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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
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STERLING CHEMICALS HOLDINGS, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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PRELIMINARY DRAFT
December [___], 2000
Dear Stockholder:
We are pleased to invite you to attend the 2001 Annual Meeting of
Stockholders of Sterling Chemicals Holdings, Inc. to be held on Wednesday,
January 24, 2001 at 9:00 a.m. in Rooms Cottonwood A and B of the Hyatt Regency
Hotel at 1200 Louisiana Street, Houston, Texas. A notice of the meeting, proxy
statement and form of proxy are enclosed with this letter.
During the meeting we will report on the operations of the
Company during fiscal 2000 and our plans for fiscal 2001. Directors and
officers of the Company will be present to respond to appropriate questions
from stockholders.
We hope that you will be able to attend the meeting. If you are
unable to attend the meeting in person, it is very important that your shares
be represented and we request that you complete, date, sign and return the
enclosed proxy at your earliest convenience. If you choose to attend the
meeting in person, you may, of course, revoke your proxy and cast your votes
personally at the meeting. We look forward to seeing you at the meeting.
Thank you for your ongoing support and continued interest in
Sterling Chemicals Holdings, Inc.
Sincerely,
FRANK P. DIASSI
Chairman of the Board
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[STERLING CHEMICALS HOLDINGS, INC. LETTERHEAD]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 24, 2001
To Our Stockholders:
You are cordially invited to attend our Annual Meeting of Stockholders
to be held in Rooms Cottonwood A and B of the Hyatt Regency Hotel at 1200
Louisiana Street, Houston, Texas at 9:00 a.m. (Houston time) on Wednesday,
January 24, 2001. At the Annual Meeting you will be asked to vote on each of
the following proposals:
o the election of six directors, each of whom will hold office
until our Annual Meeting of Stockholders in 2001 and until his
successor has been duly elected and qualified;
o the ratification and approval of the appointment of Deloitte &
Touche LLP as our independent accountants for the fiscal year
ending September 30, 2001;
o the ratification and approval of an Amendment to the Sterling
Chemicals Holdings, Inc. Omnibus Stock Awards and Incentive Plan;
and
o the adoption of an amendment to our Certificate of Incorporation
increasing the number of authorized shares of our common stock
from 20,000,000 shares to [35,000,000] shares.
You are entitled to vote on each of these proposals if you were a stockholder
at the close of business on December 4, 2000. Our Board of Directors recommends
a vote FOR each of the nominated directors and FOR each of the other proposals.
You may also be asked to consider and act upon any other business that may
properly come before the Annual Meeting or any adjournment or postponement
thereof.
Your vote is very important. If you do not expect to attend the Annual
Meeting in person, please sign, date and complete the enclosed proxy and return
it without delay in the enclosed envelope, which requires no postage if mailed
in the United States. Mailing your completed proxy will not prevent you from
later revoking that proxy and voting in person at the Annual Meeting. If you
want to vote at the Annual Meeting but your shares are held by an intermediary,
such as a broker or bank, you will need to obtain proof of ownership of your
shares as of December 4, 2000 from the intermediary.
By Order of the Board of Directors
DAVID G. ELKINS
Corporate Secretary
December [___], 2000
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[STERLING CHEMICALS HOLDINGS, INC. LETTERHEAD]
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 24, 2001
GENERAL INFORMATION
Purpose of this Proxy Statement
We have prepared this Proxy Statement to solicit proxies on behalf of our Board
of Directors for use at our 2001 Annual Meeting and any adjournment or
postponement thereof. We intend to mail this Proxy Statement and accompanying
proxy card to all of our stockholders entitled to vote at the Annual Meeting on
or about December [___], 2000.
Time and Place of Annual Meeting
The Annual Meeting will be held on Wednesday, January 24, 2001, at 9:00 a.m.
(Houston time) in Rooms Cottonwood A and B of the Hyatt Regency Hotel at 1200
Louisiana Street, Houston, Texas.
Who May Vote
If you owned any shares of our common stock on December 4, 2000, as reflected
in our stock register, you may vote at the Annual Meeting.
How to Vote
You may vote in person at the Annual Meeting or by proxy. We recommend you vote
by proxy even if you plan to attend the Annual Meeting. You can always change
your vote at the Annual Meeting. If you want to vote at the Annual Meeting but
your shares are held by an intermediary, such as a broker or bank, you will
need to obtain proof of ownership of your shares as of December 4, 2000, or a
proxy to vote your shares, from the intermediary.
Quorum
In order to carry on any business at the Annual Meeting we must have a quorum.
This means that at least a majority of our outstanding shares eligible to vote
at the Annual Meeting must be represented at the Annual Meeting, either in
person or by proxy. Any shares owned by us or any of our subsidiaries are not
counted for this purpose. Shares of our common stock held by intermediaries
that are voted for at least one matter at the Annual Meeting will be counted as
being present for purposes of determining a quorum for all matters, even if the
beneficial owner's discretion has been withheld for voting on some or all other
matters (commonly referred to as a "broker non-vote").
Outstanding Shares
On December 4, 2000, there were 12,999,979 shares of our common stock
outstanding, 215,972 of which were held by Sterling Chemicals, Inc., our
wholly-owned subsidiary.
List of Stockholders
A list of our stockholders entitled to vote at the Annual Meeting will be
available for inspection at the Annual Meeting, as well as at our offices at
1200 Smith Street, Suite 1900, Houston, Texas 77002 for ten days prior to the
Annual Meeting. Any inspection of this list at our offices will need to be
conducted between 7:30 a.m. and 4:30 p.m. (Houston time). Please contact our
Corporate Secretary prior to coming to our offices to conduct an inspection.
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Votes Needed
Each share of our common stock is entitled to cast one vote for each director
to be elected and one vote on each other matter voted on at the Annual Meeting.
Directors will be elected by the favorable vote of a plurality of our shares of
common stock that are entitled to vote and are present at the Annual Meeting,
in person or by proxy, meaning that the six candidates with the largest number
of affirmative votes will be elected as our directors. Under this format,
abstentions and broker non-votes will not affect the outcome of the election.
Adoption of the amendment to our Certificate of Incorporation will require the
favorable vote of a majority of the shares of our common stock that are
entitled to vote on the adoption. Therefore, on this matter, abstentions from
voting and broker non-votes will have the same effect as a vote against the
proposal.
Ratification and approval of the appointment of Deloitte & Touche LLP as our
independent accountants for fiscal 2001 and ratification and approval of the
Amendment to our Omnibus Plan, as well as any other business that may properly
come before the Annual Meeting for a vote, will require the favorable vote of a
majority of the shares of our common stock that are entitled to vote on the
matter and are present at the Annual Meeting, in person or by proxy (unless a
greater vote is required by law or our charter or bylaws). Therefore, on these
matters, an abstention from voting will have the same effect as a vote against
the proposal. However, broker non-votes are considered not to be present for
voting on these matters and, consequently, do not count as votes for or against
these proposals and are not considered in calculating the number of votes
necessary for approval.
Solicitation of Proxies and Expenses
We are asking for your proxy on behalf of our Board. We will bear the entire
cost of preparing, printing and soliciting proxies. We will send proxy
solicitation materials to all of our stockholders of record as of December 4,
2000 and to all intermediaries, such as brokers and banks, that held any of our
shares on that date on behalf of others. These intermediaries will then forward
solicitation materials to the beneficial owners of our shares and we will
reimburse them for their reasonable forwarding expenses. Our directors,
officers and employees may also solicit proxies in person or by telephone.
How Proxies Work
Giving us your proxy means that you are authorizing us to vote your shares at
the Annual Meeting in the manner you direct. You may vote for all, some or none
of our director candidates. You may also vote for or against the other
proposals or abstain from voting.
If you sign and return the enclosed proxy card and do not withhold authority to
vote for the election of any of our director candidates, all of your shares
will be voted for the election of each of our director candidates. If you
withhold authority to vote for any of our director candidates, none of your
shares will be voted for those candidates but all of your shares will be voted
for the election of the candidates as to whom you have not withheld authority
to vote.
If any of our director candidates becomes unavailable for any reason before the
election, we may reduce the number of directors serving on our Board or our
Board may designate a substitute candidate. We have no reason to believe that
any of our director candidates will be unavailable. If our Board designates a
substitute candidate, the persons named in the enclosed proxy card will vote
your shares for such substitute if they are instructed to do so by our Board
or, if our Board does not do so, in accordance with their own best judgment.
If you sign and return the enclosed proxy card but do not specify how you want
your shares voted, your shares will be voted in favor of each of our director
candidates, in favor of the proposal to ratify and approve the appointment of
Deloitte & Touche LLP as our independent accountants for fiscal 2001, in favor
of the proposal to ratify and approve the Amendment to our Omnibus Plan and in
favor of the adoption of the amendment to our Certificate of Incorporation.
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If you sign and return the enclosed proxy card and any additional business
properly comes before the Annual Meeting, the persons named in the enclosed
proxy card will vote your shares on those matters as instructed by our Board
or, in the absence of any express instructions, in accordance with their own
best judgment. As of the date of this Proxy Statement, we were not aware of any
other matter to be raised at the Annual Meeting.
You may receive more than one proxy or voting card depending on how you hold
your shares. If your hold your shares through someone else, such as a broker or
a bank, you may get materials from them asking you how you want your shares
voted.
Revoking a Proxy
You may revoke your proxy at any time before your shares are voted by providing
our Corporate Secretary with either a new proxy with a later date or a written
notice of your desire to revoke your proxy at the following address: Sterling
Chemicals Holdings, Inc., 1200 Smith Street, Suite 1900, Houston, Texas 77002;
Attention: Corporate Secretary. You may also revoke your proxy at any time
prior to your shares having been voted by attending the Annual Meeting in
person and notifying the inspector of election of your desire to revoke your
proxy. However, your proxy will not automatically be revoked merely because you
attend the Annual Meeting.
Stockholders Proposals
Our Board of Directors does not intend to bring any other matters before the
Annual Meeting and has not been informed that any other matters are to be
presented by others. Our bylaws contain several requirements that must be
satisfied in order for any of our stockholders to bring a proposal before one
of our annual meetings, including a requirement of delivering proper advance
notice to us. Stockholders are advised to review our bylaws if they intend to
present a proposal at any of our annual meetings.
Annual Report and Available Information
Our annual report to stockholders, including financial statements, accompanies
this Proxy Statement but does not constitute a part of the proxy solicitation
materials. WE WILL FURNISH A COPY OF OUR ANNUAL REPORT ON FORM 10-K (INCLUDING
FINANCIAL STATEMENTS AND THE FINANCIAL STATEMENT SCHEDULES BUT WITHOUT
EXHIBITS) FOR OUR FISCAL YEAR ENDED SEPTEMBER 30, 2000, WITHOUT CHARGE, TO ANY
PERSON WHOSE VOTE IS SOLICITED BY THIS PROXY STATEMENT UPON WRITTEN REQUEST TO
THE FOLLOWING ADDRESS: STERLING CHEMICALS HOLDINGS, INC., 1200 SMITH STREET,
SUITE 1900, HOUSTON, TEXAS 77002; ATTENTION: MANAGER OF INVESTOR RELATIONS. In
addition, upon written request, we will furnish a copy of any exhibit to our
annual report on Form 10-K to any person whose vote is solicited by this Proxy
Statement upon payment of our reasonable expenses incurred in connection with
providing the copy of the exhibit.
Inspector of Election
Our Board of Directors has appointed Katherine Holdsworth, our Assistant
Secretary, as the inspector of election. The inspector of election will
separately calculate affirmative and negative votes, abstentions and broker
non-votes for each of the proposals.
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ELECTION OF DIRECTORS
(Item 1 on the Proxy Card)
Our Board of Directors has nominated the director candidates named
below. Our Board oversees the management of our company on your behalf, reviews
our long-term strategic plans and exercises direct decision making authority in
key areas. Most of our directors, including five of our six candidates, are not
Sterling employees and only non-employee directors are eligible to serve on our
Audit and Compliance Committee or our Compensation Committee. Each of our
directors is elected annually to serve until our next annual meeting and until
his or her successor is duly elected and qualified.
Personal information on each of our director candidates is provided
below. All of our director candidates currently serve on our Board and each of
our current directors was elected by our stockholders at our last annual
meeting.
Our Board held five meetings in fiscal 2000. On average, our directors
attended 89% of the meetings of our Board or any of our committees on which
they served. Our only directors who attended less than 75% of the meetings of
our Board and all committees on which they served were John L. Garcia, who
attended 69% of such meetings, and Peter W. De Leeuw, who attended 71% of such
meetings.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION TO
OUR BOARD OF EACH OF THE FOLLOWING CANDIDATES:
Frank P. Diassi Mr. Diassi, Chairman of our Board since
Age 67 August of 1996, is currently Managing
Director since August 1996 General Partner of The Unicorn Group,
L.L.C., a private financial organization.
He organized The Unicorn Group in 1981 and
has originated investments in over 40
entrepreneurial companies. Mr. Diassi has
been Chairman of the Board of Hawkeye
Chemical Company and was a director of
Arcadian Corporation, at the time the
largest nitrogen fertilizer company in the
Western Hemisphere. Mr. Diassi also
currently serves as Chairman of the Board
of Software Plus, Inc., a human resource
software supplier, and Amerlux, Inc., a
manufacturer of lighting fixtures for
commercial and retail markets, and a
director of Fibreglass Holdings, Inc., a
truck accessory manufacturer. In addition,
he is a director and a member of the
Compensation Committee of Mail-Well, Inc.,
a NYSE company that manufacturers envelopes
and provides commercial printing services.
Robert W. Roten Mr. Roten spent the first 25 years of his
Age 66 career with Monsanto Company and served as
Director Since August 1996 Vice President for sales and marketing for
El Paso Products Company from 1981 to 1983.
Mr. Roten was President of Materials
Exchange, Inc., a Houston-based
petrochemicals and plastics marketing firm,
from 1983 until 1986. He served as our Vice
President--Commercial from August of 1986
until September of 1991, when he became our
Vice President--Corporate Development. Mr.
Roten served as our Executive Vice
President and Chief Operating Officer from
April of 1993 until August of 1996, and
served as our President and Chief Executive
Officer from August 21, 1996 until April of
1998. Mr. Roten has served as the Vice
Chairman
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of our Board of Directors since April of
1998. Mr. Roten is currently a principal in
Double R Companies, Inc., a private
investment company, and President of
Hickory Acquisition Group, a chemical asset
acquisition company in which he has been a
principal and a director since April of
1999. Mr. Roten is also currently President
of Xnet, Inc., a Houston-based computer and
systems consulting company, and has served
on its Board of Directors since June of
1995.
Allan R. Dragone Mr. Dragone was a director of Arcadian
Age 74 Corporation from 1989 to 1997 and served as
Director Since August 1996 its Chairman of the Board from 1989 to
1990. He was President and Chief Executive
Officer of Akzo America, Inc., a chemicals
producer, from 1986 to 1989, and was
Chairman of the Board of Fiber Industries,
Inc., a polyester fibers producer, from
1987 to 1989. Mr. Dragone is a director of
DB Thin Films, a maker of vacuum deposition
of metallic thin films, and was a director
of Wellman, Inc., a polyester fibers
producer and plastic reclamation company,
until earlier this year. He was Chairman of
the Board of the New York Racing Commission
from 1990 to 1995 and currently serves as
one of its trustees.
Frank J. Hevrdejs Mr. Hevrdejs is a principal and President
Age 55 of The Sterling Group, Inc., which he
Director Since August 1996 co-founded in 1982. Mr. Hevrdejs has
actively participated in acquisitions of
over 40 businesses in the past 20 years. He
is Chairman of First Sterling Ventures
Corp., an investment company, and a
director of Enduro Holdings, Inc., a
structural and electrical manufacturing
company, and Fibreglass Holdings, Inc., a
truck accessory manufacturer. He is also a
director and a member of the Compensation
Committee of Mail-Well, Inc., a NYSE
company that manufactures envelopes and
provides commercial printing services, and
a director and member of the Compensation
Committee and Audit Committee of Eagle
USA., an air-freight company. Mr. Hevrdejs
served as a director of Chase Bank of
Texas, National Association, a national
banking association, until earlier this
year and is currently a member of the
Advisory Board of Chase Manhattan Bank,
N.A.
Hunter Nelson Mr. Nelson is currently a principal and
Age 48 director of The Sterling Group, Inc. Prior
Director Since August 1996 to joining The Sterling Group in 1989, he
served as vice president of administration
and general counsel of Fiber Industries,
Inc., a producer of polyester fibers. Mr.
Nelson was previously a partner in the law
firm of Andrews & Kurth L.L.P.,
specializing in general corporate and
securities laws. Mr. Nelson served on the
Board of Directors of Sterling Diagnostic
Imaging, Inc. until it was sold in May of
1999.
Rolf H. Towe Mr. Towe has served as Senior Managing
Age 62 Director of The Clipper Group, L.P. since
Director Since January 1998 its formation in 1991 and is Vice President
of Clipper Asset Management, Inc. He was
the Chairman of Executive Partner Limited,
an executive consulting firm, from 1989 to
1995. Earlier in his career, Mr. Towe held
various management positions over a period
of nearly 20 years in Union Carbide
Corporation, a
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multinational chemicals and plastics
manufacturer. Mr. Towe also serves as a
director of several private companies.
The holders of 6,653,583 shares of our common stock, representing
approximately 52% of our outstanding shares, are parties to a Third Amended and
Restated Voting Agreement dated as of February 1, 1999. The parties to the
Voting Agreement and its most pertinent terms are described in detail in this
Proxy Statement under the heading "Certain Transactions." The parties to the
Voting Agreement are required to vote all of their shares of our common stock
in favor of three nominees to our Board; one to be designated by certain
affiliates of Clipper Capital Partners, L.P. who are commonly referred to
collectively as "The Clipper Group," one to be designated by Gordon A. Cain and
one to be designated by Koch Capital Services, Inc. Mr. Towe is the current
designee of The Clipper Group. William A. McMinn was Mr. Cain's designee until
his resignation from the Board on October 26, 2000. Mr. Cain has the right to
designate Mr. McMinn's replacement. Koch Capital has elected to waive its right
to designate a member of our Board.
DIRECTOR COMPENSATION
Any of our employees who serve on our Board do not receive additional
compensation for serving on our Board, although all of our directors are
reimbursed for their travel expenses related to their services as a director.
Each of our non-employee directors is paid a fee of $2,500 per quarter for his
service as a director, with the exception that our Vice Chairman is paid $5,000
per quarter. Our non-employee directors also receive $1,000 for each Board
meeting they attend and $400 for each telephonic meeting in which they
participate that lasts at least 30 minutes. Members of our Board committees who
are not our employees are paid $700 for each committee meeting they attend,
unless that member also serves as Chairman of the committee, in which case he
receives $1,700 per meeting. Prior to April 26, 2000, the committee meeting
attendance fee for one of our non-employee directors who was serving as the
Chairman of one of our Board committees was $1,400. On April 26, 2000, our
Board also established an annual retainer of $1,000 to be paid to our
non-employee directors who are serving as the Chairman of one of our Board
committees. George J. Damiris, one of our former non-employee directors, is
employed by Koch Ventures, Inc. and, under established policies of Koch
Ventures, Inc., all compensation earned by Mr. Damiris during fiscal 2000 was
paid directly to Koch Ventures, Inc.
Under our 1997 Nonqualified Stock Option Plan for Non-Employee
Directors, each of our non-employee directors received fully vested options to
purchase 1,000 shares of our common stock on October 1, 1999, with the
exception that our Vice Chairman received options to purchase 2,000 shares.
Effective as of April 26, 2000, our 1997 Nonqualified Stock Option Plan was
amended and restated as our Amended and Restated Stock Plan for Non-Employee
Directors. Under our Amended and Restated Stock Plan, each of our non-employee
directors will receive $15,000 in shares of our common stock and fully vested
options to purchase 2,000 shares of our common stock on October 1 of each year,
starting with October 1, 2000. The annual grant of shares under our Amended and
Restated Stock Plan is valued at the average market price for a share of our
common stock during the 90-day period ending on the date of grant. Under both
our 1997 Nonqualified Stock Option Plan and our Amended and Restated Stock
Plan, each of our non-employee directors has the ability to elect not to
participate. As discussed in this Proxy Statement under "Certain Transactions,"
Koch Capital, who holds a significant amount of our common stock, was given the
right under a Voting Agreement to designate a person for election to our Board.
We previously entered into an agreement with Koch Capital under which we agreed
to issue to Koch Capital the options that would have otherwise been granted to
the director it designates if its designee elects to not participate under the
relevant Plan. Koch Capital received options to acquire 1,000 shares under our
1997 Nonqualified Stock Option Plan during fiscal 2000 pursuant to this
arrangement.
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The terms and conditions of these options were substantially similar to those
governing the options granted to our other non-employee directors, with the
main exception being that the options granted to Koch Capital did not
immediately expire upon the termination of service of its designated director.
However, Koch Capital has currently waived its right to designate a member of
our Board under the Voting Agreement and all options previously issued to Koch
Capital under our 1997 Nonqualified Stock Option Plan have expired.
BOARD COMMITTEES
Our Board of Directors has created various standing committees to help
carry out its duties, including a Compensation Committee and an Audit and
Compliance Committee. Generally speaking, our Board committees work on key
issues in greater detail than would be possible at full Board meetings. We do
not have a standing nominating committee.
Compensation Committee
Our Compensation Committee currently comprised of three of our
non-employee directors, Frank J. Hevrdejs (Chairman), Allan R. Dragone and Rolf
H. Towe, and met six times in fiscal 2000. Our Compensation Committee
establishes and reviews compensation for all of our elected officers and those
of our subsidiaries and also administers our executive compensation programs.
Our Compensation Committee consults, from time to time, with outside experts
concerning the performance of its duties.
Audit and Compliance Committee
Our Audit and Compliance Committee is currently comprised of two of
our non-employee directors, Hunter Nelson (Chairman) and Robert W. Roten, and
met nine times in fiscal 2000. This Committee operates under a written charter
adopted by our Board, a copy of which is attached to this Proxy Statement as
Appendix A. Our Audit and Compliance Committee recommends the appointment of
our independent auditors to our Board, meets with these auditors to review
their report on the financial statements of our business and approves the audit
and other services to be provided by these auditors. In addition, our Audit and
Compliance Committee reviews our Form 10-K and Form 10-Q reports and our
practices in preparing published financial statements. Our Audit and Compliance
Committee also provides oversight with respect to the establishment of and
adherence to corporate compliance programs, codes of conduct and other policies
and procedures concerning our business and our compliance with all relevant
laws.
Mr. Nelson is considered "independent" under the listing standards of
the New York Stock Exchange, the American Stock Exchange and the National
Association of Securities' Dealers. Mr. Roten is not considered independent
under any of these listing standards solely because he formerly served as our
President. Under each of the listing standards, a director is considered to be
not independent if he was employed by the relevant corporation or any of its
affiliates in any of the last three years. As Mr. Roten retired as our
President on March 31, 1998, and assuming that no events that impact the
analysis of his independence occur before March 31, 2001, Mr. Roten will be
considered independent under all of these listing standards on April 1, 2001.
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Our Audit and Compliance Committee has furnished the following report
for inclusion in this Proxy Statement.
Roles in Financial Reporting
Sterling's management is responsible for Sterling's internal controls
and the financial reporting process. The independent accountants hired by
Sterling are responsible for performing an independent audit of Sterling's
consolidated financial statements in accordance with generally accepted
auditing standards and to issue a report thereon. The Committee's
responsibility is to monitor and oversee these processes.
Fiscal 2000 Financial Statements
In order to fulfill our monitoring and oversight duties, we reviewed
the audited financial statements included in Sterling's Annual Report on Form
10-K for the fiscal year ended September 30, 2000 and we met and held
discussions with Sterling's management and Deloitte & Touche LLP, Sterling's
independent accountants, with respect to those financial statements. Management
represented to us that all of these financial statements were prepared in
accordance with generally accepted accounting principles. We also discussed
with Deloitte & Touche the matters required to be discussed by Statement on
Auditing Standards No. 61. Finally, we reviewed the written disclosures
provided to us by Deloitte & Touche, as required by Independence Standards
Board Standard No. 1, and we discussed with Deloitte & Touche its own
independence. Based upon our discussions with management and Deloitte & Touche
and our review of Deloitte & Touche's report and the representations of
management, we recommended to Sterling's Board of Directors that the audited
combined financial statements for Sterling's fiscal year ended September 30,
2000 be included in Sterling's Annual Report on Form 10-K for the fiscal year
ended September 30, 2000.
Additional Information
No portion of this report shall be deemed to be incorporated by
reference into any filing under the Securities Act or under the Securities
Exchange Act through any general statement incorporating by reference the Proxy
Statement in which this report appears in its entirety, except to the extent
that Sterling specifically incorporates this report or a portion of this report
by reference. In addition, this report shall not otherwise be deemed to be
filed under either of such Acts.
Respectfully submitted,
The Audit and Compliance Committee
of the Board of Directors
T. Hunter Nelson (Chairman)
Robert W. Roten
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RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
(Item 2 on the Proxy Card)
Our Board, at the recommendation of our Audit and Compliance
Committee, has appointed Deloitte & Touche LLP as our independent accountants
for the fiscal year ending September 30, 2001. We are asking that you ratify
that appointment. Deloitte & Touche has been our independent accounting firm
for our last five fiscal years and we believe that they are well qualified for
the job. Representatives of Deloitte & Touche will be present at the Annual
Meeting to answer appropriate questions and to make a statement, if they desire
to do so.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
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RATIFICATION OF AMENDMENT TO OMNIBUS PLAN
(Item 3 on the Proxy Card)
Our Board has unanimously approved the Amendment to our Omnibus Plan.
We are asking that you ratify and approve the Amendment. Our Omnibus Plan
authorizes the grant of various stock, stock-related and cash awards to our
employees. Our Omnibus Plan became effective as of April 23, 1997 and was
approved by our stockholders at their meeting held on January 28, 1998. The
purpose of our Omnibus Plan is to provide a means through which we may attract
and retain employees and a means through which those of our employees who are
responsible for our successful administration and management can acquire and
maintain stock ownership. We believe that our Omnibus Plan strengthens these
employees' concern for our welfare and their desire to remain our employees.
Our Omnibus Plan also provides these employees with additional incentive and
reward opportunities that are designed to enhance our profitable growth. Under
the Amendment to our Omnibus Plan, the total number of shares of our common
stock available for awards under the Plan will be increased from 1,000,000 to
[2,000,000] shares.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
The full text of our Omnibus Plan, as amended by the Amendment,
is set forth in Appendix B to this Proxy Statement. The basic features of our
Omnibus Plan are summarized below. However, this summary is qualified in its
entirety by reference to the full text of our Omnibus Plan.
Eligibility
All of our officers and employees are eligible to receive awards
under our Omnibus Plan. We currently have approximately 1,112 officers and
employees who are eligible to participate under our Omnibus Plan.
Administration
Our Omnibus Plan is administered by our Compensation Committee,
which is comprised solely of "outside directors" who are "disinterested
persons" under the Internal Revenue Code and the Securities Exchange Act,
respectively. Our Compensation Committee selects the participants who will
receive awards, determines the type and terms of awards to be granted and
interprets and administers our Omnibus Plan.
Stock Subject to the Plan; Term
If the Amendment to our Omnibus Plan is approved by our
stockholders, the number of shares of our common stock that may be awarded
under the Plan will be increased from 1,000,000 shares to [2,000,000] shares.
In addition, our Compensation Committee may adjust awards previously granted
under our Omnibus Plan to prevent dilution or enlargement of the rights of
participants under the Plan that would otherwise result from a stock dividend,
stock split, combination of shares, recapitalization, merger, consolidation,
reorganization or other similar corporate event. No awards may be granted under
our Omnibus Plan after April 23, 2007 but the Plan itself will remain in effect
until all awards granted under the Plan have been satisfied or expired. Our
Compensation Committee may, however, suspend or terminate our Omnibus Plan
prior to that time.
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Types of Awards
Under our Omnibus Plan, we may grant awards in the form of stock
options, stock appreciation rights (which are commonly referred to as "SARs"),
shares of restricted stock, performance awards and phantom stock to eligible
participants.
o Employee Stock Options. Stock options may be granted under our
Omnibus Plan as incentive stock options ("ISOs") or non-qualified
stock options. Our Compensation Committee determines the terms
and conditions of each stock option award and has the authority
to determine the form in which payment of the exercise price for
any stock option may be made. However, the exercise price for an
ISO cannot be less than the market value of a share of our common
stock on the date of grant. In addition, an ISO may not be
awarded to any of our employees who own more than 10% of the
total combined voting power of all classes of our stock unless
the ISO is not exercisable after five years from the date of
grant and the exercise price for the ISO is at least 110% of the
fair market value of a share of our common stock on the date of
grant. Our Compensation Committee has generally imposed a
five-year vesting schedule for all awards of stock options.
However, any stock options granted under our Omnibus Plan become
fully exercisable in the event of the optionee's termination of
employment by reason of death, disability or retirement or in the
event of a "change of control." No stock option granted under our
Omnibus Plan may be exercised after the tenth anniversary of the
date of grant or the earlier termination of the stock option. All
stock options that have been awarded under our Omnibus Plan have
been granted with an exercise price at or above the fair market
value of a share of our common stock on the date of grant.
o Stock Appreciation Rights. SAR awards consist of the right to
receive cash or shares of our common stock having a value equal
to the amount, if any, by which the fair market value of a share
of our common stock on the date the SAR is exercised exceeds the
exercise price of the SAR. An SAR may be granted in tandem with
stock options or separate and apart from a grant of stock
options. Our Compensation Committee determines the exercise price
of each SAR award and has the authority to determine the form in
which payment of the exercise price for any SAR award may be
made. The Compensation Committee may subject SAR awards to a
vesting schedule; provided, however, that upon the death,
disability or retirement of a grantee of an SAR award, or in the
event of a change of control, the SAR award becomes fully
exercisable.
o Restricted Stock. Restricted stock awards consist of the grant of
shares of our common stock, subject to forfeiture over a
specified period. A recipient of a restricted stock award obtains
the immediate right to vote the shares, receive any dividends on
the shares and otherwise enjoy the rights of a stockholder that
pertain to the shares. However, the recipient of a restricted
stock award may not sell or otherwise transfer those shares until
any restrictions specified in the award expire. Our Compensation
Committee determines the amount and form of payment (if any) for
any shares of restricted stock awarded, sets the restrictions
related to the award and the time at which those restrictions
expire. If our Compensation Committee does not specify any amount
of payment for an award of restricted stock, the recipient of the
award is not required to make any payment for the shares unless
otherwise required by law. The expiration of any restrictions on
an award of restricted stock may be based on the attainment of
certain financial targets established by our Compensation
Committee or the recipient's continued employment with us for a
specified period of time;
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<PAGE> 15
provided, however, that upon the recipient's death, disability or
retirement, or in event of a change of control, all restrictions
automatically lapse or expire.
o Performance Awards. Performance awards consist of the right to
receive payments in cash or shares of our common stock, subject
to the achievement of certain performance goals. Our Compensation
Committee sets the performance goals related to each performance
award, the length of the period during which the award may be
earned and the maximum value of the award. Performance goals may
be based upon the recipient's individual performance, our
performance as a whole or the performance of the business unit in
which the recipient works. A performance award terminates,
however, if the recipient of the award does not remain
continuously employed by us during the performance period.
o Phantom Stock. Phantom stock awards consist of the right to
receive payments in cash or shares of our common stock, subject
to the fulfillment of conditions specified at the time of the
award. Our Compensation Committee sets the conditions to payment
of each phantom stock award. the length of the period during
which the award will vest or may be earned and the maximum value
of the award. A phantom stock award terminates, however, if the
recipient of the award does not remain continuously employed by
us during the vesting period.
Transferability; Exercise
Awards under our Omnibus Plan are not transferable other than by
will or the laws of descent and distribution. In addition, during the lifetime
of a recipient of an award, the award may only be exercised by the recipient or
his or her guardian or legal representative. However, our Compensation
Committee may, in its discretion, provide at the time of the award of a
particular stock option (other than an ISO) that the stock option may be
transferred by the recipient, in whole or in part, subject to such terms and
conditions as our Compensation Committee may specify.
Federal Income Tax Consequences with Respect to Options
The following summary is based on provisions of the Internal
Revenue Code and income tax regulations and proposed income tax regulations
thereunder. Our Omnibus Plan is not qualified under Section 401(a) of the
Internal Revenue Code.
o Non-Qualified Stock Options. No federal income tax is imposed on
an optionee upon the grant of a non-qualified stock option. If a
non-qualified stock option is exercised, the optionee will
generally be treated as having received compensation taxable as
ordinary income in the year of exercise in an amount equal to the
amount by which the fair market value of the shares of our common
stock acquired through the exercise of the option, as of the date
of exercise, exceeds the aggregate exercise price paid for such
shares. Upon any subsequent disposition of any of the shares of
our common stock received upon exercise of the option, the
optionee will be treated as having realized long-term or
short-term capital gain or loss, depending on the holding period
of the shares, in an amount equal to the difference between the
fair market value of those shares as of the date of exercise of
the stock option and the amount received for those shares in the
disposition. If a non-qualified stock option is exercised, we may
claim a deduction for "compensation paid" at the same time and in
the same amount as income is recognized by the optionee, to the
extent that this amount is an ordinary expense and satisfies the
test of reasonable compensation.
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<PAGE> 16
o Incentive Stock Options. No federal income tax is imposed on the
optionee upon the grant of an ISO. If an ISO is exercised, the
optionee generally will not be treated as having received
compensation taxable as ordinary income if the optionee does not
dispose of the shares of our stock acquired through the exercise
of the ISO within two years after the date of the grant of the
ISO or within one year after the exercise of the ISO. However,
the optionee may be subject to the tax adjustment described below
under Alternative Minimum Tax. Upon any subsequent disposition of
any shares of our common stock received upon exercise of an ISO,
the optionee will be treated as having realized long-term or
short-term capital gain or loss, depending on the holding period
of those shares, in an amount equal to the difference between the
aggregate exercise price paid for those shares as of the date of
exercise of the ISO and the amount received for those shares in
the disposition. If an ISO is exercised and the optionee holds
the shares for the required time, we may not claim any deduction
in connection with the grant or exercise of the ISO or the
disposition of the shares of our common stock acquired through
the exercise of the ISO.
If the optionee disposes of any shares of our common stock
acquired through the exercise of an ISO before the required time
period has expired, the optionee will generally be treated as
having received compensation taxable as ordinary income in the
year of disposition of those shares in an amount equal to the
amount equal to the lesser of (i) the difference between the fair
market value of those shares as of the date of exercise and the
aggregate exercise price paid for those shares and (ii) the
difference between the amount realized upon the disposition of
those shares and the aggregate exercise price paid for those
shares. In addition, the optionee will be treated as having
realized long-term or short-term capital gain or loss, depending
on the holding period of the shares, in an amount equal to the
difference between the amount received for those shares in the
disposition and the amount reported as taxable ordinary income.
If an ISO is exercised and the optionee does not hold the shares
for the required time, we may claim a deduction for "compensation
paid" at the same time and in the same amount as income is
recognized by the optionee, to the extent that this amount is an
ordinary expense and satisfies the test of reasonable
compensation.
o Alternative Minimum Tax. The amount by which the fair market
value of any shares of our common stock acquired through the
exercise of an ISO exceeds the exercise price paid for such
shares is an adjustment to alternative minimum taxable income for
the optionee's taxable year in which the exercise occurs (unless
those shares are disposed of in the same taxable year).
o Payment of Option Price in Shares. Our Compensation Committee may
permit an optionee to pay the exercise price under a
non-qualified stock option through the delivery of other shares
of our common stock owned by the optionee having a fair market
value equal to the exercise price. If an optionee pays the
exercise price under a non-qualified stock option in this manner,
the optionee will not realize any gain or loss on the exchange of
the previously owned shares. The optionee's basis in the shares
acquired through the exercise of the stock option will be split
into two categories. For a number of shares equal to the number
of previously owned shares delivered to pay the exercise price,
the optionee will have the same basis as he or she had in the
previously owned shares. For the remaining shares received
through the exercise of the stock option, the optionee's basis
will generally be equal to the fair market value of those shares
at the time of exercise. In addition, the optionee will be
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<PAGE> 17
treated as having received compensation taxable as ordinary
income in an amount equal to the fair market value of these
remaining shares at the time of exercise.
Our Compensation Committee may also permit an optionee to pay the
exercise price under an ISO through the delivery of other shares
of our common stock owned by the optionee having a fair market
value equal to the exercise price. If an optionee pays the
exercise price under an ISO in this manner, the federal income
tax consequences to the optionee will depend on the nature of the
previously owned shares. If the previously owned shares were
acquired through the exercise of a qualified stock option, an ISO
or an option granted under an employee stock purchase plan and
the shares are being transferred prior to the expiration of the
applicable minimum statutory holding period, the transfer will be
treated as a disqualifying disposition of the previously owned
shares. If the previously owned shares were acquired in any of
these manners but are being transferred after the applicable
minimum statutory holding period, or were acquired in any other
manner, the optionee will not realize any gain or loss on the
exchange of the previously owned shares. In either case, the
optionee's basis in the shares acquired through the exercise of
the ISO will be split into two categories and all other ISO rules
will apply. For a number of shares equal to the number of
previously owned shares delivered to pay the exercise price, the
optionee will have the same basis as he or she had in the
previously owned shares, increased by any income recognized by
the optionee in connection with any disqualifying disposition of
the previously owned shares. For the remaining shares received
through the exercise of the ISO, the optionee's basis will be
zero. Upon any subsequent disqualifying disposition of any shares
of our common stock received through the exercise of an ISO where
the payment of the exercise price is made through the delivery of
previously owned shares, the shares of our stock having the
lowest basis will be treated as having been disposed of first.
Amendment and Termination
Our Board, in its discretion, may amend, suspend or terminate our
Omnibus Plan at any time. However, any amendment, suspension or termination of
our Omnibus Plan by our Board is subject to approval by our stockholders if
that approval is required by law or our Board determines that such approval is
necessary to comply with the requirements of any securities exchange on which
our stock is listed or otherwise desires to have our stockholders approve the
relevant amendment, suspension or termination. Irrespective of any approval by
our stockholders, our Omnibus Plan may not be amended, suspended or terminated
in a manner that will terminate any outstanding awards or adversely affect the
rights of any participant under our Omnibus Plan in a material manner unless
that participant consents.
Grants Under the Omnibus Plan
Future awards that may be made to our executive officers and
other employees under our Omnibus Plan are not presently determinable. Awards
under our Omnibus Plan are made at the discretion of our Compensation Committee
in accordance with the provisions of the Plan and our Compensation Committee's
compensation policies, which are discussed in the Compensation Committee Report
on Executive Compensation appearing in this Proxy Statement. The following
table sets forth certain information with respect to stock options granted
under our Omnibus Plan on or before December 4, 2000. Other than the options
that were originally granted on April 22, 1998, each of which was granted with
a four-year vesting period, all options were granted with five-year vesting
periods and had varying exercise prices depending on the fair market value of a
share of our common stock at the time of grant. In December of 1998, we reduced
the exercise price of all outstanding stock options held by our then current
employees to $6.00 per share. On December 4, 2000, the closing price of a share
of our stock was $0.62.
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<PAGE> 18
<TABLE>
<CAPTION>
Number of Dollar Value Length of
Shares of Shares Original
Grant Underlying Underlying Exercise Option Term
Name and Title Date Options Options(1) Price Remaining
------------------------------------ ----------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C>
Frank P. Diassi(2) 12/14/98(3) 63,492 $ 39,365 $ 6.00 79 months
Chairman of the Board of 12/14/98(4) 95,238 59,048 $ 6.00 88 months
Directors
Peter W. De Leeuw(5) 12/14/98(6) 125,000 77,500 $ 6.00 87 months
President and Chief Executive
Officer
Richard K. Crump 12/14/98(3) 20,106 12,466 $ 6.00 79 months
Executive Vice President - 12/14/98(4) 30,159 18,699 $ 6.00 88 months
Operations
Gary M. Spitz 12/14/98(7) 45,000 27,900 $ 6.00 85 months
Executive Vice President and Chief
Financial Officer
David G. Elkins 12/14/98(8) 60,000 37,200 $ 6.00 85 months
Executive Vice President and
General Counsel
Robert O. McAlister(9) 12/14/98(3) 11,640 7,217 $ 6.00 10 months
Vice President - Human Resources 12/14/98(4) 17,460 10,825 $ 6.00 10 months
and Administration
Robert W. Roten(2)(10) 07/07/97 38,942 24,144 $ 12.00 0 months
Director
Current Executive Officers as a
Group (4 persons) -- 313,995 194,677 $ 6.00 --
Current Directors who are not -- 38,942 24,144 $ 12.00 0 months
Executive Officers as a Group
(1 person)(11)
Non-Executive Employees as a -- 374,350(12) 232,097 $ 6.00 --
Group (56 persons)
</TABLE>
------------------------
(1) Based on the closing price of a share of our common stock on December 4,
2000 of $0.62.
(2) Messrs. Diassi and Roten are the only current nominees for election as a
director who have received awards under our Omnibus Plan.
(3) Options originally granted on July 7, 1997 and reissued in connection
with repricing of options on December 14, 1998.
(4) Options originally granted on April 22, 1998 and reissued in connection
with repricing of options on December 14, 1998.
(5) The options granted to Mr. De Leeuw under our Omnibus Plan vested upon
his retirement, which was effective on May 8, 2000, and are exercisable
until March 16, 2008.
(6) Options originally granted on March 16, 1998 and reissued in connection
with repricing of options on December 14, 1998.
(7) Options originally granted on January 19, 1998 and reissued in
connection with repricing of options on December 14, 1998.
(8) Options originally granted on January 1, 1998 and reissued in connection
with repricing of options on December 14, 1998.
(9) The options granted to Mr. McAlister under our Omnibus Plan vested upon
his retirement, which was effective on September 30, 2000, and are
exercisable until September 30, 2001.
(10) The options granted to Mr. Roten under our Omnibus Plan vested upon his
resignation, which was effective on March 31, 1998, and expired by their
terms on March 31, 1999.
(11) Represents options granted to Mr. Roten under our Omnibus Plan which
expired by their terms on March 31, 1999.
(12) Includes options to purchase 96,800 shares that expired by their terms
following the resignation or retirement of the grantees.
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<PAGE> 19
ADOPTION OF AMENDMENT TO CERTIFICATE OF INCORPORATION
(Item 4 on the Proxy Card)
Our Board of Directors has approved an amendment to our Certificate of
Incorporation to increase the total number of shares of stock we are authorized
to issue to [37,000,000], consisting of [35,000,000] shares of common stock,
par value $0.01 per share, and 2,000,000 shares of preferred stock, par value
$0.01 per share. Currently, we are authorized to issue 20,000,000 shares of
common stock and 2,000,000 shares of preferred stock. As of the record date,
12,999,979 of such authorized shares were outstanding and 2,068,827 of such
authorized shares were reserved for issuance, leaving 4,931,194 shares of
common stock available for issuance for other corporate purposes as of that
date. The additional shares of common stock authorized by the proposed
amendment to our Certificate of Incorporation will be identical in all respects
to our existing common stock and will not carry any preemptive rights.
We believe that the increase in the number of authorized shares of
common stock will provide us with increased flexibility to meet various
corporate objectives and is in our best interest and the best interest of our
stockholders. We have, in the past, financed a portion of acquisitions of other
companies through the issuance of various equity securities. In addition, in
the future, we may wish to issue equity securities in connection with further
acquisitions, our search for a new Chief Executive Officer or the improvement
of our capital structure. We also may wish to consider the issuance of
additional shares of common stock through stock dividends in appropriate
circumstances. Accordingly, the continued availability of shares of common
stock is necessary to provide us with the flexibility to take advantage of
opportunities in such situations. There are, at present, no understandings,
agreements or arrangements concerning the issuance of additional shares of
common stock, except for shares currently reserved for issuance under employee
and director benefit plans and our outstanding warrants. Pursuant to Delaware
law, authorized and unissued shares of common stock (other than those shares
reserved for certain purposes) are available for issuance by us to such persons
and for such consideration as our Board of Directors may determine from time to
time. You may not be given the opportunity to vote on such matters, unless
stockholder approval is required by applicable law or our Board of Directors in
its judgment recommends stockholder approval. You generally will not have
preemptive rights to subscribe for newly issued shares.
We believe that the amendment to our Certificate of Incorporation will
provide flexibility needed to meet corporate objectives and is in our best
interests and your best interest. Even if the amendment is approved, the
amendment will not become effective until filed with the State of Delaware. Our
Board of Directors will determine if and when such filing will be made. We
recommend that you approve the proposal to approve the amendment to our
Certificate of Incorporation.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
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<PAGE> 20
EXECUTIVE OFFICERS OF THE COMPANY
Personal information with respect to each of our executive officers is
set forth below.
Frank P. Diassi Mr. Diassi has been the Chairman of our Board of
Age 67 Directors since August of 1996 and has been
exercising the duties of our Chief Executive
Officer since the retirement of Peter W. De Leeuw
on May 8, 2000. See "Election of Directors" above
for more information about Mr. Diassi.
Richard K. Crump Mr. Crump has served as our Executive Vice
Age 54 President - Operations since May 1, 2000. Prior to
that time, Mr. Crump served as our Vice
President--Strategic Planning from December 1, 1996
until May 1, 2000, our Director--Commercial from
August of 1986 until October of 1991 and our Vice
President--Commercial from October of 1991 until
December 1, 1996. Prior to joining us, Mr. Crump
was Vice President of Materials Management for El
Paso Products Company from 1976 through 1983 and
Vice President of Sales for Rammhorn Marketing from
1984 until August of 1986.
Gary M. Spitz Mr. Spitz has been our Chief Financial Officer
Age 45 since January 19, 1998 and our Executive Vice
President - Finance since May 1, 2000. Prior to May
1, 2000, Mr. Spitz served as our Vice President -
Finance. Before joining us, Mr. Spitz was Vice
President and Chief Financial Officer of Grace
Davison (a division of W.R. Grace and Company), a
catalyst manufacturing and chemicals company. Mr.
Spitz held various financial positions with
divisions of W. R. Grace and Company since 1979.
David G. Elkins Mr. Elkins has been our General Counsel and
Age 58 Corporate Secretary since January 1, 1998 and our
Executive Vice President - Administration and Law
since May 1, 2000. Prior to May 1, 2000, Mr. Elkins
served as one of our Vice Presidents. Mr. Elkins
previously was a senior partner in the law firm of
Andrews & Kurth L.L.P., where he specialized in
corporate and securities matters.
We have entered into employment agreements with each of Messrs. Spitz and
Elkins which are described in detail in this Proxy Statement under Executive
Compensation and Other Information.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Our executive compensation program is administered by the Compensation
Committee of our Board of Directors. This Committee, which is comprised of
non-employee directors, is responsible for discharging the compensation
responsibilities of our Board. This Committee reviews general compensation
issues and determines the compensation of all of our senior executives and
other key employees and recommends and administers our employee benefit plans
that provide benefits to our senior executives. Our Compensation Committee has
furnished the following report on executive compensation for inclusion in this
Proxy Statement.
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<PAGE> 21
Compensation Philosophy and Objectives
Sterling's senior executive compensation program is designed to
motivate, reward and retain the management talent needed to achieve its
business goals and maintain a leadership position in the petrochemicals
industry. Under this program, a significant portion of the potential
compensation of Sterling's senior executives is dependent on increased
stockholder value. This program offers Sterling's senior executives salary
levels and compensation incentives designed to:
o attract, motivate and retain talented and productive
executives;
o recognize individual performance and Sterling's performance
relative to the performance of other companies of comparable
size, complexity and quality; and
o support Sterling's short-term and long-term goals.
We believe that this approach ensures an appropriate link between the
compensation of Sterling's senior executives and the accomplishment of
Sterling's goals and its stockholders' objectives.
We use a number of sources to determine whether the compensation
program provided to Sterling's senior executives is competitive. Our primary
method of determining competitiveness involves obtaining compensation review
data from independent compensation consultants, which we use to compare our
compensation program to those offered by a group of chemical and allied
products corporations. We also compare our compensation program to those
offered by a select group of non-chemical companies that we feel are comparable
in size and performance. We do not compare our compensation program against
those offered by each of the companies included in the S&P Chemicals Index used
in the Stock Performance Graph contained in the Proxy Statement in which this
report is included because we do not consider many of those companies to be
competitors of Sterling, either in the market or for executive talent.
Total Compensation
The three major components of Sterling's senior executive compensation
program are base salary, annual incentive compensation and stock-based
compensation. Our goal is to set base salaries for Sterling's senior executives
at or below competitive market rates of comparable companies, while providing
annual and stock-based compensation opportunities which are above competitive
market rates and are linked to Sterling's financial performance. We believe
that focusing executive compensation on variable incentive pay will help
Sterling meet its performance goals and enhance stockholder value in the long
term.
Base Salaries
Our strategy is to reduce the emphasis on fixed compensation for
Sterling's senior executives by positioning their base salaries at or below
industry levels. Initially, these base salaries are set at levels intended to
reflect the individual's experience, level of responsibility, job
classification and competence. Under our strategy, dramatic changes in base
salary are not generally made unless required to adjust for market movements,
promotions or significant changes in responsibility or individual performance.
Except with respect to the grant of stock options, Sterling's Board of
Directors provides final approval of the compensation of all of Sterling's
senior executive officers, including the Chairman of the Board and the Chief
Executive Officer.
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<PAGE> 22
Annual Incentive Compensation
Sterling's senior executives and other qualified employees can earn
additional cash compensation under Sterling's Profit Sharing Plan and Bonus
Plan. The additional compensation available under each of these plans is
intended to reward the achievement of annual corporate financial goals.
Generally, no additional compensation is available under either of the plans
unless Sterling's financial performance meets threshold levels established by
us and Sterling's Board of Directors at the beginning of each fiscal year. The
amount of additional compensation available under these plans is based on these
threshold levels, formulae set for the individual's job classification (with
individuals having greater management responsibility having the opportunity to
earn larger percentages) and on individual performance. We administer both of
these plans and recommend the total amount of annual compensation to Sterling's
Board of Directors. Sterling's Board of Directors approves the aggregate amount
of incentive compensation awards to all participants and we then approve
individual awards. In evaluating an individual's performance, we rely on the
members of Sterling's senior management. No awards were made under either plan
in fiscal 2000.
Stock-Based Compensation
We are permitted to grant incentive stock options, non-qualified stock
options, stock appreciation rights, restricted stock awards, performance awards
and phantom stock awards to Sterling's senior executives and key employees
under Sterling's Omnibus Stock Awards and Incentive Plan. We determine the
terms and amounts of awards to be granted to individuals under the Omnibus Plan
based upon a variety of factors, including:
o level of responsibility and job classification;
o job performance;
o present and potential contributions to Sterling's long term
success; and
o the extent that the base salary of the individual is below
industry levels based on the compensation survey described
above.
The primary purpose of stock-based compensation is to provide Sterling's senior
executives and key employees with incentives to concentrate on Sterling's
performance over the long term. We believe that stock-based compensation is an
appropriate and effective method for aligning the interests of Sterling's
senior executives and key employees with Sterling's long term goal of
maximizing stockholder value because the employees will not receive any benefit
from this compensation unless the stock price rises.
Sterling's Omnibus Plan permits us to specify the number of shares
covered by awards and the vesting schedule. We have generally imposed a
five-year vesting schedule for all awards in order to provide an incentive to
create stockholder value over time, since the full benefit of the awards cannot
be realized unless there is appreciation in stock value over a number of years.
However, options granted under the Omnibus Plan become fully exercisable in the
event of the optionee's termination of employment by reason of death,
disability or retirement and may become fully exercisable in the event of a
"change of control." No option may be exercised after the tenth anniversary of
the date of grant or the earlier termination of the option. All options are
granted with an exercise price at or above the fair market value of a share of
Sterling's common stock on the date of grant.
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<PAGE> 23
During fiscal 2000, we awarded non-qualified stock options to acquire
an aggregate of 100,500 shares of Sterling's common stock under the Omnibus
Plan. We did not make any other awards under the Omnibus Plan in fiscal 2000.
Also during fiscal 2000, options to acquire an aggregate of 27,070 shares of
Sterling's common stock expired as a result of resignations of several
employees.
Compensation to the Chairman of the Board and the Chief Executive Officer
Frank P. Diassi has been Sterling's Chairman of the Board since August
21, 1996. Peter W. De Leeuw was Sterling's President and Chief Executive
Officer until May 8, 2000. In fiscal 2000, Mr. Diassi was paid a base salary of
$350,016 and Mr. De Leeuw was paid a base salary at a rate of $325,000 per
annum. We used the same executive compensation practices described above to
determine the compensation paid to Messrs. Diassi and De Leeuw in fiscal 2000
and believe that their fiscal 2000 base salaries were below the mid-point
salary paid to similar individuals in the competitive market. In fiscal 2000,
neither Mr. Diassi nor Mr. De Leeuw received any awards under the Omnibus Plan.
Upon Mr. De Leeuw's retirement, we paid a one-time payment to Mr. De Leeuw of
$1,235,000 and $20,838 as compensation for unused vacation time.
Tax Treatment
We consider the anticipated tax treatment of our executive
compensation program when setting levels and types of compensation. Section
162(m) of the Internal Revenue Code generally disallows a tax deduction to
public companies for compensation paid to the company's chief executive officer
or any of the other four most highly compensated executive officers in excess
of $1 million in any year, with certain performance-based compensation being
specifically exempt from this deduction limit. In fiscal 2000, no employee of
Sterling subject to this limit received compensation in excess of $1 million.
Consequently, we believe that the requirements of Section 162(m) will not
affect the tax deductions available to Sterling in connection with its
executive compensation for the 2000 fiscal year.
Additional Information
No portion of this report shall be deemed to be incorporated by
reference into any filing under the Securities Act or under the Securities
Exchange Act through any general statement incorporating by reference the Proxy
Statement in which this report appears in its entirety, except to the extent
that Sterling specifically incorporates this report or a portion of this report
by reference. In addition, this report shall not otherwise be deemed to be
filed under either of such Acts except the extent required by Item 402 of
Regulation S-K.
Respectfully submitted,
The Compensation Committee
of the Board of Directors
Frank J. Hevrdejs (Chairman)
Allan R. Dragone
Rolf H. Towe
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<PAGE> 24
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Executive Compensation
The following table shows the compensation we paid during the three
fiscal years ended September 30, 2000 to all individuals who served as our
Chief Executive Officer or acted in a similar capacity during fiscal 2000 and
our other four most highly compensated officers during fiscal 2000.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
--------------------------------------- -----------------------------
RESTRICTED SECURITIES
NAME AND FISCAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION AWARD(S) OPTIONS/SARS(2) COMPENSATION(3)
------------------------------ ------ --------- ------- ------------ ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Frank P. Diassi............... 2000 $350,016 $ 0 $ 0 $ 0 0 $ 29,568
Chairman of the Board of 1999 333,344 0 0 0 158,730 35,406
Directors 1998 300,000 0 0 0 95,238 34,606
Peter W. De Leeuw(4).......... 2000 201,899 0 0 0 0 1,258,672(5)
President and Chief 1999 312,504 0 0 0 125,000 21,050
Executive Officer 1998 162,500 0 0 95,000(6) 125,000 18,349
Richard K. Crump.............. 2000 214,583 0 0 0 0 8,953
Executive Vice President- 1999 200,000 10,000 0 0 50,265 9,885
Operations 1998 194,167 0 0 0 30,159 10,139
Gary M Spitz(7)............... 2000 217,917 50,000 0 0 0 3,541
Executive Vice President and 1999 193,333 0 0 0 45,000 3,478
Chief Financial Officer 1998 126,818 25,000(8) 166,364(9) 50,000(10) 45,000 3,309
David G. Elkins(11)........... 2000 218,750 50,000 0 0 0 20,162
Executive Vice President, 1999 200,000 20,000 0 0 60,000 27,546
General Counsel and 1998 150,000 0 0 55,000(12) 60,000 9,654
Secretary
Robert O. McAlister........... 2000 176,833 0 0 0 0 53,818(13)
Vice President-Human 1999 165,167 0 0 0 29,100 25,753
Resources and 1998 155,167 0 0 0 17,460 24,749
Administration
</TABLE>
-------------------------
(1) Includes amounts deferred under our 401(k) Savings and Investment
Plan.
(2) On December 14, 1998, we repriced all outstanding stock options to
lower the exercise price to $6 per share. As no options were granted
to any of our officers appearing in this table during fiscal 1999,
figures for fiscal 1999 are included solely to reflect the repricing
of options granted during fiscal 1997 and fiscal 1998.
(3) Includes premiums for group life insurance and premiums for executive
life insurance paid by us as follows:
<TABLE>
<CAPTION>
Fiscal Executive
Year Group Life Life
------ ---------- ---------
<S> <C> <C> <C>
Frank P. Diassi............ 2000 $ 10,488 $ 19,080
1999 16,326 19,080
1998 15,526 19,080
Peter W. De Leeuw.......... 2000 2,834 0
1999 5,851 15,199
1998 3,150 15,199
Richard K. Crump........... 2000 1,323 7,630
1999 2,255 7,630
1998 2,508 7,631
</TABLE>
-21-
<PAGE> 25
<TABLE>
<CAPTION>
Fiscal Executive
Year Group Life Life
------ ---------- ---------
<S> <C> <C> <C>
Gary M. Spitz.............. 2000 $ 810 $ 2,731
1999 747 2,731
1998 578 2,731
David G. Elkins............ 2000 2,527 17,635
1999 3,618 23,928
1998 3,038 6,616
Robert O. McAlister........ 2000 3,089 21,708
1999 4,045 21,708
1998 3,041 21,708
</TABLE>
(4) Mr. De Leeuw joined us as our President and Chief Executive Officer
effective April 1, 1998 and retired effective May 8, 2000, meaning that
he was employed by us during fiscal 1998 for only six months and during
fiscal 2000 for only approximately 7 months.
(5) Includes compensation for unused vacation time of $20,838 and a severance
payment of $1,235,000 paid upon Mr. De Leeuw's retirement from employment
with us pursuant to a Severance Agreement between Mr. De Leeuw and us.
(6) Mr. De Leeuw was granted 10,000 shares of restricted stock on March 16,
1998. Pursuant to a Severance Agreement between Mr. De Leeuw and us, all
remaining forfeiture provisions on such shares have expired. As of the
last day of fiscal 2000, such shares had a value of $18,125 based on the
closing market price per share on September 30, 2000.
(7) Mr. Spitz joined us as our Vice President and Chief Financial Officer on
January 19, 1998, meaning that he was employed by us during fiscal 1998
for only approximately eight and one-half months.
(8) Consists of a signing bonus paid pursuant to Mr. Spitz's Employment
Agreement.
(9) Consists of moving expenses paid by us.
(10) Mr. Spitz was granted 5,000 shares of restricted stock on January 19,
1998. Of such shares, 1,250 shares are currently subject to forfeiture if
Mr. Spitz's employment is terminated under certain specified
circumstances. Such forfeiture provisions expire on January 19, 2001 or,
if earlier, upon the occurrence of certain specified events. If any
dividends are paid on these shares prior to the expiration of the
forfeiture provisions, Mr. Spitz is entitled to receive the dividends
only upon the expiration of the forfeiture provisions, without any
interest being paid on that amount. As of the last day of fiscal 2000,
such shares had a value of $9,062.50 based on the closing market price
per share on September 30, 2000.
(11) Mr. Elkins joined us as our Vice President, General Counsel and Secretary
effective January 1, 1998, meaning that he was employed by us during
fiscal 1998 for only nine months.
(12) Mr. Elkins was granted 5,000 shares of restricted stock on January 1,
1998. Of such shares, 1,250 shares are currently subject to forfeiture if
Mr. Elkins' employment is terminated under certain specified
circumstances. Such forfeiture provisions expire on January 1, 2001 or,
if earlier, upon the occurrence of certain specified events. If any
dividends are paid on these shares prior to the expiration of the
forfeiture provisions, Mr. Elkins is entitled to receive the dividends
only upon the expiration of the forfeiture provisions, without any
interest being paid on that amount. As of the last day of fiscal 2000,
such shares had a value of $9,062.50 based on the closing market price
per share on September 30, 2000.
(13) Includes compensation for unused vacation time of $28,369 paid upon Mr.
McAlister's retirement from employment with us and premiums for liability
insurance paid by us of $652.
-22-
<PAGE> 26
Option Grants in Last Fiscal Year
We did not grant any stock options in fiscal 2000 to any individual
who served as our Chief Executive Officer or acted in a similar capacity during
fiscal 2000 or any of our other four most highly compensated officers during
fiscal 2000.
Aggregate Year-end Option Values
The following table provides information on the value of unexercised
stock options, as of September 30, 2000, held by each individual who served as
our Chief Executive Officer or acted in a similar capacity during fiscal 2000
and our other four most highly compensated officers during fiscal 2000. There
were no exercises of options or stock appreciation rights during fiscal 2000 by
any of these officers, and none of these officers held any stock appreciation
rights at September 30, 2000.
<TABLE>
<CAPTION>
Number Of Securities Value Of Unexercised
Underlying Unexercised Options In-The-Money Options/SARs At
At September 30, 2000 September 30, 2000*
---------------------------------- -----------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Frank P. Diassi 85,714 73,016 -- --
Peter W. De Leeuw 125,000 0 -- --
Richard K. Crump 27,143 23,122 -- --
Gary M. Spitz 18,000 27,000 -- --
David G. Elkins 30,000 30,000 -- --
Robert O. McAlister 29,100 0 -- --
</TABLE>
* The "value" of unexercised options is based on the amount, if any, by
which the market price of a share of our common stock on the relevant
date exceeds the exercise price of the option. The actual gain, if
any, that one of our officers realizes from the exercise of options
will depend on the market price of a share of our common stock at the
time of exercise. An "In-The-Money" option is an option for which the
exercise price is lower than the market price of a share of our common
stock on the relevant date. None of our officers held options with an
exercise price below the market price of a share of our common stock
as of September 30, 2000.
Pension Plans
Salaried Employees' Most of our salaried employees, including
Pension Plan all individuals who served as our Chief
Executive Officer or acted in a similar
capacity during fiscal 2000 and our other
four most highly compensated officers
during fiscal 2000, participate in our
defined benefit Salaried Employees' Pension
Plan. We determine the pension costs under
this Plan each year on an actuarial basis
and make all necessary contributions. The
pension benefits payable under this Plan
are determined by multiplying the
employee's "vested percentage" by the sum
of (i) the number of years the employee is
given credit as having worked for us times
1.2% of his or her "Average Earnings" plus
(ii) the number of years the employee is
given credit as having worked for us (not
to exceed 35) times 45% of the amount which
his or her "Average Earnings" exceeds the
average
-23-
<PAGE> 27
(without indexing) of his or her Social
Security taxable wage bases during the
35-year period ending on December 31 of the
year in which he or she attains Social
Security retirement age. Generally, an
employee's "Average Earnings" will be
either the average compensation received by
the employee during the three years in
which the employee was paid the most in his
or her final five years of employment or
the average compensation received by the
employee during the last 36 months of his
or her employment, whichever is larger,
excluding amounts received under our Profit
Sharing and Bonus Plans. However, due to
certain limitations imposed under the
Internal Revenue Code, benefits payable to
an employee under this Plan are effectively
limited in amount to those benefits that
would be payable to an employee having
Average Earnings of $170,000.
Pension Benefit Each of our salaried employees who is
Equalization Plan eligible to participate in our Pension Plan
is also eligible to participate in our
Pension Benefit Equalization Plan. Our
Equalization Plan pays additional benefits
to employees whose benefits under our
Pension Plan are limited as a result of
specified limitations under the Internal
Revenue Code. The amount of benefits
payable under our Equalization Plan is
designed to eliminate the effect of these
limitations on the aggregate pension
benefits payable to the participants but
not provide any additional benefits beyond
that amount. These benefits are generally
payable at the times we pay benefits under
our Pension Plan. We have paid benefits
under our Equalization Plan to former
employees.
Supplemental Each of our employees who are a part of
Employee management or who are considered "highly
Retirement Plan compensated" and subject to limitations on
the amount of Pension Plan benefits they
may receive under the Internal Revenue Code
is also eligible to participate in our
Supplemental Employee Retirement Plan. Our
Supplemental Plan pays additional benefits
to employees whose benefits under our
Pension Plan are limited as a result of
such employee's Average Earnings exceeding
$170,000 or due to the removal of certain
Social Security integration benefits from
the Pension Plan. The amount of benefits
payable under our Supplemental Plan is
designed to eliminate the effect of these
limitations on the aggregate pension
benefits payable to the participants but
not provide any additional benefits beyond
that amount. These benefits are generally
payable at the same time as when we pay
benefits under our Pension Plan. We have
paid benefits under our Supplemental Plan
to former employees.
The following table sets forth the aggregate amount of annual normal
retirement benefits that would be payable under our Pension Plan, Equalization
Plan and Supplemental Plan if an employee retired during calendar 2000 at the
age of 65 with the years of service shown (assuming the continued existence of
our Pension Plan, Equalization Plan and Supplemental Plan without substantial
change and payment in the form of a single life annuity).
-24-
<PAGE> 28
<TABLE>
<CAPTION>
Years of Service
------------------------------------------------------------
Average
Earnings 15 20 25 30 35
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000 $ 28,568 $ 38,091 $ 47,614 $ 57,137 $ 66,659
150,000 34,756 46,341 57,926 69,512 81,097
175,000 40,943 54,591 68,239 81,887 95,534
200,000 47,131 62,841 78,551 94,262 109,972
250,000 59,506 79,341 99,176 119,012 138,847
300,000 71,881 95,841 119,801 143,762 167,722
400,000 96,631 128,841 161,051 193,262 225,472
450,000 109,006 145,341 181,676 218,012 254,347
500,000 121,381 161,841 202,301 242,762 283,222
</TABLE>
For our executive officers, the compensation covered by these Plans is solely
that compensation reported under the salary column in the executive
compensation table appearing in this Proxy Statement and may, as to a
particular executive officer for a given year, differ by more than 10% from
that executive officer's total annual compensation reported in the executive
compensation table, depending on the amount of bonuses and other annual
compensation paid to that executive officer during the relevant year.
As of September 30, 2000, the credited years of service under these
Plans of all individuals who served as our Chief Executive Officer or acted in
a similar capacity during fiscal 2000 and our other four most highly
compensated officers during fiscal 2000 were:
Frank P. Diassi.................. 4 years
Peter W. De Leeuw................ 2 years
Richard K. Crump................. 14 years
Gary M. Spitz.................... 3 years
David G. Elkins.................. 3 years
Robert O. McAlister.............. 10 years
Assuming retirement at age 65 (or after five years of service, if later) and
the continuation of their current levels of base salary until retirement, the
total retirement benefits payable to each individual who served as our Chief
Executive Officer or acted in a similar capacity during fiscal 2000 and our
other four most highly compensated officers during fiscal 2000 under the
Equalization and Supplemental Plans would be:
<TABLE>
<CAPTION>
Net Payment
Gross Payment Reduction for Payments Under Equalization
Under All Plans Under Pension Plan and Supplemental Plans
--------------- ---------------------- ----------------------
<S> <C> <C> <C>
Frank P. Diassi $ 28,384 $ 13,137 $ 15,247
Peter W. De Leeuw(1) 0 0 0
Richard K. Crump 89,803 63,181 26,622
Gary M. Spitz 81,617 57,043 24,574
David G. Elkins(2) 33,178 23,428 9,750
Robert O. McAlister(3) 22,163 21,104 1,059
</TABLE>
(1) Mr. De Leeuw retired on May 8, 2000 and is no longer eligible for
payments under these Plans.
(2) Excludes supplemental pension benefits payable to Mr. Elkins under his
Employment Agreement.
(3) Mr. McAlister retired effective as of September 30, 2000. The figures
included in the table above reflect the actual amounts to be paid to
Mr. McAlister under the relevant Plans.
-25-
<PAGE> 29
All of the benefits appearing in the pension plan table are computed
on a single-life annuity basis and are not subject to any deduction for Social
Security or other offset amounts. However, our Supplemental Plan does contain
an alternative formula for determining benefits which includes a Social
Security offset. We have never used this alternative formula to determine the
amount of any benefits paid under our Supplemental Plan.
Employment Agreements
GARY M. SPITZ
On January 19, 1998, we entered into an Employment Agreement with Mr.
Spitz under which we engaged Mr. Spitz to serve as our Chief Financial Officer
and Vice President - Finance. Under his Employment Agreement, Mr. Spitz earns a
base salary that was initially set at $180,000 per year (subject to increase at
the discretion of our Board) and he participates in our bonus and incentive
plans. In addition, when Mr. Spitz signed his Employment Agreement, we paid Mr.
Spitz a $25,000 signing bonus and granted Mr. Spitz 5,000 shares of our common
stock (1,250 of which are currently subject to forfeiture if Mr. Spitz's
employment is terminated under specified circumstances) and options to purchase
45,000 shares of our common stock for $12 per share (with 20% of such options
vesting annually on each January 19, commencing with January 19, 1999). On
December 14, 1998, we reduced the exercise price of these options to $6 per
share. Mr. Spitz was also granted the right to purchase up to 50,000 shares of
our common stock but that right expired on April 30, 1998 without having been
exercised.
Either we or Mr. Spitz may terminate Mr. Spitz's Employment Agreement
at any time, for any reason or for no reason. However, if Mr. Spitz terminates
his employment for a Good Reason (as defined in his Employment Agreement) after
the occurrence of a specified change of control or we terminate Mr. Spitz's
employment for any reason other than Misconduct or Disability (as those terms
are defined in his Employment Agreement), Mr. Spitz is entitled to continuing
coverage under all of our life, healthcare, medical and dental insurance plans
and programs (excluding disability) for 24 months, so long as Mr. Spitz pays
any required employee premiums under these plans or programs or COBRA. However,
we are not required to make these payments or provide these coverages if Mr.
Spitz's employment is terminated after his "normal retirement date" under our
Pension Plan and our obligation to provide continuing coverage under our
benefits plans immediately ends if Mr. Spitz obtains other employment where he
is provided with substantially similar benefits.
DAVID G. ELKINS
On November 12, 1997, we entered into an Employment Agreement with Mr.
Elkins under which we engaged Mr. Elkins to serve as our General Counsel and
Corporate Secretary and one of our Vice Presidents. Under his Employment
Agreement, Mr. Elkins earns a base salary that was initially set at $200,000
per year (subject to increase at the discretion of our Board) and he
participates in our bonus and incentive plans. In addition, when Mr. Elkins
signed his Employment Agreement, we granted Mr. Elkins 5,000 shares of our
common stock (1,250 of which are currently subject to forfeiture if Mr. Elkins'
employment is terminated under specified circumstances) and options to purchase
60,000 shares of our common stock for $12 per share (with 25% of such options
vesting annually on each January 1, commencing with January 1, 1999). On
December 14, 1998, we reduced the exercise price of these options to $6 per
share. Mr. Elkins was also granted the right to purchase up to 80,000 shares of
our common stock but that right expired on April 30, 1998 without having been
exercised.
-26-
<PAGE> 30
Either we or Mr. Elkins may terminate Mr. Elkins' Employment Agreement
at any time, for any reason or for no reason. However, if Mr. Elkins terminates
his employment for a Good Reason (as defined in his Employment Agreement) or we
terminate Mr. Elkins' employment for any reason other than Misconduct or
Disability (as those terms are defined in his Employment Agreement), Mr. Elkins
is entitled to continuing coverage under all of our life, healthcare, medical
and dental insurance plans and programs (excluding disability) for 36 months,
so long as Mr. Elkins pays any required employee premiums under these plans or
programs or COBRA. However, we are not required to make these payments or
provide these coverages if Mr. Elkins' obtains other employment where he is
provided with substantially similar benefits. Finally, if Mr. Elkins'
Employment Agreement is terminated under these circumstances, all vesting and
similar requirements and all conditions to entitlement to benefits are deemed
satisfied under these plans and programs, meaning that all options held by Mr.
Elkins would immediately vest and all forfeiture provisions for any restricted
stock would immediately lapse.
Under his Employment Agreement, Mr. Elkins is entitled to participate
in, and receive benefits under, most of our employee benefit plans as if his
employment with us commenced on January 1, 1993 or, in the case of our
post-retirement healthcare plan, January 1, 1988. In addition, Mr. Elkins is
entitled under his Employment Agreement to receive pension benefits which are
supplemental to the pension benefits payable to Mr. Elkins under our Pension
Plan, Equalization Plan and Supplemental Plan.
Severance Agreement
On May 1, 2000, we entered into a Severance Agreement with Mr. De
Leeuw in connection with his retirement as our President and Chief Executive
Officer, which was effective as of May 8, 2000. Under the Severance Agreement,
we paid Mr. De Leeuw a lump sum amount for all unpaid base salary earned by Mr.
De Leeuw as of May 12, 2000, an additional lump sum payment of $20,837 as
payment for unused vacation time and an additional lump sum severance payment
of $1,235,000. We also paid Mr. De Leeuw $341,250 on October 26, 2000 as his
prorated portion of the bonus Mr. De Leeuw would have earned under our bonus
plan had he remained employed by us through that date. When we hired Mr. De
Leeuw as our President and Chief Executive Officer, we granted Mr. De Leeuw
10,000 shares of our common stock subject to certain restrictions and options
to acquire 125,000 shares of our common stock subject to vesting over a five
year period. Under the Severance Agreement, Mr. De Leeuw became fully vested in
all of such shares free of any restrictions and all of these options. The
Severance Agreement also contains customary releases by us and Mr. De Leeuw and
an agreement by Mr. De Leeuw to not engage in specified competitive activities
for a one-year period.
Key Employee Protection Plan
On January 26, 2000, our Board approved our Key Employee Protection
Plan, which has subsequently been amended. Our Compensation Committee is
authorized to designate a select group of management or highly compensated
employees as participants under our Key Employee Protection Plan and set their
applicable multipliers. Our Compensation Committee may also terminate any
participant's participation under this Plan on 60 days' notice if it determines
that the participant is no longer one of our key employees.
Under our Key Employee Protection Plan, any participant under the Plan
that terminates his or her employment for "Good Reason" or is terminated by us
for any reason other than "Misconduct" or "Disability" within two years after
the date on which a specified change of control occurs is entitled to benefits
under the Plan. If a participant becomes entitled to benefits under our Key
Employee Protection Plan, we are required to provide the participant with a
lump sum cash payment equal to the participant's
-27-
<PAGE> 31
applicable multiplier times the sum of the participant's highest annual base
compensation during the last three years plus the participant's targeted bonus
for the year of termination. The amount of this payment is reduced, however, by
the amount of any other separation, severance or termination payments made by
us to the participant under any other plan or agreement or pursuant to law. In
addition, if the participant is not one of our senior executives, the
participant is not entitled to this amount if his or her termination date is
after his or her normal retirement date. The participant is also entitled to
receive any accrued but unpaid compensation, compensation for unused vacation
time and any unpaid vested benefits earned or accrued under any of our benefit
plans (other than qualified plans). Finally, for a period of 24 months
(including 18 months COBRA coverage), the participant will continue to be
covered by all of our life, health care, medical and dental insurance plans and
programs (other than disability), as long as the participant makes a timely
COBRA election and pays the regular employee premiums required under our plans
and programs and by COBRA. However, if the participant is not one of our senior
executives, the participant is not entitled to continued coverage under our
plans and programs if his or her termination date is after his or her normal
retirement date. In addition, our obligation to continue to provide coverage
under our plans and programs to any participant ceases if and when the
participant becomes employed on a full-time basis by a third party which
provides the participant with substantially similar benefits.
If so approved by our Compensation Committee, any of our senior
executives can become entitled to receive all of the benefits provided under
the Plan, irrespective of whether a change of control has occurred. However, if
benefits are paid to a participant under this provision of the Plan, the senior
executive's applicable multiplier is reduced by 50%.
If any payment or distribution under our Key Employee Protection Plan
to any participant is subject to excise tax pursuant to Section 4999 of the
Internal Revenue Code, the participant is entitled to receive a gross-up
payment from us in an amount such that, after payment by the participant of all
taxes on the gross-up payment, the amount of the gross-up payment remaining is
equal to the excise tax imposed under Section 4999 of the Internal Revenue
Code. However, the maximum amount of any gross-up payment is 25% of the sum of
the participant's highest annual base compensation during the last three years
plus the participant's targeted bonus for the year of payment.
We may terminate our Key Employee Protection Plan at any time and for
any reason but any termination does not become effective as to any participant
until 90 days after we give the participant notice of the termination of the
Plan. In addition, we may amend our Key Employee Protection Plan at any time
and for any reason but any amendment that reduces, alters, suspends, impairs or
prejudices the rights or benefits of any participant in any material respect
does not become effective as to a participant until 90 days after we give the
participant notice of the amendment of the Plan. However, no termination of our
Key Employee Protection Plan, or any of these types of amendments to the Plan,
can be effective with respect to any participant if the termination or
amendment is related to, in anticipation of or during the pendency of a change
of control or is for the purpose of encouraging or facilitating a change of
control. In addition, no termination or amendment of our Key Employee
Protection Plan can affect the rights or benefits of any participant that are
accrued under the Plan at the time of termination or amendment or that accrue
thereafter on account of a change of control that occurred prior to the
termination or amendment.
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<PAGE> 32
PERFORMANCE GRAPH
The following Stock Performance Graph compares our cumulative total
stockholder return on shares of our common stock for a five-year period with
the cumulative total return of the Standard & Poor's Stock Index and the
Standard & Poor's Chemicals Index. The graph assumes $100 was invested on
September 30, 1995 in shares of our common stock, the S&P 500 Index and the S&P
Chemicals Index and that dividends were reinvested.
[GRAPH]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------
9/95 9/96 9/97 9/98 9/99 9/00
<S> <C> <C> <C> <C> <C> <C>
STERLING CHEMICALS HOLDINGS, INC. 100 148 148 85 42 22
S&P 500 100 120 169 185 236 267
S&P CHEMICALS 100 129 169 151 178 133
</TABLE>
In connection with our recapitalization in August of 1996, our common
stock was delisted from the New York Stock Exchange and is now included in the
OTC Electronic Bulletin Board maintained by the National Association of
Securities Dealers, Inc. We believe that this delisting, combined with the
contemporaneous significant reductions in the overall number of outstanding
shares and record holders of our common stock, have significantly reduced the
liquidity of the trading market for shares of our common stock.
We cannot give you any assurance as to future trends in the cumulative
total return on shares of our common stock or of the following indices and we
do not make or endorse any predictions as to future stock performance.
-29-
<PAGE> 33
AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED
The following table sets forth certain information regarding the
ownership of our common stock as of December 4, 2000 by (i) each of our
directors and each person nominated to become one of our directors, (ii) each
of our executive officers named in the Executive Compensation Table, (iii) all
those known by us to be the beneficial owner of more than 5% of our common
stock and (iv) all of our directors and executive officers as a group. Unless
otherwise noted, the mailing address of each such owner is 1200 Smith Street,
Suite 1900, Houston, Texas 77002-4312.
In addition, an aggregate of 590,895 shares of our common stock are
held by the Sterling Chemicals ESOP on behalf of our employees, including
certain of our executive officers, representing approximately 5% of our
outstanding shares of common stock, of which 477,360 shares have been allocated
to employees' accounts to date. These shares are held of record by Merrill
Lynch & Co. Incorporated, as trustee, who disclaims beneficial ownership of
such shares. Merrill Lynch exercises sole power to vote these shares until they
are allocated to the account of one of our employees, who then has sole power
to vote his or her respective ESOP shares.
<TABLE>
<CAPTION>
Percent of
Number of Right to Restricted Outstanding
Name Shares Owned(1) Acquire(2) Stock(3) Total Shares
---- --------------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Frank P. Diassi........................ 710,015(4) 118,413 0 828,428 6.4%
Peter W. De Leeuw...................... 36,536 125,000 0 161,536 1.3%
Allan R. Dragone....................... 61,781 7,000 0 68,781 *
Frank J. Hevrdejs...................... 920,003(5) 27,000 0 947,003 7.4%
Hunter Nelson.......................... 67,154 7,000 0 74,154 *
Robert W. Roten........................ 169,693 6,000 0 175,693 1.4%
Rolf H. Towe(6)........................ 2,010,580 63,020 0 2,073,600 16.1%
Richard K. Crump....................... 46,308 31,165 0 77,473 *
David G. Elkins........................ 19,841 45,000 1,250 66,091 *
Gray M. Spitz.......................... 14,841 27,000 1,250 43,091 *
Robert O. McAlister.................... 21,270 29,100 0 50,370 *
Clipper Capital Associates, Inc.(7).... 2,004,184 59,020 0 2,063,204 16.1%
Koch Industries, Inc.(8)............... 1,128,223 49,031 0 1,177,254 9.2%
Fayez Sarofim & Co.(9)................. 687,548 0 0 687,548 5.4%
Olympus Growth Fund II, L.P.(10)....... 620,383 58,387 0 678,770 5.3%
Olympus Executive Fund, L.P.(10)....... 7,293 633 0 7,926 *
Directors and Officers as a
Group (12 persons).................. 4,078,022 485,698 2,500 4,566,220 34.4%
</TABLE>
-------------------------
* Less than 1%
(1) Includes shares of our common stock for which the named person:
o has sole voting and investment power or
o has shared voting and investment power with his or her spouse
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Includes shares of our common stock held by Merrill Lynch, as Trustee of our
Savings and Investment Plan or as Trustee of our ESOP, and allocated to the
named person's account as follows:
SIP ESOP
------ -----
Frank P. Diassi............................ 0 1,755
Robert W. Roten............................ 36,806 664
Richard K. Crump........................... 7,478 1,755
Gary M. Spitz.............................. 0 1,091
David G. Elkins............................ 0 1,091
Robert O. McAlister........................ 3,294 0
Directors and Officers as a Group.......... 47,578 6,356
Excludes shares of our common stock that:
o are restricted stock holdings or
o may be acquired through the exercise of stock options within 60
days
Excludes shares of our common stock and currently exercisable
warrants to acquire shares of our common stock held by persons
other than the named person who are parties to the Voting
Agreement described in "Certain Transactions." Each of Messrs.
Diassi, Hevrdejs and Nelson, Clipper Capital Associates, Inc.,
Koch Industries, Inc., Olympus Growth Fund II, L.P., Olympus
Executive Fund, L.P. and Fayez Sarofim & Co. is a party to the
Voting Agreement. Other parties to the Voting Agreement include
William A. McMinn, one of our former directors, who beneficially
owns 174,896 shares of our common stock, William C. Oehmig, who
beneficially owns 361,772 shares of our common stock, The Rheney
Living Trust (Susan O. Rheney and Clarke Rheney, Trustees), which
beneficially owns 48,307 shares of our common stock, CS First
Boston Merchant Investments 1995/96, L.P., which beneficially
owns 75,900 shares of our common stock, and Von D. Oehmig, who
beneficially owns 2,083 shares of our common stock. In addition,
Gordon A. Cain, who beneficially owns currently exercisable
warrants to acquire 160,000 shares of our common stock, and James
Crane, who beneficially owns currently exercisable warrants to
acquire 30,000 shares of our common stock, are parties to the
Voting Agreement. All of the parties to the Voting Agreement may
be deemed to be members of a "group" within the meaning of Rule
13d-5(b)(1) under the Securities Exchange Act and, as a result,
may be deemed to have beneficial ownership of all of the shares
of our common stock subject to the Voting Agreement. All shares
of our common stock owned by the parties to the Voting Agreement
are subject to the Voting Agreement, irrespective of whether such
shares are currently owned or subsequently acquired, through
purchase, the exercise of warrants or otherwise. The Voting
Agreement expires at the time described in "Certain
Transactions." Currently, an aggregate of 6,653,583 shares of our
common stock, representing approximately 52% of our outstanding
shares of common stock, are subject to the Voting Agreement. Each
of the named persons expressly disclaims membership in such group
and beneficial ownership of any shares of our common stock or
warrants to acquire shares of our common stock held by the other
parties to the Voting Agreement.
(2) Shares of our common stock that can be acquired through the
exercise of warrants or stock options within 60 days.
(3) Shares of our common stock subject to a vesting schedule,
forfeiture risk or other similar restrictions.
(4) Includes (i) 20,000 shares of our common stock held as Trustee of
the Gabrielle Diassi Trust, (ii) 40,000 shares of our common
stock held as Trustee of the Diassi Children's Trust, (iii)
10,000 shares of our common stock held as Trustee of the Brianna
Diassi Trust, (iv) 10,000 shares of our common stock held as
Trustee of the Nicholas Diassi Trust, (v) 10,000 shares of our
common stock held by Mr. Diassi's wife and (vi) 10,000 shares of
our common stock held by Amerlux, Inc., a manufacturer of
lighting fixtures for commercial and retail markets of which Mr.
Diassi owns 50% of the outstanding equity and serves as Chairman
of the Board. Mr. Diassi disclaims beneficial ownership of all of
these shares.
(5) Includes 1,990 shares of our common stock owned by Mr. Hevrdejs'
wife. Mr. Hevrdejs disclaims beneficial ownership of such shares.
(6) Represents shares of our common stock and includes warrants to
acquires shares of our common stock held by The Clipper Group
(see Note 7) with respect to which Mr. Towe, as Senior Managing
Director of The Clipper Group, L.P. and Vice President of Clipper
Asset Management, Inc., may be deemed to have beneficial
ownership. Mr. Towe disclaims beneficial ownership of such shares
and warrants.
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<PAGE> 35
(7) Clipper Capital Associates, Inc. ("Clipper") may be deemed to be
the beneficial owner of such shares of our common stock by virtue
of its relationship with entities that have beneficial ownership
of such shares as discussed herein. Clipper and its affiliated
entities described herein are collectively referred to as "The
Clipper Group." Clipper is the sole general partner of Clipper
Associates, and is a Delaware corporation principally engaged in
holding investments, formed for the purpose of serving as general
partner of Clipper Associates. The mailing address of Clipper is
650 Madison Ave., 9th Floor, New York, New York 10022. Clipper
Associates is a Delaware limited partnership principally engaged
in making investments, directly or indirectly through other
entities and is the sole general partner of Clipper Equity
Partners I, L.P. ("Clipper I") and Clipper/Merchant Partners,
L.P. ("Clipper II"), with sole voting and dispositive power with
respect to the securities held by such partnerships. Each of
Clipper I and Clipper II is a Delaware limited partnership,
principally engaged in making investments. Clipper Associates may
be deemed to directly beneficially own 11,831 shares of our
common stock and indirectly beneficially own 201,776 shares of
our common stock by virtue of its status as nominee under certain
nominee agreements, pursuant to which it exercises sole voting
and dispositive power with respect to such shares. Clipper I may
be deemed to directly beneficially own 444,537 shares of our
common stock. Clipper II may be deemed to directly beneficially
own 516,031 shares of our common stock. Each of Clipper/Merban,
L.P. ("Clipper III") and Clipper/European Re, L.P. ("Clipper IV")
is a Delaware limited partnership, principally engaged in making
investments. Clipper Associates is the sole investment general
partner of Clipper III and Clipper IV, having sole voting and
dispositive power with respect to securities held by such
partnerships. Clipper III may be deemed to directly beneficially
own 592,701 shares of our common stock. Clipper IV may be deemed
to directly beneficially own 296,328 shares of our common stock.
Clipper Curacao, Inc., a corporation organized under the laws of
the British Virgin Islands, is the sole administrative general
partner of Clipper III and Clipper IV, responsible for the
administrative functions of such partnerships. The share amounts
set forth in this footnote include warrants to acquire shares of
our common stock in the amounts of 28 shares with respect to
Clipper Associates, 13,605 shares with respect to Clipper I,
18,149 shares with respect to Clipper II, 18,149 shares with
respect to Clipper III and 9,089 shares with respect to Clipper
IV.
(8) Represents shares of our common stock held by Koch Capital
Services, Inc., a wholly owned subsidiary of Koch Industries,
Inc. which may be deemed to be the beneficial owner of such
shares. The mailing address of Koch Capital Services, Inc. and
Koch Industries, Inc. is 4111 East 37th Street North, Wichita,
Kansas 67220.
(9) Represents shares of our common stock directly beneficially owned
by FSI No. 2 Corporation, a wholly owned subsidiary of Fayez
Sarofim & Co., which may be deemed to be the beneficial owner of
such shares. The majority owner of Fayez Sarofim & Co. is Fayez
Sarofim. The mailing address of FSI No. 2 Corporation, Fayez
Sarofim & Co. and Fayez Sarofim is Two Houston Center, Suite
2907, Houston, Texas 77010.
(10) Olympus Growth Fund II, L.P. and Olympus Executive Fund, L.P. are
Delaware limited partnerships principally engaged in making
investments. OGP II, L.P., a Delaware limited partnership, is the
sole general partner of Olympus Growth Fund II, L.P. and OEF,
L.P., a Delaware limited partnership, is the sole general partner
of Olympus Executive Fund L.P. Each of OGP II, L.P. and OEF, L.P.
has the same three general partners, being LJM, L.L.C., RSM,
L.L.C. and Conroy, L.L.C., each of which is a Delaware limited
liability company. The majority owners of LJM, L.L.C., RSM,
L.L.C. and Conroy, L.L.C. are Louis J. Mischianti, Robert S.
Morris and James A. Conroy, respectively. The mailing address of
each of these entities and individuals is Metro Center, One
Station Place, Stamford, Connecticut 06902.
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<PAGE> 36
CERTAIN TRANSACTIONS
The holders of 6,653,583 shares of our common stock, representing
approximately 52% of our outstanding shares, are parties to a Third Amended and
Restated Voting Agreement dated as of February 1, 1999. Three of our directors,
Messrs. Diassi, Hevrdejs and Nelson, are parties to the Voting Agreement. Other
parties to the Voting Agreement include William A. McMinn, one of our former
directors, William C. Oehmig, Susan O. Rheney (as Trustee of the Rheney Living
Trust), Koch Capital Services, Inc., affiliates of Clipper Capital Partners,
L.P. who are commonly referred to collectively as "The Clipper Group", FSI No.
2 Corporation, a wholly owned subsidiary of Fayez Sarofim & Co., Olympus Growth
Fund II, L.P., Olympus Executive Fund, L.P., Credit Suisse First Boston, Gordon
A. Cain and James Crane. The parties to the Voting Agreement are required to
vote any shares of our common stock owned by them in favor of three nominees to
our Board of Directors; one to be designated by The Clipper Group, one to be
designed by Gordon A. Cain and one to be designated by Koch Capital. Rolf H.
Towe is the current designee of The Clipper Group. William A. McMinn was Mr.
Cain's designee until his resignation from the Board on October 26, 2000. Mr.
Cain has the right to designate Mr. McMinn's replacement. Koch Capital has
elected to waive its right to designate a member of our Board of Directors. The
rights of each of The Clipper Group and Koch Capital to designate nominees
under the Voting Agreement terminates on the earlier of August 21, 2006 or the
time at which they beneficial own less than 5% of our outstanding shares,
respectively. The right of Mr. Cain to designate a nominee terminates upon the
earlier of (a) December 15, 2008 and (b) the later of (i) the expiration of the
Standby Purchase Agreement to which he is a party and (ii) the time at which
Mr. Cain beneficial owns less than 5% of our outstanding shares.
The holders of 8,753,243 shares of our common stock, representing
approximately 68% of our outstanding shares, are parties to a Stockholders
Agreement originally dated as of August 21, 1996 and a Tag-Along Agreement
dated as of August 21, 1996. The Stockholders Agreement restricts the transfer
of shares of our common stock held by the parties (with certain exceptions),
including any disposition of a control position, unless such shares are first
offered to be sold to our ESOP, then to us and then to the other parties to the
Stockholders Agreement. The Tag-Along Agreement provides that if any party to
the agreement, either by themselves or together with others, proposes to
transfer a total of 51% or more of our outstanding shares of common stock, that
party must give notice of the proposed transfer to each person that retained
shares of our common stock in our recapitalization conducted in August of 1996,
and each of these stockholders will have the right to have any shares they
retained in that recapitalization included in the transfer on a pro rata basis
and on the same terms and conditions.
Since October 1, 1991, we have had ongoing commercial relationships in
the ordinary course of business with certain affiliates of Koch Industries,
Inc., including agreements for the supply of raw materials, sales of
petrochemicals and transportation of natural gas. During the fiscal year ended
September 30, 2000:
o we made product sales to and purchased raw materials from Koch
Chemical and Koch Nitrogen Company, indirect wholly owned
subsidiaries of Koch Industries;
o we made payments to John Zink Company, an indirect wholly owned
subsidiary of Koch Industries, in consideration for certain
contracting and construction services performed at our facilities
in Texas City, Texas; and
o we made payments to Koch Gateway Pipeline Company for the
transportation of natural gas to the our acrylic fiber plant
through a pipeline in which it is a partner.
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<PAGE> 37
Each of these relationships represented less than 1% of our revenues, with the
exception that our raw material purchases from Koch Nitrogen and Koch Chemical
totaled around 3.3% of our revenues. In addition, in 1998 we filed a lawsuit
against John Zink Company seeking recovery for certain types of damages we
sustained in connection with a release of nickel carbonyl from our methanol
unit on July 30, 1997. This lawsuit has been voluntarily dismissed but, under a
tolling agreement between the parties, may be refiled at any time. Finally, in
May of 2000, we entered into a new 3-1/2 year ammonia supply agreement with
Koch Nitrogen. The new ammonia supply agreement replaced our prior ammonia
supply agreement with Koch Nitrogen which was not scheduled to expire until
2002. The new ammonia supply agreement requires us to purchase the same annual
quantity of ammonia from Koch Nitrogen but at a revised pricing formula. In
connection with the execution of the new ammonia supply agreement, we made a
payment to Koch Nitrogen of $1.2 million to settle a dispute under the old
ammonia supply agreement and we also made a one-time payment to Koch Nitrogen
of $1.8 million in exchange for the revised pricing formula.
As of December 15, 1998, we entered into separate Standby Purchase
Agreements with each of Messrs. McMinn, Diassi and Hevrdejs, Gordon A. Cain,
James Crane and Koch Capital Services, Inc. Pursuant to the terms of these
agreements, these parties committed to purchase up to 2,500,000 shares of our
common stock at a price of $6.00 per share, if, as and when we request at any
time prior to December 15, 2001. In order to induce these parties to enter into
the Standby Purchase Agreements, we issued to them warrants to purchase an
aggregate of 300,000 shares of our common stock at an exercise price of $6.00
per share. In addition, under the Standby Purchase Agreements, we agreed to
issue to these parties additional warrants to purchase up to 300,000 additional
shares of our common stock if, as and when they purchase shares of our common
stock under these agreements. Any shares of our common stock purchased under
the Standby Purchase Agreements or on the exercise of the warrants issued under
the Standby Purchase Agreements will be subject to the terms of the Voting
Agreement, the Stockholders Agreement and the Tag-Along Agreement described
above.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
officers, directors and anyone who beneficially owns at least 10% of our common
stock to file reports regarding their ownership of our common stock and any
changes in that ownership with the SEC. We believe that during fiscal 2000, our
officers, directors and 10% stockholders complied with all Section 16(a) filing
requirements. In making this statement we have relied on our review of copies
of these reports furnished to us and written representations from our officers
and directors.
STOCKHOLDER PROPOSALS FOR NEXT YEAR'S ANNUAL MEETING
In order for a stockholder proposal to be included in our proxy
statement for our annual meeting to be held in 2001, the proposal must be
submitted before August 23, 2001 to the following address: Sterling Chemicals
Holdings, Inc., 1200 Smith Street, Suite 1900, Houston, Texas 77002; Attention:
Corporate Secretary. In order for a stockholder proposal that is not included
in that proxy statement to be brought before our annual meeting to be held in
2001, the proposal must be submitted after August 29, 2001 but before September
28, 2001 to the same address.
* * *
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<PAGE> 38
Whether or not you plan on attending the meeting, please complete,
date and sign the enclosed proxy and return it in the enclosed envelope. No
postage is required for mailing in the United States.
By Order of the Board of Directors
DAVID G. ELKINS
Corporate Secretary
Houston, Texas
December [___], 2000
<PAGE> 39
APPENDIX A
Audit and Compliance Committee Charter
PRELIMINARY STATEMENTS
WHEREAS, the Board of Directors (the "Board") of Sterling
Chemicals Holdings, Inc. (the "Corporation") has heretofore established and
designated a standing committee of the Board known as the Audit and Compliance
Committee (the "Committee");
WHEREAS, the Board has heretofore delegated oversight
responsibility to the Committee for the financial reporting, control and audit
functions of the Board and for compliance and monitoring programs, corporate
information and reporting systems and similar matters; and
WHEREAS, the Board desires to adopt a formal written charter to
govern the composition, duties and responsibilities of the Committee;
NOW, THEREFORE, IT IS HEREBY RESOLVED that this Audit and
Compliance Committee Charter (this "Charter") be, and it hereby is, adopted and
approved as the Charter of the Committee.
ROLE OF THE COMMITTEE
The Committee shall act on behalf of the Board and oversee all
material aspects of the Corporation's financial reporting, control, audit and
compliance functions, except those reserved by the Board and those related to
the responsibilities of another standing committee of the Board. The Committee's
role includes a particular focus on the qualitative aspects of financial
reporting to the Corporation's stockholders, the Corporation's processes for the
management of financial risk and compliance with significant applicable legal,
ethical and regulatory requirements. The Committee shall review, discuss and
assess its own performance, as well as its role and responsibilities, and may
make recommendations to the Board regarding changes in the Committee's role or
responsibilities or this Charter. The Board shall review the adequacy of this
Charter at least once annually.
While the Committee has the responsibilities and powers set forth
in this Charter, it is not the duty of the Committee to prepare financial
statements, to plan or conduct audits or to assure that the Corporation's
financial statements are complete and accurate or in accordance with generally
accepted accounting principles. Management is solely responsible for preparing
the financial statements and implementing internal controls and the
Corporation's external auditors are solely responsible for auditing the
financial statements and monitoring the effectiveness of the internal controls.
Nor is it the duty of the Committee to conduct investigations, to resolve
disagreements (if any) between management and the Corporation's external
auditors or to assure compliance with the Corporation's policies or any laws,
rules, regulations, permits or licenses.
COMPOSITION OF THE COMMITTEE
The Committee shall consist of such number of directors (not less
than three) as the Board shall determine from time to time. Each member of the
Committee, including it chairman and any alternate members, shall be appointed
by the Board, shall serve at the pleasure of the Board and may be removed at any
time by the Board (with or without cause). Each Committee member shall (i) be
A-i
<PAGE> 40
independent of management and free from any relationship that, in the opinion of
the Board, would interfere with the exercise of independent judgment as a member
of the Committee, (ii) have general knowledge of the primary industries in which
the Corporation operates, (iii) have the ability to read and understand
fundamental financial statements, including a balance sheet, income statement
and statement of cash flow and (iv) have the ability to understand key financial
risks and related controls and control processes. At least one member of the
Committee should be literate in business and financial reporting and control,
including knowledge of regulatory requirements, and should have past employment
experience in finance or accounting (or other comparable financial
sophistication or financial management expertise). No member of the Committee
may serve on the Compensation Committee of the Board at any time while such
member is a member of the Committee. The term of each member of the Committee
shall be determined in accordance with the Bylaws of the Corporation. The Board
shall have the power at any time to fill vacancies in, to change the membership
of or to dissolve the Committee.
COMMITTEE OPERATING PRINCIPLES
The Committee shall fulfill its responsibilities within the
context of the following overriding principles:
o Working Relationships - The Committee should maintain
strong, positive working relationships with management,
members of other committees of the Board and key advisors,
including internal and external auditors, accountants and
attorneys.
o Communications and Coordination - The Committee should
strive to keep fully informed of current and prospective
issues facing the Corporation through, communications with
senior management, other standing committees of the Board
and key advisors, including internal and external auditors,
accountants and attorneys. In addition, the Committee
should strive to coordinate its compliance activities with
the Environmental, Health and Safety Committee of the
Corporation and the other standing committees of the Board.
o Education - The Committee should regularly review important
financial and operating topics that present potential
significant risk to the Corporation. Each member of the
Committee is encouraged to participate in relevant and
appropriate self-study education to assure understanding of
the business of the Corporation and its subsidiaries and
the environment in which they operate.
o Expectations and Information Needs - The Committee should
communicate its expectations and the nature, timing and
extent of information it requires to management and
internal and external auditors, accountants and attorneys.
Written materials, including key performance indicators and
measures related to key financial risks, should be provided
to the Committee by management at least one week in advance
of any meeting of the Committee at which such materials
will be discussed.
The Committee shall have direct access to the financial, legal and other staff
and advisors of the Corporation and shall have the authority, at the
Corporation's expense, to retain and consult with such professional advisors,
independent auditors and other experts in connection with the performance of its
duties and the exercise of its authority and powers.
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<PAGE> 41
MONITORING FINANCIAL REPORTING AND RELATED MATTERS
Relationship With External Auditors. The external auditors of the
Corporation, in their capacity as independent public accountants, shall be
accountable to the Board and the Committee as representatives of the
stockholders. The Committee shall have primary responsibility for the
relationship between the Corporation and its external auditors. As the
Corporation's external auditors review financial reports and other matters, they
will be report to the Committee. In executing its oversight role with respect to
financial reporting and related matters, the Committee shall:
o make recommendations to the Board regarding the selection
and termination of the Corporation's external auditors;
o review and assess the nature and effect of any non-audit
services provided by the external auditors; and
o review and assess the external auditors' compensation and
the scope and proposed terms of their engagement, including
the range of audit and non-audit fees.
The Committee shall annually review the performance (effectiveness, objectivity
and independence) of the Corporation's internal and external auditors. The
Committee shall ensure receipt of a formal written statement from the external
auditors consistent with standards set by the Independence Standards Board.
Additionally, the Committee shall discuss with the auditor relationships or
services that may affect auditor objectivity or independence. If the Committee
is not satisfied with any external auditor's assurances of independence, it
shall take or recommend to the Board appropriate action to ensure the
independence of the external auditor.
Financial Reporting and Controls. The Committee shall be charged
with the responsibility of reviewing the adequacy of the Corporation's financial
statements and financial reporting systems. In this regard, the Committee shall:
o review all major financial reports in advance of filings or
distributions;
o consider major changes and other questions of choice
regarding the appropriate auditing and accounting
principles and practices to be followed when preparing the
Corporation's financial statements, including major
financial statement issues and risks and their impact or
potential effect on reported financial information and the
scope, as well as the level of involvement by external
auditors in the preparation and review, of unaudited
quarterly or other interim-period information;
o review the annual audit plan and the process used to
develop the plan and monitor the status of activities;
o review the results of each external audit, including any
qualifications in the external auditor's opinion, any
related management letter, management's responses to
recommendations made by the external auditor in connection
with the audit and any reports submitted to the Committee
by internal auditors (if any) that are material to the
Corporation as a whole and management's responses to those
reports;
o discuss with the Corporation's external auditors (i)
methods used to account for significant unusual
transactions, (ii) the effect of significant accounting
policies in
A-iii
<PAGE> 42
controversial or emerging areas for which there is a lack
of authoritative guidance or consensus, (iii) the process
used by management in formulating particularly sensitive
accounting estimates and the basis for the auditor's
conclusion regarding reasonableness of such estimates and
(iv) disagreements with management over the application of
accounting principles, the basis for management's
accounting estimates and the disclosures in the financial
statements; and
o review the Corporation's annual and quarterly financial
statements and the views of management and the
Corporation's external auditors on the overall quality of
the Corporation's annual and interim financial reporting.
If any internal or external auditor of the Corporation identifies any
significant issue relative to overall Board responsibility that has been
communicated to management but, in their judgment, have not been adequately
addressed, they should communicate these issues to the chairman of the
Committee.
Internal Financial Controls. The Committee shall review the
appointment and replacement of the senior internal-auditing executive of the
Corporation (if any) and any key financial management of the Corporation and
shall review the performance of the Corporation's internal auditors (if any).
The Corporation's internal auditors (if any) shall be responsible to the Board
through the Committee. The Committee shall consider, in consultation with the
Corporation's external auditors and the Corporation's senior internal-auditing
executive (if any), the adequacy of the Corporation's internal financial
controls. The Committee shall meet periodically with the senior
internal-auditing executive (if any) to discuss special problems or issues that
may have been encountered by the internal auditors (if any) and review the
implementation of any recommended corrective actions. The Committee shall also
meet periodically with senior management to review the Corporation's major
financial risk exposures.
Communications With the Board. The Committee shall serve as a
channel of communication between the Corporation's external auditors and the
Board and between the Corporation's senior internal-auditing executive (if any)
and the Board.
Regulatory Examinations. The Committee shall review and assess any
SEC inquiries and the results of examination by other regulatory authorities in
terms of important findings, recommendations and management's response.
COMPLIANCE MATTERS
Compliance Programs and Procedures. In executing its oversight
role with respect to compliance functions, the Committee shall review the
adequacy of the Corporation's compliance and monitoring programs, corporate
information and reporting systems, codes of conduct, policies, standards,
practices and procedures (including compliance guides and manuals) for employees
of the Corporation and its subsidiaries. In addition, the Committee shall meet
periodically with senior management to discuss their views on whether:
o the operations of the Corporation and its subsidiaries are
conducted in compliance with all applicable laws, rules,
regulations, permits and licenses, including those
pertaining to environmental, health, safety, securities,
financial and employment matters;
o all accounting and reporting financial errors, fraud and
defalcations, legal violations and instances of
non-compliance with the Corporation's compliance and
monitoring
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<PAGE> 43
programs, corporate information and reporting systems,
codes of conduct, policies, standards, practices and
procedures are detected;
o all violations of legal requirements are promptly reported
to appropriate governmental officials when discovered and
prompt, voluntary remedial measures are instituted; and
o senior management and the Board are provided with timely,
accurate information to allow management and the Board to
reach informed judgments concerning the Corporation's
compliance with law and business performance.
Compliance Officers. The Committee shall designate one or more
executives of the Corporation to be in charge of the Corporation's compliance
and monitoring programs, corporate information and reporting systems, codes of
conduct, policies, standards, practices and procedures, including the day-to-day
monitoring of compliance by managers and other employees and agents of the
Corporation and its subsidiaries. Each officer so designated by the Committee
shall serve at the pleasure of the Committee and may be removed at any time by
the Committee (with or without cause).
MEETINGS OF THE COMMITTEE
Frequency. The Committee shall meet at least once during each
fiscal quarter of the Corporation. Additional meetings of the Committee may be
scheduled as considered necessary by the Committee or its chairman.
Calling Meetings. Meetings of the Committee may be called at any
time by the Board or by any member of the Committee. In addition, any internal
or external auditor, accountant or attorney may, at any time, request a meeting
with the Committee or the chairman of the Committee, with or without management
attendance.
Agendas. The chairman of the Committee shall be responsible for
preparing an agenda for each meeting of the Committee. It is expected that the
chairman will seek the participation of management and key advisors in the
preparation of agendas.
Attendees. The Committee may request members of management,
internal auditors (if any), external auditors, accountants and attorneys and
such other experts as it may deem advisable to attend any meeting of the
Committee. At least once each year, the Committee shall meet in a private
session at which only members of the Committee are present. In any case, the
Committee shall meet in executive session separately with internal auditors (if
any) and external auditors at least annually.
Rules of Procedure and Minutes. The Committee may adopt and
establish its own rules of procedure; provided, however, that such rules of
procedure are not inconsistent with the Certificate of Incorporation or Bylaws
of the Corporation or with any specific direction as to the conduct of its
affairs as shall have been given by the Board. The Committee shall keep regular
minutes of its proceedings and report the same to the Board when requested.
Reporting to the Board. The Committee, through its chairman, shall
periodically report to the Board on the activities of the Committee. These
reports shall occur at least twice each fiscal year of the Corporation.
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ADDITIONAL POWERS
The Committee is authorized, in the name and on behalf of the
Corporation and at its expense, to take or cause to be taken any and all such
actions as the Committee shall deem appropriate or necessary to carry out its
responsibilities and exercise its powers under this Charter.
LIMITATIONS ON DUTIES AND RESPONSIBILITIES
The Committee shall not have or assume any powers, authority or
duties vested in the Board which, under applicable law or any provision of the
Certificate of Incorporation or the Bylaws of the Corporation, may not be
delegated to a committee of the Board. The grant of authority to the Committee
contained in this Charter may be modified from time to time or revoked at any
time by the Board in its sole discretion.
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APPENDIX B
Omnibus Stock Awards and Incentive Plan
(As Amended)
I. PURPOSE
The purpose of the STERLING CHEMICALS HOLDINGS, INC. OMNIBUS STOCK
AWARDS AND INCENTIVE PLAN (the "Plan") is to provide a means through which
STERLING CHEMICALS HOLDINGS, INC., a Delaware corporation (the "Company"), and
its Subsidiaries (as defined herein), may attract able persons to enter the
employ of the Company and its Subsidiaries and to provide a means whereby those
employees upon whom the responsibilities of the successful administration and
management of the Company and its Subsidiaries rest, and whose present and
potential contributions to the welfare of the Company and its Subsidiaries are
of importance, can acquire and maintain stock ownership, thereby strengthening
their concern for the welfare of the Company and its Subsidiaries and their
desire to remain in the Company's and its Subsidiaries' employ. A further
purpose of the Plan is to provide such employees with additional incentive and
reward opportunities designed to enhance the profitable growth of the Company
and its Subsidiaries. Accordingly, the Plan provides for granting Incentive
Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted
Stock Awards, Performance Awards, Phantom Stock Awards, or any combination of
the foregoing, as is best suited to the circumstances of the particular employee
as provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan
unless specifically modified by any paragraph:
(a) "Affiliates" means any "parent corporation" of the Company and
any "subsidiary" of the Company within the meaning of Code Sections
424(e) and (f), respectively.
(b) "Agreement" means, individually or collectively, any Option
Agreement, Performance Award Agreement, Phantom Stock Award Agreement,
Restricted Stock Agreement and Stock Appreciation Rights Agreement.
(c) "Award" means, individually or collectively, any Option,
Restricted Stock Award, Phantom Stock Award, Performance Award or Stock
Appreciation Right.
(d) "Board" means the Board of Directors of the Company.
(e) "Change of Control" means the occurrence of any of the
following events: (i) the Company shall not be the surviving entity in
any merger, consolidation or other reorganization (or survives only as a
subsidiary of an entity other than a previously wholly-owned subsidiary
of the Company), (ii) the Company sells, leases or exchanges all or
substantially all of its assets to any other person or entity (other than
a wholly-owned subsidiary of the Company), (iii) the Company is to be
dissolved and liquidated, (iv) any person or entity, including a "group"
as contemplated by Section 13(d)(3) of the 1934 Act, acquires or gains
ownership or control (including, without limitation, power to vote) of
more than 50% of the outstanding shares of the Company's voting stock
(based upon voting power), or (v) as a result of or in connection with a
contested election of
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directors, the persons who were directors of the Company before such
election shall cease to constitute a majority of the Board.
(f) "Change of Control Value" shall mean (i) the per share price
offered to stockholders of the Company in any such merger, consolidation,
reorganization, sale of assets or dissolution transaction, (ii) the price
per share offered to stockholders of the Company in any tender offer or
exchange offer whereby a Change of Control takes place, or (iii) if such
Change of Control occurs other than in (i) or (ii) above, the Fair Market
Value per share of the shares into which Awards are exercisable, as
determined by the Committee, whichever is applicable. In the event that
the consideration offered to stockholders of the Company consists of
anything other than cash, the Committee shall determine the fair cash
equivalent of the portion of the consideration offered which is other
than cash.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
Reference in the Plan to any section of the Code shall be deemed to
include any amendments or successor provisions to any section and any
regulations under such section.
(h) "Committee" means the Compensation Committee of the Board
which shall be (i) constituted so as to permit the Plan to comply with
Rule 16b-3 and (ii) constituted solely of "outside directors," within the
meaning of section 162(m) of the Code and applicable interpretive
authority thereunder.
(i) "Company" means Sterling Chemicals Holdings, Inc. and any
successors thereto.
(j) "Director" means an individual elected to the Board by the
stockholders of the Company or by the Board under applicable corporate
law who is serving on the Board on the date the Plan is adopted by the
Board or is elected to the Board after such date.
(k) "Disabled" means a Holder who is on Long-Term Disability as
defined in the Pension Plan.
(l) An "employee" means any person (including an officer or a
Director) in an employment relationship with the Employer.
(m) "Employer" means the Company, an Affiliate or any Subsidiary.
(n) "Fair Market Value" means, with respect to a share of Stock as
of any specified date, (i) if the Stock is listed on a national stock
exchange the mean of the high and low sales prices of the Stock reported
on the stock exchange composite tape on that date, or if no prices are
reported on that date, on the last preceding date on which such prices of
Stock are so reported; or (ii) in the event the Stock is not traded on a
national stock exchange, the fair market value of a share of Stock
determined by the Committee in such reasonable manner as it deems
appropriate.
(o) "Forfeiture Restrictions" means with regard to shares of Stock
that are subject to a Restricted Stock Award, restrictions placed on a
Holder's disposition of such shares under certain circumstances or an
obligation of a Holder to forfeit and surrender such shares under certain
circumstances.
(p) "Holder" means an employee who has been granted an Award
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(q) "Incentive Stock Option" means an incentive stock option
within the meaning of section 422(b) of the Code.
(r) "Initial Public Offering" or "IPO" means the consummation of
an underwritten public offering of Stock pursuant to a registration
statement of the Company filed under the Securities Act of 1933, as
amended, after the effective date of the Plan (other than any
registration statement (a) relating to warrants, options or shares of
capital stock of the Company granted or to be granted or sold primarily
to employees, directors, or officers of the Company, (b) filed in
connection with a transaction described in Rule 145 under the Securities
Act of 1933, as amended, or any successor rule, (c) relating to employee
benefit plans or interests therein, or (d) primarily relating to
preferred stock or other securities issued in connection with any
financing by the Company which is principally debt or preferred stock
financing) wherein the aggregate net proceeds (after deducting all costs,
discounts, commissions and other expenses of the offering) to the Company
are at least $100,000,000.
(s) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(t) "Nonqualified Stock Option" means an option granted under
Paragraph VII of the Plan to purchase Stock which does not constitute an
Incentive Stock Option.
(u) "Option" means an Award granted under Paragraph VII of the
Plan and includes both Incentive Stock Options to purchase Stock and
Nonqualified Stock Options to purchase Stock.
(v) "Optionee" means a Holder who has been granted an Option.
(w) "Option Agreement" means a written agreement between the
Company and a Holder with respect to an Option.
(x) "Pension Plan" means the Sterling Chemicals, Inc. Amended and
Restated Salaried Employees' Pension Plan (Effective as of May 1, 1996).
(y) "Performance Award" means an Award granted under Paragraph X
of the Plan.
(z) "Performance Award Agreement" means a written agreement
between the Company and a Holder with respect to a Performance Award.
(aa) "Phantom Stock Award" means an Award granted under Paragraph
XI of the Plan.
(bb) "Phantom Stock Award Agreement" means a written agreement
between the Company and a Holder with respect to a Phantom Stock Award.
(cc) "Plan" means the Sterling Chemicals Holdings, Inc. Omnibus
Stock Awards and Incentive Plan, as amended from time to time.
(dd) "Restricted Stock Agreement" means a written agreement
between the Company and a Holder with respect to a Restricted Stock
Award.
(ee) "Restricted Stock Award" means an Award granted under
Paragraph IX of the Plan.
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(ff) "Retirement" means a Holder's Early Retirement, Normal
Retirement or Late Retirement as set forth in the Pension Plan.
(gg) "Rule 16b-3" means SEC Rule 16b-3 promulgated under the 1934
Act, as such may be amended from time to time, and any successor rule,
regulation or statute fulfilling the same or a similar function.
(hh) "Spread" means, in the case of a Stock Appreciation Right, an
amount equal to the excess, if any, of the Fair Market Value of a share
of Stock on the date such right is exercised over the exercise price of
such Stock Appreciation Right; provided, however, the Committee may
establish, in its sole discretion, in any Stock Appreciation Rights
Agreement, the maximum amount of Spread attributable to a Stock
Appreciation Right.
(ii) "Stock" means the common stock, $0.01 par value of the
Company.
(jj) "Stock Appreciation Right" means an Award granted under
Paragraph VIII of the Plan.
(kk) "Stock Appreciation Rights Agreement" means a written
agreement between the Company and a Holder with respect to an Award of
Stock Appreciation Rights.
(ll) "Subsidiary" means any corporation or entity of which more
than 50% of the outstanding securities or ownership interests having
ordinary voting power to elect a majority of the members of the Board of
Directors, or persons in similar capacity of such corporation or entity,
is, directly or indirectly owned by the Company.
III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective upon the date of its adoption by the
Board, provided that the Plan is approved by the stockholders of the Company
within twelve months thereafter. No further Awards may be granted under the Plan
after the expiration of ten years from the date of its adoption by the Board.
The Plan shall remain in effect until all Awards granted under the Plan have
been satisfied or expired.
IV. ADMINISTRATION
(a) Committee. The Plan shall be administered by the Committee.
(b) Powers. Subject to the provisions of the Plan, the Committee
shall have sole authority, in its discretion, to determine which employees shall
receive an Award, the time or times when such Award shall be made, whether an
Incentive Stock Option, Nonqualified Option or Stock Appreciation Right shall be
granted, the number of shares of Stock which may be issued under each Option,
Stock Appreciation Right or Restricted Stock Award, and the value of each
Performance Award and Phantom Stock Award. In making such determinations the
Committee may take into account the nature of the services rendered by the
respective employees, their present and potential contributions to the
Employer's success and such other factors as the Committee in its discretion
shall deem relevant.
(c) Additional Powers. The Committee shall have such additional
powers as are delegated to it by the other provisions of the Plan. Subject to
the express provisions of the Plan, the Committee is authorized to construe the
Plan and the respective agreements executed thereunder, to prescribe such rules
and regulations relating to the Plan as it may deem advisable to carry out the
Plan, and to determine the terms, restrictions and provisions of each Award
including such terms, restrictions and provisions as
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shall be requisite in the judgment of the Committee to cause designated Options
to qualify as Incentive Stock Options, and to make all other determinations
necessary or advisable for administering the Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency in any agreement
relating to an Award in the manner and to the extent it shall deem expedient to
carry it into effect. The determinations of the Committee on the matters
referred to in this Article IV shall be conclusive.
(d) Expenses. All expenses and liabilities incurred by the
Committee in the administration of this Plan shall be borne by the Company. The
Committee may employ attorneys, consultants, accountants or other persons to
assist the Committee in the carrying out of its duties hereunder.
V. STOCK SUBJECT TO THE PLAN
(a) Stock Grant and Award Limits. The Committee may from time to
time grant Awards to one or more employees determined by it to be eligible for
participation in the Plan in accordance with the provisions of Paragraph VI.
Subject to Paragraph XII, the aggregate number of shares of Stock that may be
issued under the Plan shall not exceed 1,250,000 shares. The shares subject to
this Plan shall consist of authorized but unissued shares of Stock or previously
issued shares of Stock reacquired and held by the Company, and such number of
shares shall be and is hereby reserved for such purpose. Shares of Stock shall
be deemed to have been issued under the Plan only to the extent actually issued
and delivered pursuant to an Award. To the extent that an Award lapses or the
rights of its Holder terminate or the Award is to only be paid in cash or is
paid in cash, any shares of Stock subject to such Award shall again be available
for the grant of an Award. To the extent that an Award lapses or the rights of
its Holder terminate, any shares of Stock subject to such Award shall again be
available for the grant of an Award. Separate stock certificates shall be issued
by the Company for those shares acquired pursuant to the exercise of an
Incentive Stock Option and for those shares acquired pursuant to the exercise of
a Nonqualified Stock Option.
(b) Stock Offered. The stock to be offered pursuant to the grant
of an Award may be authorized but unissued Stock or Stock previously issued and
outstanding and reacquired by the Company.
VI. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant,
are employees. Awards may not be granted to any Director who is not an employee.
An Award may be granted on more than one occasion to the same person, and,
subject to the limitations set forth in the Plan, such Award may include an
Incentive Stock Option or a Nonqualified Stock Option, a Stock Appreciation
Right, a Restricted Stock Award, a Performance Award, a Phantom Stock Award or
any combination thereof.
VII. STOCK OPTIONS
(a) Option Period. The term of each Option shall be as specified
by the Committee at the date of grant.
(b) Limitations on Exercise of Option. An Option shall be
exercisable in whole or in such installments and at such times as determined by
the Committee.
(c) Special Limitations on Incentive Stock Options. To the extent
that the aggregate Fair Market Value (determined at the time the respective
Incentive Stock Option is granted) of Stock with
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respect to which Incentive Stock Options are exercisable for the first time by
an employee during any calendar year under all incentive stock option plans of
the Company and its Affiliates exceeds $100,000, such Incentive Stock Options
shall be treated as Nonqualified Stock Options as determined by the Committee.
The Committee shall determine, in accordance with applicable provisions of the
Code, Treasury Regulations and other administrative pronouncements, which of an
Optionee's Incentive Stock Options will not constitute Incentive Stock Options
because of such limitation and shall notify the Optionee of such determination
as soon as practicable after such determination. No Incentive Stock Option shall
be granted to an employee if, at the time the Option is granted, such employee
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or of its parent or subsidiary corporation,
within the meaning of section 422(b)(6) of the Code, unless (i) at the time such
Option is granted the option price is at least 110% of the Fair Market Value of
the Stock subject to the Option and (ii) such Option by its terms is not
exercisable after the expiration of five years from the date of grant.
(d) Option Agreement. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under section 422 of the Code. An Option Agreement may provide for the payment
of the option price, in whole or in part, in cash or by the delivery of a number
of shares of Stock (plus cash if necessary) having a Fair Market Value equal to
such option price. Each Option shall specify the effect of termination of
employment on the exercisability of the Option; provided, that upon the death of
an Optionee, the Retirement of an Optionee, or upon the Optionee becoming
Disabled, all outstanding Options of such Optionee shall immediately vest and
become exercisable. Moreover, an Option Agreement may provide for a "cashless
exercise" of the Option by establishing procedures whereby the Holder, by a
properly-executed written notice, directs (i) an immediate market sale or margin
loan respecting all or a part of the shares of Stock to which he is entitled
upon exercise pursuant to an extension of credit by the Company to the Holder of
the option price, (ii) the delivery of the shares of Stock from the Company
directly to a brokerage firm and (iii) the delivery of the option price from the
sale or margin loan proceeds from the brokerage firm directly to the Company.
Such Option Agreement may also include, without limitation, provisions relating
to (i) vesting of Options, subject to the provisions hereof accelerating such
vesting upon the occurrence of an IPO or a Change of Control, (ii) tax matters
(including provisions (y) permitting the delivery of additional shares of Stock
or the withholding of shares of Stock from those acquired upon exercise to
satisfy federal or state income tax withholding requirements and (z) dealing
with any other applicable employee wage withholding requirements), and (iii) any
other matters not inconsistent with the terms and provisions of this Plan that
the Committee shall in its sole discretion determine. The terms and conditions
of the respective Option Agreements need not be identical.
(e) Option Price and Payment. The price at which a share of Stock
may be purchased upon exercise of an Option shall be determined by the
Committee, but (i) such purchase price shall not be less than the Fair Market
Value of Stock subject to an Incentive Stock Option on the date the Incentive
Stock Option is granted and (ii) such purchase price shall be subject to
adjustment as provided in Paragraph XII. The Option or portion thereof may be
exercised by delivery of an irrevocable notice of exercise to the Company. The
purchase price of the Option or portion thereof shall be paid in full in the
manner prescribed by the Committee.
(f) Stockholder Rights and Privileges. The Holder shall be
entitled to all the privileges and rights of a stockholder only with respect to
such shares of Stock as have been purchased under the Option and for which
certificates of stock have been registered in the Holder's name.
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(g) Options and Rights in Substitution for Stock Options Granted
by Other Corporations. Options and Stock Appreciation Rights may be granted
under the Plan from time to time in substitution for stock options held by
individuals employed by corporations who become employees as a result of a
merger or consolidation of the employing corporation with the Company, an
Affiliate, or any Subsidiary, or the acquisition by the Company, an Affiliate or
a Subsidiary of the assets of the employing corporation, or the acquisition by
the Company, an Affiliate or a Subsidiary of stock of the employing corporation
with the result that such employing corporation becomes a Subsidiary.
VIII. STOCK APPRECIATION RIGHTS
(a) Stock Appreciation Rights. A Stock Appreciation Right is the
right to receive an amount equal to the Spread with respect to a share of Stock
upon the exercise of such Stock Appreciation Right. Stock Appreciation Rights
may be granted in connection with the grant of an Option, in which case the
Option Agreement will provide that exercise of Stock Appreciation Rights will
result in the surrender of the right to purchase the shares under the Option as
to which the Stock Appreciation Rights were exercised. The Spread with respect
to a Stock Appreciation Right may be payable either in cash, shares of Stock
with a Fair Market Value equal to the Spread or in a combination of cash and
shares of Stock. With respect to Stock Appreciation Rights that are subject to
Section 16 of the 1934 Act, however, the Committee shall, except as provided in
Paragraph XII(c), retain sole discretion (i) to determine the form in which
payment of the Stock Appreciation Right will be made (i.e., cash, securities or
any combination thereof) or (ii) to approve an election by a Holder to receive
cash in full or partial settlement of Stock Appreciation Rights.
(b) Stock Appreciation Rights Agreement. Stock Appreciation Rights
granted independently of Options shall be evidenced by a Stock Appreciation
Rights Agreement. Each Stock Appreciation Rights Agreement shall specify the
effect of termination of employment on the exercisability of the Stock
Appreciation Rights; provided, that upon the death of a Holder of a Stock
Appreciation Right, the Retirement of such Holder, or upon such Holder becoming
Disabled, all outstanding Stock Appreciation Rights of such Holder shall
immediately vest and become exercisable. Stock Appreciation Rights Agreements
may also include, without limitation, provisions relating to (i) vesting of
Awards, subject to the provisions hereof accelerating vesting upon the
occurrence of an IPO or a Change of Control, (ii) tax matters (including
provisions covering applicable wage withholding requirements), and (iii) any
other matters not inconsistent with the terms and provisions of this Plan, that
the Committee shall in its sole discretion determine. The terms and conditions
of the respective Stock Appreciation Rights Agreements need not be identical.
(c) Exercise Price. The exercise price of each Stock Appreciation
Right shall be determined by the Committee in its sole discretion and shall be
subject to adjustment as provided in Paragraph XII.
(d) Exercise Period. The term of each Stock Appreciation Right
shall be as specified by the Committee at the date of grant.
(e) Limitations on Exercise of Stock Appreciation Right. A Stock
Appreciation Right shall be exercisable in whole or in such installments and at
such times as determined by the Committee.
IX. RESTRICTED STOCK AWARDS
(a) Restricted Stock Awards. A Restricted Stock Award shall be
represented by a certificate of Stock registered in the name of the Holder of
such Restricted Stock Award. The Holder
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shall have the right to receive dividends with respect to Stock subject to a
Restricted Stock Award, to vote Stock subject thereto and to enjoy all other
stockholder rights, except that (i) the Holder shall not be entitled to delivery
of the Stock certificate until the Forfeiture Restrictions shall have expired,
(ii) the Company shall retain custody of the Stock until the Forfeiture
Restrictions shall have expired, (iii) the Holder may not sell, transfer,
pledge, exchange, hypothecate or otherwise dispose of the Stock until the
Forfeiture Restrictions shall have expired, and (iv) a breach of the terms and
conditions established by the Committee pursuant to the Restricted Stock
Agreement shall cause a forfeiture of the Restricted Stock Award.
(b) Forfeiture Restrictions to be Established by the Committee.
The Forfeiture Restrictions on shares of Stock that are the subject of a
Restricted Stock Award shall be determined by the Committee in its sole
discretion, and the Committee may provide that the Forfeiture Restrictions shall
lapse upon (i) the attainment of targets established by the Committee that are
based on (1) the price of a share of Stock, (2) the Company's earnings per
share, (3) the Company's revenue, (4) the revenue of a business unit of the
Company designated by the Committee, (5) the return on stockholders' equity
achieved by the Company, or (6) the Company's pre-tax cash flow from operations,
(ii) the Holder's continued employment with the Employer for a specified period
of time, or (iii) a combination of any two or more of the factors listed in
clauses (i) and (ii) of this sentence. Each Restricted Stock Award may have
different Forfeiture Restrictions, in the discretion of the Committee. The
Forfeiture Restrictions applicable to a particular Restricted Stock Award shall
not be changed except as permitted by Paragraph IX(b) or Paragraph XII.
(c) Other Terms and Conditions. At the time of a Restricted Stock
Award, the Committee may, in its sole discretion, prescribe additional terms,
conditions or restrictions relating to Restricted Stock Awards, including, but
not limited to, rules pertaining to the termination of employment of a Holder
prior to expiration of the Forfeiture Restrictions; provided, that upon the
death of a Holder of a Restricted Stock Award, the Retirement of such Holder, or
upon such Holder becoming Disabled, all Forfeiture Restrictions applicable to
all Restricted Stock Awards of such Holder shall lapse and expire. Such
additional terms, conditions or restrictions shall be set forth in a Restricted
Stock Agreement made in conjunction with the Award. Such Restricted Stock
Agreement may also include, without limitation, provisions relating to (i)
subject to the provisions hereof accelerating vesting upon the occurrence of an
IPO or a Change of Control, vesting of Awards, (ii) tax matters (including
provisions (y) covering any applicable employee wage withholding requirements
and (z) prohibiting an election by the Holder under section 83(b) of the Code),
and (iii) any other matters not inconsistent with the terms and provisions of
this Plan that the Committee shall in its sole discretion determine. The terms
and conditions of the respective Restricted Stock Agreements need not be
identical.
(d) Payment for Restricted Stock. The Committee shall determine
the amount and form of any payment for Stock received pursuant to a Restricted
Stock Award, provided that in the absence of such a determination, a Holder
shall not be required to make any payment for Stock received pursuant to a
Restricted Stock Award, except to the extent otherwise required by law.
(e) Agreements. At the time any Award is made under this Paragraph
IX, the Company and the Holder shall enter into a Restricted Stock Agreement
setting forth each of the matters as the Committee may determine to be
appropriate. The terms and provisions of the respective Restricted Stock
Agreements need not be identical.
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X. PERFORMANCE AWARDS
(a) Performance Period. The Committee shall establish, with
respect to and at the time of each Performance Award, a performance period over
which the performance of the Holder shall be measured.
(b) Performance Awards. Each Performance Award shall have a
maximum value established by the Committee at the time of such Award.
(c) Performance Measures. A Performance Award shall be awarded to
an employee contingent upon future performance of the employee, the Company, an
Affiliate, any Subsidiary, or any division or department thereof by or in which
he is employed during the performance period. The Committee shall establish the
performance measures applicable to such performance prior to the beginning of
the performance period but subject to such later revisions as the Committee
shall deem appropriate to reflect significant, unforeseen events or changes.
(d) Awards Criteria. In determining the value of Performance
Awards, the Committee shall take into account an employee's responsibility
level, performance, potential, other Awards and such other considerations as it
deems appropriate.
(e) Payment. Following the end of the performance period, the
Holder of a Performance Award shall be entitled to receive payment of an amount,
not exceeding the maximum value of the Performance Award, based on the
achievement of the performance measures for such performance period, as
determined by the Committee. Payment of a Performance Award may be made in cash,
Stock or a combination thereof, as determined by the Committee. Payment shall be
made in a lump sum or in installments as prescribed by the Committee. Any
payment to be made in Stock shall be based on the Fair Market Value of the Stock
on the payment date. If a payment of cash is to be made on a deferred basis, the
Committee shall establish whether interest shall be credited, the rate thereof
and any other terms and conditions applicable thereto.
(f) Termination of Employment. A Performance Award shall terminate
if the Holder does not remain continuously in the employ of the Employer at all
times during the applicable performance period, except as maybe determined by
the Committee or as may otherwise be provided in the Award at the time granted.
(g) Agreements. At the time any Award is made under this Paragraph
X, the Company and the Holder shall enter into a Performance Stock Award
Agreement setting forth each of the matters contemplated hereby, and, in
addition such matters are set forth in Paragraph IX(b) as the Committee may
determine to be appropriate. The terms and provisions of the respective
agreements need not be identical.
XI. PHANTOM STOCK AWARDS
(a) Phantom Stock Awards. Phantom Stock Awards are rights to
receive shares of Stock (or cash in an amount equal to the Fair Market Value
thereof), or rights to receive an amount equal to any appreciation in the Fair
Market Value of Stock (or portion thereof) over a specified period of time,
which vest over a period of time (subject to the provisions hereof accelerating
vesting upon the occurrence of an IPO or a Change of Control) as established by
the Committee, without payment of any amounts by the Holder thereof (except to
the extent otherwise required by law) or satisfaction of any performance
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criteria or objectives. Each Phantom Stock Award shall have a maximum value
established by the Committee at the time of such Award.
(b) Award Period. The Committee shall establish, with respect to
and at the time of each Phantom Stock Award, a period over which or the event
upon which the Award shall vest with respect to the Holder.
(c) Awards Criteria. In determining the value of Phantom Stock
Awards, the Committee shall take into account an employee's responsibility
level, performance, potential, other Awards and such other considerations as it
deems appropriate.
(d) Payment. Following the end of the vesting period for a Phantom
Stock Award, the Holder of a Phantom Stock Award shall be entitled to receive
payment of an amount, not exceeding the maximum value of the Phantom Stock
Award, based on the then vested value of the Award. Payment of a Phantom Stock
Award may be made in cash, Stock or a combination thereof as determined by the
Committee. Payment shall be made in a lump sum or in installments as prescribed
by the Committee in its sole discretion. Any payment to be made in Stock shall
be based on the Fair Market Value of the Stock on the payment date. Cash
dividend equivalents may be paid during or after the vesting period with respect
to a Phantom Stock Award, as determined by the Committee. If a payment of cash
is to be made on a deferred basis, the Committee shall establish whether
interest shall be credited, the rate thereof and any other terms and conditions
applicable thereto.
(e) Termination of Employment. Except as may be otherwise
determined by the Committee or as set forth in the Award at the time of grant, a
Phantom Stock Award shall terminate if the Holder does not remain continuously
in the employ of the Employer at all times during the applicable vesting period;
provided, however, that upon the death of a Holder of a Phantom Stock Award, the
Retirement of such Holder, or upon such Holder becoming Disabled, all
outstanding Phantom Stock Awards of such Holder shall immediately vest and
become distributable.
(f) Agreements. At the time any Award is made under this Paragraph
XI, the Company and the Holder shall enter into a Phantom Stock Award Agreement
setting forth each of the matters contemplated hereby and, in addition, such
matters as are set forth in Paragraph IX(b) as the Committee may determine to be
appropriate. The terms and provisions of the respective agreements need not be
identical.
XII. RECAPITALIZATION OR REORGANIZATION
(a) The shares with respect to which Awards may be granted are
shares of Stock as presently constituted, but if, and whenever, prior to the
expiration of an Award theretofore granted, the Company shall effect a
subdivision or consolidation of such shares of Stock or other capital
readjustment, the number of shares of Stock with respect to which such Award may
thereafter be exercised or satisfied, as applicable, (i) in the event of an
increase in the number of outstanding shares shall be proportionately increased,
and the purchase price per share shall be proportionately reduced, and (ii) in
the event of a reduction in the number of outstanding shares shall be
proportionately reduced, and the purchase price per share shall be
proportionately increased.
(b) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise or satisfaction, as applicable, of an
Award theretofore granted the Holder shall be entitled to (or entitled to
purchase, if applicable) under such Award, in lieu of the number of shares of
Stock then covered by such Award, the number and class of shares of stock and
securities to which the Holder
B-x
<PAGE> 55
would have been entitled pursuant to the terms of the recapitalization if,
immediately prior to such recapitalization, the Holder had been the holder of
record of the number of shares of Stock then covered by such Award.
(c) In the event of an IPO or a Change of Control, all outstanding
Awards shall immediately vest and become exercisable or satisfiable, as
applicable. The Committee, in its discretion, may determine that upon the
occurrence of a Change of Control, each Award other than an Option outstanding
hereunder shall terminate within a specified reasonable number of days after
notice to the Holder, and such Holder shall receive, with respect to each share
of Stock subject to such Award, cash in an amount equal to the excess, if any,
of the Change of Control Value over any exercise price or purchase price paid,
if applicable. Further, in the event of a Change of Control, the Committee, in
its discretion shall act to effect one or more of the following alternatives
with respect to outstanding Options, which may vary among individual Holders and
which may vary among Options held by any individual Holder: (i) determine a
reasonable period of time on or before a specified date (before or after such
Change of Control) after which specified date all unexercised Options and all
rights of Holders thereunder shall terminate, (2) require the mandatory
surrender to the Company by selected Holders of some or all of the outstanding
Options held by such Holders (irrespective of whether such Options are then
exercisable under the provisions of the Plan) as of a date, before or after such
Change of Control, specified by the Committee, in which event the Committee
shall thereupon cancel such Options and the Company shall pay to each Holder an
amount of cash per share equal to the excess, if any, of the Change of Control
Value of the shares subject to such Option over the exercise price(s) under such
Options for such shares, or (3) provide that thereafter upon any exercise of an
Option theretofore, granted the Holder shall been titled to purchase under such
Option, in lieu of the number of shares of Stock then covered by such Option,
the number and class of shares of stock or other securities or property
(including, without limitation, cash) to which the Holder would have been
entitled pursuant to the terms of the agreement of merger, consolidation or sale
of assets and dissolution if, immediately prior to such merger, consolidation or
sale of assets and dissolution the Holder has been the holder of record of the
number of shares of Stock then covered by such Option. The provisions contained
in this paragraph shall not terminate any rights of the Holder to further
payments pursuant to any other agreement with the Company following a Change of
Control.
(d) In the event of changes in the outstanding Stock by reason of
recapitalization, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Award and not otherwise provided for by this Paragraph XII,
any outstanding Awards and any agreements evidencing such Awards shall be
subject to adjustment by the Committee at its reasonable discretion as to the
number and price of shares of Stock or other consideration subject to such
Awards. In the event of any such change in the outstanding Stock, the aggregate
number of shares available under the Plan may be appropriately adjusted by the
Committee, whose determination shall be reasonable and conclusive.
(e) The existence of the Plan and the Awards granted hereunder
shall not affect in any way the right or power of the Board or the stockholders
of the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of debt or
equity securities ahead of or affecting Stock or the rights thereof, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
(f) Any adjustment provided for in Subparagraphs (a), (b), (c)
or(d) above shall be subject to any required stockholder action.
B-xi
<PAGE> 56
(g) Except as herein before expressly provided, the issuance by
the Company of shares of stock of any class or securities convertible into
shares of stock of any class, for cash, property, labor or services, upon direct
sale, upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares of obligations of the Company convertible into such shares
or other securities, and in any case whether or not for fair value, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Stock subject to Awards theretofore granted or the purchase
price per share, if applicable.
XIII. AMENDMENT AND TERMINATION OF THE PLAN
The Board, in its discretion, may at any time or times amend,
suspend or terminate the Plan; provided, however, such action shall be subject
to the approval of the stockholders of the Company where stockholder approval
(i) is required by applicable law or (ii) the Board determines (A) such approval
is necessary to comply with any requirements of any securities exchange on which
the stock is listed or (B) such approval is desired for any other reason;
provided, further, however, that no amendment, suspension or termination of the
Plan may, without the consent of the holder of an Award, terminate such Award or
adversely affect such person's rights in any material respect.
XIV. MISCELLANEOUS
(a) No Right to An Award. Neither the adoption of the Plan by the
Company nor any action of the Board or the Committee shall be deemed to give an
employee any right to be granted an Award to purchase Stock, a right to a Stock
Appreciation Right, a Restricted Stock Award, a Performance Award or a Phantom
Stock Award or any of the rights hereunder except as may be evidenced by an
Award or by an Option Agreement, Stock Appreciation Rights Agreement, Restricted
Stock Agreement, Performance Award Agreement or Phantom Stock Award Agreement on
behalf of the Company, and then only to the extent and on the terms and
conditions expressly set forth therein. The Plan shall be unfunded. The Company
shall not be required to establish any special or separate fund or to make any
other segregation of funds or assets to assure the payment of any Award.
(b) Employees' Rights Unsecured. The right of an employee to
receive Stock, cash or any other payment under this Plan shall be an unsecured
claim against the general assets of the Company. The Company may, but shall not
be obligated to, acquire shares of Stock from time to time in anticipation of
its obligations under this Plan, but a Participant shall have no right in or
against any shares of Stock so acquired. All Stock shall constitute the general
assets of the Company and may be disposed of by the Company at such time and for
such purposes as it deems appropriate.
(c) Agreement Controls. No discretionary action by the Committee
as set forth herein shall amend or supersede the express terms of any Agreement.
(d) No Employment Rights Conferred. Nothing contained in the Plan
shall (i) confer upon any employee any right with respect to continuation of
employment with any Employer or (ii) interfere in any way with the right of any
Employer to terminate an employee's employment at any time.
(e) Other Laws; Withholding. The Company shall not be obligated to
issue any Stock pursuant to any Award granted under the Plan at any time when
the shares covered by such Award have not been registered under the Securities
Act of 1933 and such other state and federal laws, rules or regulations as the
Company or the Committee deems applicable and, in the opinion of legal counsel
for the Company, there is no exemption from the registration requirements of
such laws, rules or regulations available for the issuance and sale of such
shares. Unless the Awards and Stock covered by this Plan
B-xii
<PAGE> 57
have been registered under the Securities Act of 1933, or the Company has
determined that such registration is unnecessary, each Holder exercising an
Award under this Plan may be required by the Company to give representation in
writing that such Holder is acquiring such shares for his or her own account for
investment and not with a view to, or for sale in connection with, the
distribution of any part thereof. No fractional shares of Stock shall be
delivered, nor shall any cash in lieu of fractional shares be paid. The Company
shall have the right to deduct in connection with all Awards any taxes required
by law to be withheld and to require any payments required to enable it to
satisfy its withholding obligations.
(f) No Restriction on Corporate Action. Nothing contained in the
Plan shall be construed to prevent the Company, an Affiliate or any Subsidiary
from taking any corporate action which is deemed by the Company, an Affiliate or
any Subsidiary to be appropriate or in its best interest, whether or not such
action would have an adverse effect on the Plan or any Award made under the
Plan. No employee, beneficiary or other person shall have any claim against the
Company, an Affiliate or any Subsidiary as a result of any such action.
(g) Restrictions on Transfer. Except as provided below, an Award
shall not be transferable otherwise than by will or the laws of descent and
distribution and shall be exercisable during the Holder's lifetime only by such
Holder or the Holder's guardian or legal representative. However, the Committee
may, in its discretion, provide in an option agreement (other than with respect
to an Incentive Stock Option) that the option right granted to the individual
may be transferred (in whole or in part and shall be subject to such terms and
conditions as the Committee may impose thereon, including, without limitation,
the approval by the Company of the form of transfer agreement) by the individual
to (i) the spouse, children or grandchildren of the individual ("Immediate
Family Members"), (ii) a trust or trusts for the exclusive benefit of the
Immediate Family Members and, if applicable, the individual, (iii) a partnership
in which such Immediate Family Members and, if applicable, the individual are
the only partners, or (iv) any other person or entity otherwise permitted by the
Committee. Following transfer, any such transferred option rights shall continue
to be subject to the same terms and conditions as were applicable to the option
rights immediately prior to transfer; provided, however, that no transferred
option rights shall be exercisable unless arrangements satisfactory to the
Company have been made to satisfy any tax withholding obligations the Company
may have with respect to the option rights.
(h) Beneficiary Designation. Each Holder may name, from time to
time, any beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under the Plan is to be paid in case of his or
her death before he or she receives any or all of such benefit. Each designation
will revoke all prior designations by the same Holder, shall be in a form
prescribed by the Committee, and will be effective only when filed by the Holder
in writing with the Committee during his lifetime. In the absence of any such
designation, benefits remaining unpaid at the Holder's death shall be paid to
his estate.
(i) Rule 16b-3. It is intended that the Plan and any grant of an
Award made to a person subject to Section 16 of the 1934 Act meet all of the
requirements of Rule 16b-3. If any provision of the Plan or any such Award would
disqualify the Plan or such Award under, or would otherwise not comply with,
Rule 16b-3, such provision or Award shall be construed or deemed amended to
conform to Rule 16b-3.
(j) Section 162(m). If the Plan is subject to Section 162(m) of
the Code, it is intended that the Plan comply fully with and meet all the
requirements of Section 162(m) of the Code so that Options and Stock
Appreciation Rights granted hereunder and, if determined by the Committee,
Restricted Stock Awards, shall constitute "performance-based" compensation
within the meaning of such section. If any
B-xiii
<PAGE> 58
provision of the Plan would disqualify the Plan or would not otherwise permit
the Plan to comply with Section 162(m) as so intended, such provision shall be
construed or deemed amended to conform to the requirements or provisions of
Section 162(m);provided that no such construction or amendment shall have an
adverse effect on the economic value to a Holder of any Award previously granted
hereunder.
(k) Indemnification. Each person who is or shall have been a
member of the Committee or of the Board and any employee delegated authority
hereunder shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him in connection with or resulting from any claim, action, suit, or
proceeding to which he may be a party or in which he may be involved by reason
of any action taken or failure to act under the Plan and against and from any
and all amounts paid by him in settlement thereof, with the Company's approval,
or paid by him in satisfaction of any judgment in any such action, suit, or
proceeding against him, provided he shall give the Company prompt written notice
of any such action, suit or proceeding, and an opportunity, at its own expense,
to handle, defend and/or settle the same before he undertakes to handle, defend
and/or settle it on his own behalf. The foregoing right of indemnification shall
not be exclusive of any other rights or indemnification to which such persons
may be entitled under the Company's Articles of Incorporation or Bylaws, as a
matter of law, or otherwise, or any power that the Company may have to indemnify
them or hold them harmless.
(l) Governing Law. This Plan shall be construed in accordance with
the laws of the State of Delaware and applicable federal law.
IN WITNESS WHEREOF, Sterling Chemicals Holdings, Inc. has caused
this document to be duly executed in its name and behalf by its proper officer
thereunto duly authorized, effective for all purposes as of the date of the
adoption of the Plan by the Board, being April 23, 1997.
STERLING CHEMICALS HOLDINGS, INC.
By: /s/ FRANK P. DIASSI
-------------------------------
Frank P. Diassi
Chairman of the Board of Directors
B-xiv
<PAGE> 59
STERLING CHEMICALS HOLDINGS, INC.
FOR THE ANNUAL MEETING TO BE HELD JANUARY 24, 2001
The undersigned hereby constitutes and appoints Frank P. Diassi and David
G. Elkins, and each of them, attorneys and agents, with full power of
substitution, to vote as proxy all the shares of common stock, par value $0.01
per share, of Sterling Chemicals Holdings, Inc. (the "Company") standing in the
name of the undersigned at the Annual Meeting of Stockholders of the Company to
be held in Rooms Cottonwood A and B of the Hyatt Regency Hotel located at 1200
Louisiana Street, Houston, Texas at 9:00 a.m., Houston time, on Wednesday,
January 24, 2001, and at any adjournment or postponement thereof, in accordance
with the instructions noted below, and with discretionary authority with respect
to such other matters as may properly come before such meeting or any
adjournment or postponement thereof. Receipt of notice of such meeting and the
Proxy Statement therefor dated December 22, 2000 is hereby acknowledged.
The undersigned hereby revokes any proxies heretofore given and directs
said attorneys to act or vote as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1. ELECTION OF FOR all nominees listed WITHHOLD AUTHORITY to vote for
DIRECTORS all nominees listed
FOR all nominees listed, except that authority to vote
withheld for the following nominee(s): ________________________
</TABLE>
Director Nominees: Frank P. Diassi, Allan R. Dragone, Frank J.
Hevrdejs, Hunter Nelson, Robert W. Roten and Rolf H. Towe.
2. Proposal to ratify the appointment of Deloitte & Touche LLP as
independent accountants of the Company for the fiscal year ending
September 30, 2001.
FOR AGAINST ABSTAIN
3. Proposal to ratify an amendment to the Company's Omnibus Stock Awards
and Incentive Plan.
FOR AGAINST ABSTAIN
4. Proposal to adopt an amendment to the Company's Certificate of
Incorporation.
FOR AGAINST ABSTAIN
(Continued and to be signed and dated on other side)
<PAGE> 60
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE STOCKHOLDER'S
SPECIFICATIONS HEREON. IN THE ABSENCE OF ANY SUCH SPECIFICATION, THIS PROXY WILL
BE VOTED:
- "FOR" EACH NOMINEE FOR DIRECTOR;
- "FOR" THE PROPOSAL TO RATIFY THE APPOINTMENT OF DELOITTE & Touche
LLP as independent accountants of the Company for the fiscal year
ending September 30, 2001;
- "FOR" THE PROPOSAL TO RATIFY THE AMENDMENT TO THE COMPANY'S
OMNIBUS STOCK AWARDS AND INCENTIVE PLAN; AND
- "FOR" THE PROPOSAL TO ADOPT AN AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
SIGN HERE EXACTLY AS NAME(S)
APPEAR(S) ON ADDRESS LABEL
Date ________________, ______
Signature(s) ___________________________
Date ________________, _____
Signature(s) ___________________________
NOTE: When shares are held by joint
tenants, both should sign. When signing
as attorney, trustee, administrator,
executor, guardian, etc., please
indicate your full title as such. If a
corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership,
please sign in full partnership name by
authorized person.
