<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
-----------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED March 31, 1999
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)
DELAWARE 76-0185186
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1200 SMITH STREET, SUITE 1900 (713) 650-3700
HOUSTON, TEXAS 77002-4312 (REGISTRANT'S TELEPHONE NUMBER,
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE)
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)
DELAWARE 76-0502785
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1200 SMITH STREET, SUITE 1900 (713) 650-3700
HOUSTON, TEXAS 77002-4312 (REGISTRANT'S TELEPHONE NUMBER,
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE)
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 H(1)(a) and (b) of Form 10-Q, and is therefore filing this form with
the reduced disclosure format provided for by General Instruction H(2) of Form
10-Q.
-----------------
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
----- -----
As of April 30, 1999, Sterling Chemicals Holdings, Inc. had 12,722,196
shares of common stock outstanding. As of April 30, 1999, all outstanding equity
securities of Sterling Chemicals, Inc. were owned by Sterling Chemicals
Holdings, Inc.
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<PAGE> 2
IMPORTANT INFORMATION REGARDING THIS FORM 10-Q
Readers should consider the following information as they review this Form 10-Q.
FORWARD-LOOKING STATEMENTS
This Form 10-Q 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. The forward-looking statements
include all statements contained in this Form 10-Q (other than statements of
historical facts) regarding the cyclicality of the industries in which the
Company (as defined herein) is engaged, current and future industry conditions,
the cost of remediating Year 2000 issues and the effect of any unremediated or
undiscovered Year 2000 issues on the Company's operations, and the potential
effects of such matters on the Company's business strategy, results of
operations, and financial position, including without limitation the statements
under "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations". 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-Q or Holdings' and Chemicals' combined Annual Report on Form 10-K
for the fiscal year ended September 30, 1998 (the "Annual Report"). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Certain Known Events, Trends, Uncertainties, and Risk Factors"
contained in the Annual Report. 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-Q, including the
forward-looking statements discussed above, are made as of May 13, 1999, 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-Q to the extent such information is affected or impacted by events,
circumstances, or developments occurring after May 13, 1999, or by the passage
of time after such date and, except as required by applicable securities laws,
the Company does not intend to update such information.
2
<PAGE> 3
This combined Form 10-Q is separately filed by Holdings and Chemicals
(each as defined herein). Information contained herein relating to Chemicals is
filed by Holdings and separately by Chemicals on its own behalf. Certain
capitalized terms used in this Form 10-Q are defined in the Notes to
Consolidated Financial Statements included herein.
PART I.--FINANCIAL INFORMATION
ITEM 1.--FINANCIAL STATEMENTS
3
<PAGE> 4
STERLING CHEMICALS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1999 1998
---------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 4,608 $ 11,168
Accounts receivable .......................................... 95,683 114,571
Inventories .................................................. 71,635 73,225
Prepaid expenses ............................................. 9,665 15,571
Deferred income tax benefit .................................. 7,960 5,140
---------- ----------
Total current assets ....................................... 189,551 219,675
Property, plant and equipment, net .............................. 437,486 450,315
Deferred income tax benefit ..................................... 3,352 --
Other assets .................................................... 98,068 95,966
---------- ----------
Total assets ............................................... $ 728,457 $ 765,956
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
Current liabilities:
Accounts payable ............................................. $ 46,759 $ 46,983
Accrued liabilities .......................................... 65,364 71,873
Current portion of long-term debt ............................ 6,734 8,909
---------- ----------
Total current liabilities .................................. 118,857 127,765
Long-term debt .................................................. 893,219 873,616
Deferred income tax liability ................................... -- 11,123
Deferred credits and other liabilities .......................... 79,301 80,289
Common stock held by ESOP ....................................... 2,946 5,938
Less: unearned compensation .................................... (1,105) (2,845)
Redeemable preferred stock ...................................... 19,553 18,249
Commitments and contingencies (Note 4) .......................... -- --
Stockholders' equity (deficiency in assets):
Common stock, $.01 par value, 20,000,000 shares authorized,
12,273,000 shares issued and 12,068,000 outstanding at
March 31, 1999, and 12,273,000 shares issued and
12,073,000 outstanding at September 30, 1998 ............... 123 123
Additional paid-in capital ................................... (542,712) (542,701)
Retained earnings ............................................ 191,975 229,590
Pension adjustment ........................................... (121) (121)
Accumulated translation adjustment ........................... (31,059) (32,559)
Deferred compensation ........................................ (79) (111)
---------- ----------
(381,873) (345,779)
Treasury stock, at cost, 205,000 and 200,000 shares at
March 31, 1999 and September 30, 1998, respectively ........ (2,441) (2,400)
---------- ----------
Total stockholders' equity (deficiency in assets) ........ (384,314) (348,179)
---------- ----------
Total liabilities and stockholders' equity (deficiency
in assets) ........................................... $ 728,457 $ 765,956
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE> 5
STERLING CHEMICALS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues .................................................. $ 152,472 $ 204,504 $ 324,401 $ 434,740
Cost of goods sold ........................................ 148,160 193,145 303,372 404,082
---------- ---------- ---------- ----------
Gross profit .............................................. 4,312 11,359 21,029 30,658
Selling, general and administrative expenses .............. 8,801 8,935 18,457 17,453
Other expense ............................................. 6,782 2,940 9,076 2,940
Interest and debt related expenses, net of interest
income ................................................... 24,492 24,970 49,951 50,273
---------- ---------- ---------- ----------
Loss before income taxes .................................. (35,763) (25,486) (56,455) (40,008)
Benefit for income taxes .................................. (10,943) (9,198) (18,535) (13,575)
---------- ---------- ---------- ----------
Net loss .................................................. (24,820) (16,288) (37,920) (26,433)
Preferred stock dividends ................................. 658 591 1,303 1,219
---------- ---------- ---------- ----------
Net loss attributable to common stockholders .............. $ (25,478) $ (16,879) $ (39,223) $ (27,652)
========== ========== ========== ==========
Net loss per common share (Note 5) ........................ $ (1.96) $ (1.37) $ (3.07) $ (2.28)
========== ========== ========== ==========
Weighted average shares outstanding ....................... 12,466 11,984 12,446 11,918
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
5
<PAGE> 6
STERLING CHEMICALS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
-----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................... $ (37,920) $ (26,433)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization ........................... 28,028 28,014
Interest amortization ................................... 1,688 2,198
Loss on disposal/write off of assets .................... 52 256
Deferred tax benefit .................................... (14,645) (10,496)
Discount notes amortization ............................. 9,197 8,118
Early retirement programs and benefit changes ........... 6,782 --
Other ................................................... 669 923
Change in assets/liabilities:
Accounts receivable ..................................... 23,608 26,968
Inventories ............................................. 1,755 (12,658)
Prepaid expenses ........................................ (2,460) 4,210
Other assets ............................................ (12,521) 598
Accounts payable ........................................ 6,696 (8,740)
Accrued liabilities ..................................... (11,082) 1,067
Other liabilities ....................................... 1,383 223
---------- ----------
Net cash provided by operating activities ....................... 1,230 14,248
---------- ----------
Cash flows from investing activities:
Capital expenditures ....................................... (12,186) (13,303)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt ............................... 139,982 48,562
Repayment of long-term debt ................................ (135,616) (48,508)
Other ...................................................... (45) (25)
---------- ----------
Net cash provided by financing activities ....................... 4,321 29
---------- ----------
Effect of United States /Canadian exchange rate on cash ......... 75 (91)
---------- ----------
Net increase (decrease) in cash and cash equivalents ............ (6,560) 883
Cash and cash equivalents - beginning of year ................... 11,168 7,958
---------- ----------
Cash and cash equivalents - end of period ....................... $ 4,608 $ 8,841
========== ==========
Supplement disclosures of cash flow information:
Interest paid, net of interest income received ............. $ (39,406) $ (39,746)
Income tax refunds received ................................ 5,441 6,864
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
6
<PAGE> 7
STERLING CHEMICALS, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1999 1998
---------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................................... $ 4,591 $ 11,159
Accounts receivable ............................................... 97,767 116,398
Inventories ....................................................... 71,635 73,225
Prepaid expenses .................................................. 7,099 13,632
Deferred income tax benefit ....................................... 7,959 5,140
---------- ----------
Total current assets ............................................ 189,051 219,554
Property, plant and equipment, net ................................... 437,486 450,315
Other assets ......................................................... 98,337 92,634
---------- ----------
Total assets .................................................... $ 724,874 $ 762,503
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)
Current liabilities:
Accounts payable .................................................. $ 46,759 $ 46,764
Accrued liabilities ............................................... 65,371 71,884
Current portion of long-term debt ................................. 6,734 8,909
---------- ----------
Total current liabilities ......................................... 118,864 127,557
Long-term debt ....................................................... 755,805 745,709
Deferred income tax liability ........................................ 15,204 23,301
Deferred credits and other liabilities ............................... 82,301 83,288
Common stock held by ESOP ............................................ 2,946 5,938
Less: unearned compensation ......................................... (1,105) (2,845)
Commitments and contingencies (Note 4) ............................... -- --
Stockholder's equity (deficiency in assets):
Common stock, $.01 par value ...................................... -- --
Additional paid-in capital ........................................ (140,013) (139,786)
Accumulated deficit ............................................... (77,869) (47,868)
Pension adjustment ................................................ (121) (121)
Accumulated translation adjustment ................................ (31,059) (32,559)
Deferred compensation ............................................. (79) (111)
---------- ----------
Total stockholder's equity (deficiency in assets) ................. (249,141) (220,445)
---------- ----------
Total liabilities and stockholder's equity (deficiency in
assets) ......................................................... $ 724,874 $ 762,503
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
7
<PAGE> 8
STERLING CHEMICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues ....................................................... $ 152,472 $ 204,504 $ 324,401 $ 434,740
Cost of goods sold ............................................. 148,160 193,145 303,372 404,082
---------- ---------- ---------- ----------
Gross profit ................................................... 4,312 11,359 21,029 30,658
Selling, general and administrative expenses ................... 8,663 8,437 18,201 16,673
Other expense .................................................. 6,782 2,940 9,076 2,940
Interest and debt related expenses, net of interest income ..... 19,601 20,782 40,241 41,679
---------- ---------- ---------- ----------
Loss before income taxes ....................................... (30,734) (20,800) (46,489) (30,634)
Benefit for income taxes ....................................... (9,099) (7,228) (14,880) (10,192)
---------- ---------- ---------- ----------
Net loss ....................................................... $ (21,635) $ (13,572) $ (31,609) $ (20,442)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
8
<PAGE> 9
STERLING CHEMICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
-----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................... $ (31,609) $ (20,442)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization ........................... 28,028 28,014
Debt fee amortization ................................... 1,415 1,706
Deferred tax benefit .................................... (14,645) (7,813)
Early retirement programs and benefit changes ........... 6,782 --
Other ................................................... 474 1,179
Change in assets/liabilities:
Accounts receivable ..................................... 23,507 26,930
Inventories ............................................. 1,755 (12,658)
Prepaid expenses ........................................ (1,438) 4,910
Other assets ............................................ (9,920) 562
Accounts payable ........................................ 6,556 (9,479)
Accrued liabilities ..................................... (11,074) 1,067
Other liabilities ....................................... 1,391 224
---------- ----------
Net cash provided by operating activities ....................... 1,222 14,200
---------- ----------
Cash flows from investing activities:
Capital expenditures ......................................... (12,186) (13,303)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt ................................. 139,982 48,361
Repayment of long-term debt .................................. (135,616) (47,202)
Repayments of amounts due parent ............................. -- (1,105)
Other ........................................................ (45) (25)
---------- ----------
Net cash provided by financing activities ....................... 4,321 29
---------- ----------
Effect of United States /Canadian exchange rate on cash ......... 75 (91)
---------- ----------
Net increase (decrease) in cash and cash equivalents ............ (6,568) 835
Cash and cash equivalents - beginning of year ................... 11,159 7,958
---------- ----------
Cash and cash equivalents - end of period ....................... $ 4,591 $ 8,793
========== ==========
Supplement disclosures of cash flow information:
Interest paid, net of interest income received ............... $ (39,415) $ (39,761)
Income tax refunds received .................................. 5,441 6,864
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
9
<PAGE> 10
STERLING CHEMICALS HOLDINGS, INC.
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments necessary to present fairly the
consolidated financial position of Sterling Chemicals Holdings, Inc.
("Holdings") and its subsidiaries (Holdings and its subsidiaries collectively,
the "Company") and Sterling Chemicals, Inc. and its subsidiaries (Chemicals and
its subsidiaries collectively, "Chemicals") as of March 31, 1999 and their
consolidated results of operations and cash flows for the applicable three month
and six month periods ended March 31, 1999 and 1998. All such adjustments are of
a normal and recurring nature. The results of operations for the periods
presented are not necessarily indicative of the results to be expected for the
full year. The accompanying unaudited consolidated financial statements should
be, and are assumed to have been, read in conjunction with the consolidated
financial statements and notes included in Holdings' and Chemicals' combined
Annual Report on Form 10-K for the fiscal year ended September 30, 1998 (the
"Annual Report"). The accompanying consolidated balance sheets as of September
30, 1998, have been derived from the audited consolidated balance sheets as of
September 30, 1998, included in the Annual Report. The accompanying consolidated
financial statements as of and for the three month and six month periods ended
March 31, 1999, have been reviewed by Deloitte & Touche LLP, the Company's
independent public accountants, whose reports are included herein.
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 loss or stockholders' equity (deficiency in
assets).
2. INVENTORIES
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1999 1998
---------- -------------
<S> <C> <C>
Inventories consisted of the following (in thousands):
Finished products ............................................... $ 41,627 $ 42,436
Raw materials ................................................... 10,305 8,089
Inventories under exchange agreements ........................... 1,896 3,031
Stores and supplies ............................................. 17,807 19,669
---------- ----------
$ 71,635 $ 73,225
========== ==========
</TABLE>
3. LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1999 1998
---------- ------------
<S> <C> <C>
Long-term debt consisted of the following (in thousands):
Revolving credit facility ....................................... $ 14,100 $ --
Term loans ...................................................... 273,333 274,000
Saskatoon term loans ............................................ 45,017 49,552
ESOP term loan .................................................. 2,438 3,250
11 1/4% Notes ................................................... 152,651 152,816
11 3/4% Notes ................................................... 275,000 275,000
---------- ----------
Total Chemicals' debt outstanding .......................... 762,539 754,618
13 1/2% Notes ................................................... 137,414 127,907
---------- ----------
Total Holdings' debt outstanding ........................ 899,953 882,525
Less:
Current maturities ......................................... (6,734) (8,909)
---------- ----------
Total long-term debt ............................................ $ 893,219 $ 873,616
========== ==========
</TABLE>
10
<PAGE> 11
4. COMMITMENTS AND CONTINGENCIES
Product Contracts
The Company has certain long-term agreements, which provide for the
dedication of 100% of the Company's production of acetic acid, plasticizers,
tertiary butylamine, 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.
Environmental Regulations
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 manufacturing, handling, processing,
distribution, and use of the Company's chemical products and the raw materials
used to produce such products and, if so, the Company's business and operations
may be materially and adversely affected. In addition, changes in applicable
laws, 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, contract employees or 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.
Legal Proceedings
Ammonia Release. A description of the ammonia release lawsuits is found
under "Legal Proceedings" in Note 7 of the "Notes to Consolidated Financial
Statements" of the Annual Report and is incorporated herein by reference. As
discussed therein, the Company continues to vigorously defend against the claims
of the approximately 200 remaining plaintiffs. The Company has settled the
claims of a majority of the original plaintiffs and is engaged in on-going
settlement discussions with the remaining plaintiffs. The Company believes all
or substantially all of its future out-of-pocket costs and expenses (including
settlement payments and judgements) relating to these lawsuits will be covered
by the Company's liability insurance policies.
Nickel Carbonyl Release. A description of the nickel carbonyl lawsuit is
found under "Legal Proceedings" in Note 7 of the "Notes to Consolidated
Financial Statements" of the Annual Report and is incorporated herein by
reference. As discussed therein, a total of eighteen contractor employees
allegedly exposed to nickel carbonyl have filed a lawsuit against Chemicals
seeking unspecified damages for personal injuries. Additional litigation against
Chemicals asserting similar claims may ensue. The Company believes all or
substantially all of its future out-of-pocket costs and expenses relating to
such lawsuits will be covered by the Company's liability insurance policies
and/or indemnification from third parties.
Ethylbenzene Release. A description of this release is found under "Legal
Proceedings" in Note 7 of the "Notes to Consolidated Financial Statements" of
the Annual Report and is incorporated herein by reference. 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 personal injuries
alledgedly suffered as a result of this incident. The Company believes that its
liability insurance coverage is sufficient to cover all out-of-pocket costs and
expenses stemming from this incident in excess of its $1 million deductible.
Other Lawsuits. 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
11
<PAGE> 12
which it may incur any 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 contractual indemnification obligations of third parties to the benefit 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 indemnification arrangements,
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 March 31, 1999, the Company has accrued approximately $9.9 million as its
estimate of its aggregate contingent liability for these matters and has also
recorded aggregate receivables from its insurers and third-party indemnitors of
approximately $8.8 million. At March 31, 1999, management estimates that the
aggregate reasonably possible range of loss for all litigation combined, in
addition to the amount accrued, is between zero and $12 million. The Company
believes that this additional reasonably possible loss would be substantially
covered by insurance or indemnification.
While the Company has based its estimates on its evaluation of available
information 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 of such litigation. 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, are not expected to have a material adverse effect on the
financial position, results of operations, or cash flows of the Company.
5. LOSS PER SHARE CALCULATION
For purposes of computing net loss per common share, net 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
Chemicals' employee stock ownership plan (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 loss per common share is as
follows (in thousands, except net loss per common share):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss attributable to common stockholders .............. $ (25,478) $ (16,879) $ (39,223) $ (27,652)
Plus depreciation in value of Released Shares ............. 1,048 505 1,048 505
---------- ---------- ---------- ----------
Net loss for purpose of computing loss per share .......... $ (24,430) $ (16,374) $ (38,175) $ (27,147)
========== ========== ========== ==========
Net loss per common share ................................. $ (1.96) $ (1.37) $ (3.07) $ (2.28)
========== ========== ========== ==========
Weighted average shares outstanding ....................... 12,466 11,984 12,446 11,918
========== ========== ========== ==========
</TABLE>
12
<PAGE> 13
6. CAPITAL STOCK
In December 1998, the Company entered into separate Standby Purchase
Agreements (collectively, the "Standby 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 "Standby Purchasers"). Pursuant
to the terms of the Standby Purchase Agreements, the Standby Purchasers are
obligated to purchase up to an aggregate of 2.5 million shares of the common
stock, par value $0.01 per share, of Holdings ("Common Stock"), at a price of
$6.00 per share, if, as, and when requested by Holdings at any time or from time
to time prior to December 15, 2001. Under each of the Standby Purchase
Agreements, Holdings may only require the Standby Purchasers to purchase such
shares if it believes that the purchase price paid by the Standby Purchasers for
such shares is necessary to maintain, reestablish, or enhance the Company's
borrowing ability under its revolving credit facilities or to satisfy any
requirement thereunder to raise additional equity. To induce the Standby
Purchasers to enter into the Standby Purchase Agreements, Holdings issued
warrants to the Standby Purchasers that entitle them to purchase an aggregate of
300,000 shares of Common Stock at an exercise price of $6.00 per share. Pursuant
to the Standby Purchase Agreements, Holdings is obligated to issue additional
warrants to the Standby Purchasers that would entitle them to purchase 300,000
additional shares of Common Stock if, as, and when they purchase shares of
Common Stock under the Standby Purchase Agreements. Any shares of Common Stock
purchased under the Standby Purchase Agreements, any warrants issued pursuant to
the Standby Purchase Agreements and any shares of Common Stock issued pursuant
to such warrants will be subject to the terms of the Third Amended and Restated
Voting Agreement dated as of February 1, 1999, the Sterling Chemicals Holdings,
Inc. Stockholders Agreement dated effective as of August 21, 1996, as amended,
the Tag-Along Agreement dated as of August 21, 1996, and the Registration Rights
Agreement dated as of August 21, 1996.
7. PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS
The Company recorded a net $6.8 million charge, included in Other Expense,
increasing its pension liability and other post-retirement benefits liability in
the second quarter of fiscal 1999, as a result of an early retirement program
for employees at the Texas City, Texas plant and certain benefit changes for all
U.S. employees. The early retirement program resulted in curtailment expense for
the pension plan and special termination benefits expenses for both the pension
and the other post-retirement benefits plans, partially offset by the
curtailment gain from the reduction of post-retirement life insurance benefits
for currently active U.S.
employees.
8. NEW ACCOUNTING STANDARDS
As of October 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes standards for the reporting and displaying of comprehensive
net income and its components. The components of comprehensive net loss, net of
tax, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss attributable to common stockholders .............. $ (25,478) $ (16,879) $ (39,223) $ (27,652)
Depreciation in value of Released Shares .................. 1,048 505 1,048 505
Change in accumulated translation adjustment .............. 1,421 1,063 1,500 (4,228)
---------- ---------- ---------- ----------
Comprehensive net loss .................................... $ (23,009) $ (15,311) $ (36,675) $ (31,375)
========== ========== ========== ==========
</TABLE>
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' disclosures about
pension and other post retirement benefit plans. The Company adopted these
statements as of October 1, 1998, and the disclosures required thereby will be
included in Holdings' and Chemicals' combined Annual Report on Form 10-K for the
fiscal year ending September 30, 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 currently evaluating the
accounting and disclosures required when this statement is adopted in the first
quarter of fiscal 2000.
13
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Sterling Chemicals Holdings, Inc.
We have reviewed the accompanying consolidated balance sheet of Sterling
Chemicals Holdings, Inc. and subsidiaries (the "Company") as of March 31, 1999,
and the related consolidated statements of operations and cash flows for the
three month and six month periods ended March 31, 1999 and 1998. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of September 30,
1998, and the related consolidated statements of operations, stockholders'
equity (deficiency in assets), and cash flows for the year then ended (not
presented herein); and in our report dated December 4, 1998 (December 17, 1998
as to Notes 4, 11, and 12), we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of September 30, 1998 is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
DELOITTE & TOUCHE LLP
Houston, Texas
May 11, 1999
14
<PAGE> 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of Sterling Chemicals, Inc.
We have reviewed the accompanying consolidated balance sheet of Sterling
Chemicals, Inc. and subsidiaries ("Chemicals") as of March 31, 1999, and the
related consolidated statements of operations and cash flows for the three month
and six month periods ended March 31, 1999 and 1998. These financial statements
are the responsibility of Chemicals' management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Chemicals as of September 30, 1998,
and the related consolidated statement of operations, stockholder's equity
(deficiency in assets), and cash flows for the year then ended (not presented
herein); and in our report dated December 4, 1998 (December 17, 1998 as to Notes
4, 11, and 12), we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of September 30, 1998 is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
DELOITTE & TOUCHE LLP
Houston, Texas
May 11, 1999
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain capitalized terms used but not defined in this Item 2 have the meanings
assigned to them in the Notes To Consolidated Financial Statements included in
this Form 10-Q or in the Notes to the Consolidated Financial Statements included
in Holdings' and Chemicals' combined Annual Report on Form 10-K for the fiscal
year ended September 30, 1998.
OVERVIEW
Holdings is a holding company whose only material asset is its investment
in Chemicals. Holdings' only material liabilities are its obligation to repay
its outstanding 13 1/2% Senior Secured Discount Notes due 2008 (the "13 1/2%
Notes"), it's obligation to redeem its outstanding shares of preferred stock,
and certain 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. 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.
RECENT DEVELOPMENTS
During the second quarter of fiscal 1999, the Company's acetic acid unit at
its Texas City, Texas plant (the "Texas City Plant") was shutdown for
approximately one month for scheduled maintenance. During the shutdown, the
Company and BP Chemicals also completed a 25% capacity expansion of the acetic
acid unit, thereby increasing its annual capacity to approximately 1 billion
pounds.
On February 25, 1999, the Company and Monsanto Company ("Monsanto")
announced plans to construct a new disodium iminodiacetate ("DSIDA") plant at
the Texas City Plant. The new plant will use hydrogen cyanide ("HCN"), a
by-product from the acrylonitrile manufacturing process, as its primary
feedstock. The plans call for the construction of a DSIDA plant, with production
expected to begin near the end of the second calendar quarter of 2000. The
project will require a multi-million dollar investment with Monsanto providing
capital for the construction of the DSIDA plant and the Company providing
capital currently budgeted for projects associated with its acrylonitrile plant
and the utilities which will support the DSIDA plant. The Company also uses HCN
for the production of sodium cyanide and tertiary butylamine, or TBA.. Following
the start-up of the new DSIDA plant, the acrylonitrile facility is expected to
use all of its HCN by-product for chemical value. The DSIDA project is subject
to the preparation and execution of mutually acceptable definitive documentation
as well as approval by the board of directors of Monsanto. The Company believes
the DSIDA project, if and when completed, could generate additional annual cash
flows to the Company of up to $8 million depending on operating rates and market
conditions. However, there can be no assurances that the DSIDA project will be
completed or, if so, that it will generate additional cash flows of any amount.
On March 3, 1999, the Company announced a capital project to upgrade its
styrene monomer facility at the Texas City Plant. The phenylacetylene removal
project ("PAR project") will reduce phenylacetylene ("PA") in styrene monomer
produced by the Company through the employment of Raytheon/Fina technology and a
Criterion catalyst. The Company expects to invest approximately $7 to $8 million
in the PAR project, with the allocation of funds coming from its current capital
expenditure budget. During the scheduled maintenance shutdown of the styrene
unit that occurred during the second quarter of fiscal 1999, tie-ins for the PAR
project were made. If completed as planned, the PAR project would enable the
Company to produce lower PA styrene product by December 31, 1999.
In April 1999, the Company restarted its methanol facility, which had been
shut down since August 1998 for economic reasons. A significant disparity
between domestic and foreign natural gas prices has put domestic methanol
producers such as the Company at a disadvantage to foreign competitors. The
Company continues to evaluate the best use for its methanol facility. One of the
primary uses of methanol is in the production of MTBE used in reformulated
gasolines. The State of California has recently announced that MTBE must be
phased out of reformulated gasoline used in the state by December 31, 2002.
Other states could implement similar initiatives, which could lead to a further
reduction of demand in the domestic methanol market.
As previously announced, the Company negotiated a new three year labor
agreement for the Texas City Plant which is expected to save approximately $5 to
$6 million annually. In connection with this new agreement, the Company took a
one-time non-cash pretax charge of approximately $7 million relating to early
retirement programs and benefit changes during the second quarter of fiscal
1999.
16
<PAGE> 17
Effective as of February 1, 1999, William A. McMinn was elected to the
joint board of directors of Holdings and Chemicals, thereby increasing the size
of the board from nine to ten directors.
The Company's styrene monomer unit at the Texas City Plant was shutdown for
approximately one month during the second quarter of fiscal 1999 for scheduled
maintenance. While the styrene unit was restarted on March 22, 1999, the restart
of the ethylbenzene unit, an important component, was delayed until April 30,
1999 so that unscheduled maintenance work could be performed on a process
vessel. During this delay, the Company purchased most of its ethylbenzene
requirements on the spot market. The unscheduled work on the process vessel and
the resulting delay in restarting the ethylbenzene unit is expected to
negatively impact pretax earnings for the third quarter of fiscal 1999 by
approximately $2 to $3 million.
During the second quarter of fiscal 1999, the Company entered into three
new contracts to build its patented chlorine dioxide generators. In addition,
bid activity for the construction of more generators has increased with the
approaching implementation deadline for the Environmental Protection Agency's
enacted regulations that support substitution of chlorine dioxide for elemental
chlorine (commonly referred to as the "Cluster Rules").
RESULTS OF OPERATIONS
Revenues for the second quarter of fiscal 1999 were $152 million compared
to revenues of $205 million for the second quarter of fiscal 1998, a decrease of
26%. Revenues for the six month period ended March 31, 1999, were $324 million
compared to $435 million in the prior year period, a decrease of 26%. The
decreases in revenues for the three and six month periods of fiscal 1999 as
compared to the corresponding periods for fiscal 1998 were primarily due to
lower styrene, acrylonitrile, methanol, and acrylic fibers sales volumes and
prices and lower sodium chlorate sales prices. A net loss attributable to common
stockholders of $25.5 million, or $1.96 per share, was recorded for the second
quarter of fiscal 1999 compared to a net loss attributable to common
stockholders of $16.9 million, or $1.37 per share, for the second quarter of
fiscal 1998. A net loss attributable to common stockholders of $39.2 million, or
$3.07 per share, was recorded for the six month period ended March 31, 1999
compared to a net loss attributable to common stockholders of $27.7 million, or
$2.28 per share, for the same period of fiscal 1998. The increases in net loss
for the three and six month periods of fiscal 1999 as compared to the
corresponding periods for fiscal 1998 were primarily due to: (i) shutdowns in
styrene for routine maintenance and acetic acid for expansion in the second
quarter of fiscal 1999, (ii) reduced acrylonitrile, methanol, and sodium
chlorate margins, (iii) weak markets in acrylic fibers, and (iv) costs
associated with the aforementioned one-time non-cash charge related to an early
retirement program and benefit changes, all partially offset by a modest
improvement in styrene margins.
Revenues, Cost of Goods Sold, and Gross Profit
Petrochemicals and Fibers
For the second quarter of fiscal 1999, the Company's revenues from its
petrochemical and fibers businesses decreased to $107 million, from $155 million
for the same period of fiscal 1998. For the first six months of fiscal 1999, the
Company's revenues from its petrochemical and fibers businesses decreased to
$233 million, from $332 million for the same period of fiscal 1998. The 31% and
30% decreases in revenues for the three and six month periods of fiscal 1999,
respectively, as compared to the corresponding periods for fiscal 1998, were
primarily due to reduced styrene, acrylonitrile, methanol, and acrylic fibers
sales prices and volumes. The styrene and acetic acid units were both shutdown
for approximately one month in the second quarter of fiscal 1999 for scheduled
maintenance, thereby reducing revenues and profitability for such quarter. The
economic conditions in Asia continued to negatively impact market conditions in
the fiscal 1999 periods, particularly for the Company's styrene, acrylonitrile,
and acrylic fibers products. The Company's petrochemicals and fibers businesses
recorded combined operating losses of $19 million and $21 million for the three
and six month periods of fiscal 1999, respectively, compared to an operating
loss of $9 million for each of the two comparable periods of fiscal 1998. The
increase in operating loss for both periods was primarily due to weaker
operational performance in acrylonitrile, methanol, and acrylic fibers and the
aforementioned one-time non-cash charge related to an early retirement program
and benefit changes, partially offset by a modest improvement in styrene
margins.
Styrene revenues decreased 18% to $46 million in the second quarter of
fiscal 1999 and 19% to $101 million for the first six months of fiscal 1999,
compared to the same periods in fiscal 1998. Styrene sales prices decreased 5%
and 10% for the second quarter and first six months of fiscal 1999,
respectively, compared to the prior fiscal year periods. The decrease in sales
prices was primarily due to continued weak market conditions, particularly in
Asia. Styrene sales volumes decreased 15% and 9% for the second quarter and
first six months of fiscal 1999, respectively, compared to the prior fiscal year
periods. The decrease in sales volumes was primarily due to the month-long
maintenance shutdown of the styrene unit during the second quarter of fiscal
1999. The major raw materials for styrene are benzene and ethylene. The price of
benzene remained constant in the second quarter of fiscal 1999 and decreased 22%
in the first six months of fiscal 1999, compared to the same periods of fiscal
1998. The price of ethylene decreased 7% and 31% in the second quarter of fiscal
1999 and the first six months of fiscal 1999, respectively, compared
17
<PAGE> 18
to the same periods of fiscal 1998. Styrene margins increased in the second
quarter and first six months of fiscal 1999, compared to the same periods of
fiscal 1998, as significantly lower raw materials costs and lower fixed
manufacturing costs more than offset the lower sales prices.
Acrylonitrile revenues decreased 41% to $17 million in the second quarter
of fiscal 1999 and 42% to $36 million for the first six months of fiscal 1999,
compared to the same periods in fiscal 1998. Acrylonitrile sales prices
decreased 33% and 32% for the second quarter and first six months of fiscal
1999, respectively, compared to the prior fiscal year periods. In addition,
acrylonitrile sales volumes decreased 13% and 15% for the second quarter and
first six months of fiscal 1999, respectively, compared to the prior fiscal year
periods. The lower sales prices and volumes were primarily due to weaker market
conditions, primarily in Asia. The major raw materials for acrylonitrile are
propylene and ammonia. The price of propylene decreased 33% and 35% in the
second quarter of fiscal 1999 and the first six months of fiscal 1999,
respectively, compared to the same periods of fiscal 1998. The price of ammonia
decreased 10% and 16% in the second quarter of fiscal 1999 and the first six
months of fiscal 1999, respectively, compared to the same periods of fiscal
1998. Acrylonitrile margins decreased in the second quarter and first six months
of fiscal 1999, compared to the same periods of fiscal 1998, as significantly
lower sales prices more than offset lower raw materials costs and lower fixed
manufacturing COSTS.
The acrylic fibers business revenues decreased 37% to $16 million in the
second quarter of fiscal 1999 and 40% to $31 million for the first six months of
fiscal 1999, compared to the same periods in fiscal 1998. Acrylic fibers sales
volumes decreased 27% and 36% for the second quarter and first six months of
fiscal 1999, respectively, compared to the prior fiscal year periods. The
performance of the Company's acrylic fibers business in the second quarter and
first six months of fiscal 1999 continued to be negatively impacted by weak
market conditions and imports from foreign suppliers.
Revenues from the Company's acetic acid, methanol and plasticizers ("AMP")
products and other petrochemicals decreased 36% to $29 million in the second
quarter of fiscal 1999 and 32% to $66 million for the first six months of fiscal
1999, compared to the same periods in fiscal 1998. The decreases in revenues for
the second quarter and first six months of fiscal 1999 were primarily due to a
44% and 46% decrease in methanol sales prices, respectively, and a 33% and 27%
decrease in methanol sales volumes, respectively, compared to the prior fiscal
year periods. The decrease in methanol revenues and sales volumes was primarily
a result of continued overcapacity in the global methanol market. The Company's
AMP products reported a decrease in operating earnings in the second quarter and
first six months of fiscal 1999 compared to the prior periods of fiscal 1998.
These decreases in operating earnings were primarily due to the aforementioned
weak methanol market conditions and acetic acid shutdown for expansion.
Pulp Chemicals
Revenues from the Company's pulp chemicals business decreased 9% to $45
million in the second quarter of fiscal 1999 and 11% to $92 million in the first
six months of fiscal 1999, compared to the same periods in fiscal 1998. This
decrease in revenues was primarily due to a decrease in average sodium chlorate
sales prices compared to the prior periods of fiscal 1998. The decline in sodium
chlorate sales prices was primarily due to decreased demand as a result of lower
pulp mill operating rates. The Company's pulp chemicals business recorded
operating earnings of $8 million and $15 million for the three and six month
periods of fiscal 1999, respectively, compared to operating earnings of $8
million and $20 million for the same periods of fiscal 1998. This reduction in
operating earnings was primarily due to reduced sodium chlorate sales prices.
Selling, General, and Administrative ("SG&A") Expenses
SG&A expenses were $9 million and $18 million for the second quarter and
first six months of fiscal 1999, respectively, compared to $9 million and $17
million for the same periods of fiscal 1998. An increase due to costs associated
with upgrades of certain of the Company's information technology systems, which
include Year 2000 compliance activities, was mostly offset by the favorable
impact of cost reduction programs.
Other Expense
Other expense was $7 million and $9 million for the second quarter and six
months of fiscal 1999, respectively, compared to $3 million for the same periods
of fiscal 1998. The fiscal 1999 amounts relate to the aforementioned one-time
non-cash charge related to early retirement programs and benefit changes and
workforce reductions in the petrochemical business and Saskatoon, Saskatchewan,
Canada plant. The fiscal 1998 amounts relate to voluntary severance programs in
the petrochemical business.
Interest and Debt Related Expenses
Interest and debt related expense was $25 million for the second quarters
of 1999 and 1998 and $50 million for the first six months of fiscal 1999 and
1998.
18
<PAGE> 19
Benefit for Income Taxes
Benefit for income taxes for the second quarter and first six months of
fiscal 1999 were $11 million (effective tax rate of 31%) and $19 million
(effective tax rate of 33%), respectively, compared to $9 million (effective tax
rate of 36%) and $14 million (effective tax rate of 34%) for the comparable
periods of fiscal 1998. The increase in the benefit was primarily the result of
the increase in the Company's pre-tax losses in the fiscal 1999 periods.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company's long-term debt (including current
maturities) totaled approximately $900 million and consisted of: (i) three term
loans under the Credit Agreement (defined below); (ii) loans under the Revolver
(defined below); (iii) two term loans under the Sask Credit Agreement (defined
below); (iv) Chemicals' 11 1/4% Senior Subordinated Notes due 2007 (the "11 1/4%
Notes"); (v) Chemicals' 11 3/4% Senior Subordinated Notes due 2006 (the "11 3/4%
Notes"); and (vi) the 13 1/2% Notes.
In July 1997, Chemicals entered into an Amended and Restated Credit
Agreement (as amended, the "Credit Agreement") with Chase Bank of Texas,
National Association, individually and as administrative agent, Credit Suisse
First Boston, individually and as documentation agent, and certain other
financial institutions. The Credit Agreement establishes a revolving credit
facility (the "Revolver") under which Chemicals may borrow, repay and reborrow
funds for general corporate purposes. The Revolver automatically terminates on
March 31, 2003, at which time all amounts owing thereunder will be due and
payable. As of March 31, 1999, Chemicals had drawn approximately $14 million and
had approximately $4 million in letters of credit outstanding under the
Revolver.
Availability of credit under the Revolver (not to exceed $125 million) 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 March 31, 1999, and after deducting approximately $4 million
on account of outstanding letters of credit, the borrowing base limited the
total credit available under the Revolver to a maximum of $87 million, down from
$118 million at September 30, 1998 and $108 million at December 31, 1998. A
review of the borrowing base is currently being performed on behalf of the
lenders and it is possible that this review could lead to a reduction in the
borrowing base, although the Company does not believe that such a reduction
would be warranted. As discussed below, availability of credit under the
Revolver is also subject to Chemicals being in compliance with numerous
operational and financial covenants, including covenants that obligate Chemicals
to maintain certain financial ratios. Even if the Company remains compliant with
all covenants, the amount of debt that the Company may incur in the future
(including extensions of credit under the Revolver) is limited by the covenants
contained in the Credit Agreement as well as those contained in various other
debt agreements of the Company.
In December 1998, Chemicals obtained certain amendments to the financial
covenants contained in the Credit Agreement which made the financial covenants
less restrictive through December 31, 1999. Chemicals was in compliance with the
covenants at all times, but requested the amendments based on its revised
financial projections. Beginning March 31, 2000, certain of these financial
covenants become more restrictive. For example, the interest coverage ratio
increases from 0.80 at March 31, 1999, to 2.50 beginning with the rolling four
quarters ending March 31, 2000. Consequently, Chemicals will be required to have
significantly increased cash flows and operating results (or obtain further
amendments or waivers) in order to maintain compliance. While Chemicals is
currently compliant with all covenants contained in the Credit Agreement, no
assurances can be given that its cash flows and operating results will be
sufficient to maintain compliance in the future, particularly at and after March
31, 2000. Chemicals' ability to comply with these covenants, as well as the
Company's overall ability to 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. If weak market conditions
continue to negatively impact the sales prices, margins and/or volumes of the
Company's primary products (including styrene, acrylonitrile, methanol, sodium
chlorate, and acrylic fibers), Chemicals may have difficulty prior to March 31,
2000 and will have difficulty at and after March 31, 2000 remaining in
compliance with the existing financial covenants in the Credit Agreement. Should
Chemicals fail to maintain covenant compliance and be unable to obtain
appropriate amendments or waivers, it would not be entitled to obtain additional
credit under the Revolver and the Revolver could be terminated by the lenders
with all amounts outstanding being immediately due and payable, although the
lenders could elect, at their discretion, to leave amounts drawn under the
Revolver outstanding and/or extend additional credit to Chemicals under the
Revolver. If Chemicals is unable to borrow additional funds under the Revolver,
the Company may not have sufficient funds to make future scheduled interest
payments or to pay other obligations as they become due. In that event or in the
event the Company fails, without obtaining appropriate amendments or waivers, to
remain in compliance with any financial covenants contained in any of its debt
agreements, debt holders could pursue remedies available to them under the
relevant debt agreements, including, under certain conditions, accelerating the
maturity of outstanding indebtedness. The indebtedness under the Credit
Agreement is secured by substantially all of the assets of Chemicals. In
addition, the indebtedness under the Credit Agreement, along with the 13 1/2%
Notes, are secured by a pledge of the outstanding
19
<PAGE> 20
common stock of Chemicals.
In connection with the Credit Agreement amendments described above,
Holdings entered into the Standby Purchase Agreements with the Standby
Purchasers. Pursuant to the terms of the Standby Purchase Agreements, the
Standby Purchasers are obligated to purchase up to an aggregate of 2.5 million
shares of Common Stock, at a price of $6.00 per share, if, as and when requested
by Holdings at any time or from time to time prior to December 15, 2001. Under
each of the Standby Purchase Agreements, Holdings may only require the Standby
Purchasers to purchase such shares if it believes that the purchase price paid
by the Standby Purchasers for such shares is necessary to maintain, reestablish,
or enhance the Company's borrowing ability under its revolving credit facilities
or to satisfy any requirement thereunder to raise additional equity. To induce
the Standby Purchasers to enter into the Standby Purchase Agreements, Holdings
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 Standby Purchase
Agreements, Holdings is obligated to issue to the Standby Purchasers additional
warrants to purchase 300,000 additional shares of Common Stock if, as, and when
they purchase shares of Common Stock under the Standby Purchase Agreements.
The Company is exploring various external actions designed to increase its
liquidity and capital resources. Actions currently under consideration include
pursuing further amendments to the Credit Agreement and/or one or more new
external financing arrangements. No assurances can be given that any of these
alternatives will be available to the Company or, if so, on terms that are
acceptable to the Company.
The Company's debt agreements 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. These restrictions are
not expected to limit Holdings' ability to meet its obligations in fiscal 1999.
Because Sterling Sask is designated as an "Unrestricted Subsidiary" under
the Credit Agreement and the indentures governing the 13 1/2% Notes, the 11 3/4%
Notes and the 11 1/4% Notes, Sterling Sask is generally not subject to, nor are
its results considered in determining Chemicals' compliance with, the
restrictive covenants contained therein. In July 1997, Sterling Sask entered
into a Credit Agreement (the "Sask Credit Agreement") with The Chase Manhattan
Bank of Canada, individually and as administrative agent, and certain other
financial institutions. 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 was made in the first quarter of fiscal 1999 pursuant to such
obligation. 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 March 31, 1999. Because of restrictions in the Sask Credit
Agreement, the Company will generally not have access to the cash flows of
Sterling Sask. The Saskatoon Credit Agreement contains provisions which restrict
the payment of advances, loans, and dividends from Sterling Sask to Chemicals or
Holdings. 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. The
indebtedness under the Sask Credit Agreement is secured by substantially all the
assets of Sterling Sask.
Working Capital
Working capital of the Company was $71 million at March 31, 1999, down from
$92 million at September 30, 1998. This $21 million decrease in working capital
was primarily due to a decrease in accounts receivable as a result of lower
sales prices and volumes, partly attributable to the scheduled styrene and
acetic acid maintenance shutdowns during the second quarter of fiscal 1999.
Cash Flow
Net cash provided by operations was $1 million for the six months ended
March 31, 1999 and $14 million for the six months ended March 31, 1998. This $13
million decrease in net cash provided by operations was primarily due to the
increase in net loss resulting from the factors discussed previously.
Capital Expenditures
The Company's capital expenditures for the first six months of fiscal 1999
were $12 million compared to $13 million in the same period in fiscal 1998. The
capital expenditures in the first six months of fiscal 1999 were primarily
related to the acetic acid expansion, the PAR project, the DSIDA project, and
routine safety, environmental, and replacement capital. During the remainder of
fiscal 1999, the Company expects to spend approximately $15 million to $20
million on the PAR project and routine safety, environmental, and replacement
capital. The Company expects to fund its remaining fiscal 1999 capital
expenditures from operating cash flow, plus borrowings under the Revolver, if
needed.
20
<PAGE> 21
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 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. This survey has been completed and
did not reveal any additional material Year 2000 deficiencies.
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 determines that any additional
systems under review have material Year 2000 deficiencies, the Company plans to
take appropriate remedial action. At this time, the instrumentation in the
laboratory requires significant remediation or replacement. However, that
instrumentation can be successfully operated in its current state with minimal
manual intervention. Even without remediation or replacement, this
instrumentation does not jeopardize the successful operation of the facility or
the business.
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 June 30,
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 scheduled to be completed by mid-year
1999.
The total estimated expense for the Company's Year 2000 compliance projects
is approximately $11 to $13 million, of which the Company has incurred
approximately $5 million through March 31, 1999. Such expense has been and will
continue to be funded by the Company 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
has 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 scheduled to be completed around
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, operate
one or more of its manufacturing facilities, or 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.
21
<PAGE> 22
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 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk disclosures set forth in the Annual Report have
not changed significantly through the period ended March 31, 1999.
22
<PAGE> 23
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information under "Legal Proceedings" in Note 4 of the Notes to
Consolidated Financial Statements herein is hereby incorporated by reference.
See also "Item 3. Legal Proceedings" in the Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Holdings' Annual Meeting of Stockholders was held on January 27, 1999,
at which time Holding's nine incumbent directors were re-elected and the
appointment of Deloitte & Touche LLP as the Company's independent accountants
for the fiscal year ending September 30, 1999 was ratified.
The voting results for the re-election of the nine incumbent directors are
as set forth below:
<TABLE>
<CAPTION>
FOR WITHHELD
--------- --------
<S> <C> <C>
Frank P. Diassi........................................... 9,807,863 33,843
Peter W. De Leeuw......................................... 9,807,887 33,819
Robert W. Roten........................................... 9,828,969 12,737
Allan R. Dragone.......................................... 9,828,460 13,246
John L. Garcia............................................ 9,829,099 12,607
Frank J. Hevrdejs......................................... 9,827,683 14,023
Hunter Nelson............................................. 9,827,514 14,192
George J. Damiris......................................... 9,829,099 12,607
Rolf H. Towe.............................................. 9,829,099 12,607
</TABLE>
The voting results for the appointment of Deloitte & Touche LLP as the
independent accountants of the Company for the fiscal year ending September 30,
1999 are as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--------- ------- -------
<S> <C> <C>
9,809,908 14,010 17,788
</TABLE>
There were no broker non-votes for the election of directors or for the
ratification and approval of the appointment of Deloitte & Touche LLP as the
independent accountants for the Company for the fiscal year ending September 30,
1999.
23
<PAGE> 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The following exhibits are filed as part of this Form 10-Q.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
4.1 --Third Amended and Restated Voting Agreement dated as of February 1,
1999.
11.1 --Earnings Per Share Calculation.
15.1 --Letter of Deloitte & Touche LLP regarding unaudited interim
financial information.
27.1 --Financial Data Schedule of Sterling Chemicals Holdings, Inc.
27.2 --Financial Data Schedule of Sterling Chemicals, Inc.
(b) Reports on Form 8-K.
On March 4, 1999, the Company filed a Current Report on Form 8-K,
reporting under Items 5 and 7.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, 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)
Date: May 13, 1999 /s/ PETER W. DE LEEUW
---------------------------------------------
Peter W. De Leeuw
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 13, 1999 /s/ GARY M. SPITZ
---------------------------------------------
Gary M. Spitz
Vice President-Finance and Chief Financial
Officer
(Principal Financial Officer)
25
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
4.1 --Third Amended and Restated Voting Agreement dated as of February 1,
1999.
11.1 --Earnings Per Share Calculation.
15.1 --Letter of Deloitte & Touche LLP regarding unaudited interim
financial information.
27.1 --Financial Data Schedule of Sterling Chemicals Holdings, Inc.
27.2 --Financial Data Schedule of Sterling Chemicals, Inc.
</TABLE>
<PAGE> 1
THIRD AMENDED AND RESTATED VOTING AGREEMENT
THIS THIRD AMENDED AND RESTATED VOTING AGREEMENT (this "Agreement") is
entered into as of February 1, 1999, by and among the stockholders named on the
signature pages hereto (collectively, the "Stockholders") and Sterling Chemicals
Holdings, Inc., a Delaware corporation (the "Company").
PRELIMINARY STATEMENTS
A. The Stockholders are beneficial owners of Common Stock (as defined
below).
B. On August 21, 1996, 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., 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., FSI No. 2 Corporation, Koch
Capital Services, Inc., Olympus Growth Fund II, L.P. and Olympus
Executive Fund, L.P. (collectively, the "Original Parties") entered
into that certain Voting Agreement with the Company (the "Original
Voting Agreement").
C. On January 22, 1997, the Original Parties and the Company entered into
that certain Amended and Restated Voting Agreement (the "First Amended
and Restated Voting Agreement") pursuant to which the Original Voting
Agreement was amended in certain respects and restated in its
entirety.
D. Certain of the Original Parties have heretofore transferred an
aggregate of 100,133 shares of Common Stock to the transferees named
in Schedule 1 (the "Donees") and, in connection with such transfers,
the Donees became parties to the First Amended and Restated Voting
Agreement.
E. On December 15, 1998, the Original Parties, the Donees and the Standby
Investors (as defined below) entered into that certain Amended and
Restated Voting Agreement (the "Second Amended and Restated Voting
Agreement") pursuant to which the First Amended and Restated Voting
Agreement was amended in certain respects and restated in its
entirety.
F. The parties hereto desire to amend the Second Amended and Restated
Voting Agreement in certain respects and to restate the Second Amended
and Restated Voting Agreement, as so amended, in its entirety.
<PAGE> 2
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. Capitalized terms used in this Agreement shall have the
following respective meanings, except as otherwise provided herein or as the
context shall otherwise require:
"Agreement" has the meaning specified in the introductory paragraph.
"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.
"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
-2-
<PAGE> 3
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 Voting Stock and thereafter means all the remaining Clipper Investors.
"Common Stock" means the common stock, par value $0.01 per share, of the
Company and any other class of capital stock of the Company entitled to vote
generally in an election of directors.
"Company" has the meaning specified in the introductory paragraph.
"Donees" has the meaning specified in the Preliminary Statements.
"First Amended and Restated Voting Agreement" has the meaning specified in
the Preliminary Statements.
"Holders" means the Original Parties, the Standby Investors, Von D. Oehmig
and any other person or entity that becomes a party to this Agreement after the
date hereof in accordance with the terms of this Agreement.
"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.
"Original Parties" has the meaning specified in the Preliminary Statements.
"Original Voting Agreement" has the meaning specified in the Preliminary
Statements.
"Purchase Agreement" has the meaning specified in Section 5.1.
"Second Amended and Restated Voting Agreement" has the meaning specified in
the Preliminary Statements.
"Standby Investors" means Cain, William A. McMinn and James Crane.
-3-
<PAGE> 4
"Stockholders" has the meaning specified in the introductory paragraph.
"Voting Agreement" means (i) with respect to any day during the period from
August 21, 1996 through January 21, 1997, the Original Voting Agreement, (ii)
with respect to any day during the period from January 22, 1997 through December
14, 1998, the First Amended and Restated Voting Agreement, (iii) with respect to
any day during the period from December 15, 1998 through January 31, 1999, the
Second Amended and Restated Voting Agreement, and (iv) with respect to any day
thereafter, this Agreement.
"Voting Stock" means, with respect to any Holder, (i) all shares of Common
Stock owned by such Holder on the date such Holder became or becomes a party to
the Voting Agreement, (ii) all shares of Common Stock issued by the Company to
or acquired by such Holder after the date such Holder became or becomes a party
to the Voting Agreement, whether in connection with a purchase, issuance, grant,
stock split, stock dividend, reorganization, warrant, option, convertible
security, right to acquire or otherwise, and (iii) all securities of the Company
or any other corporation or entity which such Holder acquires after the date
hereof in respect of his, her or its shares of Common Stock referred to in
clauses (i) and (ii) above in connection with any exchange, merger,
consolidation, recapitalization, reorganization or other transaction to which
the Company is a party.
1.2. Interpretation. (a) In this Agreement, unless a contrary intention
appears:
(i) all terms defined in the singular shall have the same meanings in the
plural and vice versa;
(ii) reference to any gender includes each other gender and the neuter;
(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
heirs, executors, personal representatives, administrators, successors and
assigns but, if applicable, only if such heirs, executors, personal
representatives, administrators, 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.
-4-
<PAGE> 5
(b) The captions and headings contained herein are for convenience only and
shall not be considered or given any effect in construing the provisions hereof
if any question of intent should arise.
(c) All references to Articles, Sections and Schedules shall be deemed to
be references to the Articles and Sections of this Agreement and the Schedules
attached hereto which are made a part hereof and incorporated herein by
reference, respectively.
(d) The word "including" (and with correlative meaning "include") means
including, without limiting the generality of any description preceding such
term.
(e) Where any provision of this Agreement refers to action to be taken by
any person or entity, or which such person or entity is prohibited from taking,
such provision shall be applicable whether such action is taken directly or
indirectly by such person or entity.
(f) This Agreement shall be deemed drafted jointly by all the parties
hereto and shall not be interpreted or construed against any party hereto solely
because 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 of the Company
be less than the sum of (i) four plus (ii) 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 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
-5-
<PAGE> 6
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 social security number, (iii) such person's consent to being
named in the proxy statement as a nominee and (iv) 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 Holder agrees to vote (or caused to be voted) the Voting
Stock owned by him, her or it in favor of the Clipper Designee and to take any
other necessary or desirable action in his, her or its capacity as a holder of
Voting Stock 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 Holders (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 Holder agrees to vote (or cause to be voted) the Voting Stock
owned by him, her or it in favor of any such Clipper Designee and to take any
other necessary or desirable action in his, her or its capacity as a holder of
Voting Stock 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 Holder 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.
-6-
<PAGE> 7
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 Holders who shall thereupon
become obligated to vote all Voting Stock owned by them in favor of the removal
of the Clipper Director. No Holder (other than the Clipper Investors) shall vote
any Voting Stock owned by him, her or it or take any other action in his, her or
its capacity as a holder of Voting Stock 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 8.4 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 Company and the other Holders 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 Holders hereby grants to the Clipper
Representative, on behalf of the Clipper Investors, an irrevocable proxy to vote
all shares of Voting Stock presently or at any future time owned beneficially or
of record by such Holder which such Holder is entitled to vote, and to represent
and otherwise act as such Holder could act, in the same manner and with the same
effect as if such Holder 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.
-7-
<PAGE> 8
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 social security number,
(iii) such person's consent to being named in the proxy statement as a nominee
and (iv) 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 Holder
agrees to vote (or cause to be voted) the Voting Stock owned by him, her or it
in favor of the Koch Designee and to take any other necessary or desirable
action in his, her or its capacity as a holder of Voting Stock 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 Holders (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 Holder agrees to vote the Voting
Stock owned by him, her or it in favor of any such Koch Designee and to take any
other necessary or desirable action in his, her or its capacity as a holder of
Voting Stock 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
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<PAGE> 9
in favor of any such Koch Designee and each Holder 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 Holders who shall thereupon become
obligated to vote all Voting Stock owned by them in favor of the removal of the
Koch Director. No Holder (other than Koch) shall vote any Voting Stock owned by
him, her or it or take any other action in his, her or its capacity as a holder
of Voting Stock 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 8.4 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
Company and the other Holders as provided in Section 4.5 requesting the removal
of, the incumbent Koch Director.
4.7. Irrevocable Proxy. Each of the Holders hereby grants to Koch an
irrevocable proxy to vote all shares of Voting Stock presently or at any future
time owned beneficially or of record by such Holder which such Holder is
entitled to vote, and to represent and otherwise act as such Holder could act,
in the same manner and with the same effect as if such Holder 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
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<PAGE> 10
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 social security number,
(iii) such person's consent to being named in the proxy statement as a nominee
and (iv) 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 Holder
agrees to vote (or cause to be voted) the Voting Stock owned by him, her or it
in favor of the Cain Designee and to take any other necessary or desirable
action in his, her or its capacity as a holder of Voting Stock to elect the Cain
Designee to the Board.
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<PAGE> 11
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 Holders (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 Holder agrees to vote the Voting
Stock owned by him, her or it in favor of any such Cain Designee and to take any
other necessary or desirable action in his, her or its capacity as a holder of
Voting Stock 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 Holder 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 Holders who shall thereupon become
obligated to vote all Voting Stock owned by them in favor of the removal of the
Cain Director. No Holder (other than Cain) shall vote any Voting Stock owned by
him, her or it or take any other action in his, her or its capacity as a holder
of Voting Stock 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 parties hereto under this Article V shall terminate
immediately and without notice upon the
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<PAGE> 12
earlier of (i) the termination of this Agreement under Section 8.4 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 Company and the other Holders as
provided in Section 5.5 requesting the removal of, the incumbent Cain Director.
5.7. Irrevocable Proxy. Each of the Holders hereby grants to Cain an
irrevocable proxy to vote all shares of Voting Stock presently or at any future
time owned beneficially or of record by such Holder which such Holder is
entitled to vote, and to represent and otherwise act as such Holder could act,
in the same manner and with the same effect as if such Holder 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 Voting Stock, etc.
6.1. Stock Legend. (a) Each certificate for shares of Voting Stock owned by
any Holder 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 8.4, 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 8.3, 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.
6.2. Voting Trusts, etc. No Holder shall deposit any shares of Voting Stock
in a voting trust or subject any shares of Voting Stock to any arrangement or
agreement (other than this Agreement) with respect to the voting of such shares
unless such trust or arrangement or
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<PAGE> 13
agreement is made expressly subject to the provisions of this Agreement. Except
as provided in this Agreement, no Holder shall give any proxy or power of
attorney with respect to any shares of Voting 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. Release of Donees. Upon this Agreement becoming effective, each of the
Donees and any and all shares of Common Stock heretofore transferred to each of
the Donees (as set forth on Schedule 1) shall be released from, and cease to be
bound by, the terms of this Agreement. From and after the effectiveness of this
Agreement, the Company shall, without charge and upon surrender of certificates
by the holders thereof and written request of such holders, cancel all
certificates evidencing such shares of Common Stock bearing the legend described
in Section 6.1 and issue to the holders thereof replacement certificates that do
not bear such legend for an equal number of shares held by such holders.
8.2. 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
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<PAGE> 14
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.
8.3. Agreement Binding on Certain Transferees. (a) Except as otherwise
provided in paragraphs (b) and (c) below, prior to any transfer of shares of
Voting Stock by any Holder, 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 Holders shall be deemed to refer to the Holders and all direct
and indirect transferees thereof so required to become bound.
(b) Notwithstanding any provision of this Agreement to the contrary, no
person or entity shall be required to become a party to or agree to be bound by
the terms of this Agreement solely on account of the acquisition by such person
or entity of shares of Voting Stock (i) pursuant to a bona fide public offering
of such shares or (ii) pursuant to a sale of such shares pursuant to Rule 144
under the Securities Act of 1933, as amended.
(c) Each Holder may request to transfer shares of Voting Stock by gift to
any person or entity free of the restrictions contained in this Agreement by
providing written notice to the Company of such request on or before December 1
of any calendar year (a "Gift Transfer Request"). As soon as practicable after
December 1 of each year, the Company shall calculate the number of shares of
Common Stock by which (i) the aggregate number of shares of Common Stock then
subject to the Voting Agreement exceeds (ii) 51% of the then issued and
outstanding shares of Common Stock (such excess shares being the "Shares
Available for Transfer"). If the Shares Available for Transfer exceeds the
aggregate number of shares of Common Stock requested to be transferred pursuant
to all timely Gift Transfer Requests, each Holder that has timely delivered a
Gift Transfer Request shall be entitled, on or before December 31 of such year,
to make the transfers described in such Gift Transfer Requests free of the
restrictions contained in this Agreement, in which event the transferees shall
not be required to become a party to or agree to be bound by the terms of this
Agreement solely on account of such transfers. If the aggregate number of shares
of Common Stock requested to be transferred pursuant to all timely Gift Transfer
Requests exceeds the Shares Available for Transfer, each Holder shall be
entitled, on or before December 31 of such year, to transfer its pro rata
portion of the Shares Available for Transfer (based upon the respective number
of shares of Common Stock requested to be transferred under all timely Gift
Transfer Requests) free of the restrictions contained in this Agreement, in
which event the transferees shall not be required to become a party to or agree
to be bound by the terms of this Agreement solely on account of such transfers.
The Company shall, as soon as practicable after December 1 of each year, notify
each Holder that has timely delivered a Gift Transfer Request of the aggregate
number of shares of Common Stock which such Holder may transfer free of the
restrictions contained in this Agreement.
(d) Nothing contained in this Section 8.3 shall prohibit or restrict any
Holder from transferring any shares of Voting Stock to any person or entity, by
gift or otherwise, if the transferee is a party to this Agreement or, at the
time of such transfer, becomes a party to this Agreement.
-14-
<PAGE> 15
8.4. 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 and those persons and entities that are
Holders as of the date hereof and the Second Amended and Restated Voting
Agreement shall remain in full force and effect until such time.
(b) This Agreement shall terminate on December 15, 2008 or such earlier
date as all of the persons and entities that then have the right hereunder to
designate individuals as director nominees to serve on the Board shall agree
upon in writing. Upon the termination of this Agreement, the rights and
obligations hereunder of the Company and the Holders shall terminate and the
provisions of this Agreement shall be of no force and effect.
8.5. 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 Holder hereunder shall be conclusive and binding on the heirs, executors,
personal representatives, administrators, successors, assigns and transferees of
such Holder.
(c) For the purpose of determining the number of shares of Voting Stock
owned or held by any Holder, the Company may rely and shall be fully protected
in acting upon the records maintained by or on behalf of the Company.
8.6. No Inconsistent Actions. Neither the Company nor any Holder shall,
directly or indirectly, undertake any course of action inconsistent with the
provisions or intent of this Agreement. Without limitation of the foregoing, the
Company and each Holder 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.
8.7. Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors, personal
representatives, administrators, successors and permitted assigns.
8.8. Amendments. Except as otherwise specifically provided herein, this
Agreement shall not be amended other than by an instrument in writing signed by
the Company and all of the Holders; provided, however, that any shares of Voting
Stock subject to the terms of this Agreement, and any person or entity, may be
released from the terms of this Agreement with the
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<PAGE> 16
written consent of all of the persons and entities that then have the right
hereunder to designate individuals as director nominees to serve on the Board.
8.9. 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.
8.10. 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.
8.11. 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.
8.12. 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.
8.13. Governing Law. THE LAWS OF THE JURISDICTION IN WHICH HOLDINGS IS
INCORPORATED, THE STATE OF DELAWARE, SHALL GOVERN THIS AGREEMENT WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, 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
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<PAGE> 17
STOCKHOLDERS:
----------------------------------------
Frank P. Diassi
6 Commerce Drive
Cranford, New Jersey 07016
Fax: (908) 276-5635
----------------------------------------
Marianne R. Diassi
6 Commerce Drive
Cranford, New Jersey 07016
Fax: (908) 276-5635
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
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<PAGE> 18
----------------------------------------
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
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
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<PAGE> 19
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
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
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<PAGE> 20
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
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
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<PAGE> 21
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
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: C. J. Nelson
4111 East 37th Street North
Wichita, Kansas 67220
Fax: (316) 828-3133
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<PAGE> 22
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
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: 8 Greenway Plaza, Suite 702
Houston, Texas 77046
Fax: (713) 877-8107
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<PAGE> 23
----------------------------------------
William A. McMinn
Address: 8 Greenway Plaza, Suite 702
Houston, Texas 77046
Fax: (713) 877-8107
----------------------------------------
James Crane
Address: 15350 Vickery Drive
Houston, Texas 77032
Fax: (281) 618-3204
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
-23-
<PAGE> 24
KINKAID INVESTMENTS FOUNDATION
By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------
Attn: William M. Wheless III
201 Kinkaid School Dr.
Houston, Texas 77024
Fax: (713) 782-3543
----------------------------------------
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
-24-
<PAGE> 25
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
------------------------------------------
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
-25-
<PAGE> 26
----------------------------------------
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
-26-
<PAGE> 27
------------------------------------------
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
-27-
<PAGE> 28
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
2904 Greenlee Drive
Austin, Texas 78703
Fax: (512) 388-9244
--------------------------------------------
Bryan Clifford Campbell, Custodian for
Stephen Clifford Campbell UGMA
2904 Greenlee Drive
Austin, Texas 78703
Fax: (512) 388-9244
-28-
<PAGE> 29
-----------------------------------------
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
-----------------------------------------
Ross Eastman, Custodian for
Alexandra Eastman UGMA
6255 Chevy Chase
Houston, Texas 77057
Fax: (713) 785-0956
-29-
<PAGE> 30
-----------------------------------------
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
-----------------------------------------
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
-30-
<PAGE> 31
-----------------------------------------
Stephen A. Adger
%R.R. Donnelly & Sons
1015 S. Shepherd
Houston, Texas 77019
Fax: (713) 521-9707
-----------------------------------------
William J. Campbell, Custodian for
William J. Campbell, Jr. UGMA
6134 Sugar Hill
Houston, Texas 77057
Fax: (713) 464-0970
-31-
<PAGE> 32
SCHEDULE 1
Transfers to Donees
<TABLE>
<CAPTION>
DATE OF NUMBER
TRANSFEROR DONEE TRANSFER OF SHARES
---------- ----- -------- ---------
<S> <C> <C> <C>
Frank P. Diassi Nicholas Diassi Trust Agreement 08/03/98 10,000
Frank P. Diassi Brianna Diassi Trust Agreement 08/03/98 10,000
Frank P. Diassi The Diassi Children's Trust U/A 12/21/89 04/03/97 40,000
Frank P. Diassi Gabrielle Diassi Trust U/A 9/24/90 04/03/97 20,000
William C. Oehmig Baylor School 12/20/96 833
William C. Oehmig Vanderbilt University 12/20/96 2,083
William C. Oehmig Kinkaid Investments Foundation 12/20/96 833
William C. Oehmig Marian Oehmig Latimer 12/20/96 833
William C. Oehmig William C. and Matilda Patton 12/20/96 833
William C. Oehmig Ray W. Griffin III 12/20/96 417
William C. Oehmig Margaret Jones 12/20/96 833
William C. Oehmig Margaret Jones, as Custodian for Andrews 12/20/96 417
Jones under the Texas UGMA
William C. Oehmig Margaret Jones, as Custodian for Michael 12/20/96 417
Jones under the Texas UGMA
William C. Oehmig Alexander Jones 12/20/96 417
William C. Oehmig P. Michael Gilbert 12/20/96 417
William C. Oehmig 1988 Oehmig Decendants Trust 12/20/96 1,667
William C. Oehmig Randolph D. Oehmig 12/20/96 833
William C. Oehmig William Brittain Oehmig 12/20/96 833
William C. Oehmig William C. Oehmig, as Custodian for 12/20/96 1,667
Gordon D. Oehmig
Frank P. Diassi John K. O'Connor 04/03/97 2,000
</TABLE>
-32-
<PAGE> 33
<TABLE>
<CAPTION>
DATE OF NUMBER
TRANSFEROR DONEE TRANSFER OF SHARES
---------- ----- -------- ---------
<S> <C> <C> <C>
Frank J. Hevrdejs Bryan Clifford Campbell 12/16/97 200
Frank J. Hevrdejs Bryan Clifford Campbell 12/16/98 1,000
Frank J. Hevrdejs Bryan Clifford Campbell, as Custodian for 12/16/97 200
Caroline Frances Campbell UGMA
Frank J. Hevrdejs Bryan Clifford Campbell, as Custodian for 12/16/98 400
Caroline Frances Campbell UGMA
Frank J. Hevrdejs Bryan Clifford Campbell, as Custodian for 12/16/97 200
Stephen Clifford Campbell UGMA
Frank J. Hevrdejs Bryan Clifford Campbell, as Custodian for 12/16/98 400
Stephen Clifford Campbell UGMA
Frank J. Hevrdejs William J. Campbell 12/16/97 200
Frank J. Hevrdejs William J. Campbell 12/16/98 1,000
Frank J. Hevrdejs William J. Campbell, as Custodian for 12/16/97 200
Andrew Dyer Campbell UGMA
Frank J. Hevrdejs William J. Campbell, as Custodian for 12/16/98 400
Andrew Dyer Campbell UGMA
Frank J. Hevrdejs William J. Campbell, as Custodian for 12/16/97 200
William J. Campbell, Jr. UGMA
Frank J. Hevrdejs William J. Campbell, as Custodian for 12/16/98 400
William J. Campbell, Jr. UGMA
Frank J. Hevrdejs Ross Eastman, as Custodian for Ross 12/16/97 200
Eastman Jr. UGMA
Frank J. Hevrdejs Ross Eastman, as Custodian for Ross 12/16/98 400
Eastman Jr. UGMA
Frank J. Hevrdejs Ross Eastman, as Custodian for Alexandra 12/16/97 200
Eastman UGMA
</TABLE>
-33-
<PAGE> 34
<TABLE>
<CAPTION>
DATE OF NUMBER
TRANSFEROR DONEE TRANSFER OF SHARES
---------- ----- -------- ---------
<S> <C> <C> <C>
Frank J. Hevrdejs Ross Eastman, as Custodian for Alexandra 12/16/98 400
Eastman UGMA
Frank J. Hevrdejs Merrie H. Clarke 12/16/97 400
Frank J. Hevrdejs Merrie H. Clarke 12/16/98 1,000
Frank J. Hevrdejs Merrie H. Clarke, as Custodian for Julian 12/16/97 200
Patrick Clarke UGMA
Frank J. Hevrdejs Merrie H. Clarke, as Custodian for Julian 12/16/98 400
Patrick Clarke UGMA
Frank J. Hevrdejs Merrie H. Clarke, as Custodian for Sean 12/16/97 600
McLean Clarke UGMA
Frank J. Hevrdejs Merrie H. Clarke, as Custodian for Sean 12/16/98 400
McLean Clarke UGMA
Frank J. Hevrdejs Patricia Meyer Hevrdejs 12/16/97 400
Frank J. Hevrdejs Patricia Meyer Hevrdejs 12/16/98 1,000
Frank J. Hevrdejs Dale E. Barnes 12/16/97 800
Frank J. Hevrdejs Dale E. Barnes 12/16/98 1,000
Frank J. Hevrdejs Stephen A. Adger 12/16/97 800
Frank J. Hevrdejs Stephen A. Adger 12/16/98 1,000
</TABLE>
-34-
<PAGE> 1
STERLING CHEMICALS HOLDINGS, INC.
EXHIBIT 11.1
EARNINGS PER SHARE COMPUTATION
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Weighted average of common stock outstanding .............. 12,466 11,984 12,446 11,918
Net Loss .................................................. $ (24,820) $ (16,288) $ (37,920) $ (26,433)
Less: Preferred dividend requirements and accretion ....... (658) (591) (1,303) (1,219)
Plus: Depreciation of value of Released Shares ............ 1,048 505 1,048 505
---------- ---------- ---------- ----------
Net loss used in basic loss per share ..................... $ (24,430) $ (16,374) $ (38,175) $ (27,147)
========== ========== ========== ==========
BASIC LOSS PER SHARE ................................. $ (1.96) $ (1.37) $ (3.07) $ (2.28)
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE
Weighted average of common stock outstanding .............. 12,466 11,984 12,446 11,918
Total weighted average shares outstanding used in
diluted loss per share computation (1) ............... 12,466 11,984 12,446 11,918
Net loss .................................................. $ (24,820) $ (16,288) $ (37,920) $ (26,433)
Less: Preferred dividend requirements and accretion ....... (658) (591) (1,303) (1,219)
Plus: Depreciation of value of Released Shares ............ 1,048 505 1,048 505
---------- ---------- ---------- ----------
Net loss used in diluted earning per share ................ $ (24,430) $ (16,374) $ (38,175) $ (27,147)
========== ========== ========== ==========
DILUTED LOSS PER SHARE (1) ....................... $ (1.96) $ (1.37) $ (3.07) $ (2.28)
========== ========== ========== ==========
</TABLE>
(1) Due to losses resulting in anti-dilution, same as amount used in basic
computation.
26
<PAGE> 1
EXHIBIT 15.1
Deloitte & Touche LLP
333 Clay Street
Suite 2300
Houston, Texas 77002
May 11, 1999
Sterling Chemicals Holdings, Inc.
1200 Smith Street, Suite 1900
Houston, Texas 77094
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited
interim financial information of Sterling Chemicals Holdings, Inc. and
subsidiaries for the three and six month periods ended March 31, 1999 and
1998, as indicated in our report dated May 11, 1999; because we did not
perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, is
incorporated by reference in Registration Statement No. 333-30917 for
Sterling Chemicals Holdings, Inc. on Form S-3 and in Registration Statement
No. 333-52795 for Sterling Chemicals Holdings, Inc. on Form S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of the
Registration Statements prepared or certified by an accountant or a report
prepared or certified by an accountant within the meaning of Sections 7 and
11 of that Act.
DELOITTE & TOUCHE LLP
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000795662
<NAME> STERLING CHEMICALS HOLDINGS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 4,608
<SECURITIES> 0
<RECEIVABLES> 96,900
<ALLOWANCES> (1,217)
<INVENTORY> 71,635
<CURRENT-ASSETS> 189,551
<PP&E> 761,958
<DEPRECIATION> (324,472)
<TOTAL-ASSETS> 728,457
<CURRENT-LIABILITIES> 118,857
<BONDS> 893,219
19,553
0
<COMMON> 123
<OTHER-SE> (384,437)
<TOTAL-LIABILITY-AND-EQUITY> 728,457
<SALES> 324,401
<TOTAL-REVENUES> 324,401
<CGS> 303,372
<TOTAL-COSTS> 303,372
<OTHER-EXPENSES> 27,533
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,951
<INCOME-PRETAX> (56,455)
<INCOME-TAX> (18,535)
<INCOME-CONTINUING> (37,920)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,920)
<EPS-PRIMARY> (3.07)
<EPS-DILUTED> (3.07)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001014669
<NAME> STERLING CHEMICALS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 4,591
<SECURITIES> 0
<RECEIVABLES> 98,984
<ALLOWANCES> (1,217)
<INVENTORY> 71,635
<CURRENT-ASSETS> 189,051
<PP&E> 761,958
<DEPRECIATION> (324,472)
<TOTAL-ASSETS> 724,874
<CURRENT-LIABILITIES> 118,864
<BONDS> 755,805
0
0
<COMMON> 0
<OTHER-SE> (249,141)
<TOTAL-LIABILITY-AND-EQUITY> 724,874
<SALES> 324,401
<TOTAL-REVENUES> 324,401
<CGS> 303,372
<TOTAL-COSTS> 303,372
<OTHER-EXPENSES> 27,277
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,241
<INCOME-PRETAX> (46,489)
<INCOME-TAX> (14,880)
<INCOME-CONTINUING> (31,609)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,609)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
