, stating the value of such security and briefly
describing the nature and scope of the examination upon which
the determination was made (the "Value Report"); and
(z) if the Current Market Value of such security is determined as of
the date of calculation by an Independent Financial Expert
selected by Holdings, Holdings shall cause the Independent
Financial Expert to deliver the Value Report to Holdings, with a
copy to the Warrant Agent, within 45 days of the appointment of
the Independent Financial Expert.
The Warrant Agent shall have no duty with respect to any such report or
Value Report, except to keep it on file and available for inspection by
the Holders.
(C) The Independent Financial Expert (if any) shall use one or more
valuation methods that it determines, in its best professional judgment,
to be most appropriate and shall consult with the management of
Holdings, and allow the management of Holdings to comment on the
proposed value, prior to delivery to Holdings of any Value Report
delivered pursuant to paragraph (B) above. The Independent Financial
Expert may be compensated and indemnified by Holdings for opinions or
services it provides as an Independent Financial Expert.
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Section 4.02. Notice of Adjustment. Whenever the number of shares of
Common Stock or other stock or property purchasable upon the exercise of each
Warrant is required to be adjusted pursuant to Section 4.01, Holdings shall
deliver to the Warrant Agent a certificate of a firm of independent public
accountants selected by the Board of Directors of Holdings (who may be the
regular accountants employed by Holdings) setting forth (a) the number of shares
of Common Stock or other stock or property purchasable upon the exercise of each
Warrant after such adjustment, (b) a brief statement of the facts requiring such
adjustment and (c) the computation by which such adjustment was made. Such
certificate shall be conclusive evidence of the correctness of such adjustment.
The Warrant Agent shall not be deemed to have knowledge of such adjustment
unless and until it shall have received such certificate. Upon receipt of such
certificate, the Warrant Agent shall mail notice of the adjustment described in
such certificate to each Holder at the expense of Holdings. The Warrant Agent
shall be entitled to rely on such certificate and shall be under no duty or
responsibility with respect to any such certificate, except to exhibit the same,
from time to time, to any Holder desiring to inspect such certificate during
reasonable business hours. The Warrant Agent shall not at any time be under any
duty or responsibility to any Holder to determine whether any facts exist which
may require any adjustment of the Exercise Price or the number of shares of
Common Stock or other securities or property purchasable upon exercise of any
Warrant, or with respect to the nature or extent of any such adjustment when
made, or with respect to the method employed in making such adjustment, or the
validity or value (or the kind or amount) of any shares of Common Stock or other
securities or property which may be purchasable on exercise of any Warrant. The
Warrant Agent shall not be responsible for any failure of Holdings to make any
cash payment or to issue, transfer or deliver any shares of Common Stock or
other securities or property upon the exercise of any Warrant.
Section 4.03. Statement on Warrants. The form of Warrant Certificate
need not be changed because of any adjustment made pursuant to Section 4.01, and
Warrant Certificates issued after such adjustment may state the same Exercise
Price and the same number and kind of shares of Common Stock as are stated in
the Warrant Certificates initially issued pursuant to this Agreement. Holdings
may, however, at any time in its sole discretion (which shall be conclusive),
make any change in the form of Warrant Certificate that it may deem appropriate
and that does not affect the substance thereof and any Warrant Certificate
thereafter issued or countersigned, whether in exchange or substitution for an
outstanding Warrant Certificate or otherwise, may be in the form so changed.
Section 4.04. Notice of Consolidation, Merger or Sale of Substantially
All Assets, Etc. In the event that, at any time after the date hereof and prior
to 5:00 p.m., New York City time, on the Expiration Date, (a) Holdings shall
consolidate with, merge with or into or sell, transfer or otherwise dispose of
all or substantially all of its properties, assets or business (except a merger
in which Holdings is the surviving corporation and the holders of Common Stock
(or other securities or property purchasable upon exercise of the Warrants)
receive no consideration in respect of their shares) or (b) Holdings shall
dissolve, liquidate or wind-up its operations, then in any one or more of such
cases, Holdings shall cause to be mailed to the Warrant Agent and
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each Holder, at the earliest practicable time (and, in any event, not less than
20 calendar days before any date set for definitive action), notice of the date
on which such consolidation, merger, sale, dissolution, liquidation or winding
up shall take place, as the case may be. Such notice shall also set forth such
facts as shall indicate the effect of such action (to the extent such effect may
be known at the date of such notice) on the kind and amount of shares of Common
Stock and other securities, money and other property deliverable upon exercise
of the Warrants. Such notice shall also specify the date as of which the holders
of record of shares of Common Stock or other securities or property issuable
upon exercise of the Warrants shall be entitled to exchange their shares for
securities, money or other property deliverable upon such consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
Section 4.05. Fractional Interests. Notwithstanding anything to the
contrary contained in this Agreement, if the number of shares of Common Stock
purchasable on the exercise of each Warrant is adjusted pursuant to the
provisions of Section 4.01, Holdings shall not be required to issue any fraction
of a share of Common Stock or to distribute a certificate that evidences a
fraction of a share of Common Stock. If Warrant Certificates evidencing more
than one Warrant shall be surrendered for exercise at the same time by the same
Holder, the number of full shares of Common Stock which shall be issuable upon
such exercise thereof shall be computed on the basis of the aggregate number of
Warrants so surrendered. If any fraction of a share of Common Stock would,
except for the provisions of this Section 4.05, be issuable on the exercise of
any Warrant (or specified portion thereof), in lieu of the issuance of such
fractional share, Holdings shall pay the Holder of such Warrant an amount in
cash equal to the then Current Market Value per share of Common Stock multiplied
by such fraction (computed to the nearest whole cent). The Holders, by their
acceptance of the Warrant Certificates, expressly waive their right to receive
any fraction of a share of Common Stock or a stock certificate representing a
fraction of a share of Common Stock.
Section 4.06. Concerning All Adjustments. Notwithstanding anything to
the contrary contained in this Agreement, if an adjustment is made under any
provision of Section 4.01 on account of any event, transaction, circumstance,
condition or happening, no additional adjustment shall be made under any other
provision of Section 4.01 on account of such event, transaction, circumstance,
condition or happening. Unless otherwise expressly provided in this Article IV,
all determinations and calculations required or permitted under this Article IV
shall be made by Holdings or its Board of Directors, as appropriate, and all
such calculations and determinations shall be conclusive and binding in the
absence of manifest error.
ARTICLE V
Loss, Theft, Destruction Or Mutilation of Warrant Certificates
Upon receipt by Holdings and the Warrant Agent of evidence satisfactory
to them of the ownership and the loss, theft, destruction or mutilation of any
Warrant Certificate, and an indemnity bond in form and amount and with corporate
surety satisfactory to them, and (in the
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case of mutilation) upon surrender and cancellation thereof, then, in the
absence of notice to Holdings or the Warrant Agent that the Warrants represented
thereby have been acquired by a bona fide purchaser, Holdings shall issue and
the Warrant Agent shall countersign and deliver to the Holder of the lost,
stolen, destroyed or mutilated Warrant Certificate, in exchange and substitution
for or in lieu thereof, a new Warrant Certificate of the same tenor and
representing an equivalent number of Warrants. Upon the issuance of any new
Warrant Certificate under this Article V, Holdings may require the payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto and other expenses (including the fees and expenses of the
Warrant Agent) in connection therewith. Every new Warrant Certificate executed
and delivered pursuant to this Article V in lieu of any lost, stolen, destroyed
or mutilated Warrant Certificate shall constitute an original contractual
obligation of Holdings, whether or not the allegedly lost, stolen, destroyed or
mutilated Warrant Certificates shall be at any time enforceable by anyone, and
shall be entitled to the benefits of this Agreement equally and proportionately
with any and all other Warrant Certificates duly executed and delivered
hereunder. The provisions of this Article V are exclusive and shall preclude (to
the extent lawful) all other rights or remedies with respect to the replacement
of lost, stolen, destroyed or mutilated Warrant Certificates.
ARTICLE VI
Authorization and Reservation
of Common Stock; Purchase of Warrants
Section 6.01. Reservation of Authorized Common Stock. Holdings shall at
all times reserve and keep available for issue upon the exercise of Warrants,
such number of its authorized but unissued shares of Common Stock or other
securities deliverable upon exercise of Warrants as will be sufficient to permit
the exercise in full of all outstanding Warrants. Holdings will cause
appropriate evidence of ownership of such Common Stock or other securities to be
delivered to the Warrant Agent upon its request for delivery upon the exercise
of Warrants, and all such shares of Common Stock will, at all times, be duly
approved for listing subject to official notice of issuance on each securities
exchange, interdealer quotation system or market, if any, on which such Common
Stock is then listed. Holdings covenants that all Common Stock or other
securities that may be issued upon the exercise of the Warrants will, upon
issuance, be duly authorized, validly issued, fully paid and non-assessable, and
free from preemptive rights and all taxes, liens, charges, encumbrances and
security interests.
Section 6.02. Purchase of Warrants by Holdings. Holdings shall have the
right, except as limited by law or other agreement, to purchase or otherwise
acquire Warrants at such times, in such manner and for such consideration as it
may deem appropriate; provided, however, that Holdings shall not purchase any
Warrants from any Holder unless the other Holders are given the opportunity to
include their Warrants in such sale pro rata based upon the number of Warrants
held by each of the Holders. In the event Holdings shall purchase or otherwise
acquire Warrants, the related Warrant Certificates shall thereupon be delivered
to the Warrant Agent for
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cancellation; provided, however, that unless and until the Warrant Certificates
evidencing such Warrants are surrendered by Holdings to the Warrant Agent for
cancellation, such purchase or acquisition shall not operate as a redemption or
termination of the right represented by such Warrants.
ARTICLE VII
Warrant Holders Not Deemed Stockholders
Prior to the exercise of any Warrant, nothing contained in this
Agreement or any Warrant Certificate shall be construed as conferring on the
Holder of any Warrant or Warrant Certificate any rights whatsoever as a
stockholder of Holdings, either at law or in equity, including the right to vote
or to consent to any action of the stockholders, to receive dividends or other
distributions, to exercise any preemptive right or to receive any notice of
meetings of stockholders and, except as otherwise provided in this Agreement,
shall not be entitled to receive any notice of any proceedings of Holdings.
ARTICLE VIII
The Warrant Agent
Section 8.01. Appointment and Acceptance of Agency. Holdings hereby
appoints the Warrant Agent to act as agent for Holdings in accordance with the
instructions set forth in this Agreement and the Warrant Agent hereby accepts
the agency established by this Agreement and agrees to perform the same on the
terms and conditions herein set forth..
Section 8.02. Correctness of Statements; Distribution of Warrants. The
statements contained herein and in each Warrant Certificate shall be taken as
statements of Holdings, and the Warrant Agent assumes no responsibility for the
correctness of any of the same except as describe the Warrant Agent or any
action taken by it. The Warrant Agent assumes no responsibility with respect to
the distribution of the Warrants except as herein otherwise provided.
Section 8.03. Use of Agents. The Warrant Agent may execute and exercise
any of the rights or powers hereby vested in it or perform any duty thereunder
either itself (through its employees) or by or through its attorneys or agents
(which shall not include its employees) and shall not be responsible for the
misconduct or negligence of any agent appointed, provided that due care had been
exercised in the appointment and continued employment thereof.
Section 8.04. Proof of Actions Taken. Whenever in the performance of
its duties under this Agreement, the Warrant Agent shall deem it necessary or
desirable that any fact or matter be proved or established by Holdings prior to
taking or suffering any action hereunder, such fact or matter (unless such
evidence in respect thereof be herein specifically prescribed) may, in the
absence of bad faith on the part of the Warrant Agent, be deemed to be
conclusively proved
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and established by a certificate signed by the Chairman of the Board, President,
Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, any
Vice President, the Treasurer or Secretary of Holdings and delivered to the
Warrant Agent; and such certificate, in the absence of bad faith on the part of
the Warrant Agent, shall be full authorization to the Warrant Agent for any
action taken, suffered or omitted by it under the provisions of this Agreement
in reliance upon such certificate.
Section 8.05. Compensation; Indemnity. Holdings agrees to pay the
Warrant Agent compensation for all services rendered by the Warrant Agent in the
performance of its duties under this Agreement, in accordance with the separate
letter agreement entered into by Holdings and the Warrant Agent dated the date
hereof. Holdings agrees to reimburse the Warrant Agent for all expenses, taxes
and governmental charges and other charges of any kind and nature incurred by
the Warrant Agent (including reasonable fees and expenses of the Warrant Agent's
counsel and agents) in the performance of its duties under this Agreement.
Holdings also agrees to indemnify the Warrant Agent for, and to hold it harmless
against, any loss, liability or expenses incurred without negligence or willful
misconduct on the part of the Warrant Agent, for anything done or omitted by the
Warrant Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability in the premises. The indemnity provided for herein shall survive the
expiration of the Warrants and the termination of this Agreement. The costs and
expenses incurred in enforcing this right of indemnification shall be paid by
Holdings. Notwithstanding anything in this Agreement to the contrary, in no
event shall the Warrant Agent be liable for special, indirect or consequential
loss or damage of any kind whatsoever (including lost profits), even if the
Warrant Agent has been advised of the likelihood of such loss or damage and
regardless of the form of the action.
Section 8.06. Legal Proceedings. The Warrant Agent shall be under no
obligation to institute any action, suit or legal proceeding or to take any
other action likely to involve expense unless Holdings or one or more Holders
shall furnish the Warrant Agent with reasonable security and indemnity
satisfactory to the Warrant Agent for any costs and expenses which may be
incurred, but this provision shall not affect the power of the Warrant Agent to
take such action as the Warrant Agent may consider proper, whether with or
without any such security or indemnity. All rights of action under this
Agreement or under any of the Warrants may be enforced by the Warrant Agent
without the possession of any of the Warrants or the production thereof at any
trial or other proceeding relative thereto, and any such action, suit or
proceeding instituted by the Warrant Agent shall be brought in its name as
Warrant Agent, and any recovery of judgment shall be for the ratable benefit of
the Holders, as their respective rights or interests may appear.
Section 8.07. Other Transactions Involving Holdings. The Warrant Agent
and any stockholder, director, officer or employee of the Warrant Agent may buy,
sell or deal in any of the Warrants or other securities of Holdings or become
pecuniarily interested in any transactions in which Holdings may be interested,
or contract with or lend money to Holdings or otherwise act as fully and freely
as though it were not Warrant Agent under this Agreement or such director,
officer or employee. Nothing herein shall preclude the Warrant Agent from acting
in any other
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capacity for Holdings or for any other legal entity including acting as transfer
agent or as a lender to Holdings or an affiliate thereof
Section 8.08. Actions as Agent. The Warrant Agent shall act hereunder
solely as agent, and its duties shall be determined solely by the provisions of
this Agreement. No implied duties or obligations shall be read into this
Agreement against the Warrant Agent. The Warrant Agent shall not be liable for
anything which it may do or refrain from doing in connection with this Agreement
except for its own negligence or willful misconduct.
Section 8.09. Liability of Warrant Agent. The Warrant Agent may
conclusively rely upon and shall be protected by Holdings and shall not incur
any liability or responsibility to Holdings or to any Holder for or in respect
of any action taken, suffered or omitted by it (a) in connection with its
administration of this Agreement or (b) in reliance on any Warrant Certificate
or certificate for shares of stock or other securities of Holdings, instrument
of assignment or transfer, power of attorney, endorsement, affidavit, letter,
direction, statement, notice, resolution, waiver, consent, order, certificate or
other paper, document or instrument reasonably believed by it to be genuine and
to have been signed, executed, sent, presented and, where necessary, verified or
acknowledged, by the proper party or parties.
Section 8.10. Validity of Agreement. The Warrant Agent shall not be
under any responsibility in respect of the validity of this Agreement or the
execution and delivery hereof (except the due execution and delivery hereof by
the Warrant Agent) or in respect of the validity or execution of any Warrant
(except its counter-signature thereof); nor shall it be responsible for any
breach by Holdings of any covenant or condition contained in this Agreement or
in any Warrant Certificate; nor shall the Warrant Agent by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any Underlying Securities (or other stock) to be issued pursuant
to this Agreement or any Warrant, or as to whether any Underlying Securities (or
other stock) will, when issued, be validly issued, fully paid and
non-assessable, or as to the Exercise Price or the number or amount of
Underlying Securities or other securities or other property issuable upon
exercise of any Warrant.
Section 8.11. Acceptance of Instructions. The Warrant Agent is hereby
authorized and directed to accept instructions with respect to the performance
of its duties hereunder from the Chairman of the Board, President, Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, any Vice
President or Secretary of Holdings, and to apply to such officers for advice or
instructions in connection with its duties, and shall not be liable for any
action taken or suffered by it in good faith in accordance with instructions of
any such officer or officers or for any delay in acting while waiting for those
instructions. Any application by the Warrant Agent for written instructions from
Holdings may, at the option of the Warrant Agent, set forth in writing any
action proposed to be taken or omitted by the Warrant Agent under this Agreement
and the date on or after which such action shall be taken or such omission shall
be effective. The Warrant Agent shall not be liable for any action taken by, or
omission of, the Warrant Agent in accordance with a proposal included in any
such application on or after the date specified in such application (which date
shall not be less than ten Business Days after the date any officer of Holdings
actually
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receives such application, unless any such officer shall have consented in
writing to an earlier date) unless prior to taking any such action (or the
effective date in the case of an omission), the Warrant Agent shall have
received written instructions in response to such application subject to the
proposed action or omission and/or specifying the action to be taken or omitted.
Section 8.12. Right to Consult and Rely Upon Counsel. Before the
Warrant Agent acts or refrains from acting, it may at any time consult with
legal counsel (who may be legal counsel for Holdings), and the opinion or advice
of such counsel shall be full and complete authorization and protection to the
Warrant Agent and the Warrant Agent shall incur no liability or responsibility
to Holdings or to any Holder for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
Section 8.13. Change of Warrant Agent. (a) The Warrant Agent, or any
successor to it hereafter appointed, may resign from its position as such and be
discharged from all further duties and liabilities hereunder (except liabilities
arising as a result of the Warrant Agent's own negligence or willful
misconduct), after giving one month's prior written notice to Holdings. Holdings
may remove the Warrant Agent upon not less than 30 days' prior written notice
specifying the date when such discharge shall take effect, and the Warrant Agent
shall thereupon in like manner be discharged from all further duties and
liabilities hereunder (except liabilities arising as a result of the Warrant
Agent's own negligence or willful misconduct). Holdings shall cause to be
mailed, at the expense of Holdings, to each Holder a copy of said notice of
resignation or notice of removal, as the case may be. Upon such resignation or
removal Holdings shall appoint in writing a successor Warrant Agent. If Holdings
shall fail to make such appointment within a period of 30 calendar days after it
has been notified in writing of such resignation by the resigning Warrant Agent
or after such removal, then the Holder of any Warrant may apply to any court of
competent jurisdiction for the appointment of a successor Warrant Agent. Pending
appointment of a successor to the original Warrant Agent, either by Holdings or
by such a court, the duties of the Warrant Agent shall be carried out by
Holdings.
(b) Any successor Warrant Agent, whether appointed by Holdings or by a
court, shall be a bank (or subsidiary thereof) or trust company doing business
under the laws of the United States or any state thereof, in good standing and
having a combined capital and surplus of not less than $50,000,000. The combined
capital and surplus of any such successor Warrant Agent shall be deemed to be
the combined capital and surplus as set forth in the most recent annual report
of its condition published by such successor Warrant Agent prior to its
appointment; provided that such reports are published at least annually pursuant
to law or to the requirements of a federal or state supervising or examining
authority. After acceptance in writing of such appointment by the successor
Warrant Agent, it shall be vested with the same authority, powers, rights,
immunities, duties and responsibilities as its predecessor Warrant Agent,
without any further assurance, conveyance, act or deed; provided, however, the
predecessor Warrant Agent shall in all events deliver and transfer to the
successor Warrant Agent all property, if any, at the time held hereunder by the
predecessor Warrant Agent and if for any reason it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act or deed,
the same shall be done at the expense of Holdings and shall be legally and
validly executed and delivered by the
-22-
<PAGE> 26
resigning or removed Warrant Agent. As soon as practicable after such
appointment, Holdings shall give notice thereof to the predecessor Warrant Agent
and the Holders. Failure to give any notice provided for in this Section 8.13,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the predecessor Warrant Agent or the appointment of
the successor Warrant Agent, as the case may be.
Section 8.14. Successor Warrant Agent. Any corporation into which the
Warrant Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Warrant
Agent shall be a party, shall be the successor Warrant Agent under this
Agreement without any further act; provided, however, that such corporation
would be eligible for appointment as a successor to the Warrant Agent under the
provisions of Section 8.13 hereof. Any such successor Warrant Agent shall
promptly cause notice of its succession as Warrant Agent to be mailed to
Holdings and the Holders.
Section 8.15. Other. (a) No provision of this Agreement shall require
the Warrant Agent to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder or in the
exercise of its rights if there shall be reasonable grounds for believing that
repayment of such funds or adequate indemnification against such risk or
liability is not reasonably assured to it.
(b) The Warrant Agent shall not be required to take notice or be deemed
to have notice of any fact, event or determination (including any dates or
events defined in this Agreement or the designation of any Person as an
acquiring Person or Affiliate) under this Agreement unless and until the Warrant
Agent shall be specifically notified in writing by Holdings of such fact, event
or determination.
(c) If, with respect to any Warrant Certificate surrendered to the
Warrant Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has not been
completed, the Warrant Agent shall not take any further action with respect to
the requested exercise or transfer without first consulting with Holdings.
ARTICLE IX
Miscellaneous
Section 9.01. Money Deposited with the Warrant Agent. The Warrant Agent
shall not be required to pay interest on any moneys deposited pursuant to the
provisions of this Agreement, except such as it shall agree in writing with
Holdings to pay thereon. Any moneys, securities or other property which at any
time shall be deposited by Holdings or on its behalf with the Warrant Agent
pursuant to this Agreement shall be and are hereby assigned, transferred and set
over to the Warrant Agent in trust for the purpose for which such moneys,
securities or other
-23-
<PAGE> 27
property shall have been deposited; but such moneys, securities or other
property need not be segregated from other funds, securities or other property
except to the extent required by law.
Section 9.02. Payment of Taxes. All Common Stock or other securities
issuable upon the exercise of Warrants shall be validly issued, fully paid and
non-assessable, and Holdings shall pay any taxes and other governmental charges
that may be imposed under the Laws of the United States of America or any
political subdivision or taxing authority thereof or therein in respect of the
issue or delivery thereof or of other securities deliverable upon exercise of
Warrants (other than income taxes imposed on the Holders). Holdings shall not be
required, however, to pay any tax or other charge imposed in connection with any
transfer involved in the issuance of any certificate evidencing shares of Common
Stock or other securities or property issuable upon the exercise of the Warrants
or payment of cash to any Person other than the Holder of a Warrant Certificate
surrendered upon the exercise of a Warrant and in case of such transfer or
payment, the Warrant Agent and Holdings shall not be required to issue any stock
certificate or pay any cash until such tax or charge has been paid or it has
been established to the Warrant Agent's and Holdings's satisfaction that no such
tax or charge is due.
Section 9.03. Merger, Consolidation or Sale of Assets of Holdings.
Holdings will not merge into or consolidate with any other Person, or sell or
otherwise transfer all or substantially all of its property, assets or business
to any Person (other than a merger, consolidation or sale in which the
consideration payable to the holders of shares of Common Stock in exchange for
their shares consists solely of cash), unless the Person resulting from such
merger or consolidation, or transferee of such property, assets or business, as
the case may be, executes with the Warrant Agent a supplemental agreement
providing for the express assumption by such Person of the due and punctual
performance and observance of each and every covenant and condition of this
Agreement to be performed and observed by Holdings.
Section 9.04. Reports to Holders. Notwithstanding that Holdings may not
be required to remain subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, Holdings shall file with the Commission and provide
the Warrant Agent and the Holders with such annual reports and such information,
documents and other reports specified in Section 13 and 15(d) of the Exchange
Act, such information, documents and other reports to be so filed and provided
at the times specified for the filing of such information, documents and reports
under such Sections.
Section 9.05. Notices. (a) Any notice, request, demand or report (each,
a "Communication") required or permitted to be given or made by this Agreement
shall be in writing
(b) Any Communication authorized by this Agreement to be given or made
by the Warrant Agent or by any Holder to or on Holdings shall be sufficiently
given or made if sent by registered or certified mail and shall be deemed given
upon receipt, or by facsimile or electronic mail, addressed (until another
address is filed Holdings with the Warrant Agent) as follows:
-24-
<PAGE> 28
Sterling Chemicals Holdings, Inc.
1200 Smith, Suite 1900
Houston, Texas 77002
Attention: General Counsel
Facsimile No.: (713) 654-9577
E-Mail: [email protected]
(c) Any Communication authorized by this Agreement to be given or made
by Holdings or by any Holder to or on the Warrant Agent shall be sufficiently
given or made if sent by first-class mail, postage prepaid, or by facsimile or
electronic mail, addressed (until another address is filed by the Warrant Agent
with Holdings) as follows:
Harris Trust and Savings Bank
700 Louisiana Street, Suite 3350
Houston, Texas 77002
Attention: Ray G. Rosenbaum
Facsimile No.: (713) 223-0674
E-Mail: [email protected]
(d) Any Communication authorized by this Agreement to be given or made
by Holdings or the Warrant Agent to any Holder shall be sufficiently given or
made if sent by first-class mail, postage prepaid, or by facsimile or electronic
mail, addressed to such Holder at the address of such Holder as shown on the
registry books of Holdings. Holdings shall deliver a copy of any notice or
demand it delivers to any Holder to the Warrant Agent and the Warrant Agent
shall deliver a copy of any notice or demand it delivers to any Holder to
Holdings.
Section 9.06. Governing Law. THE VALIDITY, INTERPRETATION AND
PERFORMANCE OF THIS AGREEMENT AND THE WARRANT CERTIFICATES SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 9.07. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of Holdings and the Warrant Agent and their respective
successors and assigns, and the Holders from time to time of the Warrants.
Nothing in this Agreement is intended or shall be construed to confer upon any
Person, other than Holdings, the Warrant Agent and the Holders of the Warrants,
any right, remedy or claim under or by reason of this Agreement or any part
hereof.
Section 9.08. Counterparts. This Agreement may be executed manually or
by facsimile in any number of counterparts, each of which shall be deemed an
original, but all of which together constitute one and the same instrument.
Section 9.09. Amendments. (a) The Warrant Agent may, without the
consent or concurrence of the Holders, enter into one or more supplemental
agreements or amendments with Holdings for the purpose of (i) evidencing the
rights of the Holders upon consolidation, merger,
-25-
<PAGE> 29
sale, transfer, reclassification, liquidation or dissolution pursuant to Section
4.01(g), (ii) making any changes or corrections in this Agreement that are
required to cure any ambiguity, to correct or supplement any provision contained
herein that may be defective or inconsistent with any other provision herein or
any clerical omission or mistake or manifest error herein contained, (iii)
making such other provisions in regard to matters or questions arising under
this Agreement as shall not adversely affect the interest of the Holders in any
material respect or be inconsistent with this Agreement or any supplemental
agreement or amendment or (iv) adding further covenants and agreements of
Holdings in this Agreement or surrendering any rights or power reserved to or
conferred upon Holdings in this Agreement.
(b) With the consent of the Holders of at least a majority in number of
the Warrants at the time outstanding, Holdings and the Warrant Agent may at any
time and from time to time by supplemental agreement or amendment add any
provisions to or change in any manner or eliminate any of the provisions of this
Agreement or of any supplemental agreement or modify in any manner the rights
and obligations of the Holders and Holdings; provided, however, that no such
supplemental agreement or amendment shall, without the consent of the Holder of
each outstanding Warrant affected thereby, (i) alter the provisions of this
Agreement so as to adversely affect in any material respect the terms upon which
Warrants are exercisable, (ii) decrease the number of Underlying Securities
(other than pursuant to adjustments made in accordance with Article IV hereof)
or (iii) reduce the number of Warrants outstanding the consent of whose holders
is required for any such supplemental agreement or amendment. Notwithstanding
anything to the contrary contained in this Agreement, no supplement agreement or
amendment that changes the rights and duties of the Warrant Agent under this
Agreement shall be effective against the Warrant Agent without the written
consent of the Warrant Agent.
Section 9.10. Common Stock Legend. In the event a Holder exercises any
Warrant at a time when the Registration Statement is not effective and available
pursuant to an exemption from the registration requirements of the Securities
Act, any Common Stock or other securities of Holdings issuable upon exercise of
such Warrant shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAW (COLLECTIVELY, THE "ACTS") AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS MADE PURSUANT TO A
REGISTRATION STATEMENT UNDER THE ACTS OR PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS THEREOF. FURTHER, THE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED OR OTHERWISE DISPOSED OF UNLESS AND UNTIL (1) SUCH SECURITIES
HAVE BEEN REGISTERED UNDER THE ACTS OR (2) THE HOLDER OF SUCH
SECURITIES PROVIDES THE COMPANY WITH (A) AN UNQUALIFIED WRITTEN OPINION
OF LEGAL
-26-
<PAGE> 30
COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND SUBSTANCE) SHALL BE
REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE PROPOSED
DISPOSITION OF SUCH SECURITIES MAY BE EFFECTED WITHOUT REGISTRATION
UNDER THE ACTS OR (B) SUCH OTHER EVIDENCE AS MAY BE REASONABLY
SATISFACTORY TO THE COMPANY THAT THE PROPOSED DISPOSITION OF SUCH
SECURITIES MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACTS.
Section 9.11. Third Party Beneficiaries. The Holders shall be third
party beneficiaries to the agreements made hereunder between Holdings, on the
one hand, and the Warrant Agent, on the other hand, and each Holder shall have
the right to enforce such agreements directly to the extent it deems such
enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, as of the day and year first above written.
STERLING CHEMICALS HOLDINGS, INC.
By:
----------------------------------
Printed Name:
------------------------
Title:
-------------------------------
HARRIS TRUST AND SAVINGS BANK,
as Warrant Agent
By:
----------------------------------
Ray G. Rosenbaum, Vice President
-27-
<PAGE> 31
EXHIBIT A
Form Of Warrant Certificate
THE COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF STERLING CHEMICALS HOLDINGS,
INC. (THE "COMMON STOCK") FOR WHICH THIS WARRANT IS EXERCISABLE MAY NOT BE
OFFERED OR SOLD IN THE UNITED STATES ABSENT REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE, "SECURITIES ACT"), AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
ACCORDINGLY, NO HOLDER SHALL BE ENTITLED TO EXERCISE SUCH HOLDER'S WARRANTS AT
ANY TIME UNLESS, AT THE TIME OF EXERCISE, (i) A REGISTRATION STATEMENT UNDER THE
SECURITIES ACT RELATING TO THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
OF THIS WARRANT HAS BEEN FILED WITH, AND DECLARED EFFECTIVE BY, THE SECURITIES
AND EXCHANGE COMMISSION (THE "COMMISSION"), AND NO STOP ORDER SUSPENDING THE
EFFECTIVENESS OF SUCH REGISTRATION STATEMENT HAS BEEN ISSUED BY THE COMMISSION,
OR (ii) THE ISSUANCE OF SUCH SHARES IS PERMITTED PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
<PAGE> 32
STERLING CHEMICALS HOLDINGS, INC.
No. Warrants
----------- ---------
WARRANTS TO PURCHASE COMMON STOCK
This certifies that , or its registered assigns, is the owner of the
number of Warrants set forth above, each of which represents the right to
purchase, commencing December __, 1998, from STERLING CHEMICALS HOLDINGS, INC.,
a Delaware corporation ("Holdings"), one share of the common stock, par value
$0.01 per share (the "Common Stock"), of Holdings (subject to adjustment as
provided in the Warrant Agreement hereinafter referred to) at the purchase price
(the "Exercise Price") of $6.00 per share, upon surrender hereof at the office
of Harris Trust and Savings Bank or to its successor as the warrant agent under
the Warrant Agreement (any such warrant agent being herein call the "Warrant
Agent"), with the Subscription Form on the reverse hereof duly executed, with
signature guaranteed as therein specified and simultaneous payment in full (by
wire transfer or by certified or official bank or bank cashier's check payable
to the order of Holdings, or by the surrender of Warrants having an aggregate
Spread equal to the Exercise Price of the Warrants being exercised) of the
purchase price for the shares as to which the Warrant(s) represented by this
Warrant Certificate are exercised, all subject to the terms and conditions
hereof and of the Warrant Agreement. Notwithstanding anything to the contrary
contained herein, Holdings shall have the right to not allow an exercise of any
Warrants in the event the Registration Statement is not effective and available
at the time such Warrants are exercised, unless prior to the exercise of such
Warrants, the Holder thereof furnishes to the Warrant Agent and Holdings such
certifications, legal opinions or other information as either of them may
reasonably require to confirm that such exercise is being made pursuant to an
exemption from the registration requirements of the Securities Act.
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement dated as of December __, 1998 (the "Warrant Agreement") by and
between Holdings and Harris Trust and Savings Bank, as Warrant Agent, and is
subject to the terms and provisions contained therein, all of which terms and
provisions the Holder of this Warrant Certificate consents to by acceptance
hereof. The Warrant Agreement is hereby incorporated herein by reference and
made a part hereof. Reference is hereby made to the Warrant Agreement for a full
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of Holdings and the Holders of the Warrants. The summary
of the terms of the Warrant Agreement contained in this Warrant Certificate is
qualified in its entirety by express reference to the Warrant Agreement. All
capitalized terms used in this Warrant Certificate that are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
<PAGE> 33
Copies of the Warrant Agreement are on file at the office of the
Warrant Agent and may be obtained by writing to the Warrant Agent at the
following address:
Harris Trust and Savings Bank
700 Louisiana Street
Suite 3350
Houston, Texas 77002
Attention: Ray G. Rosenbaum
If Holdings merges or consolidates with or into, or sells all or
substantially all of its property and assets to, another Person solely for cash,
or in the event of the dissolution, liquidation or winding-up of Holdings, the
Holders of Warrants shall be entitled to receive distributions on the date of
such event on an equal basis with holders of Common Stock (or other securities
issuable upon exercise of the Warrants) as if the Warrants had been exercised
immediately prior to such event (less the Exercise Price).
The number of shares of Common Stock purchasable upon the exercise of
each Warrant is subject to adjustment as provided in the Warrant Agreement.
Except as stated in the immediately preceding paragraph, in the event Holdings
merges or consolidates with, or sells all or substantially all of its assets to,
another Person, each Warrant will, upon exercise, entitle the Holder thereof to
receive the number of shares of capital stock or other securities or the amount
of money and other property which the holder of a share of Common Stock (or
other securities or property issuable upon exercise of a Warrant) is entitled to
receive upon completion of such merger, consolidation or sale.
As to any final fraction of a share which the same Holder of one or
more Warrants would otherwise be entitled to purchase upon exercise thereof in
the same transaction, Holdings shall pay the cash value thereof determined as
provided in the Warrant Agreement.
All Common Stock or other securities issuable by Holdings upon the
exercise of Warrants shall be validly issued, fully-paid and non-assessable, and
Holdings shall pay all taxes and other governmental charges that may be imposed
under the Laws of the United States of America or any political subdivision or
taxing authority thereof or therein in respect of the issue or delivery of such
shares or of other securities deliverable upon exercise of Warrants. Holdings
shall not be required, however, to pay any tax or other charge imposed in
connection with any transfer involved in the issue of any certificate for Common
Stock, and in such case Holdings shall not be required to issue or deliver any
stock certificate until such tax or other charge has been paid or it has been
established to the Warrant Agent's and Holdings' satisfaction that no tax or
other charge is due.
This Warrant Certificate and all rights hereunder are transferable by
the registered Holder hereof, in whole or in part, in accordance with the
provisions of the Warrant Agreement, on the register of Holdings maintained by
the Warrant Agent for such purpose at its office in Houston, Texas, upon
surrender of this Warrant Certificate duly endorsed, or accompanied by a
<PAGE> 34
written instrument of transfer form satisfactory to Holdings and the Warrant
Agent duly executed, with signatures guaranteed as specified in the attached
Form of Assignment, by the registered Holder hereof or his attorney duly
authorized in writing and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. Upon any partial transfer,
Holdings will issue and the Warrant Agent will deliver to such Holder a new
Warrant Certificate with respect to any portion not so transferred. Each taker
and Holder of this Warrant Certificate, by taking and holding the same, consents
and agrees that prior to the registration of transfer as provided in the Warrant
Agreement, Holdings and the Warrant Agent may treat the person in whose name the
Warrants are registered as the absolute owner hereof for any purpose and as the
Person entitled to exercise the rights represented hereby, any notice to the
contrary notwithstanding.
This Warrant Certificate may be exchanged, in accordance with the terms
of the Warrant Agreement, at the office of the Warrant Agent maintained for such
purpose in Houston, Texas for Warrant Certificates representing the same
aggregate number of Warrants, each new Warrant Certificate to represent such
number of Warrants as the Holder hereof shall designate at the time of such
exchange.
Prior to the exercise of the Warrants represented hereby, the Holder of
this Warrant Certificate, as such, shall not be entitled to any rights of a
stockholder of Holdings, including, without limitation, the right to vote or to
consent to any action of the stockholders, to receive dividends or other
distributions, to exercise any preemptive right or to receive any notice of
meetings of stockholders, and shall not be entitled to receive any notice of any
proceedings of Holdings except as provided in the Warrant Agreement.
This Warrant Certificate shall be void and all rights evidenced hereby
shall cease on ______________, unless sooner terminated by the liquidation,
dissolution or winding-up of Holdings or as otherwise provided in the Warrant
Agreement upon the consolidation or merger of Holdings with, or sale of all or
substantially all of the assets and properties of Holdings to, another Person.
<PAGE> 35
This Warrant Certificate shall not be valid for any purpose until it
shall have been countersigned by the Warrant Agent.
Dated: STERLING CHEMICALS HOLDINGS, INC.
------------
By:
---------------------------------
Printed Name:
-----------------------
Title:
------------------------------
Countersigned:
HARRIS TRUST AND SAVINGS BANK,
as Warrant Agent
By:
--------------------------------
Authorized Signatory
<PAGE> 36
FORM OF REVERSE OF WARRANT CERTIFICATE
SUBSCRIPTION FORM
(to be executed only upon exercise of Warrants)
To:
---------------
The undersigned hereby irrevocably exercises of the Warrants
represented by the within Warrant Certificate for the purchase of (subject to
adjustment) share of Common Stock, par value $0.01 per share, of STERLING
CHEMICALS HOLDINGS, INC., a Delaware corporation, and herewith makes payment of
$______________ (such payment being by wire transfer or by certified or official
bank or bank cashier's check payable to the order or at the direction of
Sterling Chemicals Holdings, Inc.), or by the surrender of Warrants having an
aggregate Spread (as defined in the Warrant Agreement) equal to the Exercise
Price of the Warrants being exercised), all at the exercise price and on the
terms and conditions specified in the within Warrant Certificate and the Warrant
Agreement therein referred to, and hereby surrenders this Warrant Certificate
and all right, title and interest therein to and directs that the Common Stock
deliverable upon the exercise of such Warrants be registered or placed in the
name and at the address specified below and delivered thereto.
Dated:
------------------ ----------------------------------
(Signature of Owner)
----------------------------------
(Street Address)
----------------------------------
(City) (State) (Zip Code)
Signature Guaranteed By(1)
----------------------------------
- ----------
(1) The Holder's signature must be guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution"
as defined by Rule 17Ad-15 under the Exchange Act.
<PAGE> 37
Securities and/or check to be issued to:
---------------------------------------
Please insert social security or identifying number:
---------------------------
Name:
--------------------------------------------------
Street Address:
----------------------------------------
City, State and Zip Code:
------------------------------
<PAGE> 38
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned registered holder of the within Warrant
Certificate hereby sells, assigns and transfers unto the Assignee(s) named below
(including the undersigned with respect to any Warrants constituting a part of
the Warrants evidenced by the within Warrant Certificate not being assigned
hereby) all of the right of the undersigned under the within Warrant
Certificate, with respect to the number of Warrants set forth below:
Name(s) of Assignee(s):
----------------------------------
Address:
-------------------------------------------------
No. of Warrants:
-----------------------------------------
Please insert social security or other identifying number of assignee(s):
____________________ and does hereby irrevocably constitute and appoint
_______________________________ the undersigned's attorney to make such transfer
on the books of _____________________ maintained for such purposes, with full
power of substitution in the premises.
Dated:
------------------ ----------------------------------
(Signature of Owner)
----------------------------------
(Street Address)
----------------------------------
(City) (State) (Zip Code)
Signature Guaranteed By(2)
----------------------------------
- ----------
(2) The Holder's signature must be guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution"
as defined by Rule 17Ad-15 under the Exchange Act.
<PAGE> 1
EXHIBIT 4.4
WARRANT AGREEMENT
AMONG
STERLING CHEMICALS HOLDINGS, INC.
AND
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
CREDIT SUISSE FIRST BOSTON
AND
CERTAIN OTHER FINANCIAL INSTITUTIONS
DECEMBER 15, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Issuance of Warrants; Form of Warrant......................................1
2. Representations, Warranties and Covenants of the Company...................2
(a) Existence...........................................................2
(b) Power and Authority.................................................2
(c) Reservation, Issuance and Delivery of Common Stock..................2
(d) Execution and Delivery..............................................3
(e) Valid and Binding Obligations.......................................3
(f) Liabilities, Litigation and Restrictions............................3
(g) Authorization and Consents..........................................4
(h) Compliance with Laws................................................4
(i) No Material Misstatements...........................................4
(j) Solvency............................................................4
3. Registration...............................................................4
4. Exchange of Warrant Certificates...........................................4
5. Transfer of Warrants.......................................................5
6. Term of Warrants; Exercise of Warrants.....................................5
7. Compliance with Government Regulations.....................................7
8. Payment of Taxes...........................................................7
9. Mutilated or Missing Warrants..............................................7
10. Reservation of Warrant Shares; Purchase and Cancellation of Warrants.......8
11. Adjustment of Number of Warrant Shares.....................................8
11.1. Mechanical Adjustments..............................................9
11.2. Voluntary Adjustment by the Company................................14
11.3. Notice of Adjustment...............................................14
11.4. Preservation of Purchase Rights Upon Merger, Consolidation, Etc....14
11.5. Statement on Warrants..............................................15
11.6. Company to Prevent Dilution........................................15
11.7. Concerning All Adjustments.........................................15
12. Fractional Interests......................................................15
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
13. Registration Under the Securities Act of 1933.............................16
14. Certificate to Bear Legends...............................................17
15. Registration Rights.......................................................18
(a) Demand Registration Rights.........................................18
(b) Piggy-back Registration Rights.....................................21
(c) Other Matters......................................................22
(d) Restrictions on Public Sale by the Company.........................23
(e) Rule 144...........................................................23
(f) Other Registration Rights..........................................23
16. No Rights as Stockholders; Notice to Warrant Holders......................24
17. Expenses..................................................................25
18. Right to Inspection.......................................................25
19. Right to Information......................................................25
20. Notices...................................................................25
21. Governing Law.............................................................26
22. Supplements and Amendments................................................26
23. Survival of Representations, Warranties and Covenants.....................26
24. Successors................................................................26
25. Merger or Consolidation of the Company....................................27
26. Benefits of this Warrant Agreement........................................27
27. Captions..................................................................27
28. Counterparts..............................................................27
29. Termination...............................................................27
</TABLE>
ii
<PAGE> 4
WARRANT AGREEMENT
THIS WARRANT AGREEMENT ("Warrant Agreement") is dated as of December
15, 1998, among Sterling Chemicals Holdings, Inc., a Delaware corporation (the
"Company"), Chase Bank of Texas, National Association ("Chase"), Credit Suisse
First Boston ("CS First Boston"), and the financial institutions signatory
hereto.
WHEREAS, Chase, individually and as Administrative Agent ("Agent"), CS
First Boston, individually and as the Documentation Agent (the "Documentation
Agent"), certain other financial institutions (the Agent as a lender, the
Documentation Agent as a lender and such other financial institutions referred
to are hereinafter collectively called the "Lenders") and the Company's wholly
owned subsidiary, Sterling Chemicals, Inc. ("SCI"), have entered into a certain
Amended and Restated Credit Agreement, dated July 10, 1997, as amended and
supplemented as of March 31, 1998 and December 15, 1998 (the "Facility");
WHEREAS, the Company owns all of the issued and outstanding capital
stock of SCI and is indirectly is benefitted by the Facility; and
WHEREAS, to induce the Lenders to enter into the Second Amendment to
Amended and Restated Credit Agreement of even date herewith, the Company agreed
to enter into this Warrant Agreement pursuant to which, upon the occurrence of
certain events and on the terms and subject to the conditions set forth herein,
the Company would issue to the Lenders warrants (the "Warrants") to purchase up
to the number of shares of the common stock, par value $0.01 per share, of the
Company ("Common Stock") which in the aggregate is equal to five percent (5%) of
the number of shares of Common Stock issued and outstanding (on a fully diluted
basis and treating all of the shares of common stock issuable upon exercise,
conversion or exchange of all options, warrants and other convertible and
exchangeable securities as being outstanding) immediately after such issuance,
each Warrant entitling the registered holder thereof (the "Holder" and, together
with the registered holders of all other Warrants, the "Holders") to purchase
one share of Common Stock at the Exercise Price (as defined in Section 6
hereof), subject to adjustment as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, and for other good and valuable consideration, the
parties hereto agree as follows:
1. ISSUANCE OF WARRANTS; FORM OF WARRANT. In the event, and only in the
event, that SCI becomes obligated to request or otherwise cause the Company to
issue Warrants to the Lenders pursuant to Section 5.01(k) of the Facility, the
Company will, on the Warrant Date referred to in the Facility, issue and deliver
to each Lender, or to an affiliate, successors or assigns thereof designated in
writing by such Lender, Warrants to purchase up to that number of shares of
Common Stock which in the aggregate is equal to such Lender's Total Credit
Percentage (as defined in the Facility) times the number which in the aggregate
is equal to (5%) of the number of shares of Common Stock issued and outstanding
(on a fully diluted basis and treating all of the shares of common stock
issuable upon exercise, conversion or exchange of all options, warrants and
other convertible and exchangeable securities as being outstanding) immediately
after such issuance. The Warrants shall be evidenced by
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<PAGE> 5
certificates in registered form (the "Warrant Certificates"), in the form
attached hereto as Exhibit A, and may have such insertions, letters, numbers or
other marks of identification and such legends and endorsements stamped,
printed, lithographed or engraved thereon as may, consistently herewith, be
determined to be necessary or appropriate by the officers of the Company
executing such Warrant Certificates, as evidenced by their execution of the
Warrant Certificates, or as may be required to comply with any applicable law,
rule or regulation or with any rule or regulation of any securities exchange or
to conform to usage. The Warrants shall be executed on behalf of the Company by
its Chairman of the Board, President, Treasurer or any Vice President, under its
corporate seal, affixed or in facsimile, attested by the signature of its
Secretary or an Assistant Secretary. The execution of a Warrant Certificate by
any such officer of the Company may be made either manually or by facsimile
signature printed thereon. A Warrant Certificate bearing the signature of
individuals who were at any time the proper officers of the Company shall bind
the Company notwithstanding that such individuals or any of them shall have
ceased to hold such offices prior to the delivery of such Warrant Certificate or
did not hold such offices on the date of this Warrant Agreement.
Warrant Certificates shall be dated as of the date of execution thereof
by the Company, either upon initial issuance or upon division, exchange,
substitution or transfer.
The exercise of any Warrant by a Holder which is a bank holding company
under the Bank Holding Company Act of 1956, as amended (the "Bank Holding
Company Act"), or by any Holder who is a transferee from such a bank holding
company, is subject to the provisions of Section 6(c).
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The
Company hereby represents, warrants and covenants as follows:
(a) EXISTENCE. The Company is a corporation, duly organized
and validly existing under the laws of the State of Delaware and is
authorized to do business and is in good standing as a foreign
corporation in every jurisdiction in which it owns or leases real
property or in which the nature of its business requires it to be so
qualified, except where the failure to so qualify, individually or in
the aggregate, could not reasonably be expected to have a material
adverse effect on the business, operations, assets, condition
(financial or otherwise) or results of operations of the Company and
its subsidiaries, taken as a whole (a "Material Adverse Effect").
(b) POWER AND AUTHORITY. The Company has all requisite
corporate power and authority, and has taken all corporate action
necessary, to execute, deliver and perform this Warrant Agreement, to
grant, issue and deliver the Warrants and to authorize and reserve for
issuance and, upon payment from time to time of the Exercise Price, to
issue and deliver the shares of Common Stock or other securities
issuable upon exercise of the Warrants. This Warrant Agreement has been
duly executed and delivered by the Company.
(c) RESERVATION, ISSUANCE AND DELIVERY OF COMMON STOCK. There
have been reserved for issuance, and the Company shall at all times
keep reserved for issuance, out of the authorized and unissued shares
of Common Stock, a number of shares of Common Stock sufficient to
provide for the exercise of the rights of purchase represented by the
Warrants, and such shares, when issued upon receipt of payment therefor
in accordance with the terms of the
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<PAGE> 6
Warrant Certificates and of this Warrant Agreement, will be legally
and validly issued, fully paid and non-assessable and will be free of
any preemptive rights of stockholders or any restrictions; provided,
however, that unless the Holders shall have exercised their
registration rights in Section 15 hereof, such shares will not be
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or any state's securities act.
(d) EXECUTION AND DELIVERY. Neither the execution or delivery
of this Warrant Agreement nor the consummation of the transactions
herein contemplated does or will result in a breach or violation of any
of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other 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 or to
which any of the property or assets of the Company is subject, nor will
such action result in any violation of any provision of the Certificate
of Incorporation or Bylaws of the Company or any of its subsidiaries or
any statute or any order, rule or regulation or any court or
governmental agency or body having jurisdiction over the Company or any
of its subsidiaries or any of its or their properties, except for
breaches, violations and defaults which could not reasonably be
expected to, individually or in the aggregate, have a Material Adverse
Effect; and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body
is required for the issuance and sale of the Warrants or the
consummation by the Company of the transactions contemplated by this
Warrant Agreement, except those required by the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
any State securities laws and except for those which the failure to
obtain or make could not reasonably be expected to, individually or in
the aggregate, have a Material Adverse Effect.
(e) VALID AND BINDING OBLIGATIONS. Assuming the due
authorization, execution and delivery hereof and thereof by the parties
hereto and thereto (other than the Company), this Warrant Agreement and
all related documents, when duly executed and delivered, are legal,
valid and binding obligations of the Company, enforceable in accordance
with their respective terms, except as such enforcement may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally and general
equitable principles.
(f) LIABILITIES, LITIGATION AND RESTRICTIONS. Except for the
litigation and liabilities disclosed in connection with the Facility
and the litigation and liabilities described in the reports (including
annual and quarterly reports), proxy or information statements and/or
registration statements filed by the Company with the Securities and
Exchange Commission, (including the exhibits thereto and the financial
statements contained therein and the notes thereto, collectively, the
"SEC Documents"), the Company and its subsidiaries have no liabilities,
direct or contingent, which could reasonably be expected to have a
Material Adverse Effect. Except as disclosed to the Lenders or
described in the SEC Documents, no litigation or other action of any
nature affecting the Company or any of its subsidiaries is pending
before any governmental authority or, to the knowledge of the Company,
threatened against or affecting the Company or any of its subsidiaries,
which could reasonably be expected to have a Material Adverse Effect.
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<PAGE> 7
(g) AUTHORIZATION AND CONSENTS. No authorization, consent,
approval, exemption, franchise, permit or license of, or filing with,
any governmental authority or other person is required to authorize, or
is otherwise required in connection with, the valid execution and
delivery by the Company of this Warrant Agreement and all related
documents and the performance by the Company of its obligations
hereunder, except those required by the Securities Act, the Exchange
Act, and any State securities laws and except for those which the
failure to obtain or make could not reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect.
(h) COMPLIANCE WITH LAWS. Except as otherwise described in the
SEC Documents, to the knowledge of the Company, neither the business
nor any of the activities of the Company or any of its subsidiaries, as
presently conducted, violates any requirement of law the result of
which violation could reasonably be expected to have a Material Adverse
Effect.
(i) NO MATERIAL MISSTATEMENTS. Except as otherwise described
in the SEC Documents, no information, statement, certificate, document,
exhibit or report prepared by or at the direction or with the
supervision of the Company and furnished to the Lenders in connection
with the negotiation and preparation of this Warrant Agreement and all
related documents contains any material misstatements of fact or omits
to state a material fact necessary to make the statements contained
therein not misleading as of the date made or deemed made.
(j) SOLVENCY. The Company and its subsidiaries, taken as a
whole, are Solvent (as this term is defined in the Facility) as of and
immediately following the date of execution of this Warrant Agreement.
3. REGISTRATION. The Warrants shall be numbered and shall be registered
on the books of the Company (the "Warrant Register") as they are issued. The
Warrants shall be registered initially in such names and such denominations as
the Lenders have specified (or will specify) to the Company in writing.
4. EXCHANGE OF WARRANT CERTIFICATES. Subject to any restriction upon
transfer set forth in this Warrant Agreement, each Warrant Certificate may be
exchanged at the option of the Holder thereof for another Warrant Certificate or
Certificates of different denominations entitling the Holder thereof to purchase
upon surrender to the Company or its duly authorized agent a like aggregate
number of shares of Common Stock as the Warrant Certificate or Certificates
surrendered then entitle such Holder to purchase. The shares of Common Stock
issuable upon exercise of the Warrants are referred to herein as "Warrant
Shares". Any Holder desiring to exchange a Warrant Certificate or Certificates
shall make such request in writing delivered to the Company, and shall
surrender, properly endorsed, the Warrant Certificate or Certificates to be so
exchanged. Thereupon, the Company shall execute and deliver to the person
entitled thereto a new Warrant Certificate or Certificates, as the case may be,
as so requested. Any Warrant Certificate issued upon exchange, transfer or
partial exercise of the Warrants shall be the valid obligation of the Company,
evidencing the same generic rights and entitled to the same generic benefits
under this Warrant Agreement as the Warrant Certificate surrendered for such
exchange, transfer or exercise.
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<PAGE> 8
5. TRANSFER OF WARRANTS. A Holder may transfer its Warrants only by
written notice to the Company stating the name of the proposed transferee and
otherwise complying with the terms of this Warrant Agreement and all applicable
laws, rules and regulations. Subject to the provisions of Section 15 hereof, the
Warrants shall be transferrable only on the Warrant Register upon delivery to
the Company of the Warrant Certificate or Certificates duly endorsed by the
Holder or by his duly authorized attorney-in-fact or legal representative, or
accompanied by proper evidence of succession, assignment or authority to
transfer. In all cases of transfer by an attorney-in-fact, the original power of
attorney, duly approved, or an official copy thereof, duly certified, shall be
deposited with the Company. In case of transfer by executors, administrators,
guardians or other legal representatives, duly authenticated evidence of their
authority shall be produced, and may be required to be deposited with the
Company in its discretion. Prior to due presentation for registration of
transfer, the Company and any agent of the Company may deem and treat the person
in whose name the Warrants are registered in the Warrant Register as the
absolute owner thereof for all purposes (notwithstanding any notation of
ownership or other writing on the Warrant Certificate made by anyone), and the
Company shall not be affected by any notice to the contrary or be bound to
recognize any equitable or other claim to or in interest in any Warrants on the
part of any other person and shall not be liable for any registration of
transfer of Warrants that are registered or to be registered in the Warrant
Register in the name of a fiduciary or the nominee of a fiduciary unless made
with actual knowledge that a fiduciary or nominee is committing a breach of
trust in requesting such registration of transfer or with such knowledge of such
facts that its participation therein amounts to bad faith. No service charge
shall be made for any registration of transfer or exchange of Warrants, but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection with any registration of
transfer of Warrants. Upon any registration of transfer, the Company shall
deliver a new Warrant Certificate or Certificates to the person(s) entitled
thereto.
6. TERM OF WARRANTS; EXERCISE OF WARRANTS.
(a) Each Warrant entitles the Holder thereof to purchase one
share of Common Stock at any time from the Warrant Date until 5:00
P.M., Houston time, on January 1, 2007 (the "Expiration Date") at a
purchase price of $0.01 per share (the "Exercise Price"). Each
outstanding Warrant may be exercised on any business day which is on or
after its date of issue and on or before the Expiration Date, but only
if a registration statement filed under the Securities Act with respect
to the exercise of such Warrants (a "Registration Statement") is, at
the time of exercise, effective and available or the exercise of such
Warrants is exempt from the registration requirements of the Securities
Act. Any Warrants not exercised by 5:00 p.m., Houston time, on the
Expiration Date shall expire and all rights thereunder and all rights
in respect thereof under this Warrant Agreement shall automatically
terminate at such time. The number of shares issuable upon exercise of
Warrants are subject to adjustment upon the occurrence of certain
events pursuant to the provisions of Section 11 of this Warrant
Agreement.
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<PAGE> 9
(b) Each Warrant Certificate shall, subject to the provisions
of this Warrant Agreement and such Warrant Certificate, entitle the
Holder thereof to purchase from the Company (and the Company shall
issue and sell to such Holder) one share of Common Stock (subject to
adjustment as provided herein) for each Warrant represented thereby at
the Exercise Price, upon surrender to the Company, or its duly
authorized agent, of such Warrant Certificate, with the purchase form
on the reverse thereof duly filled in and signed, and upon payment to
the Company of the Exercise Price for each Warrant being exercised.
Each Holder may pay the Exercise Price in cash, by certified or
official bank check payable to the order of the Company; provided, that
each Holder may at any time exercise the Warrants for "Net Warrant
Shares." The number of Net Warrant Shares will be determined as
described by the following formula: Net Warrant Shares = [WS x
(MP-EP)]/MP. "WS" is the aggregate number of Warrant Shares issuable
upon exercise of the Warrants or portion of Warrants in question. "MP"
is the Market Price of the Common Stock on the last trading day
preceding the date of the request to exercise the Warrants. "Market
Price" shall mean the then current market price per share of Common
Stock, as determined in paragraph 11.1(e). "EP" shall mean the Exercise
Price.
Upon such surrender of a Warrant Certificate, and payment of
the Exercise Price, the Company at its expense shall cause its transfer
agent to issue and cause to be delivered with all reasonable dispatch
(but in any event within 5 business days) to or upon the written order
of the Holder and in such name or names as the Holder may designate, a
Warrant Certificate or Certificates for the number of full shares of
Common Stock so purchased upon the exercise of such Warrants, together
with cash, as provided in Section 12 of this Warrant Agreement, in
respect of any fraction of a share of such Common Stock otherwise
issuable upon such surrender. Such Warrant Certificate or Certificates
shall be deemed for all purposes to have been issued and any person so
designated to be named therein shall be deemed to have become a holder
of record of such shares as of the date of the surrender of such
Warrant Certificate and payment of the Exercise Price or surrender of
such Warrant Certificate with a notice requesting a net exercise as
aforesaid. The rights of purchase represented by the Warrant
Certificates shall be exercisable, at the election of the Holders
thereof, either in full or from time to time in part and, in the event
that any Warrant Certificate is exercised in respect of less than all
of the Warrants represented thereby at any time prior to the Expiration
Date, a new Warrant Certificate evidencing the remaining Warrant or
Warrants will be issued.
(c) A Holder which is a bank holding company under the Bank
Holding Company Act shall so inform the Company and, at the time any
Warrant is exercised by such Holder, and as a condition thereto, such
Holder shall certify to the Company that such exercise, whether in
whole or in part, does not violate such act; and no Warrant may be
exercised in whole or in part prior to 45 days before the Expiration
Date without such certification. If any such Holder shall transfer any
Warrant, the transferee may not exercise such Warrant until the earlier
of six months following the date of transfer and 45 days before the
Expiration Date unless the transferror bank holding company shall
certify to the Company at the time of transfer that, had such
transferror exercised such Warrant at the time of transfer, such
exercise would not have violated the Bank Holding Company Act.
(d) In no event shall any Warrant be exercisable after the
Expiration Date.
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<PAGE> 10
7. COMPLIANCE WITH GOVERNMENT REGULATIONS. In the event a Holder
exercises its Warrants at a time when the Registration Statement is not
effective and available, such Holder must furnish to the Company such
certifications, legal opinions or other information as the Company may
reasonably require to confirm that such exercise is being made pursuant to an
exemption from the registration requirements of the Securities Act. The Company
covenants that if any share of Common Stock required to be reserved for purposes
of exercise or conversion of Warrants require, under any Federal or state law or
applicable governing rule or regulation of any national securities exchange,
registration with or approval of any governmental authority, or listing on any
such national securities exchange, before such shares may be issued upon
exercise and subject to the provisions of Section 11, the Company will use its
best efforts to cause such shares to be duly registered, approved or listed on
the relevant national securities exchange, as the case may be; provided,
however, the Company shall not be required to effect any registration under the
Securities Act except in accordance with Section 15 hereof.
8. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes,
if any, attributable to the initial issuance of Warrant Shares upon the exercise
of Warrants and any securities issued pursuant to Section 11 hereof; provided,
however, that the Company shall not be required to pay (and the Holder or its
transferee shall pay) any tax or taxes which may be payable in respect of any
transfer involved in the issue or delivery of any Warrant Certificate or
Certificates for Warrant Shares and any securities issued pursuant to Section 11
hereof in a name other than that of the Holder of such Warrants.
9. MUTILATED OR MISSING WARRANTS. Upon receipt by the Company of
evidence satisfactory to it of the ownership and the loss, theft, destruction or
mutilation of any Warrant Certificate, and an indemnity bond in form and amount
and with corporate surety satisfactory to the Company, and (in the case of
mutilation) upon surrender and cancellation thereof, then, in the absence of
notice to the Company that the Warrants represented thereby have been acquired
by a bona fide purchaser, the Company shall issue and deliver to the Holder of
the lost, stolen, destroyed or mutilated Warrant Certificate, in exchange and
substitution for or in lieu thereof, a new Warrant Certificate of the same tenor
and representing an equivalent number of Warrants. Upon the issuance of any new
Warrant Certificate under this Section 9, the Company may require the payment of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and other expenses in connection therewith. Every
new Warrant Certificate executed and delivered pursuant to this Section 9 in
lieu of any lost, stolen, destroyed or mutilated Warrant Certificate shall
constitute an original contractual obligation of the Company, whether or not the
allegedly lost, stolen, destroyed or mutilated Warrant Certificates shall be at
any time enforceable by anyone, and shall be entitled to the benefits of this
Warrant Agreement equally and proportionately with any and all other Warrant
Certificates duly executed and delivered hereunder. The provisions of this
Section 9 are exclusive and shall preclude (to the extent lawful) all other
rights or remedies with respect to the replacement of lost, stolen, destroyed or
mutilated Warrant Certificates. Notwithstanding the foregoing, no Lender which
is a Holder shall be required to provide an indemnity bond as described in this
Section 9 so long as such Lender provides the Company with an indemnity
agreement in form and substance reasonably satisfactory to the Company.
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<PAGE> 11
10. RESERVATION OF WARRANT SHARES; PURCHASE AND CANCELLATION OF
WARRANTS. (a) The Company shall at all times reserve, out of its authorized and
unissued shares of Common Stock, a number of shares of Common Stock sufficient
to provide for the exercise of the rights of purchase represented by the
Warrants. The Company will keep a copy of this Warrant Agreement on file with
every transfer agent for any shares of the Company's capital stock issuable upon
the exercise of the rights of purchase represented by the Warrants. Upon notice
of exercise, the Company will supply any transfer agent with duly executed stock
certificates for such purpose and will itself provide or otherwise make
available any cash which may be issuable as provided by Section 12 of this
Warrant Agreement. The Company will furnish to the transfer agent and any such
subsequent transfer agent a copy of all notices of adjustments, and certificates
related thereto, transmitted to each Holder pursuant to Section 11.3 hereof. All
Warrants surrendered in the exercise of the rights thereby evidenced shall be
cancelled. No shares of stock shall be subject to reservation in respect of the
Warrants subsequent to the Expiration Date except to the extent necessary to
comply with the terms of this Warrant Agreement.
(b) The Company shall have the right, except as limited by law or other
agreement, to purchase or otherwise acquire Warrants at such times, in such
manner and for such consideration as it may deem appropriate. In the event the
Company shall purchase or otherwise acquire Warrants, the Company may, at its
option, cancel the related Warrant Certificates; provided, however, that unless
and until the Warrant Certificates evidencing such Warrants are cancelled, such
purchase or acquisition shall not operate as a redemption or termination of the
right represented by such Warrants.
11. ADJUSTMENT OF NUMBER OF WARRANT SHARES. From and after the issuance
of the Warrants, the number and kind of securities purchasable upon the exercise
of each Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events, as hereafter defined, provided that the Company
shall not be required to make any such adjustment unless such specified event
occurs after the issuance of the Warrants.
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<PAGE> 12
11.1. MECHANICAL ADJUSTMENTS. From and after the issuance of
the Warrants, the number of Warrant Shares purchasable upon the
exercise of each Warrant shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend in
shares of Common Stock or make a distribution in shares of
Common Stock, (ii) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock, (iii)
combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock other
securities of the Company (including any such reclassification
in connection with a consolidation or merger in which the
Company is the surviving corporation), the number of Warrant
Shares purchasable upon exercise of each Warrant immediately
prior to the record date of such dividend or the effective
date of such subdivision, combination or reclassification
shall be adjusted so that the Holder of each Warrant shall be
entitled to receive the kind and number of Warrant Shares or
other securities of the Company which such Holder would have
owned or have been entitled to receive after the happening of
any of the events described above, had such Warrant been
exercised immediately prior to the happening of such event or
any record date with respect thereto. An adjustment made
pursuant to this paragraph (a) shall become effective
immediately after the effective date of such event retroactive
to the record date, if any, for such event.
(b) In case the Company shall issue rights, options
or warrants generally to holders of its outstanding shares of
Common Stock, without any charge to such holders, entitling
them to subscribe for or purchase shares of Common Stock at a
price per share which is lower at the record date mentioned
below than the then current Market Price per share of Common
Stock (as determined in accordance with paragraph (e) below),
then in each such case the number of Warrant Shares thereafter
purchasable upon the exercise of each Warrant shall be
determined by multiplying the number of Warrant Shares
theretofore purchasable upon exercise of each Warrant by a
fraction, of which the numerator shall be the number of shares
of Common Stock outstanding immediately prior to the issuance
of such rights, options or warrants plus the number of
additional shares of Common Stock offered for subscription or
purchase, and of which the denominator shall be the number of
shares of Common Stock outstanding immediately prior to the
issuance of such rights, options or warrants plus the number
of shares which the aggregate offering price of the total
number of shares of Common Stock so offered would purchase at
the then current Market Price per share of Common Stock. Such
adjustment shall be made whenever such rights, options or
warrants are issued, and shall become effective retroactively
immediately after the record date for the determination of
stockholders entitled to receive such rights, options or
warrants.
(c) In case the Company shall distribute generally to
holders of its outstanding shares of Common Stock evidences of
its indebtedness or assets (including cash dividends or other
cash distributions) or rights, options or warrants, or
convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock (excluding
those referred to in paragraph (b) above), then in each case
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<PAGE> 13
the number of Warrant Shares thereafter purchasable upon the
exercise of each Warrant shall be determined by multiplying
the number of Warrant Shares theretofore purchasable upon the
exercise of each Warrant by a fraction, of which the numerator
shall be the then current Market Price per share of Common
Stock (as determined in accordance with paragraph (e) below)
on the date of such distribution, and of which the denominator
shall be the then current Market Price per share of Common
Stock, less the then fair value (as determined in good faith
by the Board of Directors of the Company, whose determination
shall be conclusive) of the portion of the assets or evidences
of indebtedness so distributed or of such subscription rights,
options or warrants, or of such convertible or exchangeable
securities applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is
made, and shall become effective on the date of distribution
retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
In the event of a distribution by the Company
generally to holders of its outstanding shares of Common Stock
of stock of a subsidiary or securities convertible into or
exercisable for such stock, then in lieu of an adjustment in
the number of Warrant Shares purchasable upon the exercise of
each Warrant, the Holder, upon the exercise thereof at any
time after such distribution, shall be entitled to receive
from the Company, such subsidiary or both, as the Company
shall determine, the number of shares of stock of a subsidiary
or other securities to which such Holder would have been
entitled if such Holder had exercised such Warrant immediately
prior thereto, all subject to further adjustment as provided
in this subsection 11.1; provided, however, that no adjustment
in respect of dividends or interest on such stock of a
subsidiary or other securities shall be made during the term
of a Warrant or upon the exercise of a Warrant.
(d) In case the Company shall sell and issue shares
of Common Stock (other than pursuant to rights, options,
warrants, or convertible or exchangeable securities
(collectively, "Rights") initially issued before the initial
issuance of Warrants under this Warrant Agreement or pursuant
to any Rights if no adjustment was required in connection with
the issuance of such Right or any adjustment required in
connection with the issuance of such Right has been previously
made) or Rights containing the right to subscribe for or
purchase shares of Common Stock (excluding (i) shares and
Rights issued in any of the transactions described in
paragraphs (a), (b) or (c) above), (ii) any shares or Rights,
if on the date the same were issued, the purchase, exercise,
conversion or exchange price per share of Common Stock with
respect thereto was at least equal to the Market Price per
share of Common Stock on such date, (iii) any shares or Rights
(with respect to not more than an aggregate of 10% of the
outstanding shares of Common Stock) issued to employees of the
Company or any of its subsidiaries and (iv) any shares or
Rights issued as consideration when any corporation or
business is acquired, merged into or becomes part of the
Company or any subsidiary of the Company in an arm's-length
transaction between the Company and a person or entity other
than an affiliate of the Company) at a price per share of
Common Stock (determined, in the case of such Rights by
dividing (w) the total of the amount received or receivable by
the Company (determined as provided below) in consideration of
the
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<PAGE> 14
sale and issuance of such Rights by (x) the total number of
shares of Common Stock covered by such Rights) lower than the
Market Price per share of Common Stock in effect immediately
prior to such sale and issuance, then the number of Warrant
Shares thereafter purchasable upon the exercise of each
Warrant shall be determined by multiplying the number of
Warrant Shares theretofore purchasable upon exercise of such
Warrant by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding immediately prior
to such sale or issuance plus the number of additional shares
of Common Stock sold or subject to issuance pursuant to such
Rights and of which the denominator shall be the number of
shares of Common Stock outstanding immediately prior to such
sale or issuance of such shares or Rights plus the number of
shares of Common Stock which the aggregate consideration
received or receivable (determined as provided below) for such
sale or issuance would purchase at the Market Price per share
of Common Stock. Such adjustment shall be made successively
whenever such an issuance is made. For the purposes of such
adjustments, the consideration received or receivable by the
Company for Rights shall be deemed to be the consideration
received by the Company for such Rights, plus the
consideration or premiums stated in such Rights to be paid for
the shares of Common Stock covered thereby. In case the
Company shall sell and issue shares of Common Stock or Rights
containing the right to subscribe for or purchase shares of
Common Stock, for a consideration consisting, in whole or in
part, of property other than cash or its equivalent, then in
determining the "price per share of Common Stock" and the
"consideration received or receivable by the Company" for
purposes of the first sentence of this paragraph (d), the
Board of Directors shall determine, in its discretion, the
fair value of said property, and such determination, if made
in good faith, shall be binding upon all Holders.
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<PAGE> 15
(e) The "Market Price" on any day shall mean the
average of the daily market prices for a share of Common Stock
over a period of 20 consecutive business days prior to the day
as of which "Market Price" is being determined. The Market
Price for each such business day shall be the average of the
closing prices on such day of the Common Stock on all domestic
exchanges on which the Common Stock is then listed, or, if
there shall have been no sales on any such exchange on such
day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if the Common
Stock shall not be so listed, the average of the
representative bid and asked prices quoted on The Nasdaq Stock
Market as of 3:30 P.M., New York time, on such day, or if the
Common Stock shall not be quoted on The Nasdaq Stock Market,
the average of the high and low bid and asked prices on such
day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar
successor organization. If the Common Stock is listed on any
domestic exchange, the term "business days" as used in this
sentence shall mean business days on which such exchange is
open for trading. If at any time the Common Stock is not
listed on any domestic exchange or quoted on The Nasdaq Stock
Market or the domestic over-the-counter market, the "Market
Price" shall be deemed to be the higher of (i) the book value
thereof, as determined by any firm of independent public
accountants of recognized standing selected by the Board of
Directors of the Company, as at the last day of any month
ending within 60 days preceding the date as of which the
determination is to be made or (ii) the fair value thereof,
which shall be reasonably determined by the Board of Directors
of the Company as of a date which is within 15 days of the
date as of which the determination is to be made.
Notwithstanding the foregoing, for the purpose of any
calculation under paragraph (d) above, (A) with respect to any
issuance of options under the Company's employee or director
compensation stock option plans as in effect or as adopted by
the Board of Directors of the Company, the term "Market
Price", in such instances shall mean the fair market price on
the date of the issuance of any such option determined in
accordance with the Company's employee compensation stock
option plans as in effect or adopted by the Board of Directors
of the Company; and (B) with respect to any issuances of
Common Stock (or Rights) in connection with bona fide
corporate transactions (other than issuances in such
transactions for cash or similar consideration), the term
"Market Price" shall mean the fair market price per share as
determined in arm's-length negotiations by the Company and
such other parties (other than affiliates or subsidiaries of
the Company) to such transactions as reflected in the
definitive documentation with respect thereto, unless such
determination is not reasonably related to the closing market
price on the date of such determination.
(f) In any case in which this Section 11.1 shall
require that any adjustment in the number of Warrant Shares be
made effective as of immediately after a record date for a
specified event, the Company may elect to defer until the
occurrence of the event the issuing to the Holder of any
Warrant exercised after that record date the Warrant Shares
and other securities of the Company, if any, issuable upon the
exercise of any Warrant over and above the Warrant Shares and
other securities of the Company, if any, issuable upon the
exercise of any Warrant prior to such adjustment; provided,
however,
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<PAGE> 16
that the Company shall deliver to such Holder a due bill or
other appropriate instrument evidencing the Holder's right
to receive such additional shares or securities upon the
occurrence of the event requiring such adjustment.
(g) All calculations shall be made to the nearest
one-thousandth of a share.
(h) No adjustment in the number of Warrant Shares
purchasable upon the exercise of any Warrant shall be required
unless such adjustment would require an increase or decrease
of at least one percent in the number of Warrant Shares
purchasable upon the exercise of such Warrant; provided,
however, that any adjustments which are not required to be
made by reason of this Section 11.1(h) shall be carried
forward and taken into account in any subsequent adjustment.
No adjustment in the number of Warrant Shares purchasable upon
the exercise of each Warrant need be made under paragraphs
(b), (c) and (d) if the Company issues or distributes to each
Holder the Rights or evidences of indebtedness or assets
referred to in those paragraphs which each Holder would have
been entitled to receive had the Warrants been exercised prior
to the happening of such event or the record date with respect
thereto regardless of whether the Warrants are exercisable at
the time of the happening of such event or at the time of any
record date with respect thereto. No adjustment need be made
for a change in the par value of the Warrant Shares.
(i) For the purpose of this Section 11.1, the terms
"shares of Common Stock" and "Warrant Shares" shall mean (i)
the class of stock designated as the common stock of the
Company at the date of this Warrant Agreement, or (ii) any
other class of stock resulting from successive changes or
reclassifications of such shares consisting solely of changes
in par value, or from par value to no par value, or from no
par value to par value. In the event that at any time, as a
result of an adjustment made pursuant to paragraph (a) above,
the Holders shall become entitled to purchase any securities
of the Company other than shares of Common Stock, thereafter
the number of such other securities so purchasable upon
exercise of each Warrant shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant
Shares contained in paragraphs (a) through (h), inclusive,
above, and the provisions of Section 6 and Section 11.2
through 11.7, inclusive, with respect to the Warrant Shares,
shall apply on like terms to any such other securities. The
number of shares of Common Stock outstanding at any given time
shall not include shares owned or held by or for the account
of the Company, and the disposition of any such shares shall
not be considered an issue or sale of Common Stock for the
purposes of this Section 11.
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<PAGE> 17
(j) Upon the expiration of any Rights, if any thereof
shall not have been exercised, the number of shares of Common
Stock purchasable upon the exercise of each Warrant shall,
upon such expiration, be readjusted and shall thereafter be
such as it would have been had it been originally adjusted (or
had the original adjustment not been required, as the case may
be) as if (A) the only shares of Common Stock so issued were
the shares of Common Stock, if any, actually issued or sold
upon the exercise of such Rights, and (B) such shares of
Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such
exercise plus the aggregate consideration, if any, actually
received by the Company for the issuance, sale or grant of all
such Rights whether or not exercised; provided, however, that
no such readjustment shall have the effect of decreasing the
number of Warrant Shares issuable upon the exercise of each
Warrant by an amount in excess of the amount of the adjustment
initially made with respect to the issuance, sale or grant of
such Rights.
11.2. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may, at
its option, at any time during the term of the Warrants, reduce the
then current Exercise Price to any amount determined appropriate by the
Board of Directors of the Company or may make any other adjustment to
increase the number of Warrant Shares issuable upon exercise of each
Warrant as it may, in good faith, deem desirable to protect the rights
and benefits of the Holders.
11.3. NOTICE OF ADJUSTMENT. When the number of Warrant Shares
purchasable upon the exercise of each Warrant is adjusted, as herein
provided, the Company shall promptly mail by first class, postage
prepaid, to each Warrant Holder notice of such adjustment or
adjustments and a certificate of a firm of independent public
accountants selected by the Board of Directors of the Company (who may
be the regular accountants employed by the Company) setting forth the
number of Warrant Shares purchasable upon the exercise of each Warrant
after such adjustment and setting forth a brief statement of the facts
requiring such adjustment and setting forth the computation by which
such adjustment was made. Such certificate, absent manifest error,
shall be conclusive evidence of the correctness of such adjustment.
11.4. PRESERVATION OF PURCHASE RIGHTS UPON MERGER,
CONSOLIDATION, ETC. In case of any consolidation of the Company with or
merger of the Company into another person or in case of any sale,
transfer or lease to another person of all of or substantially all the
assets of the Company, the Company or such successor or purchaser, as
the case may be, shall execute with each Holder an agreement that each
Holder shall have the right thereafter upon payment of the Exercise
Price in effect immediately prior to such action to purchase upon
exercise of each Warrant the kind and amount of shares and other
securities and property which the Holder would have owned or have been
entitled to receive after the happening of such consolidation, merger,
sale, transfer or lease had such Warrant been exercised immediately
prior to such action regardless of whether the Warrants are exercisable
at the time of such action. Such agreement shall provide for
adjustments, which shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 11. The provisions of
this Section 11.4 shall similarly apply to successive consolidations,
mergers, sales, transfers or leases.
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<PAGE> 18
11.5. STATEMENT ON WARRANTS. Even though Warrants heretofore
or hereafter issued may continue to express the same number and kind of
shares as are stated in the Warrants initially issuable pursuant to
this Warrant Agreement; the parties understand and agree that such
Warrants will represent rights consistent with any adjustments in the
number or kind of shares purchasable upon the exercise of the Warrants.
The Company may, however, at any time in its sole discretion (which
shall be conclusive), make any change in the form of Warrant
Certificate that it may deem appropriate and that does not affect the
substance thereof and any Warrant Certificate thereafter issued,
whether in exchange or substitution for an outstanding Warrant
Certificate or otherwise, may be in the form so changed.
11.6. COMPANY TO PREVENT DILUTION. If any event or condition
occurs as to which other provisions of this Section 11 are not strictly
applicable or if strictly applicable would not fairly protect the
exercise or purchase rights of this Warrant Agreement in accordance
with the essential intent and principles of such provisions, or which
might materially and adversely affect the exercise or purchase rights
of the Holders under any provision of the Warrant Certificates, then
the Company shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so
as to protect such exercise and purchase rights as aforesaid, and any
adjustment necessary with respect to the number of Warrant Shares
purchasable hereunder so as to preserve without dilution the rights of
the Holders. In no event shall any such adjustment have the effect of
increasing the Exercise Price. Unless otherwise expressly provided in
this Section 11, all determinations and calculations required or
permitted under this Section 11 shall be made by the Company or its
Board of Directors, as appropriate, and all such calculations and
determinations shall be conclusive and binding in the absence of
manifest error.
11.7. CONCERNING ALL ADJUSTMENTS. Notwithstanding anything to
the contrary contained in this Warrant Agreement, if an adjustment is
made under any provision of this Section 11 on account of any event,
transaction, circumstance, condition or happening, no additional
adjustment shall be made under any other provision of this Section 11
on account of such event, transaction, circumstance, condition or
happening. Unless otherwise expressly provided in this Section 11, all
determinations and calculations required or permitted under this
Section 11 shall be made by the Company or its Board of Directors, as
appropriate, and all such calculations and determinations shall be
conclusive and binding in the absence of manifest error.
12. FRACTIONAL INTERESTS. The Company shall not be required to issue
fractional Warrant Shares on the exercise of Warrants. If more than one Warrant
shall be presented for exercise in full at the same time by the same Holder, the
number of full Warrant Shares which shall be issuable upon the exercise thereof
shall be computed on the basis of the aggregate number of Warrant Shares
purchasable on exercise of the Warrants so presented. If any fraction of a
Warrant Share would, except for the provisions of this Section 12, be issuable
on the exercise of any Warrant (or specified portion, thereof), the Company
shall pay an amount in cash equal to the Market Price for one share of Common
Stock as of the trading day immediately preceding the date the Warrant is
presented for exercise, multiplied by such fraction.
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<PAGE> 19
13. REGISTRATION UNDER THE SECURITIES ACT OF 1933. Each Lender (for
itself and no one else) represents, warrants, covenants and agrees that it will
not dispose of any Warrant or any Warrant Shares except pursuant to (i) an
effective registration statement, or (ii) an applicable exemption from
registration under the Securities Act. In connection with any sale by a Lender
pursuant to clause (ii) of the preceding sentence, it shall furnish to the
Company an opinion of counsel reasonably satisfactory to the Company to the
effect that such exemption from registration is available in connection with
such sale. Each Lender (for itself and no one else) acknowledges, understands
and agrees that the following limitations and restrictions are applicable to the
purchase, resale and distribution of the Warrants and the Warrant Shares:
(a) each Lender must bear the economic risk of its investment in
the Company for an indefinite period of time because neither the Warrants
nor the Warrant Shares have been registered under the Securities Act or
any State securities laws and, therefore, may not be subsequently
offered, sold, transferred, pledged or otherwise disposed of unless and
until they have been registered under the Securities Act and any
applicable State securities laws or exemptions from registration
thereunder are available, and each Lender further understands that only
the Company can take action to register the Warrants or the Warrant
Shares; and
(b) each Lender has been advised that the Company does not expect
that Rule 144 under the Securities Act will be available to such Lender
with respect to any of the Warrants or the Warrant Shares unless such
Lender is a non-affiliate of the Company (and has not been an affiliate
of the Company for at least three months) and has held such securities
for at least one year from the later of the date that they were issued by
the Company or the date that they were acquired from an affiliate of the
Company.
Each Lender (for itself and no one else) represents, warrants, covenants and
agrees that (i) it is purchasing the Warrants for its own account, for
investment purposes and not with a view to, or for resale in connection with,
any distribution or public offering thereof (as defined in the rules and
regulations under the federal securities laws) and is an "accredited investor"
(as defined in Regulation D under the Securities Act); (ii) it is not
participating and does not have a participation in any distribution or the
underwriting of any distribution in violation of the Securities Act, and has no
present intention of selling or otherwise disposing of any of the Warrants or
the Warrant Shares in violation of the Securities Act, (iii) it is aware that
neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the Warrants or the Warrants Shares or
passed upon the accuracy or adequacy of this Warrant Agreement, (iv) it
recognizes that an investment in the Warrants and the Warrant Shares involves a
high degree of risk, it has such knowledge and experience in financial and
business matters as to be capable of evaluating the risks and merits of this
investment and protecting its interests in connection with this investment and
it is able to bear the economic risk of an investment in the Warrants and the
Warrant Shares, including the risk of the total loss of such investment, (v) it
has received all information it considers necessary or appropriate for deciding
whether to enter into this Warrant Agreement or to acquire the Warrants or the
Warrant Shares (including the SEC Documents filed over the last 12-month
period), and it has had an opportunity to ask questions of and receive answers
from the Company regarding the Company and the terms and conditions of the
Warrants and the Warrant Shares, and (vi) it understands that neither the
Warrants nor the Warrant Shares have been registered under the Securities Act on
the basis that the issuance or sale of the Warrants and the Warrant Shares is
exempt from the registration provisions thereof, and that the Company's reliance
on the exemption is predicated on its representations herein.
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<PAGE> 20
14. CERTIFICATE TO BEAR LEGENDS. The Warrants shall be subject to a
stop-transfer order and the Warrant Certificates therefor shall bear the
following legend by which each Holder shall be bound:
"THE WARRANTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT, OR (ii) AN
APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED. ANY SALE PURSUANT TO CLAUSE (ii) OF THE
PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN UNQUALIFIED WRITTEN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE
EFFECT THAT SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN
CONNECTION WITH SUCH SALE.
THE COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF STERLING CHEMICALS
HOLDINGS, INC. (THE "COMMON STOCK") FOR WHICH THIS WARRANT IS
EXERCISABLE MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
ACCORDINGLY, NO HOLDER SHALL BE ENTITLED TO EXERCISE SUCH HOLDER'S
WARRANTS AT ANY TIME UNLESS, AT THE TIME OF EXERCISE, (i) A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT RELATING TO THE
SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAS BEEN FILED WITH, AND DECLARED EFFECTIVE BY, THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION"), AND NO STOP ORDER
SUSPENDING THE EFFECTIVENESS OF SUCH REGISTRATION STATEMENT HAS
BEEN ISSUED BY THE COMMISSION, OR (ii) THE ISSUANCE OF SUCH SHARES
IS PERMITTED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. ANY SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING
SENTENCE MUST BE ACCOMPANIED BY AN UNQUALIFIED WRITTEN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT
SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH
SUCH SALE."
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<PAGE> 21
The Warrant Shares or other securities issued upon exercise of the
Warrants shall, unless issued pursuant to an effective registration statement,
be subject to a stop-transfer order and the certificate or certificates
evidencing any such Warrant Shares or securities shall bear the following legend
by which the Warrant Holder thereof shall be bound:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAW (COLLECTIVELY, THE "ACTS") AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF
UNLESS MADE PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACTS OR
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
THEREOF. FURTHER, THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF UNLESS AND UNTIL (1) SUCH SECURITIES HAVE BEEN
REGISTERED UNDER THE ACTS OR (2) THE HOLDER OF SUCH SECURITIES
PROVIDES THE COMPANY WITH (A) AN UNQUALIFIED WRITTEN OPINION OF
LEGAL COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND SUBSTANCE)
SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT
THAT THE PROPOSED DISPOSITION OF SUCH SECURITIES MAY BE EFFECTED
WITHOUT REGISTRATION UNDER THE ACTS OR (B) SUCH OTHER EVIDENCE AS
MAY BE REASONABLY SATISFACTORY TO THE COMPANY THAT THE PROPOSED
DISPOSITION OF SUCH SECURITIES MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless in the opinion of
counsel satisfactory to the Company, the securities represented thereby need no
longer be subject to the restrictions contained herein. The provisions of this
Section 14 shall be binding upon all subsequent holders of certificates bearing
the above legend, and shall also be applicable to all subsequent holders of any
Warrants.
15. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION RIGHTS. The Company covenants and agrees
with the Lenders and any subsequent holders of the Warrants and/or
Warrant Shares that:
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<PAGE> 22
(i) Within sixty (60) days after receipt of a written
request from Warrant Holders, the Company shall file a
registration statement (and use its best efforts to cause such
registration statement to become effective under the Securities
Act) with respect to the offering and sale or other disposition of
such of the Warrants and/or Warrant Shares (including any
securities received by the Holders pursuant to Section 11 hereof)
(all such securities, the "Registrable Securities") as the Holders
of such Registrable Securities shall elect provided that such
amount shall constitute (at the date of such request) at least 50%
of the Registrable Securities and, provided further, that, with
respect to any particular securities which are issued and
outstanding, such securities shall cease to be Registrable
Securities upon the earliest to occur of (A) the expiration of the
Registration Period (as defined below), (B) the time at which a
registration statement with respect to the sale of such securities
shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with the plan
of distribution set forth in such registration statement, (C) the
time at which such securities shall have been disposed of by the
holder thereof in accordance with Rule 144, (D) the time at which
the Company has caused to be delivered to the holder of and each
transfer agent for such holder's Registrable Securities an opinion
of counsel from a law firm reasonably acceptable to such holder to
the effect that such holder may dispose of such securities without
registration in reliance on Rule 144(k), or (E) the time at which
such securities shall have been otherwise transferred, and the
transferee has received certificates evidencing such securities
not bearing a legend restricting further transfer. The Company
shall use its best efforts to continuously maintain the
effectiveness of such registration statement for a period (the
"Registration Period") ending on the earlier of (x) 90 days after
the effective date of the registration statement or (y) the
consummation of the distribution by the holders of the Registrable
Securities covered by such registration statement (the
"Termination Date"); provided, however, that if at the Termination
Date, the securities are covered by a registration statement which
also covers other securities and which is required to remain in
effect beyond the Termination Date, the Company shall maintain in
effect such registration statement as it relates to the
Registrable Securities for so long as such registration statement
(or any subsequent registration statement) remains or is required
to remain in effect for any of such other securities.
Notwithstanding anything to the contrary contained in this
Agreement, (i) with respect to requests for registration on Form
S-3 (or any successor or similar short form registration statement
("Short-Form Registration")), the Company shall not be required to
comply with more than one request for a Short-Form Registration in
any 90-day period, and shall not be required to comply with any
such request if the Company is not then entitled to use Short-Form
Registration, (ii) except with respect to requests for
registration using Short-Form Registration, the Company shall not
be required to comply with more than two requests for registration
pursuant to this Section 15(a) and (iii) the Company shall not be
required to comply with any request for registration pursuant to
this Section 15(a) unless such request relates to Registrable
Securities with an anticipated aggregate price to the public of at
least $1,000,000. All expenses of such registration shall be borne
by the Company, except that brokers' commissions and underwriting
discounts, commissions, fees and expenses attributable to the
Registrable Securities and fees and distributions of counsel (if
any) to the holders of such Registrable Securities will be borne
by such holders requesting that such securities be registered.
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<PAGE> 23
(ii) The Company may postpone the filing of any registration
statement otherwise required to be prepared and filed by it
pursuant to this Section 15(a) or suspend the effectiveness of any
such registration statement for a reasonable period of time (not
to exceed 90 days) if, at the time:
(x) the Board of Directors of the Company shall
determine in good faith that such offering will interfere
materially with, or would require the disclosure of (which
disclosure the Board of Directors has determined to not be
in the best interests of the Company), a pending or
contemplated financing, merger, sale of assets,
recapitalization, acquisition or other similar corporate
action of the Company and the Company shall have furnished
to the holders seeking such registration a certificate
signed by the President of the Company to that effect,
accompanied by a certified copy of the relevant board
resolutions; or
(y) the Board of Directors of the Company shall
determine in good faith that the disclosures required in
connection with such registration could reasonably be
expected to have a Materially Adverse Effect and the Company
shall have furnished to the holders seeking such
registration a certificate signed by the President of the
Company to that effect, accompanied by a certified copy of
the relevant board resolutions.
In addition, the Company may postpone the filing of, or suspend
the use of, any such registration statement during the period
starting with the date 30 days prior to the Company's good faith
estimate of the date of filing of, and ending on a date 90 days
after the effective date of, a piggyback registration under
Section 15(b), provided that the Company is actively employing in
good faith its best efforts to cause such piggyback registration
to become effective. Any postponement or suspension described in
this Section 15(a)(ii) being referred to herein as a "Permitted
Postponement or Suspension".
(iii) If a registration requested pursuant to this Section
15(a) is to involve an underwritten public offering in which the
obligation of the underwriters is to take all of the securities to
be sold if any are to be taken, the Company and any other holders
of securities of the Company may include securities in such
registration only if the managing underwriter of such public
offering concludes that such inclusion will not adversely affect
the successful marketing or the price of the Registrable
Securities to be included in such public offering.
(iv) No holder of Registrable Securities may demand
registration of any Registrable Securities at any time within six
(6) months of the effective date of a registration for sale of
Common Stock in which such holder was entitled to join and sell
any of its Registrable Securities pursuant to Section 15(b).
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<PAGE> 24
(v) If the holders of Registrable Securities intend to
distribute the Registrable Securities covered by their request by
means of an underwriting, they shall so advise the Company as a
part of their request made pursuant to this Section 15(a). A
holder may elect to include in such underwriting all or a part of
the Registrable Securities it holds. The Company shall (together
with holders proposing to distribute their Registrable Securities
through such underwriting) enter into an underwriting agreement in
customary form with a representative of the underwriter or
underwriters selected for such underwriting by a majority in
interest of the holders of Registrable Securities participating in
such underwriting.
(b) PIGGY-BACK REGISTRATION RIGHTS. (i) The Company covenants and
agrees with the Lenders and any subsequent holders of Registrable
Securities that, in the event the Company proposes to file a registration
statement under the Securities Act with respect to the offering of Common
Stock in an underwritten offering (other than in connection with an
exchange offer or a registration statement on Form S-4 or S-8 or other
similar registration statements not available to register securities so
requested to be included), the Company shall in each case give written
notice of such proposed filing to the holders of Registrable Securities
in each case at least 30 days before the initial filing of such
registration statement, and such notice shall offer to such holders the
opportunity (subject to Section 15(b)(ii)) to include in such
registration statement such number of Registrable Securities as they may
request. Holders desiring inclusion of Registrable Securities in such
registration statement shall so inform the Company by written notice,
given within 20 days of the giving of such notice by the Company in
accordance with the provisions of Section 20 hereof. The Company shall
use commercially reasonable efforts to include, or cause the managing
underwriter of a proposed offering to include, the Registrable Securities
requested to be included in the proposed offering on the same terms and
conditions as applicable to any similar securities of the Company, if
any, included therein; provided, however, that the Company may, in its
sole discretion, determine not to file such registration statement or
withdraw such registration statement (if filed) and abandon any proposed
offering by giving notice of such intention to each participating holder
of Registrable Securities, in which event the Company shall be relieved
of its obligation to register any Registrable Securities pursuant to such
registration. The right of any holder of Registrable Securities to
participate in any piggyback registration shall be conditioned on the
inclusion in the underwriting of those of such holder's Registrable
Securities to be included in the underwriting. The Company shall
(together with all participating holders of Registrable Securities) enter
into an underwriting agreement in customary form with the representative
of the underwriters. The Company shall continuously maintain in effect
any registration statement with respect to which the Registrable
Securities have been requested to be included (and so included) for a
period ending on the earlier of (x) 90 days after the effectiveness of
such registration statement or (y) the consummation of the distribution
by the holders of the Registrable Securities ("Piggy-back Termination
Date"); provided, however, that if at the Piggy-back Termination Date the
Registrable Securities are covered by a registration statement which is,
or is required to remain, in effect beyond the Piggy-back Termination
Date, the Company shall maintain in effect the registration statement as
it relates to the Registrable Securities for so long as such registration
statement remains or is required to remain in effect for any of such
other securities. All expenses of such registration shall be borne by the
Company, except that brokers' commissions and underwriting discounts,
commissions, fees and expenses attributable to the Registrable Securities
and fees and distributions of counsel (if any) to the holders requesting
that the Registrable Securities be offered will be borne by such holders
requesting that such securities be offered.
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<PAGE> 25
(ii) Notwithstanding any other provision of this Section
15(b) to the contrary, if the managing underwriters in such piggyback
registration advises the Company in writing that marketing factors
require a limitation on the number of shares to be underwritten, the
underwriters may (subject to the limitations set forth below) limit the
number of Registrable Securities to be included in the registration and
underwriting. The Company shall so advise the holders of all securities
requesting registration and the Company will include in such registration
such amount of securities which the Company is so advised can be sold in
(or during the time of) such offering as follows: first, all securities
proposed by the Company to be sold for its own account; second, such
securities requested to be included in such registration by the persons
or entities on whose behalf such registration was originally proposed pro
rata on the basis of the amount of such securities so proposed to be sold
and so requested to be included by such parties; third, such Registrable
Securities requested to be included in such registration by all holders
of Registrable Securities pro rata on the basis of the amount of such
securities so proposed to be sold and so requested to be included by such
holders; and fourth, all other securities of the Company requested to be
included in such registration pro rata on the basis of the amount of such
securities so proposed to be sold and so requested to be included.
(c) OTHER MATTERS. In connection with the registration of
Registrable Securities in accordance with paragraph (a) or (b) above, the
Company agrees to:
(i) use its best efforts to register or qualify the
Registrable Securities for offer or sale under State securities or
Blue Sky laws of such jurisdictions in which the holders of such
Registrable Securities shall reasonably designate; provided, that
in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not now so qualified or
to take any action which would subject it to general service of
process or taxation in any jurisdiction where it is not now so
subject, and use its best efforts to do any and all other acts and
things which may be necessary or advisable to enable the holders
of Registrable Securities to consummate the sale, transfer or
other disposition of such securities in any jurisdiction;
(ii) enter into indemnity and contribution agreements, each
in customary form, with each underwriter, if any, and each holder
of Registrable Securities included in such registration statement;
and, if requested, enter into an underwriting agreement containing
customary representations, warranties, covenants,
indemnifications, allocation of expenses, and customary closing
conditions including, but not limited to, opinions of counsel and
accountants' comfort letters with any underwriter who participates
in the offering of Registrable Securities;
(iii) pay all reasonable expenses in connection with the
registration of the Registrable Securities under the Securities
Act and compliance with the provisions of clause (i) above, except
to the extent otherwise provided in Sections 15(a) and 15(b); and
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<PAGE> 26
(iv) list the Registrable Securities on each national
securities exchange on which the Common Stock is then listed.
In connection with the registration of Registrable Securities in
accordance with paragraph (b) above, the holders of Registrable
Securities agree to enter into an underwriting agreement containing
customary representations, warranties, covenants, indemnifications,
allocation of expenses (not otherwise inconsistent with this Warrant
Agreement), and customary closing conditions, with any underwriter who
participates in the offering of Registrable Securities.
(d) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. To the extent not
inconsistent with applicable law, the Company agrees not to effect any
public sale or distribution of any securities similar to the Registrable
Securities or any securities convertible into or exchangeable or
exercisable for such securities (or any option or other right for such
securities) during the 7-day period prior to, and during the 60-day
period beginning on the effective date of any registration statement
under which the Registrable Securities are registered in accordance with
Section 15(a) (other than as part of such registration), except (i) sales
or distributions exempt from the registration requirements of the
Securities Act, (ii) a continuous offering pursuant to a shelf
registration statement that becomes effective prior to the aforementioned
period or (iii) in connection with an exchange offer or a registration
statement on Form S-4 or S-8 and for any securities that may be issued to
the Holders pursuant Section 11 hereof.
(e) RULE 144. With a view to making available to Holders the
benefits of certain rules of the Securities and Exchange Commission that
may permit the sale of Registrable Securities to the public without
registration, the Company hereby covenants and agrees to use its best
efforts to: (i) file in a timely manner all reports and other documents
required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the Commission thereunder,
necessary to satisfy the current public information requirement of Rule
144(c) under the Securities Act, and the Company will take such further
action to the extent required from time to time to enable holders to sell
Registrable Securities without registration under the Securities Act
pursuant to (a) Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or (b) any successor rule or regulation
hereafter adopted by the Securities and Exchange Commission and (ii)
promptly furnish each holder of Registrable Securities a copy of all such
reports and documents. Upon the request of a holder of Registrable
Securities, the Company will deliver to such holder of Registrable
Securities a written statement as to whether it has complied with such
requirements.
(f) OTHER REGISTRATION RIGHTS. The Company hereby agrees that it
shall not after the date hereof, prior to termination of this Agreement,
issue any additional registration rights with respect to shares of its
Common Stock, warrants to purchase its Common Stock or securities
convertible into its Common Stock, which limits or restricts in any
manner the performance of the Company's obligations under this Agreement.
(g) Each holder of Registrable Securities shall promptly furnish
to the Company such information regarding such holder, the Registrable
Securities held by such holder and the intended plan of distribution of
such Registrable Securities as the Company may from time to time
-23-
<PAGE> 27
reasonably request in writing in connection with any registration, and
the provision of such information shall be a condition precedent to the
Company's obligations to include such holder's Registrable Securities in
such registration. Each holder of Registrable Securities agrees that,
upon receipt of a notice (a "Suspension Notice") from the Company of the
happening of any Suspension Event (as defined below) or any Permitted
Postponement or Suspension, such Holder will not dispose of any
Registrable Securities pursuant to such registration statement during the
period (the "Suspension Period") commencing on receipt by such holder of
such Suspension Notice from the Company and continuing thereafter until
(i) in the case of a Suspension Event, receipt by such holder of a
Curative Prospectus (as defined below), or (ii) in the case of a
Permitted Postponement or Suspension, until the earlier to occur of (A)
the receipt of written notice from the Company that such Permitted
Postponement or Suspension has terminated or (B) the expiration of 90
days from the receipt of such Suspension Notice from the Company;
provided, however, that the Registration Period applicable to the
registration statement covering any such Registrable Securities shall
automatically be extended for a period equal to the Suspension Period.
The Company shall take such actions as are necessary to end any
Suspension Period as promptly as practicable.
(h) For purposes of this Warrant Agreement, the term "Suspension
Event" shall mean, with respect to any registration, at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, the discovery by the Company that, or the happening of
any event known to the Company as a result of which, the prospectus
included in the registration statement pertaining to such registration,
as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances under which they were made, and (ii) the term "Curative
Prospectus" shall mean a supplement to or an amendment of such prospectus
as may be necessary so that, as thereafter delivered to the purchasers of
such securities, such prospectus shall not include an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made.
16. NO RIGHTS AS STOCKHOLDERS; NOTICE TO WARRANT HOLDERS. Nothing
contained in this Warrant Agreement or in any of the Warrants shall be construed
as conferring upon the Holders or their transferees the right to vote or to
receive dividends or to consent or to receive notice as stockholders in respect
of any meeting of stockholders for the election of directors of the Company or
any other matter, or any other rights whatsoever as stockholders of the Company
or, except as otherwise provided in this Warrant Agreement, to receive any
notice of any proceedings of the Company. If, however, at any time prior to the
expiration of the Warrants and prior to their exercise, any of the following
events shall occur or be proposed:
(a) the Company shall make any declaration of a dividend upon the
shares of Common Stock which is payable in any securities or make any
distribution (other than a cash dividend) to the holders of the shares of
Common Stock;
(b) the Company shall make any offer to the holders of the shares
of Common Stock to purchase or acquire any additional shares of Common
Stock or securities convertible into or exchangeable for shares of Common
Stock or any right to subscribe to or purchase any thereof; or
-24-
<PAGE> 28
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger, sale, transfer or lease
of all or substantially all of its property, assets, and business as an
entirety),
then, in any one or more of said events, the Company shall give notice in
writing of such event to the Holders as provided in Section 20 hereof, such
giving of notice to be completed at least 30 days prior to the date fixed as a
record date or the date of closing the transfer books for the determination of
the stockholders entitled to such dividend, distribution, or subscription
rights, or for the determination of stockholders entitled to vote on such
proposed dissolution, liquidation or winding up. Such notice shall specify such
record date or the date of closing the transfer books, as the case may be.
17. EXPENSES. The Company agrees to reimburse Chase upon demand for its
reasonable out-of-pocket costs and expenses incurred in connection with the
preparation, review, negotiation, execution and delivery of this Warrant
Agreement and all other related documents.
18. RIGHT TO INSPECTION. The Company will permit the Holders upon prior
notice to the Company, during normal business hours, to inspect those
properties, books and records reasonably related to their interests as Holders,
and will promptly respond to and discuss with such Holders inquiries regarding
the management, business and affairs of the Company; provided, however, that
these inspection rights exist only for Holders of (singularly or collectively)
at least 33% of the then outstanding Warrants and, provided further, that such
inspection rights shall be (a) subject to adherence by the Holders and their
representatives to such restrictions, requirements and conditions that are
imposed by the Company on visitors to its premises generally and (b) conducted
in such a manner so as to not cause any unreasonable disruption of or to the
personnel and operations of the Company.
19. RIGHT TO INFORMATION. The Company will provide to all Holders, on a
timely basis, copies of all documents and reports, filed with the Securities and
Exchange Commission.
20. NOTICES. Any notice, request, demand or report (each, a
"Communication") required or permitted to be given or made by this Warrant
Agreement shall be in writing. Any Communication authorized pursuant to this
Warrant Agreement to be given or made by the holder of any Warrant or Warrant
Shares to or on the Company shall be sufficiently given or made if sent by
registered mail, return receipt requested, postage prepaid, or by facsimile or
electronic mail, addressed or sent as follows:
Sterling Chemicals, Inc.
1200 Smith Street
Suite 1900
Houston, Texas 77002
Attn: General Counsel
Fax: (713) 654-9577
E-Mail: [email protected]
-25-
<PAGE> 29
Any Communication authorized by this Warrant Agreement to be given or made to or
on the Holder of any Warrant shall be sufficiently given or made (except as
otherwise provided in this Warrant Agreement) if sent by registered mail, return
receipt requested, postage prepaid, or by facsimile or electronic mail, to such
Holder at the address or number of such Holder as shown on the Warrant Register.
21. GOVERNING LAW. THIS WARRANT AGREEMENT, THE WARRANTS AND ALL RELATED
DOCUMENTS SHALL BE DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW, AND, WITH RESPECT TO USURY, THE LAWS
OF ANY OTHER JURISDICTION WHOSE LAWS MAY BE APPLICABLE PURSUANT TO THE
PROVISIONS OF TITLE 12, SECTION 85 OF THE UNITED STATES CODE.
22. SUPPLEMENTS AND AMENDMENTS. (a) The Company and the Holders of at
least a majority of the outstanding Warrants may, without the consent or
concurrence of the other Holders, enter into one or more supplemental agreements
or amendments for the purpose of (i) evidencing the rights of the Holders upon
consolidation, merger, or sale pursuant to Section 25, (ii) making any changes
or corrections in this Warrant Agreement that are required to cure any
ambiguity, to correct or supplement any provision contained herein that may be
defective or inconsistent with any other provision herein or any clerical
omission or mistake or manifest error herein contained, (iii) making such other
provisions in regard to matters or questions arising under this Warrant
Agreement as shall not adversely affect the interest of the Holders in any
material respect or be inconsistent with this Warrant Agreement or any
supplemental agreement or amendment or (iv) adding further covenants and
agreements of the Company in this Warrant Agreement or surrendering any rights
or power reserved to or conferred upon the Company in this Agreement.
(b) The Company and the Holders of at least a majority in number of the
Warrants at the time outstanding may at any time and from time to time by
supplemental agreement or amendment add any provisions to or change in any
manner or eliminate any of the provisions of this Warrant Agreement or of any
supplemental agreement or modify in any manner the rights and obligations of the
Holders and the Company; provided, however, that no such supplemental agreement
or amendment shall, without the consent of the Holder of each outstanding
Warrant affected thereby, (i) alter the provisions of this Warrant Agreement so
as to adversely affect in any material respect the terms upon which Warrants are
exercisable, (ii) decrease the number of Warrant Shares (other than pursuant to
adjustments made in accordance with Section 11 hereof) or (iii) reduce the
number of Warrants outstanding the consent of whose holders is required for any
such supplemental agreement or amendment.
23. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties of the Company and the Lenders and all covenants
and agreements made herein shall survive the execution and delivery of this
Warrant Agreement and the Warrants and shall remain in force and effect.
24. SUCCESSORS. This Warrant Agreement shall be binding upon and inure to
the benefit of (i) the Company and its successors and assigns, (ii) the Holders
from time to time of the Warrants (including their successors and assigns) and
(iii) the holders from time to time of the Registrable Securities.
-26-
<PAGE> 30
25. MERGER OR CONSOLIDATION OF THE COMPANY. So long as this Warrant
Agreement remains in effect, the Company will not merge or consolidate with or
into, or sell, transfer or lease all or substantially all of its property to,
any other corporation unless the successor or purchasing corporation, as the
case may be (if not the Company), shall expressly assume, by supplemental
agreement executed and delivered to the Warrant Holders, the due and punctual
performance and observance of each and every covenant and condition of this
Warrant Agreement to be performed and observed by the Company.
26. BENEFITS OF THIS WARRANT AGREEMENT. Nothing in this Warrant Agreement
shall be construed to give to any person or entity other than the Company and
the Holders, any legal or equitable right, remedy or claim under this Warrant
Agreement, but this Warrant Agreement shall be for the sole and exclusive
benefit of the Company and the Holders and the holders of Registrable
Securities.
27. CAPTIONS. The captions of the sections and subsections of this
Warrant Agreement have been inserted for convenience and shall have no
substantive effect.
28. COUNTERPARTS. This Warrant Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts together shall constitute but one and the same instrument.
29. TERMINATION. The rights and obligations under this Warrant Agreement
of each Holder shall terminate with respect to such Holder at such time as such
Holder ceases to hold any Registrable Securities. The rights and obligations of
the Company under this Warrant Agreement shall terminate at such time as the
rights of all Holders have terminated. Upon the termination of a party's rights
and obligations under this Warrant Agreement, this Warrant Agreement shall
terminate and have no further effect with respect to such party; provided,
however, that the rights and obligations of the parties with respect to the
breach of any provision hereof prior to such termination and any and all accrued
rights and obligations as of the date of such termination shall survive the
termination of this Warrant Agreement with respect to any party. Notwithstanding
anything to the contrary contained in this Warrant Agreement, this Warrant
Agreement shall terminate on such date as SCI no longer is or could at any time
thereafter be required to request or otherwise cause the Company to issue any
Warrants pursuant to Section 5.01(k) of the Facility if, on such date, no
Warrants have theretofore been issued, or are required to be issued, pursuant to
this Warrant Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be duly executed on the day, month and year first above written.
STERLING CHEMICALS HOLDINGS, INC.
By:______________________________
Name:
Title:
(CORPORATE SEAL)
ATTEST:
________________________________
Name:
Title:
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<PAGE> 31
EXHIBIT "A"
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1993, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT, OR
(ii) AN APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. ANY SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE MUST BE
ACCOMPANIED BY AN UNQUALIFIED WRITTEN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE COMPANY TO THE EFFECT THAT SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE
IN CONNECTION WITH SUCH SALE.
THE COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF STERLING CHEMICALS HOLDINGS,
INC. (THE "COMMON STOCK") FOR WHICH THIS WARRANT IS EXERCISABLE MAY NOT BE
OFFERED OR SOLD IN THE UNITED STATES ABSENT REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE, "SECURITIES ACT"), AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
ACCORDINGLY, NO HOLDER SHALL BE ENTITLED TO EXERCISE SUCH HOLDER'S WARRANTS AT
ANY TIME UNLESS, AT THE TIME OF EXERCISE, (i) A REGISTRATION STATEMENT UNDER THE
SECURITIES ACT RELATING TO THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
OF THIS WARRANT HAS BEEN FILED WITH, AND DECLARED EFFECTIVE BY, THE SECURITIES
AND EXCHANGE COMMISSION (THE "COMMISSION"), AND NO STOP ORDER SUSPENDING THE
EFFECTIVENESS OF SUCH REGISTRATION STATEMENT HAS BEEN ISSUED BY THE COMMISSION,
OR (ii) THE ISSUANCE OF SUCH SHARES IS PERMITTED PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. ANY OFFER OR SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING
SENTENCE MUST BE ACCOMPANIED BY AN UNQUALIFIED WRITTEN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH EXEMPTION FROM
REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS AND COMMON STOCK UNDERLYING SUCH
WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE
WARRANT AGREEMENT REFERRED TO HEREIN.
<PAGE> 32
No. ____ Warrants _______ Warrants
VOID AFTER 5:00 P.M. HOUSTON TIME
ON JANUARY 1, 2007
STERLING CHEMICALS HOLDINGS, INC.
WARRANT CERTIFICATE
THIS CERTIFIES THAT for value received ___________________________, the
registered holder hereof or registered assigns (the "Warrant Holder"), is the
owner of the number of Warrants set forth above, each of which entitles the
owner thereof to purchase at any time until 5:00 P.M., Houston time, on January
1, 2007, one fully paid and nonassessable share of the common stock, par value
$0.01 per share (the "Common Stock"), of Sterling Chemicals Holdings, Inc., a
Delaware corporation (the "Company"), (subject to adjustment as described in the
Warrant Agreement referred to below) at the purchase price of $0.01 per share,
(the "Exercise Price"). The Warrant Holder may pay the Exercise Price in cash,
or by certified or official bank check, or make a net exercise for Net Warrant
Shares as described in the Warrant Agreement.
This Warrant Certificate is subject to, and entitled to the benefits of,
all of the terms, provisions and conditions of an agreement dated December 15,
1998 (the "Warrant Agreement") among the Company and Chase Bank of Texas,
National Association, Credit Suisse First Boston and certain other financial
institutions, which Warrant Agreement is hereby incorporated herein by reference
and made a part hereof and to which Warrant Agreement reference is hereby made
for a full description of the rights, limitations of rights, obligations, duties
and immunities hereunder of the Company and the Warrant Holders. Copies of the
Warrant Agreement are on file at the principal office of the Company.
The registered holder hereof may be treated by the Company and all other
persons dealing with this Warrant Certificate as the absolute owner hereof for
any purpose and as the person entitled to exercise the rights represented
hereby, or to the transfer hereof on the books of the Company, any notice to the
contrary notwithstanding, and until such transfer on such books, the Company may
treat the registered holder hereof as the owner for all purposes.
This Warrant Certificate, with or without other Warrant Certificates,
upon surrender at the principal office of the Company prior to exercise, may be
exchanged for another Warrant Certificate or Warrant Certificates of like tenor
evidencing Warrants entitling the Warrant Holder to purchase a like aggregate
number of shares of Common Stock as the Warrants evidenced by the Warrant
Certificate or Warrant Certificates surrendered entitled to such Warrant Holder
to purchase. If this Warrant Certificate shall be exercised in part, the Warrant
Holder shall be entitled to receive upon surrender hereof, another Warrant
Certificate or Warrant Certificates for the number of whole Warrants not
exercised.
No fractional shares of Common Stock will be issued upon the exercise of
any Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment
will be made, as provided in the Warrant Agreement.
<PAGE> 33
Neither the Warrants nor this Warrant Certificate entitles any Warrant
Holder hereof to any of the rights of a stockholder of the Company.
THIS WARRANT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW, AND, WITH RESPECT TO
USURY, THE LAWS OF ANY OTHER JURISDICTION WHOSE LAWS MAY BE APPLICABLE PURSUANT
TO THE PROVISIONS OF TITLE 12, SECTION 85 OF THE UNITED STATES CODE.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
executed by its duly authorized officers and its corporate seal to be printed
hereon.
STERLING CHEMICALS HOLDINGS, INC.
By:
Name:
Title:
ATTEST:
Name:__________________________________
Title:_________________________________
<PAGE> 34
FORM OF REVERSE OF WARRANT CERTIFICATE
PURCHASE FORM
(to be executed only upon exercise of Warrants)
To:_____________________
The undersigned hereby irrevocably exercises of the Warrants
represented by the within Warrant Certificate for the purchase of (subject to
adjustment) one share of Common Stock, par value $0.01 per share, of STERLING
CHEMICALS HOLDINGS, INC., a Delaware corporation, and herewith makes payment of
$______________ (such payment being by wire transfer or by certified or official
bank or bank cashier's check payable to the order or at the direction of
Sterling Chemicals Holdings, Inc.), all at the exercise price and on the terms
and conditions specified in the within Warrant Certificate and the Warrant
Agreement therein referred to, and hereby surrenders this Warrant Certificate
and all right, title and interest therein to and directs that the Common Stock
deliverable upon the exercise of such Warrants be registered or placed in the
name and at the address specified below and delivered thereto.
Dated:__________________ ____________________________________
(Signature of Owner)
____________________________________
(Street Address)
____________________________________
(City) (State) (Zip Code)
Signature Guaranteed By(1)
____________________________________
________________________
(1) The Holder's signature must be guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" as
defined by Rule 17Ad-15 under the Exchange Act.
<PAGE> 35
Securities and/or check to be issued to:_________________________________
Please insert social security or identifying number:_____________________
Name:_________________________________________________________
Street Address:_______________________________________________
City, State and Zip Code:_____________________________________
<PAGE> 36
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned registered holder of the
within Warrant Certificate hereby sells, assigns and transfers unto the
Assignee(s) named below (including the undersigned with respect to any Warrants
constituting a part of the Warrants evidenced by the within Warrant Certificate
not being assigned hereby) all of the right of the undersigned under the within
Warrant Certificate, with respect to the number of Warrants set forth below:
Name(s) of Assignee(s): __________________________
Address: _________________________________________
No. of Warrants: _________________________________
Please insert social security or other identifying number of assignee(s): ______
and does hereby irrevocably constitute and appoint _____________________________
the undersigned's attorney to make such transfer on the books of _______________
maintained for such purposes, with full power of substitution in the premises.
Dated:_______________________ ____________________________________
(Signature of Owner)
____________________________________
(Street Address)
____________________________________
(City) (State) (Zip Code)
Signature Guaranteed By(2)
____________________________________
________________________
(2) The Holder's signature must be guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" as
defined by Rule 17Ad-15 under the Exchange Act.
<PAGE> 1
EXHIBIT 4.8(b)
SECOND AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
(this "Second Amendment") dated as of the "Second Amendment Effective Date" (as
hereinafter defined in Section 18 of this Second Amendment) is by and among
STERLING CHEMICALS, INC., a Delaware corporation (the "Company"), CHASE BANK OF
TEXAS, NATIONAL ASSOCIATION, individually and as Administrative Agent, and
CREDIT SUISSE FIRST BOSTON, individually and as Documentation Agent, and the
other financial institutions signatories hereto.
PRELIMINARY STATEMENTS
1. The Company entered into an Amended and Restated Credit Agreement
dated as of July 10, 1997, among the Company, Texas Commerce Bank
National Association (now known as Chase Bank of Texas, National
Association), individually, as an Issuing Bank and as
Administrative Agent, Credit Suisse First Boston, individually, as
an Issuing Bank and as Documentation Agent, and the financial
institutions parties thereto (the "Original Agreement").
2. The Company entered into the First Amendment to Amended and
Restated Credit Agreement dated effective as of March 31, 1998,
among the Company, Chase Bank of Texas, National Association,
individually, as an Issuing Bank and as Administrative Agent,
Credit Suisse First Boston, individually, as an Issuing Bank and
as Documentation Agent, and the financial institutions parties
thereto (the "First Amendment"). The Original Agreement as amended
by the First Amendment is hereinafter called the "Credit
Agreement". Capitalized terms used but not otherwise defined
herein shall have the meanings assigned such terms in the Credit
Agreement.
2. The Company has requested that certain provisions of the Credit
Agreement be modified and amended.
3. The Company, the Administrative Agent, the Documentation Agent,
the Subsidiary Guarantors and the Lenders have agreed to amend the
Credit Agreement on the terms and conditions contained herein.
AGREEMENT
In consideration of the premises and the mutual covenants contained
herein and in the Credit Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
Section 1. Amendment of Section 1.01 of the Credit Agreement. Section
1.01 of the Credit Agreement is hereby amended by adding the following new
definition thereto immediately following the definition of "SCI Asset
Conveyance" contained therein:
<PAGE> 2
"Second Amendment" shall mean the Second Amendment to Amended and
Restated Credit Agreement dated as of the Second Amendment Effective Date
among the Company, the Administrative Agent, the Documentation Agent and
the Required Lenders.
"Second Amendment Effective Date" shall mean 5:00 p.m. on the date
on which the Second Amendment is signed by the Borrower and the Required
Lenders, which date is December __, 1998.
With respect to the definition of "Second Amendment Effective Date", the Company
hereby authorizes the Administrative Agent to complete the date for such defined
term on the date that the conditions of the Second Amendment Effective Date have
been satisfied.
Section 2. Amendment of Existing Terms in Section 1.01 of the Credit
Agreement.
(a) The definition of "Agreement" contained in Section 1.01 of the Credit
Agreement is hereby amended to read in its entirety as follows:
"Agreement" shall mean this Amended and Restated Credit Agreement,
as amended by the First Amendment, the Second Amendment and as further
amended, modified or supplemented from time to time.
(b) The definition of "Applicable Margin" contained in Section 1.01 of
the Credit Agreement is hereby amended to read in its entirety as follows:
"Applicable Margin" shall mean, on any day on or after January 1,
1999 and with respect to any (a) Tranche B Term Loan, for Base Rate
Loans, 2.50% per annum and for Eurodollar Loans, 3.50% 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):
<TABLE>
<CAPTION>
=========================================================================================================
LEVERAGE RATIO EURODOLLAR LOAN APPLICABLE BASE RATE LOAN APPLICABLE
MARGIN PERCENTAGE MARGIN PERCENTAGE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Greater than or equal to 3.00% 2.00%
4.00
- ---------------------------------------------------------------------------------------------------------
Greater than or equal to 2.75% 1.75%
3.75 but less than 4.00
- ---------------------------------------------------------------------------------------------------------
Greater than or equal to 2.50% 1.50%
3.50 but less than 3.75
- ---------------------------------------------------------------------------------------------------------
Greater than or equal to 2.25% 1.25%
3.25 but less than 3.50
- ---------------------------------------------------------------------------------------------------------
Greater than or equal to 2.00% 1.00%
3.00 but less than 3.25
- ---------------------------------------------------------------------------------------------------------
Greater than or equal to 1.75% .75%
2.75 but less than 3.00
- ---------------------------------------------------------------------------------------------------------
Less than 2.75 1.50% .50%
=========================================================================================================
</TABLE>
-2-
<PAGE> 3
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, 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 3.00% and the Base Rate Loan Applicable Margin for the
Revolving Credit Loans, the Tranche A Term Loans, and the ESOP Term Loans
will be 2.00% 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.
(c) The definition of "EBITDA" contained in Section 1.01 of the Credit
Agreement is hereby amended to read in its entirety as follows:
"EBITDA" shall mean, as to the Company and its Subsidiaries
(excluding Unrestricted Subsidiaries) on a consolidated basis and for any
period, without duplication, the amount equal to net income 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, (b) prepaid royalty income (including
the BP Facility Fee) 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, and (c) for the Rolling Periods ending on
December 31, 1998, March 31, 1999, June 30, 1999, September 30, 1999 and
December 31, 1999, the lesser of (i) $4,000,000 and (ii) the amount of
non-recurring cash charges relating to employee severance programs of the
Company actually booked during such Rolling Period.
-3-
<PAGE> 4
(d) The definition of "Funded Indebtedness" contained in Section 1.01 of
the Credit Agreement is hereby amended to read in its entirety as follows:
"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
obligations of such Person (whether contingent or otherwise) in respect
of letters of credit, all Capital Lease Obligations, and all guaranties
of Funded Indebtedness of other Persons.
Section 3. Amendment of Section 5.01 of the Credit Agreement. Section
5.01 of the Credit Agreement is hereby amended by adding a new Section 5.01(k)
to read in its entirety as follows:
(k) Equity Call and Lender Warrants. At any time during the period
commencing on the Second Amendment Effective Date through and ending on
December 31, 1999, if the average daily outstanding principal balance of
the Revolving Credit Exposure during the immediately preceding 60
calendar days exceeds $50,000,000, then, on or before the expiration of
90 days from such date, the Company will solicit and obtain a $15,000,000
equity capital infusion from Holdco (subject to reduction as provided
below); provided that if the Company shall fail to obtain such
$15,000,000 equity capital infusion on or before the last day of such
90-day period, then on the next immediately succeeding day following such
period (the "Warrant Date"), the Company shall request or otherwise cause
Holdco to issue to each Lender warrants pursuant to the terms of the
Warrant Agreement in the form attached as Exhibit M to this Agreement,
such warrants to provide for the purchase at the option of the holder
thereof of a number of shares of Holdco Common Stock equal to such
Lender's Total Credit Percentage times the number of shares of Holdco
Common Stock constituting 5% of all Holdco Common Stock on a fully
diluted basis outstanding immediately after such issuance (but treating
all of the share of Holdco Common Stock issuable upon exercise,
conversion or exchange of all options, warrants and other convertible and
exchangeable securities as being outstanding) at an exercise price equal
to $0.01 per share and shall continue, or cause to be continued, all
efforts to obtain such $15,000,000 equity capital infusion for an
additional period equal to 45 days from the Warrant Date. In the event
that the Company is unsuccessful in obtaining the $15,000,000 equity
contribution required above by the end of the additional 45-day period,
such failure shall constitute an Event of Default pursuant to Section
6.02. If the Company shall receive any equity capital infusion from
Holdco on or prior to February 28, 1999, then in such case, the required
$15,000,000 equity capital infusion described above shall be reduced, on
a dollar-for-dollar basis by the amount of the equity capital infusion
received by the Company on or prior to February 28, 1999.
Section 4. Amendment of Section 5.03(a) of the Credit Agreement. Section
5.03(a) of the Credit Agreement is hereby amended to read in its entirety as
follows:
-4-
<PAGE> 5
(a) Interest Coverage Ratio. Maintain an Interest Coverage Ratio
of not less than the ratio for each Rolling Period indicated below:
<TABLE>
<CAPTION>
Each Rolling Period ending Ratio
-------------------------- -----
<S> <C>
September 30, 1998 1.00
December 31, 1998 0.80
March 31, 1999 0.80
June 30, 1999 0.80
September 30, 1999 0.80
December 31, 1999 0.80
Each Rolling Period Ratio
------------------- -----
thereafter 2.50
</TABLE>
Section 5. Amendment of Section 5.03(c) of the Credit Agreement. Section
5.03(c) of the Credit Agreement is hereby amended to read in its entirety as
follows:
(c) Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage
Ratio of not less than the ratio for each Rolling Period indicated below:
<TABLE>
<CAPTION>
Each Rolling Period ending Ratio
-------------------------- -----
<S> <C>
September 30, 1998 0.75
December 31, 1998 0.55
March 31, 1999 0.55
June 30, 1999 0.55
September 30, 1999 0.55
December 31, 1999 0.55
March 31, 2000 1.15
June 30, 2000 1.15
September 30, 2000 1.15
Each Rolling Period Ratio
------------------- -----
thereafter 1.20
</TABLE>
Section 6. Amendment of Section 5.03(d) of the Credit Agreement. Section
5.03(d) of the Credit Agreement is hereby amended to read in its entirety as
follows:
(d) Leverage Ratio. Maintain a Leverage Ratio of not greater than
the ratio for each Rolling Period indicated below:
<TABLE>
<CAPTION>
Each Rolling Period ending Ratio
-------------------------- -----
<S> <C>
September 30, 1998 9.75
December 31, 1998 12.00
March 31, 1999 12.00
June 30, 1999 12.00
September 30, 1999 12.00
December 31, 1999 12.00
Each Rolling Period after
December 31, 1999 during
the Fiscal Years ending Ratio
September 30, 2000 4.00
September 30, 2001 3.50
Each Rolling Period Ratio
------------------- -----
thereafter 3.00
</TABLE>
-5-
<PAGE> 6
Section 7. Amendment of Section 5.03(e) of the Credit Agreement. Section
5.03(e) of the Credit Agreement is hereby amended to read in its entirety as
follows:
(e) Senior Debt Leverage Ratio. Maintain a Senior Debt Leverage
Ratio of not greater than the ratio for each Rolling Period indicated
below:
<TABLE>
<CAPTION>
Each Rolling Period ending Ratio
-------------------------- -----
<S> <C>
September 30, 1998 4.25
December 31, 1998 4.75
March 31, 1999 4.75
June 30, 1999 5.20
September 30, 1999 5.20
December 31, 1999 4.85
Each Rolling Period Ratio
thereafter 3.00
</TABLE>
Section 8. Amendment of Section 5.04(o) of the Credit Agreement. Section
5.04(o) of the Credit Agreement is hereby amended by adding a new clause (v)
after clause (iv) of such Section, such clause (v) to read in its entirety as
follows:
(v) Notwithstanding the Capital Expenditures permitted by
Sections 5.04(o)(i), (ii), (iii), and (iv) above, for the Fiscal
Year ending September 30, 1999, the Company and its Subsidiaries
(excluding Unrestricted Subsidiaries) shall not make Capital
Expenditures in excess of $35,000,000.
Section 9. Amendment to Section 6.02 of the Credit Agreement. Section
6.02 of the Credit Agreement is hereby amended to read in its entirety as
follows:
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), (i) or (k), Section 5.03 or Section 5.04 (other than
Subsections 5.04(b)(iii)-(v) hereof).
-6-
<PAGE> 7
Section 10. Addition of Exhibit M to the Credit Agreement. The form of
Warrant Agreement and attached exhibits thereto contained in Exhibit M attached
hereto is appended to the Credit Agreement as Exhibit M thereto.
Section 11. Limitations. The amendments set forth herein are limited
precisely as written and shall not (a) be deemed to be a consent to, or a waiver
or modification of, any other term or condition of any of the Financing
Documents or (b) except as expressly set forth herein, prejudice any right or
rights which the Lenders may now have or may have in the future under or in
connection with any of the Financing Documents or any of the other documents or
instruments referred to therein. Except as expressly modified hereby or by
express written amendments thereof, each of the Financing Documents and each of
the other documents and instruments executed in connection with any of the
foregoing are and shall remain in full force and effect. In the event of a
conflict between this Second Amendment and any of the foregoing documents, the
terms of this Second Amendment shall be controlling.
Section 12. Conditions Precedent and Effectiveness. This Second Amendment
shall not be effective unless (i) this Second Amendment has been executed and
delivered by the Required Lenders, (ii) the Warrant Agreement in the form of
Exhibit M attached hereto has been executed and delivered by Holdco to the
Administrative Agent and (iii) each Lender delivering its executed signature
pages to this Second Amendment shall have received from the Company its
amendment fee pursuant to the provisions of Section 17 hereof.
Section 13. Representations and Warranties. The Company hereby represents
and warrants to the Administrative Agent, the Documentation Agent and each of
the Lenders that (a) except as affected by the transactions contemplated in the
Credit Agreement and this Second Amendment, each of the representations and
warranties made by the Company and the Subsidiary Guarantors in or pursuant to
each of the Financing Documents is true and correct in all material respects as
of the Second Amendment Effective Date, as if made on and as of such date,
except for any representations and warranties made as of a specified date, which
are true and correct in all material respects as of such specified date and (b)
no Default or Event of Default has occurred and is continuing as of the Second
Amendment Effective Date.
Section 14. Adoption, Ratification and Confirmation of Credit Agreement.
Each of the Company, the Administrative Agent, the Documentation Agent and each
of the Lenders signatories hereto hereby adopts, ratifies and confirms the
Credit Agreement, as amended hereby, and acknowledges and agrees that the Credit
Agreement, as amended hereby, is and remains in full force and effect.
Section 15. Ratification and Affirmation of Subsidiary Guaranty. Each of
the Subsidiary Guarantors hereby expressly (a) acknowledges the terms of this
Second Amendment, (b) acknowledges, renews and extends its continued liability
under the Guaranty Agreement to which it is a party and agrees that such
Guaranty Agreement remains in full force and effect and (c) agrees with the
Administrative Agent, the Documentation Agent, each Lender and each Issuing Bank
to promptly pay when due all amounts owing or to be owing by it under such
Guaranty Agreement pursuant to the terms and conditions thereof.
-7-
<PAGE> 8
Section 16. Payment of Expenses. The Company agrees, whether or not the
transactions contemplated hereby shall be consummated, to reimburse and save and
hold the Administrative Agent and the Documentation Agent harmless from and
against liability for the payment of all reasonable out-of-pocket costs and
expenses arising in connection with the preparation, execution, delivery,
amendment, modification, waiver and enforcement of, or the preservation of any
rights under this Second Amendment, including, without limitation, the
reasonable fees and expenses of any local or other counsel for the
Administrative Agent, and all stamp taxes (including interest and penalties, if
any), recording taxes and fees, filing taxes and fees and other charges which
may be payable in respect of, or in respect of any modification of, any of the
Financing Documents. The provisions of this Section shall survive the
termination of the Credit Agreement and the repayment of the Loans.
Section 17. Amendment Fee. The Company agrees to pay to each Lender that
executes this Second Amendment and delivers such executed Second Amendment to
the Administrative Agent on or prior to the Second Amendment Effective Date an
amendment fee in an amount equal to 25 basis points times such Lender's
Revolving Credit Commitment and the aggregate outstanding principal amount of
such Lender's Tranche A Term Loans, Tranche B Term Loans and ESOP Loans.
Section 18. Second Amendment Effective Date. As used in this Second
Amendment, the term "Second Amendment Effective Date" shall mean 5:00 p.m. on
the date on which this Second Amendment is signed by the Company and the
Required Lenders.
Section 19. Governing Law. THIS SECOND AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER 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 OBLIGATION LAW, OR ANY SIMILAR SUCCESSOR PROVISIONS
THERETO, BUT EXCLUDING ALL OTHER CONFLICT-OF-LAWS RULES) AND TO THE EXTENT
CONTROLLING, LAWS OF THE UNITED STATES OF AMERICA.
Section 20. Descriptive Headings, Etc. The descriptive headings of the
several sections of this Second Amendment are inserted for convenience only and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
Section 21. Entire Agreement. This Second Amendment and the documents
referred to herein represent the entire understanding of the parties hereto
regarding the subject matter hereof and supersede all prior and contemporaneous
oral and written agreements of the parties hereto with respect to the subject
matter hereof.
Section 22. Counterparts. This Second Amendment may be executed in any
number of counterparts (including by telecopy) and by different parties on
separate counterparts and all of such counterparts shall together constitute one
and the same instrument.
[Signature Pages to this Second Amendment begin on the next page]
-8-
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to be duly executed and delivered by their respective duly authorized officers
as of the Second Amendment Effective Date.
COMPANY: STERLING CHEMICALS, INC.
By:
----------------------------------------
Gary M. Spitz, Vice President - Finance
and Chief Financial Officer
ADMINISTRATIVE AGENT CHASE BANK OF TEXAS,
DOCUMENTATION AGENT NATIONAL ASSOCIATION,
AND THE LENDERS: Individually and as Administrative Agent
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 1]
<PAGE> 10
CREDIT SUISSE FIRST BOSTON,
Individually and as Documentation Agent
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 2]
<PAGE> 11
ABN AMRO BANK N.V.
Houston Agency
By: ABN AMRO North America, Inc.,
as Agent
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 3]
<PAGE> 12
AERIES FINANCE LTD.
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 4]
<PAGE> 13
THE BANK OF NOVA SCOTIA
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 5]
<PAGE> 14
BANK OF SCOTLAND
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 6]
<PAGE> 15
BANKERS TRUST COMPANY
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 7]
<PAGE> 16
PARIBAS
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 8]
<PAGE> 17
BHF-BANK AKTIENGESELLSCHAFT
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 9]
<PAGE> 18
CAPTIVA FINANCE LTD.
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 10]
<PAGE> 19
CAPTIVA II FINANCE LTD.
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 11]
<PAGE> 20
CERES FINANCE LTD.
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 12]
<PAGE> 21
CIBC INC.
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 13]
<PAGE> 22
THE CIT GROUP/BUSINESS CREDIT, INC.
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 14]
<PAGE> 23
COMERICA BANK
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 15]
<PAGE> 24
CREDIT LYONNAIS NEW YORK BRANCH
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 16]
<PAGE> 25
CREDITANSTALT CORPORATE FINANCE, INC.
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 17]
<PAGE> 26
THE FIRST NATIONAL BANK OF CHICAGO
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 18]
<PAGE> 27
FIRST SOURCE FINANCIAL LLP
By: First Source Financial, Inc.,
as its Agent/Manager
By:
-----------------------------------
Printed Name:
-------------------------
Title:
--------------------------------
[Signature Page to Second Amendment -- Page 19]
<PAGE> 28
HIBERNIA NATIONAL BANK
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 20]
<PAGE> 29
KZH III LLC
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 21]
<PAGE> 30
KZH STERLING LLC
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 22]
<PAGE> 31
THE LONG-TERM CREDIT BANK OF JAPAN
LIMITED NEW YORK BRANCH
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 23]
<PAGE> 32
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 24]
<PAGE> 33
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, L.P.,
as Investment Advisor
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 25]
<PAGE> 34
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 26]
<PAGE> 35
NATIONAL BANK OF CANADA
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 27]
<PAGE> 36
PARIBAS CAPITAL FUNDING LLC
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 28]
<PAGE> 37
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as Investment Advisor
By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------
[Signature Page to Second Amendment -- Page 29]
<PAGE> 38
VAN KAMPEN AMERICAN CAPITAL PRIME RATE
INCOME TRUST
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 30]
<PAGE> 39
VAN KAMPEN AMERICAN CAPITAL
SENIOR INCOME TRUST
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 31]
<PAGE> 40
VAN KAMPEN CLO II, LTD.
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 32]
<PAGE> 41
CAPTIVA III FINANCE, LTD.
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 33]
<PAGE> 42
ROYALTON COMPANY
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 34]
<PAGE> 43
DELANO COMPANY
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 35]
<PAGE> 44
KEYPORT LIFE INSURANCE COMPANY
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
[Signature Page to Second Amendment -- Page 36]
<PAGE> 45
SUBSIDIARY GUARANTORS: STERLING CHEMICALS INTERNATIONAL, INC.
STERLING CHEMICALS ENERGY, INC.
STERLING FIBERS, INC.
By:
----------------------------------------
Gary M. Spitz, Vice President
STERLING CANADA, INC.
STERLING PULP CHEMICALS US, INC.
STERLING PULP CHEMICALS, INC.
By:
----------------------------------------
Gary M. Spitz, Vice President - Finance
[Signature Page to Second Amendment -- Page 37]
<PAGE> 1
EXHIBIT 4.9(b)
SECOND AMENDMENT TO
STERLING CHEMICALS HOLDINGS, INC.
STOCKHOLDERS AGREEMENT
THIS SECOND AMENDMENT TO STERLING CHEMICALS HOLDINGS, INC.
STOCKHOLDERS AGREEMENT (this "Amendment") dated effective as of May 1, 1998 is
by and among STERLING CHEMICALS HOLDINGS, INC., a Delaware corporation (the
"Corporation"), STERLING CHEMICALS, INC. EMPLOYEE STOCK OWNERSHIP TRUST, an
employee stock ownership trust created pursuant to the Sterling Chemicals, Inc.,
Employee Stock Ownership Plan (the "ESOT"), and the other persons and entities
whose signatures appear on the signature pages hereof (the "Other Parties" and,
together with the Corporation and the ESOT, the "Parties"). Capitalized terms
used but not defined herein shall have the respective meanings ascribed to such
terms in the Existing Agreement referred to below.
PRELIMINARY STATEMENTS
A. The Parties, together with certain other Holders, are parties to
that certain Sterling Chemicals Holdings, Inc. Stockholders
Agreement dated effective as of August 21, 1996 (the "Original
Agreement").
B. The Original Agreement was amended by that certain First Amendment
to Sterling Chemicals Holdings, Inc. Stockholders Agreement dated
effective as of December 31, 1997 (the Original Agreement, as so
amended, the "Existing Agreement").
C. The Parties desire to amend the Existing Agreement in certain
respects in order to exclude certain shares of Stock from the
coverage of the Existing Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and in the Existing Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
Section 1. Amendment of Section 2.16 of the Existing Agreement.
Section 2.16 of the Existing Agreement is hereby amended to read in its entirety
as follows:
2.16. Except as provided below, the term "Stock" shall mean (1)
all shares of Common Stock owned by each Holder and the ESOT on the
Effective Date; (2) all shares of Common Stock issued by the Company to
or acquired by any Holder or the ESOT after the Effective Date, whether
in connection with a purchase, issuance, grant, stock split, stock
dividend, reorganization, warrant, option, convertible security, right to
acquire or otherwise; (3) all securities of the Company or any other
corporation or entity which any Holder or the ESOT acquires after the
Effective Date in respect of his, her or its shares of Common Stock in
connection with any exchange, merger, consolidation, recapitalization,
reorganization or other transaction
<PAGE> 2
to which the Company is a party; and (4) all shares of Common Stock owned
by any person or entity who becomes subject to this Agreement pursuant to
the terms of this Agreement. Notwithstanding the foregoing, the term
"Stock" shall not include (a) any shares of Common Stock which were
retained by a Holder or any other person or entity on the Effective Date
by virtue of a "Rollover Election" made in connection with the Merger
(other than any such shares held on the Effective Date by a person who
was a Holder on the Effective Date and who is a party to the Inducement
Agreement); (b) any shares of Common Stock purchased after the Effective
Date in the open market through a broker or in a transaction directly
with a market maker (as defined in section 3(a)(38) of the Securities
Exchange Act of 1934, as amended); (c) any shares of Common Stock
distributed by the ESOT; (d) any shares of Common Stock distributed under
the Sterling Chemicals, Inc. Amended and Restated Employees' Stock
Ownership Plan, as amended, or any trust created pursuant thereto; or (e)
any securities of the Company or any other corporation or entity which
any Holder or the ESOT acquires in respect of any shares of Common Stock
referred to in clauses (a) through (d) above in connection with any
exchange, merger, consolidation, recapitalization, reorganization or
other transaction to which the Company is a party. All references herein
to the Stock owned by a Holder include the community interest or similar
marital property interest, if any, of the spouse of such Holder in such
Stock.
Section 2. Effect of Amendments. Except as amended and modified by
this Amendment, the Existing Agreement shall continue in full force and effect.
The Existing Agreement and this Amendment shall be read, taken and construed as
one and the same instrument. Upon the effectiveness of this Amendment, each
reference in the Existing Agreement to "this Agreement" shall mean and be a
reference to the Existing Agreement as amended hereby.
Section 3. Effectiveness. This Amendment shall not be or become
effective unless and until it has been duly executed and delivered by the
Corporation and Holders constituting a Required Voting Percentage.
Section 4. Binding Effect. This Amendment shall inure to the
benefit of, and shall be binding upon (i) the Corporation and its successors and
permitted assigns and (ii) the Holders and their respective heirs, legatees,
executors, personal representatives, administrators, successors and permitted
assigns.
Section 5. Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
taken together shall constitute one and the same agreement. It shall not be
necessary in making proof of this Amendment to produce or account for more than
one such counterpart.
Section 6. Severability. Should any clause, sentence, paragraph,
subsection or Section of this Amendment be judicially declared to be invalid,
unenforceable or void, such decision will not have the effect of invalidating or
voiding the remainder of this Amendment, and the Parties agree that the part or
parts of this Amendment so held to be invalid, unenforceable or
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<PAGE> 3
void will be deemed to have been stricken herefrom as if such stricken part or
parts had never been included herein.
Section 7. Governing Law. THIS AMENDMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE INTERNAL LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO PRINCIPLES OF
CONFLICTS OF LAW.
Section 8. Entire Agreement. This Amendment and the Existing
Agreement set forth all of the promises, agreements, conditions, understandings,
warranties and representations among the Parties with respect to the matters
cover hereby, and supersede all prior agreements, arrangements and
understandings among the Parties, whether written, oral or otherwise. There are
no promises, agreements, conditions, understandings, warranties or
representations, oral or written, express or implied, among the Parties
concerning the subject matter hereof or thereof except as set forth herein or
therein.
IN WITNESS WHEREOF, the Parties have executed this Amendment
effective as of the date first written above.
STERLING CHEMICALS HOLDINGS, INC.
By:
---------------------------------
Printed Name:
-----------------------
Title:
------------------------------
STERLING CHEMICALS, INC.
EMPLOYEE STOCK OWNERSHIP TRUST
By: Merrill Lynch Trust Co. of Texas,
solely in its capacity as Trustee
By:
-----------------------------
Printed Name:
-------------------
Title:
--------------------------
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<PAGE> 4
OTHER PARTIES:
Individual:
------------------------------------
Printed Name:
-----------------------
Entity:
------------------------------------
(Print Name of Entity)
By:
---------------------------------
Printed Name:
-----------------------
Title:
------------------------------
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<PAGE> 1
EXHIBIT 4.11(a)
AMENDED AND RESTATED VOTING AGREEMENT
THIS AMENDED AND RESTATED VOTING AGREEMENT (the "Agreement") is
entered into as of December 15, 1998, by and among the stockholders named on the
signature pages hereto (each a "Stockholder" and, collectively, the
"Stockholders") and Sterling Chemicals Holdings, Inc. (the "Company").
PRELIMINARY STATEMENTS
A. The Stockholders are beneficial owners of common stock, par value
$.01 per share, of the Company ("Common Stock");
B. Certain of the Stockholders and the Company heretofore entered
into an Amended and Restated Voting Agreement dated as of January
22, 1997 (the "Existing Voting Agreement").
C. The parties hereto desire to amend the Existing Voting Agreement
in certain respects and to restate the Existing Voting Agreement,
as so amended, in its entirety.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto, intending to be legally bound hereby, hereby agree as follows:
ARTICLE I
Definitions and Interpretation
1.1. Definitions. As used in this Agreement, the following terms
shall have the meanings provided below:
"Annual Cain Designation" has the meaning specified in Section
5.2.
"Annual Clipper Designation" has the meaning specified in Section
3.2.
"Annual Koch Designation" has the meaning specified in Section
4.2.
"Annual Meeting" means an annual meeting of the stockholders of
the Company.
"Board" means the board of directors of the Company.
"Cain" means Gordon A. Cain.
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"Cain Designee" means a person designated as a nominee for
election to the Board pursuant to Article V.
"Cain Director" means a director of the Company designated by Cain
pursuant to Article V.
"Clipper Designee" means a person designated as a nominee for
election to the Board pursuant to Article III.
"Clipper Director" means a director of the Company designated by
the Clipper Representative pursuant to Article III.
"Clipper Investors" means (i) Clipper Capital Associates, L.P.,
(ii) Clipper Equity Partners I, L.P., (iii) Clipper/Merchant Partners,
L.P., (iv) Clipper/European Re, L.P., Clipper/Merban, L.P., (v) CS First
Boston Merchant Investments 1995/96, L.P., (vi) certain accredited
investors who enter into agreements with Clipper Capital Associates, L.P.
under which such partnership acts as a nominee with respect to Common
Stock purchased on behalf of such investors and who are identified as
Clipper Investors by written notice given by Clipper Capital Associates,
L.P. to the Company and (vii) those employees of CS First Boston
Corporation who enter into subscription agreements with the Company and
who are identified as Clipper Investors by written notice given by
Clipper Capital Associates, L.P. to the Company.
"Clipper Observer" has the meaning specified in Section 3.6.
"Clipper Representative" means Clipper Equity Partners I, L.P. so
long as it holds Common Stock and thereafter means all the remaining
Clipper Investors.
"Koch" means Koch Capital Services, Inc.
"Koch Designee" means a person designated for election to the
Board pursuant to Article IV.
"Koch Director" means a director of the Company designated by Koch
pursuant to Article IV.
"Voting Stock" means Common Stock and any other class of capital
stock of the Company entitled to vote generally in an election of
directors.
1.2. Interpretation. (a) In this Agreement, unless a contrary
intention appears:
(i) the singular number includes the plural number and vice versa;
(ii) reference to any gender includes each other gender;
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<PAGE> 3
(iii) the words "herein," hereof" and "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision;
(iv) reference to any person or entity includes such person's or
entity's successors and assigns but, if applicable, only if such
successors and assigns are permitted by this Agreement, and reference to
a person or entity in a particular capacity excludes such person or
entity in any other capacity or individually;
(v) reference to any agreement, document or instrument means such
agreement, document or instrument as amended, supplemented or modified
and in effect from time to time in accordance with the terms thereof; and
(vi) reference to any Article or Section means such Article or
Section hereof.
(b) The Article and Section headings herein are for convenience
only and shall not affect the construction hereof.
(c) This Agreement shall be deemed drafted jointly by all the
parties hereto and shall not be specifically construed against any party hereto
based on any claim that such party or its legal counsel drafted such provision.
ARTICLE II
Size of Board
The parties hereto acknowledge and agree that, so long as this
Agreement remains in effect, at no time shall the total number of directors be
less than four plus the total number of director nominees that the Clipper
Representative, Koch and Cain shall then be entitled to designate in accordance
with Articles III, IV and V, respectively.
ARTICLE III
The Clipper Director and Observer
3.1. General. The Clipper Representative shall be entitled to
designate one individual as a director nominee to serve on the Board. Such
designation shall be made annually as provided in Section 3.2 or at other times
as provided in Section 3.3. The parties hereto acknowledge that Robert B.
Calhoun has heretofore been designated and elected as the initial Clipper
Director. The Clipper Director shall serve on the Board until a successor
director shall be duly elected and qualified or until his earlier death, removal
or resignation.
3.2. Annual Clipper Designations. The Company shall, no later than
45 days prior to the mailing of any proxy statement with respect to an Annual
Meeting, notify the Clipper Representative of the date of such mailing. As soon
as practicable after receipt of such notice but
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in any event no later than 20 days prior to the mailing date specified therein,
the Clipper Representative shall provide the Company a written instrument
("Annual Clipper Designation") designating either the incumbent Clipper Director
or a person other than the incumbent Clipper Director, in which event the Annual
Clipper Designation shall include such other person's name, age, principal
occupation, business address and telephone number and residence address and
telephone number. The Annual Clipper Designation shall also include or be
accompanied by (i) all information relating to the person designated therein
that is required to be disclosed in the proxy statement pursuant to applicable
regulations of the Securities and Exchange Commission, (ii) such person's
consent to being named in the proxy statement as a nominee and (iii) a statement
of such person's intention to serve as a director if elected to the Board. The
Company shall nominate for election at such Annual Meeting the person designated
in the Annual Clipper Designation. Subject to applicable laws, the Company shall
take all other actions reasonably necessary to cause the Clipper Designee to be
elected to the Board. Each Stockholder agrees to vote (or caused to be voted)
the Voting Stock owned by it in favor of the Clipper Designee and to take any
other necessary or desirable action in its capacity as a stockholder of the
Company to cause the Clipper Designee to be elected to the Board.
3.3. Interim Clipper Designations. In case a vacancy shall occur
on the Board because of the death, resignation or removal of the Clipper
Director, the Clipper Representative may elect either (i) to have such vacancy
filled at the next Annual Meeting pursuant to a designation made in accordance
with Section 3.2 or (ii) to have such vacancy filled prior to such Annual
Meeting by a majority of the directors remaining in office. If the Clipper
Representative wishes to make the election provided for in clause (ii) above, it
shall designate a successor director nominee by written notice given to the
Company and each of the other Stockholders (the "Interim Clipper Designation").
Subject to applicable laws, the Company shall recommend that the remaining
directors elect the Clipper Designee named in any Clipper Interim Designation
and shall take all other actions reasonably necessary to cause such Clipper
Designee to be elected to the Board. Each Stockholder agrees to vote (or cause
to be voted) the Voting Stock owned by it in favor of any such Clipper Designee
and to take any other necessary or desirable action in its capacity as a
stockholder of the Company to cause any such Clipper Designee to be elected to
the Board. Without limitation of the foregoing, each of Cain and Koch agrees to
cause the Cain Director and the Koch Director, respectively, to vote in favor of
any such Clipper Designee and each Stockholder who is a member of the Board
agrees, subject to his fiduciary duties, to vote in favor of any such Clipper
Designee.
(b) In the event Clipper shall make an Interim Clipper Designation
in accordance with paragraph (a) above in order to fill the vacancy created by
the death, resignation or removal of the Clipper Director and in the event a
majority of the directors remaining in office shall fail or refuse to appoint
the Clipper Designee named in such Interim Clipper Designation to fill such
vacancy within 30 days after receipt by the Company of such Interim Clipper
Designation, then the Company agrees, if requested by Clipper to do so, to call
a special meeting of the stockholders of the Company for the purpose of voting
upon a proposal to elect such Clipper Designee to the Board; provided, however,
that in no event shall the Company be required to call a special meeting of the
stockholders if the Company has given a formal notice of the next Annual
Meeting.
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<PAGE> 5
3.4. Failure of Clipper to Designate. If the Clipper
Representative shall fail or refuse to designate a nominee for director pursuant
to Section 3.2 or 3.3, such directorship shall remain vacant unless and until
such designation shall be made as provided in this Article III; provided,
however, that if such vacancy results in less than the minimum number of
directors required by law or by the charter or bylaws of the Company as then in
effect, such vacancy shall be filled by an individual elected by a majority of
the directors then serving.
3.5. Removal of Clipper Director. The Clipper Representative shall
have the exclusive right (except as otherwise provided by applicable law or the
Company's charter) to remove or replace the Clipper Director. If the Clipper
Representative desires to remove the Clipper Director, it shall give written
notice of such desire to the Company and the other Stockholders who shall
thereupon become obligated to vote all Voting Stock owned by them in favor of
the removal of the Clipper Director. No Stockholder (other than the Clipper
Investors) shall vote any of the securities of the Company owned by it or take
any other action in its capacity as a stockholder of the Company for the removal
of the Clipper Director without the prior written approval of the Clipper
Representative.
3.6. The Clipper Observer. The Clipper Representative shall have
the right, exercisable by written notice to the Company, to designate from time
to time an observer (the "Clipper Observer") who shall have the right to attend
meetings of the Board and to receive information delivered to the Board, at the
expense of the Clipper Investors. The initial Clipper Observer shall be Kevin A.
Macdonald.
3.7. Termination/Suspension of Clipper Rights. Notwithstanding
anything in this Agreement to the contrary, the rights of the Clipper Investors
and the Clipper Representative under this Article III and the obligations of the
other parties hereto under this Article III shall terminate immediately and
without notice upon the earliest of (i) August 21, 2006, (ii) the termination of
this Agreement under Section 8.3 and (iii) any event or occurrence resulting in
the holding by the Clipper Investors of less than 5% of the outstanding shares
of Common Stock. Promptly upon the termination of its rights under this Article
III, the Clipper Investors agree to (i) cause the resignation of, or provide
notice to the other parties hereto as provided in Section 3.5 requesting the
removal of, the incumbent Clipper Director and (ii) inform the Clipper Observer
that his rights under Section 3.6 have terminated.
3.8. Irrevocable Proxy. Each of the Stockholders hereby grants to
the Clipper Representative, on behalf of the Clipper Investors, an irrevocable
proxy to vote all shares of Common Stock presently or at any future time owned
beneficially or of record by such Stockholder which the Stockholder is entitled
to vote, and to represent and otherwise act as such Stockholder could act, in
the same manner and with the same effect as if such Stockholder were personally
present, at any annual, special or other meeting of the stockholders of the
Company, and at any adjournment thereof, or pursuant to any written consent in
lieu of meeting or otherwise; provided, however, that any such vote or consent
in lieu thereof or any other action so taken shall be solely for the purposes of
electing a Clipper Designee to the Board as provided in Section 3.2 or 3.3 or
removing the Clipper Director from the Board as provided in Section 3.5.
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<PAGE> 6
ARTICLE IV
The Koch Director
4.1. General. Koch shall be entitled to designate one individual
as a director nominee to serve on the Board. Such designation shall be made
annually as provided in Section 4.2 or at other times as provided in Section
4.3. The parties hereto acknowledge that George J. Damiris has heretofore been
designated and elected as the current Koch Director. The Koch Director shall
serve on the Board until a successor director shall be duly elected and
qualified or until his earlier death, removal or resignation.
4.2. Annual Koch Designations. The Company shall, no later than 45
days prior to the mailing of any proxy statement with respect to an Annual
Meeting, notify Koch of the date of such mailing. As soon as practicable after
receipt of such notice but in any event no later than 20 days prior to the
mailing date specified therein, Koch shall provide the Company a written
statement ("Annual Koch Designation") designating either the incumbent Koch
Director or a person other than the incumbent Koch Director, in which event the
Annual Koch Designation shall include such other person's name, age, principal
occupation, business address and telephone number and residence address and
telephone number. The Annual Koch Designation shall also include or be
accompanied by (i) all information relating to the person designated therein
that is required to be disclosed in the proxy statement pursuant to applicable
regulations of the Securities and Exchange Commission, (ii) such person's
consent to being named in the proxy statement as a nominee and (iii) a statement
of such person's intention to serve as a director if elected to the Board. The
Company shall nominate for election at such Annual Meeting the person designated
in the Annual Koch Designation. Subject to applicable laws, the Company agrees
to take all other actions reasonably necessary to cause the Koch Designee to be
elected to the Board. Each Stockholder agrees to vote (or cause to be voted) the
Voting Stock owned by it in favor of the Koch Designee and to take any other
necessary or desirable action in its capacity as a stockholder of the Company to
elect the Koch Designee to the Board.
4.3. Interim Koch Designations. (a) In case a vacancy shall occur
on the Board because of the death, resignation or removal of the Koch Director,
Koch may elect either (i) to have such vacancy filled at the next Annual Meeting
pursuant to a designation made in accordance with Section 4.2 or (ii) to have
such vacancy filled prior to such Annual Meeting by a majority of the directors
remaining in office. If Koch wishes to make the election provided for in clause
(ii) above, it shall designate a successor director nominee by written notice
given to the Company and each of the other Stockholders (the "Interim Koch
Designation"). Subject to applicable laws, the Company shall recommend that the
remaining directors elect the Koch Designee named in the Interim Koch
Designation and shall take all other actions reasonably necessary to cause such
Koch Designee to be elected to the Board. Each Stockholder agrees to vote the
Voting Stock owned by it in favor of any such Koch Designee and to take any
other necessary or desirable action in its capacity as a stockholder of the
Company to cause any such Koch Designee to be elected to the Board. Without
limitation of the foregoing, each of Cain and the Clipper Investors agrees to
cause the Cain Director and the Clipper Director, respectively, to vote in favor
of any
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<PAGE> 7
such Koch Designee and each Stockholder who is a member of the Board
agrees, subject to his fiduciary duties, to vote in favor of any such Koch
Designee.
(b) In the event Koch shall make an Interim Koch Designation in
accordance with paragraph (a) above in order to fill the vacancy created by the
death, resignation or removal of the Koch Director and in the event a majority
of the directors remaining in office shall fail or refuse to appoint the Koch
Designee named in such Interim Koch Designation to fill such vacancy within 30
days after receipt by the Company of such Interim Koch Designation, then the
Company agrees, if requested by Koch to do so, to call a special meeting of the
stockholders of the Company for the purpose of voting upon a proposal to elect
such Koch Designee to the Board; provided, however, that in no event shall the
Company be required to call a special meeting of the stockholders if the Company
has given a formal notice of the next Annual Meeting.
4.4. Failure of Koch to Designate. If Koch shall fail or refuse to
designate a nominee for director pursuant to Section 4.2 or 4.3, such
directorship shall remain vacant unless and until such designation shall be made
as provided in this Article IV; provided, however, that if such vacancy results
in less than the minimum number of directors required by law or by the charter
or bylaws of the Company as then in effect, such vacancy shall be filled by an
individual elected by a majority of the directors then serving.
4.5. Removal of Koch Director. Koch shall have the exclusive right
(except as otherwise provided by applicable law) to remove or replace the Koch
Director. If Koch desires to remove the Koch Director, it shall give written
notice of such desire to the Company and the other Stockholders who shall
thereupon become obligated to vote all Voting Stock owned by them in favor of
the removal of the Koch Director. No Stockholder (other than Koch) shall vote
any of the securities of the Company owned by it or take any other action in its
capacity as a stockholder of the Company for the removal of the Koch Director
without the prior written approval of Koch.
4.6. Termination/Suspension of Koch Rights. Notwithstanding
anything in this Agreement to the contrary, the rights of Koch under this
Article IV and the obligations of the other parties hereto under this Article IV
shall terminate immediately and without notice upon the earliest of (i) August
21, 2006, (ii) the termination of this Agreement under Section 8.3 and (iii) any
event or occurrence resulting in the holding by Koch of less than 5% of the
outstanding shares of Common Stock. Promptly upon the termination of its rights
under this Article IV, Koch agrees to cause the resignation of, or provide
notice to the other parties hereto as provided in Section 4.5 requesting the
removal of, the incumbent Koch Director.
4.7. Irrevocable Proxy. Each of the Stockholders hereby grants to
Koch an irrevocable proxy to vote all shares of Common Stock presently or at any
future time owned beneficially or of record by such Stockholder which the
Stockholder is entitled to vote, and to represent and otherwise act as such
Stockholder could act, in the same manner and with the same effect as if such
Stockholder were personally present, at any annual, special or other meeting of
the stockholders of the Company, and at any adjournment thereof, or pursuant to
any written consent in lieu of meeting or otherwise; provided, however, that any
such vote or consent in lieu
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thereof or any other action so taken shall be solely for the purposes of
electing a Koch Designee to the Board as provided in Section 4.2 or 4.3 or
removing the Koch Director from the Board as provided in Section 4.5.
ARTICLE V
The Cain Director
5.1. General. Cain shall be entitled to designate one individual
as a director nominee to serve on the Board. The initial Cain Director may be
designated by Cain at any time on or after the earlier of (i) February 1, 1999
and (ii) the consummation of the first Closing (as defined in that certain
Standby Purchase Agreement dated as of December 15, 1998 between the Company and
Cain, which is referred to herein as the "Purchase Agreement"). Thereafter, such
designation shall be made annually as provided in Section 5.2 or at other times
as provided in Section 5.3. In order to designate the initial Cain Director,
Cain shall provide the Company a written statement designating a person as the
Cain Director, which statement shall include such person's name, age, principal
occupation, business address and telephone number and residence address and
telephone number and shall also include or be accompanied by (A) all information
relating to the person designated therein that is required to be disclosed in
the proxy statement pursuant to applicable regulations of the Securities and
Exchange Commission, (B) such person's social security number, (C) such person's
consent to being named in the proxy statement as a nominee and (D) a statement
of such person's intention to serve as a director if elected to the Board. Upon
receipt of such statement, the Company shall, as soon as practicable, call a
special meeting of the Board of Directors for the purpose of increasing the size
of the Board of Directors by one and electing the initial Cain Designee to fill
the vacancy caused by such increase.
5.2. Annual Cain Designations. The Company shall, no later than 45
days prior to the mailing of any proxy statement with respect to an Annual
Meeting, notify Cain of the date of such mailing. As soon as practicable after
receipt of such notice but in any event no later than 20 days prior to the
mailing date specified therein, Cain shall provide the Company a written
statement ("Annual Cain Designation") designating either the incumbent Cain
Director or a person other than the incumbent Cain Director, in which event the
Annual Cain Designation shall include such other person's name, age, principal
occupation, business address and telephone number and residence address and
telephone number. The Annual Cain Designation shall also include or be
accompanied by (i) all information relating to the person designated therein
that is required to be disclosed in the proxy statement pursuant to applicable
regulations of the Securities and Exchange Commission, (ii) such person's
consent to being named in the proxy statement as a nominee and (iii) a statement
of such person's intention to serve as a director if elected to the Board. The
Company shall nominate for election at such Annual Meeting the person designated
in the Annual Cain Designation. Subject to applicable laws, the Company agrees
to take all other actions reasonably necessary to cause the Cain Designee to be
elected to the Board. Each Stockholder agrees to vote (or cause to be voted) the
Voting Stock owned by it in favor of the Cain Designee and to take any other
necessary or desirable action in its capacity as a stockholder of the Company to
elect the Cain Designee to the Board.
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<PAGE> 9
5.3. Interim Cain Designations. (a) In case a vacancy shall occur
on the Board because of the death, resignation or removal of the Cain Director,
Cain may elect either (i) to have such vacancy filled at the next Annual Meeting
pursuant to a designation made in accordance with Section 5.2 or (ii) to have
such vacancy filled prior to such Annual Meeting by a majority of the directors
remaining in office. If Cain wishes to make the election provided for in clause
(ii) above, he shall designate a successor director nominee by written notice
given to the Company and each of the other Stockholders (the "Interim Cain
Designation"). Subject to applicable laws, the Company shall recommend that the
remaining directors elect the Cain Designee named in the Interim Cain
Designation and shall take all other actions reasonably necessary to cause such
Cain Designee to be elected to the Board. Each Stockholder agrees to vote the
Voting Stock owned by it in favor of any such Cain Designee and to take any
other necessary or desirable action in its capacity as a stockholder of the
Company to cause any such Cain Designee to be elected to the Board. Without
limitation of the foregoing, each of the Clipper Investors and Koch agrees to
cause the Clipper Director and the Koch Director, respectively, to vote in favor
of any such Cain Designee and each Stockholder who is a member of the Board
agrees, subject to his fiduciary duties, to vote in favor of any such Cain
Designee.
(b) In the event Cain shall make an Interim Cain Designation in
accordance with paragraph (a) above in order to fill the vacancy created by the
death, resignation or removal of the Cain Director and in the event a majority
of the directors remaining in office shall fail or refuse to appoint the Cain
Designee named in such Interim Cain Designation to fill such vacancy within 30
days after receipt by the Company of such Interim Cain Designation, then the
Company agrees, if requested by Cain to do so, to call a special meeting of the
stockholders of the Company for the purpose of voting upon a proposal to elect
such Cain Designee to the Board; provided, however, that in no event shall the
Company be required to call a special meeting of the stockholders if the Company
has given a formal notice of the next Annual Meeting.
5.4. Failure of Cain to Designate. If Cain shall fail or refuse to
designate a nominee for director pursuant to Section 5.2 or 5.3, such
directorship shall remain vacant unless and until such designation shall be made
as provided in this Article V; provided, however, that if such vacancy results
in less than the minimum number of directors required by law or by the charter
or bylaws of the Company as then in effect, such vacancy shall be filled by an
individual elected by a majority of the directors then serving.
5.5. Removal of Cain Director. Cain shall have the exclusive right
(except as otherwise provided by applicable law) to remove or replace the Cain
Director. If Cain desires to remove the Cain Director, he shall give written
notice of such desire to the Company and the other Stockholders who shall
thereupon become obligated to vote all Voting Stock owned by them in favor of
the removal of the Cain Director. No Stockholder (other than Cain) shall vote
any of the securities of the Company owned by it or take any other action in its
capacity as a stockholder of the Company for the removal of the Cain Director
without the prior written approval of Cain.
5.6. Termination/Suspension of Cain Rights. Notwithstanding
anything in this Agreement to the contrary, the rights of Cain under this
Article V and the obligations of the other
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parties hereto under this Article V shall terminate immediately and without
notice upon the earlier of (i) the termination of this Agreement under Section
8.3 and (ii) any event or occurrence resulting in the holding by Cain of less
than 5% of the outstanding shares of Common Stock; provided, however, that such
rights and obligations shall remain in full force and effect so long as Cain is
obligated to purchase Common Stock pursuant to the Purchase Agreement. Promptly
upon the termination of his rights under this Article V, Cain agrees to cause
the resignation of, or provide notice to the other parties hereto as provided in
Section 5.5 requesting the removal of, the incumbent Cain Director.
5.7. Irrevocable Proxy. Each of the Stockholders hereby grants to
Cain an irrevocable proxy to vote all shares of Common Stock presently or at any
future time owned beneficially or of record by such Stockholder which the
Stockholder is entitled to vote, and to represent and otherwise act as such
Stockholder could act, in the same manner and with the same effect as if such
Stockholder were personally present, at any annual, special or other meeting of
the stockholders of the Company, and at any adjournment thereof, or pursuant to
any written consent in lieu of meeting or otherwise; provided, however, that any
such vote or consent in lieu thereof or any other action so taken shall be
solely for the purposes of electing a Cain Designee to the Board as provided in
Section 5.2 or 5.3 or removing the Cain Director from the Board as provided in
Section 5.5.
ARTICLE VI
Certain Restrictions on Sale of Common Stock, etc.
6.1. Stock Legend. (a) Each certificate for shares of Common Stock
owned by any Stockholder shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A VOTING AGREEMENT, A COPY OF WHICH IS ON
FILE WITH THE SECRETARY OF STERLING CHEMICALS HOLDINGS, INC., AND
ARE HELD AND MAY BE SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF ONLY IN ACCORDANCE WITH SUCH AGREEMENT.
(b) Upon the termination of this Agreement under Section 8.3, the
Company shall, without charge and upon surrender of certificates by the holders
thereof and written request of such holders, cancel all certificates evidencing
shares of Common Stock bearing the legend described above and issue to the
holders thereof replacement certificates that do not bear such legend for an
equal number of shares held by such holders. Upon the transfer of any Common
Stock bearing the legend described above to a party believed by the Company to
be not bound by and subject to this Agreement by virtue of Section 8.2, the
Company shall, without charge and upon surrender of certificates by the holders
thereof and written request of either the transferor or transferee, cancel all
certificates evidencing such shares of Common Stock and issue to the transferee
thereof replacement certificates that do not bear such legend.
-10-
<PAGE> 11
6.2. Voting Trusts, etc. No Stockholder shall deposit any shares
of Common Stock in a voting trust or subject any shares of Common Stock to any
arrangement or agreement (other than this Agreement) with respect to the voting
of such shares unless such trust or arrangement or agreement is made expressly
subject to the provisions of this Agreement. Except as provided in this
Agreement, no Stockholder shall give any proxy or power of attorney with respect
to any shares of Common Stock that permits the holder thereof to vote such
shares in its discretion in an election of directors or for the removal of the
Clipper Director, the Koch Director or the Cain Director unless such proxy or
power of attorney is made expressly subject to the provisions of this Agreement.
ARTICLE VII
Representations and Warranties
Each party hereto hereby represents and warrants, severally and
not jointly, to each other party hereto as follows:
(a) Such party has all necessary power and authority to execute
and deliver this Agreement and to consummate the transactions
contemplated hereby.
(b) Assuming this Agreement has been duly and validly authorized,
executed and delivered by the other parties hereto, this Agreement
constitutes a valid and binding agreement of such party, enforceable in
accordance with its terms.
(c) Neither the execution and delivery of this Agreement by such
party nor the consummation by such party of the transactions contemplated
hereby will conflict with or constitute a violation of or default under
any contract, commitment, agreement, arrangement or restriction of any
kind to which such party is a party or by which such party is bound.
ARTICLE VIII
Miscellaneous Provisions
8.1. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties hereto shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state thereof having jurisdiction (this
being in addition to any other remedy to which they are entitled at law or in
equity), and each party hereto agrees to waive in any action for such
enforcement the defense that a remedy at law would be adequate.
8.2. Agreement Binding on Certain Transferees. Prior to any
transfer of shares of Common Stock by any Stockholder (excluding any transfer
pursuant to (i) a bona fide public offering of such shares or (ii) a sale of
such shares pursuant to Rule 144 under the Securities Act
-11-
<PAGE> 12
of 1933, as amended), the transferee of such shares must agree in writing to
become bound by the terms of this Agreement. For purposes of this Agreement, all
references to Stockholders shall be deemed to refer to the Stockholders and all
direct and indirect transferees thereof so required to become bound.
8.3. Term of Agreement. (a) This Agreement shall not become
effective for any purpose until such time as one or more counterparts hereof
shall have been executed and delivered by the Company, Frank P. Diassi and
Marianne R. Diassi (Joint Tenants with Right of Survivorship), William C. and
Margaret W. Oehmig (Tenants in Common), The Rheney Living Trust U/A 8/23/93,
Frank J. Hevrdejs, Hunter Nelson, Clipper Capital Associates, L.P., in its
individual capacity and as nominee, Clipper Equity Partners I, L.P.,
Clipper/Merchant Partners, L.P., Clipper/Merban, L.P., Clipper/European Re,
L.P., CS First Boston Merchant Investments 1995/96, L.P., Fayez Sarofim & Co.,
Koch Capital Services, Inc. and Olympus Growth Fund II, L.P., Olympus Executive
Fund, L.P. (the "Original Parties") and Gordon A. Cain, William A. McMinn and
James Crane. From and after such time, (i) this Agreement shall be binding on
the Original Parties and Messrs. Cain, McMinn and Crane and (ii) as and when one
or more counterparts are executed and delivered by the other parties named
herein, this Agreement shall be binding on such parties. The Existing Agreement
shall remain in full force and effect until such time as all of the parties
named herein have executed and delivered one or more counterparts of this
Agreement, at which time the Existing Agreement shall automatically terminate
and be of no further force or effect; provided, however, that at all times, if
any, when both this Agreement and the Existing Agreement are in force and
effect, (A) a designation by the Clipper Representative under the Existing
Agreement shall be deemed to be a designation by the Clipper Representative
under this Agreement and vice versa, and (B) a designation by Koch under the
Existing Agreement shall be deemed to be a designation by Koch under this
Agreement and vice versa.
(b) This Agreement shall terminate on December 15, 2008 or such
earlier date as all the parties hereto shall agree upon in writing. Upon the
termination of this Agreement, the rights and obligations hereunder of the
parties hereto shall terminate and the provisions of this Agreement shall be of
no force and effect.
8.4. Reliance on Opinions of Counsel. (a) The Company shall not be
obligated to take any action hereunder which is contrary to applicable law. The
Company may rely and shall be fully protected in acting upon any notice,
request, consent, approval or other paper or document reasonably believed by it
to be genuine and to have been signed or presented by the proper person or
persons. The Company may consult with, and obtain advice from, legal counsel in
the event any question as to any of its duties hereunder and it shall incur no
liability and shall be fully protected in acting or refusing to act in good
faith in accordance with the written opinion or advice of such counsel.
(b) Any notice, request, designation, consent or approval given or
made by any Stockholder hereunder shall be conclusive and binding on the
successors, assigns and transferees of such Stockholder.
-12-
<PAGE> 13
(c) For the purpose of determining the number of shares of Voting
Stock owned or held by any Stockholder, the Company may rely and shall be fully
protected in acting upon the stock records maintained by or on behalf of the
Company.
8.5. No Inconsistent Actions. No party hereto shall, directly or
indirectly, undertake any course of action inconsistent with the provisions or
intent of this Agreement. Without limitation of the foregoing, each party hereto
agrees that it will not amend or cause to be amended the provisions of the
Company's charter or bylaws if such amendment would create a conflict or
inconsistency between this Agreement and the Company's charter or bylaws.
8.6. Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns.
8.7. Amendments. Except as otherwise specifically provided herein,
this Agreement shall not be amended other than by an instrument in writing
signed by all of the parties hereto.
8.8. Notices. Any notice, request or communication shall be
sufficiently given if given in writing addressed as indicated on the signature
pages hereof. Notice shall be deemed given when transmitted by telex or
telecopier, delivered to the telegraph or cable office or personally delivered
or, in the case of a mailed notice, three business days after the date deposited
in the United States mails. Each party hereto, by written notice to the other
parties, may designate additional or different addresses for subsequent notices
or communications.
8.9. Counterparts. This Agreement may be executed in counterparts,
each of which when executed shall be deemed an original, but all of which
together shall constitute one and the same agreement.
8.10. Entire Agreement. This Agreement contains the entire
agreement among the parties hereto with respect to the subject matter hereof and
supersedes all prior arrangements or understandings with respect to the subject
matter hereof.
8.11. Conflict with Governing Documents. In the event of a
conflict between this Agreement and the certificate of incorporation or the
bylaws of the Company, the provisions of this Agreement shall govern.
8.12. Governing Law. THE LAWS OF THE JURISDICTION IN WHICH
HOLDINGS IS INCORPORATED, THE STATE OF DELAWARE, SHALL GOVERN THIS AGREEMENT
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
-13-
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed under their respective seals, as of the day and year first
written above.
THE COMPANY:
STERLING CHEMICALS HOLDINGS, INC.
1200 Smith Street, Suite 1900
Houston, Texas 77002
Attention: General Counsel and Secretary
Fax: 713-654-9577
By:
---------------------------------------------
Peter W. De Leeuw, President and
Chief Executive Officer
STOCKHOLDERS:
FRANK P. DIASSI AND MARIANNE R. DIASSI
JOINT TENANTS WITH RIGHT OF SURVIVORSHIP
6 Commerce Drive
Cranford, New Jersey 07016
Fax: (908) 276-5635
------------------------------------------------
Frank P. Diassi
------------------------------------------------
Marianne R. Diassi
-14-
<PAGE> 15
WILLIAM C. AND MARGARET W. OEHMIG
TENANTS IN COMMON
8 Greenway Plaza, Suite 702
Houston, Texas 77046
Fax: (713) 877-1824
------------------------------------------------
William C. Oehmig
------------------------------------------------
Margaret W. Oehmig
THE RHENEY LIVING TRUST U/A 8/23/93
8 Greenway Plaza, Suite 702
Houston, Texas 77046
Fax: (713) 877-1824
By:
---------------------------------------------
Susan O. Rheney, As Trustee
------------------------------------------------
Frank J. Hevrdejs
8 Greenway Plaza, Suite 702
Houston, Texas 77046
Fax: (713) 877-1824
------------------------------------------------
Hunter Nelson
8 Greenway Plaza, Suite 702
Houston, Texas 77046
Fax: (713) 877-1824
-15-
<PAGE> 16
CLIPPER CAPITAL ASSOCIATES, L.P., in its
individual capacity and as nominee
By: Clipper Capital Associates, Inc.
its general partner
By:
---------------------------------------
Printed Name:
-----------------------------
Title:
------------------------------------
Attn: Eugene Lynch
650 Madison Avenue, 9th Floor
New York, New York 10022
Fax: (212) 940-6055
CLIPPER EQUITY PARTNERS I, L.P.
By: Clipper Capital Associates, L.P.
its general partner
By: Clipper Capital Associates, Inc.
its general partner
By:
----------------------------------
Printed Name:
------------------------
Title:
-------------------------------
Attn: Eugene Lynch
650 Madison Avenue, 9th Floor
New York, New York 10022
Fax: (212) 940-6055
-16-
<PAGE> 17
CLIPPER/MERCHANT PARTNERS, L.P.
By: Clipper Capital Associates, L.P.
its general partner
By: Clipper Capital Associates, Inc.
its general partner
By:
----------------------------------
Printed Name:
------------------------
Title:
-------------------------------
Attn: Eugene Lynch
650 Madison Avenue, 9th Floor
New York, New York 10022
Fax: (212) 940-6055
CLIPPER/MERBAN, L.P.
By: Clipper Capital Associates, L.P.
its general partner
By: Clipper Capital Associates, Inc.
its general partner
By:
----------------------------------
Printed Name:
------------------------
Title:
-------------------------------
Attn: Eugene Lynch
650 Madison Avenue, 9th Floor
New York, New York 10022
Fax: (212) 940-6055
-17-
<PAGE> 18
CLIPPER/EUROPEAN RE, L.P.
By: Clipper Capital Associates, L.P.
its general partner
By: Clipper Capital Associates, Inc.
its general partner
By:
----------------------------------
Printed Name:
------------------------
Title:
-------------------------------
Attn: Eugene Lynch
650 Madison Avenue, 9th Floor
New York, New York 10022
Fax: (212) 940-6055
CS FIRST BOSTON MERCHANT
INVESTMENTS 1995/96, L.P.
By: Merchant Capital, Inc.
its general partner
By: Clipper Capital Associates, L.P.
Attorney-in-Fact
By: Clipper Capital Corporation,
its general partner
By:
----------------------------
Printed Name:
------------------
Title:
-------------------------
Attn: Eugene Lynch
650 Madison Avenue, 9th Floor
New York, New York 10022
Fax: (212) 940-6055
-18-
<PAGE> 19
FSI NO. 2 CORPORATION
By:
---------------------------------------------
Printed Name:
-----------------------------------
Title:
------------------------------------------
Two Houston Center, Suite 2907
Houston, Texas 77010
Fax: (713) 654-8184
KOCH CAPITAL SERVICES, INC.
By:
----------------------------
Printed Name:
------------------
Title:
-------------------------
Attn: Paul Brooks
4111 East 37th Street North
Wichita, Kansas 67220
Fax: (316) 828-3133
OLYMPUS GROWTH FUND II, L.P.
By: OGP II, L.P., its general partner
By: LJM Corporation, a general partner
By:
-----------------------------
Printed Name:
-------------------
Title:
--------------------------
Metro Center, One Station Place
Stamford, Connecticut 06902
Fax: (203) 353-5910
-19-
<PAGE> 20
OLYMPUS EXECUTIVE FUND, L.P.
By: OEF, L.P.
By: LJM L.L.C., a general partner
By:
----------------------------
Printed Name:
------------------
Title:
-------------------------
Metro Center, One Station Place
Stamford, Connecticut 06902
Fax: (203) 353-5910
------------------------------------------------
Gordon A. Cain
Address:
----------------------------------------
----------------------------------------
----------------------------------------
Fax:
--------------------------------------------
------------------------------------------------
William A. McMinn
Address:
----------------------------------------
----------------------------------------
----------------------------------------
Fax:
--------------------------------------------
------------------------------------------------
James Crane
Address:
----------------------------------------
----------------------------------------
----------------------------------------
Fax:
--------------------------------------------
-20-
<PAGE> 21
BAYLOR SCHOOL
By:
---------------------------------------------
Printed Name:
-----------------------------------
Title:
------------------------------------------
Attn: N. Stewart Saltonstall
Box 1337
Chattanooga, Texas 37401
Fax: (423) 265-4276
VANDERBILT UNIVERSITY
By:
---------------------------------------------
Printed Name:
-----------------------------------
Title:
------------------------------------------
Attn: George B. Stadler, Asst. Treasurer
Treasurer's Office
102 Alumni Hall
Nashville, Tennessee 37240
Fax: (615) 343-3930
KINKAID INVESTMENTS FOUNDATION
By:
---------------------------------------------
Printed Name:
-----------------------------------
Title:
------------------------------------------
Attn: William M. Wheless III
201 Kinkaid School Dr.
Houston, Texas 77024
Fax: (713) 782-3543
-21-
<PAGE> 22
------------------------------------------------
Von D. Oehmig
1230 Scenic Highway
Lookout Mountain, Tennessee 30750
Fax: (706) 820-0323 (Phone (706) 820-0268)
------------------------------------------------
Marian Oehmig Latimer
8 Bartram Road
Lookout Mountain, Tennessee 37350
Fax: (423) 825-0950
WILLIAM C. AND MATILDA PATTON
------------------------------------------------
William C. Patton
------------------------------------------------
Matilda Patton
217 N. Hermitage Avenue
Lookout Mountain, Tennessee 37350
Fax: (423) 265-3217
RAY W. GRIFFIN III
By:
---------------------------------------------
Marian Oehmig Latimer (Power of Attorney)
c/o Marian Oehmig Latimer
8 Bartram Road
Lookout Mountain, Tennessee 37350
Fax: (423) 265-3217
-22-
<PAGE> 23
------------------------------------------------
Margaret Jones
912 Euclid Avenue
Birmingham, Alabama 35213
Fax: None
------------------------------------------------
Alexander Jones
912 Euclid Avenue
Birmingham, Alabama 35214
Fax: None
------------------------------------------------
Margaret Jones as Custodian for
Andrews Jones Under the Texas UGMA
912 Euclid Avenue
Birmingham, Alabama 35213
Fax: None
------------------------------------------------
Margaret Jones as Custodian for
Michael Jones Under the Texas UGMA
912 Euclid Avenue
Birmingham, Alabama 35213
Fax: None
-23-
<PAGE> 24
------------------------------------------------
P. Michael Gilbert
P.O. Box 22522
Houston, Texas 77227
Fax: (713) 961-0441
1988 OEHMIG DECENDANTS TRUST
By:
---------------------------------------------
Randolph D. Oehmig, Trustee
P.O. Box 3088
Crystal River, Florida 34423-3088
Fax: (352) 795-8755 (Phone (352) 795-2402)
------------------------------------------------
Randolph D. Oehmig
P.O. Box 3088
Crystal River, Florida 34423-3088
Fax: (352) 795-8755 (Phone (352) 795-2402)
------------------------------------------------
William Brittain Oehmig
P.O. Box 2587
Chattanooga, Tennessee 37409
Fax: (423) 756-4111
-24-
<PAGE> 25
------------------------------------------------
William C. Oehmig, Custodian for
Gordon D. Oehmig
8 Greenway Plaza, Suite 702
Houston, Texas 77046
Fax: (713) 877-1824
NICHOLAS DIASSI TRUST AGREEMENT
By:
---------------------------------------------
Frank P. Diassi, Trustee
6 Commerce Drive
Cranford, New Jersey 07016
Fax: (908) 276-5635
BRIANNA DIASSI TRUST AGREEMENT
By:
---------------------------------------------
Frank P. Diassi, Trustee
6 Commerce Drive
Cranford, New Jersey 07016
Fax: (908) 276-5635
------------------------------------------------
John K. O'Connor
One Rolling Ridge Road
Northfield, Illinois 60093-1013
Fax: (312) 443-0336
-25-
<PAGE> 26
THE DIASSI CHILDREN'S TRUST U/A 12/21/89
By:
---------------------------------------------
Frank P. Diassi, Trustee
c/o Frank P. Diassi, Trustee
6 Commerce Drive
Cranford, New Jersey 07016
Fax: (908) 276-5635
GABRIELLE DIASSI TRUST U/A 9/24/90
By:
---------------------------------------------
Frank P. Diassi, Trustee
6 Commerce Drive
Cranford, New Jersey 07016
Fax: (908) 276-5635
------------------------------------------------
Bryan Clifford Campbell
Custodian for Caroline Frances Campbell
UGMA
Thermo Instrument Controls
2215 Grand Avenue Parkway
Austin, Texas 78728-3812
Fax: (512) 251-1485
------------------------------------------------
Bryan Clifford Campbell, Custodian for
Stephen Clifford Campbell UGMA
2904 Greenlee Drive
Austin, Texas 78703
Fax: (512) 251-1485
-26-
<PAGE> 27
------------------------------------------------
Bryan Clifford Campbell
2904 Greenlee Drive
Austin, Texas 78703
Fax: (512) 251-1485
------------------------------------------------
William J. Campbell, Custodian for
Andrew Dyer Campbell UGMA
6134 Sugar Hill
Houston, Texas 77057
Fax: (713) 464-0970
------------------------------------------------
William Jefferson Campbell
6134 Sugar Hill
Houston, Texas 77057
Fax: (713) 464-0970
------------------------------------------------
Ross Eastman, Custodian for
Ross Eastman Jr. UGMA
6255 Chevy Chase
Houston, Texas 77057
Fax: (713) 785-0956
-27-
<PAGE> 28
------------------------------------------------
Ross Eastman, Custodian for
Alexandra Eastman UGMA
6255 Chevy Chase
Houston, Texas 77057
Fax: (713) 785-0956
------------------------------------------------
Merrie H. Clarke, Custodian for
Julian Patrick Clarke UGMA
3728 Northhampton St. NW
Washington, D.C. 20015
Fax: None
------------------------------------------------
Merrie H. Clarke, Custodian for
Sean McLean Clarke UGMA
3728 Northhampton St. NW
Washington, D.C. 20015
Fax: None
------------------------------------------------
Merrie H. Clarke
3728 Northhampton St. NW
Washington, D.C. 20015
Fax: None
-28-
<PAGE> 29
------------------------------------------------
Patricia Meyer Hevrdejs
%Graphic Arts Corp.
2000 N.W. Wilson
Portland, Oregon 97209
Fax: (503) 222-0779
------------------------------------------------
Dale E. Barnes
The Sterling Group
8 Greenway Plaza, Suite 702
Houston, Texas 77046
Fax: (713) 877-1824
------------------------------------------------
Stephen A. Adger
%R.R. Donnelly & Sons
1015 S. Shepherd
Houston, Texas 77019
Fax: (713) 521-9707
-29-
<PAGE> 30
------------------------------------------------
William J. Campbell, Custodian for
William J. Campbell, Jr. UGMA
6134 Sugar Hill
Houston, Texas 77057
Fax: (713) 464-0970
-30-
<PAGE> 1
EXHIBIT 10.26(a)
FIRST AMENDMENT TO JOINT VENTURE AGREEMENT
THIS AMENDMENT is entered into and effective as of the 31st day of
March, 1998, by and between BP CHEMICALS INC. ("BP") and STERLING CHEMICALS,
INC. ("Sterling").
WHEREAS, BP and Sterling are parties to a certain Joint Venture
Agreement executed and effective as of March 31, 1998 ("Agreement"); and
WHEREAS, BP and Sterling wish to modify the Agreement as hereinafter
set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and intending to be legally bound, BP and Sterling hereby
amend the Agreement in the following respects:
1. Section 3.4.3 of the Agreement is hereby amended to read in its
entirety as follows:
"3.4.3 The Parties shall *****
2. Section 3.6 of the Agreement is hereby amended to read in its
entirety as follows:
"3.6 Price and Terms. The Company shall *****
3. The seventh sentence of Section 5.1 of the Agreement is hereby
amended to read in its entirety as follows: *****
4. Section 5.6 of the Agreement is hereby amended to read in its
entirety as follows:
"5.6 Volume Imbalances. Company purchases of Acrylonitrile
loaded for shipment during each calendar quarter shall be
provisionally allocated between the
<PAGE> 2
Parties based, as nearly as possible, on each Party's then
applicable BRV Ratio. At the end of each calendar year, each
Party's actual BRV for that calendar year shall be reconciled
with its provisionally allocated volume during that year and any
difference or imbalance shall be added to the underallocated
Party's BRV and subtracted from the overallocated Party's BRV
for the next calendar year, as described in attached Exhibit D,
to determine purchases by the Company from the Parties in such
calendar year; provided, however, that such reconciliation of
any volume imbalances shall not affect the Parties' respective
BRVs or BRV Ratios for any other purpose under this Agreement."
5. Exhibit D of the Agreement is hereby replaced in its entirety by
the attached Exhibit D.
6. The sentence *****
7. To the extent that the terms of this Amendment vary from the
terms of the Agreement, this Amendment shall constitute an amendment of the
Agreement. Except as amended and modified by this Amendment, the Agreement shall
continue in full force and effect. The Agreement and this Amendment shall be
read, taken and construed as one and the same instrument. Upon the effectiveness
of this Amendment, each reference in the Agreement to "this Agreement" shall
mean and be a reference to the Agreement as amended hereby.
8. This Amendment shall not be or become effective unless and until
it has been duly executed and delivered by the parties but, upon such execution
and delivery, shall be effective as of March 31, 1998.
9. This Amendment shall inure to the benefit of, and shall be
binding upon the parties and their respective successors and permitted assigns.
-2-
<PAGE> 3
10. This Amendment may be executed in two or more counterparts, each
of which shall be deemed an original but all of which taken together shall
constitute one and the same agreement. It shall not be necessary in making proof
of this Amendment to produce or account for more than one such counterpart.
11. Should any clause, sentence, paragraph, subsection or Section of
this Amendment be judicially declared to be invalid, unenforceable or void, such
decision will not have the effect of invalidating or voiding the remainder of
this Amendment, and the parties agree that the part or parts of this Amendment
so held to be invalid, unenforceable or void will be deemed to have been
stricken herefrom as if such stricken part or parts had never been included
herein.
12. THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE INTERNAL LAWS OF
THE STATE OF DELAWARE, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW.
13. This Amendment and the Agreement set forth all of the promises,
agreements, conditions, understandings, warranties and representations between
the parties with respect to the matters cover hereby, and supersede all prior
agreements, arrangements and understandings between the parties, whether
written, oral or otherwise. There are no promises, agreements, conditions,
understandings, warranties or representations, oral or written, express or
implied, between the parties concerning the subject matter hereof or thereof
except as set forth herein or therein.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized representatives as of the date first written
above.
BP CHEMICALS INC. STERLING CHEMICALS, INC.
By: By:
--------------------------- ---------------------------------
Title Title:
------------------------- ------------------------------
-4-
<PAGE> 5
EXHIBIT D
PRICE AND VOLUME RECONCILIATION
*****
-5-
<PAGE> 1
EXHIBIT 10.27
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), dated as of March 16, 1998, by
and among STERLING CHEMICALS HOLDINGS CORPORATION, a Delaware corporation
("Holdings"), STERLING CHEMICALS, INC., a Delaware corporation and a
wholly-owned subsidiary of Holdings ("Sterling" and, together with Holdings,
"Employers"), and PETER W. DE LEEUW ("Employee").
WHEREAS, Employers desire to employ Employee as a senior officer and
Employee desires to serve in such capacity, in each case on the terms and
conditions, and for the consideration, set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
Definitions and Interpretations
Section 1.01. Definitions. For purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires, the
following terms shall have the following respective meanings:
"Base Salary" shall have the meaning specified in Section 3.01.
"Board" shall mean the Board of Directors of Holdings.
"Bonus Plan" has the meaning specified in Section 3.02.
"Chairman of the Board" shall mean the Chairman of the Board of
Holdings.
"Change of Control" shall have the meaning specified in the
Incentive Plan.
"Code" shall mean the Internal Revenue Code of 1986, as in
effect from time to time.
"Confidential Information" shall have the meaning specified in
Section 5.02.
"Constituent Companies" shall mean, collectively, Holdings,
Sterling and all other direct or indirect subsidiaries of Holdings.
<PAGE> 2
"Disability" shall mean a physical or mental condition of
Employee that (a) prevents Employee from being able to perform the
services required under this Agreement, (b) has continued for a period
of at least 180 days during any period of twelve consecutive months and
(c) is reasonably expected to continue.
"Dispute" shall have the meaning specified in Section 6.01.
"Employment Date" shall have the meaning specified in Section
2.01.
"Employment Period" shall have the meaning specified in Section
2.01.
"Good Reason" shall mean any of the following actions or
events, but in each case only if it occurs during the Employment Period
and then only if it is not consented to by Employee:
(a) a material alteration by either Employer in the
nature or status of Employee's positions, functions, duties or
responsibilities from those described in Section 2.02(a),
including any change which would (i) alter Employee's
reporting responsibilities described in Section 2.02(a) or
(ii) cause Employee's positions and functions with Employers
to become of less dignity or importance than those described
in Section 2.02(a); provided, however, that each such
alteration shall cease to be a Good Reason on the date which
is 90 days after Employee becomes aware of the occurrence of
such alteration unless, prior to such date, Employee gives a
Notice of Termination pursuant to Section 4.01 on account of
such alteration or notifies Holdings in writing that such
alteration constitutes a Dispute which Employee elects to
resolve in accordance with Article VI, in which event such
alteration shall cease to be a Good Reason on the date which
is 30 days after such Dispute is so resolved;
(b) the failure of Employers to maintain plans and
programs entitling Employee to benefits that, in the
aggregate, are at least as favorable to Employee as those
available to Employee as of the Employment Date;
(c) the failure of either Employer to observe or
perform any provision contained in Article III, Article VI or
Section 7.03;
(d) the failure of either Employer to observe or
perform any other provision of this Agreement or any provision
of any indemnification agreement between Employee and
Employers (or either of them), but only if such failure shall
continue unremedied for more than 30 days after written notice
thereof is given by Employee to Employers; or
2
<PAGE> 3
(e) the failure of either Employer to elect or
re-elect, or to appoint or re-appoint, Employee to the offices
described in Section 2.02(a).
"Holdings" shall have the meaning specified in the recitals of
this Agreement.
"Incentive Plan" shall mean the Sterling Chemicals Holdings,
Inc. Omnibus Stock Awards and Incentive Plan, as amended from time to
time.
"Miscellaneous Benefits" shall have the meaning specified in
Section 3.12.
"Misconduct" shall mean (a) the willful commission by Employee
of acts that are both dishonest and demonstrably injurious to the
Constituent Companies (monetarily or otherwise), taken as a whole, in
any material respect; (b) the violation of Employers' drug and alcohol
policy; (c) the conviction of Employee for a felony offense; or (d) the
failure by Employee to perform of any of his obligations under this
Agreement, but only if such failure was not caused by disability or
incapacity and shall have continued unremedied for more than 30 days
after written notice thereof is given to Employee by Employers.
"Notice of Termination" shall mean, as appropriate, (a) a
notice from Employee to Employers purporting to terminate Employee's
employment in accordance with Section 4.01 or (b) a notice from
Employers to Employee purporting to terminate Employee's employment in
accordance with Section 4.02. Each Notice of Termination shall be dated
the date it is given, shall specify the Termination Date and shall
state whether the termination is covered by Section 4.03 or by Section
4.04, specifying the same. Any Notice of Termination by Employee which
states that the termination is covered by Section 4.03 shall state that
the termination is for a Good Reason and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for such
Good Reason. Any Notice of Termination which is not in compliance with
the foregoing requirements shall be invalid and ineffective. Any Notice
of Termination given by Employers after the death of Employee shall be
invalid and ineffective. Any Notice of Termination given by Employers
after Employee has given a valid Notice of Termination shall be
ineffective and vice versa.
"Termination Date" shall mean the termination date specified in
a Notice of Termination delivered in accordance with Article IV,
provided that in no event shall such termination date be less than 30
nor more than 60 days after the date such Notice of Termination is
given.
Section 1.02. Interpretation. In this Agreement, unless a clear
contrary intention appears, (a) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or
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other subdivision, (b) reference to any Article or Section, means such Article
or Section hereof, (c) the words "including" (and with correlative meaning
"include") means including, without limiting the generality of any description
preceding such term, and (d) where any provision of this Agreement refers to
action to be taken by any party, or which such party is prohibited from taking,
such provision shall be applicable whether such action is taken directly or
indirectly by such party. The Article and Section headings herein are for
convenience only and shall not affect the construction hereof. No provision of
this Agreement shall be interpreted or construed against any party solely
because that party or its legal representative drafted such provision.
ARTICLE II
Employment; Term; Positions and Duties
Section 2.01. Employment; Term. Each Employer hereby employs Employee
in a senior executive capacity and Employee hereby accepts employment by each
Employer, in each case on the terms and conditions, and for the consideration,
set forth in this Agreement. Employee's employment hereunder shall begin on
March 16, 1998 (the "Employment Date") and shall continue until terminated in
accordance with Article IV (the "Employment Period").
Section 2.02. Positions and Duties. (a) While employed hereunder,
Employee shall serve as President and Chief Executive Officer of each Employer
and shall have and may exercise all of the powers, functions, duties and
responsibilities normally attributable to such positions, including any such
duties and responsibilities as are set forth with respect to such positions in
the Employers' respective certificates of incorporation and bylaws, as from time
to time in effect.
(b) While employed hereunder, Employee shall observe and comply
with all lawful policies, directions and instructions of the Board and/or the
Chairman of the Board which are consistent with paragraph (a) above and shall
devote substantially all of his business time, attention, skill and efforts to
the faithful and efficient performance of his duties hereunder. Notwithstanding
the foregoing, Employee may engage in the following activities so long as they
do not interfere in any material respect with the performance of Employee's
duties hereunder: (i) serve on corporate, civic, religious or charitable boards
or committees, (ii) deliver lectures and fulfill speaking engagements and (iii)
manage his personal investments.
(c) Employers agree to use their reasonable best efforts to cause
Employee to be elected or appointed, or re-elected or re-appointed, as a
director of each Employer at all times during the Employment Period. Employee
agrees to serve as a director of each Employer (and any other Constituent
Company so designated by the Board or the Chairman of the Board) at all times
during the Employment Period.
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(d) While employed hereunder, Employee shall at all times conduct
himself in such a manner as not to knowingly prejudice, in any material respect,
the reputation of any Constituent Company in the fields of business in which it
engaged or with the investment community or the public at large.
Section 2.03. No Conflicting Commitments. Employee represents that he
is not a party to or bound by any employment contract, consultancy agreement,
non-competition agreement or any other agreement (written or oral) or other
arrangement which contains any restrictions or limitations on the ability of
Employee to enter into and perform this Agreement or exercise all the powers,
functions, duties and responsibilities contemplated by this Agreement, and the
execution, delivery and performance of this Agreement by Employee will not
result in a violation of or constitute a default under any contract, agreement
or other arrangement to which Employee is a party or by which Employee is bound.
ARTICLE III
Compensation and Benefits
Section 3.01. Base Salary. For services rendered by Employee under this
Agreement, Employers shall pay to Employee an annual cash base salary ("Base
Salary") in the amount of $300,000. The Board shall review the Base Salary at
least annually and may increase the amount of the Base Salary at any time as the
Board may deem appropriate in its sole discretion. If the Base Salary is
increased, it may not thereafter be decreased unless a proportionally similar
decrease is made to the base salaries of all other senior executives of
Employers; provided that in no event may the Base Salary be decreased below
$300,000. The Base Salary shall be paid at regular intervals in accordance with
Holdings' payroll policies for senior executives as from time to time in effect.
Section 3.02. Bonuses. During the Employment Period, Employee shall be
entitled to participate in the bonus/incentive compensation plan for executive
officers of Employers in general, as from time to time amended by the Board (the
"Bonus Plan"). Employee's annual target bonus under the Bonus Plan for each
fiscal year during the Employment Period shall be not less than 75% of the Base
Salary for such fiscal year. Each bonus shall be paid to Employee at such time
or times provided in the Bonus Plan.
Section 3.03. Stock Grant. As soon as practicable after the Employment
Date, Holdings shall make a Restricted Stock Award to Employee pursuant to the
Incentive Plan for 10,000 shares of Common Stock of Holdings in consideration of
Employee's agreement to become an employee of Employers and to enter into this
Agreement. The terms and conditions of such Restricted Stock Award shall be
determined by the Compensation Committee and shall be set forth in a Restricted
Stock Agreement, all as contemplated by Paragraph IX(e) of the Incentive Plan.
As more particularly set forth in such Restricted Stock Agreement, 2,500 of the
shares included in such Restricted Stock
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Award shall be fully vested as of the date of grant, and the remaining 7,500
shares shall vest during the Employment Period in annual installments of 2,500
shares, commencing on the first anniversary of the Employment Date; provided,
however, that all of such shares shall automatically vest upon the occurrence of
a Change of Control.
Section 3.04. Stock Option. As soon as practicable after the Employment
Date, Holdings shall grant to Employee pursuant to the Incentive Plan an Option
to purchase 125,000 shares of Common Stock of Holdings, with an exercise price
per share equal to $12.00, subject to adjustment as provided in Paragraph XII of
the Incentive Plan. The terms and conditions of such Option shall be determined
by the Compensation Committee and shall be set forth in an Option Agreement, all
as contemplated by Paragraph VII(d) of the Incentive Plan. As more particularly
set forth in such Option Agreement, such Option shall become exercisable as to
20% of the shares covered thereby on each anniversary of the Employment Date, so
that the Option will be exercisable in full on the fifth anniversary of the
Employment Date. Such Option shall become automatically vested in full upon the
occurrence of a Change of Control.
Section 3.05. Right to Purchase Additional Shares of Common Stock.
Holdings agrees that Employee shall have the right, at his option, to purchase
up to 100,000 shares of Common Stock of Holdings for a purchase price per share,
payable in cash, equal to the lesser of (i) $12 and (ii) the most recent
valuation made under Article VI of the Sterling Chemicals ESOP dated August 21,
1996. Such shares are in addition to the shares referred to in Section 3.03 and
3.04. The foregoing right to purchase shares may be exercised by Employee from
time to time by a notice in writing which specifies the number of shares in
respect of which it is being exercised. Such notice shall (a) be delivered to
the Treasurer of Holdings within 180 days after the Employment Date, (b) refer
to this Section 3.05, (c) specify the number of shares which Employee desires to
purchase, and (d) specify the closing date for such purchase (not later than 15
days after the giving of such notice or the date which is 180 days after the
Employment Date, whichever is later). No shares of stock purchased under this
Section 3.05 shall be subject to vesting, forfeiture, surrender or restriction
of any kind except that such shares shall be subject to the provisions of the
Sterling Chemicals Holdings, Inc. Stockholders Agreement effective as of August
21, 1996 (as amended from time to time) and to the transfer restrictions imposed
by applicable securities laws.
Section 3.06. Vacation. During the Employment Period, Employee shall be
entitled to not less than four weeks of paid vacation per year or such greater
number of vacation days as may be permitted in accordance with Holdings'
vacation policy (as from time to time amended) for senior executives in general.
Employee shall not be entitled to accumulate or carryover unused vacation time
or pay from year to year except to the extent permitted in accordance with such
vacation policy (as from time to time amended).
Section 3.07. Professional Fees. Employers shall reimburse Employee for
up to $5,000 per year for financial advisory, legal, accounting and tax planning
fees and expenses paid or incurred by Employee during the Employment Period.
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Section 3.08. Business Expenses. Each Employer shall, in accordance
with the rules and policies that it may establish from time to time for senior
executives, reimburse Employee for business expenses reasonably incurred in the
performance of Employee's duties hereunder. It is understood that Employee is
authorized, during the Employment Period, to incur reasonable business expenses
for promoting the businesses and reputations of the Constituent Companies,
including reasonable expenditures for travel, lodging, meals and client and/or
business associate entertainment. Requests for reimbursement for such expenses
must be accompanied by appropriate documentation.
Section 3.09. Transfer of Existing Club Memberships. Employers shall
pay all standard fees required to transfer into Employee's name the corporate
club memberships currently used by Employee under the sponsorship of his current
employer; provided that in no event shall Employers' obligation under this
Section 3.09 exceed $6,500 in the aggregate.
Section 3.10. Cellular Telephone. During the Employment Period,
Employers shall provide, at no cost to Employee, a first-class cellular
telephone for Employee and pay all charges and other costs relating to
Employee's use thereof in connection with his powers, authority and duties
hereunder.
Section 3.11. Life Insurance. At all times during the Employment
Period, Employers will maintain or cause to be maintained, without cost to
Employee, a term life insurance policy on the life of Employee in the amount of
$2,000,000, the proceeds of which, in the event of Employee's death, shall be
payable to the beneficiaries designated by Employee or, in the absence of any
such designation, to his estate. Notwithstanding the foregoing, if Employee
fails to qualify for such insurance policy during any period within the
Employment Period, Employers shall not be required to provide such coverage,
but, instead, shall pay to Employee a lump sum cash payment equal to the
premiums Employers would have otherwise paid in order to maintain such policy
for such period. The insurance benefits described in this Section 3.11 are in
addition to those available to Employee under the benefit plans and programs
provided to senior executives of Employers in general.
Section 3.12. Other Benefits. Employee shall be entitled to receive all
fringe benefits and other perquisites that may be offered by each Employer from
time to time to its other senior executives in general (collectively, the
"Miscellaneous Benefits"), including (a) participation in life, healthcare,
medical, retiree medical, dental and disability insurance plans and programs,
(b) participation in bonus, profit sharing and incentive compensation plans,
programs and arrangements, (c) participation in change in control/severance
pay/separation pay plans, programs and practices, (d) automobile allowances, (e)
reimbursement for club membership fees, tax and financial planning services and
annual physical examination and (f) participation in all other employee benefit
plans, programs or arrangements, subject, in each case, to meeting the
applicable eligibility requirements. However, nothing in this Section 3.12 shall
be deemed to prohibit
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Employers from making any changes in any of the plans, programs or benefits
described in the foregoing sentence, provided the change similarly affects all
senior executives of Employers similarly situated. Employee's participation in
Employers' medical, bonus, profit sharing, incentive compensation, pension and
stock ownership plans, programs and arrangements shall commence on the
Employment Date. If and to the extent a particular benefit or other perquisite
is provided to Employee by two or more provisions of this Agreement, unless a
clear contrary intention appears, the provision which is most favorable to
Employee shall govern and control to the exclusion of the other provisions.
ARTICLE IV
Termination of Employment
Section 4.01. Employee's Right of Termination. Employee may, at any
time, terminate his employment hereunder for any reason by delivering a Notice
of Termination to Employers.
Section 4.02. Employers' Right of Termination. Employers may, at any
time, terminate Employee's employment hereunder for any reason by delivering a
Notice of Termination to Employee.
Section 4.03. Benefits as a Consequence of Termination by Employers for
any Reason other than Misconduct or Disability or Termination by Employee for
Good Reason. The following provisions shall apply if, at any time prior to the
second anniversary of the Employment Date, (a) Employee terminates his
employment in accordance with Section 4.01 for a Good Reason or (b) Employers
terminate Employee's employment in accordance with Section 4.02 for any reason
other than Misconduct or Disability:
(i) Employers shall pay to Employee, within 30 days after
the Termination Date, a lump sum cash payment equal to the sum of (A)
200% of the Base Salary as in effect on the date of the Notice of
Termination plus (B) the projected bonus for Employee under the Bonus
Plan (or any replacement or substitute plan) for the fiscal year that
includes the date of the Notice of Termination and the succeeding two
fiscal years (such projection to be based on Holdings' reasonable
estimate of the financial performance of Holdings and its subsidiaries
for such fiscal years) plus (C) all unused vacation time accrued by
Employee as of the Termination Date in accordance with this Agreement
and Employers' vacation policies for senior executives plus (D) all
unpaid vested Miscellaneous Benefits earned or accrued as of the
Termination Date plus (E) all amounts owing to Employee under Sections
3.07, 3.08, 3.09, 3.10 and 3.11 plus (F) all amounts forfeited by
Employee as a result of such termination under employee benefit plans
or programs maintained or sponsored by either Employer plus (G) any
additional amounts or benefits which may be required by applicable law,
including the Employee Retirement Income Security Act of 1974, as
amended
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from time to time, minus (H) the total amount of any separation or
severance pay actually paid to cash to Employee under any plan, program
or practice of Employers (other than this Agreement);
(ii) for a period of 24 months (including 18 months of COBRA
coverage) following the Termination Date, Employee shall continue to be
covered by all life, healthcare, medical and dental insurance plans and
programs (excluding disability) of Employers by which he was covered at
the time of such termination, provided that (A) Employee's continued
participation is possible under the terms and provisions of such plans
and programs and (B) Employee pays the regular employee premium
required by such plans and programs or by COBRA, as the case may be;
and
(iii) any vesting, lapse of time or similar requirement under
any plan (other than any plan which is a "qualified plan" within the
meaning of section 401(a) of the Code) or program in which Employee may
participate shall be accelerated to the date of the Notice of
Termination and any conditions to Employee's entitlement to any
benefits under any of such plans or programs shall be deemed to have
been satisfied. Without limitation of the foregoing, (A) all stock
options (including the Option described in Section 3.04) granted to
Employee by either Employer shall become and be fully vested and
immediately exercisable in accordance with the otherwise applicable
terms thereof and shall remain fully exercisable for the remainder of
the particular option period and (B) any forfeiture contingencies
applicable to the Restricted Stock Award described in Section 3.03
shall immediately lapse in their entirety. No acceleration under this
clause (iii) shall be deemed to constitute severance or separation pay.
Notwithstanding the foregoing, (1) Employers' shall not be obligated to pay the
lump sum described in clause (i) above or continue the non-COBRA benefits
described in clause (ii) above if the Termination Date is after Employee's
Normal Retirement Date (as defined in the Sterling Chemicals, Inc. Amended and
Restated Salaried Employees' Pension Plan (Effective as of May 1, 1996)) and (2)
Employers' obligation to continue the benefits described in clause (ii) above
shall cease if and when Employee becomes employed by a third party which
provides Employee with substantially similar benefits.
Section 4.04 Benefits as a Consequence of Termination for other Reasons
or upon Death. If Employee dies before his employment is terminated in
accordance with Section 4.01 or 4.02 or if Employee's employment is terminated
in accordance with section 4.01 or 4.02 under circumstances where Section 4.03
is inapplicable, Employers shall pay to Employee as soon as practicable a lump
sum cash payment for (a) any unpaid Base Salary earned hereunder as of the date
of death or termination, (b) all unused vacation time accrued by Employee as of
the date of death or termination in accordance with this Agreement and
Employers' vacation policies for senior executives, (c) all unpaid vested
Miscellaneous Benefits earned or accrued as of the date of death or termination,
(d) all
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amounts owing to Employee under Section 3.07, 3.08, 3.09, 3.10 and 3.11,
(e) the annual target bonus for Employee under the Bonus Plan (or any
replacement or substitute plan) for the fiscal year that includes the date of
death or termination, prorated as of such date, and (f) any additional amounts
or benefits which may be required by applicable law, including the Employee
Retirement Income Security Act of 1984, as amended from time to time.
Section 4.05. Resignation as a Director. If Employee's employment under
this Agreement is terminated for any reason, Employee agrees to resign as a
director of all Constituent Companies of which he is a director, such
resignation to be effective (a) in the case of a termination by Employee
pursuant to Section 4.01, on the date Employee delivers the relevant Notice of
Termination and (b) in the case of a termination by Employers pursuant to
Section 4.02, on the date Employee receives the relevant Notice of Termination.
ARTICLE V
Confidential Information
Section 5.01. Restriction on Use. Employee recognizes that the services
to be performed by him hereunder are special, unique and extraordinary and that,
by reason of his employment with Employers and the positions described in
Section 2.02(a), he may acquire Confidential Information (defined below)
concerning one or more Constituent Companies, the use or disclosure of which
might cause the Constituent Companies substantial loss and damages which could
not be readily calculated and for which no remedy at law would be adequate.
Accordingly, Employee agrees that he will not (directly or indirectly) at any
time, whether during or after his employment hereunder, disclose any such
Confidential Information to any Person except (a) as required by applicable law,
(b) in connection with the performance of his duties and the rendering of
services hereunder, (c) in connection with the enforcement of his rights under
this Agreement of any other instrument, (d) in connection with the defense or
settlement of any claim, suit or action asserted or threatened against Employee
by or in the right of any Constituent Company, or (e) with the prior written
consent of the Board.
Section 5.02. Definition. As used herein, "Confidential Information"
means information with respect to the products, services, strategies,
facilities, trade secrets and other intellectual property, pricing systems,
patents and patent applications, procedures, manuals, confidential reports,
financial information, business plans, prospects or opportunities of any
Constituent Company; provided, however, that such term shall not include (a) any
information that is or becomes generally known or available other than as a
result of a disclosure by Employee, (b) any information that is or becomes known
or available to Employee on a nonconfidential basis from a source (other than
the Constituent Companies) which, to Employee's knowledge is not prohibited from
disclosing such information to Employee by a legal, contractual, fiduciary, or
other obligation to any Constituent Company, or (c) any general knowledge, skill
or experience acquired by Employee.
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Section 5.03. Ownership; Return to Employers. Employee confirms that
all Confidential Information is the exclusive property of the relevant
Constituent Company. All business records, papers and documents kept or made by
Employee (whether electronically or otherwise) while employed hereunder relating
to the business of any Constituent Company shall be and remain the property of
such Constituent Company at all times. Upon the request of Holdings or Sterling
at any time, Employee shall promptly deliver to Holdings, and shall retain no
copies of, any electronic media or written materials records and documents made
by Employee or coming into his possession while employed hereunder concerning
the business or affairs of any Constituent Company other than personal
materials, records, and documents (including notes and correspondence) of
Employee not containing proprietary information relating to such business or
affairs. Notwithstanding the foregoing, Employee shall be permitted to retain
copies of, or have access to, all such materials, records and documents relating
to any rights, privileges or benefits of Employee or any disagreement, dispute
or litigation between Employee and any Constituent Company.
Section 5.04. Injunctive Relief etc. Employee acknowledges that the
covenants contained in this Article V are intended for the benefit of, and may
be enforced by, Employers and their respective successors and assigns. Employee
further acknowledges that a breach of any of the covenants contained in this
Article V may result in material irreparable injury to the Constituent Companies
for which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of such a
breach, any payments remaining under the terms of this Agreement shall cease and
Employers (or either of them) shall be entitled to obtain a temporary
restraining order and/or a preliminary or permanent injunction restraining
Employee from engaging in activities prohibited by this Article V or such other
relief as may required to specifically enforce any of the covenants contained in
this Article V. Employee agrees to and hereby does submit to in personam
jurisdiction before each and every court for that purpose.
Section 5.05. Limitation on Personal Liability. Employee shall not be
personally liable to any Constituent Company or its stockholders for monetary
damages for any breach of this Article V if Employee acted in good faith and in
a manner Employee reasonably believed to be in or not opposed to the best
interests of Employers. Employee shall be deemed to have met the standard of
conduct required by the foregoing defense unless the contrary is conclusively
established by a court of competent jurisdiction. The provisions of this Article
V shall survive the termination of Employee's employment hereunder.
ARTICLE VI
Dispute Resolution
Section 6.01. Definition. As used herein, "Dispute" means any and all
questions, claims, controversies or disputes arising out of or relating to this
Agreement, including the construction, meaning, performance, effect or breach of
this Agreement.
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Section 6.02. Agreement to Mediate/Arbitrate. In the event a Dispute
shall arise between Employee, on the one hand, and Holdings or Sterling, on the
other hand, the parties agree to resolve such Dispute in accordance with the
following procedure:
(1) A meeting shall be held promptly between Employee and
Holdings, attended (in the case of Holdings) by one or more individuals
with decision-making authority regarding the Dispute, to attempt in good
faith to negotiate a resolution of the Dispute.
(2) If, within 10 days after such meeting, Employee and
Holdings have not succeeded in negotiating a resolution of the Dispute,
the Dispute shall be submitted to the Compensation Committee of the
Board to attempt in good faith to negotiate a resolution of the Dispute.
(3) If, within 10 days after the submission referred to in
paragraph (2) above, Employee and Holdings have not succeeded in
negotiating a resolution of the Dispute, the Dispute shall be submitted
to mediation in accordance with the Commercial Mediation Rules of the
American Arbitration Association.
(4) Employee and Holdings will jointly appoint a mutually
acceptable mediator, seeking assistance in such regard from the American
Arbitration Association if they have been unable to agree upon such
appointment within 10 days following the 10-day period referred to in
paragraph (3) above.
(5) Upon appointment of the mediator, Employee and Holdings
agree to participate in good faith in the mediation and negotiations
relating thereto for 15 days.
(6) If Employee and Holdings are not successful in resolving
the Dispute through mediation within such 15-day period, the Dispute
shall be settled by arbitration in accordance with the Expedited
Procedures of the Commercial Arbitration Rules of the American
Arbitration Association.
(7) The fees and expenses of the mediator/arbitrators shall
be borne solely by the non-prevailing party or, in the event there is no
clear prevailing party, as the mediator/arbitrators deem appropriate.
(8) If any dispute shall arise under this Agreement
involving termination of Employee's employment with Employers or
involving the failure or refusal of Employers to fully perform in
accordance with the terms hereof, Employers shall reimburse Employee
(without duplication), on a current basis, for all legal fees and
expenses, if any, incurred by Employee in connection with such dispute,
together with interest thereon at the rate of 6% per annum, such
interest to accrue from the date Holdings receives Employee's statement
for such fees and expenses through the date of payment thereof;
provided, however, that in the event the resolution of
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such dispute in accordance with this Article VI includes a finding
denying, in all material respects, Employee's claims in such dispute,
Employee shall be required to reimburse Employers, within 30 days after
the date of such resolution, for all sums advanced to Employee with
respect to such dispute pursuant to this paragraph (8).
(9) Except as provided above, each of Employee and Holdings
shall pay its own costs and expenses (including, without limitation,
attorneys' fees) relating to any mediation/arbitration proceeding
conducted under this Article VI.
(10) All mediation/arbitration conferences and hearings will
be held in Houston, Texas.
Section 6.03. Arbitration Procedures. In the event there is any
disputed question of law involved in any arbitration proceeding, such as the
proper legal interpretation of any provision of this Agreement, the arbitrators
shall make separate and distinct findings of all facts material to the disputed
question of law to be decided and, on the basis of the facts so found, express
their conclusion of the question of law. The facts so found shall be conclusive
and binding on the parties, but any legal conclusion reached by the arbitrators
from such facts may be submitted by either Employee or Holdings to a court of
law for final determination by initiation of a civil action in the manner
provided by law. Such action, to be valid, must be commenced within 20 days
after receipt of the arbitrators' decision. If no such civil action is commenced
within such 20-day period, the legal conclusion reached by the arbitrators shall
be conclusive and binding on the parties. Any such civil action shall be
submitted, heard and determined solely on the basis of the facts found by the
arbitrators. Neither of Employee or Holdings 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 Section 6.03 and if Employee is
the party who prevails or substantially prevails (as determined by the court) in
such civil action, Employee shall be entitled to recover from Employers all
reasonable costs, expenses and attorneys' fees incurred by Employee in
connection with such action and on appeal.
Section 6.04. Arbitration Award, etc. Except as limited by Section
6.03, the parties agree that judgment upon the award rendered by the arbitrators
may be entered in any court of competent jurisdiction. In the event legal
proceedings are commenced to enforce the rights awarded in an arbitration
proceeding and if Employee is the party who prevails or substantially prevails
in such legal proceeding, Employee shall be entitled to recover from Employers
all reasonable costs, expenses and attorneys' fees incurred by Employee in
connection with such legal proceeding and on appeal.
Section 6.05. Exclusivity. All decisions and actions by Holdings under
this Article VI shall be binding on Sterling and each other Constituent Company.
Except as provided above, (i) no legal action may be brought by any party with
respect to any Dispute and (ii) all Disputes shall be determined only in
accordance with the procedures set forth above.
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ARTICLE VII
Miscellaneous
Section 7.01. Notices. All notices and all other communications
provided for in the Agreement shall be in writing and shall be sent, delivered
or mailed, addressed as follows: (i) if to Employers (or either of them), at
Holdings' principal office address or such other address as Holdings may have
designated by written notice to Employee for purposes hereof, directed (except
as otherwise provided herein) to the attention of the Chairman and (ii) if to
Employee, at his residence address on the records of Holdings or to such other
address as he may have designated to Holdings in writing for purposes hereof.
Each such notice or other communication shall be deemed to have been duly given
when delivered or mailed by United States registered mail, return receipt
requested, postage prepaid, except that any notice of change of address shall be
effective only upon receipt.
Section 7.02. Assignability. The obligations of Employee hereunder are
personal and may not be assigned or delegated by Employee or transferred in any
manner whatsoever, nor are such obligations subject to involuntary alienation,
assignment or transfer. Each Employer shall have the right to assign this
Agreement and to delegate all of its rights, duties and obligations hereunder as
provided in Section 7.03, but not otherwise; provided, however, that no such
assignment shall relieve or discharge either Employer of or from any of its
obligations under this Agreement.
Section 7.03. Successors; Binding Agreement. (a) Each Employer will
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of such Employer, by written agreement in form and substance reasonably
acceptable to Employee, to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that such Employer would be required
to perform it if no such succession had taken place. Such agreement shall be
become effective concurrently with the consummation of the transaction requiring
the same. A copy of such agreement shall be provided to Employee upon request.
As used herein, (i) the term "Holdings" shall include any successor to its
business and/or assets as aforesaid which executes and delivers the Agreement
provided for in this Section 7.03 or which otherwise becomes bound by all terms
and provisions of this Agreement by operation of law and (ii) the term
"Sterling" shall include any successor to its business and/or assets as
aforesaid which executes and delivers the Agreement provided for in this Section
7.03 or which otherwise becomes bound by all terms and provisions of this
Agreement by operation of law.
(b) This Agreement and all rights of Employee hereunder shall inure
to the benefit of and be enforceable by Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Employee should die while any amounts would be payable
to him hereunder if he had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
Employee's devisees, legatees or other designees or, if there be no such
designees, legatees or other designees, to Employee's estate. This Agreement and
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all rights of Employers hereunder shall inure to the benefit of and be
enforceable by Employers and their respective successors and assigns.
Section 7.04. Tax Withholdings. Each Employer shall withhold from all
payments hereunder all applicable taxes (federal, state or other) which it is
required to withhold therefrom unless Employee has otherwise paid to such
Employer the amount of such taxes.
Section 7.05. Gross-Up Payments.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event any income is imputed to Employee on account of any payment,
distribution or benefit provided under Sections 3.05, 3.07 and 3.11, then
Employee shall be entitled to receive from Employers an additional payment in an
amount equal to all income taxes (including any interest or penalties imposed
with respect to such taxes) attributable to such imputed income. In the event
Employee receives any payment under the foregoing sentence, Employee shall be
entitled to receive from Employers an additional amount equal to all income
taxes attributable to such payment.
(b) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution to or for the
benefit of Employee in connection with his employment hereunder (a "Payment")
would be subject to the excise tax imposed by section 4999 of the Code or any
interest or penalties with respect to such excise tax (such excise tax, together
with any such interest or penalties, being collectively referred to below as the
"Excise Tax"), then Employee shall be entitled to receive from Employers an
additional payment (the "Gross-Up Payment") in an amount such that after payment
by Employee of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax imposed on the Gross-Up
Payment, Employee retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payment. All determinations required to be made under this
paragraph (b) shall be made by the independent accounting firm then retained by
Holdings in the ordinary course of business.
Section 7.06. Amendments and Waivers. No provision of this Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by the parties. No waiver by any
party hereto at any time of any breach by any other party hereto of, or in
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
Section 7.07. Governing Law. THE VALIDITY, INTERPRETATION, CONSTRUCTION
AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
TEXAS WITHOUT REGARD TO ITS CONFLICT OF LAWS PRINCIPLES.
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Section 7.08. Counterparts, Severability, etc. This Agreement may be
executed in one or more counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the same instrument.
The invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof, and
supersedes all prior contracts or agreements, whether oral or written. No right,
power or remedy granted under this Agreement is intended to be exclusive, but
each shall be cumulative and in addition to any other rights, powers or remedies
referred to in this Agreement or otherwise available at law or in equity. The
obligations of Employers hereunder shall be joint and several.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
STERLING CHEMICALS HOLDINGS, INC.
By:
---------------------------------
Chairman of the Board
STERLING CHEMICALS, INC.
By:
---------------------------------
Chairman of the Board
EMPLOYEE
------------------------------------
Peter W. De Leeuw
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EXHIBIT 10.28
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), dated as of January
19, 1998, by and among STERLING CHEMICALS HOLDINGS CORPORATION, a Delaware
corporation ("Holdings"), STERLING CHEMICALS, INC., a Delaware corporation and a
wholly-owned subsidiary of Holdings ("Sterling" and, together with Holdings,
"Employers"), and GARY M. SPITZ ("Employee").
WHEREAS, Employers desire to employ Employee as a senior
officer and Employee desires to serve in such capacity, in each case on the
terms and conditions, and for the consideration, set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and for other valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
Definitions and Interpretations
Section 1.01. Definitions. For purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise
requires, the following terms shall have the following respective meanings:
"Base Salary" shall have the meaning specified in Section
3.01.
"Board" shall mean the Board of Directors of Holdings.
"Bonus Plan" has the meaning specified in Section 3.02.
"CEO" shall mean the Chief Executive Officer of Holdings.
"Change of Control" shall have the meaning specified in the
Incentive Plan.
"Confidential Information" shall have the meaning specified in
Section 5.02.
"Constituent Companies" shall mean, collectively, Holdings,
Sterling and all other direct or indirect subsidiaries of Holdings.
"Disability" shall mean a physical or mental condition of
Employee that (a) prevents Employee from being able to perform the
services required under this Agreement, (b) has continued for a period
of at least 180 days during any period of twelve consecutive months and
(c) is reasonably expected to continue.
"Dispute" shall have the meaning specified in Section 6.01.
"Employment Date" shall have the meaning specified in Section
2.01.
<PAGE> 2
"Employment Period" shall have the meaning specified in
Section 2.01.
"Good Reason" shall mean any of the following actions or
events, but in each case only if it occurs during the Employment Period
and then only if it is not consented to by Employee:
(a) a material alteration by either Employer in the
nature or status of Employee's positions, functions, duties or
responsibilities from those described in Section 2.02(a),
including any change which would (i) alter Employee's
reporting responsibilities described in Section 2.02(a) or
(ii) cause Employee's positions and functions with Employers
to become of less dignity or importance than those described
in Section 2.02(a); provided however, that each such
alteration shall cease to be a Good Reason on the date which
is 90 days after Employee becomes aware of the occurrence of
such alteration unless, prior to such date, Employee gives a
Notice of Termination pursuant to Section 4.01 on account of
such alteration;
(b) the failure of Employers to maintain plans and
programs entitling Employee to benefits that, in the
aggregate, are at least as favorable to Employee as those
available to Employee as of the Employment Date;
(c) the failure of either Employer to observe or perform
any provision contained in Article III, Article VI, Section
7.03;
(d) the failure of either Employer to observe or perform
any other provision of this Agreement or any provision of any
indemnification agreement between Employee and Employers (or
either of them), but only if such failure shall continue
unremedied for more than 30 days after written notice thereof
is given by Employee to Employers; or
(e) the failure of either Employer to elect or re-elect,
or to appoint or reappoint, Employee to the offices described
in Section 2.02(a).
"Holdings" shall have the meaning specified in the recitals of
this Agreement.
"Incentive Plan" shall mean the Sterling Chemicals Holdings,
Inc. Omnibus Stock Awards and Incentive Plan, as amended from time to
time.
"Miscellaneous Benefits" shall have the meaning specified in
Section 3.09.
"Misconduct" shall mean (a) the willful commission by Employee
of acts that are both dishonest and demonstrably injurious to the
Constituent Companies (monetarily or otherwise), taken as a whole, in
any material respect; (b) the violation of the Employer's drug and
alcohol policy; (c) the conviction of Employee for a felony offense; or
(d) the failure by Employee to perform of any of his obligations under
this Agreement, but only if such failure was not caused by disability
or incapacity and shall have continued
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unremedied for more than 30 days after written notice thereof is given
to Employee by Employers.
"Notice of Termination" shall mean, as appropriate, (a) a
notice from Employee to Employers purporting to terminate Employee's
employment in accordance with Section 4.01 or (b) a notice from
Employers to Employee purporting to terminate Employee's employment in
accordance with Section 4.02. Each Notice of Termination shall be dated
the date it is given, shall specify the Termination Date and shall
state whether the termination is covered by Section 4.03 or by Section
4.04, specifying the same. Any Notice of Termination by Employee which
states that the termination is covered by Section 4.03 shall state that
the termination is for a Good Reason and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for such
Good Reason. Any Notice of Termination which is not in compliance with
the foregoing requirements shall be invalid and ineffective. Any Notice
of Termination given by Employers after the death of Employee shall be
invalid and ineffective. Any Notice of Termination given by Employers
after Employee as given a valid Notice of Termination shall be
ineffective and vice versa.
"Termination Date" shall mean the termination date specified
in a Notice of Termination delivered in accordance with Article IV,
provided that in no event shall such termination date be less than 30
nor more than 60 days after the date such Notice of Termination is
given.
Section 1.02. Interpretation. In this Agreement, unless a
clear contrary intention appears, (a) the words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular Article, Section or other subdivision, (b) reference
to any Article or Section, means such Article or Section hereof, (c) the words
"including" (and with correlative meaning "include") means including, without
limiting the generality of any description preceding such term, and (d) where
any provision of this Agreement refers to action to be taken by any party, or
which such party is prohibited from taking, such provision shall be applicable
whether such action is taken directly or indirectly by such party. The Article
and Section headings herein are for convenience only and shall not affect the
construction hereof. No provision of this Agreement shall be interpreted or
construed against any party solely because that party or its legal
representative drafted such provision.
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ARTICLE II
Employment; Term; Positions and Duties
Section 2.01. Employment; Term. Each Employer hereby employees
Employee in a senior executive capacity and Employee hereby accepts employment
by each Employer, in each case on the terms and conditions, and for the
consideration, set forth in this Agreement. Employee's employment hereunder
shall begin on January 19, 1998 (the "Employment Date") and shall continue until
terminated in accordance with Article IV (the "Employment Period").
Section 2.02. Positions and Duties. (a) While employed
hereunder, Employee shall serve as Vice President and Chief Financial Officer of
each Employer and shall have and may exercise all of the powers, functions,
duties and responsibilities normally attributable to such positions, including
any such duties and responsibilities as are set forth with respect to such
positions in the Employers' respective certificates of incorporation and bylaws,
as from time to time in effect. During the Employment Period, Employee shall
report directly to the CEO unless otherwise determined by the Board.
(b) While employed hereunder, Employee shall observe and
comply with all lawful policies, directions instructions of the CEO and/or the
Board which are consistent with paragraph (a) above and shall devote
substantially all of his business time, attention, skill and efforts to the
faithful and efficient performance of his duties hereunder. Notwithstanding the
foregoing, Employee may engage in the following activities so long as they do
not interfere in any material respect with the performance of Employee's duties
hereunder: (i) serve on corporate, civic, religious or charitable board or
committees, (ii) deliver lectures and fulfill speaking engagements and (iii)
manage his personal investments.
(c) While employed hereunder, Employee shall at all times
conduct himself in such a manner as not to knowingly prejudice, in any material
respect, the reputation of any Constituent Company in the fields of business in
which it engaged or with the investment community or the public at large.
ARTICLE III
Compensation and Benefits
Section 3.01. Base Salary. For services rendered by Employee
under this Agreement, Employers shall pay to Employee an annual cash base salary
("Base Salary") in the amount of $180,000. The Board shall review the Base
Salary at least annually and may increase the amount of the Base Salary at any
time as the Board may deem appropriate in its sole discretion. The Base Salary
shall be paid at regular intervals in accordance with Holdings' payroll policies
for senior executives as from time to time in effect.
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Section 3.02. Bonuses. During the Employment Period, Employee
shall be entitled to participate in the bonus/incentive compensation plan for
executive officers of Employers in general, as from time to time amended by the
Board (the "Bonus Plan"). Employee's annual target bonus under the Bonus Plan
for each fiscal year during the Employment Period shall be not less than 60% of
the Base Salary for such fiscal year. Each bonus shall be paid to Employee at
such time or times provided in the Bonus Plan. Employee will participate in the
Bonus Plan in 1998 prorated based on his start date.
Section 3.03. Stock Grant. As soon as practicable after the
Employment Date, Holdings shall make a Restricted Stock Award to Employee
pursuant to the Incentive Plan for 5,000 shares of Common Stock of Holdings in
consideration of Employee's agreement to become an employee of Employers and to
enter into this Agreement. The terms and conditions of such Restricted Stock
Award shall be determined by the Compensation Committee and shall be set forth
in a Restricted Stock Agreement, all as contemplated by Paragraph IX(e) of the
Incentive Plan. The employee will vest in 25% of shares on his employment date
and will vest in the remainder of the shares at a rate of 25% per year over the
next 3 years.
Section 3.04. Stock Option. As soon as practicable after the
Employment Date, Holdings shall grant to Employee pursuant to the Incentive Plan
an Option to purchase 45,000 shares of Common Stock of Holdings, with an
exercise price per share equal to $12.00, subject to adjustment as provided in
Paragraph XII of the Incentive Plan. The terms and conditions of such Option
shall be determined by the Compensation Committee and shall be set forth in an
Option Agreement, all as contemplated by Paragraph VII(d) of the Incentive Plan.
The Stock Options will vest at the rate of 20% per year.
Section 3.05. Right to Purchase Additional Shares of Common
Stock. Holdings agrees that Employee shall have the right, at his option, to
purchase up to 50,000 shares of Common Stock of Holdings for $12 per share,
payable in cash. Such shares are in addition to the shares referred to in
Section 3.03 and 3.04. In order to purchase any shares under this Section 3.05.
Employee must notify Holdings in writing on or before April 30, 1998, which
notice shall (a) refer to this Section 3.05, (b) specify the number of shares
which Employee desires to purchase, (c) specify the closing date for such
purchase (not later than 15 days after the giving of such notice or April 30,
1998, whichever is later) and (d) be delivered to the Treasurer of Holdings or
addressed to such Treasurer at the principal corporate offices of Holdings. No
shares of stock purchased under this Section 3.05 shall be subject to vesting,
forfeiture, surrender or restriction of any kind except that such shares shall
be subject to the provisions of the Sterling Chemicals Holdings, Inc.
Stockholders Agreement effective as of August 21, 1996 (as amended from time to
time) and to the transfer restrictions imposed by applicable securities laws.
Section 3.06. Vacation. During the Employment Period, Employee
shall be entitled to not less than four (4) weeks of paid vacation per year or
such greater number of vacation days as may be permitted in accordance with
Holdings' vacation policy (as from time to time amended) for senior executives
in general. Employee shall not be entitled to accumulate or carryover unused
vacation time or pay from year to year except to the extent permitted in
accordance with such vacation policy (as from time to time amended).
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Section 3.07. Professional Fees. Employers shall reimburse
Employee for up to $5,000 per year for financial advisory, legal, accounting and
tax planning fees and expenses paid or incurred by Employee during the
Employment Period.
Section 3.08. Business Expenses. Each Employer shall, in
accordance with the rules and policies that it may establish from time to time
for senior executives, reimburse Employee for business expenses reasonably
incurred in the performance of Employee's duties hereunder. It is understood
that Employee is authorized, during the Employment Period, to incur reasonable
business expenses for promoting the businesses and reputations of the
Constituent Companies, including reasonable expenditures for travel, lodging,
meals and client and/or business associate entertainment. Requests for
reimbursement for such expenses must be accompanied by appropriate
documentation.
Section 3.09. Other Benefits. Employee shall be entitled to
receive all fringe benefits and other perquisites that may be offered by each
Employer from time to time to its other senior executives in general
(collectively, the "Miscellaneous Benefits"), including (a) participation in all
life ($2 million of coverage assuming insurability), medical, retiree medical,
dental and disability insurance plans and programs, (b) participation in the
bonus, profit sharing and incentive compensation plans, programs and
arrangements, (c) participation in all change in control/severance
pay/separation pay plans, programs and practices, (d) automobile allowances, (e)
reimbursement for club membership fees, tax and financial planning services and
annual physical examination and (f) participation in all other employee benefit
plans, programs or arrangements, subject, in each case, to meeting the
applicable eligibility requirements. However, nothing in this Section 3.09 shall
be deemed to prohibit Employers from making any changes in any of the plans,
programs or benefits described in the foregoing sentence, provided the change
similarly affects all senior executives of Employers similarly situated.
Employee's participation in Employers' medical, bonus, profit sharing, incentive
compensation, pension and stock ownership plans, programs and arrangements shall
commence on the Employment Date. If and to the extent a particular benefit or
other perquisite is provided to Employee by two or more provisions of this
Agreement, unless a clear contrary intention appears, the provision which is
most favorable to Employee shall govern and control to the exclusion of the
other provisions.
Section 3.10. Relocation Expenses. (a) Employers agree to
reimburse Employee for all reasonable moving expenses (including packing,
storage and cartage) incurred by Employee during the Relocation Period in
relocating his principal residence to the Houston, Texas metropolitan area. As
used herein, "Relocation Period" means the period from the date of this
Agreement to the earlier of (i) the date on which Employee relocates his
principal residence in the Houston, Texas metropolitan area and (ii) June 30,
1998.
(b) Employers shall pay the reasonable out-of-pocket expenses
incurred by Employee and his wife during the Relocation Period in connection
with the relocation of his principal residence to the Houston, Texas
metropolitan, excluding moving expenses but interim lodging in the Houston,
Texas metropolitan area and traveling between Baltimore, Maryland and Houston,
Texas;
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(c) Employer shall pay normal closing costs on Employee's home
in Maryland as well as Employee's home purchase in Houston, Texas. Normal
closing costs do not include points paid for the specific purpose of reducing
the interest on the loan;
(d) Employers shall pay a miscellaneous relocation allowance
to take care of miscellaneous expenses incurred in setting up a new household in
Houston in the amount of one month's pay ($15,000);
(e) The Employers expect Employee to put your house on the
market to sell the property as soon as practical. In the event the property does
not sell in a reasonable period of time, the Company will protect Employee for
any loss on the appraised value versus the purchase price of the Employee's
home;
(f) Employers shall pay for temporary housing for Employee
from the date of this Agreement until Employee relocates wife and children from
Maryland in May or June of 1998.
Section 3.11. Signing Bonus. Employers shall pay to Employee a
Signing Bonus of $25,000 within 15 working days of the date Employee reports to
work.
ARTICLE IV
Termination of Employment
Section 4.01. Employee's Right of Termination. Employees may,
at any time, terminate his employment hereunder for any reason by delivering a
Notice of Termination to Employers.
Section 4.02. Employers' Right of Termination. Employers may,
at any time, terminate Employee's employment hereunder for any reason by
delivery a Notice of Termination to Employee.
Section 4.03. Benefits as a Consequence of Termination by
Employers for any Reason other than Misconduct or Disability or Termination by
Employee for Good Reason. The following provisions shall apply if (a) Employers,
at any time prior to the second anniversary of the Employment Date, terminates
Employee's employment for any reason other than misconduct or disability in
accordance with Section 4.02 or (b) a Change of Control occurs during the
two-year period commencing on the Employment Date and at any time after such
Change of Control (but before the second anniversary of the Employment Date) the
Employee terminates his employment in accordance with Section 4.01 for a Good
Reason;
(i) Employers shall pay to Employee, within 30 days after the
Termination Date, a lump sum cash payment equal to the sum of (A) 200%
of the Base Salary as in effect on the date of the Notice of
Termination plus (B) the projected bonus for Employee under the Bonus
Plan (or any replacement or substitute plan) for the fiscal year that
includes the date of the Notice of Termination and the succeeding two
fiscal years (such
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projection to be based on Holdings' reasonable estimate of the
financial performance of Holdings and its subsidiaries for such fiscal
years) plus (C) all unused vacation time accrued by Employee as of the
Termination Date in accordance with this Agreement and Employers'
vacation policies for senior executives plus (D) all unpaid vested
Miscellaneous Benefits earned or accrued as of the Termination Date
plus (E) all amounts owing to Employee under Sections 3.07, 3.08, 3.10
and 3.11 plus (F) all amounts forfeited by Employee as a result of such
termination under employee benefit plans or programs maintained or
sponsored by either Employer plus (G) any additional amounts or
benefits which may be required by applicable law, including the
Employee Retirement Income Security Act of 1974, as amended from time
to time, minus (H) the total amount of any separation or severance pay
actually paid in cash to Employee under any plan, program or practice
of Employers (other than this Agreement): and
(ii) for a period of 24 months (including 18 months of COBRA
coverage) following the Termination Date, Employee shall continue to be
covered by all life, medical and dental insurance plans and programs
(excluding disability) of Employers by which he was covered at the time
of such termination, provided that (A) Employee's continued
participation is possible under the terms and provisions of such plans
and programs and (B) Employee pays the regular employee premium, if
any, required by such plans and programs or by COBRA, as the case may
be.
Notwithstanding the foregoing, (1) Employers' shall not be obligated to pay the
lump sum described in clause (i) above or continue the non-COBRA benefits
described in clause (b) above if the Termination Date is after Employee's Normal
Retirement Date (as defined in the Sterling Chemicals, Inc. Amended and Restated
Salaried Employees' Pension Plan (Effective as of May 1, 1996)) and (2)
Employers' obligation to continue the benefits described in clause (ii) above
shall cease if and when Employee becomes employed by a third party which
provides Employee with substantially similar benefits.
Section 4.04. Benefits as a Consequence of Termination for
other Reasons or upon Death. If Employee dies before his employment is
terminated in accordance with Section 4.01 or 4.02 or if Employee's employment
is terminated in accordance with Section 4.01 or 4.02 under circumstances where
Section 4.03 is inapplicable, Employers shall pay to Employee as soon as
practicable a lump sum cash payment for (a) any unpaid Base Salary earned
hereunder as of the date of death or termination, (b) all unused vacation time
accrued by Employee as of the date of death or termination in accordance with
this Agreement and Employers' vacation policies for senior executives, (c) all
unpaid vested Miscellaneous Benefits earned or accrued as of the date of death
or termination, (d) all amounts owing to Employee under Section 3.06, (e) the
annual target bonus for Employee under the Bonus Plan (or any replacement or
substitute plan) for the fiscal year that includes the date of death or
termination, prorated as of such date, and (f) any additional amounts or
benefits which may be required by applicable law, including the Employee
Retirement Income Security Act of 1974, as amended from time to time.
Section 4.05. Resignation as a Director. If Employee's
employment under this Agreement is terminated for any reason, Employee agrees to
resign as a director of all Constituent Companies of which he is a director,
such resignation to be effective (a) in the case of a termination by Employee
pursuant to Section 4.01, on the date Employee delivers the relevant
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Notice of Termination and (b) in the case of a termination by Employers pursuant
to Section 4.02, on the date Employee receives the relevant Notice of
Termination.
Section 4.06. Employee Termination. In the event Employee is
terminated after the term of this Agreement, Employee may be eligible for
severance benefits outside of the Company's benefit plans, if any, extended to
other terminating Company officers.
ARTICLE V
Confidential Information
Section 5.01. Restriction on Use. Employee recognizes that the
services to be performed by him hereunder are special, unique and extraordinary
and that, by reason of his employment with Employers and the positions described
in Section 2.02(a), he may acquire Confidential Information (defined below)
concerning one or more Constituent Companies, the use or disclosure of which
might cause the Constituent Companies substantial loss and damages which could
not be readily calculated and for which no remedy at law would be adequate.
Accordingly, Employee agrees that he will not (directly or indirectly) at any
time, whether during or after his employment hereunder, disclose any such
Confidential Information to any Person except (a) as required by applicable law,
(b) in connection with the performance of his duties and the rendering of
services hereunder, (c) in connection with the enforcement of his rights under
this Agreement or any other instrument, (d) in connection with the defense or
settlement of any claim, suit or action asserted or threatened against Employee
by or in the right of any Constituent Company or (e) with the prior written
consent of the CEO or the Board.
Section 5.02. Definition. As used herein, "Confidential
Information" means information with respect to the products, services,
strategies, facilities, trade secrets and other intellectual property, pricing
systems, patents and patent applications, procedures, manuals, confidential
reports, financial information, business plans, prospects or opportunities of
any Constituent Company; provided, however, that such term shall not include (a)
any information that is or becomes generally known or available other than as a
result of a disclosure by Employee, (b) any information that is or becomes known
or available to Employee on a nonconfidential basis from a source (other than
the Constituent Companies) which, to Employee's knowledge, is not prohibited
from disclosing such information to Employee by a legal, contractual, fiduciary
or other obligation to any Constituent Company or (c) any general knowledge,
skill or experience acquired by Employee.
Section 5.03. Ownership; Return to Employers. Employee
confirms that all Confidential Information is the exclusive property of the
relevant Constituent Company. All business records, papers and documents kept or
made by Employee (whether electronically or otherwise) while employed hereunder
relating to the business of any Constituent Company shall be and remain the
property of such Constituent Company at all times. Upon the request of Holdings
at any time, Employee shall promptly deliver to Holdings, and shall retain no
copies of, any electronic media or written materials, records and documents made
by Employee or coming into his possession while employed hereunder concerning
the business or affairs of any Constituent Company other than personal
materials, records and documents (including notes and correspondence) of
Employee not containing proprietary information relating to such business or
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affairs. Notwithstanding the foregoing, Employee shall be permitted to retain
copies of, or have access to, all such materials, records and documents relating
to any rights, privileges or benefits of Employee or any disagreement, dispute
or litigation between Employee and any Constituent Company.
Section 5.04. Injunctive Relief, etc. Employee acknowledges
that the covenants contained in this Article V are intended for the benefit of,
and may be enforced by, Employers and their respective successors and assigns.
Employee further acknowledges that a breach of any of the covenants contained in
this Article V may result in material irreparable injury to the Constituent
Companies for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of such a breach, any payments remaining under the terms of this Agreement shall
cease and Employers (or either of them) shall be entitled to obtain a temporary
restraining order and/or a preliminary or permanent injunction restraining
Employee from engaging in activities prohibited by this Article V or such other
relief as may be required to specifically enforce any of the covenants contained
in this Article V. Employee agrees to and hereby does submit to in personam
jurisdiction before each and every such court for that purpose.
Section 5.05. Limitation on Personal Liability. Employee shall
not be personally liable to any Constituent Company or its stockholders for
monetary damages for any breach of this Article V if Employee acted in good
faith and in a manner Employee reasonably believed to be in or not opposed to
the best interest of Employers. Employee shall be deemed to have met the
standard of conduct required by the foregoing defense unless the contrary is
conclusively established by a court of competent jurisdiction. The provisions of
this Article V shall survive the termination of Employee's employment hereunder.
ARTICLE VI
Dispute Resolution
Section 6.01. Definition. As used herein, "Dispute" means any
and all questions, claims, controversies or disputes arising out of or relating
to this Agreement, including the construction, meaning, performance, effect or
breach of this Agreement.
Section 6.02. Agreement to Mediate/Arbitrate. In the event a
Dispute shall arise between Employee, on the one hand, and Holdings or Sterling,
on the other hand, the parties agree to resolve such Dispute in accordance with
the following procedure:
(1) A meeting shall be held promptly between Employee and
Holdings, attended (in the case of Holdings) by one or more individuals
with decision-making authority regarding the Dispute, to attempt in
good faith to negotiate a resolution of the Dispute.
(2) If, within 10 days after such meeting, Employee and
Holdings have not succeeded in negotiating a resolution of the Dispute,
the Dispute shall be submitted to mediation in accordance with the
Commercial Mediation Rules of the American Arbitration Association.
10
<PAGE> 11
(3) Employee and Holdings will jointly appoint a mutually
acceptable mediator seeking assistance in such regard from the American
Arbitration Association if they have been unable to agree upon such
appointment within 10 days following the 10-day period referred to in
clause (2) above.
(4) Upon appointment of the mediator, Employee and Holdings
agree to participate in good faith in the mediation and negotiations
relating thereto for 15 days.
(5) If Employee and Holdings are not successful in resolving
the Dispute through mediation within such 15-day period, the Dispute
shall be settled by arbitration in accordance with the Expedited
Procedures of the Commercial Arbitration Rules of the American
Arbitration Association.
(6) The fees and expenses of the mediator/arbitrators shall be
borne solely by the non-prevailing party or, in the even there is no
clear prevailing party, as the mediator/arbitrators deem appropriate.
(7) If any dispute shall arise under this Agreement involving
termination of Employee's employment with Employers or involving the
failure or refusal of Employers to fully perform in accordance with the
terms hereof, Employers shall reimburse Employee (without duplication),
on a current basis, for all reasonable legal fees and expenses, if any,
incurred by Employee in connection with such dispute, together with
interest thereon at the rate of 6% per annum, such interest to accrue
from the date Holdings received Employee's statement for such fees and
expenses through the date of payment thereof; provided, however, that
in the event the resolution of such dispute in accordance with this
Article VI includes a finding denying, in all material respects,
Employee's claims in such dispute, Employee shall be required to
reimburse Employers, within 30 days after the date of such resolution,
for all sums advanced to Employee with respect to such dispute pursuant
to this paragraph (7).
(8) Except as provided above, each of Employee and Holdings
shall pay its own costs and expenses (including, without limitation,
attorneys' fees) relating to any mediation/arbitration proceeding
conducted under this Article VI.
(9) All mediation/arbitration conferences and hearing will be
held in Houston, Texas.
Section 6.03. Arbitration Procedures. In the event there is
any disputed question of law involved in any arbitration proceeding, such as the
proper legal interpretation of any provision of this Agreement, the arbitrators
shall make separate and distinct findings of all facts material to the disputed
questions 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 parties, but any legal conclusion reached, by the arbitrators
from such facts may be submitted by either Employee or Holdings to a court of
law for final determination by initiation of a civil action in the manner
provided by law. Such action, to be valid, must be commenced within 20 days
after receipt of the arbitrators' decision. If no such civil action is commenced
within such
11
<PAGE> 12
20-day period, the legal conclusion reached by the arbitrators shall be
conclusive and binding on the parties. Any such civil action shall be submitted,
heard and determined solely on the basis of the facts found by the arbitrators.
Neither of Employee or Holdings 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 Section 6.03 and if Employee is the party
who prevails or substantially prevails (as determined by the court) in such
civil action, Employee shall be entitled to recover from Employers all costs,
expenses and reasonable attorneys' fees incurred by Employee in connection with
such action and on appeal. In the event any civil action is commenced under this
Section 6.03 and if Holdings is the party who prevails or substantially prevails
(as determined by the court) in such civil action, Holdings shall be entitled to
recover from Employee all costs, expenses and reasonable attorneys' fees
incurred by Employers in connection with such action and on appeal.
Section 6.04. Arbitration Award, etc. Except as limited by
Section 6.03, the parties agree that judgment upon the award rendered by the
arbitrators may be entered in any court of competent jurisdiction. In the event
legal proceedings are commenced to enforce the rights awarded in an arbitration
proceeding and if Employee is the party who prevails or substantially prevails
in such legal proceeding, Employee shall be entitled to recover from Employers
all costs, expenses and reasonable attorneys' fees incurred by Employee in
connection with such legal proceeding and on appeal. In the event legal
proceedings are commenced to enforce the rights awarded in an arbitration
proceeding and if Holdings is the party who prevails or substantially prevails
in such legal proceeding, Holdings shall be entitled to recover from Employee
all costs, expenses and reasonable attorneys' fees incurred by Employers in
connection with such legal proceeding and on appeal.
Section 6.05. Exclusivity. All decisions and actions by
Holdings under this Article VI shall be binding on Sterling and each other
Constituent Company. Except as provided above, (i) no legal action may be
brought by any party with respect to any Dispute and (ii) all Disputes shall be
determined only in accordance with the procedures set forth above.
ARTICLE VII
Miscellaneous
Section 7.01. Notices. All notices and all other
communications provided for in the Agreement shall be in writing and shall be
sent, delivered or mailed, addressed as follows: (i) if to Employers (or either
of them), at Holdings' principal office address or such other address as
Holdings may have designated by written notice to Employee for purposes hereof,
directed (except as otherwise provided herein) to the attention of the Chairman
and (ii) if to Employee, at his residence address on the records of Holdings or
to such other address as he may have designated to Holdings in writing for
purposes hereof. Each such notice or other communication shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, except that any notice of change of
address shall be effective only upon receipt.
Section 7.02. Assignability. The obligations of Employee
hereunder are personal and may not be assigned or delegated by Employee or
transferred in any manner whatsoever, nor
12
<PAGE> 13
are such obligations subject to involuntary alienation, assignment or transfer.
Each Employer shall have the right to assign this Agreement and to delegate all
of its rights, duties and obligations hereunder as provided in Section 7.03, but
not otherwise; provided however, that no such assignment shall relieve or
discharge either Employer of or from any of its obligations under this
Agreement.
Section 7.03. Successors; Binding Agreement. (a) Each Employer
will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of such Employer, by written agreement in form and substance reasonable
acceptable to Employee, to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that such Employer would be required
to perform it if no such succession had taken place. Such agreement shall become
effective concurrently with the consummation of the transaction requiring the
same. A copy of such agreement shall promptly be provided to Employee. As used
herein, (i) the term "Holdings" shall include any successor to its business
and/or assets as aforesaid which executes and delivers the Agreement provided
for in this Section 7.03 or which otherwise becomes bound by all terms and
provisions of this Agreement by operation of law and (ii) the term "Sterling"
shall include any successor to its business and/or assets as aforesaid which
executes and delivers the Agreement provided for in this Section 7.03 or which
otherwise becomes bound by all terms and provisions of this Agreement by
operation of law.
(b) This Agreement and all rights of Employee hereunder shall
inure to the benefit of and be enforceable by Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Employee should die while any amounts would be payable
to him hereunder if he had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
Employee's devisees, legatees or other designees or, if there be no such
designees, legatees or other designees, to Employee's estate. This Agreement and
all rights of Employers hereunder shall inure to the benefit of and be
enforceable by Employers and their respective successors and assigns.
Section 7.04. Tax Withholdings. Each Employer shall withhold
from all payments hereunder all applicable taxes (federal, state or other) which
it is required to withhold therefrom unless Employee has otherwise paid to such
Employer the amount of such taxes.
Section 7.05. Amendments and Waivers. No provision of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by the parties. No waiver by any
party hereto at any time of any breach by
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<PAGE> 14
any other party hereto of, or in compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
Section 7.06. Governing Law. THE VALIDITY, INTERPRETATION,
CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF TEXAS WITHOUT REGARD TO ITS CONFLICT OF LAWS PRINCIPLES.
Section 7.07. Counterparts, Severability, etc. This Agreement
may be executed in one or more counterparts, each of which shall be deemed to be
an original but all of which together will constitute one and the same
instrument. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect. This Agreement
constitutes the entire agreement of the parties with respect to the subject
matter hereof, and supersedes all prior contracts or agreements, whether oral or
written. No right, power or remedy granted under this Agreement is intended to
be exclusive, but each shall be cumulative and in addition to any other rights,
powers or remedies referred to in this Agreement or otherwise available at law
or in equity. The obligations of Employers hereunder shall be joint and several.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
STERLING CHEMICALS HOLDINGS, INC.
By:
--------------------------------------
President and Chief Executive Officer
STERLING CHEMICALS, INC.
By:
--------------------------------------
President and Chief Executive Officer
EMPLOYEE
-----------------------------------------
Gary M. Spitz
14
<PAGE> 1
EXHIBIT 10.29
===============================================================================
===============================================================================
STANDBY PURCHASE AGREEMENT
BY AND BETWEEN
STERLING CHEMICALS HOLDINGS, INC.
AND
FRANK P. DIASSI
===============================================================================
DATED AS OF DECEMBER 15, 1998
===============================================================================
<PAGE> 2
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION
OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THE SECURITIES PURCHASED HEREUNDER HAVE NOT BEEN RECOMMENDED OR
APPROVED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY.
FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR
DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE SECURITIES PURCHASED HEREUNDER ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE
STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS
OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1 Definitions and Interpretation............................................................ 2
Section 2 Standby Commitment........................................................................ 5
Section 3 Closings.................................................................................. 6
Section 4 Simultaneous Closings Under Other Purchase Agreements..................................... 7
Section 5 Use of Proceeds........................................................................... 7
Section 6 Representations and Warranties of the Company............................................. 7
Section 7 Representations and Warranties of the Purchaser........................................... 9
Section 8 Compliance with Securities Laws and Agreements............................................ 10
Section 9 Changes in Capital Structure.............................................................. 12
Section 10 Specific Performance...................................................................... 12
Section 11 Notices................................................................................... 12
Section 12 Survival.................................................................................. 12
Section 13 Benefit and Burden........................................................................ 12
Section 14 No Third Party Rights..................................................................... 13
Section 15 Amendments and Waiver..................................................................... 13
Section 16 Severability.............................................................................. 13
Section 17 Expenses.................................................................................. 13
Section 18 Governing Law............................................................................. 13
Section 19 Entire Agreement.......................................................................... 13
Schedule I Purchasers
</TABLE>
<PAGE> 4
STANDBY PURCHASE AGREEMENT
THIS STANDBY PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of December 15, 1998 by and between STERLING CHEMICALS HOLDINGS, INC.,
a Delaware corporation (the "Company"), and FRANK P. DIASSI (the "Purchaser").
PRELIMINARY STATEMENTS
A. The Company and the Purchaser are entering into this Agreement to
evidence the Purchaser's agreement to purchase up to 166,667
shares of common stock, par value $0.01 per share, of the Company
("Common Stock").
B. Simultaneously with the execution and delivery of this Agreement,
the Company and Harris Trust and Savings Bank, as agent, entered
into a Warrant Agreement dated as of the date hereof (the
"Warrant Agreement"). In order to induce the Purchaser to enter
into this Agreement, the Company has issued to the Purchaser on
the date hereof warrants to purchase 20,000 shares of Common
Stock (the "Initial Warrants"). The Initial Warrants are
evidenced by a certificate in the form attached as Exhibit A to
the Warrant Agreement and are subject to the terms and conditions
set forth in the Warrant Agreement and such certificate.
C. The Company and the Purchaser are parties to the Stockholders
Agreement, the Registration Rights Agreement and the Tag-Along
Agreement (as such terms are defined below).
D. In connection with the issuance of the Initial Warrants, the
Company, the Purchaser and certain other parties entered into an
Amended and Restated Voting Agreement dated as of the date hereof
(the "Voting Agreement").
E. Simultaneously with the execution and delivery of this Agreement,
the Company is entering into separate Standby Purchase
Agreements, substantially identical to this Agreement, with the
other purchasers named in Schedule I (the "Other Purchasers") to
evidence the Other Purchasers' agreement to purchase up to the
number of shares of Common Stock set opposite their respective
names in Schedule I.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
<PAGE> 5
Section 1. Definitions and Interpretation. Capitalized terms used in
this agreement shall, except where the context otherwise requires, have the
following respective meanings:
"Acts" has the meaning specified in Section 7(e).
"Agreement" means this Standby Purchase Agreement, as from time to
time amended in accordance with the terms hereof.
"Bankruptcy Event" means that:
(i) the Company or any Subsidiary has (A) made a general
assignment for the benefit of creditors, (B) filed a voluntary
bankruptcy petition, (C) become the subject of an order for relief or
been declared insolvent in any federal or state bankruptcy or
insolvency proceeding, (D) instituted a proceeding or filed an answer
in a proceeding seeking to adjudicate itself insolvent or seeking
reorganization, arrangement, composition, readjustment, protection,
liquidation, winding-up, dissolution or similar relief of it or its
debts under any Debtor Relief Law, (E) filed an answer or other
pleading admitting or failing to contest the material allegations of a
petition filed against it in a proceeding of the type described in
subclauses (A) through (D) of this clause (i), (F) sought, consented
to or acquiesced in an order for relief or the appointment of a
trustee, receiver, liquidator or similar official for it or for any
substantial part of such its assets or (G) taken any action in
furtherance of any such actions; or
(ii) any proceeding of the type referred to in clause (i) above
has been filed or commenced against the Company or any Subsidiary or
the Company or any Subsidiary by any act has indicated its approval
thereof, consented thereto or acquiesced therein, or an order for
relief has been entered in an involuntary case under any Debtor Relief
Law, or an order, judgment or decree has been entered appointing a
trustee, receiver, custodian, liquidator or similar official or
adjudicating it insolvent, or approving the petition in any such
proceedings.
"Business Day" means any day which is neither a Saturday or Sunday nor
a legal holiday on which banks are authorized or required to be closed in
New York, New York, or Houston, Texas.
"Closing" has the meaning specified in Section 3(a).
"Closing Date" has the meaning specified in Section 2(b).
"Common Shares" means the shares of Common Stock issuable to the
Purchaser under this Agreement.
"Common Stock" has the meaning specified in the Preliminary Statements
of this Agreement.
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<PAGE> 6
"Company" has the meaning specified in the opening paragraph hereof.
"Debtor Relief Laws" means the Bankruptcy Code of the United States,
and any successor statute of similar import, and all other applicable
dissolution, liquidation, conservatorship, bankruptcy, moratorium,
readjustment of debt, compromise, rearrangement, receivership, insolvency,
fraudulent transfer or conveyance, reorganization or similar debtor relief
laws from time to time in effect affecting the rights of creditors
generally.
"Election Notice" has the meaning specified in Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934.
"Form 10-K Report" has the meaning specified in Section 6(d).
"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.
"Initial Warrants" has the meaning specified in the Preliminary
Statements of this Agreement.
"Laws" means all laws, statutes, rules, regulations, ordinances,
orders, writs, injunctions or decrees and other pronouncements having the
effect of law of any Governmental Authority.
"Material Adverse Effect" means a material adverse effect on the
business, properties, assets, financial condition or results of operations
of the Company and the Subsidiaries, taken as a whole.
"Other Purchasers" has the meaning specified in the Preliminary
Statements of this Agreement.
"Person" means any individual, corporation, partnership, limited
liability company, firm, association, joint venture, Governmental Authority
or other entity or enterprise.
"Purchaser" has the meaning specified in the opening paragraph hereof.
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<PAGE> 7
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of August 21, 1996, as amended, among the Company and
the Persons named therein.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Common Shares, the Warrants and the Warrant
Shares.
"Securities Act" means the Securities Act of 1933.
"Stockholders Agreement" means the Sterling Chemicals Holdings, Inc.
Stockholders Agreement dated effective as of August 21, 1996, as amended,
among the Company and the stockholders of the Company parties thereto.
"Subsequent Warrants" has the meaning specified in Section 3(f).
"Subsidiary" means any subsidiary of the Company of which greater than
50% of the outstanding shares of capital stock having ordinary voting power
for the election of directors is owned directly or indirectly by the
Company.
"Tag-Along Agreement" means the Tag-Along Agreement dated effective as
of August 21, 1996, among the Company and the stockholders of the Company
parties thereto.
"Transaction Documents" means, collectively, this Agreement, the
Registration Rights Agreement, the Voting Agreement, the Tag-Along
Agreement, the Warrant Agreement and the Stockholders Agreement.
"Voting Agreement" means an Amended and Restated Voting Agreement
dated as of the date hereof among the Company and the Persons named
therein.
"Warrants" means the Initial Warrants and the Subsequent Warrants.
"Warrant Agreement" has the meaning specified in the Preliminary
Statements of this Agreement.
"Warrant Shares" means the shares of Common Stock issuable to the
Purchaser upon exercise of the Warrants.
(b) In this Agreement, unless a clear contrary intention appears:
(i) 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;
(ii) reference to any gender includes each other gender and the
neuter;
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<PAGE> 8
(iii) all terms defined in the singular shall have the same meanings
in the plural and vice versa;
(iv) reference to any Person includes such Person's heirs, executors,
personal representatives, administrators, successors and assigns; provided,
however, that nothing contained in this clause (iv) is intended to
authorize any assignment not otherwise permitted by this Agreement;
(v) reference to a Person in a particular capacity or capacities
excludes such Person in any other capacity;
(vi) reference to any contract or agreement means such contract or
agreement as amended, supplemented or modified from time to time in
accordance with the terms thereof;
(vii) all references to Sections shall be deemed to be references to
the Sections of this Agreement;
(viii) all references to Exhibits and Schedules shall be deemed to be
references to the Exhibits and Schedules attached hereto which are made a
part hereof and incorporated herein by reference;
(ix) the word "including" (and with correlative meaning "include")
means including, without limiting the generality of any description
preceding such term;
(x) 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";
(xi) 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;
(xii) reference to any Law means such Law as amended, modified,
codified, reenacted, supplemented or superseded in whole or in part, and in
effect from time to time; and
(xiii) no provision of this Agreement shall be interpreted or
construed against any party solely because that party or its legal
representative drafted such provision.
Section 2. Standby Commitment. (a) Upon the terms and subject to the
satisfaction or waiver of the conditions set forth herein, the purchaser agrees
to purchase from the Company such number of shares of Common Sock (not to
exceed 166,667 in the aggregate) as the Company may, in its sole discretion,
specify at any time or from time to time, in each case at a price per share,
payable in cash, of $6.00. If the Company desires to require the purchaser to
purchase shares of Common Stock as aforesaid, the company must give the
purchaser not less than 15 days' prior written notice (an "Election Notice").
each election notice shall (i) be given in
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<PAGE> 9
accordance with Section 11, (ii) refer to this Agreement, (iii) specify the
number of shares to be purchased, (iv) specify the applicable Closing Date (as
defined below), which may not be later than the third anniversary of the date
hereof, and (v) state that, in the good faith judgement of the Company, the
sale of the Common Shares referred to in such Election Notice is necessary in
order for the Company to maintain, reestablish or enhance its borrowing rights
under its revolving credit facilities and/or to satisfy any obligation under
the documentation governing its revolving credit facilities to raise additional
equity capital. Notwithstanding anything to the contrary contained herein, in
no event Shall the Company be required to sell or issue any Common Shares
unless the Company has given to the Purchaser an Election Notice with respect
to such Common Shares pursuant to this paragraph (a) and then only the number
of Common Shares specified in such Election Notice. The Company may not revoke
any Election Notice given by it as aforesaid.
(b) For purposes of this Agreement, "Closing Date" means, when used
with reference to any purchase of Common Shares, the date on which such
purchase is to be consummated; provided, however, that if such date is not a
Business Day, then the Closing DATE FOR SUCH PURCHASE SHALL BE AUTOMATICALLY
EXTENDED TO THE NEXT SUCCEEDING BUSINESS DAY AND, PROVIDED FURTHER, THAT EACH
CLOSING DATE SHALL BE AT LEAST 30 DAYS AFTER THE IMMEDIATELY PRECEDING CLOSING
DATE, IF ANY.
Section 3. Closings. (a) The consummation of each purchase of
Common Stock pursuant to this Agreement (a "Closing) shall take place on the
applicable Closing Date at 10:00 a.m. (Houston time) unless a different time is
specified in the applicable Election Notice. Each Closing shall be held at the
corporate offices of the Company or at such other place as may be agreed upon by
the Company and the Purchaser.
(b) At each Closing, the Company shall deliver to the Purchaser
(i) a duly executed certificate evidencing the Common Shares being purchased at
such Closing and (ii) a duly executed certificate of the chief executive
officer, the chief financial officer or the treasurer of the Company, dated the
applicable Closing Date, stating that the representations and warranties of the
Company contained in Section 6 are true and correct on and as of such Closing
Date with the same force and effect as though made on and as of such 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 such specified
date, and stating that (A) no Bankruptcy Event has occurred and is continuing,
(B) the Company is generally paying its debts as they become due, (C) the
Company owns property having a value greater than the amount required to pay the
probable liability on its debts and (D) the Company has no plans or intentions
to initiate a Bankruptcy Event nor is it aware that any creditor of the Company
plans or intends to initiate a Bankruptcy Event.
(c) If the first Closing occurs before March 1, 1999, then the
Company shall issue and deliver to the Purchaser at the first Closing, for no
additional consideration, a certificate (in the form attached as Exhibit A to
the Warrant Agreement) evidencing warrants to purchase that number of shares of
Common Stock (rounded to the nearest whole number) equal to the number of Common
Shares purchased by the Purchaser at the first Closing divided by 8.3333.
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<PAGE> 10
(d) If the first Closing occurs before March 1, 1999, then the Company
shall issue and deliver to the Purchaser at the second Closing, for no
additional consideration, a certificate (in the form attached as Exhibit A to
the Warrant Agreement) evidencing warrants to purchase 20,000 shares of Common
Stock minus the number of Common Shares covered by the warrants issued to the
Purchaser at the first Closing.
(e) If the first Closing occurs after February 28, 1999, then the
Company shall issue and deliver to the Purchaser at the first Closing, for no
additional consideration, a certificate (in the form attached as Exhibit A to
the Warrant Agreement) evidencing warrants to purchase 20,000 shares of Common
Stock.
(f) All warrants issued to the Purchaser pursuant to this Section 3
are collectively referred to herein as the "Subsequent Warrants". The
Subsequent Warrants shall be subject to the terms and conditions set forth in
the Warrant Agreement and the certificates evidencing the same.
(g) At each Closing, the Purchaser shall deliver to the Company (i) an
amount (in immediately available funds) equal to the number of Common Shares
being purchased by the Purchaser times $6.00 and (ii) a duly executed
certificate of the Purchaser, dated the applicable Closing Date, stating that
the representations and warranties of the Purchaser contained in Section 7 are
true and correct on and as of such Closing Date with the same force and effect
as though made on and as of such 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 such specified date.
Section 4. SIMULTANEOUS CLOSINGS UNDER OTHER PURCHASE AGREEMENTS. in
no event shall the purchaser be obligated to consummate any closing unless
simultaneously with such closing (a) the company shall sell to the other
purchasers shares of common stock numbering, in the aggregate, not less than
the amount (rounded to the nearest whole number) determined by multiplying the
number of common shares being purchased by the purchaser at such closing times
13.99 and (b) the company shall have received from the other purchasers
payments (in immediately available funds) of the purchase price for such
shares, which shall not be less than $6.00 per share.
Section 5. Use of Proceeds. The Company shall use the proceeds from the
sale of Common Shares at each Closing and the proceeds from each sale of Common
Stock to the Other Purchasers as contemplated by Section 4 solely for general
corporate purposes.
Section 6. Representations and Warranties of the Company. The Company
represents and warrants to the Purchaser as follows:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, and has the
corporate power to own its property and to carry on its business as now
being conducted.
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<PAGE> 11
(b) The Company has all requisite corporate power to enter into and
perform its obligations under the Transaction Documents and the Warrants and
to consummate the transactions contemplated thereby. The Company has taken
all corporate actions necessary to authorize it to enter into and perform
its obligations under the Transaction Documents and the Warrants and to
consummate the transactions contemplated thereby. The Transaction Documents
have been duly executed and delivered by the Company and constitute legal,
valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar Laws affecting creditors' rights generally and general equitable
principles. Upon issuance in accordance with this Agreement and the Warrant
Agreement, the Warrants will have been duly executed and delivered by the
Company and will constitute legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms,
except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar Laws affecting creditors'
rights generally and general equitable principles. The Common Shares have
been duly authorized and, when issued and paid for in accordance with this
Agreement, will be validly issued, fully paid and nonassessable. The Warrant
Shares have been duly authorized and reserved for issuance and, when issued
and paid for upon proper exercise of the Warrants, will be validly issued,
fully paid and nonassessable.
(c) Neither the execution, delivery or performance of any of the
Transaction Documents by the Company, nor the consummation by the Company of
the transactions contemplated thereby, will violate, or result in a breach
of the terms of, or constitute a default under, the charter or bylaws of the
Company or any agreement, instrument or other arrangement or obligation to
which the Company is subject, except for such violations, breaches or
defaults that would not have a Material Adverse Effect.
(d) The Company has delivered to the Purchaser true and complete
copies of (i) the Stockholders Agreement, the Registration Rights Agreement,
the Tag-Along Agreement, the Warrant Agreement and the Company's charter and
bylaws, in each case as in effect on the date hereof, and (ii) the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1998 (the
"Form 10-K Report"). As of the date hereof, the Form 10-K Report complies in
all material respects with all applicable requirements of the Exchange Act
and the applicable rules and regulations promulgated thereunder and does not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of the date
hereof, the consolidated financial statements of the Company included in the
Form 10-K Report comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto. Such financial statements were prepared in accordance
with applicable generally accepted accounting principles applied on a
consistent basis during the periods involved.
-8-
<PAGE> 12
Section 7. Representations and Warranties of the Purchaser. The
Purchaser hereby represents and warrants to the Company as follows:
(a) The Purchaser has all requisite power, authority and capacity to
execute and deliver the Transaction Documents to which the Purchaser is a
party (the "Purchaser Transaction Documents"), to consummate the
transactions contemplated thereby and to perform its obligations thereunder.
Each of the Purchaser Transaction Documents has been executed and delivered
by the Purchaser and constitutes the legal, valid and binding obligation of
the Purchaser, enforceable against the Purchaser in accordance with its
terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar Laws affecting creditors'
rights generally and general equitable principles.
(b) Neither the execution, delivery and performance by the Purchaser
of the Purchaser Transaction Documents, nor the consummation by the
Purchaser of the transactions contemplated thereby, will violate, result in
a breach of the terms of or constitute a default under, any material
agreement, instrument or other arrangement or obligation to which the
Purchaser is subject.
(c) The Purchaser has read and understands this Agreement, including
the Schedules and Exhibits hereto, and acknowledges and understands that
execution and delivery of this Agreement by the Purchaser creates an
irrevocable obligation of the Purchaser, subject to the terms and conditions
contained in this Agreement, to purchase the Common Shares.
(d) The Purchaser is an "accredited investor" within the meaning of
Regulation D under the Securities Act.
(e) The acquisition of the Securities by the Purchaser is for the
Purchaser's own account, is for investment purposes and is not with a view
to, or for offer or sale for the Company in connection with, the
distribution of any Securities in violation of the Securities Act, the
Exchange Act or any state securities laws (collectively, the "Acts"). The
Purchaser is not participating and does not have a participation in any such
distribution or the underwriting of any such distribution, and has no
present intention of selling or otherwise disposing of any of the Securities
in violation of the Acts.
(f) The Purchaser is aware that neither the SEC nor any state
securities commission has approved or disapproved the Securities or passed
upon the accuracy or adequacy of this Agreement or any of the other
Transaction Documents.
(g) The Purchaser (i) recognizes that an investment in the Securities
involves a high degree of risk, (ii) has such knowledge and experience in
financial and business matters as to be capable of evaluating the risks and
merits of this investment and protecting the Purchaser's interests in
connection with this investment and (iii) is able to bear the economic risk
of an investment in the Securities, including the risk of the total loss of
such investment.
-9-
<PAGE> 13
(h) The Purchaser has received copies of the Transactions Documents,
the Form 10-K Report and the Company's charter and bylaws. The Purchaser has
received all the information the Purchaser considers necessary or
appropriate for deciding whether to enter into this Agreement or to acquire
the Securities, and the Purchaser has had an opportunity to ask questions of
and receive answers from the Company regarding the Company and the terms and
conditions of the Securities.
(i) The Purchaser understands that the Securities have not been
registered under the Securities Act on the basis that the issuance or sale
of the Securities is exempt from the registration provisions thereof, and
that the Company's reliance on the exemption is predicated upon the
representations of the Purchaser herein.
(j) The Purchaser has read and understands the terms and provisions
of the Transaction Documents and understands that all Common Shares and all
Warrant Shares issued to the Purchaser will automatically become subject to
the terms and provisions of the Stockholders Agreement, the Tag-Along
Agreement and the Voting Agreement. The Purchaser understands that other
shares of Common Stock currently held or subsequently acquired by the
Purchaser may also become subject to the terms and provisions of the
Stockholders Agreement, the Tag-Along Agreement and the Voting Agreement
pursuant to the terms thereof.
Section 8. Compliance with Securities Laws and Agreements. The
Purchaser acknowledges, understands and agrees that the following limitations
and restrictions are applicable to the purchase, resale and distribution of the
Securities:
(a) The Purchaser must bear the economic risk of its investment in
the Company for an indefinite period of time because the Securities have not
been registered under the Acts and, therefore, may not be subsequently
offered, sold, transferred, pledged or otherwise disposed of unless and
until they have been registered under the Acts or exemptions from
registration thereunder are available, and the Purchaser further understands
that only the Company can take action to register the Securities.
(b) The Purchaser has been advised that the Company does not expect
that Rule 144 under the Securities Act will be available to the Purchaser
with respect to any of the Securities unless the Purchaser is a
non-affiliate of the Company (and has not been an affiliate of the Company
for at least three months) and has held such Securities for at least one
year from the later of the date that they were issued by the Company or the
date that they were acquired from an affiliate of the Company.
(c) The certificates representing the Warrants issued pursuant to
this Agreement will bear the legend provided in the Warrant Agreement. The
certificates representing the Securities issued pursuant to this Agreement
(other than the Warrants) will bear a legend in substantially the following
form:
-10-
<PAGE> 14
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAW (COLLECTIVELY, THE "ACTS") AND MAY
NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF UNLESS MADE PURSUANT TO A REGISTRATION STATEMENT
UNDER THE ACTS OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS THEREOF. FURTHER, SUCH SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED,
SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS
AND UNTIL (1) SUCH SECURITIES HAVE BEEN REGISTERED UNDER THE
ACTS OR (2) THE HOLDER OF SUCH SECURITIES PROVIDES THE
COMPANY WITH (A) AN UNQUALIFIED WRITTEN OPINION OF LEGAL
COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND SUBSTANCE)
SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, TO THE
EFFECT THAT THE PROPOSED DISPOSITION OF SUCH SECURITIES MAY
BE EFFECTED WITHOUT REGISTRATION UNDER THE ACTS OR (B) SUCH
OTHER EVIDENCE AS MAY BE REASONABLY SATISFACTORY TO THE
COMPANY THAT THE PROPOSED DISPOSITION OF SUCH SECURITIES MAY
BE EFFECTED WITHOUT REGISTRATION UNDER THE ACTS.
(d) In addition to the legends provided in paragraph (c) above, the
certificates evidencing the Common Shares and the Warrant Shares will bear
legends in substantially the following forms:
BY THE TERMS OF THE STOCKHOLDERS AGREEMENT AND THE TAG-ALONG
AGREEMENT, CERTAIN RESTRICTIONS HAVE BEEN PLACED UPON THE
TRANSFERABILITY OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE. THE COMPANY WILL FURNISH A COPY OF THE
STOCKHOLDERS AGREEMENT AND THE TAG-ALONG AGREEMENT TO THE
RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON
WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF
BUSINESS OR REGISTERED OFFICE. NO REGISTRATION OR TRANSFER
OF ANY SECURITIES REPRESENTED BY THIS CERTIFICATE WILL BE
MADE ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL SUCH
RESTRICTIONS HAVE BEEN COMPLIED WITH.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE TERMS AND CONDITIONS OF AN AMENDED AND RESTATED
VOTING AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY, AND ARE HELD AND MAY BE SOLD,
ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF ONLY IN
ACCORDANCE WITH SUCH AGREEMENT.
-11-
<PAGE> 15
(e) Stop Transfer Instructions. The Company's stock transfer records
will contain stop transfer instructions with respect to the Common Shares
and the Warrant Shares to provide notice of the restrictions on the resale
or distribution thereof imposed by the Acts and the Stockholders Agreement,
the Tag-Along Agreement and the Voting Agreement.
Section 9. Changes in Capital Structure. In the event of any change
after the date hereof in the number of issued shares of Common Stock by reason
of any stock dividend, split-up, recapitalization, merger, combination,
conversion, exchange of shares or other change in the corporate or capital
structure of the Company, then there shall be appropriate and equitable
adjustments made in the number and kind of shares of stock or other securities
of the Company thereafter issued to the Purchaser pursuant to this Agreement.
Section 10. Specific Performance. The parties agree that the covenants
and obligations contained in this Agreement relate to special, unique and
extraordinary matters and that a violation of any of the terms hereof would
cause irreparable injury in an amount which would be impossible to estimate or
determine and for which any remedy at law would be inadequate. As such, the
parties agree that if either party fails or refuses to fulfill any of such
party's obligations under this Agreement or to make any payment or deliver any
instrument required hereunder, then the other party shall have the remedy of
specific performance, which remedy shall be cumulative and nonexclusive and
shall be in addition to any other rights and remedies otherwise available under
any other contract or at law or in equity and to which such party might be
entitled.
Section 11. 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 or electronic mail
transmission or (d) overnight courier service, to the parties at addresses or
facsimile numbers set forth below their respective names on the signature pages
hereof, or at such other address or number as shall be designated by either
party in a notice to the other party given in accordance with this Section 11.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given, (i) in the case of a notice sent by regular
mail, on the date actually received by the addressee, (ii) in the case of a
notice sent by registered or certified mail, on the date receipted for (or
refused) on the return receipt, (iii) in the case of a notice delivered by hand,
when personally delivered, (iv) in the case of a notice sent by facsimile or
electronic mail, upon transmission subject to telephone confirmation of receipt,
and (v) in the case of a notice sent by overnight mail or overnight courier
service, the date delivered at the designated address, in each case given or
addressed as aforesaid.
Section 12. Survival. All representations, warranties and covenants
contained in this Agreement shall survive the execution and delivery of this
Agreement, the Closings, the delivery of any Securities to the Purchaser and the
death or disability of the Purchaser.
Section 13. Benefit and Burden. This Agreement shall inure to the
benefit of, and shall be binding upon, the Company and its successors and
assigns and the Purchaser and the Purchaser's heirs, executors, personal
representatives, administrators, successors and assigns.
-12-
<PAGE> 16
Section 14. No Third Party Rights. Nothing in this Agreement shall be
deemed to create any right in any creditor or other Person not a party hereto,
and this Agreement shall not be construed in any respect to be a contract in
whole or in part for the benefit of any third party.
Section 15. Amendments and Waiver. No amendment, modification,
restatement or supplement of this Agreement shall be valid unless the same is in
writing and signed by the parties. No waiver of any provision of this Agreement
shall be valid unless in writing and signed by the party against whom that
waiver is sought to be enforced. No failure or delay on the part of any of the
parties in exercising any right, power or privilege hereunder, and no course of
dealing between or among the parties, shall operate as a waiver of any right,
power or privilege hereunder. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder. No notice to or
demand on either party in any case shall entitle such party to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of any party to any other or further action in any
circumstances without notice or demand.
Section 16. Severability. Should any clause, sentence, paragraph,
subsection or Section of this Agreement be judicially declared to be invalid,
unenforceable or void, such decision will not have the effect of invalidating or
voiding the remainder of this Agreement, and the parties agree that the part or
parts of this Agreement so held to be invalid, unenforceable or void will be
deemed to have been stricken herefrom as if such stricken part or parts had
never been included herein.
Section 17. Expenses. The Company will pay, or reimburse the Purchaser
for the payment of, all reasonable expenses incurred by the Purchaser prior to
the date hereof in connection with this Agreement, including all legal and
accounting fees and disbursements. Except as aforesaid, each of the parties
shall pay its own expenses incident to this Agreement, including all legal and
accounting fees and disbursements.
SECTION 18. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
CONSTRUED UNDER, AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE, WITHOUT REFERENCE TO THE CONFLICT-OF-LAWS PROVISIONS THEREOF.
Section 19. Entire Agreement. This Agreement sets forth all of the
promises, agreements, conditions, understandings, warranties and representations
of the parties with respect to the transactions contemplated hereby, 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.
-13-
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
STERLING CHEMICALS HOLDINGS, INC.
By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------
Address: Sterling Chemicals Holdings, Inc.
1200 Smith, Suite 1900
Houston, Texas 77002
Attention: General Counsel
Facsimile No.: (713) 654-9577
E-Mail: [email protected]
PURCHASER:
----------------------------------------
Frank P. Diassi
Address:
--------------------------------
--------------------------------
--------------------------------
--------------------------------
Facsimile No.:
--------------------------
E-Mail:
---------------------------------
-14-
<PAGE> 18
SCHEDULE I
PURCHASERS
<TABLE>
<CAPTION>
PURCHASER NUMBER OF SHARES PERCENTAGE
- --------- ---------------- ALLOCATION
----------
<S> <C> <C>
Gordon A. Cain.................................................. 1,333,333 53.33%
William A. McMinn............................................... 333,333 13.33%
James Crane..................................................... 250,000 10.00%
Frank P. Diassi................................................. 166,667 6.67%
Frank J. Hevrdejs............................................... 166,667 6.67%
Koch Capital Services, Inc...................................... 250,000 10.00%
--------- ------
Total.................................................. 2,500,000 100.00%
</TABLE>
-15-
<PAGE> 1
EXHIBIT 10.30
===============================================================================
===============================================================================
STANDBY PURCHASE AGREEMENT
BY AND BETWEEN
STERLING CHEMICALS HOLDINGS, INC.
AND
FRANK J. HEVRDEJS
===============================================================================
DATED AS OF DECEMBER 15, 1998
===============================================================================
<PAGE> 2
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THE SECURITIES PURCHASED HEREUNDER HAVE NOT BEEN RECOMMENDED OR
APPROVED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY.
FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR
DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE SECURITIES PURCHASED HEREUNDER ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS
SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1 Definitions and Interpretation............................................................ 2
Section 2 Standby Commitment........................................................................ 5
Section 3 Closings.................................................................................. 6
Section 4 Simultaneous Closings Under Other Purchase Agreements..................................... 7
Section 5 Use of Proceeds........................................................................... 7
Section 6 Representations and Warranties of the Company............................................. 7
Section 7 Representations and Warranties of the Purchaser........................................... 9
Section 8 Compliance with Securities Laws and Agreements............................................ 10
Section 9 Changes in Capital Structure.............................................................. 12
Section 10 Specific Performance...................................................................... 12
Section 11 Notices................................................................................... 12
Section 12 Survival.................................................................................. 12
Section 13 Benefit and Burden........................................................................ 12
Section 14 No Third Party Rights..................................................................... 13
Section 15 Amendments and Waiver..................................................................... 13
Section 16 Severability.............................................................................. 13
Section 17 Expenses.................................................................................. 13
Section 18 Governing Law............................................................................. 13
Section 19 Entire Agreement.......................................................................... 13
Schedule I Purchasers
</TABLE>
<PAGE> 4
HEVRDEJS
STANDBY PURCHASE AGREEMENT
THIS STANDBY PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of December 15, 1998 by and between STERLING CHEMICALS HOLDINGS,
INC., a Delaware corporation (the "Company"), and FRANK J. HEVRDEJS (the
"Purchaser").
PRELIMINARY STATEMENTS
A. The Company and the Purchaser are entering into this Agreement
to evidence the Purchaser's agreement to purchase up to
166,667 shares of common stock, par value $0.01 per share, of
the Company ("Common Stock").
B. Simultaneously with the execution and delivery of this
Agreement, the Company and Harris Trust and Savings Bank, as
agent, entered into a Warrant Agreement dated as of the date
hereof (the "Warrant Agreement"). In order to induce the
Purchaser to enter into this Agreement, the Company has issued
to the Purchaser on the date hereof warrants to purchase
20,000 shares of Common Stock (the "Initial Warrants"). The
Initial Warrants are evidenced by a certificate in the form
attached as Exhibit A to the Warrant Agreement and are subject
to the terms and conditions set forth in the Warrant Agreement
and such certificate.
C. The Company and the Purchaser are parties to the Stockholders
Agreement, the Registration Rights Agreement and the Tag-Along
Agreement (as such terms are defined below).
D. In connection with the issuance of the Initial Warrants, the
Company, the Purchaser and certain other parties entered into
an Amended and Restated Voting Agreement dated as of the date
hereof (the "Voting Agreement").
E. Simultaneously with the execution and delivery of this
Agreement, the Company is entering into separate Standby
Purchase Agreements, substantially identical to this
Agreement, with the other purchasers named in Schedule I (the
"Other Purchasers") to evidence the Other Purchasers'
agreement to purchase up to the number of shares of Common
Stock set opposite their respective names in Schedule I.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
<PAGE> 5
Section 1. Definitions and Interpretation. Capitalized terms used
in this Agreement shall, except where the context otherwise requires, have the
following respective meanings:
"Acts" has the meaning specified in Section 7(e).
"Agreement" means this Standby Purchase Agreement, as from time to
time amended in accordance with the terms hereof.
"Bankruptcy Event" means that:
(i) the Company or any Subsidiary has (A) made a general
assignment for the benefit of creditors, (B) filed a voluntary
bankruptcy petition, (C) become the subject of an order for relief
or been declared insolvent in any federal or state bankruptcy or
insolvency proceeding, (D) instituted a proceeding or filed an
answer in a proceeding seeking to adjudicate itself insolvent or
seeking reorganization, arrangement, composition, readjustment,
protection, liquidation, winding-up, dissolution or similar relief
of it or its debts under any Debtor Relief Law, (E) filed an
answer or other pleading admitting or failing to contest the
material allegations of a petition filed against it in a
proceeding of the type described in subclauses (A) through (D) of
this clause (i), (F) sought, consented to or acquiesced in an
order for relief or the appointment of a trustee, receiver,
liquidator or similar official for it or for any substantial part
of such its assets or (G) taken any action in furtherance of any
such actions; or
(ii) any proceeding of the type referred to in clause (i)
above has been filed or commenced against the Company or any
Subsidiary or the Company or any Subsidiary by any act has
indicated its approval thereof, consented thereto or acquiesced
therein, or an order for relief has been entered in an involuntary
case under any Debtor Relief Law, or an order, judgment or decree
has been entered appointing a trustee, receiver, custodian,
liquidator or similar official or adjudicating it insolvent, or
approving the petition in any such proceedings.
"Business Day" means any day which is neither a Saturday or Sunday
nor a legal holiday on which banks are authorized or required to be
closed in New York, New York, or Houston, Texas.
"Closing" has the meaning specified in Section 3(a).
"Closing Date" has the meaning specified in Section 2(b).
"Common Shares" means the shares of Common Stock issuable to the
Purchaser under this Agreement.
"Common Stock" has the meaning specified in the Preliminary
Statements of this Agreement.
-2-
<PAGE> 6
"Company" has the meaning specified in the opening paragraph
hereof.
"Debtor Relief Laws" means the Bankruptcy Code of the United
States, and any successor statute of similar import, and all other
applicable dissolution, liquidation, conservatorship, bankruptcy,
moratorium, readjustment of debt, compromise, rearrangement,
receivership, insolvency, fraudulent transfer or conveyance,
reorganization or similar debtor relief laws from time to time in effect
affecting the rights of creditors generally.
"Election Notice" has the meaning specified in Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934.
"Form 10-K Report" has the meaning specified in Section 6(d).
"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.
"Initial Warrants" has the meaning specified in the Preliminary
Statements of this Agreement.
"Laws" means all laws, statutes, rules, regulations, ordinances,
orders, writs, injunctions or decrees and other pronouncements having the
effect of law of any Governmental Authority.
"Material Adverse Effect" means a material adverse effect on the
business, properties, assets, financial condition or results of
operations of the Company and the Subsidiaries, taken as a whole.
"Other Purchasers" has the meaning specified in the Preliminary
Statements of this Agreement.
"Person" means any individual, corporation, partnership, limited
liability company, firm, association, joint venture, Governmental
Authority or other entity or enterprise.
"Purchaser" has the meaning specified in the opening paragraph
hereof.
-3-
<PAGE> 7
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of August 21, 1996, as amended, among the Company and
the Persons named therein.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Common Shares, the Warrants and the Warrant
Shares.
"Securities Act" means the Securities Act of 1933.
"Stockholders Agreement" means the Sterling Chemicals Holdings,
Inc. Stockholders Agreement dated effective as of August 21, 1996, as
amended, among the Company and the stockholders of the Company parties
thereto.
"Subsequent Warrants" has the meaning specified in Section 3(f).
"Subsidiary" means any subsidiary of the Company of which greater
than 50% of the outstanding shares of capital stock having ordinary
voting power for the election of directors is owned directly or
indirectly by the Company.
"Tag-Along Agreement" means the Tag-Along Agreement dated
effective as of August 21, 1996, among the Company and the stockholders
of the Company parties thereto.
"Transaction Documents" means, collectively, this Agreement, the
Registration Rights Agreement, the Voting Agreement, the Tag-Along
Agreement, the Warrant Agreement and the Stockholders Agreement.
"Voting Agreement" means an Amended and Restated Voting Agreement
dated as of the date hereof among the Company and the Persons named
therein.
"Warrants" means the Initial Warrants and the Subsequent Warrants.
"Warrant Agreement" has the meaning specified in the Preliminary
Statements of this Agreement.
"Warrant Shares" means the shares of Common Stock issuable to the
Purchaser upon exercise of the Warrants.
(b) In this Agreement, unless a clear contrary intention appears:
(i) 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;
(ii) reference to any gender includes each other gender and the
neuter;
-4-
<PAGE> 8
(iii) all terms defined in the singular shall have the same
meanings in the plural and vice versa;
(iv) reference to any Person includes such Person's heirs,
executors, personal representatives, administrators, successors and
assigns; provided, however, that nothing contained in this clause (iv) is
intended to authorize any assignment not otherwise permitted by this
Agreement;
(v) reference to a Person in a particular capacity or capacities
excludes such Person in any other capacity;
(vi) reference to any contract or agreement means such contract or
agreement as amended, supplemented or modified from time to time in
accordance with the terms thereof;
(vii) all references to Sections shall be deemed to be references
to the Sections of this Agreement;
(viii) all references to Exhibits and Schedules shall be deemed to
be references to the Exhibits and Schedules attached hereto which are
made a part hereof and incorporated herein by reference;
(ix) the word "including" (and with correlative meaning "include")
means including, without limiting the generality of any description
preceding such term;
(x) 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";
(xi) 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;
(xii) reference to any Law means such Law as amended, modified,
codified, reenacted, supplemented or superseded in whole or in part, and
in effect from time to time; and
(xiii) no provision of this Agreement shall be interpreted or
construed against any party solely because that party or its legal
representative drafted such provision.
Section 2. Standby Commitment. (a) Upon the terms and subject to
the satisfaction or waiver of the conditions set forth herein, the Purchaser
agrees to purchase from the Company such number of shares of Common Stock (not
to exceed 166,667 in the aggregate) as the Company may, in its sole discretion,
specify at any time or from time to time, in each case at a price per share,
payable in cash, of $6.00. If the Company desires to require the Purchaser to
purchase shares of Common Stock as aforesaid, the Company must give the
Purchaser not less than 15 days' prior written notice (an "Election Notice").
Each Election Notice shall (i) be given in
-5-
<PAGE> 9
accordance with Section 11, (ii) refer to this Agreement, (iii) specify the
number of shares to be purchased, (iv) specify the applicable Closing Date (as
defined below), which may not be later than the third anniversary of the date
hereof, and (v) state that, in the good faith judgement of the Company, the sale
of the Common Shares referred to in such Election Notice is necessary in order
for the Company to maintain, reestablish or enhance its borrowing rights under
its revolving credit facilities and/or to satisfy any obligation under the
documentation governing its revolving credit facilities to raise additional
equity capital. Notwithstanding anything to the contrary contained herein, in no
event shall the Company be required to sell or issue any Common Shares unless
the Company has given to the Purchaser an Election Notice with respect to such
Common Shares pursuant to this paragraph (a) and then only the number of Common
Shares specified in such Election Notice. The Company may not revoke any
Election Notice given by it as aforesaid.
(b) For purposes of this Agreement, "Closing Date" means, when
used with reference to any purchase of Common Shares, the date on which such
purchase is to be consummated; provided, however, that if such date is not a
Business Day, then the Closing Date for such purchase shall be automatically
extended to the next succeeding Business Day and, provided further, that each
Closing Date shall be at least 30 days after the immediately preceding Closing
Date, if any.
Section 3. Closings. (a) The consummation of each purchase of
Common Stock pursuant to this Agreement (a "Closing) shall take place on the
applicable Closing Date at 10:00 a.m. (Houston time) unless a different time is
specified in the applicable Election Notice. Each Closing shall be held at the
corporate offices of the Company or at such other place as may be agreed upon by
the Company and the Purchaser.
(b) At each Closing, the Company shall deliver to the Purchaser
(i) a duly executed certificate evidencing the Common Shares being purchased at
such Closing and (ii) a duly executed certificate of the chief executive
officer, the chief financial officer or the treasurer of the Company, dated the
applicable Closing Date, stating that the representations and warranties of the
Company contained in Section 6 are true and correct on and as of such Closing
Date with the same force and effect as though made on and as of such 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 such specified
date, and stating that (A) no Bankruptcy Event has occurred and is continuing,
(B) the Company is generally paying its debts as they become due, (C) the
Company owns property having a value greater than the amount required to pay the
probable liability on its debts and (D) the Company has no plans or intentions
to initiate a Bankruptcy Event nor is it aware that any creditor of the Company
plans or intends to initiate a Bankruptcy Event.
(c) If the first Closing occurs before March 1, 1999, then the
Company shall issue and deliver to the Purchaser at the first Closing, for no
additional consideration, a certificate (in the form attached as Exhibit A to
the Warrant Agreement) evidencing warrants to purchase that number of shares of
Common Stock (rounded to the nearest whole number) equal to the number of Common
Shares purchased by the Purchaser at the first Closing divided by 8.3333.
-6-
<PAGE> 10
(d) If the first Closing occurs before March 1, 1999, then the
Company shall issue and deliver to the Purchaser at the second Closing, for no
additional consideration, a certificate (in the form attached as Exhibit A to
the Warrant Agreement) evidencing warrants to purchase 20,000 shares of Common
Stock minus the number of Common Shares covered by the warrants issued to the
Purchaser at the first Closing.
(e) If the first Closing occurs after February 28, 1999, then the
Company shall issue and deliver to the Purchaser at the first Closing, for no
additional consideration, a certificate (in the form attached as Exhibit A to
the Warrant Agreement) evidencing warrants to purchase 20,000 shares of Common
Stock.
(f) All warrants issued to the Purchaser pursuant to this Section
3 are collectively referred to herein as the "Subsequent Warrants". The
Subsequent Warrants shall be subject to the terms and conditions set forth in
the Warrant Agreement and the certificates evidencing the same.
(g) At each Closing, the Purchaser shall deliver to the Company
(i) an amount (in immediately available funds) equal to the number of Common
Shares being purchased by the Purchaser times $6.00 and (ii) a duly executed
certificate of the Purchaser, dated the applicable Closing Date, stating that
the representations and warranties of the Purchaser contained in Section 7 are
true and correct on and as of such Closing Date with the same force and effect
as though made on and as of such 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 such specified date.
Section 4. Simultaneous Closings under Other Purchase Agreements.
In no event shall the Purchaser be obligated to consummate any Closing unless
simultaneously with such Closing (a) the Company shall sell to the Other
Purchasers shares of Common Stock numbering, in the aggregate, not less than the
amount (rounded to the nearest whole number) determined by multiplying the
number of Common Shares being purchased by the Purchaser at such Closing times
13.99 and (b) the Company shall have received from the Other Purchasers payments
(in immediately available funds) of the purchase price for such shares, which
shall not be less than $6.00 per share.
Section 5. Use of Proceeds. The Company shall use the proceeds
from the sale of Common Shares at each Closing and the proceeds from each sale
of Common Stock to the Other Purchasers as contemplated by Section 4 solely for
general corporate purposes.
Section 6. Representations and Warranties of the Company. The
Company represents and warrants to the Purchaser as follows:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and has the
corporate power to own its property and to carry on its business as now
being conducted.
-7-
<PAGE> 11
(b) The Company has all requisite corporate power to enter into
and perform its obligations under the Transaction Documents and the
Warrants and to consummate the transactions contemplated thereby. The
Company has taken all corporate actions necessary to authorize it to
enter into and perform its obligations under the Transaction Documents
and the Warrants and to consummate the transactions contemplated thereby.
The Transaction Documents have been duly executed and delivered by the
Company and constitute legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms,
except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar Laws affecting
creditors' rights generally and general equitable principles. Upon
issuance in accordance with this Agreement and the Warrant Agreement, the
Warrants will have been duly executed and delivered by the Company and
will constitute legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Laws affecting creditors' rights
generally and general equitable principles. The Common Shares have been
duly authorized and, when issued and paid for in accordance with this
Agreement, will be validly issued, fully paid and nonassessable. The
Warrant Shares have been duly authorized and reserved for issuance and,
when issued and paid for upon proper exercise of the Warrants, will be
validly issued, fully paid and nonassessable.
(c) Neither the execution, delivery or performance of any of the
Transaction Documents by the Company, nor the consummation by the Company
of the transactions contemplated thereby, will violate, or result in a
breach of the terms of, or constitute a default under, the charter or
bylaws of the Company or any agreement, instrument or other arrangement
or obligation to which the Company is subject, except for such
violations, breaches or defaults that would not have a Material Adverse
Effect.
(d) The Company has delivered to the Purchaser true and complete
copies of (i) the Stockholders Agreement, the Registration Rights
Agreement, the Tag-Along Agreement, the Warrant Agreement and the
Company's charter and bylaws, in each case as in effect on the date
hereof, and (ii) the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1998 (the "Form 10-K Report"). As of the date
hereof, the Form 10-K Report complies in all material respects with all
applicable requirements of the Exchange Act and the applicable rules and
regulations promulgated thereunder and does not contain any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. As of the date hereof, the
consolidated financial statements of the Company included in the Form
10-K Report comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
SEC with respect thereto. Such financial statements were prepared in
accordance with applicable generally accepted accounting principles
applied on a consistent basis during the periods involved.
-8-
<PAGE> 12
Section 7. Representations and Warranties of the Purchaser. The
Purchaser hereby represents and warrants to the Company as follows:
(a) The Purchaser has all requisite power, authority and capacity
to execute and deliver the Transaction Documents to which the Purchaser
is a party (the "Purchaser Transaction Documents"), to consummate the
transactions contemplated thereby and to perform its obligations
thereunder. Each of the Purchaser Transaction Documents has been executed
and delivered by the Purchaser and constitutes the legal, valid and
binding obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar
Laws affecting creditors' rights generally and general equitable
principles.
(b) Neither the execution, delivery and performance by the
Purchaser of the Purchaser Transaction Documents, nor the consummation by
the Purchaser of the transactions contemplated thereby, will violate,
result in a breach of the terms of or constitute a default under, any
material agreement, instrument or other arrangement or obligation to
which the Purchaser is subject.
(c) The Purchaser has read and understands this Agreement,
including the Schedules and Exhibits hereto, and acknowledges and
understands that execution and delivery of this Agreement by the
Purchaser creates an irrevocable obligation of the Purchaser, subject to
the terms and conditions contained in this Agreement, to purchase the
Warrant Shares.
(d) The Purchaser is an "accredited investor" within the meaning
of Regulation D under the Securities Act.
(e) The acquisition of the Securities by the Purchaser is for the
Purchaser's own account, is for investment purposes and is not with a
view to, or for offer or sale for the Company in connection with, the
distribution of any Securities in violation of the Securities Act, the
Exchange Act or any state securities laws (collectively, the "Acts"). The
Purchaser is not participating and does not have a participation in any
such distribution or the underwriting of any such distribution, and has
no present intention of selling or otherwise disposing of any of the
Securities in violation of the Acts.
(f) The Purchaser is aware that neither the SEC nor any state
securities commission has approved or disapproved the Securities or
passed upon the accuracy or adequacy of this Agreement or any of the
other Transaction Documents.
(g) The Purchaser (i) recognizes that an investment in the
Securities involves a high degree of risk, (ii) has such knowledge and
experience in financial and business matters as to be capable of
evaluating the risks and merits of this investment and protecting the
Purchaser's interests in connection with this investment and (iii) is
able to bear the economic risk of an investment in the Securities,
including the risk of the total loss of such investment.
-9-
<PAGE> 13
(h) The Purchaser has received copies of the Transactions
Documents, the Form 10-K Report and the Company's charter and bylaws. The
Purchaser has received all the information the Purchaser considers
necessary or appropriate for deciding whether to enter into this
Agreement or to acquire the Securities, and the Purchaser has had an
opportunity to ask questions of and receive answers from the Company
regarding the Company and the terms and conditions of the Securities.
(i) The Purchaser understands that the Securities have not been
registered under the Securities Act on the basis that the issuance or
sale of the Securities is exempt from the registration provisions
thereof, and that the Company's reliance on the exemption is predicated
upon the representations of the Purchaser herein.
(j) The Purchaser has read and understands the terms and
provisions of the Transaction Documents and understands that all Common
Shares and all Warrant Shares issued to the Purchaser will automatically
become subject to the terms and provisions of the Stockholders Agreement,
the Tag-Along Agreement and the Voting Agreement. The Purchaser
understands that other shares of Common Stock currently held or
subsequently acquired by the Purchaser may also become subject to the
terms and provisions of the Stockholders Agreement, the Tag-Along
Agreement and the Voting Agreement pursuant to the terms thereof.
Section 8. Compliance with Securities Laws and Agreements. The
Purchaser acknowledges, understands and agrees that the following limitations
and restrictions are applicable to the purchase, resale and distribution of the
Securities:
(a) The Purchaser must bear the economic risk of its investment in
the Company for an indefinite period of time because the Securities have
not been registered under the Acts and, therefore, may not be
subsequently offered, sold, transferred, pledged or otherwise disposed of
unless and until they have been registered under the Acts or exemptions
from registration thereunder are available, and the Purchaser further
understands that only the Company can take action to register the
Securities.
(b) The Purchaser has been advised that the Company does not
expect that Rule 144 under the Securities Act will be available to the
Purchaser with respect to any of the Securities unless the Purchaser is a
non-affiliate of the Company (and has not been an affiliate of the
Company for at least three months) and has held such Securities for at
least one year from the later of the date that they were issued by the
Company or the date that they were acquired from an affiliate of the
Company.
(c) The certificates representing the Warrants issued pursuant to
this Agreement will bear the legend provided in the Warrant Agreement.
The certificates representing the Securities issued pursuant to this
Agreement (other than the Warrants) will bear a legend in substantially
the following form:
-10-
<PAGE> 14
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAW (COLLECTIVELY, THE "ACTS") AND MAY
NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF UNLESS MADE PURSUANT TO A REGISTRATION STATEMENT
UNDER THE ACTS OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS THEREOF. FURTHER, SUCH SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED,
SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS
AND UNTIL (1) SUCH SECURITIES HAVE BEEN REGISTERED UNDER THE
ACTS OR (2) THE HOLDER OF SUCH SECURITIES PROVIDES THE
COMPANY WITH (A) AN UNQUALIFIED WRITTEN OPINION OF LEGAL
COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND SUBSTANCE)
SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, TO THE
EFFECT THAT THE PROPOSED DISPOSITION OF SUCH SECURITIES MAY
BE EFFECTED WITHOUT REGISTRATION UNDER THE ACTS OR (B) SUCH
OTHER EVIDENCE AS MAY BE REASONABLY SATISFACTORY TO THE
COMPANY THAT THE PROPOSED DISPOSITION OF SUCH SECURITIES MAY
BE EFFECTED WITHOUT REGISTRATION UNDER THE ACTS.
(d) In addition to the legends provided in paragraph (c) above,
the certificates evidencing the Common Shares and the Warrant Shares will
bear legends in substantially the following forms:
BY THE TERMS OF THE STOCKHOLDERS AGREEMENT AND THE TAG-ALONG
AGREEMENT, CERTAIN RESTRICTIONS HAVE BEEN PLACED UPON THE
TRANSFERABILITY OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE. THE COMPANY WILL FURNISH A COPY OF THE
STOCKHOLDERS AGREEMENT AND THE TAG-ALONG AGREEMENT TO THE
RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON
WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF
BUSINESS OR REGISTERED OFFICE. NO REGISTRATION OR TRANSFER
OF ANY SECURITIES REPRESENTED BY THIS CERTIFICATE WILL BE
MADE ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL SUCH
RESTRICTIONS HAVE BEEN COMPLIED WITH.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE TERMS AND CONDITIONS OF AN AMENDED AND RESTATED
VOTING AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY, AND ARE HELD AND MAY BE SOLD,
ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF ONLY IN
ACCORDANCE WITH SUCH AGREEMENT.
-11-
<PAGE> 15
(e) Stop Transfer Instructions. The Company's stock transfer
records will contain stop transfer instructions with respect to the
Common Shares and the Warrant Shares to provide notice of the
restrictions on the resale or distribution thereof imposed by the Acts
and the Stockholders Agreement, the Tag-Along Agreement and the Voting
Agreement.
Section 9. Changes in Capital Structure. In the event of any
change after the date hereof in the number of issued shares of Common Stock by
reason of any stock dividend, split-up, recapitalization, merger, combination,
conversion, exchange of shares or other change in the corporate or capital
structure of the Company, then there shall be appropriate and equitable
adjustments made in the number and kind of shares of stock or other securities
of the Company thereafter issued to the Purchaser pursuant to this Agreement.
Section 10. Specific Performance. The parties agree that the
covenants and obligations contained in this Agreement relate to special, unique
and extraordinary matters and that a violation of any of the terms hereof would
cause irreparable injury in an amount which would be impossible to estimate or
determine and for which any remedy at law would be inadequate. As such, the
parties agree that if either party fails or refuses to fulfill any of such
party's obligations under this Agreement or to make any payment or deliver any
instrument required hereunder, then the other party shall have the remedy of
specific performance, which remedy shall be cumulative and nonexclusive and
shall be in addition to any other rights and remedies otherwise available under
any other contract or at law or in equity and to which such party might be
entitled.
Section 11. 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 or electronic mail
transmission or (d) overnight courier service, to the parties at addresses or
facsimile numbers set forth below their respective names on the signature pages
hereof, or at such other address or number as shall be designated by either
party in a notice to the other party given in accordance with this Section 11.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given, (i) in the case of a notice sent by regular
mail, on the date actually received by the addressee, (ii) in the case of a
notice sent by registered or certified mail, on the date receipted for (or
refused) on the return receipt, (iii) in the case of a notice delivered by hand,
when personally delivered, (iv) in the case of a notice sent by facsimile or
electronic mail, upon transmission subject to telephone confirmation of receipt,
and (v) in the case of a notice sent by overnight mail or overnight courier
service, the date delivered at the designated address, in each case given or
addressed as aforesaid.
Section 12. Survival. All representations, warranties and
covenants contained in this Agreement shall survive the execution and delivery
of this Agreement, the Closings, the delivery of any Securities to the Purchaser
and the death or disability of the Purchaser.
Section 13. Benefit and Burden. This Agreement shall inure to the
benefit of, and shall be binding upon, the Company and its successors and
assigns and the Purchaser and the Purchaser's heirs, executors, personal
representatives, administrators, successors and assigns.
-12-
<PAGE> 16
Section 14. No Third Party Rights. Nothing in this Agreement shall
be deemed to create any right in any creditor or other Person not a party
hereto, and this Agreement shall not be construed in any respect to be a
contract in whole or in part for the benefit of any third party.
Section 15. Amendments and Waiver. No amendment, modification,
restatement or supplement of this Agreement shall be valid unless the same is in
writing and signed by the parties. No waiver of any provision of this Agreement
shall be valid unless in writing and signed by the party against whom that
waiver is sought to be enforced. No failure or delay on the part of any of the
parties in exercising any right, power or privilege hereunder, and no course of
dealing between or among the parties, shall operate as a waiver of any right,
power or privilege hereunder. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder. No notice to or
demand on either party in any case shall entitle such party to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of any party to any other or further action in any
circumstances without notice or demand.
Section 16. Severability. Should any clause, sentence, paragraph,
subsection or Section of this Agreement be judicially declared to be invalid,
unenforceable or void, such decision will not have the effect of invalidating or
voiding the remainder of this Agreement, and the parties agree that the part or
parts of this Agreement so held to be invalid, unenforceable or void will be
deemed to have been stricken herefrom as if such stricken part or parts had
never been included herein.
Section 17. Expenses. The Company will pay, or reimburse the
Purchaser for the payment of, all reasonable expenses incurred by the Purchaser
prior to the date hereof in connection with this Agreement, including all legal
and accounting fees and disbursements. Except as aforesaid, each of the parties
shall pay its own expenses incident to this Agreement, including all legal and
accounting fees and disbursements.
Section 18. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY,
CONSTRUED UNDER, AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE, WITHOUT REFERENCE TO THE CONFLICT-OF-LAWS PROVISIONS THEREOF.
Section 19. Entire Agreement. This Agreement sets forth all of the
promises, agreements, conditions, understandings, warranties and representations
of the parties with respect to the transactions contemplated hereby, 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.
-13-
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date first above written.
STERLING CHEMICALS HOLDINGS, INC.
By:
------------------------------------------------
Printed Name:
--------------------------------------
Title:
---------------------------------------------
Address: Sterling Chemicals Holdings, Inc.
1200 Smith, Suite 1900
Houston, Texas 77002
Attention: General Counsel
Facsimile No.: (713) 654-9577
E-Mail: [email protected]
PURCHASER:
---------------------------------------------------
Frank J. Hevrdejs
Address:
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
Facsimile No.:
-------------------------------------
E-Mail:
--------------------------------------------
-14-
<PAGE> 18
SCHEDULE I
PURCHASERS
<TABLE>
<CAPTION>
PERCENTAGE
PURCHASER NUMBER OF SHARES ALLOCATION
- --------- ---------------- ----------
<S> <C> <C>
Gordon A. Cain.................................................. 1,333,333 53.33%
William A. McMinn............................................... 333,333 13.33%
James Crane..................................................... 250,000 10.00%
Frank P. Diassi................................................. 166,667 6.67%
Frank J. Hevrdejs............................................... 166,667 6.67%
Koch Capital Services, Inc...................................... 250,000 10.00%
---------- -------
Total.................................................. 2,500,000 100.00%
</TABLE>
-15-
<PAGE> 1
EXHIBIT 10.31
================================================================================
================================================================================
STANDBY PURCHASE AGREEMENT
BY AND BETWEEN
STERLING CHEMICALS HOLDINGS, INC.
AND
KOCH CAPITAL SERVICES, INC.
================================================================================
DATED AS OF DECEMBER 15, 1998
================================================================================
<PAGE> 2
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE ISSUER AND THER TERMS OF THE OFFERING, INCLUDING THER MERITS AND RISKS
INVOLVED. THE SECURITIES PURCHASED HEREUNDER HAVE NOT BEEN RECOMMENDED OR
APPROVED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY.
FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR
DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE SECURITIES PURCHASED HEREUNDER ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BEW TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM, INVESTORS
SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1 Definitions and Interpretation............................. 2
Section 2 Standby Committment........................................ 5
Section 3 Closings................................................... 6
Section 4 Simultaneous Closings Under Other Purchase Agreements...... 7
Section 5 Use of Proceeds............................................ 7
Section 6 Representations and Warranties of the Company.............. 7
Section 7 Representations and Warranties of the Purchaser............ 9
Section 8 Compliance with Securities Laws and Agreements............. 10
Section 9 Changes in Capital Structure............................... 12
Section 10 Specific Performance....................................... 12
Section 11 Notices.................................................... 12
Section 12 Survival................................................... 12
Section 13 Benefit and Burden......................................... 13
Section 14 No Third Party Rights...................................... 13
Section 15 Amendments and Waiver...................................... 13
Section 16 Severability............................................... 13
Section 17 Expenses................................................... 13
Section 18 Governing Law.............................................. 13
Section 19 Entire Agreement........................................... 13
Schedule I Purchasers
</TABLE>
<PAGE> 4
KOCH
STANDBY PURCHASE AGREEMENT
THIS STANDBY PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of December 15, 1998 by and between STERLING CHEMICALS HOLDINGS, INC., a
Delaware corporation (the "Company"), and KOCH CAPITAL SERVICES, INC., a
Delaware corporation (the "Purchaser").
PRELIMINARY STATEMENTS
A. The Company and the Purchaser are entering into this Agreement to
evidence the Purchaser's agreement to purchase up to 250,000 shares of
common stock, par value $0.01 per share, of the Company ("Common
Stock").
B. Simultaneously with the execution and delivery of this Agreement, the
Company and Harris Trust and Savings Bank, as agent, entered into a
Warrant Agreement dated as of the date hereof (the "Warrant
Agreement"). In order to induce the Purchaser to enter into this
Agreement, the Company has issued to the Purchaser on the date hereof
warrants to purchase 30,000 shares of Common Stock (the "Initial
Warrants"). The Initial Warrants are evidenced by a certificate in the
form attached as Exhibit A to the Warrant Agreement and are subject to
the terms and conditions set forth in the Warrant Agreement and such
certificate.
C. The Company and the Purchaser are parties to the Stockholders
Agreement, the Registration Rights Agreement and the Tag-Along
Agreement (as such terms are defined below).
D. In connection with the issuance of the Initial Warrants, the Company,
the Purchaser and certain other parties entered into an Amended and
Restated Voting Agreement dated as of the date hereof (the "Voting
Agreement").
E. Simultaneously with the execution and delivery of this Agreement, the
Company is entering into separate Standby Purchase Agreements,
substantially identical to this Agreement, with the other purchasers
named in Schedule I (the "Other Purchasers") to evidence the Other
Purchasers' agreement to purchase up to the number of shares of Common
Stock set opposite their respective names in Schedule I.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
<PAGE> 5
Section 1. Definitions and Interpretation. Capitalized terms used in
this Agreement shall, except where the context otherwise requires, have the
following respective meanings:
"Acts" has the meaning specified in Section 7(e).
"Agreement" means this Standby Purchase Agreement, as from time to time
amended in accordance with the terms hereof.
"Bankruptcy Event" means that:
(i) the Company or any Subsidiary has (A) made a general
assignment for the benefit of creditors, (B) filed a voluntary
bankruptcy petition, (C) become the subject of an order for relief or
been declared insolvent in any federal or state bankruptcy or
insolvency proceeding, (D) instituted a proceeding or filed an answer
in a proceeding seeking to adjudicate itself insolvent or seeking
reorganization, arrangement, composition, readjustment, protection,
liquidation, winding-up, dissolution or similar relief of it or its
debts under any Debtor Relief Law, (E) filed an answer or other
pleading admitting or failing to contest the material allegations of a
petition filed against it in a proceeding of the type described in
subclauses (A) through (D) of this clause (i), (F) sought, consented
to or acquiesced in an order for relief or the appointment of a
trustee, receiver, liquidator or similar official for it or for any
substantial part of such its assets or (G) taken any action in
furtherance of any such actions; or
(ii) any proceeding of the type referred to in clause (i) above
has been filed or commenced against the Company or any Subsidiary or
the Company or any Subsidiary by any act has indicated its approval
thereof, consented thereto or acquiesced therein, or an order for
relief has been entered in an involuntary case under any Debtor Relief
Law, or an order, judgment or decree has been entered appointing a
trustee, receiver, custodian, liquidator or similar official or
adjudicating it insolvent, or approving the petition in any such
proceedings.
"Business Day" means any day which is neither a Saturday or Sunday nor a
legal holiday on which banks are authorized or required to be closed in New
York, New York, or Houston, Texas.
"Closing" has the meaning specified in Section 3(a).
"Closing Date" has the meaning specified in Section 2(b).
"Common Shares" means the shares of Common Stock issuable to the
Purchaser under this Agreement.
"Common Stock" has the meaning specified in the Preliminary Statements
of this Agreement.
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"Company" has the meaning specified in the opening paragraph hereof.
"Debtor Relief Laws" means the Bankruptcy Code of the United States, and
any successor statute of similar import, and all other applicable
dissolution, liquidation, conservatorship, bankruptcy, moratorium,
readjustment of debt, compromise, rearrangement, receivership, insolvency,
fraudulent transfer or conveyance, reorganization or similar debtor relief
laws from time to time in effect affecting the rights of creditors
generally.
"Election Notice" has the meaning specified in Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934.
"Form 10-K Report" has the meaning specified in Section 6(d).
"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.
"Initial Warrants" has the meaning specified in the Preliminary
Statements of this Agreement.
"Laws" means all laws, statutes, rules, regulations, ordinances, orders,
writs, injunctions or decrees and other pronouncements having the effect of
law of any Governmental Authority.
"Material Adverse Effect" means a material adverse effect on the
business, properties, assets, financial condition or results of operations
of the Company and the Subsidiaries, taken as a whole.
"Other Purchasers" has the meaning specified in the Preliminary
Statements of this Agreement.
"Person" means any individual, corporation, partnership, limited
liability company, firm, association, joint venture, Governmental Authority
or other entity or enterprise.
"Purchaser" has the meaning specified in the opening paragraph hereof.
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"Registration Rights Agreement" means the Registration Rights Agreement
dated as of August 21, 1996, as amended, among the Company and the Persons
named therein.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Common Shares, the Warrants and the Warrant
Shares.
"Securities Act" means the Securities Act of 1933.
"Stockholders Agreement" means the Sterling Chemicals Holdings, Inc.
Stockholders Agreement dated effective as of August 21, 1996, as amended,
among the Company and the stockholders of the Company parties thereto.
"Subsequent Warrants" has the meaning specified in Section 3(f).
"Subsidiary" means any subsidiary of the Company of which greater than
50% of the outstanding shares of capital stock having ordinary voting power
for the election of directors is owned directly or indirectly by the
Company.
"Tag-Along Agreement" means the Tag-Along Agreement dated effective as
of August 21, 1996, among the Company and the stockholders of the Company
parties thereto.
"Transaction Documents" means, collectively, this Agreement, the
Registration Rights Agreement, the Voting Agreement, the Tag-Along
Agreement, the Warrant Agreement and the Stockholders Agreement.
"Voting Agreement" means an Amended and Restated Voting Agreement dated
as of the date hereof among the Company and the Persons named therein.
"Warrants" means the Initial Warrants and the Subsequent Warrants.
"Warrant Agreement" has the meaning specified in the Preliminary
Statements of this Agreement.
"Warrant Shares" means the shares of Common Stock issuable to the
Purchaser upon exercise of the Warrants.
(b) In this Agreement, unless a clear contrary intention appears:
(i) 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;
(ii) reference to any gender includes each other gender and the neuter;
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(iii) all terms defined in the singular shall have the same meanings in
the plural and vice versa;
(iv) reference to any Person includes such Person's heirs, executors,
personal representatives, administrators, successors and assigns; provided,
however, that nothing contained in this clause (iv) is intended to authorize
any assignment not otherwise permitted by this Agreement;
(v) reference to a Person in a particular capacity or capacities
excludes such Person in any other capacity;
(vi) reference to any contract or agreement means such contract or
agreement as amended, supplemented or modified from time to time in
accordance with the terms thereof;
(vii) all references to Sections shall be deemed to be references to the
Sections of this Agreement;
(viii) all references to Exhibits and Schedules shall be deemed to be
references to the Exhibits and Schedules attached hereto which are made a
part hereof and incorporated herein by reference;
(ix) the word "including" (and with correlative meaning "include") means
including, without limiting the generality of any description preceding such
term;
(x) 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";
(xi) 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;
(xii) reference to any Law means such Law as amended, modified,
codified, reenacted, supplemented or superseded in whole or in part, and in
effect from time to time; and
(xiii) no provision of this Agreement shall be interpreted or construed
against any party solely because that party or its legal representative
drafted such provision.
Section 2. Standby Commitment. (a) Upon the terms and subject to the
satisfaction or waiver of the conditions set forth herein, the Purchaser agrees
to purchase from the Company such number of shares of Common Stock (not to
exceed 250,000 in the aggregate) as the Company may, in its sole discretion,
specify at any time or from time to time, in each case at a price per share,
payable in cash, of $6.00. If the Company desires to require the Purchaser to
purchase shares of Common Stock as aforesaid, the Company must give the
Purchaser not less than 15 days' prior written notice (an "Election Notice").
Each Election Notice shall (i) be given in
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accordance with Section 11, (ii) refer to this Agreement, (iii) specify the
number of shares to be purchased, (iv) specify the applicable Closing Date (as
defined below), which may not be later than the third anniversary of the date
hereof, and (v) state that, in the good faith judgement of the Company, the sale
of the Common Shares referred to in such Election Notice is necessary in order
for the Company to maintain, reestablish or enhance its borrowing rights under
its revolving credit facilities and/or to satisfy any obligation under the
documentation governing its revolving credit facilities to raise additional
equity capital. Notwithstanding anything to the contrary contained herein, in no
event shall the Company be required to sell or issue any Common Shares unless
the Company has given to the Purchaser an Election Notice with respect to such
Common Shares pursuant to this paragraph (a) and then only the number of Common
Shares specified in such Election Notice. The Company may not revoke any
Election Notice given by it as aforesaid.
(b) For purposes of this Agreement, "Closing Date" means, when used with
reference to any purchase of Common Shares, the date on which such purchase is
to be consummated; provided, however, that if such date is not a Business Day,
then the Closing Date for such purchase shall be automatically extended to the
next succeeding Business Day and, provided further, that each Closing Date shall
be at least 30 days after the immediately preceding Closing Date, if any.
Section 3. Closings. (a) The consummation of each purchase of Common
Stock pursuant to this Agreement (a "Closing) shall take place on the applicable
Closing Date at 10:00 a.m. (Houston time) unless a different time is specified
in the applicable Election Notice. Each Closing shall be held at the corporate
offices of the Company or at such other place as may be agreed upon by the
Company and the Purchaser.
(b) At each Closing, the Company shall deliver to the Purchaser (i) a
duly executed certificate evidencing the Common Shares being purchased at such
Closing and (ii) a duly executed certificate of the chief executive officer, the
chief financial officer or the treasurer of the Company, dated the applicable
Closing Date, stating that the representations and warranties of the Company
contained in Section 6 are true and correct on and as of such Closing Date with
the same force and effect as though made on and as of such 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 such specified date, and
stating that (A) no Bankruptcy Event has occurred and is continuing, (B) the
Company is generally paying its debts as they become due, (C) the Company owns
property having a value greater than the amount required to pay the probable
liability on its debts and (D) the Company has no plans or intentions to
initiate a Bankruptcy Event nor is it aware that any creditor of the Company
plans or intends to initiate a Bankruptcy Event.
(c) If the first Closing occurs before March 1, 1999, then the Company
shall issue and deliver to the Purchaser at the first Closing, for no additional
consideration, a certificate (in the form attached as Exhibit A to the Warrant
Agreement) evidencing warrants to purchase that number of shares of Common Stock
(rounded to the nearest whole number) equal to the number of Common Shares
purchased by the Purchaser at the first Closing divided by 8.3333.
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(d) If the first Closing occurs before March 1, 1999, then the Company
shall issue and deliver to the Purchaser at the second Closing, for no
additional consideration, a certificate (in the form attached as Exhibit A to
the Warrant Agreement) evidencing warrants to purchase 30,000 shares of Common
Stock minus the number of Common Shares covered by the warrants issued to the
Purchaser at the first Closing.
(e) If the first Closing occurs after February 28, 1999, then the
Company shall issue and deliver to the Purchaser at the first Closing, for no
additional consideration, a certificate (in the form attached as Exhibit A to
the Warrant Agreement) evidencing warrants to purchase 30,000 shares of Common
Stock.
(f) All warrants issued to the Purchaser pursuant to this Section 3 are
collectively referred to herein as the "Subsequent Warrants". The Subsequent
Warrants shall be subject to the terms and conditions set forth in the Warrant
Agreement and the certificates evidencing the same.
(g) At each Closing, the Purchaser shall deliver to the Company (i) an
amount (in immediately available funds) equal to the number of Common Shares
being purchased by the Purchaser times $6.00 and (ii) a duly executed
certificate of the Purchaser, dated the applicable Closing Date, stating that
the representations and warranties of the Purchaser contained in Section 7 are
true and correct on and as of such Closing Date with the same force and effect
as though made on and as of such 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 such specified date.
Section 4. Simultaneous Closings under Other Purchase Agreements. In no
event shall the Purchaser be obligated to consummate any Closing unless
simultaneously with such Closing (a) the Company shall sell to the Other
Purchasers shares of Common Stock numbering, in the aggregate, not less than the
amount (rounded to the nearest whole number) determined by multiplying the
number of Common Shares being purchased by the Purchaser at such Closing times
nine and (b) the Company shall have received from the Other Purchasers payments
(in immediately available funds) of the purchase price for such shares, which
shall not be less than $6.00 per share.
Section 5 Use of Proceeds. The Company shall use the proceeds from the
sale of Common Shares at each Closing and the proceeds from each sale of Common
Stock to the Other Purchasers as contemplated by Section 4 solely for general
corporate purposes.
Section 6. Representations and Warranties of the Company. The Company
represents and warrants to the Purchaser as follows:
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has the corporate
power to own its property and to carry on its business as now being
conducted.
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(b) The Company has all requisite corporate power to enter into and
perform its obligations under the Transaction Documents and the Warrants and
to consummate the transactions contemplated thereby. The Company has taken
all corporate actions necessary to authorize it to enter into and perform
its obligations under the Transaction Documents and the Warrants and to
consummate the transactions contemplated thereby. The Transaction Documents
have been duly executed and delivered by the Company and constitute legal,
valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar Laws affecting creditors' rights generally and general equitable
principles. Upon issuance in accordance with this Agreement and the Warrant
Agreement, the Warrants will have been duly executed and delivered by the
Company and will constitute legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms,
except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar Laws affecting creditors'
rights generally and general equitable principles. The Common Shares have
been duly authorized and, when issued and paid for in accordance with this
Agreement, will be validly issued, fully paid and nonassessable. The Warrant
Shares have been duly authorized and reserved for issuance and, when issued
and paid for upon proper exercise of the Warrants, will be validly issued,
fully paid and nonassessable.
(c) Neither the execution, delivery or performance of any of the
Transaction Documents by the Company, nor the consummation by the Company of
the transactions contemplated thereby, will violate, or result in a breach
of the terms of, or constitute a default under, the charter or bylaws of the
Company or any agreement, instrument or other arrangement or obligation to
which the Company is subject, except for such violations, breaches or
defaults that would not have a Material Adverse Effect.
(d) The Company has delivered to the Purchaser true and complete copies
of (i) the Stockholders Agreement, the Registration Rights Agreement, the
Tag-Along Agreement, the Warrant Agreement and the Company's charter and
bylaws, in each case as in effect on the date hereof, and (ii) the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1998 (the
"Form 10-K Report"). As of the date hereof, the Form 10-K Report complies in
all material respects with all applicable requirements of the Exchange Act
and the applicable rules and regulations promulgated thereunder and does not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of the date
hereof, the consolidated financial statements of the Company included in the
Form 10-K Report comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto. Such financial statements were prepared in accordance
with applicable generally accepted accounting principles applied on a
consistent basis during the periods involved.
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Section 7. Representations and Warranties of the Purchaser. The
Purchaser hereby represents and warrants to the Company as follows:
(a) The Purchaser is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. The Purchaser has
all requisite corporate power to execute and deliver the Transaction
Documents to which the Purchaser is a party (the "Purchaser Transaction
Documents"), to consummate the transactions contemplated thereby and to
perform its obligations thereunder. The Purchaser has taken all corporate
actions necessary to authorize it to enter into and perform its obligations
under the Purchaser Transaction Documents and to consummate the transactions
contemplated thereby. Each of the Purchaser Transaction Documents has been
executed and delivered by the Purchaser and constitutes the legal, valid and
binding obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar
Laws affecting creditors' rights generally and general equitable principles.
(b) Neither the execution, delivery and performance by the Purchaser of
the Purchaser Transaction Documents, nor the consummation by the Purchaser
of the transactions contemplated thereby, will violate, result in a breach
of the terms of or constitute a default under, the charter or bylaws of the
Purchaser or any material agreement, instrument or other arrangement or
obligation to which the Purchaser is subject.
(c) The Purchaser has read and understands this Agreement, including the
Schedules and Exhibits hereto, and acknowledges and understands that
execution and delivery of this Agreement by the Purchaser creates an
irrevocable obligation of the Purchaser, subject to the terms and conditions
contained in this Agreement, to purchase the Common Shares.
(d) The Purchaser is an "accredited investor" within the meaning of
Regulation D under the Securities Act.
(e) The acquisition of the Securities by the Purchaser is for the
Purchaser's own account, is for investment purposes and is not with a view
to, or for offer or sale for the Company in connection with, the
distribution of any Securities in violation of the Securities Act, the
Exchange Act or any state securities laws (collectively, the "Acts"). The
Purchaser is not participating and does not have a participation in any such
distribution or the underwriting of any such distribution, and has no
present intention of selling or otherwise disposing of any of the Securities
in violation of the Acts.
(f) The Purchaser is aware that neither the SEC nor any state securities
commission has approved or disapproved the Securities or passed upon the
accuracy or adequacy of this Agreement or any of the other Transaction
Documents.
(g) The Purchaser (i) recognizes that an investment in the Securities
involves a high degree of risk, (ii) has such knowledge and experience in
financial and business matters as to be
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capable of evaluating the risks and merits of this investment and protecting
the Purchaser's interests in connection with this investment and (iii) is
able to bear the economic risk of an investment in the Securities, including
the risk of the total loss of such investment.
(h) The Purchaser has received copies of the Transactions Documents, the
Form 10-K Report and the Company's charter and bylaws. The Purchaser has
received all the information the Purchaser considers necessary or
appropriate for deciding whether to enter into this Agreement or to acquire
the Securities, and the Purchaser has had an opportunity to ask questions of
and receive answers from the Company regarding the Company and the terms and
conditions of the Securities.
(i) The Purchaser understands that the Securities have not been
registered under the Securities Act on the basis that the issuance or sale
of the Securities is exempt from the registration provisions thereof, and
that the Company's reliance on the exemption is predicated upon the
representations of the Purchaser herein.
(j) The Purchaser has read and understands the terms and provisions of
the Transaction Documents and understands that all Common Shares and all
Warrant Shares issued to the Purchaser will automatically become subject to
the terms and provisions of the Stockholders Agreement, the Tag-Along
Agreement and the Voting Agreement. The Purchaser understands that other
shares of Common Stock currently held or subsequently acquired by the
Purchaser may also become subject to the terms and provisions of the
Stockholders Agreement, the Tag-Along Agreement and the Voting Agreement
pursuant to the terms thereof.
Section 8. Compliance with Securities Laws and Agreements. The Purchaser
acknowledges, understands and agrees that the following limitations and
restrictions are applicable to the purchase, resale and distribution of the
Securities:
(a) The Purchaser must bear the economic risk of its investment in the
Company for an indefinite period of time because the Securities have not
been registered under the Acts and, therefore, may not be subsequently
offered, sold, transferred, pledged or otherwise disposed of unless and
until they have been registered under the Acts or exemptions from
registration thereunder are available, and the Purchaser further understands
that only the Company can take action to register the Securities.
(b) The Purchaser has been advised that the Company does not expect that
Rule 144 under the Securities Act will be available to the Purchaser with
respect to any of the Securities unless the Purchaser is a non-affiliate of
the Company (and has not been an affiliate of the Company for at least three
months) and has held such Securities for at least one year from the later of
the date that they were issued by the Company or the date that they were
acquired from an affiliate of the Company.
(c) The certificates representing the Warrants issued pursuant to this
Agreement will bear the legend provided in the Warrant Agreement. The
certificates representing the Securities
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issued pursuant to this Agreement (other than the Warrants) will bear a
legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAW (COLLECTIVELY, THE "ACTS") AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS
MADE PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACTS OR PURSUANT
TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREOF. FURTHER,
SUCH SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS
AND UNTIL (1) SUCH SECURITIES HAVE BEEN REGISTERED UNDER THE ACTS OR
(2) THE HOLDER OF SUCH SECURITIES PROVIDES THE COMPANY WITH (A) AN
UNQUALIFIED WRITTEN OPINION OF LEGAL COUNSEL, WHICH COUNSEL AND
OPINION (IN FORM AND SUBSTANCE) SHALL BE REASONABLY SATISFACTORY TO
THE COMPANY, TO THE EFFECT THAT THE PROPOSED DISPOSITION OF SUCH
SECURITIES MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACTS OR
(B) SUCH OTHER EVIDENCE AS MAY BE REASONABLY SATISFACTORY TO THE
COMPANY THAT THE PROPOSED DISPOSITION OF SUCH SECURITIES MAY BE
EFFECTED WITHOUT REGISTRATION UNDER THE ACTS.
(d) In addition to the legends provided in paragraph (c) above, the
certificates evidencing the Common Shares and the Warrant Shares will bear
legends in substantially the following forms:
BY THE TERMS OF THE STOCKHOLDERS AGREEMENT AND THE TAG-ALONG
AGREEMENT, CERTAIN RESTRICTIONS HAVE BEEN PLACED UPON THE
TRANSFERABILITY OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE.
THE COMPANY WILL FURNISH A COPY OF THE STOCKHOLDERS AGREEMENT AND
THE TAG-ALONG AGREEMENT TO THE RECORD HOLDER OF THIS CERTIFICATE
WITHOUT CHARGE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL
PLACE OF BUSINESS OR REGISTERED OFFICE. NO REGISTRATION OR TRANSFER
OF ANY SECURITIES REPRESENTED BY THIS CERTIFICATE WILL BE MADE ON
THE BOOKS OF THE COMPANY UNLESS AND UNTIL SUCH RESTRICTIONS HAVE
BEEN COMPLIED WITH.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF AN AMENDED AND RESTATED VOTING AGREEMENT, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, AND ARE
HELD AND
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MAY BE SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF ONLY IN
ACCORDANCE WITH SUCH AGREEMENT.
(e) Stop Transfer Instructions. The Company's stock transfer records
will contain stop transfer instructions with respect to the Common Shares
and the Warrant Shares to provide notice of the restrictions on the resale
or distribution thereof imposed by the Acts and the Stockholders Agreement,
the Tag-Along Agreement and the Voting Agreement.
Section 9. Changes in Capital Structure. In the event of any change
after the date hereof in the number of issued shares of Common Stock by reason
of any stock dividend, split-up, recapitalization, merger, combination,
conversion, exchange of shares or other change in the corporate or capital
structure of the Company, then there shall be appropriate and equitable
adjustments made in the number and kind of shares of stock or other securities
of the Company thereafter issued to the Purchaser pursuant to this Agreement.
Section 10. Specific Performance. The parties agree that the covenants
and obligations contained in this Agreement relate to special, unique and
extraordinary matters and that a violation of any of the terms hereof would
cause irreparable injury in an amount which would be impossible to estimate or
determine and for which any remedy at law would be inadequate. As such, the
parties agree that if either party fails or refuses to fulfill any of such
party's obligations under this Agreement or to make any payment or deliver any
instrument required hereunder, then the other party shall have the remedy of
specific performance, which remedy shall be cumulative and nonexclusive and
shall be in addition to any other rights and remedies otherwise available under
any other contract or at law or in equity and to which such party might be
entitled.
Section 11. 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 or electronic mail
transmission or (d) overnight courier service, to the parties at addresses or
facsimile numbers set forth below their respective names on the signature pages
hereof, or at such other address or number as shall be designated by either
party in a notice to the other party given in accordance with this Section 11.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given, (i) in the case of a notice sent by regular
mail, on the date actually received by the addressee, (ii) in the case of a
notice sent by registered or certified mail, on the date receipted for (or
refused) on the return receipt, (iii) in the case of a notice delivered by hand,
when personally delivered, (iv) in the case of a notice sent by facsimile or
electronic mail, upon transmission subject to telephone confirmation of receipt,
and (v) in the case of a notice sent by overnight mail or overnight courier
service, the date delivered at the designated address, in each case given or
addressed as aforesaid.
Section 12. Survival. All representations, warranties and covenants
contained in this Agreement shall survive the execution and delivery of this
Agreement, the Closings and the delivery of any Securities to the Purchaser.
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Section 13. Benefit and Burden. This Agreement shall inure to the
benefit of, and shall be binding upon, the Company and the Purchaser and their
respective successors and assigns.
Section 14. No Third Party Rights. Nothing in this Agreement shall be
deemed to create any right in any creditor or other Person not a party hereto,
and this Agreement shall not be construed in any respect to be a contract in
whole or in part for the benefit of any third party.
Section 15. Amendments and Waiver. No amendment, modification,
restatement or supplement of this Agreement shall be valid unless the same is in
writing and signed by the parties. No waiver of any provision of this Agreement
shall be valid unless in writing and signed by the party against whom that
waiver is sought to be enforced. No failure or delay on the part of any of the
parties in exercising any right, power or privilege hereunder, and no course of
dealing between or among the parties, shall operate as a waiver of any right,
power or privilege hereunder. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder. No notice to or
demand on either party in any case shall entitle such party to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of any party to any other or further action in any
circumstances without notice or demand.
Section 16. Severability. Should any clause, sentence, paragraph,
subsection or Section of this Agreement be judicially declared to be invalid,
unenforceable or void, such decision will not have the effect of invalidating or
voiding the remainder of this Agreement, and the parties agree that the part or
parts of this Agreement so held to be invalid, unenforceable or void will be
deemed to have been stricken herefrom as if such stricken part or parts had
never been included herein.
Section 17. Expenses. The Company will pay, or reimburse the Purchaser
for the payment of, all reasonable expenses incurred by the Purchaser prior to
the date hereof in connection with this Agreement, including all legal and
accounting fees and disbursements. Except as aforesaid, each of the parties
shall pay its own expenses incident to this Agreement, including all legal and
accounting fees and disbursements.
Section 18. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY,
CONSTRUED UNDER, AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE, WITHOUT REFERENCE TO THE CONFLICT-OF-LAWS PROVISIONS THEREOF.
Section 19. Entire Agreement. This Agreement sets forth all of the
promises, agreements, conditions, understandings, warranties and representations
of the parties with respect to the transactions contemplated hereby, 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 parties hereto have caused this Agreement to be
executed as of the date first above written.
STERLING CHEMICALS HOLDINGS, INC.
By:
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Printed Name:
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Title:
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Address: Sterling Chemicals Holdings, Inc.
1200 Smith, Suite 1900
Houston, Texas 77002
Attention: General Counsel
Facsimile No.: (713) 654-9577
E-Mail: [email protected]
PURCHASER:
KOCH CAPITAL SERVICES, INC.
By:
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Printed Name:
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Title:
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Address:
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Facsimile No.:
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E-Mail:
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-14-
<PAGE> 18
SCHEDULE I
PURCHASERS
<TABLE>
<CAPTION>
PURCHASER NUMBER OF SHARES PERCENTAGE ALLOCATION
- --------- ---------------- ---------------------
<S> <C> <C>
Gordon A. Cain........................................ 1,333,333 53.33%
William A. McMinn..................................... 333,333 13.33%
James Crane........................................... 250,000 10.00%
Frank P. Diassi....................................... 166,667 6.67%
Frank J. Hevrdejs..................................... 166,667 6.67%
Koch Capital Services, Inc............................ 250,000 10.00%
--------- ------
Total..................................... 2,500,000 100.00%
</TABLE>
-15-
<PAGE> 1
Exhibit 21.1
Subsidiaries of
STERLING CHEMICALS HOLDINGS, INC.
As of September 30, 1998
Owns 100% of:
Sterling Chemicals, Inc., a Delaware corporation
Owns 100% of:
Sterling Fibers, Inc., a Delaware corporation
Sterling Chemicals Acquisitions, Inc., a Delaware corporation
Owns 100% of:
Sterling Pulp Chemicals Fuzhou, Ltd., an Ontario corporation
Sterling (Sask) Holdings Ltd., an Ontario corporation
Owns 100% of:
Sterling Pulp Chemicals (Sask) Ltd., an Ontario corporation
Owns 100% of
619220 Saskatchewan Ltd., a Saskatchewan corporation
Sterling Chemicals International, Inc., a Delaware corporation
Sterling Chemicals Energy, Inc., a Delaware corporation
Sterling Chemicals Marketing, Inc., a Barbados corporation
Sterling Canada, Inc., a Delaware corporation
Owns 100% of:
Sterling Pulp Chemicals US, Inc., a Delaware corporation
Owns 100% of:
Sterling Pulp Chemicals, Inc., a Georgia corporation
Sterling NRO, Ltd., an Ontario corporation
Sterling Pulp Chemicals, Ltd., an Ontario corporation
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-30917 of Sterling Chemicals Holdings, Inc. on Form S-3 and Registration
Statement No. 333-52795 of Sterling Chemicals Holdings, Inc. on Form S-8 of our
report dated December 4, 1998 (December 17, 1998 as to Notes 4, 11, and 12),
appearing in this Annual Report on Form 10-K of Sterling Chemicals Holdings,
Inc. for the year ended September 30, 1998.
DELOITTE & TOUCHE LLP
December 17, 1998
Houston, Texas
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000795662
<NAME> STERLING CHEMICALS HOLDINGS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 11,168
<SECURITIES> 0
<RECEIVABLES> 116,098
<ALLOWANCES> (1,527)
<INVENTORY> 73,225
<CURRENT-ASSETS> 219,675
<PP&E> 747,637
<DEPRECIATION> 297,322
<TOTAL-ASSETS> 765,956
<CURRENT-LIABILITIES> 127,765
<BONDS> 873,616
18,249
0
<COMMON> 123
<OTHER-SE> (348,302)
<TOTAL-LIABILITY-AND-EQUITY> 765,956
<SALES> 822,590
<TOTAL-REVENUES> 822,590
<CGS> 732,411
<TOTAL-COSTS> 732,411
<OTHER-EXPENSES> 57,389
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104,455
<INCOME-PRETAX> (71,665)
<INCOME-TAX> (25,546)
<INCOME-CONTINUING> (46,119)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,119)
<EPS-PRIMARY> (3.99)
<EPS-DILUTED> (3.99)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001014669
<NAME> Sterling Chemicals, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 11,159
<SECURITIES> 0
<RECEIVABLES> 117,925
<ALLOWANCES> (1,527)
<INVENTORY> 73,225
<CURRENT-ASSETS> 219,554
<PP&E> 747,637
<DEPRECIATION> 297,322
<TOTAL-ASSETS> 762,503
<CURRENT-LIABILITIES> 127,546
<BONDS> 745,720
0
0
<COMMON> 0
<OTHER-SE> (220,445)
<TOTAL-LIABILITY-AND-EQUITY> 762,503
<SALES> 822,590
<TOTAL-REVENUES> 822,590
<CGS> 732,411
<TOTAL-COSTS> 732,411
<OTHER-EXPENSES> 56,193
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86,618
<INCOME-PRETAX> (52,632)
<INCOME-TAX> (18,963)
<INCOME-CONTINUING> (33,669)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,669)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
