-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PFPqGpN4/qrOsd/yiYhleGrQ08mT0btEXl6yeQSJ6DzEUUCjS6BSSldcpFum8Ohm 5lX7U1NYfqlvU6K1znqBpw== 0000899243-97-001593.txt : 19970814 0000899243-97-001593.hdr.sgml : 19970814 ACCESSION NUMBER: 0000899243-97-001593 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STERLING CHEMICALS HOLDINGS INC /TX/ CENTRAL INDEX KEY: 0000795662 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 760185186 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10059 FILM NUMBER: 97657755 BUSINESS ADDRESS: STREET 1: 1200 SMITH ST, SUITE 1900 CITY: HOUSTON STATE: TX ZIP: 77002-4312 BUSINESS PHONE: 7136503700 MAIL ADDRESS: STREET 1: 1200 SMITH ST SUITE 1900 CITY: HOUSTON STATE: TX ZIP: 77002-4312 FORMER COMPANY: FORMER CONFORMED NAME: STERLING CHEMICALS INC /TX/ DATE OF NAME CHANGE: 19961218 FORMER COMPANY: FORMER CONFORMED NAME: STERLING CHEMICALS HOLDINGS INC DATE OF NAME CHANGE: 19960828 FORMER COMPANY: FORMER CONFORMED NAME: STERLING CHEMICALS INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STERLING CHEMICAL INC CENTRAL INDEX KEY: 0001014669 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 760502785 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-04343-01 FILM NUMBER: 97657756 BUSINESS ADDRESS: STREET 1: 1200 SMITH STREET STREET 2: SUITE 1900 CITY: HOUSTON STATE: TX ZIP: 77002-4312 BUSINESS PHONE: 7136503700 MAIL ADDRESS: STREET 1: C/O STERLING GROUP INC STREET 2: EIGHT GREENWAY PLAZA, SUITE 702 CITY: HOUSTON STATE: TX ZIP: 77046 FORMER COMPANY: FORMER CONFORMED NAME: STX CHEMICALS CORP DATE OF NAME CHANGE: 19960516 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ---------------------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-10059 STERLING CHEMICALS HOLDINGS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 76-0185186 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 1200 SMITH STREET, SUITE 1900 HOUSTON, TEXAS 77002-4312 (713) 650-3700 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, PAR VALUE $.01 PER SHARE COMMISSION FILE NUMBER 333-04343-01 STERLING CHEMICALS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 76-0502785 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 1200 SMITH STREET, SUITE 1900 HOUSTON, TEXAS 77002-4312 (713) 650-3700 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Sterling Chemicals, Inc. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q, and is therefore filing this form with the reduced disclosure format provided for by General Instruction H(2) of Form 10-Q. ---------------------------- Indicate by check mark whether each of the registrants (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of July 31, 1997, Sterling Chemicals Holdings, Inc. had 12,366,231 shares of common stock outstanding. As of July 31, 1997, all outstanding equity securities of Sterling Chemicals, Inc. were owned by Sterling Chemicals Holdings, Inc. This combined Form 10-Q is separately filed by Holdings and Chemicals (each as defined herein). Information contained herein relating to Chemicals is filed by Holdings and separately by Chemicals on its own behalf. Certain capitalized terms used in this Form 10-Q are defined in the Notes to Condensed Consolidated Financial Statements, included herein. PART I.--FINANCIAL INFORMATION ITEM 1.--FINANCIAL STATEMENTS 2 STERLING CHEMICALS HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED)
JUNE 30, SEPTEMBER 30, 1997 1996 ---------- -------------- ASSETS Current assets: Cash and cash equivalents ........... $ 4,581 $ 5,609 Accounts receivable ................. 175,983 133,399 Inventories.......................... 72,497 53,720 Prepaid expenses..................... 22,929 10,226 Deferred income taxes................ 6,325 6,064 --------- --------- Total current assets................. 282,315 209,018 Property, plant and equipment, net...... 435,162 365,765 Other assets............................ 115,549 114,901 --------- --------- Total assets...................... $ 833,026 $ 689,684 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS) Current liabilities: Accounts payable..................... $ 63,963 $ 66,562 Accrued liabilities.................. 76,491 53,898 Current portion of long-term debt.... 2,958 11,625 --------- --------- Total current liabilities......... 143,412 132,085 Long-term debt.......................... 839,224 714,632 Deferred income taxes................... 47,461 46,933 Deferred credits and other liabilities.. 81,094 68,473 Common stock held by ESOP............... 7,688 6,500 Less: unearned compensation............. (6,096) (6,500) Redeemable preferred stock.............. 10,411 - Commitments and contingencies Stockholders' equity (deficiency in assets): Common stock, $.01 par value, 20,000,000 shares authorized, 11,333,000 shares issued; 11,323,000 outstanding at June 30, 1997; and 10,599,000 shares issued and outstanding at September 30, 1996................ 114 106 Additional paid-in capital........... (551,278) (560,077) Retained earnings.................... 281,859 306,656 Accumulated translation adjustment... (20,737) (19,124) --------- --------- (290,042) (272,439) Treasury stock, at cost, 10,000 shares at June 30, 1997............. (126) - --------- ------------- Total stockholders' equity (deficiency in assets)......... (290,168) (272,439) --------- --------- Total liabilities and stockholders' equity (deficiency in assets).... $ 833,026 $ 689,684
========= ========= The accompanying notes are an integral part of the condensed consolidated financial statements. 3 STERLING CHEMICALS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------ 1997 1996 1997 1996 -------- -------- -------- -------- Revenues................................ $239,244 $218,371 $665,933 $600,792 Cost of goods sold...................... 210,249 185,121 605,028 508,749 -------- -------- -------- -------- Gross profit............................ 28,995 33,250 60,905 92,043 Selling, general, and administrative expenses............................... 10,959 7,724 24,308 23,832 Stock appreciation rights expense (benefit).............................. - (460) - 6,198 Other expense........................... - 156 - 3,706 Interest and debt related expenses, net of interest income..................... 23,943 1,230 63,417 4,440 ------- ------- ------- ------- Income (loss) before income taxes and extraordinary item..................... (5,907) 24,600 (26,820) 53,867 Provision (benefit) for income taxes.... (454) 8,180 (6,358) 18,233 -------- -------- -------- -------- Net income (loss) before extraordinary item .................................. (5,453) 16,420 (20,462) 35,634 Extraordinary item, loss on early extinguishment of debt, net of tax.... (3,924) - (3,924) - -------- -------- -------- -------- Net income (loss)........................ (9,377) 16,420 (24,386) 35,634 Preferred stock dividend................ 249 - 411 - -------- -------- -------- -------- Net income (loss) attributable to common stockholders.................... $ (9,626) $ 16,420 $(24,797) $ 35,634 ======== ======== ======== ======== Net income (loss) per common share...... $(0.84) $0.29 $(2.24) $0.64 ======== ======== ======== ======== Weighted average shares outstanding.... 11,420 55,690 11,047 55,685 ======== ======== ======== ========
The accompanying notes are an integral part of the condensed consolidated financial statements. 4 STERLING CHEMICALS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED JUNE 30, --------------------------- 1997 1996 ---------- --------- Cash flows from operating activities: Cash received from customers....................... $ 670,962 $ 645,929 Miscellaneous cash receipts........................ 18,396 14,969 Cash paid to suppliers and employees............... (645,888) (613,651) Interest paid...................................... (35,556) (4,851) Interest received.................................. 322 579 Income taxes (paid) refunded....................... 3,288 ( 11,601) --------- --------- Net cash provided by operating activities............. 11,524 31,374 --------- --------- Cash flows from investing activities: Capital expenditures.............................. (32,640) (73,045) Purchase of assets-acrylic fibers business........ (88,200) - Proceeds-sale of assets........................... 16 - --------- --------- Net cash used in investing activities................ (120,824) (73,045) --------- --------- Cash flows from financing activities: Proceeds from long-term debt...................... 321,334 60,350 Repayment of long-term debt....................... (216,895) (42,742) Issuance of common stock.......................... 12,339 - Purchase of treasury stock........................ (653) - Debt issue costs and other........................ (7,648) (289) --------- --------- Net cash provided by financing activities............ 108,477 17,319 --------- --------- Effect of exchange rate on cash...................... (205) (85) --------- --------- Net decrease in cash and cash equivalents............ (1,028) (24,437) Cash and cash equivalents-beginning of period........ 5,609 30,882 --------- --------- Cash and cash equivalents-end of period.............. $ 4,581 $ 6,445 ========= =========
The accompanying notes are an integral part of the condensed consolidated financial statements. 5 STERLING CHEMICALS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, (CONTINUED) (IN THOUSANDS) (UNAUDITED) RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES
NINE MONTHS ENDED JUNE 30, --------------------- 1997 1996 ---------- --------- Net income (loss).............................................. $ (24,386) $ 35,634 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization............................... 36,192 31,859 Debt fee amortization....................................... 3,072 566 Loss on disposal of assets.................................. 36 3,080 Deferred tax expense........................................ 4,205 2,974 Accrued compensation........................................ - 6,406 Unearned compensation....................................... 1,592 - Discount note amortization.................................. 11,486 - Extraordinary item, net of taxes............................ 3,924 - Change in: Accounts receivable......................................... (23,604) (38,671) Inventories................................................. 4,537 20,174 Prepaid expenses............................................ (8,917) (4,048) Other assets................................................ (4,171) (7,119) Accounts payable............................................ (15,292) (12,571) Accrued liabilities......................................... 6,514 (20,588) Interest payable............................................ 12,147 (56) Taxes payable............................................... (3,367) 5,846 Other liabilities........................................... 7,556 7,888 -------- ------- Net cash provided by operating activities...................... $ 11,524 $31,374 ======== =======
The accompanying notes are an integral part of the condensed consolidated financial statements. 6 STERLING CHEMICALS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED)
JUNE 30, SEPTEMBER 30, 1997 1996 ----------- ------------- ASSETS Current assets: Cash and cash equivalents....................... $ 3,347 $ 5,581 Accounts receivable............................. 183,567 135,635 Inventories..................................... 72,497 53,720 Prepaid expenses................................ 21,799 10,226 Deferred income taxes........................... 6,325 6,064 ---------- ---------- Total current assets.......................... 287,535 211,226 Property, plant and equipment, net.................. 435,162 365,765 Other assets........................................ 109,480 108,460 ---------- ---------- Total assets................................ $ 832,177 $ 685,451 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS) Current liabilities: Accounts payable................................. $ 63,963 $ 66,562 Accrued liabilities.............................. 75,261 55,740 Current portion of long-term debt................ 2,958 11,625 ---------- ---------- Total current liabilities..................... 142,182 133,927 Long-term debt...................................... 735,980 619,875 Deferred income taxes............................... 52,061 47,478 Deferred credits and other liabilities.............. 81,094 68,473 Common stock held by ESOP........................... 7,688 6,500 Less: unearned compensation......................... (6,096) (6,500) Commitments and contingencies Stockholder's equity (deficiency in assets): Common stock, $.01 par value..................... - - Additional paid-in capital....................... (146,544) (165,352) Retained earnings (deficit)...................... (13,451) 174 Accumulated translation adjustment............... (20,737) (19,124) ---------- --------- Total stockholder's equity (deficiency in assets).................................... (180,732) (184,302) ---------- --------- Total liabilities and stockholder's equity (deficiency in assets)............ $ 832,177 $ 685,451 ========== =========
The accompanying notes are an integral part of the condensed consolidated financial statements. 7 STERLING CHEMICALS, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (1) (IN THOUSANDS) (UNAUDITED)
THREE MONTHS NINE MONTHS ENDED ENDED JUNE 30, JUNE 30, 1997 1997 ------------ ----------- Revenues........................................... $ 239,244 $ 665,933 Cost of goods sold................................. 210,249 605,028 ---------- ---------- Gross profit....................................... 28,995 60,905 Selling, general and administrative expenses....... 10,931 23,714 Interest and debt related expenses................. 19,882 51,694 Interest income from parent........................ - (1,788) ---------- ---------- Loss before income taxes and extraordinary item.... (1,818) (12,715) Provision (Benefit) for income taxes............... 62 (3,014) ---------- ---------- Net loss before extraordinary item................. (1,880) (9,701) Extraordinary item, loss on early extinguishment of debt, net of tax................ 3,924 3,924 ---------- ---------- Net Loss........................................... $ (5,804) $ (13,625) ========== ==========
- ----------- (1) See Note 1 of Notes to Condensed Consolidated Financial Statements for a discussion of merger activities and related financing. Prior to August 21, 1996, Chemicals had no operating activities other than those related to merger activities. The accompanying notes are an integral part of the condensed consolidated financial statements. 8 STERLING CHEMICALS, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (1) (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 1997 ------------ Cash flows from operating activities: Cash received from customers...................................... $ 670,962 Miscellaneous cash receipts....................................... 18,524 Cash paid to suppliers and employees.............................. (646,624) Interest paid..................................................... (35,556) Interest received................................................. 313 Income taxes refunded............................................. 3,288 ------------- Net cash provided by operating activities............................. 10,907 ------------- Cash flows from investing activities: Capital expenditures............................................... (32,640) Purchase of assets-fibers business................................. (88,200) Proceeds from sale of assets....................................... 16 ------------- Net cash used in investing activities................................. (120,824) Cash flows from financing activities: Proceeds from long-term debt....................................... 321,334 Repayment of long-term debt........................................ (216,895) Intercompany financing............................................. 3,000 Contributions from parent.......................................... 8,604 Debt issue costs and other......................................... (8,155) ------------- Net cash provided by financing activities............................. 107,888 ------------- Effect of exchange rate on cash....................................... (205) ------------- Net decrease in cash and cash equivalents............................. (2,234) Cash and cash equivalents-beginning of period......................... 5,581 ------------- Cash and cash equivalents-end of period............................... $ 3,347 =============
The accompanying notes are an integral part of the condensed consolidated financial statements. 9 STERLING CHEMICALS, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED, (1) (IN THOUSANDS) (UNAUDITED) RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES
NINE MONTHS ENDED JUNE 30, 1997 ------------ Net loss...................................................................... $(13,625) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization.............................................. 36,192 Debt fee amortization...................................................... 2,825 Loss on disposal of assets................................................. 36 Deferred tax expense....................................................... 8,261 Unearned compensation...................................................... 1,592 Extraordinary item, net of taxes........................................... 3,924 Change in: Accounts receivable........................................................ (28,129) Inventories................................................................ 4,537 Prepaid expenses........................................................... (7,788) Other assets............................................................... (4,698) Accounts payable........................................................... (14,930) Accrued liabilities........................................................ 6,427 Interest payable........................................................... 13,935 Taxes payable.............................................................. (5,209) Other liabilities.......................................................... 7,557 -------- Net cash provided by operating activities..................................... $ 10,907 ========
- ------------------ (1) See Note 1 of Notes to Condensed Consolidated Financial Statements for a discussion of merger activities and related financing. Prior to August 21, 1996, Chemicals had no operating activities other than those related to merger activities. The accompanying notes are an integral part of the condensed consolidated financial statements. 10 STERLING CHEMICALS HOLDINGS, INC. STERLING CHEMICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. MERGER ACTIVITIES: Sterling Chemicals, Inc. (prior to the Merger, "Sterling") and STX Acquisition Corp. ("STX Acquisition"), a Delaware corporation formed in April 1996 by an investor group led by The Sterling Group, Inc. ("TSG") and The Unicorn Group L.L.C. ("Unicorn"), entered into an Amended and Restated Agreement and Plan of Merger dated April 24, 1996 (the "Merger Agreement"). On August 20, 1996, the Merger Agreement was approved by a majority of the shares outstanding, and on August 21, 1996, STX Acquisition merged with and into Sterling, changing its name to Sterling Chemicals Holdings, Inc. ("Holdings"), and continuing as the surviving corporation (the "Merger"). In connection with the Merger, Holdings transferred all of its operating assets and liabilities excluding its 13 1/2% Senior Secured Discount Notes Due 2008 (the "13 1/2% Notes") to a wholly owned subsidiary, STX Chemicals Corp., which at the time of the Merger changed its name to Sterling Chemicals, Inc. (after the Merger, "Chemicals"). Holdings has no direct subsidiaries other than Chemicals. As used herein, the term "Company" refers to Sterling and its subsidiaries prior to the consummation of the Merger and, following the Merger, to Holdings and its subsidiaries, including Chemicals. Each share of Sterling's common stock outstanding immediately prior to the Merger was converted (at the election of the holder thereof) into either $12.00 cash or the right to retain such shares ("Rollover Shares"), with the aggregate number of Rollover Shares limited to 5.0 million. As a result of the Merger, on August 21, 1996, the former STX Acquisition stockholders held approximately 5.3 million shares (49%), stockholders with Rollover Shares held approximately 5.0 million shares (46%), and the Company's newly formed Employee Stock Ownership Plan (the "ESOP") held approximately 542,000 shares (5%) of the outstanding shares of Holdings' common stock, par value $0.01 per share ("Holdings Common Stock"). The Merger was financed by the proceeds of bank term loans of $356.5 million, including an ESOP term loan of $6.5 million, amounts drawn against a revolving credit facility of $6.4 million each pursuant to a new credit agreement (the "Original Credit Agreement"), an offering by Chemicals of $275.0 million of Chemicals' 11 3/4% Senior Subordinated Notes Due 2006 (the "11 3/4% Notes"), an offering of $191.8 million (initial proceeds of $100 million) representing 191,751 Units, with each unit consisting of one 13 1/2% Note and one Warrant to purchase three shares of Holdings Common Stock for $0.01 per share beginning in August 1997, equity raised by STX Acquisition of approximately $70.7 million, and cash on hand of $10.3 million. These proceeds were used to redeem Sterling's common stock other than Rollover Shares ($608.3 million), purchase other equity interests (primarily stock appreciation rights ("SARs")) ($14.6 million), repay debt outstanding prior to the Merger ($142.7 million), loan monies to the new ESOP ($6.5 million), and pay fees and expenses ($46.8 million). The Company has accounted for the Merger and related financing (collectively the "1996 Recapitalization") as a series of debt and equity transactions representing a recapitalization. Accordingly, the historical basis of the Company's assets and liabilities have not been impacted by the 1996 Recapitalization. 2. BASIS OF PRESENTATION: In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly the consolidated financial position of the Company and Chemicals as of June 30, 1997 and their consolidated results of operations and cash flows for the applicable three month and nine month periods ended June 30, 1997 and 1996. All such adjustments are of a normal and recurring nature. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited condensed consolidated financial statements should be, and are assumed to have been, read in conjunction with the consolidated financial statements and notes included in Holdings' and Chemicals' combined Annual Report on Form 10-K for the fiscal year ended September 30, 1996 (the "Annual Report"). The condensed consolidated balance sheets as of September 30, 1996 included herein have been derived from the audited consolidated balance sheets as of September 30, 1996 included in the Annual Report. The condensed consolidated 11 financial statements as of and for the three month and nine month periods ended June 30, 1997 included herein have been subjected to a review by Deloitte & Touche LLP, the Company's independent public accountants, whose reports are included herein. Certain amounts reported in the financial statements for the prior periods have been reclassified to conform with the current financial statement presentation with no effect on net income or stockholders' equity. 3. INVENTORIES:
JUNE 30, SEPTEMBER 30, 1997 1996 --------- ------------- Inventories consisted of the following (in thousands): Finished products.......................................... $ 42,201 $ 31,868 Raw materials.............................................. 12,635 9,499 Inventories under exchange agreements...................... (1,986) 722 Stores and supplies........................................ 19,647 11,631 --------- ---------- $ 72,497 $ 53,720 ========= ========== 4. LONG-TERM DEBT: JUNE 30, SEPTEMBER 30, 1997 1996 --------- ------------- Long-term debt consisted of the following (in thousands): Revolving credit facilities................................ $ 26,760 $ __ Term loans................................................. 275,667 350,000 ESOP term loan............................................. 5,281 6,500 11 1/4% Notes.............................................. 153,231 __ 11 3/4% Notes.............................................. 275,000 275,000 13 1/2% Notes............................................. 106,243 94,757 --------- ------------ Total debt outstanding................................... 842,182 726,257 Less: Current maturities...................................... (2,958) (11,625) -------- ------------ Total long-term debt....................................... $ 839,224 $ 714,632 ========= ============
As part of the 1996 Recapitalization, Chemicals entered into the Original Credit Agreement with Texas Commerce Bank National Association, as agent bank for a syndicate of lenders, and Credit Suisse First Boston and Chase Securities, Inc. as co-arrangers. Funding under the Original Credit Agreement occurred August 21, 1996, upon the consummation of the Merger. The Original Credit Agreement provides for facilities consisting of a six and one-half year revolving credit facility providing for up to $100 million (subject to a monthly borrowing base calculation) in revolving loans (the "Revolver"), a term loan facility consisting of a six and one-half year $200 million Tranche A term loan and an eight-year $150 million Tranche B term loan (the "Original Term Loans"), and a four-year $6.5 million ESOP Term Loan (the "ESOP Loan"). On January 31, 1997, the Company acquired (the "AFB Acquisition") the acrylic fibers business (the "AFB") of Cytec Industries Inc. ("Cytec") (See Note 7). In connection with the AFB Acquisition, Chemicals entered into a credit agreement (the "New Credit Agreement" and together with the Original Credit Agreement, the "Senior Credit Agreements") with Texas Commerce Bank National Association, as agent bank for a syndicate of lenders, and Credit Suisse First Boston and Chase Securities Inc. as co-arrangers. Funding under the New Credit Agreement occurred January 31, 1997, upon consummation of the AFB Acquisition. The New Credit Agreement provides for a term loan facility consisting of a $31 million Tranche A term loan due June 30, 2003, and a $50 million Tranche B term loan due September 30, 2004 (the "New Term Loans" and together with the Original Term Loans, the "Term Loans"). The Term Loans, the ESOP Loan and the Revolver borrowings bear interest, at Chemicals' option, at an annual rate of either the Eurodollar Rate or the Base Rate plus an Applicable Margin ranging from 0% to 3% depending 12 upon the Company's Leverage Ratio (as defined in the Original Credit Agreement). The "Base Rate" is equal to the greater of the Prime Rate as announced from time to time by the agent bank, the "Federal Funds Effective Rate" plus 1/2% or the "Base CD Rate" plus 1% (as such terms are defined in the Senior Credit Agreements). The Original Credit Agreement also requires Chemicals to pay a commitment fee in the amounts of 3/8% or 1/2% of the unused commitment under the Revolver depending on the Company's Leverage Ratio. On April 7, 1997, Chemicals completed a private offering (the "11 1/4% Notes Offering") of $150,000,000 of 11 1/4% Senior Subordinated Notes Due 2007 (the "11 1/4% Notes"). The 11 1/4% Notes are unsecured senior subordinated obligations of Chemicals, ranking subordinate in right of payment to all existing and future senior debt of Chemicals, but pari passu with the 11 3/4% Notes and all future senior subordinated indebtedness. On July 7, 1997, Chemicals completed a registered exchange offer, pursuant to which all of the 11 1/4% Notes were exchanged for publicly registered 11 1/4% Notes with substantially similar terms. The proceeds of the 11 1/4% Notes Offering were used to prepay outstanding indebtedness under the Term Loans. In connection with such prepayments, Chemicals and the requisite lenders under the Senior Credit Agreements effected amendments to the Senior Credit Agreements ("the Amendments"). Among other things, the Amendments (i) permitted and provided for the issuance of the 11 1/4% Notes, (ii) adjusted the method of the application of voluntary prepayments to allow the proceeds of the 11 1/4% Notes Offering to be applied in a manner that significantly reduced required principal payments, particularly over the next three years, (iii) amended certain financial covenants to make them somewhat less restrictive, including amendments to ratios specified in the Amendments, (iv) increased the commitment under the Revolver by $25 million to $125 million and (v) included a new financial covenant with respect to the maintenance of a specified Senior Debt Leverage Ratio (as defined in the Amendments). Unamortized debt issue costs related to the Term Loans of approximately $6.0 million pre-tax, $3.9 million after-tax, were expensed in April 1997 and recorded as an extraordinary loss from early extinguishment of debt. 5. COMMITMENTS AND CONTINGENCIES: Product Contracts The Company has certain long-term agreements that provide for the dedication of 100% of the Company's production of acetic acid, plasticizers, tertiary butylamine, and sodium cyanide, each to one customer. The Company also has various sales and conversion agreements that dedicate significant portions of the Company's production of styrene monomer, acrylonitrile, and methanol, the Company's major petrochemical products, to various customers. These agreements generally provide for cost recovery plus an agreed margin or element of profit based upon market price. Environmental Regulations The Company's operations involve the handling, production, transportation and disposal of materials classified as hazardous or toxic and are extensively regulated under environmental and health and safety laws. Operating permits which are required for the Company's operations are subject to periodic renewal and may be revoked or modified for cause. New laws or permit requirements and conditions may affect the Company's operations, products, or waste disposal. Past or future operations may result in claims or liabilities. Expenditures could be required to upgrade waste water collection, pretreatment, or disposal systems or for other matters related to production, transportation and disposal of materials classified as hazardous or toxic. Legal Proceedings Ammonia Release Lawsuits. A description of the ammonia release lawsuit is found under "Legal Proceedings" in Note 7 of the "Notes To Consolidated Financial Statements" of the Annual Report and is incorporated herein by reference. As discussed therein, approximately 2,600 of the plaintiffs agreed to submit their damage claims to binding arbitration. Each of the plaintiffs who agreed to participate in the arbitration waived any right of recovery for punitive or exemplary damages. Pursuant to the agreement to arbitrate, a two- week evidentiary proceeding was conducted in July 1996 before a three-judge panel to determine the amount of damages. On May 1, 1997, the three-judge panel awarded the plaintiffs an amount of damages which was well within the limits of the Company's 13 insurance coverages and will not have a material adverse impact on the financial position, results of operations, or cash flows of the Company. The Company continues to vigorously defend against the claims of the plaintiffs who did not participate in the July 1996 arbitration. Other Lawsuits. The Company is subject to various other claims and legal actions that arise in the ordinary course of its business. Litigation Contingency In accordance with Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies," and Financial Accounting Standards Board Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts," the Company has made estimates of the reasonably possible range of its liability with regard to outstanding litigation for which it may incur liability. In addition, liabilities have been accrued based on the estimated probable loss from such litigation. These estimates are based on management's judgments using currently available information as well as consultation with the Company's insurance carriers and outside legal counsel. A number of the claims in these litigation matters are covered by the Company's insurance policies. The Company therefore has also made estimates of its probable recoveries under these insurance policies based on its understanding of these policies, discussions with its insurers and consultation with outside legal counsel, in addition to management's judgments. Based on the foregoing, as of June 30, 1997, the Company has accrued approximately $15.6 million as its estimate of aggregate contingent liability for these matters, and has also recorded aggregate receivables from its insurers of approximately $15.0 million. At June 30, 1997, management estimates that the aggregate reasonably possible range of loss for all litigation combined, in addition to the amount accrued, is from $0 to $20 million. The Company believes that this additional reasonably possible loss is substantially covered by insurance. While the Company has based its estimates on its evaluation of available information to date and the other matters described above, much of the litigation is in its early stages and it is impossible to predict with certainty the ultimate outcome. The Company will adjust its estimates as necessary as additional information is developed and evaluated. However, the Company believes that the final resolution of these contingencies will not have a material adverse impact on the financial position, results of operations, or cash flows of the Company. The timing of probable insurance recoveries, and additional accruals or payment of liabilities, if any, are not expected to have a material adverse effect on the financial position, results of operations, or cash flows of the Company. 6. NEW ACCOUNTING STANDARDS: The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement establishes new accounting standards for measuring the impairment of long-lived assets. The Company adopted this Statement in the first quarter of fiscal 1997. The adoption of this Statement did not have a material adverse effect on the Company's financial position, results of operations, or cash flows. The Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation" in October 1995. Under SFAS No. 123, companies are permitted to either adopt this new standard and record expenses for stock options and other stock-based employee compensation plans based on their fair value at date of grant, or continue to apply its current accounting policy under Accounting Principles Board ("APB") Opinion No. 25 and increase its footnote disclosure. In the first quarter of fiscal 1997, the Company elected to continue to apply APB Opinion No. 25, and will increase its footnote disclosure to include the pro forma impact on net income and earnings per share of the application of the fair value based method of accounting. The Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share," in February 1997. SFAS No. 128, which is effective for periods ending after December 15, 1997, establishes standards for computing and presenting earnings per share ("EPS"). SFAS No. 128 replaces the presentation of primary EPS previously prescribed by APB No. 15 with a presentation of basic EPS, which is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. The statement also requires dual presentation of basic and diluted EPS. Diluted EPS is computed similarly to fully diluted EPS 14 pursuant to APB No. 15. Pro forma basic and diluted EPS for all historical periods presented, assuming that SFAS No. 128 was effective at the beginning of each such historical period, would not be materially different from what has been presented using APB No. 15. In June 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income," ("SFAS No. 130") and Statement No. 131, "Disclosures About Segments of an Enterprise and Related Information," ("SFAS No. 131"). SFAS No. 130 and SFAS No. 131 are effective for fiscal years beginning after December 15, 1997. SFAS No. 130 establishes standards for reporting and displaying of comprehensive income and its components. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in interim and annual financial statements. These two statements will have no effect on the Company's 1997 financial statements, but management is currently evaluating what, if any, additional disclosures may be required when these two statements are adopted in the first quarter of fiscal 1999. 7. BUSINESS ACQUISITIONS: On January 31, 1997, the Company acquired the AFB from Cytec. The AFB, now owned by two wholly owned subsidiaries of the Company (collectively "Sterling Fibers"), recorded sales of approximately $139 million in calendar year 1996 and consists of an acrylic fibers plant located near Pensacola, Florida, and several associated marketing and research offices. Sterling Fibers is one of two acrylic fibers manufacturers in the United States. Cytec will supply acrylonitrile to Sterling Fibers through the continuation of a five-year supply agreement ending in 2002. The acquisition was financed through the incurrence of $81 million of term debt under the New Credit Agreement with substantially the same lenders as those under the Original Credit Agreement, the issuance of $10 million (liquidation value) of Series A "pay in kind" mandatory redeemable preferred stock ("Series A Preferred") to Cytec, and the sale of $10 million of Holdings Common Stock in a private placement. The Company used the purchase method to account for the acquisition, and operating results of Sterling Fibers beginning February 1, 1997 are included with those of the Company. The following table presents the unaudited pro forma results of operations of the Company as if the AFB Acquisition had occurred on October 1, 1995. The pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the AFB Acquisition been made at the beginning of fiscal year 1996 or of results which may occur in the future (in thousands, except per share amounts).
PRO FORMA PRO FORMA NINE MONTHS NINE MONTHS ENDED ENDED JUNE 30, JUNE 30, 1997 1996 ------------ ----------- Revenues............................................ $ 710,403 $ 699,792 Net income (loss) attributable to common stockholders................................ $ (26,288) $ 39,289 Net income (loss) per common share.................. $ (2.30) $ 0.70 Weighted average shares............................. 11,420 56,518
On July 10, 1997, Sterling Pulp Chemicals (Sask) Ltd. ("Sterling Sask"), an indirect wholly owned subsidiary of Holdings and Chemicals, acquired substantially all of the assets of Saskatoon Chemicals Ltd. ("Saskatoon Chemicals"), a subsidiary of Weyerhaeuser Canada Ltd. (the "Saskatoon Acquisition"). The acquired assets include a manufacturing plant near Saskatoon, Saskatchewan, and were used by Saskatoon Chemicals to manufacture sodium chlorate, caustic soda, calcium hypochlorite, chlorine, and hydrochloric acid. Total consideration of $69.2 million was financed with (i) approximately $54.6 million under a new credit facility established by Sterling Sask with a group of lenders, (ii) approximately $7.3 million pursuant to a private placement of Holdings Common Stock, and (iii) approximately $7.3 million pursuant to a private placement of Units, each Unit consisting of shares of Holdings' newly authorized Cumulative Redeemable Preferred Stock, Series B ("Series B Preferred") and Warrants to purchase shares of Holdings Common Stock. The Saskatoon Acquisition will be accounted for under the purchase method of accounting for financial reporting purposes during the fourth quarter of fiscal 1997. 15 8. EMPLOYEE BENEFITS: Omnibus Stock Awards and Incentive Plan In April 1997, the Board of Directors, upon recommendation of the Compensation Committee, but subject to shareholder approval at the next stockholders meeting, approved the establishment of the Omnibus Stock Awards and Incentive Plan (the "Omnibus Plan"). Under the Omnibus Plan, the Company may grant to key employees, incentive and nonqualified stock options, stock appreciation rights, restricted stock awards, performance awards, and phantom stock awards. The terms and amounts of the awards will be determined by the Compensation Committee of the Board of Directors. One million shares of the Company's stock are reserved for issuance under the Omnibus Plan. In the event of a change of control of the Company or a qualified public offering of Holdings Common Stock, all awards will immediately vest and become exercisable. In July 1997, the Company granted approximately 260,000 stock options to key employees of the Company with an exercise price of $12.00 per share. The options vest 20% per year beginning on January 1, 1998, and are exercisable through January 1, 2007. Nonqualified Stock Option Plan for Non-Employee Directors Also in April 1997, the Board of Directors, upon recommendation of the Compensation Committee, approved the establishment of the Nonqualified Stock Option Plan for Non-Employee Directors (the "Nonqualified Plan"). Each non- employee director of the Company is eligible to participate in the Nonqualified Plan. Each eligible director on the date of adoption of the Nonqualified Plan will be granted an option to acquire 2,000 shares of Holdings Common Stock (4,000 shares for the Vice-Chairman), and each eligible director who is serving on the Board of Directors on each subsequent October 1st will automatically be granted an option to acquire 1,000 shares of Holdings Common Stock (2,000 shares for the Vice-Chairman). All options will expire ten years from date of grant. All options will be granted at the fair market value on the date of grant. A total of 160,000 shares of Holdings Common Stock are reserved for issuance under the Nonqualified Plan. Effective April 1997, the Company granted 14,000 stock options to non- employee directors of the Company with an exercise price of $12.00 per share. The options are exercisable immediately and expire on the tenth anniversary of the date of grant. Profit Sharing and Bonus Plan In January 1997, the Board of Directors, upon recommendation of the Compensation Committee, approved the establishment of a Profit Sharing Plan that is designed to benefit all qualified employees, and a Bonus Plan that is expected to provide for bonuses to certain key employees based on the Company's annual financial performance. 16 9. WEIGHTED AVERAGE SHARES(1): The weighted average shares outstanding used in the calculation of earnings per share for the three and nine months ended June 30, 1997, is calculated below:
Total shares outstanding as of June 30, 1997........... 11,964,000 Unallocated shares held by ESOP as of June 30, 1997.... 524,000 ---------- Total shares outstanding Less: unallocated shares held by ESOP as of June 30, 1997.................................. 11,440,000 ========== THREE NINE WEIGHTED AVERAGE EFFECT OF: MONTHS MONTHS --------------------------- ---------- ---------- Total shares outstanding at June 30, 1997.............. 11,440,000 11,440,000 44,000 shares acquired by ESOP......................... - 14,000 10,000 treasury shares acquired........................ 2,000 7,000 117,000 allocated shares held by ESOP.................. (22,000) (67,000) 778,000 newly issued shares............................ - (347,000) ---------- ---------- Weighted average shares outstanding for the three and nine month periods ended June 30, 1997................ 11,420,000 11,047,000 ========== ==========
(1) Weighted average shares outstanding excludes warrants equal to 575,000 shares and 274,000 outstanding common stock options which were antidilutive for the three and nine month periods ending June 30, 1997. 17 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Sterling Chemicals Holdings, Inc. We have reviewed the accompanying condensed consolidated balance sheet of Sterling Chemicals Holdings, Inc. and subsidiaries (the "Company") as of June 30, 1997, and the related condensed consolidated statements of operations and cash flows for the three-month and nine-month periods then ended. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of the Company as of September 30, 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated December 6, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 1996 is fairly stated in all material respects, in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Houston, Texas August 12, 1997 18 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholder of Sterling Chemicals, Inc. We have reviewed the accompanying condensed consolidated balance sheet of Sterling Chemicals, Inc. and subsidiaries ("Chemicals") as of June 30, 1997, and the related condensed consolidated statements of operations and cash flows for the three-month and nine-month periods then ended. These financial statements are the responsibility of Chemicals' management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Chemicals as of September 30, 1996, and the related consolidated statement of operations, stockholder's equity, and cash flows for the year then ended (not presented herein); and in our report dated December 6, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 1996 is fairly stated in all material respects, in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Houston, Texas August 12, 1997 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain capitalized terms used herein have the meanings assigned to them in the Notes To Condensed Consolidated Financial Statements. OVERVIEW Holdings is a holding company whose only material asset is its investment in Chemicals. Chemicals and its subsidiaries own substantially all of the consolidated operating assets and are obligated for substantially all liabilities of the Company other than the 13 1/2% Notes which are an obligation of Holdings. The Merger that occurred on August 21, 1996, and related financings were accounted for as a recapitalization, with no change in the basis of the assets and liabilities of Chemicals. Other than the additional interest expense associated with the 13 1/2% Notes and the preferred stock dividend associated with the Series A Preferred issued to Cytec, the results of operations for the Company are essentially the same as those for Chemicals. Accordingly, the discussion that follows is applicable to both entities, except as specifically noted. A separate discussion of the results of operations for Chemicals for the three month and nine month periods ended June 30, 1997 would not, in the opinion of the Company, provide any additional meaningful information. RECENT DEVELOPMENTS On July 29, 1997, the methanol production facility at the Texas City Plant was shut down due to operating problems. Repairs are ongoing, and production at the facility is expected to resume in September 1997. Financial results for the fourth fiscal quarter ending September 30, 1997 will be negatively impacted by the shut down; however, the shut down is not expected to have a material adverse effect on the Company's results of operations for the fiscal year ended September 30, 1997. No assurance can be given that the shut down, should it continue longer than expected, will not have a material adverse effect on the Company. The shut down does not materially affect the operation of any other facilities at the Texas City Plant. On July 23, 1997, the Company announced the signing of a non-binding letter of intent with W.K. Croxton (Pty) Ltd. to form a joint venture that would construct a sodium chlorate plant in South Africa. Formation of the venture and construction of the plant are subject to numerous conditions, and no assurances can be given that either will occur. On July 10, 1997, Sterling Sask, an indirect wholly owned subsidiary of Holdings and Chemicals, acquired substantially all of the assets of Saskatoon Chemicals, a subsidiary of Weyerhaeuser Canada Ltd. Sterling Sask was established in connection with the Saskatoon Acquisition and was designated as an Unrestricted Subsidiary under the indentures governing the 13 1/2% Notes, the 11 3/4% Notes, and the 11 1/4% Notes (the "Indentures"). The acquired assets include a manufacturing plant near Saskatoon, Saskatchewan, and were used by Saskatoon Chemicals to manufacture sodium chlorate, caustic soda, calcium hypochlorite, chlorine, and hydrochloric acid. Total consideration of $69.2 million was financed with (i) approximately $54.6 million under a new credit facility established by Sterling Sask with a group of lenders, (ii) approximately $7.3 million pursuant to a private placement of Holdings Common Stock, and (iii) approximately $7.3 million pursuant to a private placement of Units, each Unit consisting of shares of Series B Preferred Stock and Warrants to purchase shares of Holdings Common Stock. The Saskatoon Acquisition will be accounted for under the purchase method of accounting for financial reporting purposes during the fourth quarter of fiscal 1997. On April 7, 1997, Chemicals completed its private offering of $150,000,000 of 11 1/4% Notes. The 11 1/4% Notes are unsecured senior subordinated obligations of Chemicals, ranking subordinate in right of payment to all existing and future senior debt of Chemicals, but pari passu with the 11 3/4% Notes and all future senior subordinated indebtedness. On July 7, 1997, Chemicals completed a registered exchange offer, pursuant to which all of the 11 1/4% Notes were exchanged for publicly registered 11 1/4% Notes with substantially similar terms. The proceeds of the 11 1/4% Notes Offering were used to prepay outstanding indebtedness under the Term Loans. In connection with such prepayments, Chemicals and the requisite lenders under the Senior Credit Agreements effected the Amendments. Among other things, the Amendments (i) permitted and provided for the issuance of the 11 1/4% Notes, (ii) adjusted the method of the application of voluntary prepayments to allow the proceeds of the 11 1/4% Notes Offering to be applied in a manner that significantly reduced required principal payments, particularly over the next three years, (iii) amended certain financial covenants to make them somewhat less restrictive, including amendments to specific ratios specified in the Amendments, (iv) increased the commitment under the Revolver by $25 million to $125 million, and (v) included a new financial covenant with respect to the maintenance of a specified Senior Debt Leverage Ratio (as defined in the Amendments). Unamortized debt issue costs related to the Term Loans of approximately $6.0 million pre-tax, $3.9 million after-tax, were expensed in April 1997 and recorded as an extraordinary loss from early extinguishment of debt. 20 RESULTS OF OPERATIONS Consolidated revenues increased for the three and nine month periods ending June 30, 1997, compared to the same periods in fiscal 1996. The primary reasons for these increased revenues were five months of operations from the recently acquired AFB, increased volumes for sodium chlorate, due in part to the startup of the Company's new sodium chlorate plant in Valdosta, Georgia (the "Valdosta Plant"), and revenues from the Company's new methanol unit at the Texas City, Texas plant (the "Texas City Plant"). Consolidated net income (loss) was lower due to lower petrochemical margins (primarily styrene), along with an increase of interest expense to $23.9 million and $63.4 million for the three and nine month periods of 1997, respectively, compared to $1.2 million and $4.4 million, respectively, for the same periods last year. Revenues for the third quarter of fiscal 1997 were $239.2 million compared to revenues of $218.4 million for the third quarter of fiscal 1996, an increase of 10%. A net loss of $9.6 million, or $0.84 per share, was recorded for the third quarter of fiscal 1997 compared to net income of $16.4 million, or $0.29 per share, for the third quarter of fiscal 1996. Included in the third quarter of 1997 net loss was an extraordinary pre-tax charge of $6.0 million, or $3.9 million after-tax, related to the write-off of unamortized debt issue costs as a result of the partial prepayment of the Term Loans with proceeds of the 11 1/4% Notes Offering. Revenues for the first nine months of fiscal 1997 were $665.9 million compared to revenues of $600.8 million for the first nine months of fiscal 1996, an increase of nearly 11%. A net loss of $24.8 million or $2.24 per share was recorded for the first nine months of fiscal 1997 compared to net income of $35.6 million or $0.64 per share for the first nine months of fiscal 1996. Included in the nine months of fiscal 1997 net loss was an extraordinary pre-tax charge of $6.0 million, or $3.9 million after-tax, related to the write-off of unamortized debt issue costs as a result of the partial prepayment of the Term Loans. Petrochemicals Petrochemical business revenues for the three months ending June 30, 1997, were $163.8 million as compared to $180.5 million in the prior year period. The 9% decrease in revenues was primarily due to reduced acrylonitrile and styrene volumes, partially offset by the positive impact of the new methanol unit. The nine months ending June 30, 1997, revenues were $482.6 million as compared to $487.3 million in the same period of 1996. The 1% decrease in revenues was primarily due to reduced acrylonitrile and styrene volumes, mostly offset by the positive impact of the new methanol unit. The Company's petrochemical business recorded operating income of $5.1 million and an operating loss of $1.5 million, respectively, for the three and nine month periods of 1997 compared to operating income of $15.4 million and $30.0 million, respectively, for the same periods of fiscal 1996. The decrease in operating earnings for the third quarter was primarily due to lower styrene and acrylonitrile volumes and lower styrene margins. The decrease in operating earnings for the nine month period was primarily due to lower styrene and acrylonitrile margins. Styrene. Styrene revenues decreased 9% to $79.1 million in the third quarter of fiscal 1997 and 2% to $244.1 million for the first nine months of fiscal 1997 compared to the same periods in fiscal 1996. Styrene sales prices decreased moderately from the same fiscal 1996 periods because of weaker market conditions, particularly in the export market. Average sales prices for both the third quarter and first nine months of fiscal 1997 decreased by approximately 1% from the same periods a year ago. Sales volumes for both the three and nine month periods decreased 10% and 4%, respectively, when compared to the same periods last year. The prices of styrene's major raw materials, benzene and ethylene, were higher during the third quarter and first nine months of fiscal 1997 compared to the same periods in fiscal 1996. Benzene prices were approximately 6% and 19% higher, and ethylene prices were approximately 12% and 24% higher, for the respective 1997 periods compared to 1996. These price escalations contributed significantly to the decline in styrene margins as market conditions did not allow for sufficient styrene price increases to compensate for these rising costs. Acrylonitrile. Acrylonitrile revenues decreased 26% to $35.9 million in the third quarter of fiscal 1997 and 16% to $103.8 million for the first nine months of fiscal 1997 compared to the same periods in fiscal 1996. The decreased revenues in both periods were primarily due to reduced volumes of 27% and 5%, respectively, for the three and nine months of 1997 as compared to the same periods of 1996. The 27% reduction in volumes in the third quarter of 1997 were primarily due to the partial shutdown of production as a result of operating difficulties 21 following the completion of a capital project. In addition, the reduced revenues in the nine month period of fiscal 1997 were impacted by a 12% decrease in the average acrylonitrile sales price realized by the Company. The prices of acrylonitrile's major raw materials, propylene and ammonia, were approximately 16% and (1)% higher (lower), respectively, in the third quarter and 17% and 12% higher, respectively, for the first nine months of fiscal 1997 than for the corresponding periods in fiscal 1996. These increases contributed to the decline in acrylonitrile margins. Methanol. Methanol revenues for the third quarter of 1997 were $20.6 million, bringing the total revenues for the first nine months of fiscal 1997 to $52.5 million. Margins improved significantly in the third quarter as the price of natural gas (the primary raw material for methanol) declined significantly without a corresponding drop in the price of methanol. In addition, the methanol unit benefited from operating at 112% of capacity. The methanol unit was under construction during the corresponding periods of 1996. Other Petrochemical Products. Revenues from the Company's other petrochemical products (including acetic acid, plasticizers, tertiary butylamine, and sodium cyanide) in the third quarter of fiscal 1997 were $28.2 million, a decrease of 37% when compared to the same period last year. Revenues for the nine month period ended June 30, 1997 were down 28% to $82.2 million when compared to the same 1996 period. The decrease in revenues in both periods was primarily due to a decline in acetic acid revenues resulting from a procedural change in the billings under the Company's production contract with BP Chemicals Inc. ("BP") and the recording of related revenues. Prior to the startup of the Company's methanol unit, the Company purchased the methanol used in the production of acetic acid. Under the BP contract, such purchases were ultimately re-billed to BP and included in acetic acid revenues. Methanol for acetic acid production is now supplied by the Company's methanol facility and is included in methanol revenues. Pulp Chemicals Revenues from the Company's pulp chemical business increased 9% to $41.0 million and 11% to $125.5 million for the third quarter and first nine months of fiscal 1997, respectively, when compared to the same periods last year. The increase in revenues was primarily due to an increase in sales volumes of sodium chlorate of 22% and 14%, respectively, when compared to the corresponding three and nine month periods of 1996. The increase in sales volumes in the third quarter was aided by the startup of the Valdosta Plant in December 1996. Average sales prices for sodium chlorate declined 7% in the third quarter of fiscal 1997 compared to the corresponding period in 1996. Average sodium chlorate sales prices for the first nine months of 1997 were 2% lower than the corresponding period in 1996. Revenues from the sale of generators and royalty income decreased 27% in the third quarter and increased 3% in the first nine months of fiscal 1997 compared to the corresponding periods of 1996. This 27% decrease in revenues in the third quarter of 1997 was primarily due to reduced project work related to generators. Operating earnings for the pulp chemicals business were $10.9 million for the third quarter of fiscal 1997 compared to $10.4 million during the corresponding period of 1996. Operating earnings for the pulp chemicals business were $35.2 million for the first nine months of fiscal 1997 compared to $28.3 million for the corresponding period in 1996. The increase for the three and nine month periods were primarily due to increased sales volumes of sodium chlorate. In addition, the Company recorded $2.9 million of expenses associated with stock appreciation rights for its pulp chemicals employees during the nine months of fiscal 1996. Fibers For the five-month period from February 1, 1997, to June 30, 1997, Sterling Fibers recorded revenues and operating earnings of $57.8 million and $2.9 million, respectively. For the three months ended June 30, 1997, Sterling Fibers recorded revenues and operating earnings of $34.4 million and $2.1 million, respectively. Because the Company did not acquire the assets constituting the AFB prior to January 31, 1997, there are no corresponding results for prior periods. Selling, General, and Administrative Expenses Selling, general, and administrative ("SG&A") expense increased to $11.0 million during the third quarter of fiscal 1997 as compared to $7.7 million in the comparable period of fiscal 1996. The $3.3 million increase was primarily due to AFB SG&A expense recorded since the acquisition in January 1997. SG&A expenses for the first nine months of fiscal 1997 were $24.3 million compared to $23.8 million in the first nine months of fiscal 1996. The 22 $0.5 million increase was primarily due to AFB SG&A expense recorded since the acquisition in January 1997, mostly offset by a sales tax refund in 1997 and lower employee profit sharing and other overheads. Interest and Debt Related Expense Interest and debt related expenses for the three and nine month periods ending June 30, 1997, were $23.9 million and $63.4 million, respectively, compared to $1.2 million and $4.4 million, respectively, for the corresponding periods in 1996. This increase is primarily due to the additional debt incurred in the 1996 Recapitalization and the AFB Acquisition. Extraordinary Item The $3.9 million after-tax ($6.0 million pre-tax) extraordinary item relates to unamortized debt issue costs which were expensed in April 1997 as a result of the partial prepayment of the Term Loans. LIQUIDITY AND CAPITAL RESOURCES Debt Structure On August 21, 1996, the Company completed the 1996 Recapitalization, significantly increasing the Company's leverage and cash requirements for debt service related to the Original Credit Agreement, the 13 1/2% Notes and the 11 3/4% Notes. In connection with the AFB Acquisition, Chemicals entered into the New Credit Agreement, which was funded on January 31, 1997, upon consummation of the AFB Acquisition. On April 7, 1997, Chemicals completed the 11 1/4% Notes Offering, the proceeds of which were used to partially repay the Term Loans. At June 30, 1997, the Company's long-term debt (including current maturities) was $842.2 million. The Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes, should it need to do so, will be affected by the covenants in its various debt agreements and by cash requirements for debt service. The Senior Credit Agreements and the Indentures contain numerous financial and operational covenants, including, without limitation, restrictions on the Company's ability to incur indebtedness, pay dividends, create liens, sell assets, engage in mergers and acquisitions, and refinance existing indebtedness, as well as the obligation of the Company to maintain certain financial ratios. As of June 30, 1997, these restrictions currently operate to prevent the Company from incurring any additional debt other than debt incurred under the Revolver or pursuant to certain limited "baskets" and other exceptions. The 11 1/4% Notes Offering was permitted under the Indentures as a Refinancing of Debt outstanding under the Senior Credit Agreements. The Indentures will also permit the Company to consummate acquisitions if the pro forma effect of such an acquisition has sufficient positive impact on certain financial ratios. In addition, under limited circumstances the Company may make acquisitions through the incurrence of debt in Unrestricted Subsidiaries (as defined in the Indentures). The financing for the Saskatoon Acquisition was structured in this manner. The Senior Credit Agreements also require that certain amounts of Excess Cash Flow (as defined therein) be used to prepay amounts outstanding under the Term Loans. The first such mandatory prepayment, if any, is not required to be made until January 1998. The Company's ability to comply with the terms of its various debt agreements (including its ability to comply with such covenants) and to meet its debt service obligations will depend on its future performance. The Company was in compliance with its financial covenants (as amended) in effect as of June 30, 1997. The Company intends to meet its liquidity needs for operating activities and capital expenditures (other than acquisitions) through internally generated funds and, to the extent necessary, borrowings under the Revolver. As part of the Amendments, on April 7, 1997, the total commitment under the Revolver was increased by $25 million to $125 million. The Company believes that such sources of funds will be sufficient to permit the Company to meet its liquidity needs during fiscal 1997. As of June 30, 1997, Chemicals had drawn approximately $26.8 million under the Revolver and issued approximately $2.0 million in letters of credit under the Revolver, thereby reducing the available commitment under the Revolver at such time to approximately $96.2 million (compared to an available commitment thereunder as of March 31, 1997 of $77.4 million). The Senior Credit Agreements and the indentures for the 11 3/4% Notes and the 11 1/4% Notes contain provisions which restrict the payment of advances, loans, and dividends from Chemicals to Holdings. The most restrictive of those covenants limit such payments during fiscal 1997 to approximately $1.6 million plus any amounts due to 23 Holdings from Chemicals under an intercompany tax sharing agreement. Such restriction is not expected to limit Holdings' ability to meet its obligations in fiscal 1997. Working Capital Working capital of the Company was $138.9 million at June 30, 1997, up from $76.9 million at September 30, 1996. The $62.0 million increase in working capital was primarily due to the addition of the AFB which contributed approximately $29 million to total working capital and an increase in pulp and petrochemicals accounts receivables partially due to the Valdosta Plant, the new methanol plant, profit sharing accruals under the plasticizers sales agreement with BASF and business terms and timing of collections. Cash Flow Net cash provided by operations was $11.5 million during the first nine months of fiscal 1997 compared to $31.4 million for the corresponding period in fiscal 1996. The decrease was primarily attributable to higher payments for interest and lower operating earnings. Capital Expenditures The Company's capital expenditures for the first nine months of fiscal 1997 were $32.6 million compared to $73.0 million in the same period last year. The capital expenditures in the first nine months of fiscal 1997 were primarily related to the construction of the Valdosta Plant of $13.0 million, along with the distributive control system upgrade at the Company's acrylonitrile unit. During the remainder of fiscal 1997, the Company expects to make an additional $6 million to $8 million of capital expenditures primarily for process modernization in styrene and acrylonitrile and routine safety, environmental, and replacement capital in the Company's petrochemical, pulp chemical, and fibers businesses. The Company expects to fund its remaining fiscal 1997 capital expenditures from operating cash flow, plus borrowings under the Revolver, if needed. 24 PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The information under "Legal Proceedings" in the Notes to Condensed Consolidated Financial Statements herein is hereby incorporated by reference. ITEM 2. CHANGES IN SECURITIES. (b) In connection with the acquisition of the AFB, Holdings authorized 350,000 shares of the Series A Preferred with a liquidation value of $100 per share, and issued 100,000 shares ($10 million liquidation value) of Series A Preferred. In connection with the Saskatoon Acquisition, Holdings authorized 58,000 shares of the Series B Preferred with a liquidation value of $1,000 per share, and on July 10, 1997 issued 7,300 shares ($7.3 million liquidation value) of Series B Preferred. The Series A Preferred and Series B Preferred each include a liquidation preference over the Holdings Common Stock, as well as restrictions on the ability of Holdings to declare or pay dividends on, or to redeem, Holdings Common Stock. The Certificates of Designation for the Series A Preferred and Series B Preferred are filed as Exhibits to this Form 10-Q. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: The following exhibits are filed as part of this Form 10-Q.
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ----------------------------- 3.1 --Restated Certificate of Incorporation of Sterling Chemicals Holdings, Inc. 4.1 --Warrant Agreement, dated as of July 10, 1997, between Sterling Chemicals Holdings, Inc. and Harris Trust and Savings Bank, as Warrant Agent. 4.2 --Form of Warrant (included in Exhibit 4.1). 4.3 --Certificate of Designation for Series A Preferred Stock (included in Exhibit 3.1). 4.4 --Certificate of Designation for Cumulative Redeemable Preferred Stock, Series B (included in Exhibit (3.1). 4.5 --Amended and Restated Voting Agreement, dated as of January 22, 1997, by and among Sterling Chemicals Holdings, Inc., and the other parties listed therein. 11.1 --Earnings Per Share Calculation. 27.1 --Financial Data Schedule of Sterling Chemicals Holdings, Inc. 27.2 --Financial Data Schedule of Sterling Chemicals, Inc.
(b) Reports on Form 8-K: On April 8, 1997, the Company filed a current Report on Form 8-K, reporting under Items 5 and 7. On May 21, 1997, the Company filed a current Report on Form 8-K, reporting under Items 5 and 7. 25 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. STERLING CHEMICALS HOLDINGS, INC. STERLING CHEMICALS, INC. (Registrants) Date: August 12, 1997 /s/ Robert W. Roten --------------------- Robert W. Roten President and Chief Executive Officer (Principal Executive Officer) Date: August 12, 1997 /s/ Jim P. Wise ----------------- Jim P. Wise Vice President-Finance and Chief Financial Officer (Principal Financial Officer) 26 EX-3.1 2 EXHIBIT 3.1 EXHIBIT 3.1 CERTIFICATE OF MERGER MERGING STX ACQUISITION CORP. INTO STERLING CHEMICALS, INC. (Pursuant to Section 251 of the General Corporation Law of the State of Delaware) STERLING CHEMICALS INC., a Delaware corporation ("Sterling"), hereby certifies that: 1. STX Acquisition Corp., a Delaware corporation ("Acquisition"), and Sterling are the constituent corporations to the merger of Acquisition with and into Sterling (the "Merger"). 2. An Amended and Restated Agreement and Plan of Merger (the "Merger Agreement") in connection with the Merger has been approved, adopted, certified, executed and acknowledged by each of Acquisition and Sterling in accordance with the provisions of Section 251 of the General Corporation Law of the State of Delaware. 3. Sterling shall be the surviving corporation of the Merger (in such capacity, the "Surviving Corporation"). 4. As set forth in Section 2.05(a) of the Merger Agreement, upon the filing of this Certificate of Merger, the Certificate of Incorporation of the Surviving Corporation shall be amended to read in its entirety as set forth in Exhibit A attached hereto and incorporated herein by reference. 5. The executed Merger Agreement is on file at the principal place of business of the Surviving Corporation, 1200 Smith Street, Suite 1900, Houston, Texas 77002-4312. 6. A copy of the Merger Agreement will be furnished by the Surviving Corporation, on request and without cost, to any stockholder of Acquisition or Sterling. IN WITNESS WHEREOF, the Surviving Corporation has executed this Certificate of Merger this 21st day of August, 1996. STERLING CHEMICALS, INC. By: /s/ J. VIRGIL WAGGONER ------------------------------ J. Virgil Waggoner, President EXHIBIT A RESTATED CERTIFICATE OF INCORPORATION OF STERLING CHEMICALS HOLDINGS, INC. --------------------------------- (Attached) RESTATED CERTIFICATE OF INCORPORATION OF STERLING CHEMICALS HOLDINGS, INC. ARTICLE I Name, Registration and Purpose ------------------------------ Section 1.01. Name. The name of the Corporation is "Sterling Chemicals Holdings, Inc.". Section 1.02. Registered Office and Registered Agent. The registered office of the Corporation in the State of Delaware is located at Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle. The name of the registered agent of the Corporation at such address is The Corporation Trust Company. Section 1.03. Purpose. The purpose for which the Corporation is organized is to engage in any lawful acts and activities for which corporations may be organized under the General Corporation Law of the State of Delaware ("DGCL"), and the Corporation shall have the power to perform all lawful acts and activities. ARTICLE II Capitalization -------------- Section 2.01. Authorized Capital. (a) The total number of shares of stock that the Corporation shall have the authority to issue is 22,000,000 shares of capital stock, consisting of (i) 2,000,000 shares of preferred stock, par value $0.01 per share (the "Preferred Stock"), and (ii) 20,000,000 shares of common stock, par value $0.01 per share (the "Common Stock"). (b) Subject to the provisions of this Certificate of Incorporation and the Preferred Stock Designation (as defined below) creating any series of Preferred Stock, the Corporation may issue shares of its capital stock from time to time for such consideration (not less than the par value thereof) as may be fixed by the Board of Directors of the Corporation (the "Board of Directors"), which is expressly authorized to fix the same in its absolute discretion subject to the foregoing conditions. Shares so issued for which the consideration shall have been paid or delivered to the Corporation shall be deemed fully paid stock and shall not be liable to any further call or assessment thereon, and the holders of such shares shall not be liable for any further payments in respect of such shares. (c) The right to cumulate votes for the election of directors as provided in Section 214 of the DGCL shall not be granted and is hereby expressly denied. Section 2.02. Preferred Stock. (a) The Preferred Stock may be issued from time to time in one or more series. Authority is hereby expressly granted to and vested in the Board of Directors to authorize from time to time the issuance of Preferred Stock in one or more series. With respect to each series of Preferred Stock authorized by it, the Board of Directors shall be authorized to establish by resolution or resolutions, and by filing a certificate pursuant to the applicable law of the State of Delaware (a "Preferred Stock Designation"), the following to the fullest extent now or hereafter permitted by the DGCL: (i) the designation of such series; (ii) the number of shares to constitute such series; (iii) whether such series is to have voting rights (full, special or limited) or is to be without voting rights; (iv) if such series is to have voting rights, whether or not such series is to be entitled to vote as a separate class either alone or together with the holders of the Common Stock or one or more other series of Preferred Stock; (v) the preferences and relative, participating, optional, conversion or other special rights (if any) of such series and the qualifications, limitations or restrictions (if any) with respect to such series; (vi) the redemption rights and price(s), if any, of such series, and whether or not the shares of such series shall be subject to the operation of retirement or sinking funds to be applied to the purchase or redemption of such shares for retirement and, if such retirement or sinking funds or funds are to be established, the periodic amount thereof and the terms and provisions relative to the operation thereof; (vii) the dividend rights and preferences (if any) of such series, including, without limitation, (A) the rates of dividends payable thereon, (B) the conditions upon which and the time when such dividends are payable, (C) whether or not such dividends shall be cumulative or noncumulative and, if cumulative, the date or dates from which such dividends shall accumulate and (D) whether or not the payment of such dividends shall be preferred to the payment of dividends payable on the Common Stock or any other series of Preferred Stock; (viii) the preferences (if any), and the amounts thereof, which the holders of such series shall be entitled to receive upon the voluntary or involuntary liquidation, dissolution or winding-up of, or upon any distribution of the assets of, the Corporation; (ix) whether or not the shares of such series, at the option of the Corporation or the holders thereof or upon the happening of any specified event, shall be convertible into or -3- exchangeable for (A) shares of Common Stock, (B) shares of any other series of Preferred Stock or (C) any other stock or securities of the Corporation; (x) if such series is to be convertible or exchangeable, the price or prices or ratio or ratios or rate or rates at which such conversion or exchange may be made and the terms and conditions (if any) upon which such price or prices or ratio or ratios or rate or rates may be adjusted; and (xi) such other rights, powers and preferences with respect to such series as may to the Board of Directors seem advisable. Any series of Preferred Stock may vary from any other series of Preferred Stock in any or all of the foregoing respects and in any other manner. (b) The Board of Directors may, with respect to any existing series of Preferred Stock but subject to the Preferred Stock Designation creating such series, (i) increase the number of shares of Preferred Stock designated for such series by a resolution adding to such series authorized and unissued shares of Preferred Stock not designated for any other series or (ii) decrease the number of shares of Preferred Stock designated for such series by a resolution subtracting from such series shares of Preferred Stock designated for such series (but not below the number of shares of such series then outstanding), and the shares so subtracted shall become authorized, unissued and undesignated shares of Preferred Stock. (c) No vote of the holders of the Common Stock or the Preferred Stock shall, unless otherwise expressly provided in a Preferred Stock Designation, be a prerequisite to the issuance of any shares of any series of the Preferred Stock authorized by and complying with the conditions of this Certificate of Incorporation. Shares of any series of Preferred Stock that have been authorized for issuance pursuant to this Certificate of Incorporation and that have been issued and reacquired in any manner by the Corporation (including upon conversion or exchange thereof) shall be restored to the status of authorized and unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors and a Preferred Stock Designation as set forth above. Section 2.03. Common Stock. (a) The holders of shares of the Common Stock shall be entitled to vote upon all matters submitted to a vote of the common stockholders of the Corporation and shall be entitled to one vote for each share of the Common Stock held. (b) Subject to the prior rights and preferences (if any) applicable to shares of Preferred Stock of any series, the holders of shares of the Common Stock shall be entitled to receive such dividends (payable in cash, stock or otherwise) as may be declared thereon by the Board of Directors at any time and from time to time out of any funds of the Corporation legally available therefor. (c) In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation, and subject to the preferential or other rights (if any) of the holders of shares of the -4- Preferred Stock in respect thereof, the holders of shares of the Common Stock shall be entitled to receive all the remaining assets of the Corporation available for distribution to its stockholders, ratably in proportion to the number of shares of the Common Stock held by them. For purposes of this paragraph (c), a liquidation, dissolution or winding-up of the Corporation shall not be deemed to be occasioned by or to include (i) any consolidation or merger of the Corporation with or into another corporation or other entity or (ii) a sale, lease, exchange or conveyance of all or a part of the assets of the Corporation. Section 2.04. Stock Options, Warrants, etc. Unless otherwise expressly prohibited in a Preferred Stock Designation creating any series of Preferred Stock, the Corporation shall have authority to create and issue warrants, rights and options entitling the holders thereof to purchase from the Corporation shares of the Corporation's capital stock of any class or series or other securities of the Corporation for such consideration and to such persons, firms or corporations as the Board of Directors, in its sole discretion, may determine, setting aside from the authorized but unissued stock of the Corporation the requisite number of shares for issuance upon the exercise of such warrants, rights or options. Such warrants, rights and options shall be evidenced by one or more instruments approved by the Board of Directors. The Board of Directors shall be empowered to set the exercise price, duration, time for exercise and other terms of such warrants, rights or options; provided, however, that the consideration to be received for any shares of capital stock subject thereto shall not be less than the par value thereof. ARTICLE III Directors --------- Section 3.01. Number and Term. The number of directors of the Corporation shall from time to time be fixed exclusively by the Board of Directors in accordance with, and subject to the limitations set forth in, the bylaws of the Corporation (the "Bylaws"); provided, however, that the Board of Directors shall at all times consist of a minimum of three and a maximum of fifteen members, subject, however, to increases above fifteen members as may required in order to permit the holders of any series of Preferred Stock to exercise their right (if any) to elect additional directors under specified circumstances. No decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Anything in this Certificate of Incorporation or the Bylaws to the contrary notwithstanding, each director shall hold office until his successor is elected and qualified or until his earlier death, resignation or removal. Section 3.02. Nomination and Election. (a) Nominations of persons for election or reelection to the Board of Directors may be made by or at the direction of the Board of Directors. The Bylaws may set forth procedures for the nomination of persons for election or reelection to the Board of Directors and only persons who are nominated in accordance with such procedures (if any) shall be eligible for election or reelection as directors of the Corporation; provided, however, that such procedures shall not infringe upon (i) the right of the Board of Directors to nominate persons for election or reelection to the Board of Directors or (ii) the rights of the holders of any series of -5- Preferred Stock, voting separately by class or series, to elect additional directors under specified circumstances. (b) Each director shall be elected in accordance with this Certificate of Incorporation, the Bylaws and applicable law. Election of directors by the Corporation's stockholders need not be by written ballot unless the Bylaws so provide. Section 3.03. Removal. No director may be removed except by the affirmative vote of the holders of not less than a majority in voting power of all the outstanding shares of capital stock of the Corporation entitled to vote generally in an election of directors, voting together as a single class. The Board of Directors may not remove any director, and no recommendation by the Board of Directors that a director be removed may be made to the Corporation's stockholders unless such recommendation is set forth in a resolution adopted by the affirmative vote of not less than two-thirds of the whole Board of Directors. Section 3.04. Vacancies. (a) In case any vacancy shall occur on the Board of Directors because of death, resignation or removal, such vacancy may be filled only by a majority (or such higher percentage as may be specified in the Bylaws) of the directors remaining in office (though less than a quorum), and the director so appointed shall serve for the unexpired term of his predecessor or until his successor is elected and qualified or until his earlier death, resignation or removal. If there are no directors then in office, an election of directors may be held in the manner provided by applicable law. (b) Any newly-created directorship resulting from any increase in the number of directors may be filled only by a majority (or such higher percentage as may be specified in the Bylaws) of the directors then in office (though less than a quorum). Each director so appointed shall hold office until his successor is elected and qualified or until his earlier death, resignation or removal. (c) Except as expressly provided in this Certificate of Incorporation or as otherwise provided by applicable law, stockholders of the Corporation shall not have the right to fill vacancies or newly-created directorships on the Board of Directors. Section 3.05. Subject to Rights of Holders of Preferred Stock. Notwithstanding the foregoing provisions of this Article III, if the Preferred Stock Designation creating any series of Preferred Stock entitles the holders of such Preferred Stock, voting separately by class or series, to elect additional directors under specified circumstances, then all provisions of such Preferred Stock Designation relating to the nomination, election, term of office, removal, filling of vacancies and other features of such directorships shall, as to such directorships, govern and control over any conflicting provisions of this Article III. Section 3.06. Limitation of Access of Stockholders to Books and Records. In furtherance of, and not in limitation of, the powers conferred by law, the Board of Directors is expressly authorized and empowered to determine from time to time whether and to what extent, and at what times and places, and under what conditions and regulations, the accounts and books of the -6- Corporation, or any of them, shall be open to inspection of stockholders and, except as so determined or as expressly provided in this Certificate of Incorporation or in any Preferred Stock Designation, no stockholder shall have any right to inspect any account, book or document of the Corporation other than such rights as may be conferred by applicable law. Section 3.07. Limitation of Personal Liability. (a) No person who is or was a director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit. (b) If the DGCL is hereafter amended to authorize corporate action further limiting or eliminating the personal liability of directors, then the personal liability of the directors to the Corporation or its stockholders shall be limited or eliminated to the full extent permitted by the DGCL, as so amended from time to time. ARTICLE IV Amendment of Bylaws ------------------- The Board of Directors is expressly authorized and empowered to adopt, alter, amend or repeal the Bylaws. Stockholders of the Corporation shall have the power to alter, amend, expand or repeal the Bylaws but only by the affirmative vote of the holders of not less than 66-2/3% in voting power of all outstanding shares of capital stock of the Corporation entitled to vote generally at an election of directors, voting together as a single class. ARTICLE V Actions and Meetings of Stockholders ------------------------------------- Section 5.01. No Action by Written Consent. No action shall be taken by the stockholders of the Corporation except at an annual or special meeting of stockholders. Stockholders of the Corporation may not act by written consent in lieu of a meeting. Section 5.02. Meetings. (a) Meetings of the stockholders of the Corporation (whether annual or special) may only be called by the Board of Directors or such officer or officers of the Corporation as the Board of Directors may from to time authorize to call meetings of the stockholders of the Corporation. Stockholders of the Corporation shall not be entitled to call any meeting of stockholders or to require the Board of Directors or any officer or officers of the Corporation to call a meeting of stockholders except as otherwise expressly provided by law or in the Preferred Stock Designation creating any series of Preferred Stock. -7- (b) Stockholders of the Corporation shall have the right to propose business for consideration at any meeting of stockholders but only as may be expressly provided in, and then only in compliance with, the Bylaws. (c) Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice or waivers of notice of such meeting. The person presiding at a meeting of stockholders may determine whether business has been properly brought before the meeting and, if the facts so warrant, such person may refuse to transact any business at such meeting which has not been properly brought before such meeting. Section 5.03. Appoint and Remove Officers, etc. The stockholders of the Corporation shall have no right or power to appoint or remove officers of the Corporation nor to abrogate the power of the Board of Directors to elect and remove officers of the Corporation. Except as provided in Section 3.03, the stockholders of the Corporation shall have no power to appoint or remove directors as members of committees of the Board of Directors nor to abrogate the power of the Board of Directors to establish one or more such committees or the power of any such committee to exercise the powers and authority of the Board of Directors. ARTICLE VI Indemnification of Directors and Officers ----------------------------------------- The Corporation shall (i) indemnify, to the fullest extent permitted by applicable law, each person who is or was a director or officer of the Corporation and each person who, at the request of the Board of Directors of the Corporation or an officer of the Corporation, is or was a director or officer of another corporation, partnership, joint venture, trust or other enterprise, and (ii) may indemnify each employee and agent of the Corporation and all other persons whom the Corporation is authorized to indemnify under the provisions of the DGCL. Without limiting the generality or effect of the foregoing, the Corporation may enter into one or more agreements with any person which provide for indemnification greater or different than that provided in this Article VI. ARTICLE VII Election to be Governed by Section 203 of the DGCL -------------------------------------------------- The Corporation hereby elects to be governed by Section 203 of the DGCL; provided, however, that the provisions of this Article VII shall not apply to restrict a business combination between the Corporation and an interested stockholder (as defined in Section 203 of the DGCL) of the Corporation if either (i) such business combination was approved by the Board of Directors prior to the time that such stockholder became an interested stockholder or (ii) such stockholder became an interested stockholder as a result of, and at or prior to the effective time of, a transaction which was approved by the Board of Directors prior to the time that such stockholder became an interested stockholder. -8- ARTICLE VIII Amendment of Certificate of Incorporation ----------------------------------------- The Corporation reserves the right to amend, alter, change or repeal any provisions contained in this Certificate of Incorporation or a Preferred Stock Designation, in the manner now or hereafter prescribed by applicable law, and all rights, preferences and privileges conferred upon stockholders, directors or any other persons by and pursuant to this Certificate of Incorporation are granted subject to this reservation. Notwithstanding the foregoing or any other provision of this Certificate of Incorporation or any provision of law that might otherwise permit a lesser or no vote, the provisions of this Article VIII and of Articles III, IV and V may not be repealed or amended in any respect, and no provision inconsistent with any such provision or imposing cumulative voting in the election of directors may be added to this Certificate of Incorporation, unless such action is approved by the affirmative vote of the holders of not less than 66-2/3% in voting power of all outstanding shares of capital stock of the Corporation entitled to vote generally at an election of directors, voting together as a single class; provided, however, that any amendment or repeal of Section 3.07 or Article VI of this Certificate of Incorporation shall not adversely affect any right or protection existing thereunder in respect of any act or omission occurring prior to such amendment or repeal and, provided further, that no Preferred Stock Designation shall be amended after the issuance of any shares of the series of Preferred Stock created thereby, except in accordance with the terms of such Preferred Stock Designation and the requirements of applicable law. ARTICLE IX Voting Requirements Not Exclusive --------------------------------- The voting requirements contained in this Certificate of Incorporation shall be in addition to the voting requirements imposed by law or by the Preferred Stock Designation creating any series of Preferred Stock. -9- CERTIFICATE OF DESIGNATIONS, PREFERENCES, RIGHTS AND LIMITATIONS OF SERIES A PREFERRED STOCK OF STERLING CHEMICALS HOLDINGS, INC. ---------------------------------------------- PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE ---------------------------------------------- Sterling Chemicals Holdings, Inc., a corporation organized and existing under the laws of the State of Delaware ("Holdings"), hereby certifies that, under (i) authority conferred upon the Board of Directors of Holdings (the "Holdings Board") by the Restated Certificate of Incorporation of Holdings, as amended to date, and (ii) the provisions of Sections 141(c) and 151 of the General Corporation Law of the State of Delaware, the Holdings Board duly adopted the following resolutions, among others, at its meeting on January 9, 1997: Resolved, that pursuant to the authority conferred on the Holdings Board by the Certificate of Incorporation of Holdings, a series of Holdings' authorized preferred stock, liquidation value $100 per share (the "Preferred Stock"), be, and it hereby is, established, created and approved, and that the designation and number of shares thereof and the voting and other powers, preferences and relative, participating, optional and other rights of the shares of such series, and the qualifications, limitations and restrictions thereof, be, and they hereby are, as set forth on Exhibit A attached hereto and incorporated herein by reference for all purposes. Resolved, that the proper officers of Holdings be, and each of them acting alone hereby is, authorized and empowered, in the name and on behalf of Holdings, to prepare, execute and deliver, and file with the Secretary of State of the State of Delaware, a certificate of designation of the terms, limitations, rights and preferences of the Preferred Stock (the "Certificate of Designations"), with the designations, voting and other powers, preferences, relative, participating, optional and other rights, and the qualifications, limitations and restrictions, set forth on Exhibit A. In Witness Whereof, Holdings has caused this certificate to be signed and attested this 29th day of January, 1997. Sterling Chemicals Holdings, Inc. By: /s/ ROBERT W. ROTEN ------------------------------------ Robert W. Roten, President and Chief Executive Officer Attest: /s/ F. MAXWELL EVANS - --------------------------------- F. Maxwell Evans, Secretary -3- Exhibit A SERIES A PREFERRED STOCK DESIGNATION OF TERMS, LIMITATIONS, RIGHTS AND PREFERENCES --------------------------------------------------------- Section 1. Number of Shares and Designation. This class of the Corporation's Preferred Stock shall be designated as Series A Preferred Stock (the "Preferred Stock") and the number of shares of Preferred Stock constituting such class shall be 350,000. Section 2. Definitions. For purposes of the Preferred Stock, the following terms shall have the meanings indicated: "Additional Shares" has the meaning specified in Section 3.3 hereof. "Board" means the board of directors of the Corporation. "Business Day" means any day on which state or federally chartered financial institutions are not authorized or required to close in Houston, Texas. "Capital Stock" means shares of any class or series of capital stock of the Corporation. "Charter" means the Certificate of Incorporation of the Corporation, as the same may hereafter be amended or restated. "Common Stock" means the common stock, par value $0.01, of the Corporation and any securities issued or issuable with respect to any such common stock by way of stock dividend or stock split or in connection with a combination of shares, merger or consolidation. "Corporation" means Sterling Chemicals Holdings, Inc., a Delaware corporation, and any successor to the business and/or assets of the Corporation which becomes bound by the terms and provisions of this Designation of Rights by operation of law. "Corporation Redemption Notice" has the meaning specified in Section 5.3 hereof. "Designation of Rights" means this designation of terms, limitations, rights and preferences of the Preferred Stock, as the same may hereafter be amended, modified or supplemented. "Dividend Payment Date" means the first Business Day after the last day of each Dividend Period. "Dividend Period" means the six-month period beginning on each January 1 and July 1 of each year; provided, however, that the final Dividend Period with respect to any share of A-i Preferred Stock shall end on the date that such share of Preferred Stock is redeemed by the Corporation in accordance with the terms of this Designation of Rights. "Dividend Rate" has the meaning specified in Section 3.1 hereof. "Holder Redemption Notice" has the meaning specified in Section 5.1 hereof. "Holder Put Notice" has the meaning specified in Section 5.2 hereof. "Issue Date" means, (i) with respect to any share of Preferred Stock other than an Additional Share, the actual original date of issuance of such share, and (ii) with respect to any Additional Share, the Dividend Payment Date in respect of which such Additional Share was issued. "Junior Stock" means the Common Stock and any other Capital Stock ranking junior to the Preferred Stock with respect to payments of dividends or with respect to distributions of assets, including any distribution of assets upon Liquidation. "Liquidation" means any dissolution, liquidation (complete or partial) or winding up of the Corporation, whether voluntary or involuntary. "Liquidation Payment" has the meaning specified in Section 4.1 hereof. "Liquidation Value" means, with respect to any share of Preferred Stock, $100. "Parity Stock" means any Capital Stock ranking on a parity with the Preferred Stock with respect to payments of dividends or with respect to distributions of assets, including any distribution of assets upon Liquidation. "Preferred Stock" has the meaning specified in Section 1 hereof, such term to include any Additional Shares issued pursuant to Section 3.3 or Section 5.2 hereof. "Prior Stock" means any Capital Stock ranking prior to the Preferred Stock with respect to payments of dividends or with respect to distributions of assets, including distribution of assets upon Liquidation. "Record Date" means, with respect to any Dividend Period, the date which is 15 days prior to the last day of such Dividend Period. "Redemption Date" has the meaning specified in Section 5.3 hereof. "Redemption Price" means, with respect to any share of Preferred Stock, an amount in cash equal to the sum of (i) the Liquidation Value of such share of Preferred Stock plus (ii) the amount of any and all accrued and unpaid dividends (whether or not declared) on such share A-ii (including any additional dividends accrued pursuant to Section 3.2 hereof) as of the date of computation. "Special Voting Right" has the meaning specified in Section 7.2 hereof. Section 3. Dividends. 3.1. Dividends with respect to each share of Preferred Stock shall be cumulative (whether or not earned) and shall accrue (whether or not declared) at the Dividend Rate from the Issue Date of such share until such share is redeemed in accordance with this Designation of Rights. Each holder of record of each share of Preferred Stock on the Record Date for any Dividend Period shall be entitled to receive on the relevant Dividend Payment Date, when and as declared by the Board, out of funds legally available for the payment of dividends, dividends on such share, payable in cash (subject to Section 3.3 and Section 5.2 hereof) at a rate per annum (the "Dividend Rate") equal to 10% of the Liquidation Value; provided, however, that in the event that any share of Preferred Stock shall have an Issue Date other than on the first day of any Dividend Period, the Dividend Rate with respect to such share during the Dividend Period in which such Issue Date occurs shall be calculated on the basis of the applicable Dividend Rate for such Dividend Period for the period commencing with the Issue Date to and including the last day of such Dividend Period. 3.2 In the event that, as of the last day of any Dividend Period, there shall exist any accrued dividends (whether or not declared) on any share of Preferred Stock with respect to any prior Dividend Periods, the holder of record of such share of Preferred Stock shall also be entitled to receive on each Dividend Payment Date, when and as declared by the Board, out of funds legally available for the payment of dividends, dividends payable in cash (subject to Section 3.3 hereof) in an amount equal to the amount of dividends which the holder of such share of Preferred Stock would have been entitled to receive if the Corporation had issued to such holder, on the date that each such dividend accrued, that number of shares of Preferred Stock (including any fractions thereof) equal to (i) the amount of such accrued dividends divided by (ii) 100. Dividends payable under this Section 3.2 on any Dividend Payment Date may be paid prior to such Dividend Payment Date. 3.3. Except for dividends required to be paid on the shares of Preferred Stock pursuant to Section 6 hereof, the Corporation may, at its option, at any time or from time to time, elect on or prior to the Dividend Payment Date (or on or prior to the date of payment pursuant to Section 5.2 hereof), with respect to any outstanding share of Preferred Stock in respect of which a cash dividend is payable under this Designation of Rights, to pay all or a part of such dividend in shares of Preferred Stock ("Additional Shares") having an aggregate Liquidation Value equal to the amount of such dividend or part thereof. A cash dividend payable on any share of Preferred Stock shall not be deemed paid by the issuance of Additional Shares as aforesaid unless and until one or more certificates evidencing such Additional Shares have been delivered to the holder of record of such share of Preferred Stock. Such certificates shall be accompanied by a statement setting forth the computation of the number of Additional Shares issuable in payment of the relevant cash dividend to each holder of record of the Preferred Stock. A-iii 3.4. The amount of dividends accrued on any share of Preferred Stock at the end of any Dividend Period shall be the amount of any unpaid dividends accrued thereon to and including the last day of such Dividend Period, whether or not declared. The amount of dividends accrued on any share of Preferred Stock at any date other than the last day of any Dividend Period shall be the sum of (i) the amount of any unpaid dividends accrued thereon (including any additional dividends accrued pursuant to Section 3.2 hereof) to and including the last day of the immediately preceding Dividend Period, whether or not declared, plus (ii) an amount calculated on the basis of the Dividend Rate applicable to the Dividend Period in which such date occurs for the period commencing with the first day of such Dividend Period to and including the date of calculation, based upon the actual number of days elapsed in such Dividend Period. For purposes of this Section 3.4, dividends shall be deemed to accrue daily. 3.5. To the extent that the amount of any dividend paid on the Preferred Stock for any Dividend Period shall be less than the total amount of dividends due and payable with respect to such Dividend Period as provided in Section 3.1 or 3.2 hereof, such amounts shall be paid pro rata to each record holder of shares of Preferred Stock in the proportion that the total number of shares owned by such record holder bears to the total number of shares of Preferred Stock then outstanding. Section 4. Liquidation. 4.1. Each share of Preferred Stock shall be preferred over the shares of Junior Stock so that, in the event of any Liquidation, each holder of Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to its stockholders (whether from capital, surplus or earnings), in preference to the holders of and before any payment or distribution is made to the holders of shares of Junior Stock upon such Liquidation, an amount in cash equal to (i) the Liquidation Value plus an amount equal to all accrued and unpaid dividends thereon (including any additional dividends accrued pursuant to Section 3.2 hereof) to the date of final distribution multiplied by (ii) the number of outstanding shares of Preferred Stock owned by such holder (such amounts with respect to all shares of Preferred Stock, in the aggregate, the "Liquidation Payment"). If, upon any Liquidation, the assets (or proceeds thereof) distributable among the holders of Preferred Stock are insufficient to pay the Liquidation Payment in full, then such assets (or the proceeds thereof) shall be distributable among such holders ratably in accordance with the respective amounts which would be payable on such shares if all amounts payable thereon were payable in full. 4.2. For the purposes of this Section 4, neither any merger or consolidation involving the Corporation nor any sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation shall be deemed to be a Liquidation, unless such sale, conveyance, exchange or transfer shall be in connection with a plan of liquidation, dissolution or winding up of the Corporation. 4.3. After the payment in cash to the holders of Preferred Stock of the full amount of the Liquidation Payment with respect to all outstanding shares of Preferred Stock, the holders of outstanding shares of Preferred Stock shall have no right or claim, based solely on their ownership of shares of Preferred Stock, to any of the remaining assets of the Corporation. A-iv 4.4. In the event the assets of the Corporation available for distribution to the holders of shares of Preferred Stock upon any Liquidation shall be insufficient to pay the Liquidation Payment in full, no such distribution shall be made on account of any shares of any Parity Stock upon such Liquidation unless proportionate distributive amounts shall be paid on account of all shares of the Preferred Stock, ratably, according to the respective amounts which would be payable on the Preferred Stock and such Parity Stock upon such Liquidation if all amounts payable thereon were paid in full. Section 5. Redemption. 5.1. The holder of any share of Preferred Stock may, at his or its option, on any Dividend Payment Date occurring on or after June 30, 2009, elect to have the Corporation redeem all or any number of shares of Preferred Stock held by such holder, such election to be made by providing written notice of such election and the number of shares of Preferred Stock elected to be redeemed to the Corporation (a "Holder Redemption Notice") not less than 30 nor more than 90 days prior to the applicable Dividend Payment Date. The Corporation shall, on the applicable Dividend Payment Date, redeem the shares of Preferred Stock elected to be redeemed pursuant to such Holder Redemption Notice and pay the holder of such shares the Redemption Price therefor, provided that the Corporation has sufficient legally available funds for such purpose. In the event that the Corporation is required to redeem any shares of Preferred Stock and does not have sufficient funds legally available to redeem all of such shares, it shall use all of the funds that it does have available for such purpose, if any, to redeem such number of shares of Preferred Stock as is possible with such funds, pro rata, among all holders of Preferred Stock which have previously provided the Corporation with a Holder Redemption Notice and for which all or any portion of the shares of Preferred Stock elected to be redeemed thereunder have not been redeemed. Any shares of Preferred Stock which are not redeemed because the Corporation does not have sufficient funds shall remain outstanding and the holders thereof shall continue to be entitled to all the rights and benefits of holders of Preferred Stock under this Designation of Rights. 5.2. In the event that the Corporation fails to pay any dividend in respect of any shares of Preferred Stock on any Dividend Payment Date pursuant to Section 3.1 or Section 3.3 hereof which the Corporation is not prohibited by applicable law from declaring or paying, in addition to his or its rights pursuant to Section 5.1 hereof, the holder of each such share of Preferred Stock may, at his or its option, elect to have the Corporation redeem such share of Preferred Stock by providing written notice of such election to the Corporation (a "Holder Put Notice") within 30 days after the applicable Dividend Payment Date, such election to specify the number of shares of Preferred Stock elected to be redeemed. Within 30 days after the receipt of any Holder Put Notice, the Corporation shall redeem each share of Preferred Stock elected to be redeemed pursuant to such Holder Put Notice which is eligible for redemption pursuant to this Section 5.2 and pay the holder the Redemption Price therefor; provided, however, that the Corporation shall not have any obligation to redeem any such share of Preferred Stock if, prior to the expiration of such 30-day period, the Corporation pays the dividend on such share that should have been paid for the applicable Divided Payment Date (either in cash or in Additional Shares). Any shares of Preferred Stock which are not redeemed pursuant to the proviso to the immediately preceding sentence shall remain outstanding and the holders thereof shall continue to be entitled to all rights and benefits of holders of Preferred Stock under this Designation of Rights. A-v 5.3. The Corporation may, at its option, at any time and from time to time, elect to redeem all or any number of shares of Preferred Stock, such election to be made by providing written notice of such election and the number of shares of Preferred Stock elected to be redeemed to the holders thereof (a "Corporation Redemption Notice") not less than 10 days prior to the proposed date of redemption (the "Redemption Date"). The Corporation shall, on the applicable Redemption Date, redeem the shares of Preferred Stock elected to be redeemed pursuant to such Corporation Redemption Notice and pay the holders of such shares the Redemption Price therefor. In the event that the Corporation elects to redeem less than all of the shares of Preferred Stock, it shall redeem the shares of Preferred Stock which it has elected to redeem, pro rata, among all holders of Preferred Stock. 5.4 The Corporation shall, from time to time, redeem shares of Preferred Stock to the extent required pursuant to Section 6.3. 5.5. Upon any redemption of shares of Preferred Stock, the shares of Preferred Stock so redeemed shall have the status of authorized and unissued shares of preferred stock of the Corporation, unclassified as to series, and the number of shares of preferred stock which the Corporation shall have authority to issue shall not be decreased by the redemption of such shares of Preferred Stock. Section 6. Certain Restrictions. 6.1. So long as the Corporation shall be in default of any obligation to make any redemption pursuant to Section 5 hereof, the Corporation shall not, directly or indirectly, (a) declare or pay any dividend or distribution on or with respect to any Junior Stock other than solely in shares of Junior Stock or (b) declare or pay any dividend or distribution on or with respect to any Parity Stock other than in shares of Junior Stock or, with respect to any other dividends or distributions, except in Parity Stock of the same class or series. 6.2. So long as any Additional Shares are outstanding or any accrued dividends on the Preferred Stock are unpaid, the Corporation shall not, directly or indirectly, (a) declare or pay any dividend or distribution on or with respect to any Junior Stock other than solely in shares of Junior Stock or (b) declare or pay any dividend or distribution on or with respect to any Parity Stock other than in shares of Junior Stock or, with respect to any other dividends or distributions, except in Parity Stock of the same class or series. 6.3. So long as any shares of Preferred Stock remain outstanding, the Corporation shall not, directly or indirectly: (a) issue any additional shares of Preferred Stock (other than Additional Shares) or any shares of Prior Stock (including as a dividend or distribution on any securities); (b) (i) redeem, purchase or otherwise acquire or retire for value any Junior Stock or (ii) redeem, defease, purchase or otherwise acquire or retire for value (whether or not prior to scheduled maturity or scheduled sinking fund payment) any mandatory redemption, sinking fund or analogous obligation in respect of Junior Stock; A-vi (c) (i) redeem, purchase or otherwise acquire or retire for value any Parity Stock unless a proportionate number of shares of Preferred Stock, rounded to the nearest whole share, are redeemed, purchased or otherwise acquired or retired for value, ratably, according to the respective amounts which would have been payable on the Preferred Stock and such Parity Stock upon a Liquidation if all amounts payable thereon were paid in full or (ii) redeem, defease, purchase or otherwise acquire or retire for value (whether or not prior to scheduled maturity or scheduled sinking fund payment) any mandatory redemption, sinking fund or analogous obligation in respect of Parity Stock unless proportionate amounts shall be paid on account of all shares of the Preferred Stock, ratably, according to the respective amounts which would be payable on the Preferred Stock and such Parity Stock upon a Liquidation if all amounts payable thereon were paid in full. (d) reclassify (by merger, consolidation or otherwise) any Junior Stock or Parity Stock as Prior Stock; (e) merge into or consolidate with any entity where the surviving or continuing corporation will have any outstanding Prior Stock other than capital stock corresponding to shares of Prior Stock of the Corporation issued before any agreement for such merger or consolidation; or (f) amend, alter or repeal by merger or otherwise any of the provisions of this Designation of Rights, the Certificate of Incorporation or the By- laws of the Corporation so as in any such case to adversely affect the voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of the shares of Preferred Stock; provided, however, that nothing contained in this Designation shall be deemed or construed to prohibit or restrict the right or ability of any employee stock ownership plan of the Corporation or any of its subsidiaries to purchase or otherwise acquire any shares of Junior Stock or any loan or other extension of credit by the Corporation or any of its subsidiaries to any such employee stock ownership plan. 6.4 Notwithstanding anything to the contrary contained in this Section 6, (a) at any time during which the Corporation is then in default of any obligation to make any redemption pursuant to Section 5 hereof, the Corporation may nevertheless, directly or indirectly, purchase shares of Junior Stock covered by any employee stock ownership plan of the Corporation or any of its subsidiaries existing on December 23, 1996 (the "ESOP") or a successor plan (i) to the extent required by those provisions of the ESOP or any successor plan that are no more favorable to the employees of the Corporation than the provisions of the ESOP (a "Successor Plan") and (ii) to the extent required by law, and (b) at any time during which the Corporation is not in default of any obligation to make any redemption pursuant to Section 5 hereof, the Corporation may, directly or indirectly, purchase: A-vii (i) shares of Junior Stock from employees of the Corporation or any of its subsidiaries, former employees of the Corporation or any of its subsidiaries or the estates of deceased employees of the Corporation or any of its subsidiaries, or any party to the Stockholders Agreement of the Corporation dated August 21, 1996 (or his or its successors or permitted assigns) with an aggregate consideration paid by the Corporation in any fiscal year of the Corporation of less than or equal to $5,000,000; provided, however, that to the extent that the Corporation fails to resell any such shares of Junior Stock within one year after the date of purchase for consideration greater than or equal to the consideration paid by the Corporation for such shares, the Corporation shall, on the first anniversary of the purchase of such shares, redeem a number of shares of Preferred Stock, rounded to the nearest whole number, having an aggregate Redemption Price equal to the consideration paid by the Corporation for such shares of Junior Stock, if such shares have not been sold within such one year period, or the excess of the purchase price for such shares over the price for which such shares were resold, as applicable; (ii) shares of Junior Stock from employees of the Corporation or any of its subsidiaries, former employees of the Corporation or any of its subsidiaries or the estates of deceased employees of the Corporation or any of its subsidiaries; provided, however, that, if at any time the aggregate consideration paid by the Corporation, directly or indirectly, for the purchase of such shares of Junior Stock pursuant to this clause (ii) exceeds $1,000,000 in any fiscal year of the Corporation, the Corporation shall concurrently redeem a number of shares of Preferred Stock, rounded to the nearest whole number, with a Liquidation Value equal to the amount of such excess; and (iii) shares of Junior Stock covered by the ESOP or any Successor Plan to the extent required by (A) the provisions thereof or (B) to the extent required by law. Section 7. Voting. 7.1. The holders of shares of Preferred Stock shall have no voting rights whatsoever, except for any voting rights to which such holders may be entitled under applicable laws and except for the voting rights set forth in the following provisions of this Section 7. 7.2. If and whenever at any time or times dividends payable on shares of the Preferred Stock shall have been in arrears and unpaid in an aggregate amount equal to or exceeding the amount of dividends payable thereon for two Dividend Periods, then the number of directors constituting the Board shall be increased by one and the holders of shares of the Preferred Stock shall have the exclusive right (the "Special Voting Right"), voting separately as a class, to elect one director of the Corporation. 7.3. The Special Voting Right may be exercised initially either by written consent or at a special meeting of the holders of the Preferred Stock, called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors, and thereafter at each such annual meeting until such time as all dividends in arrears on shares of the Preferred Stock shall have been paid in full (whether in cash or in Additional Shares), at which time the Special Voting Right A-viii and the term of the director elected pursuant to the exercise of the Special Voting Right shall automatically terminate. Upon termination of the Special Voting Right, the number of directors constituting the Board shall, without further action, be reduced by one, subject always to increase as provided above upon revesting of the Special Voting Right. 7.4. At any time when the Special Voting Right shall have vested and if the Special Voting Right shall not already have been exercised by written consent, a proper officer of the Corporation may call, and, upon the written request, addressed to the Secretary of the Corporation, of the record holders of shares representing 25% of the then outstanding shares of Preferred Stock, shall call, a special meeting of the holders of Preferred Stock. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of stockholders at the place for holding annual meetings of stockholders of the Corporation or, if none, at a place designated by the Secretary of the Corporation. Notwithstanding the provisions of this Section 7.4, no such special meeting shall be called during a period within 60 days immediately preceding the date fixed for the next annual meeting of stockholders. 7.5. At any meeting held for the purpose of electing directors at which the holders of Preferred Stock are entitled to exercise the Special Voting Right, the presence (in person or by proxy) of the holders of 50% of the then outstanding shares of the Preferred Stock shall be required and shall be sufficient to constitute a quorum of such class for the exercise of the Special Voting Right. 7.6. Any director elected by holders of Preferred Stock pursuant to the exercise of the Special Voting Right shall hold office until the next annual meeting of stockholders (unless such term has previously terminated pursuant to Section 7.3 hereof) and any vacancy in respect of any such directorship shall be filled only by the holders of Preferred Stock by written consent or at a special meeting called in accordance with the procedures set forth in Section 7.4 hereof, or, if no special meeting is called or written consent executed, at the next annual meeting of stockholders. 7.7. In exercising the Special Voting Right and for all other matters as to which the holders of shares of Preferred Stock are entitled to vote, each share of Preferred Stock shall have one vote; provided, however, that any shares owned beneficially or of record by the Corporation or any of its subsidiaries shall be deemed to be not outstanding and the holders thereof shall not be entitled to any vote unless such restriction on such voting right shall be prohibited by applicable law. Section 8. Ranking. 8.1. All shares of Preferred Stock shall rank senior, as to payments of dividends and as to distributions of assets (including any distribution of assets upon any Liquidation), to all shares of Junior Stock, whether presently outstanding or issued after the date hereof. 8.2. All shares of Preferred Stock shall rank on a parity, as to payments of dividends and as to distributions of assets (including any distribution of assets upon any Liquidation), with all shares of Parity Stock issued after the date hereof. A-ix 8.3. As of the date on which this Designation is filed with the Secretary of State of the State of Delaware, (a) no shares of Prior Stock or Parity Stock are outstanding and (b) no shares of Junior Stock are outstanding other than shares of Common Stock. Section 9. Non-Assessability. The shares of Preferred Stock when issued, shall be fully-paid and nonassessable. Section 10. Preemptive Rights. The Preferred Stock is not entitled to any preemptive rights or subscription rights in respect of any Capital Stock. Section 11. Registration Books, etc. The Corporation will keep, or cause to be kept, at its principal office (or at the office of its agent for such purpose) proper books in which the names and addresses of the holders of shares of Preferred Stock issued by the Corporation shall be registered and in which transfers of such shares may be registered. The Corporation may treat the registered holder of any shares of Preferred Stock as the absolute owner thereof for the purpose of receiving all dividends and redemption payments thereon and for all other purposes, and the Corporation shall not be affected by any notice or knowledge to the contrary. Section 12. No Consent for Certain Actions. Anything herein to the contrary notwithstanding, no consent, approval or vote of the holders of Preferred Stock shall be required for (a) the creation of any indebtedness of any kind of the Corporation, (b) the creation of any class of Junior Stock or Parity Stock, (c) the issuance of shares of Junior Stock or Parity Stock or (d) any increase or decrease in the amount of authorized Junior Stock or Parity Stock or any increase, decrease or change in the par value thereof. Section 13. Amendments and Waivers. This Designation of Rights may not be amended nor may compliance with any of the provisions of this Designation of Rights be waived without, in each instance, the affirmative vote (at a meeting) or the written consent (with or without a meeting) of the holders of all the shares of Preferred Stock then outstanding. Section 14. Severability of Provisions. Whenever possible, each provision hereof shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision hereof is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions hereof. If a court of competent jurisdiction should determine that a provision hereof would be valid or enforceable if a period of time were extended or shortened or a particular percentage were increased or decreased, then such court may make such change as shall be necessary to render the provision in question effective and valid under applicable law. Section 15. Certifications. On or before June 30 and December 31 of each year, the Corporation shall provide the Holders with a report, certified by an officer of the Corporation, setting forth (a) the number of shares of Junior Stock purchased during the immediately preceding 12-month period pursuant to Section 6.4(b)(i) (including the dates of purchase and the consideration paid by the Corporation with respect to each such purchase) and (b) the number of shares of Junior Stock A-x so purchased by the Corporation which have been resold by the Corporation during such 12-month period (including the dates of sale and the consideration received by the Corporation with respect to each such sale). Section 16. Notices. Any notice required to be given hereunder shall be sufficient if in writing, sent by courier service (with proof of service), hand delivery or certified or registered mail (return receipt requested and first- class postage prepaid), and addressed (a) if to any record holder of shares of Preferred Stock, to the address of such record holder as reflected in the transfer records for shares of Preferred Stock maintained by the Corporation or any transfer agent, or (b) if to the Corporation, at its principal executive offices to the attention of its Secretary. Any notice given in accordance with this provision by the Corporation shall be deemed delivered as of the date receipt or proof of service or delivery is confirmed or on the third Business Day after the date mailed. A-xi CERTIFICATE OF DESIGNATIONS, PREFERENCES, RIGHTS AND LIMITATIONS OF CUMULATIVE REDEEMABLE PREFERRED STOCK, SERIES B OF STERLING CHEMICALS HOLDINGS, INC. --------------------------------------------- PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE --------------------------------------------- Sterling Chemicals Holdings, Inc., a corporation organized and existing under the laws of the State of Delaware ("Holdings"), hereby certifies that, under (i) authority conferred upon the Board of Directors of Holdings (the "Holdings Board") by the Restated Certificate of Incorporation of Holdings, as amended to date, and (ii) the provisions of Sections 141(c) and 151 of the General Corporation Law of the State of Delaware, the Holdings Board duly adopted the following resolutions, among others, by unanimous consent dated as of July 7, 1997: Resolved, that pursuant to the authority conferred on the Holdings Board by the Certificate of Incorporation of Holdings, the Series B Preferred, being a series of Holdings' authorized preferred stock, liquidation value $1,000 per share, be, and it hereby is, established, created and approved, and that the designation and number of shares thereof and the voting and other powers, preferences and relative, participating, optional and other rights of the shares of such series, and the qualifications, limitations and restrictions thereof, be, and they hereby are, as set forth on the Certificate of Designations, Preferences, Rights and Limitations of Cumulative Redeemable Preferred Stock, Series B, attached hereto as Exhibit A (the "Certificate of Designations"). Resolved, that the proper officers of Holdings be, and each of them acting alone hereby is, authorized and empowered, in the name and on behalf of Holdings, to prepare, execute and deliver, and file with the Secretary of State of the State of Delaware, the Certificate of Designations, with the designations, voting and other powers, preferences, relative, participating, optional and other rights, and the qualifications, limitations and restrictions, set forth thereon. In Witness Whereof, Holdings has caused this certificate to be signed and attested this 8th day of July, 1997. Sterling Chemicals Holdings, Inc. By: /s/ ROBERT W. ROTEN ---------------------------- Robert W. Roten, President and Chief Executive Officer Attest: F. MAXWELL EVANS - ------------------------------- F. Maxwell Evans, Secretary -3- EXHIBIT A CUMULATIVE REDEEMABLE PREFERRED STOCK, SERIES B DESIGNATION OF TERMS, LIMITATIONS, RIGHTS AND PREFERENCES --------------------------------------------------------- Section 1. Number of Shares and Designation. This class of the Corporation's Preferred Stock shall be designated as Cumulative Redeemable Preferred Stock, Series B (the "Preferred Stock") and the number of shares of Preferred Stock constituting such class shall be 58,000, each with a par value of $0.01. Section 2. Definitions. For purposes of the Preferred Stock, the following terms shall have the meanings indicated: "Additional Shares" has the meaning specified in Section 3.3 hereof. "Applicable Date" means the fifth anniversary of the Closing Date. "Applicable Two-Year Period" has the meaning specified in the definition of Dividend Rate herein. "Bankruptcy Law" means title 11, U.S. Code, or any similar federal or state law for the relief of debtors. "Board" means the board of directors of the Corporation. "Business Day" means any day on which state or federally chartered financial institutions are not authorized or required to close in Houston, Texas. "Capital Stock" means shares of any class or series of capital stock of the Corporation. "Change of Control" means the occurrence of any of the following events: (i) any "person" (as such term is defined in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 35% of the total voting power of the Voting Stock of the Corporation; provided that the Permitted Holders "beneficially own" (as defined below), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Corporation than such other Person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board (for the purpose of this clause (i), (a) such other Person shall be deemed to "beneficially own" any Voting Stock of a corporation (the "Specified A-i Corporation") held by any other corporation (the "Parent Corporation"), if such Person "beneficially owns", directly or indirectly, more than 35% of the voting power of the Voting Stock of the Parent Corporation and the Permitted Holders "beneficially own," directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of the Parent Corporation and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of the Parent Corporation, and (b) the Permitted Holders shall be deemed to "beneficially own" any Voting Stock of the Specified Corporation held by the Parent Corporation so long as the Permitted Holders "beneficially own," directly or indirectly, in the aggregate a majority of the voting power of the Voting Stock of the Parent Corporation); and provided, further, that in no event shall any transfer, assignment, sale, gift or other disposition of any Voting Stock of the Corporation by, and no acquisition of any Voting Stock of the Corporation by, any holder of shares of Preferred Stock be deemed to be or result in a Change of Control under this clause (i); (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board or the Chemicals Board (together with any new directors whose election by the Board or the Chemicals Board, as applicable, or whose nomination for election by the stockholders of the Corporation or Chemicals, as the case may be, was approved by a majority of the directors of the Corporation or Chemicals, as the case may be, then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board or the Chemicals Board, as the case may be, then in office; (iii) the merger or consolidation of the Corporation or Chemicals with or into another Person or the merger of another Person (other than a Permitted Holder) into the Corporation or Chemicals, or the sale or transfer in one or a series of transactions of all or substantially all the assets of the Corporation or Chemicals to another Person (other than a Permitted Holder) and, in the case only of any such merger or consolidation, the securities of the Corporation or Chemicals that are outstanding immediately prior to such transaction and which represent 100% of the aggregate voting power of the Voting Stock of the Corporation or Chemicals are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving corporation that represent, immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving corporation; or (iv) the Corporation shall hold less than 100% of Voting Stock of Chemicals. "Charter" means the Certificate of Incorporation of the Corporation, as the same may hereafter be amended or restated. "Chemicals" means Sterling Chemicals, Inc., a Delaware corporation. A-ii "Chemicals Board" means the board of directors of Chemicals. "Closing Date" has the meaning specified in the Stock Purchase Agreement. "Common Stock" means the common stock, par value $0.01, of the Corporation and any securities issued or issuable with respect to any such common stock by way of stock dividend or stock split or in connection with a combination of shares, merger or consolidation. "Corporation" means Sterling Chemicals Holdings, Inc., a Delaware corporation, and any successor to the business and/or assets of the Corporation which becomes bound by the terms and provisions of this Designation of Rights by operation of law. "Corporation Redemption Notice" has the meaning specified in Section 5.2 hereof. "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. "Designation of Rights" means this designation of terms, limitations, rights and preferences of the Preferred Stock, as the same may hereafter be amended, modified or supplemented. "Dividend Payment Date" means the last calendar day of each Dividend Period. "Dividend Period" means the three-month period beginning on each January 1, April 1, July 1 and October 1 of each year; provided, however, that the final Dividend Period with respect to any share of Preferred Stock shall end on the date that such share of Preferred Stock is redeemed by the Corporation in accordance with the terms of this Designation of Rights. "Dividend Rate" means with respect to any share of Preferred Stock, a rate per annum equal to: (i) during the period commencing on the Issue Date and continuing thereafter until the Applicable Date, 14% of the Liquidation Value of such share of Preferred Stock, irrespective of whether such dividends are paid in cash or in Additional Shares; (ii) during the period commencing on the Applicable Date and continuing thereafter until the seventh anniversary of the Issue Date (the "Applicable Two-Year Period"), (A) 14% of the Liquidation Value of such share of Preferred Stock if such dividends are paid in cash in full or (B) 16% of the Liquidation Value of such share of Preferred Stock if such dividends are paid in full or in part in Additional Shares; and (iii) during the period commencing on the seventh anniversary of the Issue Date and continuing thereafter until such share of Preferred Stock is redeemed, (A) 14% of the Liquidation Value of such share of Preferred Stock if such dividends are paid in cash in A-iii full and no dividends were paid in Additional Shares during the Applicable Two-Year Period, (B) 16% of the Liquidation Value of such share of Preferred Stock if such dividends are paid in cash and any dividends were paid in Additional Shares during the Applicable Two-Year Period, or (C) 18% of the Liquidation Value of such share of Preferred Stock if such dividends are paid in Additional Shares; provided, however, that, notwithstanding anything to the contrary contained herein, (1) except for increases in the Dividend Rate under clause (2) below, in no event shall the Dividend Rate with respect to any Dividend Period be lower than the Dividend Rate with respect to the immediately preceding Dividend Period and (2) upon the occurrence of an Event of Non-Compliance at any time during which the Dividend Rate equals 14% per annum, the Dividend Rate shall be increased to an aggregate amount equal to 16% per annum, which increase shall continue only for so long as any Event of Non-Compliance is continuing. "ESOP" has the meaning specified in Section 6.3 hereof. "Event of Non-Compliance" means (i) (a) any failure by the Corporation to declare and pay (either in cash or in Additional Shares) or accrue and compound any dividends prior to the Applicable Date for four consecutive Dividend Periods or (b) any failure by the Corporation on or after the Applicable Date to declare and pay dividends, either in cash or in Additional Shares, for four consecutive Dividend Periods; (ii) the failure of the Corporation to comply (a) (after any applicable grace period) with any covenants in the Stock Purchase Agreement or (b) with the terms of this Designation of Rights; (iii) (a) the Corporation or any Significant Subsidiary of the Corporation pursuant to or within the meaning of any Bankruptcy Law: (1) commences a voluntary case, (2) consents to the entry of an order for relief against it in an involuntary case, (3) consents to the appointment of a Custodian of it or for all or substantially all of its property; or (4) makes a general assignment for the benefit of its creditors; or (b) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (1) is for relief against the Corporation or any Significant Subsidiary of the Corporation in an involuntary case; (2) appoints a Custodian of the Corporation or any Significant Subsidiary of the Corporation or for all or substantially all of the property of the Corporation or any Significant Subsidiary of the Corporation; or (3) orders the liquidation of the Corporation or any Significant Subsidiary of the Corporation, and the order or decree remains unstayed and in effect for 60 consecutive days; (iv) Holdings or a third party designated by Holdings shall not have redeemed any shares of Preferred Stock elected to be redeemed pursuant to a timely delivered Change of Control Redemption Election and paid the holder of such shares the Redemption Price therefor on or prior to the Redemption Date; or A-iv (v) in the case of Section 5.3(a), Holdings shall not have mailed a Notice of a Change of Control to each record holder of a share of Preferred Stock within five days after the Corporation or any of its executive officers or directors obtains knowledge of the occurrence of a Change of Control as defined in clause (i) of the definition thereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar or successor Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Holder Redemption Notice" has the meaning specified in Section 5.1 hereof. "Issue Date" means, (i) with respect to any share of Preferred Stock other than an Additional Share, the actual original date of issuance of such share, and (ii) with respect to any Additional Share, the Dividend Payment Date in respect of which such Additional Share was issued. "Junior Stock" means the Common Stock and any other Capital Stock ranking junior to the Preferred Stock with respect to payments of dividends or with respect to distributions of assets, including any distribution of assets upon Liquidation. "Liquidation" means any dissolution, liquidation (complete or partial) or winding up of the Corporation, whether voluntary or involuntary. "Liquidation Amount" has the meaning specified in Section 4.1 hereof. "Liquidation Value" means, with respect to any share of Preferred Stock, $1,000. "Notice of Change of Control" has the meaning specified in Section 5.3 hereof. "Parity Stock" means any Capital Stock ranking on a parity with the Preferred Stock with respect to payments of dividends or with respect to distributions of assets, including any distribution of assets upon Liquidation, including the Corporation's outstanding Series A Preferred Stock (the "Series A Preferred Stock"). "Permitted Holders" means (i) any Person that owns shares of Common Stock as a result of the conversion of shares of the common stock of STX Acquisition Corp., a Delaware corporation, owned by such Person in connection with the merger of STX Acquisition Corp. with and into the Corporation on August 21, 1996, (ii) any Person who on the date of issuance of the Preferred Stock is an officer, director, stockholder, employee or consultant of The Sterling Group, Inc. or The Unicorn Group, L.L.C., (iii) each of Frank J. Hevrdejs, William C. Oehmig, J. Virgil Waggoner, Robert W. Roten and Gordon Cain, (iv) any Permitted Transferee with respect to any Person covered by the preceding clauses (i) through (iii) hereof, (v) the employee stock ownership plan of Chemicals in existence on July 1, 1997, (vi) any savings or investment plan sponsored by the Corporation or Chemicals and (vii) any Person A-v that purchases shares of Common Stock from Sterling Chemicals Acquisitions, Inc., a Delaware corporation and a wholly-owned subsidiary of Chemicals ("SC Acquisitions"), pursuant to the private placement of shares of Common Stock by SC Acquisitions in connection with the closing of the transactions contemplated by that certain Asset Purchase Agreement dated as of May 21, 1997 between Sterling Pulp Chemicals (Sask) Ltd., an Ontario corporation and an indirect wholly-owned subsidiary of SC Acquisitions, and Saskatoon Chemicals Ltd., a Saskatchewan corporation. "Permitted Transferee" means, with respect to any Person, (i) in the case of any entity, any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such entity ("control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing), and (ii) in the case of any individual, any person related by lineal or collateral consanguinity to such individual or the spouse of such individual (adopted persons shall be considered the natural born child of their adoptive parents; lineal consanguinity is the relationship that exists between persons of whom one is descended (or ascended) in direct line from the other, as between son, father, grandfather, great-grandfather; and collateral consanguinity is that relationship between persons who have the same ancestors, but do not descend (or ascend) from the other, as between uncle and nephew, or cousin and cousin), in each case to whom such Person has transferred Common Stock of the Corporation. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock" has the meaning specified in Section 1 hereof, such term to include any Additional Shares issued pursuant to Section 3.3 hereof. "Prior Stock" means any Capital Stock ranking prior to the Preferred Stock with respect to payments of dividends or with respect to distributions of assets, including distribution of assets upon Liquidation. "Record Date" means, with respect to any Dividend Period, the date which is 15 days prior to the last day of such Dividend Period. "Redemption Date" means, with respect to any redemption of shares of Preferred Stock by the Corporation pursuant to Section 5.2 or Section 5.3 hereof, the date proposed by the Corporation for such redemption as set forth in the Corporation Redemption Notice or Notice of Change of Control, as the case may be, in accordance with the provisions of Section 5.2 or Section 5.3, as applicable. A-vi "Redemption Price" means, (i) with respect to any share of Preferred Stock redeemed pursuant to Section 5.1 hereof, an amount in cash equal to the sum of (a) the Liquidation Value of such share of Preferred Stock plus (b) the amount of any and all accrued and unpaid dividends (whether or not declared) on such share (including any additional dividends accrued pursuant to Section 3.2 hereof) as of the date of computation (the "Base Redemption Amount"), (ii) with respect to any share of Preferred Stock redeemed pursuant to Section 5.2 hereof, the following amounts: (a) prior to the first anniversary of the Closing Date, 105% of the Base Redemption Amount; (b) from the first anniversary of the Closing Date and prior to the second anniversary of the Closing Date, 104% of the Base Redemption Amount; (c) from the second anniversary of the Closing Date and prior to the third anniversary of the Closing Date, 103% of the Base Redemption Amount; (d) from the third anniversary of the Closing Date and prior to the fourth anniversary of the Closing Date, 102% of the Base Redemption Amount; (e) from the fourth anniversary of the Closing Date and prior to the fifth anniversary of the Closing Date, 101% of the Base Redemption Amount; and (f) from and after the fifth anniversary of the Closing Date, 100% of the Base Redemption Amount, and (iii) with respect to any share of Preferred Stock redeemed pursuant to Section 5.3 hereof, an amount in cash equal to the sum of (a) 101% of the Liquidation Value of such share of Preferred Stock plus (b) the amount of any and all accrued and unpaid dividends (whether or not declared) on such share (including any additional dividends accrued pursuant to Section 3.2 hereof) as of the Redemption Date. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" of the Corporation as such term is defined in Rule 1-02 of Regulation S-X, promulgated by the SEC. "Special Voting Right" has the meaning specified in Section 7.2 hereof. "Stock Purchase Agreement" means the Stock and Warrant Purchase Agreement among the Corporation, Sterling Chemicals Acquisitions, Inc. and the Purchasers thereto with respect to the Preferred Stock. "Subsidiary" means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) the Corporation; (ii) the Corporation and one or more Subsidiaries; or (iii) one or more Subsidiaries. "Successor Plan" has the meaning specified in Section 6.3 hereof. "Voting Stock" means, with respect to any corporation, all classes of capital stock of such corporation then outstanding and normally entitled to vote in the election of directors. Section 3. Dividends. 3.1 Dividends with respect to each share of Preferred Stock shall be cumulative (whether or not earned) and shall accrue (whether or not declared) at the Dividend A-vii Rate from the Issue Date of such share until such share is redeemed in accordance with this Designation of Rights. Each holder of record of each share of Preferred Stock on the Record Date for any Dividend Period shall be entitled to receive on the relevant Dividend Payment Date, when and as declared by the Board, out of funds legally available for the payment of dividends, dividends on such share, payable in cash (subject to Section 3.3 hereof) at the Dividend Rate; provided, however, that in the event that any share of Preferred Stock shall have an Issue Date other than on the first day of any Dividend Period, the Dividend Rate with respect to such share during the Dividend Period in which such Issue Date occurs shall be calculated on the basis of the applicable Dividend Rate for such Dividend Period for the period commencing with the Issue Date to and including the last day of such Dividend Period. 3.2 In the event that, as of the last day of any Dividend Period, there shall exist any accrued dividends (whether or not declared) on any share of Preferred Stock with respect to any prior Dividend Periods, the holder of record of such share of Preferred Stock shall also be entitled to receive on each Dividend Payment Date, when and as declared by the Board, out of funds legally available for the payment of dividends, dividends payable in cash (subject to Section 3.3. hereof) in an amount equal to the amount of dividends which the holder of such share of Preferred Stock would have been entitled to receive if the Corporation had issued to such holder, on the date that each such dividend accrued, that number of shares of Preferred Stock (including any fractions thereof) equal to (i) the amount of such accrued dividends divided by (ii) 1,000. Dividends payable under this Section 3.2 on any Dividend Payment Date may be paid prior to such Dividend Payment Date. 3.3 Except for dividends required to be paid on the shares of Preferred Stock pursuant to Section 6 hereof, the Corporation may, at its option, at any time or from time to time, elect on or prior to the Dividend Payment Date, with respect to any outstanding shares of Preferred Stock in respect of which a cash dividend is payable under this Designation of Rights, (i) prior to the Applicable Date, to declare, accrue and compound, but not to pay all or a part of, such dividend or to pay all or a part of such dividend in shares of Preferred Stock ("Additional Shares") having an aggregate Liquidation Value equal to the amount of such dividend or part thereof and (ii) on or after the Applicable Date, to pay all or a part of such dividend in Additional Shares having an aggregate Liquidation Value equal to the amount of such dividend or part thereof. A cash dividend payable on any share of Preferred Stock shall not be deemed paid by the issuance of Additional Shares unless and until one or more certificates evidencing such Additional Shares have been delivered to the holder of record of such share of Preferred Stock. Such certificates shall be accompanied by a statement setting forth the computation of the number of Additional Shares issuable in payment of the relevant cash dividend to each holder of record of the Preferred Stock. 3.4 The amount of dividends accrued on any shares of Preferred Stock at the end of any Dividend Period shall be the amount of any unpaid dividends accrued thereon to and including the last day of such Dividend Period, whether or not declared. The amount of dividends accrued on any share of Preferred Stock at any date other than the last day of any Dividend Period shall be the sum of (i) the amount of any unpaid dividends accrued thereon (including any additional dividends accrued pursuant to Section 3.2 hereof) to and including the last day of the immediately preceding Dividend Period, whether or not declared, plus (ii) an amount calculated on the basis of the Dividend A-viii Rate applicable to the Dividend Period in which such date occurs for the period commencing with the first day of such Dividend Period to and including the date of calculation, based upon the actual number of days elapsed in such Dividend Period. For purposes of this Section 3.4, dividends shall be deemed to accrue daily. 3.5 To the extent that the amount of any dividend paid on the shares of Preferred Stock for any Dividend Period shall be less than the total amount of dividends due and payable with respect to such Dividend Period as provided in Section 3.1 or 3.2 hereof, such amounts shall be paid pro rata to each record holder of shares of Preferred Stock in the proportion that the total number of shares owned by such record holder bears to the total number of shares of Preferred Stock then outstanding. Section 4. Liquidation. 4.1 Each share of Preferred Stock shall be preferred over the shares of Junior Stock so that, in the event of any Liquidation, each holder of Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to its stockholders (whether from capital, surplus or earnings), in preference to the holders of and before any payment or distribution is made to the holders of shares of Junior Stock upon such Liquidation, an amount in cash equal to (i) the Liquidation Value plus an amount equal to all accrued and unpaid dividends thereon (including any additional dividends accrued pursuant to Section 3.2 hereof) to the date of final distribution multiplied by (ii) the number of outstanding shares of Preferred Stock owned by such holder (such amounts with respect to all shares of Preferred Stock, in the aggregate, the "Liquidation Amount"). If, upon any Liquidation, the assets (or proceeds thereof) distributable among the holders of Preferred Stock are insufficient to pay the Liquidation Amount in full, then such assets (or the proceeds thereof) shall be distributable among such holders ratably in accordance with the respective amounts which would be payable on such shares if all amounts payable thereon were payable in full. 4.2 For the purposes of this Section 4, neither any merger or consolidation involving the Corporation nor any sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation shall be deemed to be a Liquidation, unless such sale, conveyance, exchange or transfer shall be in connection with a plan of liquidation, dissolution or winding up of the Corporation. 4.3 After the payment in cash to the holders of Preferred Stock of the full amount of the Liquidation Amount with respect to all outstanding shares of Preferred Stock, the holders of outstanding shares of Preferred Stock shall have no right or claim, based solely on their ownership of shares of Preferred Stock, to any of the remaining assets of the Corporation. 4.4 In the event the assets of the Corporation available for distribution to the holders of shares of Preferred Stock upon any Liquidation shall be insufficient to pay the Liquidation Amount in full, no such distribution shall be made on account of any shares of any Parity Stock upon such Liquidation unless proportionate distributive amounts shall be paid on account of all shares of the Preferred Stock, ratably, according to the respective amounts which would be payable on the A-ix Preferred Stock and Parity Stock upon such Liquidation if all amounts payable thereon were paid in full. Section 5. Redemption. 5.1 The holder of any share of Preferred Stock may, at his or its option, on any Dividend Payment Date occurring on or after June 30, 2009, elect to have the Corporation redeem all or any number of shares of Preferred Stock held by such holder, such election to be made by providing written notice of such election and the number of shares of Preferred Stock elected to be redeemed to the Corporation (a "Holder Redemption Notice") not less than 30 nor more than 90 days prior to the applicable Dividend Payment Date. Subject to Section 5.4, the Corporation shall, on the applicable Dividend Payment Date, redeem the shares of Preferred Stock elected to be redeemed pursuant to such Holder Redemption Notice and pay the holder of such shares the Redemption Price therefor, provided that the Corporation has sufficient legally available funds for such purpose (taking into effect any obligation of the Corporation to the holders of any Parity Stock related to such redemption). 5.2 The Corporation may, at its option, at any time and from time to time, elect to redeem all or any number of shares of Preferred Stock, such election to be made by providing written notice of such election and the number of shares of Preferred Stock elected to be redeemed to the holders thereof (a "Corporation Redemption Notice") not less than 10 days prior to the proposed Redemption Date. The Corporation shall, on the applicable Redemption Date, redeem the shares of Preferred Stock elected to be redeemed pursuant to such Corporation Redemption Notice and pay the holders of such shares the Redemption Price therefor. In the event that the Corporation elects to redeem less than all of the shares of Preferred Stock, it shall redeem the shares of Preferred Stock which it has elected to redeem, pro rata, among all holders of Preferred Stock. 5.3 (a) Within five days after the Corporation or any of its executive officers or directors obtains knowledge of the occurrence of a Change of Control as defined in clause (i) of the definition thereof or a proposed Change of Control as defined in clause (i) of the definition thereof, the Corporation shall mail a notice (a "Notice of Change of Control") to each record holder of a share of Preferred Stock stating (i) that a Change of Control has occurred or is expected to occur, as applicable, (ii) the material circumstances and facts regarding such Change of Control, (iii) the Redemption Date (which (A) in the case of a Notice of Change of Control delivered after the occurrence of the applicable Change of Control, shall be no earlier than 20 days nor later than 30 days from the date such notice is mailed, and (B) in the case of a Notice of Change of Control delivered prior to the occurrence of the applicable Change of Control, shall be no later than the later to occur of 15 days after the date such notice is mailed and the date such Change of Control is effected) and (iv) the instructions determined by the Corporation, consistent with this Designation of Rights, that a holder of shares of Preferred Stock must follow in order to have its shares of Preferred Stock redeemed. (b) No earlier than 60 days and no later than 30 days prior to a Change of Control as defined in clauses (ii), (iii) or (iv) of the definition thereof, the Corporation shall mail a Notice of Change of Control to each record holder of a share of Preferred Stock stating (i) that a Change of Control is expected to occur, (ii) the material circumstances and facts regarding such Change of A-x Control, (iii) the Redemption Date (which shall be no earlier than thirty days from the date such notice is mailed and no later than the date such Change of Control is effected) and (iv) the instructions determined by the Corporation, consistent with this Designation of Rights, that a holder of shares of Preferred Stock must follow in order to have its shares of Preferred Stock redeemed. (c) Upon receipt of a Notice of Change of Control pursuant to Section 5.3(a) or (b), the holder of any share of Preferred Stock may, at his or its option, elect to have the Corporation redeem all or any number of shares of Preferred Stock held by such holder, such election to be made by providing written notice of such election and the number of shares of Preferred Stock elected to be redeemed to the Corporation (a "Change of Control Redemption Election") not less than 5 business days prior to the Redemption Date. (d) Subject to Section 5.4, the Corporation shall, on the Redemption Date, redeem the shares of Preferred Stock elected to be redeemed pursuant to each timely delivered Change of Control Redemption Election and pay the holder of such shares the Redemption Price therefor, provided that the Corporation has sufficient legally available funds for such purpose (taking into effect any obligation of the Corporation to the holders of any Parity Stock related to such redemption). Notwithstanding the foregoing, in lieu of the Corporation's making such purchase, the Corporation may designate a third party to purchase all shares of Preferred Stock at the same price, payable in cash, and terms and subject to conditions and procedures no less favorable to the holders of Preferred Stock than those set forth above in this Section 5.3; provided, however, that the Corporation shall be liable for, and shall redeem the shares of Preferred Stock as set forth in this Section 5.3 upon, any default by such third party to consummate such offer. 5.4 In the event that the Corporation is required to redeem any shares of Preferred Stock pursuant to Section 5.1 or Section 5.3 above and does not have sufficient funds legally available to redeem all of such shares (taking into effect any obligation of the Corporation to the holders of any Parity Stock related to such redemption), it shall use all of the funds that it does have available for such purpose, if any, to redeem such number of shares of Preferred Stock as is possible with such funds, pro rata, among all holders of Preferred Stock which have previously provided the Corporation with a Holder Redemption Notice or a timely Change of Control Redemption Election, as applicable, and for which all or any portion of the shares of Preferred Stock elected to be redeemed thereunder have not been redeemed (taking into effect any obligation of the Corporation to the holders of any Parity Stock related to such redemption). Any shares of Preferred Stock which are not redeemed because the Corporation does not have sufficient funds shall remain outstanding and the holders thereof shall continue to be entitled to all rights and benefits of holders of Preferred Stock under this Designation of Rights. 5.5 The Corporation shall, from time to time, redeem shares of Preferred Stock to the extent required pursuant to Section 6.2. 5.6 Upon any redemption of shares of Preferred Stock, the shares of Preferred Stock so redeemed shall have the status of authorized and unissued shares of preferred stock of the Corporation, unclassified as to series, and the number of shares of preferred stock which the A-xi Corporation shall have authority to issue shall not be decreased by the redemption of such shares of Preferred Stock. Section 6. Certain Restrictions. 6.1 So long as the Corporation shall be in default of any obligation to make any redemption pursuant to Section 5 hereof and, so long as any Additional Shares are outstanding or any accrued dividends on the Preferred Stock are unpaid, the Corporation shall not, directly or indirectly, (a) declare, pay or set apart for payment any dividend or distribution on or with respect to any Parity Stock other than in shares of Junior Stock or in Parity Stock of the same class or series or (b) declare, pay or set apart for payment any dividend or distribution on or with respect to any Junior Stock other than solely in shares of Junior Stock. 6.2 So long as any shares of Preferred Stock remain outstanding, the Corporation shall not, directly or indirectly: (a) issue any additional shares of Preferred Stock (other than Additional Shares) or any shares of Prior Stock (including as a dividend or distribution on any securities); (b) (i) redeem, purchase or otherwise acquire or retire for value any Junior Stock or (ii) redeem, defease, purchase or otherwise acquire or retire for value (whether or not prior to scheduled maturity or scheduled sinking fund payment) any mandatory redemption, sinking fund or analogous obligation in respect of Junior Stock; (c) (i) redeem, purchase or otherwise acquire or retire for value any Parity Stock unless a proportionate number of shares of Preferred Stock, rounded to the nearest whole share, are redeemed, purchased or otherwise acquired or retired for value, ratably, according to the respective amounts which would have been payable on the Preferred Stock and such Parity Stock upon a Liquidation if all amounts payable thereon were paid in full or (ii) redeem, defease, purchase or otherwise acquire or retire for value (whether or not prior to scheduled maturity or scheduled sinking fund payment) any mandatory redemption, sinking fund or analogous obligation in respect of Parity Stock unless proportionate amounts shall be paid on account of all shares of the Preferred Stock, ratably, according to the respective amounts which would be payable on the Preferred Stock and such Parity Stock upon a Liquidation if all amounts payable thereon were paid in full; (d) reclassify (by merger, consolidation or otherwise) any Junior Stock or Parity Stock as Prior Stock; (e) merge into or consolidate with any entity where the surviving or continuing corporation will have any outstanding Prior Stock other than capital stock corresponding to shares of Prior Stock of the Corporation issued before any agreement for such merger or consolidation; or (f) amend, alter or repeal by merger or otherwise any of the provisions of this Designation of Rights, the Certificate of Incorporation or the By- laws of the Corporation so as in any such case to adversely affect the voting powers, designations, preferences and A-xii relative, participating, optional or other special rights, and qualifications, limitations or restrictions of the shares of Preferred Stock, except as permitted in the Stock Purchase Agreement; provided, however, that nothing contained in this Designation shall be deemed or construed to prohibit or restrict the right or ability of any employee stock ownership plan of the Corporation or any of its Subsidiaries to purchase or otherwise acquire any shares of Junior Stock or any loan or other extension of credit by the Corporation or any of its Subsidiaries to any such employee stock ownership plan. 6.3 Notwithstanding anything to the contrary contained in this Section 6, (a) at any time during which the Corporation is then in default of any obligation to make any redemption pursuant to Section 5 hereof, the Corporation may nevertheless, directly or indirectly, purchase shares of Junior Stock covered by any employee stock ownership plan of the Corporation or any of its Subsidiaries existing on December 23, 1996 (the "ESOP") or a successor plan (i) to the extent required by those provisions of the ESOP or any successor plan that are no more favorable to the employees of the Corporation than the provisions of the ESOP (a "Successor Plan") and (ii) to the extent required by law, and (b) at any time during which the Corporation is not in default of any obligation to make any redemption pursuant to Section 5 hereof, the Corporation may, directly or indirectly, purchase: (i) shares of Junior Stock from employees of the Corporation or any of its Subsidiaries, former employees of the Corporation or any of its Subsidiaries or the estates of deceased employees of the Corporation or any of its Subsidiaries, or any party to the Stockholders Agreement of the Corporation dated August 21, 1996 (or his or its successors or permitted assigns) with an aggregate consideration paid by the Corporation in any fiscal year of the Corporation of less than or equal to $5,000,000; provided, however, that to the extent that the Corporation fails to resell any such shares of Junior Stock within one year after the date of purchase for consideration greater than or equal to the consideration paid by the Corporation for such shares, the Corporation shall, on the first anniversary of the purchase of such shares, redeem a number of shares of Preferred Stock, rounded to the nearest whole number, having an aggregate Redemption Price equal to the consideration paid by the Corporation for such shares of Junior Stock, if such shares have not been sold within such one year period, or the excess of the purchase price for such shares over the price for which such shares were resold, as applicable; (ii) shares of Junior Stock from employees of the Corporation or any of its Subsidiaries, former employees of the Corporation or any of its Subsidiaries or the estates of deceased employees of the Corporation or any of its Subsidiaries; provided, however, that, if at any time the aggregate consideration paid by the Corporation, directly or indirectly, for the purchase of such shares of Junior Stock pursuant to this clause (ii) exceeds $1,000,000 in any fiscal year of the Corporation, the Corporation shall concurrently redeem a number of shares of Preferred Stock rounded to the nearest whole number, with a Liquidation Value equal to the amount of such excess; and A-xiii (iii) shares of Junior Stock covered by the ESOP or any Successor Plan (1) to the extent required by the provisions thereof or (2) to the extent required by law. Section 7. Voting. 7.1 The holders of shares of Preferred Stock shall have no voting rights whatsoever, except for any voting rights to which such holders may be entitled under applicable laws and except for the voting rights set forth in the following provisions of this Section 7. 7.2 Voting Right. Upon the occurrence and during the continuance of an Event of Non-Compliance specified in clause (i) of the definition thereof, the number of directors constituting the Board shall without further act be increased by one and the holders of shares of the Preferred Stock shall have the exclusive right (the "Special Voting Right"), voting separately as a class, to elect one director of the Corporation. 7.3 The Special Voting Right may be exercised initially either by written consent or at a special meeting of the holders of the Preferred Stock, called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors, and thereafter at each such annual meeting until such time as such Event of Non-Compliance shall have been cured in full, (i) in the case of an Event of Non-Compliance under clause (i)(a) of the definition thereof, by the declaration and payment or accrual or compounding of the relevant dividends in cash or in Additional Shares, or (ii) in the case of an Event of Non-Compliance under clause (i)(b) of the definition thereof, by the declaration and payment of the relevant dividends in cash or in Additional Shares, at which time the Special Voting Right and the term of the director elected pursuant to the exercise of the Special Voting Right shall automatically terminate. Upon termination of the Special Voting Right, the number of directors constituting the Board shall, without further action, be reduced by one, subject always to increase as provided above upon revesting of the Special Voting Right. 7.4 At any time when the Special Voting Right shall have vested and if the Special Voting Right shall not already have been exercised by written consent, a proper officer of the Corporation may call, and, upon the written request, addressed to the Secretary of the Corporation, of the record holders of shares representing 25% of the then outstanding shares of Preferred Stock, shall call, a special meeting of the holders of Preferred Stock. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of stockholders at the place for holding annual matings of stockholders of the Corporation or, if none, at a place designated by the Secretary of the Corporation. Notwithstanding the provisions of this Section 7.4, no such special meeting shall be called during a period within 60 days immediately preceding the date fixed for the next annual meeting of stockholders. 7.5 At any meeting held for the purpose of electing directors at which the holders of Preferred Stock are entitled to exercise the Special Voting Right, the presence (in person or by proxy) of the holders of 50% of the then outstanding shares of the Preferred Stock shall be required and shall be sufficient to constitute a quorum of such class for the exercise of the Special Voting Right. A-xiv 7.6 Any director elected by holders of Preferred Stock pursuant to the exercise of the Special Voting Right shall hold office until the next annual meeting of stockholders (unless such term has previously terminated pursuant to Section 7.3 hereof) and any vacancy in respect of any such directorship shall be filled only by the holders of Preferred Stock by written consent or at a special meeting called in accordance with the procedures set forth in Section 7.4 hereof, or, if no special meeting is called or written consent executed, at the next annual meeting of stockholders. 7.7 In exercising the Special Voting Right and for all other matters as to which the holders of shares of Preferred Stock are entitled to vote, each share of Preferred Stock shall have one vote; provided, however, that any shares owned beneficially or of record by the Corporation or any of its Subsidiaries shall be deemed to be not outstanding and the holders thereof shall not be entitled to any vote unless such restriction on such voting right shall be prohibited by applicable law. 8. Ranking 8.1 All shares of Preferred Stock shall rank senior, as to payments of dividends and as to distributions of assets (including any distribution of assets upon any Liquidation), to all shares of Junior Stock, whether presently outstanding or issued after the date hereof. 8.2 All shares of Preferred Stock shall rank on a parity, as to payments of dividends and as to distributions of assets (including any distribution of assets upon any Liquidation), with all shares of Series A Preferred Stock, and with all Parity Stock issued after the date hereof. 8.3 As of the date on which this Designation of Rights is filed with the Secretary of State of the State of Delaware, (a) no shares of Prior Stock are outstanding and (b) no shares of Junior Stock are outstanding other than shares of Common Stock. Section 9. Nonassessibility. The shares of Preferred stock when issued, shall by fully-paid and nonassessable. Section 10. Preemptive Rights. The Preferred Stock is not entitled to any preemptive rights or subscription rights in respect of any Capital Stock. Section 11. Registration Books, etc.. The Corporation will keep, or cause to be kept, at its principal office (or at the office of its agent for such purpose) proper books in which the names and addresses of the holders of shares of Preferred Stock issued by the Corporation shall be registered and in which transfers of such shares may be registered. The Corporation may treat the registered holder of any shares of Preferred Stock as the absolute owner thereof for the purpose of receiving all dividends and redemption payments thereon and for all other purposes, and the Corporation shall not be affected by any notice or knowledge to the contrary. Section 12. No Consent for Certain Actions. Anything herein to the contrary notwithstanding, no consent, approval or vote of the holders of Preferred Stock shall be required for (i) the creation of any indebtedness of any kind of the Corporation, (ii) the creation of any class of A-xv Junior Stock or Parity Stock, (iii) the issuance of shares of Junior Stock or Parity Stock or (iv) any increase, decrease or change in the par value thereof. Section 13. Amendments and Waivers. This Designation of Rights may not be amended nor may compliance with any of the provisions of this Designation of Rights be waived without, in each instance, the affirmative vote (at a meeting) or the written consent (with or without a meeting) of the holders of two-thirds of the shares of Preferred Stock then outstanding. Section 14. Severability of Provisions. Whenever possible, each provision hereof shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision hereof is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions hereof. If a court of competent jurisdiction should determine that a provision hereof would be valid or enforceable if a period of time were extended or shortened or a particular percentage were increased or decreased, then such court may make such change as shall be necessary to render the provision in question effective and valid under applicable law. Section 15. Certifications. On or before June 30 and December 31 of each year, the Corporation shall provide the Holders with a report, certified by an officer of the Corporation, setting forth (i) the number of shares of Junior Stock purchased during the immediately preceding 12-month period pursuant to Section 6.4(b)(i) (including the dates of purchase and the consideration paid by the Corporation with respect to each such purchase) and (ii) the number of shares of Junior Stock so purchased by the Corporation which have been resold by the Corporation during such 12-month period (including the dates of sale and the consideration received by the Corporation with respect to each such sale). Section 16. Notices. Any notice required to be given hereunder shall be sufficient if in writing, sent by courier service (with proof of service), hand delivery or certified or registered mail (return receipt requested and first- class postage prepaid), and addressed (i) if to any record holder of shares of Preferred Stock, to the address of such record holder as reflected in the transfer records for shares of Preferred Stock maintained by the Corporation or any transfer agent, or (ii) if to the Corporation, at its principal executive offices to the attention of its Secretary. Any notice given in accordance with this provision by the Corporation shall be deemed delivered as of the date receipt or proof of service or delivery is confirmed or when such notice is returned as undeliverable. A-xvi EX-4.1 3 EXHIBIT 4.1 EXHIBIT 4.1 WARRANT AGREEMENT between STERLING CHEMICALS HOLDINGS, INC. and HARRIS TRUST AND SAVINGS BANK Warrant Agent Dated as of July 10, 1997 TABLE OF CONTENTS
Page ---- ARTICLE I CERTAIN DEFINITIONS................................. 1 ARTICLE II ORIGINAL ISSUE OF WARRANTS.......................... 3 Section 2.1. Issuance of Warrants; Form of Warrant Certificates.. 3 Section 2.2. Legends............................................. 3 Section 2.3. Execution and Delivery of Warrant Certificates...... 3 Section 2.4. Transfer and Exchange............................... 4 Section 2.5. Surrender of Warrant Certificates................... 4 ARTICLE III EXERCISE PRICE; EXERCISE OF WARRANTS................ 5 Section 3.1. Exercise Price...................................... 5 Section 3.2. Exercise; Restrictions on Exercise.................. 5 Section 3.3. Method of Exercise; Payment of Exercise Price....... 5 ARTICLE IV ADJUSTMENTS......................................... 6 Section 4.1. Adjustments......................................... 6 Section 4.2. Notice of Adjustment................................ 11 Section 4.3. Statement on Warrants............................... 12 Section 4.4. Notice of Consolidation, Merger, Etc................ 12 Section 4.5. Fractional Interests................................ 12 ARTICLE V LOSS OR MUTILATION.................................. 13 ARTICLE VI AUTHORIZATION AND RESERVATION OF COMMON STOCK; PURCHASE OF WARRANTS............................... 13 Section 6.1. Reservation of Authorized Common Stock.............. 13 Section 6.2. Purchase of Warrants by Holdings.................... 13 ARTICLE VII WARRANT HOLDERS..................................... 14 ARTICLE VIII THE WARRANT AGENT................................... 14 Section 8.1. Duties and Liabilities.............................. 14 Section 8.2. Right to Consult Counsel............................ 16 Section 8.3. No Restrictions on Actions.......................... 16 Section 8.4. Change of Warrant Agent............................. 16 Section 8.5. Successor Warrant Agent............................. 17
ARTICLE IX MISCELLANEOUS....................................... 17 Section 9.1. Money Deposited with the Warrant Agent.............. 17 Section 9.2. Payment of Taxes.................................... 18 Section 9.3. Merger, Consolidation or Sale of Assets of Holdings. 18 Section 9.4. Reports to Holders.................................. 18 Section 9.5. Notices............................................. 18 Section 9.6. Governing Law....................................... 19 Section 9.7. Binding Effect...................................... 19 Section 9.8. Counterparts........................................ 19 Section 9.9. Amendments.......................................... 19 Section 9.10. Headings............................................ 19 Section 9.11. Common Stock Legend................................. 20 Section 9.12. Third Party Beneficiaries........................... 20 EXHIBIT A Form of Warrant Certificate...................................... A-1
WARRANT AGREEMENT WARRANT AGREEMENT, dated as of July 10, 1997 (this "Agreement"), between STERLING CHEMICALS HOLDINGS, INC., a Delaware corporation ("Holdings"), and HARRIS TRUST AND SAVINGS BANK as warrant agent (the "Warrant Agent"). In connection with the issuance and sale by Holdings of its Series B Cumulative Redeemable Preferred Stock (the "Series B Preferred Stock") pursuant to a Stock and Warrant Purchase Agreement (the "Purchase Agreement"), dated July 7, 1997 among Holdings, Sterling Chemicals Acquisitions, Inc., Olympus Growth Fund II, L.P., Olympus Executive Fund, L.P., Clipper Capital Associates, L.P., Clipper/Merchant Partners, L.P., Clipper/Merban, L.P., Clipper Equity Partners I, L.P., Clipper/European Re, L.P., Chase Equity Associates, L.P., Koch Capital Services, Inc. and the CIT Group/Equity Investments, Inc. (each a "Purchaser" and collectively, the "Purchasers"), Holdings has agreed to issue and sell to the Purchasers warrants (each, a "Warrant") entitling the holders thereof to purchase an aggregate of 201,048 shares of common stock, par value $.01 per share, of Holdings (subject to adjustment as provided herein) at a price of $.01 per share. In consideration of the foregoing and of the agreements contained in the Purchase Agreement and for the purpose of defining the terms and provisions of the Warrants and the respective rights and obligations thereunder of Holdings, the Warrant Agent and the record holders of the Warrants (the "Holders"), Holdings and the Warrant Agent hereby agree as follows: ARTICLE I CERTAIN DEFINITIONS "Affiliate" of any Person means any Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For purposes of this definition, "control," when used with respect to any Person, means the power to direct the management and policies of such Person, whether though the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Business Day" means any day which is not a Saturday, a Sunday, or any other day on which banking institutions are authorized or required to be closed in the State of New York or the state in which the principal corporate trust office of the Warrant Agent is located. "Closing Date" means July 10, 1997 or such other date as the Purchasers and Sterling Chemicals Acquisitions, Inc. may agree. "Commission" means the Securities and Exchange Commission. "Common Stock" means the common stock, par value $0.01 per share, of Holdings, including any other capital stock into which such common stock may be converted or reclassified or that may be issued in respect of, in exchange for, or in substitution of, such common stock for reason of any stock splits, stock dividends, distributions, mergers, consolidations or other like events. "Current Market Value" has the meaning specified in Section 4.1(f) hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exercise Price" has the meaning specified in Section 3.1 hereof. "Expiration Date" means December 1, 2007. "Holders" has the meaning specified in the recitals to this Agreement. "Holdings" has the meaning specified in the preamble to this Agreement and shall include its successors. "Independent Financial Expert" means a nationally recognized investment banking firm or appraisal firm which is not an Affiliate of Holdings. The Independent Financial Expert may be compensated and indemnified by Holdings for opinions or services it provides as an Independent Financial Expert. "Person" means any individual, limited liability company, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof or any other entity. "Purchase Agreement" has the meaning specified in the preamble to this Agreement, as amended or supplemented from time to time. "Purchaser" and "Purchasers" have the meanings specified in the preamble to this Agreement and shall include its or their successors, respectively. "Right" means any right, option, warrant or convertible or exchangeable security containing the right to subscribe for or acquire one or more shares of Common Stock, excluding the Warrants. "Securities Act" means the Securities Act of 1933, as amended. "Spread" means, with respect to any Warrant, the Current Market Value of the Underlying Securities issuable upon exercise of such Warrant adjusted as provided herein, less the Exercise Price of such Warrant. "Underlying Securities" means the shares of Common Stock or other securities or property issuable upon exercise of the Warrants. "Value Report" has the meaning specified in Section 4.1(j) hereof. "Warrant" has the meaning specified in the recitals to this Agreement. "Warrant Agent" has the meaning specified in the preamble to this Agreement and shall include its successors. "Warrant Certificates" has the meaning specified in Section 2.1 hereof. 2 ARTICLE II ORIGINAL ISSUE OF WARRANTS Section II.1. Issuance of Warrants; Form of Warrant Certificates. The Warrants shall be issued in connection with the issuance of the Series B Preferred Stock and shall at all times be separately transferable from the Series B Preferred Stock. Certificates representing the Warrants (the "Warrant Certificates") shall be issued in registered form only, shall be substantially in the form attached hereto as Exhibit A, shall be dated the date on which countersigned by the Warrant Agent and shall have such insertions as are appropriate or required or permitted by this Agreement and may have such letters, numbers or other marks of identification and such legends and endorsements stamped, printed, lithographed or engraved thereon as Holdings may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law, rule or regulation, or to conform to usage. The definitive Warrant Certificates shall be typed, printed, lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by applicable law, rules and regulations, all as determined by the officers executing such Warrant Certificates, as evidenced by their execution of such Warrant Certificates. Section II.2. Legends. Each Warrant shall bear the following legend: THE COMMON STOCK, PAR VALUE $.01 PER SHARE, OF HOLDINGS (THE "COMMON STOCK") FOR WHICH THIS WARRANT IS EXERCISABLE MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT REGISTRATION UNDER THE SECURITIES AND EXCHANGE ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND ANY APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. ACCORDINGLY, NO HOLDER SHALL BE ENTITLED TO EXERCISE SUCH HOLDER'S WARRANTS AT ANY TIME UNLESS, AT THE TIME OF EXERCISE, (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT RELATING TO THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAS BEEN FILED WITH, AND DECLARED EFFECTIVE BY, THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), AND NO STOP ORDER SUSPENDING THE EFFECTIVENESS OF SUCH REGISTRATION STATEMENT HAS BEEN ISSUED BY THE COMMISSION, OR (ii) THE ISSUANCE OF SUCH SHARES IS PERMITTED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. Section II.3. Execution and Delivery of Warrant Certificates. Warrant Certificates evidencing Warrants to purchase initially an aggregate of up to 201,048 shares of Common Stock may be executed, on or after the date of this Agreement, by Holdings and delivered to the Warrant Agent for countersignature, and the Warrant Agent shall thereupon countersign and deliver such Warrant Certificates, at the expense of Holdings, upon the written order and at the direction of Holdings to the purchasers thereof on the date of issuance. The Warrant Agent is hereby authorized to countersign and deliver Warrant Certificates as required by this Section 2.3 or 3 by Section 2.4, Section 3.3, Section 3.4 or Article V hereof. The Warrant Certificates shall be executed on behalf of Holdings by its Chairman of the Board, Chief Executive Officer or President or by a Vice President, either manually or by facsimile signature printed thereon. The Warrant Certificates shall be countersigned by manual or facsimile signature of the Warrant Agent and shall not be valid for any purpose unless so countersigned. In case any officer of Holdings whose signature shall have been placed upon any of the Warrant Certificates shall cease to be an officer of Holdings before countersignature by the Warrant Agent and the issuance and delivery thereof, such Warrant Certificates may, nevertheless, be countersigned by the Warrant Agent and issued and delivered with the same force and effect as though such person had not ceased to be such officer of Holdings. Section II.4. Transfer and Exchange. Holdings shall cause to be kept at the office of the Warrant Agent a register in which, subject to such reasonable regulations as it may prescribe, Holdings shall provide for the registration of Warrant Certificates and transfers and exchanges of Warrant Certificates as provided in this Agreement. A Holder may transfer its Warrants only by written application to the Warrant Agent stating the name of the proposed Transferee and otherwise complying with the terms of this Agreement. No such transfer shall be effected until, and such Transferee shall succeed to the rights of a Holder only upon, final acceptance and registration of the transfer by the Warrant Agent in the register in accordance with this Agreement. Prior to the registration of any transfer of Warrants by a Holder as provided herein, Holdings, the Warrant Agent and any agent of Holdings may treat the person in whose name the Warrants are registered as the owner thereof for all purposes and as the person entitled to exercise the rights represented thereby, any notice to the contrary notwithstanding. When Warrants are presented to the Warrant Agent with a request to register the transfer thereof or to exchange them for an equal number of Warrants of other authorized denominations, the Warrant Agent shall register the transfer or make the exchange as requested if the requirements of this Agreement for such transaction are met. To permit registrations of transfers and exchanges, Holdings shall execute Warrant Certificates at the Warrant Agent's request. No service charge shall be made for any registration of transfer or exchange of Warrants, but Holdings may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection with any registration of transfer of Warrants. All Warrant Certificates issued upon any registration of transfer or exchange of Warrants shall be the valid obligations of Holdings, evidencing the same obligations, and entitled to the same benefits under this Agreement, as the Warrant Certificates surrendered for registration of transfer or exchange. Section II.5. Surrender of Warrant Certificates. Any Warrant Certificate surrendered for registration of transfer, exchange or exercise of the Warrants represented thereby shall, if surrendered to Holdings, be delivered to the Warrant Agent, and all Warrant Certificates surrendered or so delivered to the Warrant Agent shall be promptly cancelled by the Warrant Agent and shall not be reissued by Holdings and, except as provided in this Article II in case of an exchange, Article III hereof in case of the exercise of less than all the Warrants represented thereby or Article V in case of a mutilated Warrant Certificate, no Warrant Certificate shall be issued hereunder in lieu thereof. The Warrant Agent shall destroy all cancelled Warrant Certificates in accordance with its normal procedures. ARTICLE III 4 EXERCISE PRICE; EXERCISE OF WARRANTS Section III.1. Exercise Price. Each Warrant Certificate shall, when countersigned by the Warrant Agent, entitle the Holder thereof, subject to the provisions of this Agreement, to purchase one share of Common Stock (subject to adjustment as provided herein) for each Warrant represented thereby at a purchase price (the "Exercise Price") of $.01 per share; provided that, at the option of the Holder thereof, payment of the Exercise Price may be satisfied through the delivery and cancellation of additional Warrants having an aggregate Spread equal to the aggregate Exercise Price of the Warrants being exercised. The calculation of the Spread and the number of Warrants deliverable in payment of the Exercise Price shall be verified by Holdings. Section III.2. Exercise; Restrictions on Exercise. (a) At any time commencing on the date hereof and on or before the Expiration Date, any outstanding Warrants may be exercised on any Business Day; provided that the Registration Statement is, at the time of exercise, effective and available or the exercise of such Warrants is exempt from the registration requirements of the Securities Act. Any Warrants not exercised by 5:00 p.m., New York City time, on the Expiration Date shall expire and all rights of the Holders of such Warrants shall terminate. Additionally, pursuant to Section 4.1(h)(B) hereof, the Warrants may expire and all rights of the Holders of such Warrants shall terminate in the event Holdings merges or consolidates with or sells all or substantially all of its property and assets to a Person if the consideration payable to holders of Common Stock in exchange for their Common Stock in connection with such merger, consolidation or sale consists solely of cash or in the event of the dissolution, liquidation or winding up of Holdings. (b) Holdings shall give notice not less than 90 and not more than 120 days prior to the Expiration Date to the Holders of all then outstanding Warrants to the effect that the Warrants will terminate and become void as of 5:00 p.m., New York City time, on the Expiration Date; provided, however, that the failure by Holdings to give such notice as provided in this Section shall not affect such termination and becoming void of the Warrants as of 5:00 p.m., New York City time, on the Expiration Date. (c) In the event a Holder exercises its Warrants at a time when the Registration Statement is not effective and available, such Holder must furnish to the Warrant Agent and Holdings such certifications, legal opinions or other information as either of them may reasonably require to confirm that such exercise is being made pursuant to an exemption from the registration requirements of the Securities Act. Section III.3. Method of Exercise; Payment of Exercise Price. In order to exercise all or any of the Warrants represented by a Warrant Certificate, the Holder thereof must surrender for exercise the Warrant Certificate to the Warrant Agent at its corporate trust office set forth in Section 9.5 hereof, with the Subscription Form set forth in the Warrant Certificate duly executed, together with payment in full of the Exercise Price then in effect for each share of Common Stock or other securities or property issuable upon exercise of the Warrants as to which a Warrant is exercised; such payment may be made (x) by wire transfer or by certified or official bank or bank cashier's check payable to the order of Holdings or (y) as permitted pursuant to the proviso in Section 3.1. The Warrant Agent shall promptly notify Holdings in writing upon the exercise of any Warrant and of the number of shares of Common Stock delivered upon the exercise of such Warrant; all payments received upon exercise of Warrants shall be delivered to Holdings by the Warrant Agent as instructed in writing by Holdings. If less than all the Warrants represented by 5 a Warrant Certificate are exercised, such Warrant Certificate shall be surrendered and a new Warrant Certificate of the same tenor and for the number of Warrants which were not exercised shall be executed by Holdings and delivered to the Warrant Agent and the Warrant Agent shall countersign the new Warrant Certificate, registered in such name or names as may be directed in writing by the Holder, and shall deliver the new Warrant Certificate to the Person or Persons entitled to receive the same. Upon exercise of any Warrants following surrender of a Warrant Certificate in conformity with the foregoing provisions, the Warrant Agent shall instruct Holdings to transfer promptly to or upon the written order of the Holder of such Warrant Certificate appropriate evidence of ownership of any Common Stock or other securities or property (including money) to which it is entitled, registered or otherwise placed in such name or names as may be directed in writing by the Holder, and to deliver such evidence of ownership and any other securities or property (including money) to the Person or Persons entitled to receive the same, together with an amount in cash in lieu of any fractional shares as provided in Section 4.5 hereof; provided that the Holder of such Warrant shall be responsible for the payment of any transfer taxes or other governmental charges imposed as the result of any change in ownership of such Warrants or the issuance of such Common Stock or other securities or Warrants other than to the registered owner of such Warrants. Upon exercise of a Warrant or Warrants, the Warrant Agent is hereby authorized and directed to requisition from any transfer agent of the Common Stock (and all such transfer agents are hereby irrevocably authorized to comply with all such requests) certificates (bearing the legend set forth in Section 9.11, if applicable) for the necessary number of shares to which the Holder of the Warrant or Warrants may be entitled. A Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of the surrender for exercise, as provided above, of the Warrant Certificate representing such Warrant and, for all purposes of this Agreement, the Person entitled to receive any Common Stock or other securities or property deliverable upon such exercise shall, as between such Person and Holdings, be deemed to be the Holder of such Common Stock or other securities or property of record as of the close of business on such date and shall be entitled to receive, and the Warrant Agent shall deliver, at the expense of Holdings, to such Person, any money, Common Stock or other securities or property to which he would have been entitled had he been a record holder on such date. ARTICLE IV ADJUSTMENTS Section IV.1. Adjustments. The number of shares of Common Stock issuable upon exercise of each Warrant shall be subject to adjustment from time to time as follows: (a) Stock Dividends; Stock Splits; Reverse Stock Splits; Reclassifications. In case Holdings shall (i) pay a dividend or make any other distribution with respect to its Common Stock in shares of any class or series of its capital stock, (ii) subdivide its outstanding Common Stock, (iii) combine its outstanding Common Stock into a smaller number of shares or (iv) issue any shares of its capital stock in a reclassification of the Common Stock (other than a reclassification in connection with a merger, consolidation or other business combination which will be governed by Section 4.1(h)), the number of shares of Common Stock purchasable upon exercise of each Warrant immediately prior to the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be adjusted so that the Holder of each Warrant shall be entitled to receive the kind and number of shares of Common Stock or other securities of Holdings which such Holder would have been entitled to receive after the happening of any of the events described above had such Warrant been exercised immediately prior to the happening of such event or any record date with respect thereto (with any record date 6 requirement being deemed to have been satisfied). An adjustment made pursuant to this Section 4.1(a) shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) Rights; Options; Warrants. In case Holdings shall issue rights, options, warrants or convertible or exchangeable securities (other than a convertible or exchangeable security subject to Section 4.1(a)) to all holders of its Common Stock, entitling them to subscribe for or purchase Common Stock at a price per share of Common Stock (determined in the case of such rights, options, warrants or convertible or exchangeable securities, by dividing (x) the total amount receivable by Holdings in consideration of the issuance of such rights, options, warrants or convertible or exchangeable securities, if any, plus the total consideration payable to Holdings upon exercise, conversion or exchange thereof, by (y) the total number of shares of Common Stock covered by such rights, options, warrants or convertible or exchangeable securities) which is lower (at the record date for such issuance) than the then Current Market Value per share of Common Stock, the number of shares of Common Stock thereafter purchasable upon exercise of each Warrant shall be determined by multiplying the number of shares of Common Stock theretofore purchasable upon exercise of each Warrant by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such rights, options, warrants or convertible or exchangeable securities plus the number of additional shares of Common Stock offered for subscription or purchase or issuable upon conversion or exchange, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such rights, options, warrants or convertible or exchangeable securities plus the number of shares which the aggregate offering price of the total number of shares of Common Stock so offered would purchase at the then Current Market Value per share of Common Stock. Such adjustment shall be made whenever such rights, options, warrants or convertible or exchangeable securities are issued, and shall become effective retroactively immediately after the record date for the determination of shareholders entitled to receive such rights, options, warrants or convertible or exchangeable securities. (c) Issuance of Common Stock at Lower Values. In case Holdings shall sell or issue any shares of Common Stock or Right (excluding (i) any Right issued in any of the transactions described in Section 4.1(a) or (b) above, (ii) any shares of Common Stock issued pursuant to (x) any Rights outstanding on the date of this Agreement, (y) a Right, if on the date such Right was issued, the exercise, conversion or exchange price per share of Common Stock with respect thereto was at least equal to the Current Market Value per share of Common Stock on such date and (z) Rights (with respect to not more than an aggregate of 5% of the outstanding shares of Common Stock) issued to employees of Holdings and its subsidiaries resident in Canada pursuant to Holdings' stock option plan and (iii) any Right issued as consideration when any corporation or business is acquired, merged into or becomes part of Holdings or a subsidiary of Holdings in an arm's-length transaction between Holdings and a Person other than an Affiliate of Holdings) at a price per share of Common Stock (determined in the case of such Right, by dividing (x) the total amount receivable by Holdings in consideration of the sale and issuance of such Right, plus the total consideration payable to Holdings upon exercise, conversion or exchange thereof, by (y) the total number of shares of Common Stock covered by such Right) that is lower than the Current Market Value per share of Common Stock in effect immediately prior to such sale or issuance, then the number of shares of Common Stock thereafter purchasable upon the exercise of each Warrant shall be determined by multiplying the number of shares of Common Stock theretofore purchasable upon exercise of such Warrant by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately after such sale or issuance and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such sale or issuance plus the number of shares of Common Stock which the aggregate consideration received (determined as provided below) for such sale 7 or issuance would purchase at such Current Market Value per share of Common Stock. For purposes of this Section 4.1(c), the shares of Common Stock which the holder of any such Right shall be entitled to subscribe for or purchase shall be deemed to be issued and outstanding as of the date of such sale and issuance and the consideration received by Holdings therefor shall be deemed to be the consideration received by Holdings for such Right, plus the consideration or premiums stated in such Right to be paid for the shares of Common Stock covered thereby. In case Holdings shall sell and issue shares of Common Stock or any Right, for a consideration consisting, in whole or in part, of property other than cash or its equivalent, then in determining the "price per share of Common Stock" and the "consideration received by Holdings" for purposes of the first sentence of this Section 4.1(c), the Board of Directors of Holdings shall determine, in good faith, the fair value of said property, which determination shall be evidenced by a resolution of the Board of Directors of Holdings. In case Holdings shall sell and issue any Right together with one or more other securities as part of a unit at a price per unit, then in determining the "price per share of Common Stock" and the "consideration received by Holdings" for purposes of the first sentence of this Section 4.1(c), the Board of Directors of Holdings shall determine, in good faith, the fair value of the Right then being sold as part of such unit. (d) Distributions of Debt, Assets, Subscription Rights or Convertible Securities. In case Holdings shall fix a record date for the making of a distribution to all holders of its Common Stock of evidences of its indebtedness, assets, cash dividends or distributions (excluding dividends or distributions referred to in Section 4.1(a) above and excluding distributions in connection with the dissolution, liquidation or winding up of Holdings which will be governed by Section 4.1(h)(B) below) or securities (excluding those referred to in Section 4.1(a), Section 4.1(b) or Section 4.1(c) above), then in each case the number of shares of Common Stock purchasable after such record date upon the exercise of each Warrant shall be determined by multiplying the number of shares of Common Stock purchasable upon the exercise of such Warrant immediately prior to such record date by a fraction, the numerator of which shall be the Current Market Value per share of Common Stock immediately prior to the record date for such distribution and the denominator of which shall be the Current Market Value per share of Common Stock immediately prior to the record date for such distribution less the then fair value (as determined in good faith by the Board of Directors of Holdings) of the portion of the assets, evidence of indebtedness, cash dividends or distributions or securities so distributed applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of distribution retroactive to the record date for the determination of shareholders entitled to receive such distribution. (e) Expiration of Rights, Options and Conversion Privileges. Upon the expiration of any rights, options, warrants or conversion or exchange privileges that have previously resulted in an adjustment hereunder, if any thereof shall not have been exercised, the number of shares of Common Stock issuable upon the exercise of each Warrant shall, upon such expiration, be readjusted and shall thereafter, upon any future exercise, be such as they would have been had they been originally adjusted (or had the original adjustment not been required, as the case may be) as if (i) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion or exchange rights and (ii) such shares of Common Stock, if any, were issued or sold for the consideration actually received by Holdings upon such exercise plus the consideration, if any, actually received by Holdings for issuance, sale or grant of all such rights, options, warrants or conversion or exchange rights whether or not exercised; provided, that no such readjustment shall have the effect of 8 decreasing the number of shares issuable upon exercise of each Warrant by a number, in excess of the amount or number of the adjustment initially made in respect to the issuance, sale or grant of such rights, options, warrants or conversion or exchange rights. (f) Current Market Value. For the purposes of any computation hereunder, the Current Market Value per share of Common Stock or of any other security (herein collectively referred to as a "security") at any date herein specified shall be: (i) if the security is not registered under the Exchange Act, the value of the security (A) determined in good faith by the Board of Directors of Holdings and certified in a board resolution based upon the most recently completed arm's-length transaction with respect to such security between Holdings and a Person other than an Affiliate of Holdings and the closing of which occurs on such date or shall have occurred within the six months preceding such date, or (B) if no such transaction shall have occurred within such six-month period, most recently determined as of a date within the six months preceding such date by an Independent Financial Expert selected by Holdings, or (C) if no such determination shall have been made within such six-month period or if Holdings so chooses, determined as of such date by an Independent Financial Expert selected by Holdings, or (ii) if the security is registered under the Exchange Act, the average of the daily market prices of the security for the 20 consecutive trading days immediately preceding such date or, if the security has been registered under the Exchange Act for less than 20 consecutive trading days before such date, then the average of the daily market prices for all of the trading days before such date for which daily market prices are available. The market price for each such trading day shall be: (A) in the case of a security listed or admitted to trading on any national securities exchange, the closing sales price, regular way, on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day on the principal national securities exchange on which such security is listed or admitted, as determined by the Board of Directors of Holdings, in good faith, (B) in the case of a security not then listed or admitted to trading on any national securities exchange, the last reported sale price on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reputable quotation source designated by Holdings, (C) in the case of a security not then listed or admitted to trading on any national securities exchange and as to which no such reported sale price or bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reputable quotation service, or a newspaper of general circulation in the Borough of Manhattan, City and State of New York customarily published on each Business Day, designated by Holdings, or, if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than 30 days prior to the date in question) for which prices have been so reported and (D) if there are no bid and asked prices reported during the 30 days prior to the date in question, the Current Market Value of the security shall be determined as if the security were not registered under the Exchange Act. (g) De Minimis Adjustments. No adjustment in the number of shares of Common Stock purchasable hereunder shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the number of shares of Common Stock purchasable upon the exercise of each Warrant; provided, however, that any adjustments which by reason of this Section 4.1(g) are not required to be made shall be carried forward and taken into 9 account in any subsequent adjustment. All calculations shall be made to the nearest one-thousandth of a share. (h) Consolidation, Merger, Etc. (A) Subject to the provisions of Subsection (B) below of this Section 4.1(h), in case of the consolidation of Holdings with, or merger of Holdings with or into, or of the sale of all or substantially all of the properties and assets of Holdings to, any Person and in connection therewith consideration is payable to holders of Common Stock (or other securities or property purchasable upon exercise of Warrants) in exchange therefor, the Warrants shall remain subject to the terms and conditions set forth in this Agreement and each Warrant shall, after such consolidation, merger or sale, entitle the Holder to receive upon exercise the number of shares of capital stock or other securities or property (including cash) of Holdings, or of such Person resulting from such consolidation or surviving such merger or to which such sale shall be made, as the case may be, that would have been distributable or payable on account of the shares of Common Stock (or other securities or properties purchasable upon exercise of Warrants) if such Holder's Warrants had been exercised immediately prior to such merger, consolidation or sale (or, if applicable, the record date therefor); and in any such case the provisions of this Agreement with respect to the rights and interests thereafter of the Holders of Warrants shall be appropriately adjusted by the Board of Directors of Holdings in good faith so as to be applicable, as nearly as may reasonably be, to any shares of stock or other securities or any property thereafter deliverable on the exercise of the Warrants. (B) Notwithstanding the foregoing, (x) if Holdings merges or consolidates with, or sells all or substantially all of its property and assets to, another Person and consideration is payable to holders of Common Stock in exchange for their Common Stock in connection with such merger, consolidation or sale which consists solely of cash, or (y) in the event of the dissolution, liquidation or winding up of Holdings, then the Holders of Warrants shall be entitled to receive distributions on the date of such event on an equal basis with holders of Common Stock (or other securities issuable upon exercise of the Warrants) as if the Warrants had been exercised immediately prior to such event, less the Exercise Price. Upon receipt of such payment, if any, the right of a Holder shall terminate and cease and such Holder's Warrants shall expire. In case of any such merger, consolidation or sale of assets, the surviving or acquiring Person and, in the event of any dissolution, liquidation or winding up of Holdings, Holdings shall deposit promptly with the Warrant Agent the funds, if any, necessary to pay the Holders of the Warrants. After receipt of such deposit from such Person or Holdings and after receipt of surrendered Warrant Certificates, the Warrant Agent shall make payment by delivering a check in such amount as is appropriate (or, in the case of consideration other than cash, such other consideration as is appropriate) to such Person or Persons as it may be directed in writing by the Holder surrendering such Warrants. (i) In addition to the foregoing adjustments, the Board of Directors of Holdings may make any other adjustment to increase the number of Underlying Securities issuable upon exercise of Warrants as it may, in good faith, deem desirable to protect the rights and benefits of Holders. In addition, Holdings may from time to time increase the number of Underlying Securities issuable upon exercise of Warrants, provided that any such increase must be effective for at least 30 calendar days, and must be preceded by written notice of such increase to the Holders and the Warrant Agent, which notice must be mailed at least 30 calendar days prior to the effective date of such increase. Any such increase shall not alter or adjust the Exercise Price. (j) If at any time the Current Market Value of any security is required in order to comply with the terms of this Agreement, and such Current Market Value is determined in accordance with Section 4.1(f)(i) hereof: (1) if clause (A) of Section 4.1(f)(i) is applicable, 10 Holdings shall, as promptly as practicable, deliver to the Warrant Agent a copy of the board resolution certifying the Current Market Value determination and a brief description of the arm's-length transaction upon which such determination was based; (2) if clause (B) of Section 4.1(f)(i) is applicable, Holdings shall as promptly as practicable deliver to the Warrant Agent the value report of the Independent Financial Expert, stating the value of the security and briefly describing the nature and scope of the examination upon which the determination was made (the "Value Report"); and (3) if clause (C) of Section 4.1(f)(i) is applicable, Holdings shall cause the Independent Financial Expert to deliver to Holdings, with a copy to the Warrant Agent, within 45 days of the appointment of the Independent Financial Expert, a Value Report. The Warrant Agent shall have no duty with respect to any such board resolution or Value Report, except to keep it on file and available for inspection by the Holders. The determination as to value in accordance with the provisions of this Section 4.1(j) shall be conclusive on all Persons. The Independent Financial Expert shall use one or more valuation methods that it determines, in its best professional judgment, to be most appropriate. The Independent Financial Expert shall consult with management of Holdings in order to allow management to comment on the proposed value prior to delivery to Holdings of any Value Report of the Independent Financial Expert pursuant to clause (3) above. Section IV.2. Notice of Adjustment. Whenever the number of shares of Common Stock or other stock or property purchasable upon the exercise of each Warrant is adjusted, as herein provided, Holdings shall cause the Warrant Agent promptly to mail, at the expense of Holdings, to each Holder notice of such adjustment or adjustments and shall deliver to the Warrant Agent a certificate of a firm of independent public accountants selected by the Board of Directors of Holdings (who may be the regular accountants employed by Holdings) setting forth the number of shares of Common Stock or other stock or property purchasable upon the exercise of each Warrant after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. Such certificate shall be conclusive evidence of the correctness of such adjustment. The Warrant Agent shall be entitled to and shall be fully protected in relying on such certificate and shall be under no duty or responsibility with respect to any such certificate, except to exhibit the same, from time to time, to any Holder desiring an inspection thereof during reasonable business hours. The Warrant Agent shall not at any time be under any duty or responsibility to any Holders to determine whether any facts exist which may require any adjustment of the Exercise Price or the number of shares of Common Stock or other securities or property purchasable on exercise of the Warrants, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed in making such adjustment, or the validity or value (or the kind or amount) of any Common Stock or other securities or property which may be purchasable on exercise of the Warrants. The Warrant Agent shall not be deemed to have knowledge of such adjustment unless and until it shall have received such certificate. The Warrant Agent shall not be responsible for any failure of Holdings to make any cash payment or to issue, transfer or deliver any shares of Common Stock or other securities or property upon the exercise of any Warrant. Section IV.3. Statement on Warrants. Irrespective of any adjustment in the number or kind of shares purchasable upon the exercise of the Warrants, Warrants theretofore or thereafter issued may continue to express the same number and kind of shares as are stated in the Warrants initially issuable pursuant to this Agreement. Section IV.4. Notice of Consolidation, Merger, Etc. In case at any time after the date hereof and prior to 5:00 p.m., New York City time, on the Expiration Date, there shall be any (i) consolidation or merger involving Holdings or sale, transfer or other disposition of all or substantially all of Holdings's property, assets or business (except a merger in which Holdings shall 11 be the surviving corporation and holders of Common Stock (or other securities or property purchasable upon exercise of the Warrants) receive no consideration in respect of their shares) or (ii) any other transaction contemplated by Section 4.1(h)(B) above, then in any one or more of such cases, Holdings shall cause to be mailed to the Warrant Agent and each Holder of a Warrant, at the earliest practicable time (and, in any event, not less than 20 calendar days before any date set for definitive action), notice of the date on which such reorganization, sale, consolidation, merger, dissolution, liquidation or winding up shall take place, as the case may be. Such notice shall also set forth such facts as shall indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the kind and amount of Common Stock and other securities, money and other property deliverable upon exercise of the Warrants. Such notice shall also specify the date as of which the holders of record of the Common Stock or other securities or property issuable upon exercise of the Warrants shall be entitled to exchange their shares for securities, money or other property deliverable upon such reorganization, sale, consolidation, merger, dissolution, liquidation or winding up, as the case may be. Section IV.5. Fractional Interests. If more than one Warrant shall be presented for exercise in full at the same time by the same Holder, the number of full shares of Common Stock which shall be issuable upon such exercise thereof shall be computed on the basis of the aggregate number of shares of Common Stock purchasable on exercise of the Warrants so presented. If any fraction of a share of Common Stock would, except for the provisions of this Section 4.5, be issuable on the exercise of any Warrant (or specified portion thereof), Holdings shall pay an amount in cash calculated by it to be equal to the then Current Market Value per share of Common Stock multiplied by such fraction computed to the nearest whole cent. ARTICLE V LOSS OR MUTILATION Upon receipt by Holdings and the Warrant Agent of evidence satisfactory to them of the ownership and the loss, theft, destruction or mutilation of any Warrant Certificate and of indemnity in the form of an indemnity bond satisfactory to them and (in the case of mutilation) upon surrender and cancellation thereof, then, in the absence of notice to Holdings or the Warrant Agent that the Warrants represented thereby have been acquired by a bona fide purchaser, Holdings shall execute and the Warrant Agent shall countersign and deliver to the registered Holder of the lost, stolen, destroyed or mutilated Warrant Certificate, in exchange for or in lieu thereof, a new Warrant Certificate of the same tenor and for like aggregate number of Warrants. Upon the issuance of any new Warrant Certificate under this Article V, Holdings may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and other expenses (including the fees and expenses of the Warrant Agent) in connection therewith. Every new Warrant Certificate executed and delivered pursuant to this Article V in lieu of any lost, stolen or destroyed Warrant Certificate shall constitute a contractual obligation of Holdings, whether or not the allegedly lost, stolen or destroyed Warrant Certificates shall be at any time enforceable by anyone, and shall be entitled to the benefits of this Agreement equally and proportionately with any and all other Warrant Certificates duly executed and delivered hereunder. The provisions of this Article V are exclusive and shall preclude (to the extent lawful) all other rights or remedies with respect to the replacement of mutilated, lost, stolen, or destroyed Warrant Certificates. 12 ARTICLE VI AUTHORIZATION AND RESERVATION OF COMMON STOCK; PURCHASE OF WARRANTS Section VI.1. Reservation of Authorized Common Stock. Holdings shall at all times reserve and keep available for issue upon the exercise of Warrants such number of its authorized but unissued shares of Common Stock or other securities of Holdings deliverable upon exercise of Warrants as will be sufficient to permit the exercise in full of all outstanding Warrants and will cause appropriate evidence of ownership of such Common Stock or other securities of Holdings to be delivered to the Warrant Agent upon its request for delivery upon the exercise of Warrants, and all such shares of Common Stock will, at all times, be duly approved for listing subject to official notice of issuance on each securities exchange, interdealer quotation system or market, if any, on which such Common Stock is then listed. Holdings covenants that all Common Stock or other securities of Holdings that may be issued upon the exercise of the Warrants will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free from preemptive rights and all taxes, liens, charges, encumbrances and security interests. Section VI.2. Purchase of Warrants by Holdings. Holdings shall have the right, except as limited by law, other agreement or herein, to purchase or otherwise acquire Warrants at such times, in such manner and for such consideration as it may deem appropriate. In the event Holdings shall purchase or otherwise acquire Warrants, the related Warrant certificates shall thereupon be delivered to the Warrant Agent and be cancelled by it and retired. ARTICLE VII WARRANT HOLDERS NOT DEEMED STOCKHOLDERS Holdings and the Warrant Agent may deem and treat the registered Holder(s) of the Warrant Certificates as the absolute owner(s) thereof (notwithstanding any notation of ownership or other writing thereon made by anyone), for the purpose of any exercise thereof and for all other purposes, and neither Holdings nor the Warrant Agent shall be affected by any notice to the contrary. Prior to the exercise of the Warrants, no Holder of a Warrant Certificate, as such, shall be entitled to any rights of a stockholder of Holdings, including, without limitation, the right to vote or to consent to any action of the stockholders, to receive dividends or other distributions, to exercise any preemptive right or to receive any notice of meetings of stockholders and, except as otherwise provided in this Agreement, shall not be entitled to receive any notice of any proceedings of Holdings. ARTICLE VIII THE WARRANT AGENT Section VIII.1. Duties and Liabilities. The Warrant Agent hereby accepts the agency established by this Agreement and agrees to perform the duties and obligations, and no implied duties or obligations shall be read into this Agreement against Warrant Agent, imposed by this Agreement upon the terms and conditions herein set forth, by all of which Holdings and the Holders of Warrants, by their acceptance thereof, shall be bound. 13 (a) The statements contained herein and in the Warrant Certificate shall be taken as statements of Holdings, and the Warrant Agent assumes no responsibility for the correctness of any of the same except as describe the Warrant Agent or any action taken by it. The Warrant Agent assumes no responsibility with respect to the distribution of the Warrants except as herein otherwise provided. (b) The Warrant Agent shall not be responsible for any failure of Holdings to comply with the covenants contained in this Agreement or in the Warrants to be complied with by Holdings. (c) The Warrant Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty thereunder either itself (through its employees) or by or through its attorneys or agents (which shall not include its employees) and shall not be responsible for the misconduct of any agent appointed. (d) Whenever in the performance of its duties under this Agreement the Warrant Agent shall deem it necessary or desirable that any fact or matter be proved or established by Holdings prior to taking or suffering any action hereunder, such fact or matter (unless such evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, President, Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, a Vice President, the Treasurer or Secretary of Holdings and delivered to the Warrant Agent; and such certificate shall be full authorization to the Warrant Agent for any action taken or suffered by it under the provisions of this Agreement in reliance upon such certificate. (e) Holdings agrees to pay the Warrant Agent reasonable compensation for all services rendered by the Warrant Agent in the performance of its duties under this Agreement, to reimburse the Warrant Agent for all expenses, taxes and governmental charges and other charges of any kind and nature incurred by the Warrant Agent (including reasonable fees and expenses of the Warrant Agent's counsel and agents) in the performance of its duties under this Agreement. Holdings also agrees to indemnify the Warrant Agent for, and to hold it harmless against, any loss, liability, or expenses incurred without negligence or willful misconduct on the part of Warrant Agent, for anything done or omitted by the Warrant Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises. The indemnity provided for herein shall survive the expiration of the Warrants and termination of this Agreement. The cost and expenses incurred in enforcing this right of indemnification shall be paid by Holdings. The Warrant Agent may conclusively rely upon and shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with, its administration of this Agreement in reliance upon any Warrant Certificate or certificate for shares of stock or other securities of Holdings, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons. Notwithstanding anything in the Agreement to the contrary, in no event shall the Warrant Agent be liable for special indirect, or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Warrant Agent has been advised of the likelihood of such loss or damage and regardless of the form of the action. (f) The Warrant Agent shall be under no obligation to institute any action, suit 14 or legal proceeding or to take any other action likely to involve expense unless Holdings or one or more Holders shall furnish the Warrant Agent with reasonable security and indemnity satisfactory to the Warrant Agent for any costs and expenses which may be incurred, but this provision shall not affect the power of the Warrant Agent to take such action as the Warrant Agent may consider proper, whether with or without any such security or indemnity. All rights of action under this Agreement or under any of the Warrants may be enforced by the Warrant Agent without the possession of any of the Warrants or the production thereof at any trial or other proceeding relative thereto, and any such action, suit or proceeding instituted by the Warrant Agent shall be brought in its name as Warrant Agent, and any recovery of judgment shall be for the ratable benefit of the Holders, as their respective rights or interests may appear. (g) The Warrant Agent and any stockholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of Holdings or become pecuniarily interested in any transactions in which Holdings may be interested, or contract with or lend money to Holdings or otherwise act as fully and freely as though it were not Warrant Agent under this Agreement or such director, officer or employee. Nothing herein shall preclude the Warrant Agent from acting in any other or for any other capacity for Holdings or for any other legal entity including, without limitation, acting as transfer agent or as a lender to the Company or an affiliate thereof. (h) The Warrant Agent shall act hereunder solely as agent, and its duties shall be determined solely by the provisions hereof. The Warrant Agent shall not be liable for anything which it may do or refrain from doing in connection with this Agreement except for its own negligence or willful misconduct. (i) The Warrant Agent may conclusively rely upon and shall be protected by Holdings and shall not incur any liability or responsibility to Holdings or to any Holder for any action taken in reliance on any notice, resolution, waiver, consent, order, certificate, or other paper, document or instrument reasonably believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. (j) The Warrant Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Warrant Agent) or in respect of the validity or execution of any Warrant (except its counter-signature thereof); nor shall the Warrant Agent by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Underlying Securities (or other stock) to be issued pursuant to this Agreement or any Warrant, or as to whether any Underlying Securities (or other stock) will, when issued, be validly issued, fully paid and nonassessable, or as to the Exercise Price or the number or amount of Underlying Securities or other securities or other property issuable upon exercise of any Warrant. (k) The Warrant Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman of the Board, President, Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, a Vice President or Secretary of Holdings, and to apply to such officers for advice or instructions in connection with its duties, and shall not be liable for any action taken or suffered to be taken by it and without negligence in accordance with instructions of any such officer or officers. Section VIII.2. Right to Consult Counsel. Before the Warrant Agent acts or refrains from acting, it may at any time consult with legal counsel (who may be legal counsel for 15 Holdings), and the opinion or advice of such counsel shall be full and complete authorization and protection to the Warrant Agent and the Warrant Agent shall incur no liability or responsibility to Holdings or to any Holder for any action taken, suffered or omitted by it in good faith in accordance with the opinion or advice of such counsel. Section VIII.3. No Restrictions on Actions. The Warrant Agent and any stockholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of Holdings or become pecuniarily interested in transactions in which Holdings may be interested, or contract with or lend money to Holdings or otherwise act as fully and freely as though it were not the Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for Holdings or for any other legal entity. Section VIII.4. Change of Warrant Agent. The Warrant Agent may resign from its position as such and be discharged from all further duties and liabilities hereunder (except liability arising as a result of the Warrant Agent's own negligence or willful misconduct), after giving one month's prior written notice to Holdings. Holdings may remove the Warrant Agent upon one month's written notice specifying the date when such discharge shall take effect, and the Warrant Agent shall thereupon in like manner be discharged from all further duties and liabilities hereunder, except as aforesaid. Holdings shall cause to be mailed to each Holder of a Warrant a copy of said notice of resignation or notice of removal, as the case may be. Upon such designation or removal Holdings shall appoint in writing a new warrant agent. If Holdings shall fail to make such appointment within a period of 30 calendar days after it has been notified in writing of such resignation by the resigning Warrant Agent or after such removal, then the Holder of any Warrant may apply to any court of competent jurisdiction for the appointment of a new warrant agent. Pending appointment of a successor to the original Warrant Agent, either by Holdings or by such a court, the duties of the Warrant Agent shall be carried out by Holdings. Any new warrant agent, whether appointed by Holdings or by such a court, shall be a bank (or subsidiary thereof) or trust company doing business under the laws of the United States or any state thereof, in good standing and having a combined capital and surplus of not less than $50,000,000. The combined capital and surplus of any such new warrant agent shall be deemed to be the combined capital and surplus as set forth in the most recent annual report of its condition published by such warrant agent prior to its appointment; provided that such reports are published at least annually pursuant to law or to the requirements of a federal or state supervising or examining authority. After acceptance in writing of such appointment by the new warrant agent, it shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as the Warrant Agent, without any further assurance, conveyance, act or deed; however, the original Warrant Agent shall in all events deliver and transfer to the successor Warrant Agent all property, if any, at the time held hereunder by the original Warrant Agent and if for any reason it shall be necessary or expedient to execute and deliver any further assurance, conveyance, act or deed, the same shall be done at the expense of Holdings and shall be legally and validly executed and delivered by the resigning or removed Warrant Agent. Not later than the effective date of any such appointment, Holdings shall file notice thereof with the resigning or removed Warrant Agent and shall forthwith cause a copy of such notice to be mailed to each Holder of a Warrant at the cost and expense of Holdings. Failure to give any notice provided for in this Section 8.5, however, or any defect therein, shall not affect the legality or validity of the resignation of the Warrant Agent or the appointment of a new warrant agent, as the case may be. Section VIII.5. Successor Warrant Agent. Any corporation into which the Warrant Agent or any new warrant agent may be merged, or any corporation resulting from any 16 consolidation to which the Warrant Agent or any new warrant agent shall be a party, shall be a successor Warrant Agent under this Agreement without any further act; provided that such corporation would be eligible for appointment as successor to the Warrant Agent under the provisions of Section 8.5 hereof. Any such successor Warrant Agent shall promptly cause notice of its succession as Warrant Agent to be mailed to each Holder of a Warrant . ARTICLE IX MISCELLANEOUS Section IX.1. Money Deposited with the Warrant Agent. The Warrant Agent shall not be required to pay interest on any moneys deposited pursuant to the provisions of this Agreement except such as it shall agree in writing with Holdings to pay thereon. Any moneys, securities or other property which at any time shall be deposited by Holdings or on its behalf with the Warrant Agent pursuant to this Agreement shall be and are hereby assigned, transferred and set over to the Warrant Agent in trust for the purpose for which such moneys, securities or other property shall have been deposited; but such moneys, securities or other property need not be segregated from other funds, securities or other property except to the extent required by law. Section IX.2. Payment of Taxes. All Common Stock or other securities issuable upon the exercise of Warrants shall be validly issued, fully paid and nonassessable, and Holdings shall pay any taxes and other governmental charges that may be imposed under the laws of the United States of America or any political subdivision or taxing authority thereof or therein in respect of the issue or delivery thereof or of other securities deliverable upon exercise of Warrants (other than income taxes imposed on the Holders). Holdings shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for Common Stock or other securities or property issuable upon the exercise of the Warrants or payment of cash to any Person other than the Holder of a Warrant Certificate surrendered upon the exercise of a Warrant and in case of such transfer or payment, the Warrant Agent and Holdings shall not be required to issue any stock certificate or pay any cash until such tax or charge has been paid or it has been established to the Warrant Agent's and Holdings's satisfaction that no such tax or charge is due. Section IX.3. Merger, Consolidation or Sale of Assets of Holdings. Holdings will not merge into or consolidate with any other Person, or sell or otherwise transfer all or substantially all of its property, assets or business to a successor of Holdings, unless the Person resulting from such merger or consolidation, or such successor of Holdings, shall expressly assume, by supplemental agreement satisfactory in form to the Warrant Agent and executed and delivered to the Warrant Agent, the due and punctual performance and observance of each and every covenant and condition of this Agreement to be performed and observed by Holdings. Section IX.4. Reports to Holders. Notwithstanding that Holdings may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, Holdings shall file with the Commission and provide the Warrant Agent and the Holders with such annual reports and such information, documents and other reports specified in Section 13 and 15(d) of the Exchange Act, such information, documents and other reports to be so filed and provided at the times specified for the filing of such information, documents and reports under such Sections. 17 Section IX.5. Notices. (a) Notices or demands authorized by this Agreement to be given or made by the Warrant Agent or by the holder of any Warrant Certificate to or on Holdings shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Warrant Agent) as follows: Sterling Chemicals Holdings, Inc. 1200 Smith, Suite 1900 Houston, Texas 77002 Attention: General Counsel Any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Warrant Certificate to or on the Warrant Agent shall be sent by registered or certified mail and shall be deemed given upon receipt and addressed (until another address is filed in writing with Holdings) as follows: Harris Trust and Savings Bank 700 Louisiana Street, Suite 3350 Houston, Texas 77002 Attention: Ray G. Rosenbaum Notices or demands authorized by this Agreement to be given or made by Holdings or the Warrant Agent to the holder of any Warrant Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of Holdings. Holdings shall deliver a copy of any notice or demand it delivers to the holder of any Warrant Certificate to the Warrant Agent and the Warrant Agent shall deliver a copy of any notice or demand it delivers to the holder of any Warrant Certificate to Holdings. (b) Except as otherwise specified herein, notice may also be given by facsimile transmission (effective when receipt is acknowledged) or by overnight delivery service (effective the next business day). Section IX.6. Governing Law. The laws of the State of New York applicable to contracts to be performed entirely in that state shall govern this Agreement. Section IX.7. Binding Effect. This Agreement shall be binding upon and inure to the benefit of Holdings and the Warrant Agent and their respective successors and assigns, and the Holders from time to time of the Warrants. Nothing in this Agreement is intended or shall be construed to confer upon any Person, other than Holdings, the Warrant Agent and the Holders of the Warrants, any right, remedy or claim under or by reason of this Agreement or any part hereof. Section IX.8. Counterparts. This Agreement may be executed manually or by facsimile in any number of counterparts, each of which shall be deemed an original, but all of which together constitute one and the same instrument. Section IX.9. Amendments. The Warrant Agent may, without the consent or concurrence of the Holders of the Warrants, by supplemental agreement or otherwise, join with Holdings in making any changes or corrections in this Agreement, subject to both parties' agreement in writing thereof, that (a) are required to correct any defective or inconsistent provision or clerical omission or mistake or manifest error herein contained or (b) add to the covenants and agreements of Holdings in this Agreement further covenants and agreements of Holdings thereafter to be 18 observed, or surrender any rights or power reserved to or conferred upon Holdings in this Agreement; provided that in either case such changes or corrections do not and will not adversely affect, alter or change the rights, privilege or immunities of the Holders of Warrants. Any amendment or supplement to this Agreement that has an adverse effect on the interests of the Holders of the Warrants shall require the written consent of the Holders of two-thirds of the then outstanding Warrants. The consent of each Holder of the Warrants affected shall be required for any amendment pursuant to which the number of Underlying Securities would be decreased (other than pursuant to adjustments made in accordance with Article IV hereof). Notwithstanding anything in this Agreement to the contrary, no supplement or amendment that changes the rights and duties of the Warrant Agent under this Agreement shall be effective without the written consent of the Warrant Agent. Section IX.10. Headings. The descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning of construction of any of the provisions hereof. Section IX.11. Common Stock Legend. In the event a Holder exercises its Warrants at a time when the Registration Statement is not effective and available pursuant to an exemption from the registration requirements of the Securities Act, any Common Stock or other securities of Holdings issuable upon exercise of such Warrants shall bear the following legend: THE COMMON STOCK EVIDENCED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND ACCORDINGLY MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (ii) AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER. ANY SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY SUCH CERTIFICATIONS, LEGAL OPINIONS AND OTHER INFORMATION AS ARE REASONABLY REQUIRED BY HOLDINGS AND THE WARRANT AGENT. Section IX.12. Third Party Beneficiaries. The Holders shall be third party beneficiaries to the agreements made hereunder between Holdings, on the one hand, and the Warrant Agent, on the other hand, and each Holder shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. 19 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed, as of the day and year first above written. STERLING CHEMICALS HOLDINGS, INC. By______________________ Name: Title: HARRIS TRUST AND SAVINGS BANK, as Warrant Agent By______________________ Name: Title: 20 EXHIBIT A --------- FORM OF WARRANT CERTIFICATE THE COMMON STOCK, PAR VALUE $.01 PER SHARE, OF STERLING CHEMICALS HOLDINGS, INC. (THE "COMMON STOCK") FOR WHICH THIS WARRANT IS EXERCISABLE MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT REGISTRATION UNDER THE SECURITIES AND EXCHANGE ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND ANY APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. ACCORDINGLY, NO HOLDER SHALL BE ENTITLED TO EXERCISE SUCH HOLDER'S WARRANTS AT ANY TIME UNLESS, AT THE TIME OF EXERCISE, (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT RELATING TO THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAS BEEN FILED WITH, AND DECLARED EFFECTIVE BY, THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), AND NO STOP ORDER SUSPENDING THE EFFECTIVENESS OF SUCH REGISTRATION STATEMENT HAS BEEN ISSUED BY THE COMMISSION, OR (ii) THE ISSUANCE OF SUCH SHARES IS PERMITTED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. A-1 STERLING CHEMICALS HOLDINGS, INC. No. ______________ ______________ Warrants WARRANTS TO PURCHASE COMMON STOCK This certifies that __________________, or its registered assigns, is the owner of the number of Warrants set forth above, each of which represents the right to purchase, commencing July 10, 1997, from STERLING CHEMICALS HOLDINGS, INC., a Delaware corporation ("Holdings"), one share of Common Stock, par value $.01 per share (the "Common Stock"), of Holdings (subject to adjustment as provided in the Warrant Agreement hereinafter referred to) at the purchase price (the "Exercise Price") of $.01 per share of Common Stock, upon surrender hereof at the office of Harris Trust and Savings Bank or to its successor as the warrant agent under the Warrant Agreement hereinafter referred to (any such warrant agent being herein call the "Warrant Agent"), with the Subscription Form on the reverse hereof duly executed, with signature guaranteed as therein specified and simultaneous payment in full (by wire transfer or by certified or official bank or bank cashier's check payable to the order of Holdings, or by the surrender of Warrants having an aggregate Spread (as defined in the Warrant Agreement) equal to the Exercise Price of the Warrants being exercised) of the purchase price for the shares as to which the Warrant(s) represented by this Warrant Certificate are exercised, all subject to the terms and conditions hereof and of the Warrant Agreement. Notwithstanding the foregoing, Holdings shall have the right to not allow an exercise of any Warrants in the event the Registration Statement is not effective and available at the time Warrants are exercised, unless prior to the exercise of such Warrants, the Holder thereof furnishes to the Warrant Agent and Holdings such certifications, legal opinions or other information as either of them may reasonably require to confirm that such exercise is being made pursuant to an exemption from the registration requirements of the Securities Act. This Warrant Certificate is issued under and in accordance with a Warrant Agreement dated as of July 10, 1997 (the "Warrant Agreement"), between Holdings and Harris Trust and Savings Bank, as Warrant Agent, and is subject to the terms and provisions contained therein, all of which terms and provisions the Holder of this Warrant Certificate consents to by acceptance hereof. The Warrant Agreement is hereby incorporated herein by reference and made a part hereof. Reference is hereby made to the Warrant Agreement for a full description of the rights, limitations of rights, obligations, duties and immunities thereunder of Holdings and the Holders of the Warrants. The summary of the terms of the Warrant Agreement contained in this Warrant Certificate is qualified in its entirety by express reference to the Warrant Agreement. All terms used in this Warrant Certificate that are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. A-2 Copies of the Warrant Agreement are on file at the office of the Warrant Agent and may be obtained by writing to the Warrant Agent at the following address: Harris Trust and Savings Bank 700 Louisiana Street Suite 3350 Houston, Texas 77002 Attention: Ray G. Rosenbaum If Holdings merges or consolidates with or into, or sells all or substantially all of its property and assets to, another Person solely for cash, or in the event of the dissolution, liquidation or winding-up of Holdings, the Holders of Warrants shall be entitled to receive distributions on the date of such event on an equal basis with holders of Common Stock (or other securities issuable upon exercise of the Warrants) as if the Warrants had been exercised immediately prior to such event (less the Exercise Price). The number of shares of Common Stock purchasable upon the exercise of each Warrant is subject to adjustment as provided in the Warrant Agreement. Except as stated in the immediately preceding paragraph, in the event Holdings merges or consolidates with, or sells all or substantially all of its assets to, another Person, each Warrant will, upon exercise, entitle the Holder thereof to receive the number of shares of capital stock or other securities or the amount of money and other property which the holder of a share of Common Stock (or other securities or property issuable upon exercise of a Warrant) is entitled to receive upon completion of such merger, consolidation or sale. As to any final fraction of a share which the same Holder of one or more Warrants would otherwise be entitled to purchase upon exercise thereof in the same transaction, Holdings shall pay the cash value thereof determined as provided in the Warrant Agreement. All Common Stock or other securities issuable by Holdings upon the exercise of Warrants shall be validly issued, fully-paid and nonassessable, and Holdings shall pay all taxes and other governmental charges that may be imposed under the laws of the United States of America or any political subdivision or taxing authority thereof or therein in respect of the issue or delivery of such shares or of other securities deliverable upon exercise of Warrants. Holdings shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for Common Stock, and in such case Holdings shall not be required to issue or deliver any stock certificate until such tax or other charge has been paid or it has been established to the Warrant Agent's and Holdings' satisfaction that no tax or other charge is due. This Warrant Certificate and all rights hereunder are transferable by the registered Holder hereof, in whole or in part, in accordance with the provisions of the Warrant Agreement, on the register of Holdings maintained by the Warrant Agent for such purpose at its office in New Houston, Texas, upon surrender of this Warrant Certificate duly endorsed, or accompanied by a written instrument of transfer form satisfactory to Holdings and the Warrant Agent duly executed, with signatures guaranteed as specified in the attached Form of Assignment, by the registered Holder hereof or his attorney duly authorized in writing and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Upon any partial transfer, Holdings will issue and the Warrant Agent will deliver to such Holder a new Warrant Certificate or Certificates with respect to any portion not so transferred. Each taker and Holder of this Warrant Certificate, by taking and holding the same, consents and agrees that prior to the registration of A-3 transfer as provided in the Warrant Agreement, Holdings and the Warrant Agent may treat the person in whose name the Warrants are registered as the absolute owner hereof for any purpose and as the Person entitled to exercise the rights represented hereby, any notice to the contrary notwithstanding. This Warrant Certificate may be exchanged, in accordance with the terms of the Warrant Agreement, at the office of the Warrant Agent maintained for such purpose in Houston, Texas for Warrant Certificates representing the same aggregate number of Warrants, each new Warrant Certificate to represent such number of Warrants as the Holder hereof shall designate at the time of such exchange. Prior to the exercise of the Warrants represented hereby, the Holder of this Warrant Certificate, as such, shall not be entitled to any rights of a stockholder of Holdings, including, without limitation, the right to vote or to consent to any action of the stockholders, to receive dividends or other distributions, to exercise any preemptive right or to receive any notice of meetings of stockholders, and shall not be entitled to receive any notice of any proceedings of Holdings except as provided in the Warrant Agreement. This Warrant Certificate shall be void and all rights evidenced hereby shall cease on December 1, 2007, unless sooner terminated by the liquidation, dissolution or winding-up of Holdings or as otherwise provided in the Warrant Agreement upon the consolidation or merger of Holdings with, or sale of Holdings to, another Person. A-4 This Warrant Certificate shall not be valid for any purpose until it shall have been countersigned by the Warrant Agent. Dated:____________ STERLING CHEMICALS HOLDINGS, INC. By:___________________________________ Name: Title: Countersigned: HARRIS TRUST AND SAVINGS BANK, as Warrant Agent By:__________________________________ Authorized Signatory A-5 FORM OF REVERSE OF WARRANT CERTIFICATE SUBSCRIPTION FORM (to be executed only upon exercise of Warrant) To: ______________ The undersigned irrevocably exercises ___________________ of the Warrants represented by the Warrant Certificate for the purchase of ______ (subject to adjustment) share of Common Stock, par value $.01 per share, of STERLING CHEMICALS HOLDINGS, INC. and herewith makes payment of $___________ (such payment being by wire transfer or by certified or official bank or bank cashier's check payable to the order or at the direction of Sterling Chemicals Holdings, Inc., or by the surrender of Warrants having an aggregate Spread (as defined in the Warrant Agreement) equal to the Exercise Price of the Warrants being exercised), all at the exercise price and on the terms and conditions specified in the within Warrant Certificate and the Warrant Agreement therein referred to, surrenders this Warrant Certificate and all right, title and interest therein to and directs that the Common Stock deliverable upon the exercise of such Warrants be registered or placed in the name and at the address specified below and delivered thereto. Dated: ___________ _______________________________________ (Signature of Owner) _______________________________________ (Street Address) _______________________________________ (City) (State) (Zip Code) Signature Guaranteed By/1/ - ------------- /1/ The Holder's signature must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" as defined by Rule 17Ad-15 under the Exchange Act. A-6 Securities and/or check to be issued to: _________________ Please insert social security or identifying number: ____________ Name: _________________________________ Street Address: _________________________________ City, State and Zip Code: ________________________________ A-7 FORM OF ASSIGNMENT FOR VALUE RECEIVED the undersigned registered holder of the within Warrant Certificate hereby sells, assigns, and transfers unto the Assignee(s) named below (including the undersigned with respect to any Warrants constituting a part of the Warrants evidenced by the within Warrant Certificate not being assigned hereby) all of the right of the undersigned under the within Warrant Certificate, with respect to the number of Warrants set forth below: Name(s) of Assignee(s): _______________________________________ Address: ______________________________________________________ No. of Warrants: ______________________________________________ Please insert social security or other identifying number of assignee(s): and does hereby irrevocably constitute and appoints ________________________ the undersigned's attorney to make such transfer on the books of ____________________ maintained for the purposes, with full power of substitution in the premises. Dated: ______________________________________ (Signature of Owner) ______________________________________ (Street Address) ______________________________________ (City) (State) (Zip Code) Signature Guaranteed By/2/ _______________________________________ - ---------------------- /2/ The Holder's signature must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" as defined by Rule 17Ad-15 under the Exchange Act. A-8 EX-4.5 4 EXHIBIT 4.5 EXHIBIT 4.5 AMENDED AND RESTATED VOTING AGREEMENT THIS AMENDED AND RESTATED VOTING AGREEMENT (the "Agreement") is entered into as of January 22, 1997, by and among the stockholders named on the signature pages hereto (each a "Stockholder" and, collectively, the "Stockholders") and Sterling Chemicals Holdings, Inc. (the "Company"). WHEREAS, the Stockholders are beneficial owners of common stock, par value $.01 per share, of the Company ("Common Stock"); WHEREAS, the Stockholders and the Company (formerly named Sterling Chemicals, Inc. and successor-in-interest to STX Acquisition Corp.) heretofore entered into a Voting Agreement dated as of August 12, 1996 (the "Original Voting Agreement"); and WHEREAS, the parties hereto desire to amend the Original Voting Agreement in certain respects and to restate the Original Voting Agreement, as so amended, in its entirety. NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants and agreements herein contained, and intending to be legally bound hereby, covenant and agree as follows: ARTICLE I Definitions and Interpretation 1.1. Definitions. As used in this Agreement, the following terms shall have the meanings provided below: "Annual Clipper Designation" has the meaning specified in Section 3.2. "Annual Koch Designation" has the meaning specified in Section 4.2. "Annual Meeting" means an annual meeting of the stockholders of the Company. "Board" means the board of directors of the Company. "Clipper Designee" means a person designated as a nominee for election to the Board pursuant to Article III. "Clipper Director" means a director of the Company designated by the Clipper Representative pursuant to Article III. "Clipper Investors" means (i) Clipper Capital Associates, L.P., (ii) Clipper Equity Partners I, L.P., (iii) Clipper/Merchant Partners, L.P., (iv) Clipper/European Re, L.P., Clipper/Merban, L.P., (v) CS First Boston Merchant Investments 1995/96, L.P., (vi) certain accredited investors who enter into agreements with Clipper Capital Associates, L.P. under which such partnership acts as a nominee with respect to Common Stock purchased on behalf of such investors and who are identified as Clipper Investors by written notice given by Clipper Capital Associates, L.P. to the Company and (vii) those employees of CS First Boston Corporation who enter into subscription agreements with the Company and who are indentified as Clipper Investors by written notice given by Clipper Capital Associates, L.P. to the Company. "Clipper Observer" has the meaning specified in Section 3.6. "Clipper Representative" means Clipper Equity Partners I, L.P. so long as it holds Common Stock and thereafter means all the remaining Clipper Investors. "Koch" means Koch Capital Services, Inc. "Koch Designee" means a person designated for election to the Board pursuant to Article IV. "Koch Director" means a director of the Company designated by Koch pursuant to Article IV. "Voting Stock" means Common Stock and any other class of capital stock of the Company entitled to vote generally in an election of directors. 1.2. Interpretation. (a) In this Agreement, unless a contrary intention appears: (i) the singular number includes the plural number and vice versa; (ii) reference to any gender includes each other gender; (iii) the words "herein," hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision; (iv) reference to any person or entity includes such person's or entity's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and reference to a person or entity in a particular capacity excludes such person or entity in any other capacity or individually; -2- (v) reference to any agreement, document or instrument means such agreement, document or instrument as amended, supplemented or modified and in effect from time to time in accordance with the terms thereof; and (vi) reference to any Article or Section means such Article or Section hereof. (b) The Article and Section headings herein are for convenience only and shall not affect the construction hereof. (c) This Agreement shall be deemed drafted jointly by all the parties hereto and shall not be specifically construed against any party hereto based on any claim that such party or its legal counsel drafted such provision. ARTICLE II Size of Board The parties hereto acknowledge and agree that, so long as the Clipper Representative shall be entitled to designate a director nominee in accordance with Article III or Koch shall be entitled to designate a director nominee in accordance with Article IV, the Board shall at all times consist of at least seven directors. ARTICLE III The Clipper Director and Observer 3.1. General. The Clipper Representative shall be entitled to designate one individual as a director nominee to serve on the Board. Such designation shall be made annually as provided in Section 3.2 or at other times as provided in Section 3.3. The parties hereto acknowledge that Robert B. Calhoun has heretofore been designated and elected as the initial Clipper Director. The Clipper Director shall serve on the Board until a successor director shall be duly elected and qualified or until his earlier death, removal or resignation. 3.2. Annual Clipper Designations. The Company shall, no later than 45 days prior to the mailing of any proxy statement with respect to an Annual Meeting, notify the Clipper Representative of the date of such mailing. As soon as practicable after receipt of such notice but in any event no later than 20 days prior to the mailing date specified therein, the Clipper Representative shall provide the Company a written instrument ("Annual Clipper Designation") designating either the incumbent Clipper Director or a person other than the incumbent Clipper Director, in which event the Annual Clipper Designation shall include such other person's name, age, principal occupation, business address and telephone number and residence address and telephone number. The Annual Clipper Designation shall also include or be accompanied by (i) all information relating to the person designated therein that is required to be disclosed in the proxy statement pursuant to applicable regulations of the Securities and Exchange Commission, (ii) such person's consent to being named in the proxy statement as a nominee and (iii) a statement of such person's intention to serve as a director if elected to the Board. The Company shall nominate for -3- election at such Annual Meeting the person designated in the Annual Clipper Designation. Subject to applicable laws, the Company shall take all other actions reasonably necessary to cause the Clipper Designee to be elected to the Board. Each Stockholder agrees to vote (or caused to be voted) the Voting Stock owned by it in favor of the Clipper Designee and to take any other necessary or desirable action in its capacity as a stockholder of the Company to cause the Clipper Designee to be elected to the Board. 3.3. Interim Clipper Designations. In case a vacancy shall occur on the Board because of the death, resignation or removal of the Clipper Director, the Clipper Representative may elect either (i) to have such vacancy filled at the next Annual Meeting pursuant to a designation made in accordance with Section 3.2 or (ii) to have such vacancy filled prior to such Annual Meeting by a majority of the directors remaining in office. If the Clipper Representative wishes to make the election provided for in clause (ii) above, it shall designate a successor director nominee by written notice given to the Company and each of the other Stockholders (the "Interim Clipper Designation"). Subject to applicable laws, the Company shall recommend that the remaining directors elect the Clipper Designee and shall take all other actions reasonably necessary to cause the Clipper Designee to be elected to the Board. Each Stockholder agrees to vote (or cause to be voted) the Voting Stock owned by it in favor of the Clipper Designee and to take any other necessary or desirable action in its capacity as a stockholder of the Company to cause the Clipper Designee to be elected to the Board. Without limitation of the foregoing, Koch agrees to cause the Koch Director to vote in favor of the Clipper Designee and each Stockholder who is a member of the Board agrees, subject to his fiduciary duties, to vote in favor of the Clipper Designee. (b) In the event Clipper shall make an Interim Clipper Designation in accordance with paragraph (a) above in order to fill the vacancy created by the death, resignation or removal of the Clipper Director and in the event a majority of the directors remaining in office shall fail or refuse to appoint the Clipper Designee to fill such vacancy within 30 days after receipt by the Company of such Interim Clipper Designation, then the Company agrees, if requested by Clipper to do so, to call a special meeting of the stockholders of the Company for the purpose of voting upon a proposal to elect the Clipper Designee to the Board; provided, however, that in no event shall the Company be required to call a special meeting of the stockholders if the Company has given a formal notice of the next Annual Meeting. 3.4. Failure of Clipper to Designate. If the Clipper Representative shall fail or refuse to designate a nominee for director pursuant to Section 3.2 or 3.3, such directorship shall remain vacant unless and until such designation shall be made as provided in this Article III; provided, however, that if such vacancy results in less than the minimum number of directors required by law or by the charter or bylaws of the Company as then in effect, such vacancy shall be filled by an individual elected by a majority of the directors then serving. 3.5. Removal of Clipper Director. The Clipper Representative shall have the exclusive right (except as otherwise provided by applicable law or the Company's charter) to remove or replace the Clipper Director. If the Clipper Representative desires to remove the Clipper Director, it shall give written notice of such desire to the Company and the other Stockholders who shall -4- thereupon become obligated to vote all Voting Stock owned by them in favor of the removal of the Clipper Director. No Stockholder (other than the Clipper Investors) shall vote any of the securities of the Company owned by it or take any other action in its capacity as a stockholder of the Company for the removal of the Clipper Director without the prior written approval of the Clipper Representative. 3.6. The Clipper Observer. The Clipper Representative shall have the right, exercisable by written notice to the Company, to designate from time to time an observer (the "Clipper Observer") who shall have the right to attend meetings of the Board and to receive information delivered to the Board, at the expense of the Clipper Investors. The initial Clipper Observer shall be Kevin A. Macdonald. 3.7. Termination/Suspension of Clipper Rights. Notwithstanding anything in this Agreement to the contrary, the rights of the Clipper Investors and the Clipper Representative under this Article III and the obligations of the other parties hereto under this Article III shall terminate immediately and without notice upon the earlier of (i) the termination of this Agreement under Section 7.3 and (ii) any event or occurrence resulting in the holding by the Clipper Investors of less than 5% of the outstanding shares of Common Stock. Promptly upon the termination of its rights under this Article III, the Clipper Investors agree to (i) cause the resignation of, or provide notice to the other parties hereto as provided in Section 3.5 requesting the removal of, the incumbent Clipper Director and (ii) inform the Clipper Observer that his rights under Section 3.6 have terminated. 3.8. Irrevocable Proxy. Each of the Stockholders hereby grants to the Clipper Representative, on behalf of the Clipper Investors, an irrevocable proxy to vote all shares of Common Stock presently or at any future time owned beneficially or of record by such Stockholder which the Stockholder is entitled to vote, and to represent and otherwise act as such Stockholder could act, in the same manner and with the same effect as if such Stockholder were personally present, at any annual, special or other meeting of the stockholders of the Company, and at any adjournment thereof, or pursuant to any written consent in lieu of meeting or otherwise; provided, however, that any such vote or consent in lieu thereof or any other action so taken shall be solely for the purposes of electing a Clipper Designee to the Board as provided in Section 3.2 or 3.3 or removing the Clipper Director from the Board as provided in Section 3.5. ARTICLE IV The Koch Director 4.1. General. Koch shall be entitled to designate one individual as a director nominee to serve on the Board. Such designation shall be made annually as provided in Section 4.2 or at other times as provided in Section 4.3. The parties hereto acknowledge that George B. Gregory has heretofore been designated and elected as the initial Koch Director. The Koch Director shall serve on the Board until a successor director shall be duly elected and qualified or until his earlier death, removal or resignation. -5- 4.2. Annual Koch Designations. The Company shall, no later than 45 days prior to the mailing of any proxy statement with respect to an Annual Meeting, notify Koch of the date of such mailing. As soon as practicable after receipt of such notice but in any event no later than 20 days prior to the mailing date specified therein, Koch shall provide the Company a written statement ("Annual Koch Designation") designating either the incumbent Koch Director or a person other than the incumbent Koch Director, in which event the Annual Koch Designation shall include such other person's name, age, principal occupation, business address and telephone number and residence address and telephone number. The Annual Koch Designation shall also include or be accompanied by (i) all information relating to the person designated therein that is required to be disclosed in the proxy statement pursuant to applicable regulations of the Securities and Exchange Commission, (ii) such person's consent to being named in the proxy statement as a nominee and (iii) a statement of such person's intention to serve as a director if elected to the Board. The Company shall nominate for election at such Annual Meeting the person designated in the Annual Koch Designation. Subject to applicable laws, the Company agrees to take all other actions reasonably necessary to cause the Koch Designee to be elected to the Board. Each Stockholder agrees to vote (or cause to be voted) the Voting Stock owned by it in favor of the Koch Designee and to take any other necessary or desirable action in its capacity as a stockholder of the Company to elect the Koch Designee to the Board. 4.3. Interim Koch Designations. (a) In case a vacancy shall occur on the Board because of the death, resignation or removal of the Koch Director, Koch may elect either (i) to have such vacancy filled at the next Annual Meeting pursuant to a designation made in accordance with Section 4.2 or (ii) to have such vacancy filled prior to such Annual Meeting by a majority of the directors remaining in office. If Koch wishes to make the election provided for in clause (ii) above, it shall designate a successor director nominee by written notice given to the Company and each of the other Stockholders (the "Interim Koch Designation"). Subject to applicable laws, the Company shall recommend that the remaining directors elect the Koch Designee and shall take all other actions reasonably necessary to cause the Koch Designee to be elected to the Board. Each Stockholder agrees to vote the Voting Stock owned by it in favor of the Koch Designee and to take any other necessary or desirable action in its capacity as a stockholder of the Company to cause the Koch Designee to be elected to the Board. Without limitation of the foregoing, the Clipper Investors agrees to cause the Clipper Director to vote in favor of the Koch Designee and each Stockholder who is a member of the Board agrees, subject to his fiduciary duties, to vote in favor of the Koch Designee. (b) In the event Koch shall make an Interim Koch Designation in accordance with paragraph (a) above in order to fill the vacancy created by the death, resignation or removal of the Koch Director and in the event a majority of the directors remaining in office shall fail or refuse to appoint the Koch Designee to fill such vacancy within 30 days after receipt by the Company of such Interim Koch Designation, then the Company agrees, if requested by Koch to do so, to call a special meeting of the stockholders of the Company for the purpose of voting upon a proposal to elect the Koch Designee to the Board; provided, however, that in no event shall the Company be required to call a special meeting of the stockholders if the the Company has given a formal notice of the next Annual Meeting. -6- 4.4. Failure of Koch to Designate. If Koch shall fail or refuse to designate a nominee for director pursuant to Section 4.2 or 4.3, such directorship shall remain vacant unless and until such designation shall be made as provided in this Article IV; provided, however, that if such vacancy results in less than the minimum number of directors required by law or by the charter or bylaws of the Company as then in effect, such vacancy shall be filled by an individual elected by a majority of the directors then serving. 4.5. Removal of Koch Director. Koch shall have the exclusive right (except as otherwise provided by applicable law) to remove or replace the Koch Director. If Koch desires to remove the Koch Director, it shall give written notice of such desire to the Company and the other Stockholders who shall thereupon become obligated to vote all Voting Stock owned by them in favor of the removal of the Koch Director. No Stockholder (other than Koch) shall vote any of the securities of the Company owned by it or take any other action in its capacity as a stockholder of the Company for the removal of the Koch Director without the prior written approval of Koch. 4.6. Termination/Suspension of Koch Rights. Notwithstanding anything in this Agreement to the contrary, the rights of Koch under this Article IV and the obligations of the other parties hereto under this Article IV shall terminate immediately and without notice upon the earlier of (i) the termination of this Agreement under Section 7.3 and (ii) any event or occurrence resulting in the holding by Koch of less than 5% of the outstanding shares of Common Stock. Promptly upon the termination of its rights under this Article IV, Koch agrees to cause the resignation of, or provide notice to the other parties hereto as provided in Section 4.5 requesting the removal of, the incumbent Koch Director. 4.7. Irrevocable Proxy. Each of the Stockholders hereby grants to Koch an irrevocable proxy to vote all shares of Common Stock presently or at any future time owned beneficially or of record by such Stockholder which the Stockholder is entitled to vote, and to represent and otherwise act as such Stockholder could act, in the same manner and with the same effect as if such Stockholder were personally present, at any annual, special or other meeting of the stockholders of the Company, and at any adjournment thereof, or pursuant to any written consent in lieu of meeting or otherwise; provided, however, that any such vote or consent in lieu thereof or any other action so taken shall be solely for the purposes of electing a Koch Designee to the Board as provided in Section 4.2 or 4.3 or removing the Koch Director from the Board as provided in Section 4.5. ARTICLE V Certain Restrictions on Sale of Common Stock, etc. 5.1. Stock Legend. (a) Each certificate for shares of Common Stock owned by any Stockholder shall bear the following legend: -7- The shares represented by this certificate are subject to the terms and conditions of a Voting Agreement, a copy of which is on file with the Secretary of Sterling Chemicals Holdings, Inc., and are held and may be sold, assigned, transferred or otherwise disposed of only in accordance with such agreement. (b) Upon the termination of this Agreement under Section 7.3, the Company shall, without charge and upon surrender of certificates by the holders thereof and written request of such holders, cancel all certificates evidencing shares of Common Stock bearing the legend described above and issue to the holders thereof replacement certificates that do not bear such legend for an equal number of shares held by such holders. Upon the transfer of any Common Stock bearing the legend described above to a party believed by the Company to be not bound by and subject to this Agreement by virtue of Section 7.2, the Company shall, without charge and upon surrender of certificates by the holders thereof and written request of either the transferor or transferee, cancel all certificates evidencing such shares of Common Stock and issue to the transferee thereof replacement certificates that do not bear such legend. 5.2. Voting Trusts, etc. No Stockholder shall deposit any shares of Common Stock in a voting trust or subject any shares of Common Stock to any arrangement or agreement (other than this Agreement) with respect to the voting of such shares unless such trust or arrangement or agreement is made expressly subject to the provisions of this Agreement. Except as provided in this Agreement, no Stockholder shall give any proxy or power of attorney with respect to any shares of Common Stock that permits the holder thereof to vote such shares in its discretion in an election of directors or for the removal of the Clipper Director or the Koch Director unless such proxy or power of attorney is made expressly subject to the provisions of this Agreement. ARTICLE VI Representations and Warranties Each party hereto hereby represents and warrants, severally and not jointly, to each other party hereto as follows: (a) Such party has all necessary power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. (b) Assuming this Agreement has been duly and validly authorized, executed and delivered by the other parties hereto, this Agreement constitutes a valid and binding agreement of such party, enforceable in accordance with its terms. (c) Neither the execution and delivery of this Agreement by such party nor the consummation by such party of the transactions contemplated hereby will conflict with or constitute a violation of or default under any contract, commitment, agreement, arrangement or restriction of any kind to which such party is a party or by which such party is bound. -8- ARTICLE VII Miscellaneous Provisions 7.1. Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties hereto shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state thereof having jurisdiction (this being in addition to any other remedy to which they are entitled at law or in equity), and each party hereto agrees to waive in any action for such enforcement the defense that a remedy at law would be adequate. 7.2. Agreement Binding on Certain Transferees. Prior to any transfer of shares of Common Stock by any Stockholder (excluding any transfer pursuant to (i) a bona fide public offering of such shares or (ii) a sale of such shares pursuant to Rule 144 under the Securities Act of 1933, as amended), the transferee of such shares must agree in writing to become bound by the terms of this Agreement. For purposes of this Agreement, all references to Stockholders shall be deemed to refer to the Stockholders and all direct and indirect transferees thereof so required to become bound. 7.3. Term of Agreement. This Agreement shall terminate on August 21, 2006 or such earlier date as all the parties hereto shall agree upon in writing. Upon the termination of this Agreement, the rights and obligations hereunder of the parties hereto shall terminate and the provisions of this Agreement shall be of no force and effect. In no event shall this Agreement become effective until executed and delivered (in one or more counterparts) by all the parties hereto. 7.4. Reliance on Opinions of Counsel. (a) The Company shall not be obligated to take any action hereunder which is contrary to applicable law. The Company may rely and shall be fully protected in acting upon any notice, request, consent, approval or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper person or persons. The Company may consult with, and obtain advice from, legal counsel in the event any question as to any of its duties hereunder and it shall incur no liability and shall be fully protected in acting or refusing to act in good faith in accordance with the written opinion or advice of such counsel. (b) Any notice, request, designation, consent or approval given or made by any Stockholder hereunder shall be conclusive and binding on the successors, assigns and transferees of such Stockholder. (c) For the purpose of determining the number of shares of Voting Stock owned or held by any Stockholder, the Company may rely and shall be fully protected in acting upon the stock records maintained by or on behalf of the Company. 7.5. No Inconsistent Actions. No party hereto shall, directly or indirectly, undertake any course of action inconsistent with the provisions or intent of this Agreement. Without limitation -9- of the foregoing, each party hereto agrees that it will not amend or cause to be amended the provisions of the Company's charter or bylaws if such amendment would create a conflict or inconsistency between this Agreement and the Company's charter or bylaws. 7.6. Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 7.7. Amendments. Except as otherwise specifically provided herein, this Agreement shall not be amended other than by an instrument in writing signed by all of the parties hereto. 7.8. Notices. Any notice, request or communication shall be sufficiently given if given in writing addressed as indicated on the signature pages hereof. Notice shall be deemed given when transmitted by telex or telecopier, delivered to the telegraph or cable office or personally delivered or, in the case of a mailed notice, three business days after the date deposited in the United States mails. Each party hereto, by written notice to the other parties, may designate additional or different addresses for subsequent notices or communications. 7.9. Counterparts. This Agreement may be executed in counterparts, each of which when executed shall be deemed an original, but all of which together shall constitute one and the same agreement. 7.10. Entire Agreement. This Agreement contains the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior arrangements or understandings with respect to the subject matter hereof. 7.11. Conflict with Governing Documents. In the event of a conflict between this Agreement and the certificate of incorporation or the bylaws of the Company, the provisions of this Agreement shall govern. 7.12. Governing Law. THE LAWS OF THE JURISDICTION IN WHICH HOLDINGS IS INCORPORATED, THE STATE OF DELAWARE, SHALL GOVERN THIS AGREEMENT WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. -10- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed under their respective seals, as of the day and year first written above. THE COMPANY: STERLING CHEMICALS HOLDINGS, INC. 1200 Smith Street, Suite 1900 Houston, Texas 77002 Attention: General Counsel and Secretary FAX: 713-654-9577 By: /s/ FRANK P. DIASSI ------------------------------------------- Frank P. Diassi, Chairman of the Board STOCKHOLDERS: FRANK P. DIASSI AND MARIANNE R. DIASSI JOINT TENANTS WITH RIGHT OF SURVIVORSHIP 6 Commerce Drive Cranford, New Jersey FAX: ----------------------------------------- /s/ FRANK P. DIASSI ----------------------------------------- Frank P. Diassi /s/ MARIANNE R. DIASSI ----------------------------------------- Marianne R. Diassi -11- WILLIAM C. AND MARGARET W. OEHMIG TENANTS IN COMMON 8 Greenway Plaza, Suite 702 Houston, Texas 77046 FAX: ----------------------------------------- /s/ WILLIAM C. OEHMIG ----------------------------------------- William C. Oehmig /s/ MARGARET W. OEHMIG ------------------------------------------ Margaret W. Oehmig THE RHENEY LIVING TRUST U/A 8/23/93 8 Greenway Plaza, Suite 702 Houston, Texas 77046 FAX: (713) 877-1824 By: /s/ SUSAN O. RHENEY ---------------------------------------- Name: Susan O. Rheney, as Trustee /s/ FRANK J. HEVRDEJS ------------------------------------------ Name: Frank J. Hevrdejs Address: 8 Greenway Plaza, Suite 702 Houston, Texas 77046 FAX: (713) 877-1824 /s/ HUNTER NELSON ------------------------------------------ Name: Hunter Nelson Address: 8 Greenway Plaza, Suite 702 Houston, Texas 77046 FAX: (713) 877-1824 -12- CLIPPER CAPITAL ASSOCIATES, L.P., in its individual capacity and as nominee By: Clipper Capital Associates, Inc. its general partner By: /s/ DANIEL V. CAHILLANE -------------------------------------------- Name: Daniel V. Cahillane Title: Treasurer & Secretary Address: 11 Madison Avenue New York, New York 10010 FAX: (212) 448-5442 CLIPPER EQUITY PARTNERS I, L.P. By: Clipper Capital Associates, L.P. its general partner By: Clipper Capital Associates, Inc. its general partner By: /s/ DANIEL V. CAHILLANE ------------------------------------------- Name: Daniel V. Cahillane Title: Treasurer & Secretary Address: 11 Madison Avenue New York, New York 10010 FAX: (212) 448-5442 CLIPPER/MERCHANT PARTNERS, L.P. By: Clipper Capital Associates, L.P. its general partner By: Clipper Capital Associates, Inc. its general partner By: /s/ DANIEL V. CAHILLANE ------------------------------------------- Name: Daniel V. Cahillane Title: Treasurer & Secretary Address: 11 Madison Avenue New York, New York 10010 FAX: (212) 448-5442 -13- CLIPPER/MERBAN, L.P. By: Clipper Capital Associates, L.P. its general partner By: Clipper Capital Associates, Inc. its general partner By: /s/ DANIEL V. CAHILLANE -------------------------- Name: Daniel V. Cahillane Title: Treasurer & Secretary Address: 11 Madison Avenue New York, New York 10010 FAX: (212) 448-5442 CLIPPER/EUROPEAN RE, L.P. By: Clipper Capital Associates, L.P. its general partner By: Clipper Capital Associates, Inc. its general partner By: /s/ DANIEL V. CAHILLANE -------------------------- Name: Daniel V. Cahillane Title: Treasurer & Secretary Address: 11 Madison Avenue New York, New York 10010 FAX: (212) 448-5442 -14- CS FIRST BOSTON MERCHANT INVESTMENTS 1995/96, L.P. By: Merchant Capital, Inc. its general partner By: Clipper Capital Associates, L.P. Attorney-in-Fact By: Clipper Capital Corporation its general partner By: /s/ DANIEL V. CAHILLANE -------------------------------------- Name: Daniel V. Cahillane Title: Treasurer & Secretary Address: 11 Madison Avenue New York, New York 10010 FAX: (212) 448-5442 FSI NO. 2 CORPORATION By: /s/ RAYE G. WHITE --------------------------------------------- Name: Raye G. White Title: Executive Vice President Address: Two Houston Center, Suite 2907 Houston, Texas 77010 FAX: (713) 654-4015 KOCH CAPITAL SERVICES, INC. By: /s/ PAUL W. BROOKS ---------------------------------------------- Name: Paul W. Brooks Title: President Address: 4111 East 37th Street North Wichita, Kansas 67220 FAX: (316) 828-7868 -15- OLYMPUS GROWTH FUND II, L.P. By: OGP II, L.P., its general partner By: LJM Corporation, a general partner By: /s/ LOUIS J. MISCHIANTI --------------------------------------- Name: Louis J. Mischianti Title: President Address: Metro Center, One Station Place Stamford, Connecticut 06902 FAX: (203) 353-5910 OLYMPUS EXECUTIVE FUND, L.P. By: OEF, L.P. By: LJM L.L.C., a general partner By: /s/ LOUIS J. MISCHIANTI -------------------------------------- Name: Louis J. Mischianti Title: Member Address: Metro Center, One Station Place Stamford, Connecticut 06902 FAX: (203) 353-5910 -16- EX-11.1 5 EXHIBIT 11.1 EXHIBIT 11.1 STERLING CHEMICALS HOLDINGS, INC. COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE (Amounts in thousands, except per share data) THREE THREE NINE NINE MONTHS MONTHS MONTHS MONTHS ENDED ENDED ENDED ENDED 6/30/97 6/30/96 6/30/97 6/30/96 ------- ------- ------- ------- PRIMARY EARNINGS PER SHARE Weighted average of common stock outstanding 11,420 55,690 11,047 55,685 Total weighted average shares outstanding used in primary earnings per share computation 11,420 55,690 11,047 55,685 ======= ======= ======== ======= Net income (loss) $(9,377) $16,420 $(24,386) $35,634 Less: Preferred dividend requirements (249) -- (411) -- ------- ------- -------- ------- Net income (loss) used in primary earnings per share $(9,626) $16,420 $(24,797) $35,634 ======= ======= ======== ======= NET INCOME (LOSS) PER SHARE $ (0.84) $ 0.29 $ (2.24) $ 0.64 ======= ======= ======== ======= FULLY DILUTED EARNINGS PER SHARE Weighted average of common stock outstanding 11,420 55,690 11,047 55,685 Total weighted average shares outstanding used in fully dilutive earnings per share computation 11,420 55,690 11,047 55,685 ======= ======= ======== ======= Net income (loss) $(9,377) $16,420 $(24,386) $35,634 Less: Preferred dividend requirements (249) -- (411) -- ------- ------- -------- ------- Net income (loss) used in fully dilutive earnings per share $(9,626) $16,420 $(24,797) $35,634 ======= ======= ======== ======= NET INCOME (LOSS) PER SHARE $ (0.84) $ 0.29 $ (2.24) $ 0.64 ======= ======= ======== ======= EX-27.1 6 FINANCIAL DATA SCHEDULE
5 EXHIBIT 27.1 0000795662 STERLING CHEMICALS HOLDINGS, INC. 1,000 9-MOS SEP-30-1997 OCT-01-1996 JUN-30-1997 4,581 0 175,983 0 72,497 282,315 693,796 258,634 833,026 143,412 839,224 10,411 0 114 (290,282) 833,026 665,933 665,933 605,028 605,028 24,308 0 63,417 (26,820) (6,358) (20,462) 0 (3,924) 0 (24,386) (2.24) (2.24)
EX-27.2 7 FINANCIAL DATA SCHEDULE
5 EXHIBIT 27.2 0001014669 STERLING CHEMICALS, INC. 1,000 9-MOS SEP-30-1997 OCT-01-1996 JUN-30-1997 3,347 0 183,567 0 72,497 287,535 693,796 258,634 832,177 142,182 735,980 0 0 0 (180,732) 832,177 665,933 665,933 605,028 605,028 23,714 0 49,906 (12,715) (3,014) (9,701) 0 (3,924) 0 (13,625) 0 0
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