April 29, 2005
Via U.S. Mail and Facsimile
George B. Gregory
Polymer Holdings, LLC
700 Milam Street, 13th Floor
North Tower
Houston, TX 77002
Re: Polymer Holdings, LLC
Registration Statement on Form S-4
File No. 333-123749
Filed: April 1, 2005
Kraton Polymers, LLC
Registration Statement on Form S-4
File No. 333-123747
Filed: April 1, 2005
Dear Mr. Gregory
We have reviewed your filings and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
KRATON POLYMERS LLC FORM S-4
General
1. Please apply, as applicable, the following comments to the
registration statement on Form S-4 filed by Kraton Polymers, LLC
on
April 1, 2005. Further, we will review the application for
confidential treatment filed in connection with Kraton`s
registration
statement and comment in a separate letter.
2. Please list each of the guarantors as additional registrants in
the forepart of the prospectus and on the cover page of the
registration statement.
3. Disclose whether the guarantors will wholly and unconditionally
guarantee the notes.
Legality Opinion
4. Because this registration statement must register the guarantee
of
the 8.125% Senior Subordinated Notes as a separate security as
well
as the 8.125% Notes, please revise your opinion and disclosure
under
the section Legal Matters to address these guarantees.
POLYMER HOLDINGS LLC FORM S-4
5. Prior to effectiveness, please provide us with a supplemental
letter stating that you are registering the exchange offer in
reliance on the staff`s position enunciated in the Exxon Capital
Holdings Corporation (May 13, 1988), Shearman & Sterling (July 2,
1993) and Morgan Stanley & Co. Incorporated (June 5, 1991) no-
action
letters. Also include the supplemental representations from
Shearman
& Sterling and Morgan Stanley & Co. Incorporated.
6. To the extent applicable, provide updated financial statements
and
related disclosures as required by Rule 3-12 of Regulation S-X.
Where You Can Find More Information, page 1
7. Please remove the statement that any statement made in this
prospectus concerning the contents of any contract, agreement or
other document is qualified in its entirety by reference to that
contract, agreement or document. Rule 411(a) permits
qualification
of information inside a prospectus by reference to information
outside of a prospectus only where incorporation by reference is
required by the form or the form requires a description of a
document.
8. Either delete the last two sentences on this page or amend it
to
indicate the information in the prospectus is materially accurate
whenever it is used.
Forward-Looking Statement, page 2
9. Please relocate this section to follow the Risk Factors.
Summary, page 3
10. We note your summary contains a lengthy description of the
company`s business, competitive strengths and business strategy.
Further, we note the identical disclosure appears later in your
prospectus. In the summary, you should carefully consider and
identify those aspects of the offering that are the most
significant
and determine how to best highlight those points in clear, plain
language. The summary should not include a lengthy description of
the
company`s business and business strategy. This detailed
information
is better suited for the body of the prospectus. Please revise
accordingly. If you want to highlight key aspects of your
business
strategy and competitive strengths, consider listing these in a
bullet-point format, with one sentence per bullet point. See Item
503(a) of Regulation S-K and part IV.C. of SEC No. 33-7497.
11. Ensure that the information you include in your summary is
balanced. For example, you cite your strong customer
relationships
as a competitive strength but you omit any discussion here about
the
fact that you have no long-term contracts with your customers and
rely for a significant percentage of your revenues on a few of
your
largest. To the extent that you continue to cite competitive
strengths in your summary, please review each one and revise as
necessary to provide balancing information.
Our Company, 3
12. Tell us supplementally of the basis for your belief that you
are
the world`s leading producer of styrenic block copolymers, or SBCs
and your statement that SBCs are a fast growing subset of the
broader
elastomers industry and the sources on which we relied for these
bases.
Risk Factors, page 20
13. Explain how each risk affects investors and the company. In
this
respect, please revise the presentation to remove phrases like "we
cannot give assurances" and "there can be no assurance" regarding
a
certain set of facts, as they do not state a risk. The real risk
is
that the event will occur, not your inability to prevent it.
Please
also avoid generic conclusions that a risk would have an "adverse
effect" on your business and disclose what the actual risk to your
business will be.
14. With respect to the following risk factors, please clearly
explain how each specific risk applies to your company. For
example,
you have previously experienced difficulty servicing your debt
resulting from the failure of your subsidiaries to make cash
distributions to you, experienced labor strife that have disrupted
your operations, or are any of the key people planning to retire
or
nearing retirement age or do you lack employment contracts with
these
individuals? Please refer to the following:
* Servicing our indebtedness will require a significant amount of
cash. We may not have access to the cash flow and other assets of
our
subsidiaries..., page 21
* Our products may infringe the intellectual property rights...,
page
33
* We may be liable for damages based on product liability...,page
33
* Our relationship with our employees could deteriorate, page 33
* Loss of key personnel or our inability to attract and retain new
qualified personnel..., page 34
* Downturns in general economic conditions could adversely affect
our
profitability, page 35
Risk Factors Relating to the Notes, page 20
15. Because of the similar nature of the risks presented in the
risk
factors titled "Claims of noteholders will be structurally
subordinated to claims of creditors..." and "Your right to receive
payments on the notes is effectively junior..." consider
consolidating them under one heading or supplementally
differentiating them. Please consider doing the same with respect
to
risk factors titled "Our substantial level of indebtedness could
adversely affect our financial condition..." and "Our debt
instruments, including the senior secured credit facility and the
indenture governing KRATON`s 8.125% Notes, impose significant
operating and financial restrictions..."
Regulation of our employees` exposure to butadiene could require
material expenditures or changes in our operations, page 33
16. We note your statement that effective February 1997, the
Occupational Safety and Health Administration substantially
lowered
the permissible employee exposure limit for butadiene. Please
disclose whether this resulted in material expenditures or changes
in
your operations.
Our insurance coverage may be inadequate...page 35
17. This risk factor appears to duplicate the risk discussed in
"Hazards associated with chemical manufacturing..." Please
consider
consolidated, revising or deleting the risk factor entitled "Our
insurance coverage may be inadequate..."
The Exchange Offer, page 36
18. Please revise your letter of transmittal to comply with the
following comments.
19. Please confirm supplementally that the expiration date will be
included in the final prospectus disseminated to security holders
and
filed pursuant to the applicable provisions of Rule 424.
Expiration Date; Extensions; Amendments; Termination, page 39
20. We note that you reserve the right to delay the acceptance of
any
initial notes. Clarify in what circumstances you will delay
acceptance and confirm that any such delay will be consistent with
Rule 14e-1(c). For example, if you are referring to the right to
delay acceptance only due to an extension of the exchange offer,
so
state.
21. We note your reservation of the right to extend the exchange
offer. Please disclose that the notice will disclose the number
of
securities tendered as of the notice`s date as required by Rule
14e-
1(d) under the Exchange Act. Please revise to state that the
issuer
will issue the new notes promptly after expiration rather than
after
acceptance. Please refer to Exchange Act Rule 14e-1(c). Please
advise us as to how oral notice of any extension is reasonably
calculated to reach registered holders of outstanding notes or
otherwise satisfies the requirements of Rule 14e-1(d).
22. We note your reservation of the right to amend the terms of
the
offer. Please revise to indicate that, in the event of a material
change in the offer, including the waiver of a material condition,
you will extend the offer period if necessary so that at least
five
business days remain in the offer following notice of the material
change.
Validity, Form, Eligibility and Acceptance of Tendered Initial
Notes,
page 41
23. If you decide to waive a condition, you must announce
expressly
the decision in a manner reasonably calculated to inform
noteholders
of the waiver. If you waive a material condition, you are
generally
required to extend the offering period so at least five business
days
remain in the offer after the condition is waived. Provide us
your
views on whether waiver of any condition will constitute a
material
change requiring that at least five business days remain in the
offer
after the waiver`s notice.
Withdrawal Rights, page 43
24. Please revise your disclosure here, and elsewhere in the
filing
and letter of transmittal, as appropriate, to clarify that you
will
return any initial notes that are not exchanged "promptly," rather
than "as soon as practicable" or "as promptly as practicable"
after
withdrawal, rejection, expiration or termination of the exchange
offer, as required by Rule 14e-1(c).
Conditions, page 43
25. All offer conditions, except those related to the receipt of
government regulatory approvals necessary to consummate the offer,
must be satisfied or waived at or before the expiration of the
offer,
not merely before acceptance of the outstanding notes for
exchange.
Please revise the language accordingly.
26. Please disclose the basis upon which you will determine
whether
material conditions have been satisfied and note that you must
include an objective standard for the determination of whether a
condition has been satisfied.
27. An exchange offer may be conditioned on a variety of events
and
circumstances, provided that they are not within the direct or
indirect control of the bidder, and are drafted with sufficient
specificity to allow for objective verification that the
conditions
have been satisfied. With this in mind, please revise the
condition
in the second bullet, which states: "an action is proceeding or
threatened that would materially impair the issuers` ability to
proceed with the exchange offer."
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 50
SIS Sales Allocations, page 51
28. Please disclose with more specificity the degree to which your
sales have been impacted by the worldwide shortage of isoprene.
Raw Materials, page 53
29. We note your statement that the price of styrene is primarily
driven by worldwide supply and demand and that the cost of
ethylene
and benzene are impacted by oil and gas prices. Please elaborate
on
the reasons for the significant increase in the price of styrene
and
the relationship of benzene prices to styrene prices.
30. Please elaborate on the causes of the tight supply conditions
leading to an increase in butadiene prices in 2002 and 2003 as
well
as the reasons for the price fluctuations in 2004.
31. Please disclose the reasons for the price increases of
isoprene
in 2003 and 2004 and state whether the operational problems of key
isoprene producers, which led to the 2005 price increases, are
likely
to reoccur.
Year Ended December 31, 2004, Compared to Combined Year Ended
December 31, 2003, page 57
32. Please discuss the reasons for the 6.7% increase in sales
volume
in year ended December 31, 2004 compared to the same period ended
December 31, 2003.
33. We note that sales increased by 14.7% for the year ended
December
31, 2004, as compared to the year ended December 31, 2003 and that
you attribute the increase to a favorable volume variance, a
favorable foreign currency variance and a favorable product mix
and
price variance. Please explain here and throughout the
Management`s
Discussion and Analysis section for all periods discussed, what
you
mean by "favorable volume variance" and "favorable product mix and
price variance." Elaborate on the underlying causes of these
variances.
Liquidity and Capital Resources, page 62
34. Please disclose the material financial covenants of your
senior
secured credit facility. For instance, disclose the minimum
interest
coverage ratio, maximum permitted capital expenditures, and
whether
payment would be accelerated upon the exercise of the repurchase
option by holders of the exchange notes.
Contractual Commitments-page 64
35. Please revise your table of contractual cash obligations to
also
include the following:
(a) Estimated interest payment on your debt;
(b) Estimated payments related to your Operating Agreements
with Shell;
(c) Estimated payments related to your Site Services, Utilities,
Materials, and Original Facilities Agreements with Shell; and
(d) Planned funding of other postretirement benefit
obligations
Because the table is aimed at increasing transparency of cash
flow,
we believe these payments should be included in the table. Please
also disclose any assumptions you made to derive these amounts.
Business, page 68
End-Use Markets, page 72
36. In order to place your competitive position into context, for
each of the markets listed, please disclose the percentage of the
market you have as well as that of your closest competitors.
37. Please discuss the details of the "turnarounds" you completed
at
some of your production facilities in 2003 and 2004.
Employment Agreements and Other Compensation Arrangements, page 91
38. Please provide the aggregated option exercises and fiscal year
end option value table required by Item 402(d) of Regulation S-K.
Ownership, page 98
39. Please name each natural persons who shares beneficial
ownership
with TPG Advisors III, Inc., Advisors III, Inc. and JPMP Capital
Corp. Please note the guidance provided in Rule 13d-3 and General
Instruction C to Schedule 13D. Refer to telephone interpretation
4S.
in the Regulation S-K section of the March 1999 supplement to our
"Manual of Publicly Available Telephone Interpretations" that is
available on the Commission`s website at http://www.sec.gov, and
revise or advise.
Description of Exchange Notes, page 102
40. Under Rule 421(b) of Regulation C, you must avoid copying
complex
information directly from the underlying indenture without any
clear
and concise explanation of this information. It appears that you
took much of the language in the body of the prospectus directly
from
the underlying indenture. Rewrite this disclosure to comply with
Rule 421(b) of Regulation C. See the sample prospectus Latham &
Watkins prepared for high-yield debt offerings. Latham & Watkins
worked on this sample with the staff for compliance with Rule
421(b).
In your prospectus, comply with Rule 421(b) to the same extent
this
sample prospectus does.
Certain Definitions, page 129
41. Please eliminate definitions of terms that you do not use in
the
prospectus or whose meanings are apparent or commonly understood.
Examples of these terms include, but are not necessarily limited
to:
Board of Directors, GAAP, Government Securities, and Investments.
Certain U.S. Federal Income Tax Considerations, page 146
42. Please remove the word "certain" here and elsewhere, as
appropriate. Rule 601(b)(8) of Regulation S-K requires you to
disclose all material U.S. federal income tax considerations.
43. Did you receive an opinion of tax counsel with respect to
these
federal income tax considerations? If so, please file with your
next
amendment. If not, please disclose this.
Financial Statements and notes thereto
44. We note on page 3 your discussion of end-use markets and
products
and their contribution to revenue mix on page 4. It appears to us
that you may have multiple operating segments as defined by
paragraph
10 of SFAS 131 that you have aggregated into one reportable
segment.
Please tell us how you determined that you have one reportable
segment. If you have aggregated operating segments, tell us how
you
determined the aggregation to be appropriate based on the guidance
provided in paragraph 17 of SFAS 131. Additionally, please amend
your filing to include enterprise-wide disclosures as required by
paragraph 36-39 of SFAS 131.
Consolidated Statements of Changes in Member`s Equity..., page F-5
45. Please tell us why or amend your filing to include a
reconciliation of the beginning balance to the ending balance for
the
year ended December 31, 2002. Refer to Rule 3-04 of Regulation S-
X
which indicates a statement is required for each year a statement
of
operations is presented.
Consolidated Statements of Cash Flows, page F-7
46. Please tell us what activity is generating the mark to market
interest adjustment disclosed in your reconciliation of income
(loss)
to net cash provided by operating activities. Additionally,
please
amend your filing to include your accounting policy for interest
rate
swaps and interest rate caps.
Note 1-Summary of Significant Accounting Policies-The Acquisition,
page F-9
47. You disclose that the purchase price of the Acquisition has
been
allocated based on independent appraisals and management`s
estimates.
Either identify the independent valuation firm and file their
consent
or delete any references to them from your filing. Refer to Item
436(b) of Regulation C.
Note 1(h)-Investment in Joint Venture, page F-11
48. Please tell us and amend your filing to address the
consideration
given to FIN46 (R) as it relates to your joint venture at your
Kashima site. Address your determination of whether this is a
variable interest entity and whether this entity should be
consolidated.
Note 1(l)-Revenue Recognition, page F-12
49. We note that you recognize rebates as a reduction in revenues
as
earned. Please tell us and amend your filing to clarify when
rebates
are earned. Include in your discussion whether rebates are earned
ratably over a contract period or only after certain thresholds
are
met.
Note 5(a)-U.S. Retirement Benefit Plans, page F-23
50. We note that you have disclosed the net amount to be
recognized
as a liability of $15,566 at December 31, 2004; however, we are
unable to recalculate that number based only on your benefit
obligations and fair value at the end of that period. Please
provide
us with a reconciliation of your funded status at December 31,
2004
and clearly disclose this in your filing.
51. Additionally, please amend your filing to include the
following
disclosures as required by SFAS 132 (R):
(a) Information about plan assets-paragraph 5d,
(b) The benefits expected to be paid in the next five years and in
the aggregate for the five fiscal years thereafter-paragraph 5f,
(c) The employer`s best estimate of contributions expected to be
paid
to the plan during the next fiscal year-paragraph 5g.
Note 5(i)-Severance Cost, page F-29
52. Please amend your filing to include all disclosures required
by
paragraph 20 of SFAS 146 relating to your workforce reduction
program
which was initiated during the year ended December 31, 2004.
Valuation and Qualifying Accounts
53. Please amend your filing to include Schedule II-Valuation and
Qualifying Accounts. This schedule should include your allowance
for
doubtful accounts, slow moving and obsolete inventory reserves and
the valuation allowance for deferred tax assets. Refer to Rule 5-
04
of Regulation S-X.
Closing Comments
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter that is filed on EDGAR with your amendment that keys
your responses to our comments and provides any requested
supplemental information. Detailed cover letters greatly
facilitate
our review. Please understand that we may have additional
comments
after reviewing your amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert staff comments and the declaration of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Mindy Hooker at (202) 824-5459 or John Cash at
(202) 824-5373 if you have questions regarding comments on the
financial statements and related matters. Please contact Craig
Slivka at (202) 942-7470 or the undersigned Branch Chief who
supervised review of your filings at (202) 942-2864, with any
other
questions.
Sincerely,
Jennifer Hardy
Branch Chief
cc: Stephen H. Shalen, Esq.
(212) 225-3999
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0404
DIVISION OF
CORPORATION FINANCE