Exhibit 1.1
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ANNUAL REPORT FOR DYNEA INTERNATIONAL OY
FOR THE YEAR ENDED DECEMBER 31, 2002
PREPARED PURSUANT TO THE IDENTURE DATED AUGUST 8, 2000, BY AND
BETWEEN THE BANK OF NEW YORK AS TRUSTEE, DYNEA CHEMICALS OY, AS
GUARANTOR AND DYNEA INTERNATIONAL OY AS ISSUER
TABLE OF CONTENTS
Market Information..................................i
Certain Definitions.................................i
Forward Looking Statements........................iii
Item 1. Identity of Directors,
Senior Management and Advisers.............4
Item 2. Offer Statistics and Expected Timetable.....4
Item 3. Key Information.............................5
Item 4. Information on the Company.................17
Item 5. Operating and Financial
Review and Prospects......................29
Item 6. Directors, Senior Management
and Employees.............................50
Item 7. Major Shareholders and Related
Party Transactions........................52
Item 8. Financial Information.....................55
Item 9. The Offer and Listing.....................55
Item 10. Additional Information....................56
Item 11. Quantitative and Qualititative Disclosures
About Market Risk........................64
Item 12. Description of Securities
Other than Equity Securities.............66
Item 13. Defaults, Dividend Arrearges
and Deliquencies.........................67
Item 14. Material Modifications to the
Rights of Security Holders and
Use of Proceeds..........................67
Item 15.Controls and Procedures....................67
Item 16. [Reserved]................................67
Item 17. Financial Statements......................67
Item 18. Financial Statements......................67
Item 19. Exhibits..................................67
Index to Dynea International Oy
Financial Statements............................F-1
Index to Dynea Chemicals Oy
Financial Statements.............................G-1
This annual report describes the operations of Dynea International Oy
and the operations of Dynea Chemicals Oy, the holding company subsidiary of
Dynea International Oy, as the businesses of Dynea International Oy and Dynea
Chemicals Oy are identical since all operations are conducted at or below the
level of Dynea Chemicals Oy.
MARKET INFORMATION
Information regarding market share, market position and industry data
pertaining to our business contained in this annual report consists of estimates
based on data and reports compiled by industry professional organizations and
analysts and our knowledge of our sales and markets. We take responsibility for
compiling and extracting but have not independently verified market data
provided by third parties or industry or general publications. Similarly, while
we believe our internal estimates to be reliable, they have not been verified by
any independent sources.
CERTAIN DEFINITIONS
As used in this annual report, "we," "our," "us," and "Dynea
International" refer to Dynea International Oy, a holding company incorporated
under the laws of Finland, together with Dynea Chemicals Oy, its wholly-owned
holding company subsidiary incorporated under the laws of Finland and, where the
context requires, their subsidiaries. Dynea Chemicals Oy is referred to as
"Dynea Chemicals" and "the guarantor", which also includes, where the context
requires, its subsidiaries, and contains the resins manufacturing operations
that were acquired from Fortum Oyj and, where the context requires, the other
operations that historically were operations of Dynea Chemicals Oy and that have
been sold. "Dynea" means Dynea Oy (formerly Nordkemi Oy). We are a wholly-owned
subsidiary of Dynea Oy. "Neste" refers to the chemicals business which was
acquired from Fortum Oyj, on November 30, 1999. "Dyno" means Dyno ASA, a company
incorporated under the laws of Norway, together with its subsidiaries,
containing the resins manufacturing, paper overlays and oil field chemicals
production operations that were acquired on August 8, 2000, and, where the
context requires, the other operations that historically were operations of Dyno
ASA and that have been sold.
FORWARD-LOOKING STATEMENTS
Some statements in this annual report are not historical facts and are
"forward-looking." Words such as "believes," "expects," "estimates," "may,"
"intends," "will," "should" or "anticipates" and similar expressions or their
negatives frequently identify forward-looking statements. Forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause our actual results, performance, achievements or industry results to
be materially different from those expressed or implied by those forward-looking
statements. From time to time, we have made or may make forward-looking
statements orally or in writing. Those forward-looking statements may be
included in, among other things, press releases, filings with or submissions to
the U.S. Securities and Exchange Commission, reports to shareholders and
noteholders and other communications or oral statements made by or with the
approval of an authorized executive officer.
Forward-looking statements, such as statements regarding our ability to
develop and expand our business, our ability to reduce costs, our ability to
take advantage of new technologies, the effects of regulations (including tax
regulations), litigation, our anticipated future revenues, capital spending and
financial resources and other statements contained in this annual report
regarding matters that are not historical facts, involve predictions. Actual
events or results may differ materially as a result of risks and uncertainties
that we face. Those risks and uncertainties include:
o the significant amount of indebtedness we and our subsidiaries
incurred and our obligations to service that indebtedness;
o contractual restrictions on our ability to receive dividends or
loans from some of our subsidiaries;
o changes in our business strategy or development plans;
o our ability to attract and retain qualified personnel;
o worldwide economic and business conditions;
o increased competition from other or new resins manufacturing
companies;
o customer purchasing behavior or trends toward consolidation or
up-stream integration;
o changing technology;
o regulatory, legislative and judicial developments; and
o operating difficulties.
Some of these factors are discussed in more detail elsewhere in this
annual report including, under the captions "Item 3. Key Information--Risk
Factors," "Item 4. Information on the Company--Business" and "Item 5. Operating
and Financial Review and Prospects."
Item 1. Identity of Directors, Senior Management and Advisers.
Not applicable.
Item 2. Offer Statistics and Expected Timetable.
Not applicable.
Item 3. Key Information.
SELECTED COMBINED AND CONSOLIDATED
HISTORICAL FINANCIAL DATA OF DYNEA INTERNATIONAL
The table below sets forth selected combined and consolidated
historical financial data for Dynea International as of and for the periods
indicated. The selected combined financial data as of November 30, 1999 and for
the eleven month period ended November 30, 1999 and the selected consolidated
financial data as of December 31, 1999, 2000, 2001 and 2002, and for the one
month period ended December 31, 1999 and the years ended December 31, 2000,
December 31, 2001 and December 31, 2002 have been derived from the audited
combined and consolidated financial statements of Dynea International, which
have been audited by PricewaterhouseCoopers Oy, independent accountants. The
selected combined financial data as of December 31 1998 and for the year ended
December 31 1998 have been derived from the audited combined financial
statements of the predecessor to Dynea International, which have been audited by
Arthur Andersen, independent accountants. Dynea International has prepared its
financial statements in accordance with International Financial Reporting
Standards ("IFRS"). The selected combined and consolidated historical financial
data of Dynea International should be read in conjunction with "Item 5.
Operating and Financial Review and Prospects" and the combined and consolidated
financial statements of Dynea International included elsewhere in this annual
report.
SELECTED COMBINED AND CONSOLIDATED
HISTORICAL FINANCIAL DATA OF DYNEA INTERNATIONAL
Combined(4) Consolidated(4)
-----------------------------------------------------------------------------
11 month
Period 1 month
Year Ended Ended Period Ended Year ended
December 31, Nov. 30, Dec 31, December 31,
----------- ----------- ----------- ---------------------------------------
1998 1999 1999 2000 2001 2002
(millions)
Income Statement Data:
Sales............................. (euro) 915.8 (euro) 770.6 (euro) 66.2 (euro) 1,054.6 (euro) 1,049.6 (euro) 955.8
Other operating income............ 6.0 6.9 3.1 18.2 11.3 13.8
Cost of sales(1) ................. (913.4) (894.1) (798.0)
Selling and distribution expenses(1) (49.2) (41.8) (41.3)
Research and development expenses(1) (17.9) (15.6) (17.6)
Administrative expenses(1) ....... (59.1) (65.8) (55.5)
Changes in inventories and raw
materials and consumables used(1) (586.7) (466.9) (42.8)
Staff costs(1).................... (121.4) (120.8) (10.3)
Other operating expenses(1)....... (159.6) (141.2) (19.1) (41.2) (10.9) (13.9)
Depreciation and amortization(1).. (45.7) (45.7) (4.8) (13.3) (17.4) (14.6)
----------- ----------- ----------- ----------- ----------- -----------
Operating profit (loss)........... 8.4 2.9 (7.7) (21.3) 15.3 28.7
Finance costs..................... (8.0) (4.5) (2.0) (75.1) (80.2) (50.0)
Share of results of associates.... (0.6) 0.3 0.1 15.2 9.7 3.3
----------- ----------- ----------- ----------- ----------- -----------
Loss before income taxes and minority
interest....................... (0.2) (1.3) (9.6) (81.2) (55.2) (18.0)
Income tax expense (benefit)...... 6.3 15.3 (0.5) (19.6) (7.6) (5.2)
----------- ----------- ----------- ----------- ----------- -----------
Loss from ordinary activities before
minority interest.............. (6.5) (16.6) (9.1) (61.6) (47.6) (12.8)
Minority interest................. 0.2 (0.4) 0.1 0.7 2.4 2.5
----------- ----------- ----------- ----------- ----------- -----------
Net loss.......................... (euro) (6.7) (euro)(16.2) (euro) (9.2) (euro) (62.3) (euro) (50.0) (euro)(15.3)
=========== =========== =========== =========== =========== ===========
Supplemental Operating Data:
Capital expenditures.............. 51.3 27.6 8.5 27.1 28.9 25.0
Cash Flow Statement Data:
Net cash inflow (outflow) from
operating activities........... 70.7 5.6 (9.1) (26.5) 0.3 14.9
Net cash inflow (outflow) from
investing activities........... (31.5) (19.2) (364.3) 39.1 46.1 (25.1)
Net cash inflow (outflow) from
financing activities........... (43.3) 23.6 408.7 (7.9) (27.3) (17.7)
Amounts in Accordance with U.S. GAAP:
Operating profit (loss)........... 8.4 12.3 (1.2) (19.4) 16.2 44.7
Net profit (loss)................. (6.7) (9.4) (2.6) (63.5) (49.3) 0.3
Combined(4) Consolidated(4)
------------- ------------- -------------------------------------------------------
As of As of -
Dec. 31, Nov. 30, As of December 31,
------------ ------------- --------------------------------------------------------
1998 1999 1999 2000 2001 2002
------------ ------------- ------------ ------------- ------------ -------------
(millions)
Balance Sheet Data:
Cash and cash equivalents...............(euro)31.2 (euro) 26.4 (euro) 33.7 (euro) 40.2 (euro) 59.5 (euro) 31.9
Working capital(2)...................... 12.4 63.5 91.5 58.9 18.4 (24.0)
Intangible assets....................... 53.7 51.8 90.6 277.9 269.2 252.7
Total assets............................ 592.4 656.5 772.7 1,302.0 1,063.4 969.1
Total debt(3)........................... 227.9 194.6 319.3 720.4 669.8 631.1
Shareholders' equity.................... 159.4 216.4 175.7 200.0 172.7 128.4
Amounts in accordance with U.S. GAAP
Total assets............................ 592.4 656.5 682.3 1,327.5 1,054.4 989.2
Shareholders' equity.................... 159.4 223.2 182.3 195.5 163.9 143.1
(see footnotes on the following page)
Footnotes To Historical Financial Data
(1) Operating expenses are classified according to their nature in the combined
income statements for the year ended December 31, 1998 and for the 11
months ended November 30, 1999, as well as one month period ending December
31, 1999 and according to their function in the consolidated income
statements for the year ended December 31, 2000, 2001 and 2002. The change
in the classification has been done to better reflect the management of
expenses.
(2) Working capital is computed as current assets less current liabilities.
(3) Total debt comprises long-term loans (including first years' installments),
bank loans, overdrafts and related party borrowings.
(4) Due to the purchase of Neste on November 30, 1999, Dynea International's
combined financial statements for the periods prior to December 1, 1999,
are not comparable to the consolidated financial statements presented
subsequent to December 1, 1999.
Exchange Rates
On January 1, 1999, the euro was introduced as a new currency in Finland
and ten other European Union member states. The legal rate of conversion between
Finnish marks and euros was established on January 1, 1999 at FIM 5.94573 =
(euro)1.00. On January 1, 2002, the Finnish mark was replaced by the euro as the
legal currency of Finland.
Before January 1, 1999, there was no exchange rate between the euro and
the U.S. dollar. The following table describes, for the periods and dates
indicated, information concerning the noon buying rate for the euro in New York
City for cable transfers as certified for customs purposes by the Federal
Reserve Bank of New York. Amounts are expressed in euro per $1.00, and average
figures reflect the average of the noon buying rates on the last day of each
month during the relevant period.
Period-end rate Average rate High Low
--------------- --------------- --------------- ---------------
Year
2002....................... 0.9530 1.0605 1.1615 0.9530
2001....................... 1.1235 1.1224 1.1947 1.0488
2000....................... 1.0652 1.0861 1.2092 0.9676
1999....................... 0.9930 0.9445 0.9984 0.8466
1998....................... 0.8518 0.8981 0.9466 0.7030
Through April 4, 2003...... 0.9336 0.9277 0.9336 0.9171
March 2003 0.9174 0.9264 0.9483 0.9040
February 2003.............. 0.9277 0.9272 0.9339 0.9195
January 2003............... 0.9312 0.9414 0.9652 0.9207
December 2002.............. 0.9537 0.9810 1.0074 0.9537
November 2002.............. 1.0068 0.9987 1.0106 1.0068
October 2002............... 1.0120 1.0192 1.0290 1.0120
Risk Factors
You should carefully consider all the information in this annual
report, including these material risk factors.
Risks Relating to Our Business
Our business is highly competitive, and in the future we may lose market share
or profitability or our net losses may increase as a result of activities of our
competitors.
The markets for some of our products are highly competitive. We are
exposed to the competitive characteristics of several different geographic
markets and industries. We have identified a variety of competitive factors,
including:
o product quality;
o product price;
o reliability of product supply;
o technical support and other customer services; and
o proximity to customers.
Some of our competitors, including Borden Chemicals Inc.,
Georgia-Pacific Corporation and BASF AG, are larger and have greater financial
resources than we do. We also compete with a large number of smaller regional
companies. We may lose market share to these or other competitors.
In the past several years, there have been a number of mergers,
acquisitions and spin-offs in the chemicals industry. This restructuring
activity may result in our competitors consisting of fewer, larger producers. We
believe that restructuring is further advanced in the North American resins
market, but we expect significant restructuring in Europe and Asia. In addition,
as the markets for our products expand, we expect that additional competition
will emerge and that existing competitors may commit more resources to the
markets in which we participate. This could lead to changes in the competitive
environment, cause a decrease in our revenues and cash flow and have a
detrimental effect on our business and operations.
We may possibly face competition from producers of materials that are
substitutes for formaldehyde-based resins and paper overlays, which could lead
to declines in sales or revenues from our sales of these products.
We face the possibility of competition from a number of products that
are potential substitutes for formaldehyde-based resins and paper overlays.
Currently, we estimate that formaldehyde-based resins make up most of the resins
used as panelboard resins, wood and specialty adhesives and industrial resins.
However, in some markets, non-formaldehyde based resins are a viable alternative
to our formaldehyde-based resins. For example:
o We estimate that, in North America, about 20% of the resins used
for oriented strand board ("OSB") are polyurethane-based
products. This product is more expensive than formaldehyde-based
resins, but less of it is used to produce the same amount of OSB,
it is more water resistant than formaldehyde-based OSB resins and
it allows for faster production speeds.
o Acrylic resins are used as a substitute for formaldehyde-based
resins in insulation. Recently, a major insulation manufacturer
has completely replaced certain phenolic-formaldehyde resins with
acrylic resins in the manufacture of its building insulation
product.
o Various latex and polyurethane products are used as substitutes
for wood and specialty adhesives by furniture manufacturers.
o With regard to paper overlays, high pressure laminates, wood
veneers, powder coatings, plastics, paint and lacquer are all
substitutes. These products are increasingly popular substitutes
for paper overlays, although they do not have all of the same
characteristics of paper overlays.
Considerable growth in these substitutes for resins or paper overlays
could adversely affect our market share, net sales and profit margins.
Furthermore, within our market, new products could be developed in the future
which could further threaten our market share for some of our products.
We may face competition from our current customers in the panelboard resins
market, which could lead to declines in sales or revenues from these products.
Many of our customers for panelboard resins are currently large and
continuing to grow. As these large manufacturers expand their operations and
build new facilities, they may choose to build their own panelboard resins
production facilities and begin to produce their own panelboard resins,
particularly those customers who use predominantly urea-formaldehyde resins. In
some cases, those plants could be newer or more cost-effective than the plants
we are currently using to supply those customers. Some of the larger wood panel
producers already manufacture formaldehyde-based resins for their own use.
Captive production of formaldehyde-based resins tends to be limited to the
largest producers. These customers do, however, represent an important part of
the market. We estimate that approximately 60 percent of our annual sales in
2002 derived from sales of urea-formaldehyde resins. If any of our customers
began to produce their own resins, either using a new plant or an existing
facility purchased from another party, we could lose the customer, which could
cause our revenues and cash flow to decline. If one of our plants were
particularly dependent on a customer of that sort, we could be forced to close
that facility. In addition, the possibility that one or more of our customers
might decide to construct a new facility of that sort acts to limit prices,
which we can charge for those panelboard resins.
We may lose market share as a result of customer consolidation, which could
cause our income to decline and our net losses to increase.
We are the third largest supplier of resins in North America. However,
we estimate that both of our larger competitors supply about twice as much resin
to the North American market (on a tonnage basis) than we do. This is due, in
part, to considerable consolidation among our customers in that market over the
past few years. Customers who intend to use a sole or dual-source supplier
strategy may choose to pick one of or both of our two large competitors.
Accordingly, our market share in North America may decline in future years,
which could cause our revenues and cash flow to decline. In addition, there has
been similar, although less extensive, consolidation in Europe, which could
reduce our European market share.
Declines in worldwide economic conditions could lead to declines in our sales or
could cause our net losses to increase.
Our resins and paper overlays production businesses depend on the
building construction and furniture manufacturing industries, which are global
industries subject to regional or national cycles. These industries are
particularly affected by any downturn in gross domestic product and,
accordingly, any decline in gross domestic product in a given market could have
a detrimental impact on our business, cash flow, results of operations or
financial condition in that market.
Raw material prices may fluctuate significantly, which could lead to decreased
profit margins for some of our products in some circumstances. In addition, we
are somewhat dependent on some suppliers for some of the raw materials we use to
produce our resins and paper overlays.
Our raw material costs in connection with the production of resins and
paper overlays in 2002 included methanol, urea, phenol and melamine. For our
paper overlays operations, the principal raw materials also include paper. We
purchase the majority of our raw materials as bulk commodities through a
combination of long-term contracts of one to three years in duration, informal
long-term arrangements with suppliers and purchases on the spot market.
Approximately 70% to 80% of our supply contracts for these raw materials are
long-term contracts or informal agreements with long-term suppliers. Our
long-term contracts generally specify a supply level and guarantee availability
of that supply. Prices under these contracts are either negotiated monthly or
quarterly or they are tied by a formula to any given benchmarks reported by
independent incorporations like Independent Commodity Information Service (ICIS)
or Chemical Market Associates Inc. (CMAI). In connection with these purchases,
we have been able to obtain some volume rebates. We also purchase raw materials
directly on the spot market. Spot prices fluctuate and may be significantly less
than, or significantly greater than, the prices we have paid for our raw
materials purchased under long-term agreements.
As the prices we pay for our raw materials change quarterly or monthly,
we are subject to considerable volatility in the prices we pay for raw
materials. Prices of methanol and urea are highly volatile, while prices of
phenol and melamine are generally slightly less so. Due to the considerable
volatility in methanol and urea prices, our raw material costs can vary
significantly both from year to year and during a given year. We are not always
able to fully pass through to our customers fluctuations in the prices of our
raw materials. When this occurs, our sales generate lower margins, particularly
with respect to sales made under contracts with periodic adjustment features.
There have been in the past, and may be in the future, periods of time during
which we cannot recover cost increases. These failures to recover costs can
result in part because of competitive pressures, the timing of changes to the
prices of raw materials and because at times, in some markets, industry
over-capacity prevents selling prices from being raised. Furthermore, raw
material cost decreases are generally reflected more quickly in our sales prices
than raw material cost increases due to pressure from our customers.
In addition, we may not be able to continue to purchase the volumes of
raw materials that we require from our suppliers in the future. The loss of any
of our major suppliers would take us on average three to six months, and
potentially as long as one year, to replace and could require that we make
purchases on the spot market, at potentially higher prices, in the interim.
We depend on continued technological and product innovation for our future
growth, and any failure to improve our products could lead to a decline in
market share and a resultant decrease in revenues and an increase in net losses.
All of our businesses experience gradual periodic technological change,
ongoing incremental product improvements and obsolescence of existing products.
Manufacturers periodically introduce new products or production processes. In
the past, we have benefited from our ability to operate at the forefront of some
markets. We produce resins in thousands of different formulations, the great
majority of which are individually tailored to meet the specific requirements of
our customers. We continually seek to develop innovative, technically advanced
products. These efforts typically result in the turnover of our portfolio of
product formulations every three to five years. Our future growth will depend on
our ability to gauge the direction of the commercial and technological progress
in all key markets and successfully develop, manufacture and market products in
those changing markets. We must identify, develop and market innovative products
on a timely basis to replace existing products in order to maintain our
competitive position.
We intend to devote significant resources to the development of new
technologically advanced products and intend to continue to devote a substantial
amount of spending to the research, development and technology process functions
of our businesses. However, we may fail to develop new products and/or
technology or our customers may not accept such new products or technology. If
we fail to keep pace with the evolving technological innovations in our markets,
then our sales, profitability and cash flow will decline as our customers turn
to newer products produced by our competitors.
Risks Relating to Our Company
Since our assets and all of the assets of our subsidiaries are already pledged
as security for the obligations of our subsidiaries under the senior credit
facility and other debt, we may find it difficult or impossible to borrow
additional funds if we need to do so.
The lenders under our existing senior credit agreement have a first
ranking security interest in substantially all of the tangible and intangible
assets our subsidiaries and a security interest in the shares we own of Dynea
Chemicals Oy. In addition, some of the other debt of our subsidiaries is secured
under similar, lower-ranking pledges of assets of those subsidiaries. These
lenders are not obligated to allow us to enter into further security
arrangements with these assets, or to allow us to grant similar security
interests to new lenders. As a result, we and our subsidiaries may not be able
to obtain additional loans from lenders who require us to provide them with
security interests in those assets unless we can first repay all of our existing
outstanding indebtedness under the senior credit agreement and other subsidiary
debt. This may prevent us from obtaining additional funds when needed and could
negatively affect our business or our results of operations.
We are subject to restrictive debt covenants that prevent us from taking a
number of actions, including some actions which might increase our income or
improve our financial results.
The indentures governing our notes contain covenants with respect to us
and our restricted subsidiaries that restrict, among other things:
o the incurrence of additional indebtedness;
o the payment of dividends on, and redemptions of, capital stock
and the redemption of indebtedness that is junior in right of
payment to the notes;
o some other restricted payments including, without limitation,
investments;
o some transactions with affiliates;
o some transfers or sales of assets;
o the grant of liens on our properties;
o the execution of sale and leaseback transactions;
o the sale of stock or the issuance of disqualified stock and
preferred stock of restricted subsidiaries;
o the guarantee of indebtedness of our company, other than the
notes, by our subsidiaries;
o our expansion into unrelated businesses;
o the creation of restrictions on distributions from restricted
subsidiaries; and
o consolidations, mergers and transfers of all or substantially all
of our assets.
These restrictions may prevent us from taking a number of actions,
including some actions which might increase our income or otherwise improve our
financial results.
Our subsidiaries are subject to restrictive debt covenants that prevent them
from taking a number of actions, including some actions which might increase our
income or improve our financial results, and which may prevent us from obtaining
funds from them to repay the notes.
Our subsidiaries are subject to the restrictive covenants and events of
default provisions contained in the senior credit facility. These covenants and
provisions restrict, among other things, the ability of our subsidiaries to make
any payments or distributions to us in order to enable us to prepay the notes or
make the interest payments under the notes while indebtedness under the senior
credit facility is outstanding. The senior credit facility also requires our
subsidiaries to maintain specified financial ratios and satisfy financial
condition tests. These tests and financial ratios become more restrictive over
the life of the senior credit facility. The ability of our subsidiaries to meet
those financial ratios and tests can be affected by events beyond our control,
and our subsidiaries may in the future fail to meet those ratios and tests.
A breach of any of these covenants, ratios, tests or restrictions could
result in an event of default under the senior credit facility. Upon the
occurrence of any event of default under the senior credit facility, the lenders
could elect to declare all amounts outstanding under the senior credit facility,
together with accrued interest, to be immediately due and payable. If our
subsidiaries could not repay those amounts or if any other enforcement event
under the security documents arises, the lenders could proceed against the
collateral granted to them to secure repayment of those amounts. If the lenders
under the senior credit facility accelerate the payment of those amounts, the
assets of our subsidiaries may not be sufficient to repay in full those amounts,
to satisfy all other liabilities of our subsidiaries and to enable us to repay
the notes in full.
We may still be able to incur substantially more debt which may be senior debt,
in addition to that which we have already incurred, which could further increase
the risks described above.
We and our subsidiaries may be able to incur substantial additional
debt in the future. We could, for example, incur an additional (euro)1.0 million
of debt under the senior credit agreement beyond that which we had incurred as
of December 31, 2002. The terms of the indenture restrict, but do not fully
prohibit, us and our subsidiaries from borrowing additional debt. The additional
debt we incur could be secured and debt of the guarantor could be senior to the
guarantee. Debt incurred by our subsidiaries will be effectively senior in right
of payment to the notes. If new debt is added to our and our subsidiaries'
current debt levels, the related risks that we and they now face could
intensify.
We may not succeed in making further acquisitions, or may not successfully
integrate any further acquired operations, which could cause our net losses to
increase or could lead to declines in our overall revenues or profitability.
As part of our strategy, we may acquire companies or operations engaged
in similar or complementary businesses to our own. Restrictions in the terms of
the notes may, however, preclude our ability to make some acquisitions. Further,
for acquisitions that are not precluded, we may need to borrow money which will
increase our debt service requirements and could make it harder for us to make
payments on the notes. In order to manage any acquisitions we successfully
complete, we will need to continue to implement and improve our operational,
financial and management information systems. If making acquisitions or
integrating any acquired business diverts too much management attention from the
operations of our core businesses, this could adversely effect our financial
condition and results of operations. Any acquisition that we make could be
subject to a number of risks, including:
o failure to discover liabilities of the acquired company for which
we may be responsible despite any investigation we may make
before the acquisition;
o our ability to assimilate the operations and personnel of the
acquired company; and
o the loss of key personnel in the acquired company.
Any acquisition we consummate may fail to provide the benefits we
originally anticipate. Furthermore, we may fail to identify attractive
acquisition candidates, complete and finance potential acquisitions on favorable
terms, or integrate acquired operations with our existing businesses.
We will have ongoing costs and may have additional costs, obligations or
liabilities with respect to environmental matters, which may cause our net
losses to increase in the future.
Our operations are subject to extensive environmental, health and
safety laws and regulations. Among other things, these laws and regulations:
o regulate air emissions, wastewater discharges and other releases
to the environment, the handling and use of hazardous materials,
the generation, treatment, storage and disposal of wastes, and
workplace conditions, as well as other aspects of our operations
and products;
o impose requirements relating to the clean-up of contamination;
o impose liability in the event of harm to human health, the
environment and natural resources; and
o provide for substantial fines and potential criminal sanctions
for violations.
We incur substantial costs in our efforts to comply with these laws and
regulations. At some of our sites, there may be contamination from past
operations which requires, or is anticipated to require, investigation and
remediation. The nature of the chemical industry also exposes us to risks of
liability under these laws and regulations due to the production, storage,
transportation and sale of materials that can cause harm to human health, the
environment and natural resources. In addition, individuals could seek damages
for alleged personal injury or property damage due to exposure to chemicals at
our facilities or to chemicals otherwise produced, owned or controlled by us.
We expect that our operations will continue to be subject to
increasingly stringent environmental and health and safety laws and regulations.
We anticipate that these laws and regulations will continue to require increased
costs and impose additional liabilities. Future changes to environmental, health
and safety laws and regulations may be significant, and contamination could
occur or be identified in the future. In addition, the indemnifying parties to
the agreement relating to the acquisition of Neste may fail to honor their
contractual commitments to us. The amounts we have provided or budgeted may not
be adequate. Our future cash flow may decline as a result of increased
expenditures on environmental health or safety matters.
We may have ongoing liabilities associated with the explosives business of Dyno
vis-a-vis third parties, which could lead to unforeseen expenses and could cause
our net losses to increase in the future.
Dyno ASA historically owned and operated the explosives business of
Dyno in Norway. The assets related to that business were transferred to Dyno
Nobel ASA at the time we acquired Dyno ASA. Some of the liabilities related to
the activities of that business prior to that transfer may remain with us. In
addition, the explosives business of Dyno in countries other than Norway was
conducted by former and current subsidiaries of Dyno ASA, and we may have some
remaining liabilities from past activities of those subsidiaries as well.
However, Dyno Nobel ASA has agreed to indemnify us for any loss, liability,
claim, damage or defense we may face as a result of Dyno's prior ownership of
the assets related to the explosives business.
The nature of Dyno's former explosives business involved storage and
detonation of explosives, which is treated in the United States as an inherently
dangerous or ultra-hazardous activity. Accordingly, Dyno's former subsidiaries
in the United States which have been transferred to Dyno Nobel ASA, or their
affiliates, including companies that are still subsidiaries of Dyno, may be held
liable for personal injury or property damage that resulted from the storage or
detonation of explosives in the past, regardless of the degree of care they
exercised.
While Dyno and those of its subsidiaries engaged in the explosives
business followed regulations and industry standards applicable to storage and
distribution of ammonium nitrate and explosive products prior to the transfer of
those operations to Dyno Nobel ASA, the possibility cannot be excluded of
criminal misuse of products produced by Dyno or its former explosives-related
operations. Dyno's products may have been stolen or diverted to improper use and
litigation might be brought against us seeking to hold Dyno liable in such a
case. Litigation is impossible to predict and future legal actions may be
material. Similarly, attempts may be made to sue Dyno ASA or its affiliates in
the future under a variety of legal theories in Norway, the United States, or in
other countries for its previous ownership of the explosives business. However,
no such attempts have been made to date.
Our operations are exposed to various risks because we operate in different
countries around the world, which may lead us to incur unanticipated expenses or
encounter unanticipated difficulties that negatively impact our business, our
future revenues or our future profitability and could cause our net losses to
increase.
Because liquid resins cannot generally be transported economically over
long distances, our resins production facilities are located close to our
customers around the world. Our international operations are generally subject
to many additional risks, including:
o multiple and possibly conflicting laws and unexpected changes in
regulatory requirements;
o difficulties and costs of staffing and managing international
operations;
o potentially adverse tax consequences;
o import and export restrictions and tariffs;
o political instability;
o cultural differences; and
o increased expenses due to inflation.
Any one of these factors could hurt our sales of services and products
to international customers, which could cause our revenues to decline and
adversely impact our business, cash flow, financial position and results of
operations.
As a large portion of our revenues are denominated in currencies other than the
euro, changes in exchange rates could cause our financial results to decline as
reported in euros.
Our revenues, costs, assets and liabilities are denominated in multiple
currencies, particularly the U.S. dollar, the Canadian dollar and the Norwegian
kroner. This exposes us to fluctuations in various currencies, which may affect
our financial condition and results of operations as reported in euro.
In addition, changes in exchange rates could hurt our ability to make
planned capital expenditures as well as payments to you as a result of increased
costs relating to our operations in various jurisdictions. We may not in all
cases be able to use currency hedging transactions to protect against
transaction risk.
We are also subject to interest rate risk relating to raises in
interest rates, as borrowings under our senior debt are based on floating
interest rates, such that if interest rates increase, our interest expenses will
also increase. This risk is only partially mitigated by interest rates swaps
from floating to fixed interest rates into which we enter.
An adjustment to the carrying value of our goodwill or the amortization period
would adversely affect our operating results and net worth.
We have a significant amount of goodwill. As of December 31, 2002 we
had unamortized goodwill of (euro)247.8 million, which represents 26% of our
total assets, 35% of our total non-current assets and 193% of shareholder's
equity. A significant change in market conditions that reduces the estimated
future cash flows of the company may trigger an impairment of our goodwill. This
would result in a non-cash charge and reduce the operating profit in the year
the impairment is recognized and reduce the annual amortization charge in future
years. A decrease in the period over which the company estimates the life of
goodwill would result in an increased annual amortization charge in future
years.
We have an unfunded pension obligation, which could cause us to incur additional
future expenses which would cause our net losses to increase.
As of December 31, 2002, we have an unfunded pension obligation of
(euro)40.3 million, which exceeds the accrued pension cost on our balance sheet
by (euro)24.0 million. In the event of changes in the structure of the company,
insolvency, or other circumstances, an unrecognized obligation may become
payable under the terms of the company's pension plans. This obligation is
senior to our obligation to repay amounts due under the notes.
Item 4. Information on the Company.
History and Development
Dynea International Oy and Dynea Chemicals Oy consist primarily of the
combined bonding and surfacing businesses of Neste Chemicals and Dyno ASA. Our
address is Snellmaninkatu 13, 00170, Helsinki, Finland, and our telephone number
is + 358 10 585 2000.
The Acquisition of Neste
In November 1999, our parent company, Dynea Oy, which was then known as
Marmorandum Oy, acquired the Neste chemicals business controlled by Fortum Oy,
the Finnish state oil and gas company. In this annual report, we refer to this
acquisition as the acquisition of Neste. Dynea International Oy (the issuer),
formerly known as Neste Chemicals International Oy, was incorporated in Finland
in July 2000. Shortly after our incorporation, Dynea Oy (formerly known as
Nordkemi) contributed all of the issued and outstanding shares in Dynea
Chemicals Oy (the guarantor, which had been incorporated in September 1999 as
part of the acquisition of Neste and was formerly known as Neste Chemicals Oy)
to us in exchange for all of our issued and outstanding shares.
The Acquisition of Dyno
We acquired Dyno ASA on August 8, 2000. Prior to the acquisition of
Dyno, Dyno was a public company organized under the laws of Norway whose global
operations spanned several industrial activities in the fields of explosives and
chemicals. We acquired the resins manufacturing, paper overlays and oil field
chemicals production operations and other operations which historically were
operations of Dyno ASA and which have been sold or which we intend to sell.
Sales of Non-Core Operations
Our goal in acquiring Neste and Dyno was to combine their respective
chemicals operations to form a leading global bonding and surfacing products
company. In order to achieve this goal, we have sold a number of Neste's and
Dyno's non-core operations. In January 2003, we sold our oil field chemicals
business to M-I LLC for cash consideration of (euro)76 million.
Recent Acquisitions and Investments
On December 18, 2001 our wholly-owned subsidiary Dynea Singapore Pte
Ltd signed an agreement with Pine Sky Industries Limited pursuant to which the
parties were to have funded a company, Dynea (Guangdong) Co Ltd., in order to
build a resins and paper overlays plant in Gaoyao, Guandong, Peoples Republic of
China. Under that initial agreement, Dynea Singapore Pte Ltd would have owned
70% of the company and Pine Sky Industries Limited the remaining 30% of the
company. However, Pine Sky Industries Ltd was unable to proceed with the joint
venture and, therefore, Dynea Singapore proceeded to fully finance the company
itself in 2002. Dynea (Guangdong) Co Ltd was incorporated and granted with a
business licence in January 31, 2002. We estimate that our investment in the
company will be approximately $13 million over the next two years.
During 2002, Dynea International invested in a new panelboard resins
plant in southern Thailand. The new manufacturing company is a joint venture
between Dynea International and local Thai investors. It was incorporated April
1, 2002 and named Dynea Krabi Co. Ltd. The new panelboard resins plant is
located near Krabi on Thailand's western coast. Our investment amounted to
(euro)0.9 million during 2002 and we estimate that it will total (euro)2.3
million during 2002 and 2003.
In addition, on January 1, 2002, Dynea Chemicals Oy acquired all of the
share capital of Levonal GmbH, which was renamed Dynea Holzeime GmbH. On January
17, 2002, Dynea ASA increased its ownership of the shares in Ulrich Lubbert Gmbh
from 20% to 40%. These two German investments totaled (euro)1.15 million.
Corporate Structure
The following chart is a summary of our corporate structure and
ownership.
Industri Kapital 1997 Fund and Management and
Industri Kapital 2000 Fund Other Shareholders
| |
| |
| |
Dynea Oy ------------|
|
|
|
Dynea International Oy
(Issuer) |
| |
| |
| |
|------- Dynea Chemicals Oy
| | (Guarantor) |
| | |
| | |
| Dynea Holding | Nordkem A/S
Obligors ------| Company Subsidiaries |
Under the | | |
Senior | | |
Credit | Dynea Operating Dynea ASA
Agreement | Company Subsidiaries |
| |
| |
| Dynea ASA Operating
|-------- Company Subsidiaries
Markets
We are a global specialty chemicals company. We develop, manufacture
and sell a diverse range of resins and paper overlays and operate primarily in
the bonding and surfacing industry. During 2002, we also produced oil field
chemicals for the oil industry. However, we sold our oil field chemicals
business in January 2003. See "--Sale of Oil Field Chemicals." We operate
primarily in Europe, North America and Asia. The following chart shows our
revenues by geographic location for the past three years:
2000 2001 2002
----------- ----------- -----------
Europe (euro) 607.8 (euro) 465.8 (euro) 412.4
North America 335.5 415.2 375.2
Asia 69.3 128.0 127.5
Other 42.0 40.6 40.7
- -------------------------------
The following chart shows our revenue by product for the past three
years:
2000 2001 2002
----------- ----------- -----------
Bonding and Surfacing (euro) 634.7 (euro) 915.6 (euro) 857.5
Oil Field Chemicals 24.2 66.6 71.2
Other 393.2 67.4 27.1
- -------------------------------
The overall market for formaldehyde-based resins is primarily driven by
production levels in the construction and furniture industries, which are in
turn affected by general economic conditions. This market is also driven by the
decreasing availability of old-growth timber, which is expected to continue to
result in panelboard gaining market share in the wood products market.
As with formaldehyde-based resins, the market for paper overlays is
driven in large part by activity levels in the construction and furniture
industries, which are in turn affected by general economic conditions. Both
markets are somewhat seasonal, as demand drops off in December, due to a
decreased number of working days, and during summer holidays.
Products
We develop, manufacture and sell a diverse range of bonding and
surfacing products in the form of resins and paper overlays
Resins (which we estimate were approximately 85% of 2002 bonding and
surfacing-related revenues). In 2002, we produced approximately 2.0 million tons
of resins, from which we derived revenues of approximately (euro)700 million. We
manufacture primarily the following three types of resins:
o Panelboard resins (which we estimate were approximately 55% of
2002 bonding and surfacing-related revenues). Our customers use
panelboard resins to bond various combinations of woodchips,
fibers and veneer to manufacture particle board, plywood, MDF and
OSB, which is a substitute for plywood. Different types of
panelboard resins are used depending on requirements such as
water resistance, pressing time, strength and appearance.
o Wood and specialty adhesives (which we estimate were
approximately 15% of 2002 bonding and surfacing related
revenues). Our customers generally use wood adhesives to
manufacture both engineered and interior wood products.
Engineered wood solutions include beams, joists, posts and other
wood supports for construction; interior wood solutions include
veneers, kitchen cabinets, parquet, furniture and table tops
Customers also use our specialty adhesives for paper and
packaging applications. Both engineered and interior wood and
specialty adhesives are customized to the requirements of our
customers. The characteristics of these adhesives and their
degree of customization depend on a large number of factors in
our customers' production processes, including wood type, end
use, humidity, viscosity and other factors.
o Industrial resins (which we estimate were approximately 15% of
2002 bonding and surfacing related revenues). Our customers use
industrial resins to produce paper overlays, insulation materials
and specialty products for applications such as abrasives, foam,
friction products, filters, resins for foundry, molding compounds
etc. The construction related products are used by manufacturers
in the construction and building materials industry who use them
in a number of industrial applications such as roofing and
insulation materials. This category also includes some
non-formaldehyde-based resins. The specialty products (technical
resins) are primarily used in automotive and metal working
industries. The degree of customization of these products varies
considerably depending on their end use.
Paper Overlays (which we estimate were approximately 15% of 2002
bonding and surfacing-related revenues). We produce both industrial and
decorative paper overlays. In 2002, we produced approximately 260 million square
meters of paper overlays. Sales of industrial overlays accounted for
approximately 65% of the total volume of paper overlays sold in 2002.
Paper overlays consist of paper that has been saturated or coated with
resins. These papers are then generally bonded under pressure and at high
temperatures onto a variety of core materials, including particle board, MDF,
OSB and plywood, for use as surface enhancements or finishes for decorative or
industrial applications. Industrial paper overlays provide strength and
protection and are used in the manufacture of signboards, concrete molds, truck
beds and exterior siding. Decorative paper overlays are used in manufacturing
products such as furniture, kitchen cabinets, store fixtures and laminated
flooring.
Sales and Marketing
We employ approximately 300 people in our worldwide sales and marketing
operations, who are supplemented by technical support staff responsible for
assisting our customers in developing and implementing products for use in their
production processes. In addition, local and senior management is also involved
in marketing and selling our products. Our sales representatives have on average
more than ten years' experience with our company or our predecessors. We provide
what we believe to be a high level of support and service to all of our
customers. We believe our sales staff is experienced, well known and respected
by our customers.
Our sales force includes both individual sales representatives based
locally in all of the major markets we serve and specialized "key customer"
sales teams operating from bases in Europe and North America. Our "key customer"
sales teams market the full range of our products to some of our larger
customers and are responsible for coordinating our total offering to these
accounts, including sales and technical support. In addition, for some customers
for whom we are a sole supplier, we monitor the supply of resins and provide
them with additional resins when their supply drops below a designated level. We
also sell our paper overlays products through agents on a commission basis in
markets where we do not have our own sales staff.
Contracts and Pricing
The majority of our sales are made under long-term contracts or
long-standing informal relationships with our customers. The prices for our
products depend significantly on a number of factors, including the type of
product being sold, raw material prices, the market prices for similar products
and volume discount arrangements.
Resins. Most of the long-term resins contracts we enter into provide
for volumes to be supplied to customers over a period of time. These contracts
generally have duration of one to two years, but often contain automatic renewal
provisions. Prices under many of these contracts are subject to adjustment on a
periodic basis, usually monthly or quarterly. These adjustments are usually
based on changes in raw material costs, but other factors, such as the
availability of resins from competitors and general market conditions, also have
an effect on the adjusted price. We also offer volume rebates under some sales
contracts. Within Europe, more than half of our wood and specialty adhesives
sales are made on the basis of long-term relationships with customers under
which pricing and volumes are set on a quarterly basis. Some of our sales,
especially in the Asia-Pacific region, are also made to customers with whom we
do not have contracts or long-term relationships who need products on short
notice or at a particular price.
The sales prices of our panelboard resins and industrial resins are
primarily a function of the prices of the raw materials we use to make our
products, transportation costs and market competition. The sales prices for our
wood and specialty adhesives are a function of product performance, raw material
prices, the level and quality of technical support provided and general
competition among suppliers in a given region.
Paper Overlays. About half of our sales of industrial paper overlays
are made under contracts having duration of one year or more. Approximately
one-third of our paper overlays sales result from short-term contracts, with the
remainder consisting of single sales to clients with whom we have no contract or
long-term relationship. More than three-quarters of our largest industrial paper
overlays contracts are requirements contracts under which we are our customers'
sole supplier for a given product or range of products. Our sales of decorative
paper overlays are predominantly in the form of single sales to customers for a
particular volume of a particular product.
The price at which we sell our paper overlays are primarily related to
the prices of the papers and raw materials for the resins used in their
manufacture. However, pricing for industrial paper overlays and decorative paper
overlays differs somewhat. The pricing for industrial paper overlays is fairly
stable, in large part due to the long-term contracts we have entered into and in
part due to our ability to absorb some costs with respect to these products. The
prices of decorative overlays vary more with changes in the price of raw
materials, even in the case of long-term contracts, which are often based on raw
material prices.
Customers
Our customers range from some of the largest companies in the building
materials, furniture and oil industries to small-scale local furniture and wood
materials manufacturers.
Resins. Our customers include major panelboard producers in Europe,
North America and Asia. We have long-standing relationships with the majority of
our resins customers.
Customer size varies both by product and by region. In general, our
customers for panelboard resins tend to be quite large, especially in North
America and Europe. In contrast, and with some exceptions, our customers for
wood and specialty adhesives and industrial resins are smaller. Customers in the
Asia-Pacific region, Eastern Europe and South America all tend to be smaller and
the markets more fragmented, although there are a few large panelboard resin
customers in these areas as well.
Currently, a limited number of our customers, mostly panelboard
producers, operate in more than one region. We believe, however, that the number
of multiregional customers will continue to increase due to growth in newer
markets, such as the Asia-Pacific region and South America, and due to
consolidation in more mature markets. We believe that some customers will seek
centrally negotiated supplier contracts with international suppliers like us,
and that we are well positioned to fulfill their needs.
In Western Europe, some panelboard resins customers have built and
operate their own resins production facilities within their panel production
plants in an effort to ensure supply and capture incremental margins. While we
believe there might be a slight trend toward this so-called "captive" production
in Western Europe, this trend appears to be limited to large panelboard
manufacturers in new production facilities. See "Item 3. Key Information--Risk
Factors--Risks Relating to our Business--We may potentially face competition
from our current customers in the panelboard resins market." In contrast, in the
United States, we have not noticed a trend toward captive production. Rather, in
some instances, some North American customers have moved away from captive
production. We believe we are well positioned to take advantage of any move away
from this type of production in any of the markets we serve.
Paper Overlays. Customers include major users of industrial and
decorative paper overlays in Europe, Asia-Pacific, South and North America.
The paper overlays market is predominantly composed of local and
regional customers who serve the construction and furniture industries, which
are also largely local and regional in nature. We do not have many global or
multi-regional customers. However, there are a few panelboard and furniture
producers who are global or multi-regional, and we expect them to increase their
purchases on a multi-regional basis.
The production of industrial paper overlays is more limited than
decorative paper overlays due to smaller and more fragmented customers and end
markets, and the technical engineering required in product design and
application.
Within the United States, there is a trend toward growth in decorative
products generally, particularly laminate flooring, and we believe we are well
positioned to take advantage of the future development of this business.
Manufacturing and Production
We operate 47 production facilities in 23 countries in Europe, the
Asia-Pacific region, North America and South America. We own most of these
plants, although some of these, specifically those in Indonesia, Australia,
Denmark, Thailand, Pakistan, China, Brazil, Hungary and Malaysia, are operated
as majority owned entities or joint ventures or represent investments in which
we hold minority interests of between 20% and 50%. The maximum capacity of the
plants is presented in the following tables. However, our actual capacity at any
given time may vary depending upon a variety of factors, including the types of
products being made, the number of production runs required to make them and the
mix of products being manufactured.
Resins. Our total resins manufacturing capacity is approximately 3.2
million metric tons per year. In 2002, we produced approximately 2.0 million
metric tons of resins. Our main operations are focused in North America, Western
Europe and the Asia-Pacific region.
The table below shows the amount of formaldehyde-based resins and
formaldehyde we are able to produce each year in each of the countries in which
we have resins production facilities.
Country* Formaldehyde- Formaldehyde
based (tons)
resins (tons) (37% solution)
-------------- ---------------
Australia...................... 52,000 40,000
Austria........................ 260,000 270,000
Belgium........................ 130,000 108,000
Brazil......................... 120,000 64,000
Canada......................... 378,000 215,000
China.......................... 50,000** --
Denmark........................ 70,000** 56,000
Finland........................ 200,000 81,000
Hungary........................ -- 40,000
Indonesia...................... 42,000** 33,000
Ireland........................ 100,000 68,000
Malaysia....................... 60,000 43,000
Mexico......................... 42,000 15,000
The Netherlands................ 190,000 189,000
New Zealand.................... 179,000 152,000
Norway......................... 191,000 129,000
Poland......................... 20,000 --
Singapore...................... 90,000 99,000
Thailand....................... --** --
United Kingdom................. 86,000 --
United States.................. 882,000 420,000
Vietnam........................ 18,000 --
-------------- ---------------
Total.......................... 3,160,000 2,022,000
- ------------------------
* We have more than one plant in most of these countries. In addition, our
operations in China, Indonesia and Malaysia are operated as majority-owned
companies; in Australia, Denmark and Brazil as joint ventures and in
Hungary, Pakistan and one company in Norway as minority interests of
between 20% and 50%.
** We produce an additional 4,000, 4,000, 25,000 and 5,000 tons of
non-formaldehyde-based resins in China, Denmark, Indonesia and Thailand,
respectively.
Paper Overlays. We currently have a total annual production capacity of
185 million square meters of decorative paper overlays and 340 million square
meters of industrial paper overlays. In 2002, we produced and sold approximately
265 million square meters of paper overlays.
Our paper overlay production facilities are located in the United
States, Finland, Indonesia and Brazil. The table below shows the amount of paper
overlays we are able to produce each year in each of the countries in which we
have paper overlays facilities.
Decorative Paper Industrial Paper
Country Overlays Overlays
-------------- ---------------
(million sq. m.)
Brazil*.......................... 35 --
Finland**........................ -- 50
Indonesia***..................... -- 30
United States**.................. 150 260
-------------- ---------------
Total............................ 185 340
- ------------------------
* Operated as a 50% owned joint venture.
** Wholly owned.
*** Operated as a 70% majority-owned company.
Suppliers, Raw Materials and Procurement Practices
The majority of our raw materials are bulk commodities, which we buy
under long-term or short-term contracts or informal non-contractual long-term
arrangements with suppliers. Prices for our raw materials under these contracts
and long-term arrangements generally change on a periodic basis and are linked
to a number of factors including the spot market price, purchase volumes, world
energy prices (such as natural gas and fuel oil) and overall market supply and
demand. We also supplement these contracts and informal long-term arrangements
with purchases on the spot market. We are not highly dependent on any one
supplier for any of our raw materials, and with sufficient notice (of
approximately six months to a year, depending on the raw material) we believe we
could replace even our key suppliers with purchases on the spot market and
suppliers from other markets.
Resins. The principal raw materials we use to manufacture resins are
methanol (which we use to manufacture formaldehyde, an intermediate product),
urea, phenol and melamine. Together these raw materials make up approximately
90% of our total resin-related raw material costs. All of the raw materials we
purchase are bulk commodities with standard specifications.
We have centralized purchasing in North America and Europe for our four
main raw materials. In our purchasing, we endeavor to make purchases that allow
us to benefit from economies of scale to the extent possible, and, therefore,
often concentrate our purchases from global suppliers when available. However,
in some markets and for some products, we are not able to purchase from global
suppliers, due to the lack of global suppliers in those markets or for those
products, or due to other limitations. Since all of our raw materials are bulk
commodities, we have significant flexibility in selecting our suppliers. We
obtain our raw materials through long-term contracts of one to three years in
duration, informal long-term arrangements with suppliers, and purchases on the
spot market. Our long-term contracts typically provide for a fixed volume, and
only in some rare cases flexible volume, of raw materials while under our
informal long-term arrangements volumes are more flexible and usually negotiated
on a quarterly or monthly basis. Prices under our contracts are sometimes based
on formulas, but more often, and especially in the case of our informal
long-term arrangements, they are set either quarterly or monthly and are based
on a number of factors, including spot prices, regional price variations, our
volume and delivery needs and overall market supply. As a percentage of our
overall raw material costs, prices of methanol and urea are quite volatile,
while, all other things being equal, prices of phenol and melamine are slightly
less so. We are often able to negotiate volume discounts.
For all of our raw materials, we rely on a number of different
suppliers. We purchase from most of the major producers in each industry,
complemented by local and regional producers as well as raw material traders.
Since many of our operations rely on local or regional suppliers and since many
of our facilities are in remote locations, we are not always able to negotiate
better prices solely as a result of our size. We currently purchase some of our
raw materials from suppliers who then swap their production in other areas for
locally produced materials. We believe that less than 5% of our raw materials
are obtained through those mechanisms.
Paper Overlays. Paper and resins constitute the main raw materials used
in the paper overlays business. In 2002, we produced approximately half of the
resins we used to manufacture paper overlays and purchased the remaining resins
from other manufacturers.
We purchase paper from a number of suppliers. Our purchase contracts
for industrial paper are mostly one-year contracts with fixed price terms, while
we purchase decorative paper under informal arrangements whereby volumes and
prices are set quarterly. Approximately 85% of the paper we buy is standardized,
and 15% is custom produced by printers to meet customers' specific needs. When
we purchase custom produced papers, our customers commit to purchase the paper,
thereby allowing us to pass paper costs directly to customers. We maintain an
inventory of standardized papers, enabling us to avoid backlogs and production
delays.
Environmental, Health and Safety Matters
We are subject to extensive, evolving and increasingly stringent
environmental, health and safety laws and regulations governing our operations
and products. The laws and regulations applicable to our operations address,
among other things, the following:
o emissions to the air;
o wastewater discharges to surface and subsurface waters;
o other releases into the environment;
o handling, use and disposal of hazardous materials;
o generation, handling, storage, transportation, treatment and
disposal of wastes; and
o maintenance of safe conditions in the workplace.
Obtaining, producing and distributing many of our products involve the
use, storage, transportation and disposal of toxic and hazardous materials.
Although we devote considerable effort to limiting emissions, there are
significant environmental, health and safety risks inherent in our operations
and products, and we may be subject to liability in the event of harm to human
health or the environment. Both the raw materials and resins produced by us,
including methanol, phenol, urea, melamine and formaldehyde, pose risks of acute
and chronic health effects and sensitization (development of allergies), as well
as fire hazard. The high toxicity means that ground and surface water must be
protected from contamination.
We also are subject to environmental laws and regulations that may
require us to investigate and remediate the effects of the disposal or release
of chemical substances at various sites. Under some of these laws and
regulations, a current or previous owner or operator of property may be held
liable for the costs of removal or remediation of hazardous substances on,
under, or in our property, without regard to whether the owner or operator knew
of or caused the presence of the contaminants, and regardless of whether the
practices that resulted in the contamination were legal at the time they
occurred.
As is typical for chemical businesses, at some of our production sites
with an extended history of industrial use, it is likely that significant soil
and groundwater contamination has occurred in the past. Contamination requiring,
or anticipated to require, investigation and remediation has been identified at
some sites, and contamination might occur or be discovered in the future at
other sites. For example, when Dynea Chemicals purchased the Ste. Therese,
Canada resins plant from Reichhold Ltd. in 1992, the site had already been
contaminated and a project to clean up the property on the site had already
begun. The clean up project has involved removing buried drums and soil that
were contaminating ground water leaving the property. Over the past seven years,
approximately 780 buried drums, which contained alkyd and polyester resins,
ethyl benzene, as well as printing inks, have been removed and disposed of at a
secured land fill site. In conjunction with the drum removal, approximately
13240 metric tons of contaminated soil were also removed and sent off site. A
wastewater treatment pond and a safety pond were lined with geo-membrane liners
to stop future seepage that could cause contamination of soil and ground waters.
Two new containment dikes were also constructed to hold storage tanks, which in
the past were not located inside dikes. The dikes can accommodate additional
tanks in the future. All work was completed to the satisfaction of the Canadian
environmental ministry in 2002.
It is difficult to estimate the future costs of environmental
investigation and remediation because of many uncertainties, including the
possibility that additional contamination could occur or be identified in the
future and future changes to laws and regulations. Subject to the foregoing, but
taking into consideration our experience to date regarding environmental matters
of a similar nature and facts currently known, we believe that costs of
environmental remediation will not have a material adverse effect on our
business and financial results. Because of the nature of our operations,
however, there can be no assurance that significant liabilities and costs
relating to environmental, safety and health matters will not be incurred in the
future.
The agreement relating to the acquisition of Neste provides a
cost-sharing mechanism for remedial costs relating to environmental
contamination. This cost-sharing mechanism will be in place for a period of 8.5
years from the completion of that agreement. In addition, the agreement relating
to the acquisition of Neste contains an indemnity provision in connection with
the litigation relating to the Ste. Therese site described below in "Item 8.
Financial Information--Legal Proceedings." The agreement relating to the
acquisition of Neste provides that we shall be indemnified and held harmless
with respect to losses arising from ongoing litigation among Neste Canada Inc.,
Dynea Canada Ltd., Reichhold Chemicals Inc. and Reichhold Limited regarding
environmental remedial work at the Ste. Therese facility and site in Canada; and
environmental remediation work projects at the Ste. Therese facility and site.
Property
We operate 47 manufacturing facilities in 23 countries. The following
table sets forth information with respect to these facilities.
Approximate
Leased/ area
Property/Location Owned (square meters) Principal products manufactured % Ownership
- ----------------- ----- --------------- ------------------------------- -----------
Dynea
Bunbury, Australia.......... Leased 31,500 Resins 50%
Krems, Austria.............. Owned 274,000 Resins, formaldehyde 100%
Gent, Belgium............... Leased 27,500 Resins 100%
Araucaria, Brazil........... Owned 91,400 Resins, formaldehyde 50%
Curitiba, Brazil............ Leased 8,700 Paper overlays 50%
Kamloops, Canada............ Owned 28,000 Resins 100%
North Bay, Canada........... Owned 105,200 Resins, formaldehyde 100%
Ste. Therese, Canada........ Owned 90,600 Resins, formaldehyde 100%
Thunder Bay, Canada......... Owned 93,000 Resins, formaldehyde 100%
Shanghai, China............. Leased 4,000 Resins (non-formaldehyde) 100%
Beijing, China.............. Leased 6,500 Resins 55%
Guangdong, China* Owned 45,000 Resins 100%
Aarhus, Denmark............. Leased 16,200 Resins, formaldehyde 50%
Kvistgard, Denmark.......... Leased 1,300 Resins 50%
Vejle, Denmark.............. Leased 1,900 Resins 50%
Hamina, Finland............. Leased 102,600 Resins, formaldehyde 100%
Joroinen, Finland........... Leased 18,700 Hardeners 100%
Kitee, Finland.............. Owned 13,400 Paper overlays 100%
Dielheim, Germany........... Leased 2,000 Resins 100%
Zalaegerseg, Hungary........ Owned and leased 37,600 Resins 100%
Jakarta, Indonesia.......... Leased and owned 18,500 Resins (non-formaldehyde) 51%
Surabaya, Indonesia* Owned 8,100 Resins (non-formaldehyde). 51%
Langsa, Indonesia........... Leased 20,000 Resins 70%
Medan, Indonesia............ Leased 20,000 Paper overlays 70%
Cork, Ireland............... Leased 26,300 Resins, formaldehyde 100%
Seremban, Malaysia.......... Owned 7,300 Resins, formaldehyde 68.7%
Durango, Mexico............. Owned 36,000 Resins, formaldehyde 100%
Nelson, New Zealand......... Owned 21,700 Resins, formaldehyde 100%
New Plymouth, New Zealand... Owned 90,100 Resins, formaldehyde 100%
Engene, Norway.............. Owned 200,000 Resins 100%
Lillestrom, Norway.......... Owned and leased 263,000 Resins, formaldehyde, hardener, oil 100%
field chemicals
Trzemeszno, Poland.......... Owned 34,400 Resins 100%
Singapore................... Leased 27,500 Resins, formaldehyde 100%
Bangkok, Thailand........... Owned 3,000 Resins (non-formaldehyde) 60%
Krabi, Thailand* Owned 15,200 Resins 55%
Delfzijl, The Netherlands... Leased 85,000 Resins, formaldehyde 100%
Mold, United Kingdom........ Leased 4,500 Resins 100%
Andalusia, AL, USA.......... Owned 86,700 Resins, formaldehyde 100%
Moncure, NC, USA............ Owned 222,500 Resins, formaldehyde 100%
Springfield, OR, USA........ Owned 69,000 Resins, formaldehyde 100%
Toledo, OH, USA............. Owned 54,600 Resins, formaldehyde 100%
Winnfield, LA, USA.......... Owned 145,700 Resins, formaldehyde 100%
Hayward, WI, USA............ Owned 80,900 Paper overlays 100%
Portland, OR, USA........... Owned 55,600 Paper overlays 100%
Tacoma, WA, USA,............ Leased 21,800 Paper overlays 100%
Welcome, NC, USA............ Owned 46,000 Paper overlays 100%
Ho Chi Minh City, Vietnam... Leased 30,000 Resins 100%
- ---------------------------------------------------------------------------------------------------------------------
* Under construction
For a discussion of the productive capacity of our facilities, see"--Manufacturing and Production".
Significant Subsidiaries
Our principal subsidiary undertakings as at December 31, 2002 are as follows:
Country of Ownership as of
Subsidiary Incorporation December 31, 2002
------------------------- --------------------------- -------------------
Dynea ASA Norway 100%
Dynea Austria GmbH Austria 100%
Dynea B.V. Netherlands 100%
Dynea Chemicals Oy Finland 100%
Dynea Ireland Ltd Ireland 100%
Dynea NV Belgium 100%
Dynea Finland Oy Finland 100%
Dynea UK Ltd UK 100%
Dyno Nederland BV Netherlands 100%
Dynea Canada Inc Canada 100%
Dynea Overlays WI Inc USA 100%
Dynea U.S.A. Inc USA 100%
Dynea Singapore Pte. Ltd Singapore 100%
PT Dynea Indria Indonesia 51%
Dynea NZ Ltd New Zealand 100%
Sale of Oil Field Chemicals
In January 2003, we sold our oil field chemicals business to M-I LLC,
for (euro)76 million in cash. In 2002, sales of oil field production chemicals
generated revenues of approximately (euro)71 million.
The global oil field chemicals market is divided into three main
segments: drilling, stimulation and production, which includes transportation
and refinery. We produced predominantly oil field production chemicals, which
are used predominantly to facilitate oil production and transportation. Our oil
fields chemicals business produced various different types of oil field
production chemicals for our customers, including corrosion, wax and scale
inhibitors, bactericides, emulsion breakers (which separate the water from crude
oil), oxygen scavengers (which remove oxygen from water that is injected into
wells to enhance down-hole pressure and increase oil production), defoamers and
cleaning compounds. We also made oil field chemicals that dehydrate oil to
prepare it for transportation and treat byproduct water from dehydration
processes. Because the exact make-up of crude oil is different in each oil
field, our products were usually customized to meet the needs of our customers
depending on the oil field in which they were drilling. We also provided
technical support and related services along with the oil field production
chemicals we supplied to our customers.
Item 5. Operating and Financial Review and Prospects.
This discussion and analysis should be read together with the combined
and consolidated financial statements of Dynea International, and the notes to
those financial statements, which are included in this annual report. The
combined and consolidated financial statements of Dynea International have been
prepared in accordance with IFRS. IFRS differs in some significant respects from
U.S. GAAP. The most significant differences between IFRS and U.S. GAAP are
described in the notes to the Dynea International financial statements.
Dynea International, formerly Neste Chemicals International, represents
the successor entity created from the acquisition of Neste on November 30, 1999
and the acquisition of Dyno on August 8, 2000. Dynea International had no
operations until November 30, 1999 when we acquired the Neste chemicals
businesses from Fortum. "Neste" represents the predecessor combined specialty
chemicals businesses carved-out from Fortum.
Our Operations
We are a global specialty chemicals company. We develop, manufacture
and sell a diverse range of resins and paper overlays. During 2002 we also
produced chemicals for various oil field applications. We sold our oil field
chemicals business in January 2003. See "Item 4. Information on the
Company--Sale of Oil Field Chemicals." We have 47 production sites located in 23
countries, with operations in Europe, North and South America and the
Asia-Pacific region. In 2002, we had revenues of (euro)955.8 million and a net
loss of (euro)15.3 million.
The principal segment on which we focus our business is bonding and
surfacing, which consists of both resins and paper overlays products. We
estimate bonding and surfacing products were approximately 90% of total revenues
in 2002 and oil field chemicals were approximately 7% of total revenues in 2002.
The remaining revenues in 2002 (approximately 3%) were related to small non-core
operations.
Insurance
We hold property damage insurance and business interruption insurance
for periods of up to two years up to $100 million per site, property damage and
business interruption combined. We also carry global third party liability
coverage for products and activities up to $500 million as well as liability
insurance on behalf of our directors and officers. We also carry cargo insurance
covering the value of shipped goods up to $5.0 million.
Current Operations
Bonding and Surfacing consists of our bonding and surfacing
manufacturing operations, which includes resins, wood and specialty adhesives
and paper overlay products.
Other Operations includes several small non-core operations such as a
polyvinyl chloride manufacturing plant in Finland, and some corporate functions
and treasury operations. These results also include Det Gjensidige
Forsikringsselskap Explosionskade ("DGFE"), a captive insurance company that
insures Dyno and affiliated companies primarily for risks related to the
explosives business previously owned by Dyno ASA. We are in the process of
evaluating our options with regard to this captive insurance company and expect
it will either be liquidated or sold to a third party. Its operations are no
longer significant to Dynea International.
Operations That Have Been Sold
Our goal in acquiring Neste and Dyno was to combine their respective
chemicals operations to form a leading global bonding and surfacing products
company. In order to achieve this goal, we have sold a number of Neste's and
Dyno's non-core operations. These operations remained a part of our historic
operations, as they were sold over the course of 2000, 2001 and early 2003.
Oxo consisted of Dynea International's oxo intermediate production
operations, which produced oxo intermediates, vinyl intermediates and other
coating products, including plasticizers, aldehydes, oxo alcohols and acids used
in the plastics, paint and surface coatings industries. We sold this business in
August 2000.
NC Trading consisted of a global network of trading operations that
bought, traded and resold polyolefins, polystyrene, PVC and other chemicals and
raw materials (generally for plastics). We sold this business in May 2000.
Dyno Nobel consisted of Dyno's global explosives manufacturing
operations that were purchased in the acquisition of Dyno and immediately sold
thereafter. We sold this business in August 2000.
Polyester consisted of Dynea International's unsaturated polyester
resins and gelcoat manufacturing operations, which customers use in the building
and construction, land transport and marine industries. We sold this business in
April 2001.
Other Sold Entities consisted of the paper chemicals operations, which
produced and sold a number of specialty chemicals to the paper manufacturing
industries, a custom chemical manufacturing company, the alkyd resins and
phosphate manufacturing operations, and a 50% ownership interest in a company
engaged in the manufacture and sale of styrene-butadiene latex for paper and
board coating.
Specialty Polymers consisted of Dyno's polymer microparticle
manufacturing operations that develop and manufacture microparticles for sale to
the pharmaceutical and biotechnology industries. The beneficial interest in
these operations was sold to a related party in 2000. We sold legal ownership of
these entities in 2001.
Oil Field Chemicals consisted of our oil field chemical production
operations for chemicals that are used to facilitate oil production and
transportation. We sold this business in January 2003.
Factors Affecting our Core Operations
We operate in Europe, North and South America and the Asia-Pacific
region. Our resins and paper overlays production businesses depend on the
building construction and furniture manufacturing industries, which are global
industries subject to regional and national cycles. The overall market is
primarily driven by production levels in the construction and furniture
industries, which are in turn affected by general economic conditions. General
economic conditions in 2002 were not favorable, as economic growth continued to
be slow in most of our markets and certain markets entered recession. As a
result, reduced construction resulted in reduced demand for many of our
products. Other factors, such as reduced prices for raw materials and increased
competition in certain markets, also had an overall impact on our results of
operations.
Revenues
In 2002, we derived revenues from the sale of resins, paper overlays,
oil field chemicals and other products to our customers. We support our sales by
providing many of our customers with on-site technical services and marketing
support with respect to our product lines. As a result of seasonal, market, or
other fluctuations, our results of operations for interim periods may not
necessarily be indicative of results for the full year. Our revenues are driven
primarily by:
o the prices at which we sell our products; and
o the sales volumes of our products.
Pricing. The prices of our products reflect significantly the prices of
the raw materials we use to manufacture our products. For most of our products,
therefore, our per-unit sales margin--the amount of per-unit revenues remaining
after the deduction of the per-unit cost of production--tends to remain
relatively stable other than at times of significant raw material price
volatility. The prices we charge under our contracts:
o are often subject to adjustment on a periodic basis (usually
monthly or quarterly) based on factors such as changes in raw
material costs, the availability of resins from competitors and
general market conditions; and
o may be discounted in the case of bulk purchases or sales to
larger customers.
In most cases, the periodic nature of these price adjustments results
in some delay in our ability to pass price changes in raw materials through to
our customers. Furthermore, in some cases, we may not be able to pass through
the full impact of a price increase due to competitive pressures in the markets
in which we operate.
The prices of certain higher margin products, such as some of our wood
and specialty adhesives, do not reflect their raw material costs to the same
extent as many of our other products because raw materials represent a smaller
portion of their sales price. These higher margin products are also more
profitable to distribute due to the lower volumes and higher per-unit sales
prices. See "Item 3. Key Information--Risk Factors--Risks Relating to our
Business--Raw material prices may fluctuate significantly."
Sales Volumes. Because customer demand in the building products and
furniture industries (which we believe together account for approximately 90% of
our bonding and surfacing product sales) is affected by general economic
conditions, our sales volumes are primarily driven by the level of general
economic activity in the local markets in which we operate. In each of these
local markets, therefore, levels of new home or office construction, home or
office remodeling and furniture production, have a corresponding effect on the
sales volumes of our resins, wood and specialty adhesives and paper overlays
products.
Costs and Expenses
Our principal costs and expenses are:
o raw materials;
o employees;
o maintenance;
o transportation; and
o other expenses.
Raw Materials.
Bonding and Surfacing. Raw materials constituted approximately
70% of our resins manufacturing costs in 2002. The principal raw materials we
use to manufacture resins are methanol, urea, phenol and melamine. Together
these raw materials account for approximately 90% of our total resin-related raw
material costs: in 2002, approximately 30% of our raw material expenses related
to purchases of methanol; approximately 30% of our raw material expenses related
to purchases of urea; approximately 25% of our raw material expenses related to
purchases of phenol; and approximately 15% of our raw material expenses related
to purchases of melamine.
Raw materials constitute approximately 80% of our paper overlay
manufacturing costs in 2002. Paper, resins and other chemicals and additives
constitute the main raw materials used in the paper overlays business. In 2002,
50% of our total raw material expense related to the purchase of paper and 20%
related to the purchase of resins. In 2002, we produced approximately 50% of the
resins we used to manufacture paper overlays, and purchased the remaining resins
from other manufacturers.
Oil Field Chemicals. The cost of raw materials for oil field
chemicals as a percentage of average sales price was approximately 65% in 2002,
although this percentage varied considerably depending on the product being
produced. Formaldehyde-based chemicals such as triazines, resins, aldehydes and
phosphonates were the main raw materials in our oil field chemicals.
Employees. Personnel costs in 2002 represented approximately 14% of our
overall operating expenses, excluding depreciation and amortization,
restructuring charges, and impairment charges.
Maintenance. We make significant expenditures on routine maintenance
relating to our operations. These expenditures typically relate to routine
repair operations, cleaning our manufacturing equipment, replacing defective
equipment and general maintenance to maintain the existing standard of our
current facilities.
Transportation. The expense of delivering our products is another
factor that affects per-unit product expenses. In particular, our liquid resins
are expensive to transport. Depending upon customer location and competitive
factors, either we or our customer may directly bear freight costs. When our
customer bears the freight cost, there may be a corresponding decrease in our
sales price. Accordingly, except for customers located near our production
facilities, freight costs are a significant factor in our expense levels and/or
profitability.
Other Expenses. Other expenses that we incur include energy expenses,
service costs, insurance, rents, research and development costs, advertising and
marketing costs and various other charges.
Depreciation and Amortization
We incur depreciation and amortization charges with respect to our
investment in tangible and intangible assets.
o Our tangible assets primarily consist of our property, plant
and manufacturing equipment.
o Our intangible assets primarily consist of goodwill we have
acquired in connection with the acquisition of various
businesses.
Restructuring and Impairments
In conjunction with the decision to close the Europoort plant by January 1, 2002
Dynea International recorded a (euro) 7.2 million provision relating to
contractual lease payments for the closed plant site, employee termination
benefits for involuntarily terminated employees, environmental site remediation,
and demolition costs. In 2001, (euro)1.5 million was paid and (euro) 0.9 million
of contractual lease payments were reversed as Dynea International exited
Europoort site earlier than estimated. At December 31, 2001 the remaining
provision included contractual lease payments for the closed plant site and
employee termination benefits for these terminated employees of (euro) 4.8
million, of which (euro)0.4 million was paid during 2002. At December 31, 2002
the remaining provision related to the restructuring charges amounted to
(euro)4.4 million.
In 2001, Dynea International continued its efforts to streamline
operations. Provisions charged to the income statement relate to termination
charges of 50 employees at three plants and various other expenses associated
with the closure of certain operations in Austria and the Netherlands totaling
(euro)3.2 million. At December 31, 2001 the remaining provision related to the
restructuring charges totaled to (euro)5.8 million, of which (euro)2.1 million
was paid during 2002. At December 31, 2002 the remaining provision related to
the restructuring charges amounted to (euro)3.0 million.
Effect of Currency Movements on Revenues, Expenses and Results of Operations
We conduct business in North America, South America, Europe and the
Asia-Pacific region, and, accordingly, our results of operations are subject to
currency translation and transaction risks. Currency translation risk is the
effect of transactions conducted in other currencies as reported in our
financial statements in euro, and currency transaction risk is the effect of an
operation entering into either a purchase or sales transaction using a currency
other than its functional currency. Approximately 80% to 90% of our revenues and
costs are denominated in euros, U.S. dollars, Canadian dollars, Norwegian kroner
and currencies, which are either formally or informally linked to the euro and
the U.S. dollar.
Currency Translation Risk. With respect to currency translation risk,
we generally keep our operating subsidiaries' accounts in the functional
currency of the jurisdiction in which the given subsidiary primarily operates.
We then translate profits and losses and cash flows from operations denominated
in currencies other than euro into euro at average rates of exchange during the
relevant financial period and assets and liabilities of our operations
denominated in currencies other than euro into euro at the exchange rate on the
balance sheet date for inclusion in our consolidated financial statements. The
resulting gains and losses, as well as currency differences arising from the
translation at period end rates of the net investment in overseas operations and
exchange gains and losses arising on foreign currency borrowings which finance a
proportion of foreign currency investments, are treated as a movement in equity.
The effect of currency translation on our financial statements arising
from the depreciation of the euro against other currencies shows a positive
impact on our revenues and net income as reported in euro in our financial
statements, while the appreciation of the euro against other currencies shows a
negative impact. For example, the table below illustrates the effect on Dynea
International's operations of appreciation and depreciation of the U.S. dollar
and the Canadian dollar as reported on a euro basis from 2000 to 2002 and the
Norwegian kroner as reported on a euro basis from 2001 to 2002. This table
reflects exchange rates used by Dynea International in preparing its
consolidated accounts.
U.S. dollars Canadian dollars
----------------------------------------------------------- ------------------------------------------------------------
Euro Appreciation Revenue Effect Cost Effect of Euro Appreciation Revenue Effect Cost Effect of
(Depreciation) of U.S. U.S. Operations (Depreciation) of Canada Canada Operations
Operations Operations
2001 to
2002 5.0% (euro)(14.7) (euro)(13.9) 6.3% (euro)(5.4) (euro)(4.9)
million million million million
2000 to
2001 (3.2)% (euro)9.5 (euro) 10.2 1.1% (euro)(1.3) (euro)(1.3)
million million million million
Norwegian kroner
------------------------------------------------------------
Euro Appreciation Revenue Effect Cost Effect of
(Depreciation) of Norway Norway Operations
Operations
2001 to
2002 (7.2)% (euro) 8.0 (euro) 10.3
million million
2000 to
2001 (0.8)% (euro) 1.0 (euro)0.9
million million
Currency Transaction Risk. In addition to currency translation risk, we
incur currency transaction risk whenever one of our operating subsidiaries
enters into either a purchase or sales transaction using a currency other than
its functional currency. We are generally able to hedge against currency
transaction risk by matching revenues and costs in the same currency. In Europe,
we price a large portion of our sales and purchases in euros and, in the United
States, we price most sales and purchases in U.S. dollars. To the extent that
there is a deficit between local currency funds generated by our manufacturing
operations and our local currency payment requirements, we generally hedge those
deficits using spot or forward foreign exchange contracts approved by our
corporate treasury function. Counterparties in those transactions are internally
approved commercial banks. To a degree, we are also able to hedge against this
risk by periodically adjusting our prices to account for exchange rate
fluctuations.
Seasonality
Our sales are somewhat seasonal, and, in particular, sales of resins
and paper overlays are linked to the performance of the construction and
furniture industries. The periods of highest demand for these products and,
therefore, highest volumes, are in the spring and fall. Sales volumes of these
products are somewhat lower in December, due to decreased number of working
days, and during the summer holidays.
Dynea International--Results of Operations
Results
The consolidated net loss for the years ended December 31, 2001 and
December 31, 2002 in the table below reflects a year's results of our
operations.
The consolidated net loss for the year ended December 31, 2000 in the
table below reflects a year's results of our Neste operations and approximately
five months of operations subsequent to the acquisition of Dyno on August 8,
2000.
The following table sets forth the consolidated operating results for
Dynea International (including consolidated post-acquisition Dyno results) for
the years ended December 31, 2000, December 31, 2001 and December 31, 2002.
Year Year Year
Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31,
2000 2001 2002
---- ---- ----
Sales
Bonding & Surfacing (euro) 637.1 (euro) 915.9 (euro) 858.4
Oil Field Chemicals 24.4 66.6 71.2
Other Operations 36.2 25.0 26.2
Operations That Have Been Sold 356.9 42.1 -
------------- ------------- -------------
Total (euro)1,054.6 (euro)1,049.6 (euro)955.8
Primary Operating Expenses (1)
Bonding & Surfacing (euro) 584.4 (euro) 838.3 (euro)779.5
Oil Field Chemicals 23.8 60.0 65.1
Other Operations 41.5 32.8 29.4
Operations That Have Been Sold 344.0 40.9 -
------------- ------------- -------------
Total (euro) 993.7 (euro) 972.0 (euro)874.0
EBITDA(2)
Bonding & Surfacing (euro) 52.7 (euro) 77.6 (euro) 78.9
Oil Field Chemicals 0.6 6.6 6.1
Other Operations (5.3) (7.8) (3.2)
Operations That Have Been Sold 12.9 1.2 -
------------- ------------- -------------
Total (euro) 60.9 (euro) 77.6 (euro) 81.8
Depreciation and Amortization
Bonding & Surfacing (euro) 34.1 (euro)48.9 (euro) 46.9
Oil Field Chemicals 1.4 3.7 3.8
Other Operations 3.7 2.9 3.1
Operations That Have Been Sold 11.1 1.0 -
------------- ------------- -------------
Total (euro) 50.3 (euro) 56.5 (euro) 53.8
Restructuring and Impairment
Bonding & Surfacing (euro)17.9 (euro)4.7 -
Oil Field Chemicals - - -
Other Operations 11.8 0.6 (0.7)
Operations That Have Been Sold 2.2 0.2 -
------------- ------------- -------------
Total (euro)31.9 (euro)5.5 (euro) (0.7)
Profit on Sale of Associates
Bonding and Surfacing - 3.0 -
Loss on Sale of Discontinued Operations
Operations That Have Been Sold - 3.3 -
Operating Profit
Bonding & Surfacing (euro) 0.7 (euro) 27.0 (euro) 32.0
Oil Field Chemicals (0.8) 2.9 2.3
Other Operations (20.8) (11.3) (5.6)
Operations That Have Been Sold (0.4) (3.3) -
------------- ------------- -------------
Total (euro)(21.3) (euro)15.3 (euro)28.7
Finance Costs 75.1 80.2 50.0
Shares of Results of Associates
and Joint Ventures 15.2 9.7 3.3
Income Tax Benefit (19.6) (7.6) (5.2)
Minority Interest Expense 0.7 2.4 2.5
------------- ------------- -------------
Net Loss (euro) (62.3) (euro) (50.0) (euro) (15.3)
============= ============= =============
- ------------------
(1) Primary operating expenses represent changes in inventories of finished
goods and work in progress, raw materials and consumables used,
services and rents, staff costs, and other operating expense, offset by
other operating income and are equivalent to the sum of variable and
fixed costs, less restructuring and impairment charges, in prior
periods.
(2) EBITDA, as defined by the company, represents operating income
excluding restructuring and impairment charges and depreciation and
amortization charges. Because EBITDA is not calculated identically by
all companies, the presentation herein may not be comparable to other
similarly titled measures of other companies. We have included the
EBITDA, a non-GAAP measure, because we understand that EBITDA is used
by certain investors, not as a measure of our operating results, but as
a measure of our historical ability to meet debt service and capital
expenditure requirements. We have excluded restructuring and
repositioning charges from EBITDA because we believe this presentation
increases comparability from period to period. EBITDA should not be
considered as an alternative measure of operating results, cash flow
from operations, or debt determined under generally accepted accounting
principles (GAAP)
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Sales. Sales decreased 9% to (euro)955.8 million in 2002 from
(euro)1,049.6 million in 2001.
Bonding and Surfacing. Sales from bonding and surfacing products
decreased 6% to (euro)858.4 million in 2002 from (euro)915.9 million in 2001.
The overall decrease in sales for bonding and surfacing products was mainly due
to the fact that the average prices for our products were lower in 2002 than in
2001. Prices for our products were lower due to a number of factors, which
placed downward pressure on them. The most significant of these factors was the
fact that average prices for our raw materials were lower in 2002 than in 2001.
In addition, weakening demand and increased competition in certain markets also
placed downward pressure on our prices. During the same period, our sales
volumes increased by 1%. We sold 2,250 thousand tons of resins and formaldehyde
in 2002 compared to 2,230 in 2001and 265 million square meters of paper overlays
compared to 240 in 2001.
Sales and sales volumes of panel board resins products varied across
markets. In Europe, sales volumes of panelboard resins decreased overall,
although performance varied depending on the country. Sales values declined also
as a result of the decrease in prices for our products. In North America sales
volumes of panelboard resins products increased in 2002 as compared to 2001,
though volumes in the last two quarters of 2002 were lower than in 2001. As a
result of lower prices due to lower raw material costs and a competitive pricing
environment the value of sales declined compared with 2001. In Asia, sales
volumes of panelboard products increased, largely as a result of strong activity
in New Zealand and Australia. In Japan, recently enacted formaldehyde emissions
requirements have increased demand for certain low emissions resins that we
produce in New Zealand. However, as in other regions, sales values for
panelboard resins decreased due to lower prices.
Sales volumes of industrial resins increased slightly in 2002 compared
to 2001. As in other product areas, sales value declined due to lower prices.
However, there were clear regional differences. In Europe, volumes increased in
spite of the difficult economic situation thanks to our marketing and sales
efforts, although sales were hurt by the decreases in selling prices of our
industrial resin products. In North America, sales and sales volumes were
significantly affected by the low demand and consequently both declined compared
to 2001.
With regard to wood adhesives, sales and sales volumes increased in
2002 as compared to 2001. European sales decreased, mainly as a result of a
lower demand in Germany, while sales in Asia increased. We believe our efforts
in marketing and sales largely contributed to the increase in sales volumes, and
the increase in sales is attributable to the fact that we have shifted to
selling a higher priced product mix.
With regard to sales of paper overlays, sales and sales volumes
increased during 2002 as compared with 2001. A substantial part of this increase
is due to increased deliveries from our facilities in Welcome, North Carolina.
In addition, we succeeded in increasing our sales volumes in Asia, facilitated
by export to China from our plant in Indonesia.
Oil Field Chemicals. Sales in the oil field chemicals segment increased
7 %, to (euro)71.2 million in 2002 from (euro)66.6 million in 2001. This
increase was primarily attributable to increased deliveries to certain customers
in Europe. We also managed to increase our sales to new markets such as
Asia-Pacific.
Other Operations. Sales from other operations increased 5%, to
(euro)26.2 million in 2002 from (euro)25.0 million in 2001. This increase was
attributable to increased sales of certain research and development services.
Operations That Have Been Sold. There were no sales associated with
operations that have been sold in 2002. Sales from operations that have been
sold were (euro)42.1 million in 2001 due to the part year results of our
polyester business, which was sold in April 2001.
Operating profit. Operating profit increased to (euro)28.7 million in
2002 from (euro)15.3 million in 2001.
Bonding and Surfacing. Operating profit associated with bonding and
surfacing products increased by 19%, to (euro)32.0 million in 2002 from
(euro)27.0 million in 2001. The increase in operating profit was largely due to
a decrease in operating expenses, which in turn was due to a drop in overall raw
material prices and other expenses in 2002 as compared with 2001.
During this period our operating expenses decreased 7%, to (euro)779.5
million in 2002 from (euro)838.3 million in 2001. Within bonding and surfacing
operations significant changes occurred in our raw material prices. At the
beginning of 2002, the prices of our key raw materials (methanol, phenol,
melamine, urea) were approximately 5 to 20% lower than in the beginning of 2001.
During 2002, the prices of all of these products increased, although not to the
same level as at the beginning of 2001. As a result, our average raw material
prices and, consequently, our raw material related expenses were lower in 2002
than in 2001.
Overall operating profit from panelboard resins increased in 2002 as
compared to 2001. In Europe, operating profits increased during the year largely
due to a decrease in operating expenses. Reduced demand and increased
competition among panelboard resins producers reduced sales and placed downward
pressure on prices. We were however able to improve our performance in 2002
through cost saving efforts and increased production efficiency. In North
America, our operating profit from panelboard resins decreased in 2002 compared
to 2001. This was due to increased competition, which placed downward pressure
on our prices. In addition, the product mix for our panelboard resins during
2002 was unfavorable, as we sold more lower priced panelboard resins in 2002 as
compared to 2001, which resulted in reduced operating profits. In addition, our
operating expenses increased in North America in 2002 as compared to 2001 due to
local capacity restrictions, which led to increased inter-company freight costs
for transport of material. In Asia Pacific, our operating profit was higher in
2002 than in 2001 due to increased sales.
Operating profit from industrial resins decreased in 2002 as compared
to 2001, principally due to reduced sales in North America. The decrease in
operating profit in North America was partially offset by increased operating
profits in Europe, which were largely due to increased sales of industrial
resins in the region. Operating profit from wood and specialty adhesives
increased in 2002 as compared to 2001 predominantly due to increased sales and
sales volumes and to a shift in product mix towards higher margin products.
Operating profit from paper overlays increased in 2002 as compared to
2001 mainly due to increased deliveries from our facilities in Welcome, North
Carolina. Operating expenses improved during 2002 as we introduced a number of
efficiency programs that resulted in decreased operating expenses across our
paper overlays operations that contributed to increased operating profit from
paper overlays.
Depreciation and amortization charges decreased by 4%, to (euro)46.9
million in 2002 from (euro)48.9 million in 2001 mainly due to foreign exchange
gains.
Oil Field Chemicals. Operating profit from oil field chemicals
decreased by 21%, to (euro)2.3 million in 2002 from (euro)2.9 million in 2001.
This decrease is primarily attributable to increased sales of lower margin
products that occurred during the year 2002. Operating expenses increased 9% to
(euro)65.1 million in 2002 from (euro)60.0 million in 2001 due to increased
sales as well as increased activity in new markets.
Other Operations. Operating loss from other operations decreased by
50%, to (euro)5.6 million in 2002 from (euro)11.3 million in 2001. This decrease
in operating loss was mainly attributable to the decreased general and
administrative expenses due to efficiency improvements and implemented cost
savings.
Deprecation and amortization charges related to our other operations
were essentially stable at (euro)3.1 million in 2002 as compared to (euro)2.9
million in 2001.
In 2002, we released a (euro)0.7 million restructuring provision. In
2001, we incurred a restructuring expense of (euro)0.6 million.
Operations That Have Been Sold. There was no operating profit
associated with operations that have been sold in 2002. We had a loss of
(euro)3.3 million in 2001, which reflected the part year results of our
polyester business, which we sold in April 2001.
Finance Costs. Dynea International's finance costs decreased 38%, to
(euro)50.0 million in 2002 from (euro)80.2 million in 2001. This decrease in
finance costs was primarily attributable to decreased net interest cost and
increased net foreign exchange gains. Net interest costs decreased (euro)12.1
million to (euro)61.6 million in 2002 mainly due to debt repayments and
decreasing interest rates. Net foreign exchange gains increased (euro)12.0
million to (euro)16.5 million. Net other financial items decreased (euro)6.1
million to (euro)4.9 million.
Share of Results of Associates and Joint Ventures. Our share of results
from associates and joint ventures decreased 66%, to (euro)3.3 million in 2002
from (euro)9.7 million in 2001, primarily due to the results of Methanor v.o.f,
a methanol production company in which we have a 40% investment. Over the course
of 2002, demand for and the price of methanol increased considerably as compared
to 2001. However, during the first quarter of 2002 the weak methanol prices of
2001 continued and sales of methanol by Methanor v.o.f. were generally at
relatively low prices. In the second half of 2002, operating results for
Methanor returned to positive, due to increased demand and strengthening prices
for methanol. In November 2002, one of the two production lines was closed due
to maintenance and refurbishment. Fourth quarter results were negatively
affected by the halt in production during the refurbishment.
Income Tax Benefit. Income tax benefit decreased to (euro)5.2 million
for 2002 from a benefit of (euro)7.6 million in 2001. The income tax benefit in
2002 was comprised of a current year tax charge of (euro)10.3 million as
compared to (euro)11.6 million in 2001, net of the movement in deferred tax of
(euro)15.5 million as compared to (euro)19.2 million in 2001.
Minority Interest. Minority interests remained essentially unchanged
with an expense of (euro)2.5 million in 2002 compared to an expense of (euro)2.4
million in 2001.
Net Loss. Net loss decreased more than twofold to a loss of (euro)15.3
million in 2002 from a loss of (euro)50.0 million in 2001, primarily as a result
of lower financial expense as well as higher operating profit generated by our
bonding and surfacing operations and reduced restructuring and impairment
charges, offset by lower income from associates.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Sales. Sales decreased 0.5% to (euro)1,049.7 million in 2001 from
(euro)1,054.6 million in 2000.
Bonding and Surfacing. Sales associated with bonding and surfacing
products increased 44% to (euro)915.9 million in 2001 from (euro)637.1 million
in 2000. Excluding the effect of the acquisition of Dyno on our results, sales
of bonding and surfacing products increased by 12% from 2000 to 2001. During the
same period, our sales volumes increased by 25%, or approximately 3% excluding
the effect of the acquisition of Dyno. We sold 2,230 thousand tons of resins and
formaldehyde in 2001 and 240 million square meters of paper overlays.
During 2001, we faced weakening demand in all of the markets in which
we operate. In North America, although housing starts remained relatively
stable, the overall economy entered into recession and demand for construction
products generally declined, and consequently prices for such goods softened.
Within Europe, the construction industry faced a downturn, which resulted in
reduced demand for bonding and surfacing products. Falling demand also increased
competition among producers of bonding and surfacing products, which resulted in
downward pressure on prices as producers sought to maintain market share. In
Asia, the ongoing recession in Japan economy has had a negative impact on demand
for bonding and surfacing products, in particular wood adhesives and industrial
resins. In contrast, growth in the Chinese economy remains strong and demand for
our products remained buoyant in China.
Sales in 2001 were affected by the prices we charged for our products.
The average prices for our products were higher in 2001 than in 2000 due to
price increases that we implemented at the end of 2000, to reflect the fact that
raw material prices were higher at the end 2000. However, over the course of
2001, raw material prices dropped, and as a result, we faced pressure from our
customers to reduce our prices, which reduced our margins over the course of the
year. See -"Operating Profits."
Overall growth in sales and sales volumes for bonding and surfacing
products was mainly due to the fact that we were able to increase our deliveries
of panelboard resins to certain customers in North America. We believe our
marketing and sales efforts enabled us to achieve these increased deliveries of
panelboard resins in North America. In contrast to North America, sales and
sales volumes of panelboard resins dropped slightly in Europe due predominantly
to increased competition and falling prices. Sales of panelboard resins in Asia
remained relatively stable, although, in Japan recently enacted formaldehyde
emissions requirements have increased demand for certain zero emissions resins
that we produce in New Zealand.
Sales and sales volumes of industrial resins and wood adhesives were
generally stable, although we did observe certain trends over the course of the
year. With regard to industrial resins, volumes were generally stable over the
year, although sales declined somewhat due to increased competition and downward
pressure on prices. With regard to wood adhesives, decreasing demand in key
markets such as Germany resulted in somewhat decreasing sales volumes toward the
end of the year. However, sales were fairly constant over the year due to higher
prices in the second and third quarters, which maintained sales over the year
notwithstanding falling demand and dropping prices in the fourth quarter.
With regard to sales of paper overlays, sales grew during the first
three quarters of 2001 and declined in the fourth quarter, due to a fall in the
demand in the United States. Furthermore, although we completed the construction
of our facilities in Welcome, North Carolina, sales from that facility have been
lower than anticipated.
Generally, with regard to developments from quarter to quarter during
2001, overall bonding and surfacing sales decreased, mainly due to decreases in
resin prices implemented as a result of decreases in main raw materials prices.
Although we were able to maintain volumes over the full year, from quarter to
quarter, sales volumes also declined.
Oil Field Chemicals. Sales in the oil field chemicals segment increased
173%, to (euro)66.6 million in 2001 from (euro)24.4 million in 2000, mainly due
to the full-year effect of the oil field operations that we acquired as part of
the Dyno acquisition. However, sales of our oil field products were negatively
affected by two major accidents that occurred at two of our customers' sites
during the first half of 2001; a rupture of a pipeline in the United Kingdom and
a gas explosion in Denmark. These accidents caused standstills at those customer
sites for three and four months, respectively, during which they halted
purchases of our oil field chemicals.
Oil prices have a decisive effect on this business. When oil prices
drop below a certain dollar price per barrel, oil companies often reduce
production from oil fields that are more expensive to exploit. One of the
factors that determines whether a field is expensive to drill in is whether it
requires greater quantities of oil field chemicals to exploit. Since the events
of September 11, 2001 in the United States, oil prices fell to below $20 a
barrel, which reduced production in fields that use larger quantities of oil
field chemicals.
Other Operations. Sales from other operations decreased 31%, to
(euro)25.0 million in 2001 from (euro)36.2 million in 2000 mainly due to the
sale of certain marketing and sales operations in connection with the sale of
our polyester business in 2001.
Operations That Have Been Sold. Sales associated with operations that
have been sold decreased 88% to (euro)42.1 million in 2001 from (euro)359.9
million in 2000 due to the sale of our oxo, NC Trading, paper chemicals and
other operations during 2000. The decline is also attributable to the disposal
of our polyester business in April 2001. There were no sales associated with
these businesses following the polyester disposal.
Operating profit. Operating profit increased to (euro)15.3 million in
2001 from a loss of (euro)21.3 million in 2000.
Bonding and Surfacing. Operating profit associated with bonding and
surfacing products increased significantly to (euro)27.0 million in 2001 from
(euro)0.7 million in 2000. We estimate that approximately half of this increase
((euro)15.5) was due to the Dyno acquisition.
During this period our operating expenses increased 43%, to (euro)838.3
million in 2001 from (euro)584.6 million in 2000. We estimate that most of this
increase was attributable to the Dyno acquisition. Over the course of 2001, a
decline in operating expenses can, however, be noted from quarter to quarter,
which is mainly attributable to declining raw material prices. Within bonding
and surfacing operations, the year was marked by variation in raw material
prices. At the beginning of 2001, the prices of our key raw materials (methanol,
phenol, melamine, urea) were approximately 80 to 100% higher than at the same
time previous year. During 2001, the price of all of these declined
considerably; methanol and phenol prices decreased by over 50% from the
beginning of the year, which resulted in a decline in our raw material related
expenses. This decline in raw material prices has not directly led to increased
profitability due to the fact that we have often had to reduce prices for our
products in line with decreases in raw material prices and due to increased
competition among panelboard resins producers, especially in Central Europe,
which has also placed downward pressure on the prices we charge for our
panelboard resins.
Depreciation and amortization charges increased by 43%, to (euro)48.9
million in 2001 from (euro)34.1 million in 2000 mainly due to the increase in
our asset base as a result of the Dyno acquisition.
Restructuring and impairment decreased by 73%, to (euro)4.7 million in
2001 from (euro)17.9 million in 2000 due to the completion of all major
restructuring activities during 2000. Impairment includes (euro)2.2 million
relating to our operations in Austria, where capacity was reduced due to
restructuring activities. We also recorded a (euro)3.0 million gain on the sale
of minority shares in LP Pacific films Sdn Bhd and Hekza-Neste Sdn Bhd.
Oil Field Chemicals. In oil field chemicals, operating profit increased
to (euro)2.9 million in 2001 from a loss of (euro)0.8 million in 2000. The
increase in operating profit is due mainly to the full year effect of oil field
operations acquired as part of the Dyno acquisition. Within these operations,
2001 was marked by decreased margins due to the fact that we had a less
favorable product mix of increased sales of lower margin products and decreased
sales of higher margin products. Oil field chemicals expenses during 2001
remained stable.
Other Operations. Operating loss from other operations decreased by
46%, to a loss of (euro)11.3 million in 2001 from a loss of (euro)20.8 million
in 2000. This increase in operating profit was attributable to decreased
corporate costs, mainly due to the restructuring program implemented at the end
of the year 2000.
Depreciation and amortization charges related to our other operations
were (euro)2.9 million in 2001 compared to (euro)3.7 million in 2002.
Operations That Have Been Sold. Operating profit associated with
operations that have been sold declined to a loss of (euro)3.3 million in 2001
from a loss of (euro)0.4 million in 2000, due to the sales of oxo, NC Trading,
paper chemicals and other operations sold during 2000. This decline is further
attributable to the disposal of polyester business in April 2001. There were no
sales reported in this segment following the polyester disposal. Operating
profit from operations that have been sold also declined due to a (euro)3.3
million loss related to the sale of polyester business.
Finance Costs. Dynea International's finance costs increased 9%, to
(euro)80.2 million in 2001 from (euro)75.1 million in 2000. This increase in
finance costs was primarily attributable to the full year effect of the
refinancing and additional debt incurred in conjunction with the Dyno
acquisition.
Share of Results of Associates and Joint Ventures. Our share of results
from associates and joint ventures decreased 37%, to (euro)9.7 million in 2001
from (euro)15.3 million in 2000, primarily due to our 40% investment in the
Methanor v.o.f joint venture, which was acquired as part of the Dyno Acquisition
and which produces methanol. During 2000, high methanol prices contributed to
Methanor's strong results. However, in the second half of 2001, decreased
worldwide methanol consumption and sharply reduced methanol prices drove down
Methanor profits. In spite of lower prices for natural gas feedstock, the
primary raw material in methanol, Methanor v.o.f. recorded losses in the last
quarter of 2001.
Income Tax Benefit. Income tax benefit decreased by 61% to (euro)7.6
million for 2001 from a benefit of (euro)19.6 million in 2000. The income tax
benefit is comprised of the current year tax charge of (euro)11.6 million (2000:
(euro)15.5 million) net of the movement in deferred tax of (euro)19.2 million
(2000: (euro)35.1 million). Income tax charges decreased in Finland as in the
previous year certain purchase price allocations had created additional tax
liabilities in this territory. Foreign income tax charges increased slightly due
to the inclusion of legacy Dyno operations for the full year in 2001. The
movement in deferred tax resulted in a lower deferred tax benefit for the year
primarily as a result of the polyester business disposal.
Minority Interest. Minority interests increased 242%, to an expense of
(euro)2.4 million in 2001 from an expense of (euro)0.7 million in 2000 as a
result of the Dyno acquisition, which increased our number of majority owned
subsidiaries.
Net Loss. Net loss decreased 20%, to a loss of (euro)50.0 million in
2001 from a loss of (euro)62.3 million in 2000 primarily as a result of higher
operating profit generated by our bonding and surfacing operations and reduced
restructuring and impairment charges, offset by higher financial expense and
higher income tax expense.
Liquidity and Capital Resources
Our liquidity requirements arise primarily from the need to meet our
ongoing debt service requirements, to fund capital expenditures for the general
maintenance and expansion of our production facilities, to build and acquire new
facilities, and to fund our working capital requirements. Due to the seasonality
of our business, our liquidity needs are highest in the spring and fall. Our
principal sources of funds have been cash flows from operations, proceeds from
sale of businesses, equity financing from our parent and related companies and
amounts available under our existing revolving credit facility.
We have currently outstanding the following financing, which was raised
by Dynea International and its direct and indirect subsidiaries in connection
with the acquisition of Dyno, prior to the closing of the acquisition:
o (euro)240.0 million 12 1/4% notes due 2010 (increased
to(euro)250.0 million in August 2000 after closing).
o A senior credit agreement comprised of (euro)277.5 million
(originally (euro) 379.5 million) in term loans and a (euro)100.0
million revolving loan and guarantee facility.
With effect from November 15, 2001, we entered into agreement with the
senior banks to use the proceeds of the sale of our polyester business (which we
disposed of during 2001) to repay amounts under the senior loans in accordance
with the terms of the senior credit agreement. The repayment was allocated,
pursuant to the credit agreement, on a pro rata basis to each tranche of credit
and repayment took place in the fourth quarter of 2001 and the first quarter of
2002. In conjunction with the repayment, we also agreed to a retroactive waiver
with the senior lenders of certain possible financial covenant breaches for the
twelve months ending September 2001 and certain modifications to the terms of
the senior credit agreement, including amended financial covenants relating to
minimum debt-service and interest-coverage ratios until June 30, 2003, in order
to provide us with greater flexibility in meeting those ratios. In July 2002 we
agreed to an additional retroactive waiver with the senior lenders of certain
possible covenant breaches for the twelve months ending June 2002 and amendments
of the financial covenants relating to minimum debt-service and
interest-coverage ratios until September 2002. This was done in order to provide
us with greater flexibility in meeting those ratios.
We negotiated a further waiver of certain covenants in the senior
credit agreement with effect from February 10, 2003. In accordance with the
waiver the senior lenders agreed to modify the covenant ratios contained in the
senior credit agreement for the years ending in 2003 and 2004 and also granted a
waiver for potential breaches of the financial covenants for the quarter ending
December 31, 2002. The senior lenders also approved the purchase by Dynea
Chemicals of the Chemitec businesses from our parent, Dynea Oy, for a business
value of (euro)35.0 million to be paid for from the proceeds of sale of our oil
field chemicals business. Dynea Oy in turn agreed to increase its equity in
Dynea International Oy by (euro)35.0 million, and Dynea International Oy agreed
to lend the same amount to Dynea Chemicals as a subordinated loan. Dynea
Chemicals also agreed to use (euro)25.0 million of the proceeds of the sale of
our oil field chemicals business to prepay certain senior term loans in
accordance with the senior credit agreement. A description of the significant
terms of the amendment to the senior credit agreement is contained in the
section "Item 10. Additional Information--Material Contracts--The Senior Credit
Agreement."
We made two scheduled repayments under the senior credit agreement,
totalling (euro)16.7 million in June and December 2002.
At the end of 2002, we had outstanding (euro)99.0 million drawn under
our (euro)100.0 million revolving credit facility, (euro)87.6 million as
short-term loans and (euro)11.3 million as guarantees and letters of credit.
Both short-term loans and guarantees and letters of credit are in the revolving
credit facility limit utilization calculations taken into account with their
original euro amount, i.e. drawings denominated in currencies other than euro
are converted to euros at the exchange rate on the drawdown date of each
advance, as stipulated in the senior credit agreement. The undrawn amount from
the revolving credit facility at December 31, 2002 was (euro)1.0 million;
therefore we cannot finance any negative operating cash flow during 2003 from
existing committed credit facilities.
We believe that our cash flows from operations, together with
additional equity contributions that we received from our shareholders in
February 2003 and the waiver we received from our senior lenders in February
2003, as well as equity contributions we received from our shareholders in
February and March 2002 of approximately (euro)15 million will be sufficient for
our operating needs (other than future acquisitions) and debt service
requirements as they become due for at least the next twelve months. However,
our future operating performance and ability to service or refinance our
existing debt, including the notes, will be subject to future economic
conditions and to financial, business and other factors, many of which are
beyond our control. If we were to face a deepening recession in any of our main
markets or have a significant adverse change in our working capital development,
we would need to raise additional capital either through an additional equity
contribution from our shareholders or by raising additional debt. Furthermore,
in the event we do not generate sufficient cash flow from our operations to
service our existing debt, we expect we would be able to obtain sufficient cash
flow by reducing or postponing certain discretionary expenditures for repairs
and maintenance or future expansion. In addition, we expect that we will need to
refinance all or part of the notes at final maturity.
Scheduled repayments on the senior credit agreement will significantly
impact liquidity. Additionally we have agreed with the senior lenders to make a
prepayment of (euro)25.0 million during 2003 from the proceeds of the sale of
oil field chemicals business. Loans under the senior credit agreement are issued
under three loans, designated Senior Term Loan A through Senior Term C is
contained in "Item 10. Additional Information--Materials Contracts--The Senior
Credit Agreement."
We are currently scheduled to make the following debt payments of
principal of the term loans under the senior credit agreement, as translated
into euro at December 31, 2002:
Total Payment
Year Amount
---- ------------------
(euro)in millions)
2003..........................................(euro) 20.8
2004 -
2007.......................................... 147.7
Thereafter.................................... 109.0
-----------
Total........................................ (euro)277.5
Under the senior credit agreement, we will be required to make
mandatory prepayments in some circumstances from the proceeds of vendor
payments, surplus cash, asset disposals, certain insurance claims and in the
event of change of control. We will also be permitted to make voluntary
prepayments on the loans. Borrowings under the senior credit agreement bear an
interest at LIBOR-based floating rates for varying interest periods. We are also
required to comply with certain financial covenants including minimum debt
service and interest-coverage ratios. As discussed above, we negotiated a waiver
of certain of these covenants for the twelve months to September 30, 2001 and
renegotiated certain ratios until June 30, 2003. As also discussed above, we
negotiated an additional waiver of certain of these covenants for the twelve
months to June 2002 and renegotiated certain ratios until September 2002. As
also discussed above, we negotiated an additional waiver of certain covenants
for financial years 2003 and 2004 and also waiver of potential breaches of
financial undertakings for the twelve months ending December 2002. A description
of the senior credit agreement, including the amended terms, is contained in the
section "Item 10. Additional Information--Material Contracts."
The notes will be repaid in one installment in 2010. However, the note
holders will be able to require us to purchase the notes in the event of change
of control. We may not be able to do so without the consent of our lenders under
the senior credit agreement. In addition, prior to August 15, 2003, we will be
permitted to repurchase up to 35% of the notes at specified redemption rates
from the proceeds of the issuance of our common stock or the common stock of our
parent holding company in an equity sale.
We are a holding company that does not conduct any business operations.
Accordingly, the notes are structurally subordinated to the obligations of our
subsidiaries, including the debt of those subsidiaries. Our subsidiaries are
separate and distinct legal entities. Other than Dynea Chemicals Oy, which is
also a holding company, they are not obliged, to pay any amount due under the
notes or to make any funds available to us to allow us to make those payments.
The only assets of Dynea International Oy are shares in our wholly owned
subsidiary, Dynea Chemicals Oy, and intercom any loans to Dynea Chemicals Oy.
Our cash flow and our ability to service debt depend solely upon the cash flow
of our subsidiaries and our receipt of funds from them in the form of loans,
dividends or otherwise. Our subsidiaries may not generate cash flow sufficient
to enable us to meet our payment obligations. In addition, the terms of the
senior credit agreement and the intercreditor agreement restrict our
subsidiaries' ability to provide funds to us. Applicable laws and regulations
and the terms of other agreements to which our subsidiaries may become subject
may further restrict this ability. The senior credit agreement and the
intercreditor agreement only allow payments by our subsidiaries to us for
payments of interest and payment of principal so long as there is no default or
event of default under the senior credit agreement. Although the indenture
limits the ability of our subsidiaries to enter into consensual restrictions on
their ability to pay dividends or to make other payments to us, these
limitations are subject to significant exceptions.
Historical Cash Flows
Year ended December 31, 2002. Cash generated from operations was
(euro)86.0 million in 2002 compared to (euro)122.7 million in 2001. The decrease
in cash generated from operations related mainly to a decrease in trading
investments in 2001. The cash generated from operations in 2001 included a
decrease in trading investments of (euro)60.1 million from the disposal of bonds
held by subsidiary that were categorized as trading investments. In 2002 there
was no change in trading investments. Net cash provided in operating activities
increased to (euro)14.9 million in 2002 from (euro)0.3 million in 2001,
primarily due to decrease in taxes paid and net financial items. Net financial
costs decreased as the net interest costs decreased due to lower amount of gross
debt and decreasing interest rates and increased foreign exchange gains in 2002
compared to 2001. Income taxes paid were reduced to (euro)10.6 compared to
(euro)36.9 in 2001.
Cash used in investing activities decreased to (euro)25.1 million in
2002 from cash provided from investing activities of (euro)46.1 million in 2001.
In 2001, the cash provided from investing activities included (euro)67.2 million
of cash received from the disposal of businesses. Because there were no cash
received from disposals in 2002, the cash provided from investing activities
decreased as compared to 2001.
Cash used in financing activities decreased 35%, to (euro)17.7 million
in 2002 from (euro)27.3 million in 2001 due to lower net repayments of
borrowings and lower issuance of share capital and capital contributions.
Issuance of share capital and group contributions amounted to (euro) 15.2
million in 2002 compared to (euro) 34.5 million in 2001.
Year ended December 31, 2001. Cash flows from operating profit after
adding back non-cash items but before working capital changes increased by 84%,
to (euro)85.3 million in 2001 from (euro)46.4 million in 2000. This was mainly
attributable to the higher operating profit and a greater amount of non-cash
items due to the full year effect of the Dyno acquisition. Net cash provided in
operating activities increased to (euro)0.3 million in 2001 from (euro)26.5
million used in 2000, primarily due to cash provided from the sale of marketable
securities off-set by the higher amount of interest paid in 2001, (euro)87.5
million in 2001 as compared to (euro)13.9 million in 2000. This was due to the
full year effect of debt incurred to finance the Dyno acquisition and to
refinance prior debt.
Cash provided from investing activities increased 18%, to (euro)46.1
million in 2001 from (euro)39.1 million in 2000. This was primarily due to the
sale of the polyester business in April 2001.
Cash used in financing activities increased 18%, to (euro)27.3 million
in 2001 from (euro)7.9 million in 2000. This was primarily due to a capital
contribution of (euro)30 million, which related to the sale of the legal
ownership of specialty polymers.
Capital Expenditures
The nature of our business requires us to make annual capital
expenditures for general maintenance and refitting of our plant facilities.
These routine expenditures are in addition to any capital expenditure for new
facilities.
Dynea International made capital expenditures of (euro)25 million in
2002, (euro)28.9 million in 2001 and (euro)27.1 million in 2000. In 2002,
significant capital expenditures included the new plant investments in China and
in Thailand, as well as capacity expansion projects in North America and in
Indonesia. The remaining capital expenditures were mainly for replacement
investments at several sites.
In 2001, significant capital expenditures included the installation of
new capacity for paper overlays production in North America and investments in
infrastructure in North America. The remaining capital expenditures were mainly
for replacement investments at several sites.
In 2000, significant capital expenditure included investment in the
paper overlay capacity in North Carolina, investment in information technology
systems, overhaul of the formaldehyde reactor in Krems, Austria, as well as an
increase of unsaturated polyester capacity in Porvoo, Finland.
We anticipate that our capital expenditure will be approximately
(euro)40 million in 2003. Capital expenditure in 2003 will include the new plant
investments in Southern China and in Thailand to service our bonding and
surfacing operations, as well as capacity expansion projects in North America.
The estimated expenses for these investments are approximately (euro)9.4 million
in 2003. The rest of the budgeted capital expenditures mainly relates to
productivity improvements and replacements at various sites.
We expect to fund our other cash requirements in the future from
operating cash flow and existing borrowing facilities. Our capital expenditures
will be primarily for general maintenance and refitting and expanding our
existing facilities although we may also build or acquire new facilities. We
expect that the level of capital expenditures for capacity will remain
essentially constant after 2002 over the medium term, allowing us to improve
quality and capacity, and to compete with our competitors.
Disclosure of Contractual Obligations and Commitments to Make Future Payments
The following schedule summarizes our contractual obligations and
commitments to make future payments as of December 31, 2002.
Payments Due by Period
((euro)in millions)
Less than After
Contractual Obligations Total 1 year 2-5 years 5 years
----------------------- ----- ------ --------- -------
Long-term Debt................. (euro) 631.1 (euro) 122.0 (euro) 150.0 (euro) 359.1
Operating Leases............... 32.1 3.4 9.6 19.1
Other Long-Term Obligations.... 1.5 1.5 - -
--- --- - -
Total Contractual Cash Obligations (euro) 664.7 (euro) 126.9 (euro) 159.6 (euro) 378.2
============ ============ ============ ============
Less than one year section of Long-Term Debt in the table above
includes (euro)89.9 million outstanding in the revolving credit facility. Under
the senior credit agreement, Dynea International also obtained a multi-currency,
revolving loan for up to (euro)100.0 million ("Revolving Credit Facility"). The
Revolving Credit Facility expires June 30, 2007. However, Dynea International
will procure that after July 31, 2005 either for two periods of five successive
days or, one period of 10 days, in each of its financial years the aggregate of
all withdrawals under the Revolving Credit Facility shall not exceed (euro)10.0
million. Other Long-Term Obligations in the table above are the capital
commitments, which Dynea International has at December 31, 2002. Capital
commitments relate to ongoing investments in China, Thailand, and Singapore.
Research and Development
In 2002 and 2001, we spent approximately (euro)17.6 million and
(euro)15.6 million and employed over 190 people and 210 people in global
research and development, respectively. In 2000, our research and development
expenditure was approximately (euro)21 million.
Our research and development is focused on product technology and
application technology. Product technology generally involves researching and
developing various chemical formulations in order to assist in improving
existing as well as in developing new products, while application technology
involves providing technological support to our customers in the form of
laboratory and on-site assistance in connection with the use of our products.
Some of our research and development efforts have been particularly
beneficial for our operations. For example, our research and development has
focused on developing and producing environmentally friendly products and
production processes. Many of our products have a low environmental impact and
low emissions, without meaningful reductions in product performance. This focus
has enabled us to take advantage of recent consumer preferences for those
products, which we believe will continue to increase as environmental laws
continue to become stricter.
Resins. We currently have five major research and development centers
situated in close proximity to customers. These facilities, located in Austria,
Canada, Norway, Singapore and the United States, have global responsibilities
for product development and application technology for formaldehyde-based resins
and paper overlays. We also have three specialized technology centers located in
Finland, Germany and New Zealand, which provide global support and advice on
specific types of resins.
Our resins research and development plays an important role in
improving our manufacturing systems in order to increase yields, reduce cycle
times and raw material inputs. Research and development also focuses on helping
our customers improve their own production systems in order to increase
efficiency and reduce production costs. We have developed a considerable amount
of formaldehyde and resins technology and process know how. For example, we have
the capability to build large computerized reactor vessels with volumes of up to
90 metric tons. Developing resins process technology requires expertise with
respect to reactor design, agitator activity and other characteristics to ensure
that resins are being produced consistently, with even temperature and pressure
gradients. These processes enable us to produce larger batches of resins, which
maximizes the efficiency of our production processes. For example, one of our
custom designed and computerized resins manufacturing facilities allows 35 ton
batches of resins to be made in three and half hours, approximately half the
time considered as the accepted industry standard.
Aggregate expenditure on resins research and development was
approximately (euro) 8.3 million in 2002 and has been relatively constant over
the past three years. A portion of our research and development is conducted
through partnerships and alliances with customers under which research and
development expenses are shared. In 2002, we employed 135 people in resins
research and development.
Paper Overlays. Our research and development functions for paper
overlays are coordinated from the United States. Most of our research and
development initiatives relating to specific applications for paper overlays are
conducted at skill centers in the United States, Finland and Indonesia. In 2002,
we spent approximately (euro)2.7 million on and employed 25 people in our paper
overlays research and development, whose efforts are principally focused on
improving our customers' production systems and processes.
Principal U.S. GAAP Differences Related to Dynea International
You should read Note 28 to the Dynea International financial statements
as of and for the years ended December 31, 2000 December 31, 2001 and December
31, 2002 included in "Item 17--Financial Statements" for a detailed discussion
of the differences between IFRS and U.S. GAAP.
Some of the differences between IFRS and U.S. GAAP include:
o classification and treatment of assets held for sale resulting
from decisions taken during an acquisition;
o the treatment of unrealized gains and losses on marketable
securities;
o the classification of losses on extinguishment of debt;
o the measurement and classification of results from discontinued
operations;
o the determination of pension expense for defined benefit plans;
o the recognition of additional minimum pension liability;
o the translation of goodwill and purchase accounting adjustments;
and
o the treatment of goodwill and other indefinite-lived intangible
assets.
Critical Accounting Policies
Dynea International's discussion and analysis of its financial
condition and results of operations have been prepared in accordance with IFRS.
The preparation of these financial statements requires management of Dynea
International to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, the management of Dynea
International evaluates its estimates, including those related to impairments,
pensions, income taxes, restructuring, bad debts, contingencies and litigation.
The management of Dynea International bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Our significant accounting polices are described in Note 2 in our
financial statements and we consider the following policies to be most critical
in understanding the judgments that are involved in preparing our financial
statements and the uncertainties that could impact our results of operations,
financial conditions and cash flows.
We assess the impairment of long-lived assets and goodwill whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. Examples of indicators, which could trigger an impairment review,
are the following:
o significant under performance relative to expected historical or
projected future operating results;
o significant changes in the manner of our use of the acquired
assets or the strategy for our overall business; and
o significant negative industry or economic trends.
When the carrying value of long-lived assets and goodwill may not be
recoverable based upon the existence of one or more indicators of impairment, we
measure any impairment based on a projected discounted cash flow method using a
discount rate determined by our management to be commensurate with current
market assessments of the time value of money and the risks specific to the
asset. Based on the reviews there is no need for impairment charges other than
as presented in the financial statements. However, there can be no assurance
that the change in above factors may not cause material impairment charges in
the future.
The determination of our obligation and expense for pension and other
post-retirement benefits is dependent on our selection of certain assumptions
used by actuaries in calculating such amounts. Those assumptions are described
in Note 16 to the consolidated financial statements and include, among others,
the discount rate and expected long-term rate of return on plan assets. In
accordance with IFRS, actual results that differ from our assumptions are
accumulated and amortized over future periods if they are over 10% of greater of
defined benefit obligation or fair value of plan assets at beginning of year and
therefore, generally affect our recognized expense and recorded obligation in
such future periods. While we believe that our assumptions are appropriate,
significant differences in our actual experience or significant changes in our
assumptions may materially affect our pension and other post-retirement
obligations and our future expense.
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the financial statements. Deferred tax assets are
recognized to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be utilized. Should the
actual results differ from these estimates, revisions to the deferred tax assets
would be required.
Recent Changes in Accounting Standards - U.S. GAAP
On June 2002, FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement is effective for
exit or disposal activities initiated after December 31, 2002. SFAS No. 146
addresses financial accounting and reporting for costs associated with exit or
disposal activities and requires that a liability for those costs be recognized
and measured initially at fair value only when the liability is incurred. We
believe that the implementation of the statement will not have a material impact
on the results of operations and financial position of Dynea International.
In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". The Interpretation expands on
the accounting guidance of SFAS No. 5, "Accounting for Contingencies", SFAS No.
57, "Related Party Disclosures", and SFAS No. 107, "Disclosures about Fair Value
of Financial Instruments", and incorporates without change the provisions of FIN
34, "Disclosure of Indirect Guarantees of Indebtedness of Others", an
interpretation of SFAS No. 5, which is being superseded. FIN 45 elaborates on
the existing disclosure requirements for most guarantees, including loan
guarantees, such as standby letters of credit. It also clarifies that at the
time a company issues a guarantee, the company must recognize an initial
liability for the fair value, or market value, of the obligations it assumes
under that guarantee and must disclose that information in its interim and
annual financial statements. FIN 45 will be effective to Dynea International on
a prospective basis to guarantees issued or modified after December 31, 2002.
Dynea International is currently evaluating the impact of this statement on its
results of operations and financial position.
In January 2003, FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). Under the interpretation, certain entities
known as "Variable Interest Entities" (VIE) must be consolidated by the "primary
beneficiary" of the entity. The primary beneficiary is generally defined as
having the majority of the risks and rewards arising from the VIE. For VIE's in
which a significant (but not majority) variable interest is held, certain
disclosures are required. The measurement principles of this interpretation will
be effective for Dynea International's December 31, 2003 financial statements.
Dynea International is currently evaluating the impact of this statement on its
results of operations and financial position.
Item 6. Directors, Senior Management and Employees.
Directors of Dynea International Oy and Dynea Chemicals Oy
We are a wholly owned subsidiary of Dynea Oy, and the sole shareholder
of Dynea Chemicals Oy. Our board of directors and those of Dynea Oy and Dynea
Chemicals Oy are composed of the same individuals, who are as follows:
Name Date of Birth
- ---- -------------
Stig Gustavson*................................................. June 17, 1945
Bjorn Saven..................................................... Sept. 29, 1950
Michael Rosenlew................................................ May 2, 1959
Georges Marzloff................................................ April 8, 1944
Svein Rennemo................................................... July 24, 1947
Stefan Linder**................................................. July 26, 1968
*Chairman
**Deputy member
Executive Officers of Dynea International Oy and Dynea Chemicals Oy
Our executive officers are:
0ivind Isaksen, Chief Executive Officer, May 12, 1949. Mr. Isaksen
initially joined Dyno in 1987 as a Business Manager, Chemicals Group. From 1988
to 1993, he was Vice President Division Asia-Pacific, Chemicals Group. From 1993
he has served first as President Division Adhesives & Paper Overlay and
subsequently as Senior Vice President, Industrial Resins. From 2000 to 2001, he
served as Executive Vice President--Bonding and Surfacing. Before coming to
Dyno, Mr. Isaksen worked for Denofa and Lilleborg Fabriker as Market Manager
from 1977 to 1981, for Norsk Hydro AS as Department Manager from 1981 to 1984
and for Nordic Oil and Chemicals as Managing Director from 1984 to 1987. Mr.
Isaksen has an MBA degree in economics from University of Saarbrucken in 1975
and Diploma of Advanced European Studies from College of Europe, Brugge, Belgium
in 1976.
Pertti Silantera, Executive Vice President, November 5, 1943. Mr.
Silantera joined Neste in 1988 as Vice President, Industrial Chemicals. After
holding various positions within the firm he became Senior Vice President
responsible for Base Chemicals in 1993. In 1994, he became responsible for
Business Supervision of Neste Oxo and Polyester and some support functions.
Prior to joining Dynea Chemicals, Mr. Silantera worked in 1970-1975 as
Production Manager for PVC within Neste. Subsequently, he was Managing Director
of Turun Vartiokeskus Oy, a security business, for 13 years. Mr. Silantera
graduated from Abo Akademi in 1969 with a M.Sc. in Chemical Engineering.
Filip Frankenhaeuser, Executive Vice President and Chief Financial
Officer, February 12, 1951. Mr. Frankenhaeuser joined Neste in March 2000. Prior
to joining Neste, Mr. Frankenhaeuser held various international financial
positions, including Finance Director of Euroheat AB from 1983 to 1988 and Group
Financial Controller of the Amer Group in 1988 and 1989. Between 1989 and 1999,
Mr. Frankenhaeuser worked for Cultor Oyj, the international food and food
ingredients company, where he held the position of CFO (1991-1998). Mr.
Frankenhaeuser holds a M.Sc. in Economics from the Swedish School of Economics,
Helsinki (1980).
Executive and Director Compensation
Total salaries, bonuses and other amounts paid to those current members
of our board and executive management referred to above who were employed by the
Dynea group during 2002 (8 individuals) were approximately (euro) 1.5 million.
No compensation was provided to these individuals in the form of stock options
or pursuant to a profit-sharing plan.
Employees
We had approximately 3,000 employees as of December 31, 2002.
Board Practices
The articles of association of Dynea International do not provide for
an audit committee or a remuneration committee. Each member of the board of
directors of Dynea International is elected at the annual general meeting of
shareholders for a term, which expires at the end of the next annual general
meeting of shareholders following that election. The annual general meeting of
shareholders must be held within six months after the end of Dynea
International's financial year. Matters considered by the shareholders at the
annual general meeting include the remuneration of the members of the board of
directors and the adoption of the annual accounts. There are no contracts
between the members of the board of directors of Dynea International and Dynea
International that provide for any benefits upon termination of their
employment. One of Dynea International's directors, Georges Marzloff, has a
separate employment contract with Dynea N.V., a subsidiary of Dynea Chemicals,
pursuant to which he is entitled to certain payments upon termination of that
contract.
The articles of association of Dynea Chemicals do not provide for an
audit committee or a remuneration committee. Each member of the board of
directors of Dynea Chemicals is elected at the annual general meeting of
shareholders for a term, which expires at the end of the next annual general
meeting of shareholders following that election. The annual general meeting of
shareholders must be held within six months after the end of Dynea Chemical's
financial year. Matters considered by the shareholders at the annual general
meeting include the remuneration of the members of the board of directors and
the adoption of the annual accounts. There are no contracts between the members
of the board of directors of Dynea Chemicals and Dynea Chemicals that provide
for any benefits upon termination of their employment. One of Dynea Chemical's
directors, Georges Marzloff, has a separate employment contract with Dynea N.V.,
a subsidiary of Dynea Chemicals, pursuant to which he is entitled to certain
payments upon termination of that contract.
Item 7. Major Shareholders and Related Party Transactions.
Major Shareholders
Ownership
Dynea International Oy is a wholly-owned subsidiary of Dynea Oy, and
Dynea Chemicals Oy is a wholly-owned subsidiary of Dynea International Oy. Dynea
Oy is controlled by two investment funds, the Industri Kapital 1997 Fund and the
Industri Kapital 2000 Fund, both of which are managed by affiliates of Industri
Kapital, a leading European private equity investment firm.
Our current ownership is detailed below:
o The Industri Kapital 1997 and 2000 Funds own 89.21% of Dynea Oy's
capital stock and control 90.62% of the voting rights attached to
that capital stock. These funds are not legal entities, but
rather contractual arrangements between, on the one hand, the
funds' investment manager/general partner (IK 1997 Ltd. and IK
2000 Ltd., respectively) and, on the other hand, the investors in
the funds. Bjorn Saven, a director of Dynea International Oy, is
also a director of both IK 1997 Ltd. and IK 2000 Ltd. Michael
Rosenlew, a director of Dynea International Oy, is an alternate
director of both IK 1997 Ltd. and IK 2000 Ltd. Bjorn Saven could
be deemed to be a beneficial owner of the shares managed by IK
1997 Ltd. and IK 2000 Ltd. Michael Rosenlew and each of the other
directors and alternate directors of IK 1997 Ltd. and IK 2000
Ltd. (who are identified below) disclaim beneficial ownership of
the shares managed by those entities.
o Other investors own 8.78% of Dynea Oy's capital stock and 8.97%
of the voting rights attached to that stock. None of these
investors individually owns 5% or more of Dynea's capital stock.
o Management shareholders own 2.01% of Dynea Oy's capital stock and
0.41% of the voting rights attached to that stock. No one member
of management owns more than 1% of Dynea's capital stock.
With respect to the shares held by the Industri Kapital 1997 and 2000
Funds and managed by IK 1997 Ltd. and IK 2000 Ltd., the following limited
partnerships, which are investors in those funds, hold more than 5% of the
outstanding share capital of Dynea Oy:
As of December 31,
Partnership 2002
----------- ----
Industri Kapital 1997 Limited Partnership I 5.95%
Industri Kapital 1997 Limited Partnership III 4.63%
Industri Kapital 2000 Limited Partnership I 7.52%
Industri Kapital 2000 Limited Partnership II 6.91%
Industri Kapital 2000 Limited Partnership III 8.80%
Industri Kapital 2000 Limited Partnership IV 7.49%
Industri Kapital 2000 Limited Partnership V 8.16%
Industri Kapital 2000 Limited Partnership VII 5.57%
Industri Kapital 2000 Limited Partnership IX 6.30%
Industri Kapital 2000 Limited Partnership X 5.37%
The directors of IK 1997 Ltd. are: Bo Ennerberg, Bjorn Saven, Michael
Richardson, Kim Wahl, Tom Vidar Rygh, Gerrit Russelman, Carl-Johan Granvik,
Peter Byrne and Hannu Ryopponen. The alternate directors of IK 1997 are: Esa
Auvinen, Per-Johan Bjornstedt, Alan Oke Dart, Stephanie Guyer, Gustav Ohman,
Jan-Willem van Oostveen and Michael Rosenlew. The directors of IK 2000 Ltd. are:
Bo Ennerberg, Tom Vidar Rygh, Bjorn Saven, Michael Richardson, Peter Byrne, Kim
Wahl, Gerrit Russelman, Carl-Johan Granvik, and Hannu Ryopponen. The alternate
directors of IK 2000 are: Esa Auvinen, Per-Johan Bjornstedt, Alan Oke Dart,
Stephanie Guyer, Gustav Ohman, Jan-Willem van Oostveen and Michael Rosenlew.
Bjorn Saven could be deemed to be a beneficial owner of the shares managed by IK
1997 Ltd. and IK 2000 Ltd. Michael Rosenlew and each of the other directors and
alternate directors of IK 1997 Ltd. and IK 2000 Ltd. disclaim beneficial
ownership of the shares managed by those entities
Share Structure
Under the articles of association of Dynea Oy, that company has two
classes of ordinary shares: series A ordinary shares and series B ordinary
shares. When voting at the meeting of shareholders of Dynea Oy, the series A
shares have five votes each and the series B shares have one vote each. All
other rights connected to the shares are essentially the same between the series
A shares and the series B shares. The series B shares are held by management and
employees within the Dynea group. In addition, there are in place a
shareholders' agreement and a managers' shareholder agreement with respect to
the series A shares and the series B shares. Under these agreements, Industri
Kapital has, in certain situations, including an initial public offering and a
sale of the business of Dynea Oy, the right to act on behalf of all Dynea Oy
shareholders.
Dynea Oy's issued and outstanding share capital consists of
(euro)364,327,929.45 divided into 21,100,615 series A ordinary shares with par
value of approximately (euro)16.82 per share and 561,340 series B ordinary
shares with par value of approximately (euro)16.82 per share. Approximately
318,355, or 1.47%, of the ordinary shares of Dynea Oy are held of record by 28
investors with addresses in Finland, and approximately 345,754, or 1.6%, of
these shares are held of record by 20 investors with addresses in the United
States.
Related Party Transactions
During the year ended December 31, 2002, the following transactions
were carried out with related parties:
Acquisitions
During 2001, Dynea International purchased the melamine resins business
from Neste Chemicals GmbH, a subsidiary of Dynea Oy. As of December 31, 2002
Dynea International had a purchase price payable of (euro)0.7 million related to
this purchase.
Sales and Purchases of Goods
During the year ended December 31, 2002 Dynea International sold
products, at market prices, to associates totaling approximately (euro)5.2
million, and to companies controlled by Industri Kapital, totaling approximately
(euro)13.8 million. At December 31, 2002, Dynea International had receivables of
(euro)1.8 million related to these sales.
During the year ended December 31, 2002 Dynea International purchased
materials and supplies, at market prices, from associates totaling approximately
(euro)19.2 million, and from companies controlled by Industri Kapital, totaling
approximately (euro)6.7 million. At December 31, 2002, Dynea International had
payables of (euro)12.9 million related to these purchases.
Other Income and Expenses
A service agreement exists between Dynea International and Dynea Oy to
provide management and support services. These management and support expense
charges amounted to (euro)3.2 million in 2002.
Other Receivables and Payables
At December 31, 2002, Dynea International had loan receivables of
(euro)0.7 million from associated companies and other current receivables of
(euro)5.0 million from companies controlled by Industri Kapital.
At December 31, 2002, Dynea International had loan payables of
(euro)0.4 million and other current liabilities of (euro)7.1 million to
companies controlled by Industri Kapital.
Group Contributions
Group contributions amounting to (euro)38.2 million were made by
Dynopart AS and Dynopart Holding AS to Nordkem AS in 2001 of which (euro)30
million was paid in cash during October 2001 and (euro)8.2 million during
September 2002. The group contribution of (euro)38.2 million received by Nordkem
AS was taken to shareholders' equity. Group contributions amounting to (euro)0.9
million were made by Dynopart to Nordkem in 2002 and a group contribution
amounting to (euro)6.0 million was made by Dynea Finland Oy to Dynea Oy.
Item 8. Financial Information.
Financial Statements
See pages F-1 through F-43 and G-1 through G-36.
Significant Changes
There has been no significant change in our financial or trading
position since December 31, 2002.
Legal Proceedings
We are involved in some legal proceedings arising in the normal course
of our business, including proceedings involving our subsidiaries Neste Canada
Inc. and Dynea Canada Ltd. (formerly Neste Chemicals Canada Inc.), who are
currently involved in litigation with Reichhold Chemicals Inc. and Reichhold
Limited regarding responsibility for costs associated with completing the
clean-up of environmental contamination at our Ste. Therese facility existing at
the time we acquired the Ste. Therese operations. We made an initial claim
against Reichold in this litigation for a total approximate amount of $22.0
million Canadian dollars. Reichhold has brought a counter-claim against us in
this litigation for a total approximate amount of $8.05 million Canadian
dollars, the amount already drawn by Neste under the letter of credit relating
to the sale. The agreement relating to the acquisition of Neste provides that we
shall be indemnified and held harmless in respect of some of the losses we may
incur as a result of this litigation.
We believe that none of these proceedings, either individually or in
the aggregate, are likely to have a material adverse effect on our business or
our consolidated financial position.
Item 9. The Offer and Listing.
The notes are listed on the Luxembourg Stock Exchange.
Item 10. Additional Information.
Articles of Association
Dynea International Oy
Incorporated by reference from Dynea International Oy and Dynea
Chemicals Oy annual report on Form 20-F filed with the Securities and Exchange
Commission on April 30, 2001.
Dynea Chemicals Oy
Incorporated by reference from Dynea International Oy and Dynea
Chemicals Oy annual report on Form 20-F filed with the Securities and Exchange
Commission on April 30, 2001.
Material Contracts
The following summary of the senior credit agreement and other debt
instruments summarizes the material terms of those documents. For a description
of various acquisition and disposition contracts, see "Item 4. Information on
the Company--Businesses That Have Been Sold."
Sale of Oil Field Chemicals
Dynea ASA sold its Oil Field Chemicals business to M-I LLC on January
28, 2003. In connection with the transaction, M-I acquired substantially all of
the net assets of Dynea's production chemical business and operations in the
North Sea, the Middle East, Asia and Americas exchange for a cash consideration
of (euro)76 million. Dynea and M-I also concluded simultaneously a long-term
toll manufacturing agreement with Dynea ASA in Lillestr0m, Norway, for the
supply of base chemicals used in the production chemical operations.
The Senior Credit Agreement
On February 10, 2003, Dynea Chemicals signed a consent letter that
amended its existing senior credit agreement. The principal parties to the
senior credit agreement are the lenders named in the senior credit agreement,
Salomon Brothers International Limited as lead arranger and Citibank
International Plc as facility agent and security trustee.
Under the consent letter, certain covenants to the senior credit
agreement were amended. Under the amended covenants, potential breaches of
financial covenants during the quarter ending December 31, 2002 were waived, and
we will be allowed to maintain amended ratios from March 31, 2002 until December
31, 2004 for the following ratios at the following levels:
o the EBITDA to total net interest costs ratio for the twelve
months to March 31, 2003 through the twelve months to December
31, 2004 was amended from ratios of 1.85:1 ranging to 2.30:1 for
that period to 1.40:1 to 1.95:1;
o net debt to EBITDA ratio for the twelve months to March 31, 2003
through the twelve months to December 31, 2004 was amended from
ratios of 5.10:1 ranging to 4.00:1 for that period to 6.70:1 to
5.30:1;
o EBITDA to total net senior interest costs ratio for the twelve
months to March 31, 2003 through the twelve months to September
30, 2003 was amended from ratios of 3.50:1 ranging to 3.70:1 for
that period to 2.85:1 to 3.45:1; and
o cash flow to total funding costs ratio for the twelve months to
March 31, 2003 through the twelve months to December 31, 2004 was
amended from ratios of 0.80:1 ranging to 1.05:1 for that period
to 0.85:1 to 0.70:1;
in each case as those terms are defined in the senior credit agreement.
In addition, under terms of the consent letter, the senior lenders also
approved the purchase by a subdidiary of Dynea Chemicals of the Chemitec
businesses from our parent, Dynea Oy, for a business value of (euro)35 million,
to be paid for from the proceeds of the sale of our oil field chemicals
business. Dynea Oy in turn agreed to increase its equity of Dynea International
by (euro)35.0 million, and Dynea International agreed either to increase the
equity of Dynea Chemicals by (euro)35.0 million, or alternatively to lend the
same amount as a subordinated loan. The amount was lent as a subordinated loan.
Dynea Chemicals Oy also agreed to use (euro)25.0 million of the proceeds of such
equity or loan towards prepayment of senior term loans in accordance with the
senior credit agreement. The senior lenders also waived for financial years 2003
and 2004 the requirement whereby Dynea International will procure that after
July 31, 2003 either for two periods of five successive days, or one period of
10 days, in each of its financial years after July 31, 2003, the aggregate of
all drawings under the revolving credit facility shall not exceed (euro)10.0
million. Additionally the senior lenders approved that during any 12-month
period a maximum of (euro) 10 million of new equity or subordinated loan
fulfilling certain conditions paid in cash may be taken into account as EBITDA
in the covenant calculations. As regards the other terms of the senior credit
agreement, they remain the same as in the original credit agreement signed on
August 7, 2000. Under that agreement, Dynea Chemicals Oy entered into a credit
agreement at the closing date of the acquisition of Dyno, with the Lenders named
in the senior credit agreement, Salomon Brothers International Limited as lead
arranger and Citibank International Plc as facility agent and security trustee.
The facilities provided under the Credit Agreement consist of:
o a(euro)190 million 7 year term loan (the "Term Loan A");
o a(euro)95 million 8 year term loan (the "Term Loan B");
o a(euro)95 million 9 year term loan (the "Term Loan C"); and
o an(euro)100 million multicurrency revolving loan and guarantee
credit facility with a 7 year maturity.
The senior credit agreement provides that Dynea Chemicals Oy and/or
some of our subsidiaries may borrow under particular tranches, in particular
amounts and, in some cases, in particular currencies.
The Term Loan A, Term Loan B, Term Loan C and the revolving credit
facility may be borrowed in euros or other currencies as agreed. Under the terms
of the senior credit agreement, and in order to provide financing for the
acquisition of Dyno, the Term Loan A, the Term Loan B and the Term Loan C were
fully drawn on the date of the acquisition of Dyno closing. Each of the Term
Loans and revolving credit facility were available only on the issuance of the
initial notes.
Term Loan A. The Term Loan A was drawn in various tranches and
currencies by Dynea Chemicals Oy and its subsidiaries to refinance Neste's
existing debt, to fund the acquisition of Dyno and refinance existing Dyno debt.
The Term Loan A will amortize as detailed below, with final maturity on June 30,
2007. However, the repayment schedule below will be revised after the senior
term loan prepayments of (euro)25.0 million, to which Dynea Chemicals Oy agreed
in the on February 10, 2003 amended terms of the senior credit agreement. Each
separate advance shall be repaid pro rata.
Repayment Date: Payment Amounts
--------------- ---------------
(%)
June 30, 2003................................ 5.47
December 31, 2003............................ 5.47
June 30, 2004................................ 6.56
December 31, 2004............................ 6.56
June 30, 2005................................ 7.66
December 31, 2005............................ 7.66
June 30, 2006................................ 8.76
December 31, 2006............................ 8.76
June 30, 2007................................ 10.95
Term Loan B. The Term Loan B was drawn in various tranches and
currencies by Dynea Chemicals Oy and its subsidiaries to refinance Neste's
existing debt, to fund the acquisition of Dyno and refinance existing Dyno debt.
The Term Loan B will amortize as detailed below, with final maturity on June 30,
2008. However, the repayment schedule below will be revised after the senior
term loan prepayments of (euro)25.0 million, to which Dynea Chemicals Oy agreed
in the on February 10, 2003 amended terms of the senior credit agreement. Each
separate advance shall be repaid pro rata. Due to the sale of the polyester
business in 2001 Dynea Chemicals Oy prepayment of The Term Loan B was made pro
rata for (euro)12.0 million in 2002. Prepayments due to the sale of the
polyester business related to the Term Loan A and C were made already during
year 2001. The repayment from the proceeds of the sale of the polyester business
is reflected in the payment amounts below.
Repayment Date: Payment Amounts
--------------- ---------------
(%)
December 31, 2007............................ 41.94
June 30, 2008................................ 41.94
Term Loan C. The Term Loan C was drawn in one U.S. dollar tranche by
Dynea Chemicals Oy to refinance Neste's existing debt, to fund the acquisition
of Dyno and refinance existing Dyno debt. The Term Loan C will be repaid in one
installment on June 30, 2009. However, part of the Term Loan C will be prepaid
earlier as Dynea Chemicals Oy agreed to use (euro)25.0 million towards
prepayment of senior term loans in accordance with the on February 10, 2003
restated senior credit agreement.
Revolving Credit Facility. The revolving credit facility provides
(euro)100 million to finance the ongoing working capital and general corporate
requirements of Dynea Chemicals Oy and some of its subsidiaries.
Prepayment. In addition to the scheduled amortization and repayment
dates described above, in some circumstances the senior credit agreement
requires mandatory prepayments of outstanding amounts under the various
facilities, including if:
o Dynea Chemicals or any of its subsidiaries receives cash proceeds
(including deferred consideration) from the sale of assets which
is not used to fund related expenses, taxes, pension costs or
costs relating to related intellectual property rights, other
than in connection with sales that are in the ordinary course of
business, are used to purchase another replacement asset, are
among members of the group or which relate to certain other
exceptions identified in the senior credit agreement;
o Dynea Chemicals receives surplus cash during a financial year,
which consists of the amount by which its cash flow exceeds the
aggregate of its total funding costs, the aggregate amount of
prepayments made during that financial year and (euro)10.0
million;
o Dynea Chemicals or any of its subsidiaries receives insurance
proceeds in aggregate in excess of (euro)0.2 million, other than
amounts required to be paid to them as a result of the sale of
the explosives operations, and does not apply those funds in
reinstatement of the insured asset or payment of a third party
liability in respect of which they were received within six
months of being received;
o Dynea Chemicals or any of its subsidiaries receives any amount in
excess of (euro)0.1 million from any of the vendors under the
acquisition agreement relating to the acquisition of Neste, net
of any reasonable costs an expenses of recovery and any tax
payable, unless those funds are applied to make good or purchase
an asset to replace directly the asset or to pay the liabilities
in respect of which the payment was received, or to compensate
the recipient for a cash loss;
o all or substantially all of the business and assets of Dynea
Chemicals and its subsidiaries are disposed of;
o the share capital of Dynea Oy, Dynea International, Dynea
Chemicals or any other group company is admitted to any
recognized securities exchange;
o a change of control occurs (as that event is defined in the
senior credit agreement); or
o it is or becomes illegal for any lender under the senior credit
agreement to maintain all or part of its commitment or to
continue to make available or fund or maintain its participation
in any part of the senior credit agreement.
Indebtedness under the senior credit agreement may be voluntarily
prepaid by the borrowers in whole or in part without premium or penalty. Any
prepayment of any of the term loan facilities shall be made only pro rata with
each of the other term loan facilities. Partial voluntary prepayments and any
mandatory repayments referred to above will be applied against the Term Loan A,
the Term Loan B and the Term Loan C pro rata. Dynea Chemicals Oy agreed to use
(euro)25.0 million towards prepayment of senior term loans in accordance with
the on February 10, 2003 restated senior credit agreement.
Interest Rate and Fees. Advances under the Term Loan A bear interest at
LIBOR plus an initial interest margin of 2.00% per annum, together with
mandatory costs. Advances under the Term Loan B and Term Loan C bear interest at
LIBOR plus an interest margin of 2.50% and 3.00%, respectively, per annum and
mandatory costs. Advances under the revolving credit facility bear interest at
LIBOR plus an initial interest margin of 2.00% per annum and mandatory costs.
The interest margin may be reduced for advances under the Term Loan A and the
revolving credit facility if Dynea Chemicals Oy, on a consolidated basis, meets
specified financial targets during a fiscal year with respect to each financial
year beginning after December 31, 2001, but the margin may not be less that
1.25%. We currently do not benefit from any interest margin reduction.
Generally:
o in respect of any such financial year beginning after December
31, 2001, the margin shall be 1.75% per annum if the total ratio
of total net debt to EBITDA (as those terms are defined in the
senior credit agreement) for the relevant financial year is less
than or equal to 4.00:1, but, after December 31, 2002, is greater
than or equal to 3.50:1;
o in respect of any such financial year beginning after December
31, 2002, the margin shall be 1.50% per annum if the total ratio
of total net debt to EBITDA for the relevant financial year is
less than or equal to 3.50:1, but, after December 31, 2003, is
greater than or equal to 3.00:1;
o in respect of any such financial year beginning after December
31, 2003, the margin shall be 1.25% per annum if the total ratio
of total net debt to EBITDA for the relevant financial year is
less than or equal to 3.00:1;
If these or additional specified conditions are not met, then the
margin may be increased to 2%, including if management accounts are not provided
to the facility agent in a timely manner and if there is a default or event of
default which has occurred and is continuing under the senior credit agreement.
If the targets, which only go into effect in year 2002, were applied to the
current year, we would not currently meet them.
For the Term Loan A, the Term Loan B and the Term Loan C, Dynea
Chemicals Oy will pay a commitment fee of 0.50% per annum for the period from
the date of the credit agreement until fully drawn or cancelled. With respect to
the revolving credit facility, Dynea Chemicals Oy will pay a commitment fee
equal to 0.50% per annum, from the date of the senior credit agreement until the
close of business on the relevant final repayment date on the unused and
uncancelled portion of that facility. In addition, the borrowers will pay some
agency and other fees.
Security. The security for the borrowers' obligations under the senior
credit agreement consists of, to the extent legally or practically possible,
first priority security comprising mortgages and fixed and floating charges over
all of the assets of Dynea Chemicals Oy and its material subsidiaries and a
security interest in the shares of Dynea Chemicals Oy.
Covenants. The senior credit agreement contains a number of covenants
requiring the borrowers to achieve or maintain specified consolidated financial
ratios. Dynea Chemicals Oy has agreed to maintain the following ratios for each
12-month period, as measured on every March 31, June 30, September 30 and
December 31 for the preceding 12 months.
o a ratio of EBITDA to total net interest costs, which varies
between 1.40:1 for the 12 months to March 31, 2003 to 2.60:1 for
each 12-month period ending on those dates for periods after
September 30, 2005;
o a ratio of net debt to EBITDA, which varies between 6.7:1 for the
12 months to March 31, 2003 to 3.10:1 for each 12-month period
ending on those dates for periods after December 31, 2006;
o a ratio of EBITDA to total net senior interest costs, which
varies between 2.85:1 for the 12 months to March 31, 2003 to
5.40:1 for each 12-month period ending on those dates for periods
after December 31, 2006; and
o a ratio of cash flow to total funding costs, which varies between
0.85:1 for the 12 months to March 31, 2003 to 1.10:1 for each
12-month period ending on those dates after September 30, 2005;
in each case as those terms are defined in the senior credit
agreement. As used in the senior credit agreement, EBITDA means,
in relation to Dynea Chemicals Oy and its subsidiaries for any
period, those companies' consolidated net profit for that period
before taxes and total net interest costs and adding back:
o depreciation charged to the consolidated profit and loss account
of those companies during that period;
o any amount of goodwill relating to the net goodwill arising from
the acquisition of Neste and the acquisition of Dyno and
amortized in that period against the consolidated profit and loss
account of those companies;
o fees, commissions, costs and expenses properly incurred by Dynea,
Neste or Nordkem A/S in relation the acquisition of Neste or the
acquisition of Dyno and other non-cash items charged or amortized
in that period to, or against, the consolidated profit and loss
account of those companies;
o any restructuring costs identified to the banks under the senior
credit agreement which are paid by December 31, 2001, to a
maximum amount of (euro)20.0 million, to the extent they do not
constitute an extraordinary or exceptional item;
but excluding:
o profit and loss attributable to minority interests;
o any profit or loss arising on the disposal of fixed assets;
o income from, and investments in, participating interests in
associated undertakings and income from any other fixed asset
investment;
o amounts written off the value of investments;
o realized and unrealized exchange gains and losses;
o other restructuring costs; and
o extraordinary and exceptional items.
The senior credit agreement also contains general covenants, which
restrict the incurrence of debt and liens, the payment of dividends, the
disposition of assets, the incurrence of capital expenditures above certain
levels and some other activities and transactions.
The senior credit agreement generally provides that none of Dynea
Chemicals Oy or its subsidiaries may make any payments to Dynea International
Oy, by way of dividends, loans or otherwise. However, provided that no event of
default (or event which could become an event of default) has occurred, the
senior credit agreement permits payments to Dynea International Oy in order to
pay fees and expenses of an administrative nature incurred by Dynea
International Oy or Dynea Oy or to enable Dynea International Oy to pay
interest, additional amounts, and special interest on the notes and principal on
the notes at their original maturity date.
Events of Default. The senior credit agreement contains events of
default customary for senior leveraged acquisition financings, including, among
others, non-payment of principal or interest there under, defaults with respect
to some other indebtedness, failure to observe covenants set forth in the Credit
Agreement, some judgment defaults and some bankruptcy-related events.
Hedging Obligations. Pursuant to the senior credit agreement, we
procured to enter into interest rate hedging arrangements covering at least 50%
of commitments under the Term Loan A, the Term Loan B, the Term Loan C for a
period of at least 3 years within 60 days of the acquisition of Dyno closing.
The Intercreditor Agreement
We, Dynea Chemicals Oy, the Trustee, Citibank International plc and
Citibank N.A. entered into an intercreditor agreement in connection with the
senior credit agreement, the issuance of the initial notes and the DCI loan
facility (which was repaid in 2000). The intercreditor agreement sets out the
respective rights of some of our creditors, Dynea Chemicals Oy and our
subsidiaries, as regards ranking of debt, security and enforcement, and defines
the circumstances in which payments may be made by Dynea Chemicals Oy and its
subsidiaries in respect of some debt (including the notes and the DCI loan
facility, Dynea Chemicals Oy's guarantee of the notes and the DCI loan facility
and the Intercompany Loans pursuant to which we will advance the proceeds from
this offering to our subsidiaries). Upon consummation of the offering, the
Trustee, on behalf of the note holders, also became a party to the intercreditor
agreement.
The Indenture
Pursuant to an indenture, dated August 8, 2000, by and between The Bank
of New York as trustee, Dynea Chemicals Oy, as guarantor and Dynea International
Oy as issuer, we issued an aggregate principal amount of (euro)250 million of 12
1/4% Senior Notes due 2010. At our option, we may redeem these notes on or after
August 15, 2005 at redemption prices beginning at 106.125% and declining
thereafter. We may also redeem these notes prior to August 15, 2005 at a
make-whole price, and we may redeem 35% of these notes on or prior to August 15,
2003 with the net proceeds of offerings of our common equity or the common stock
of our parent holding company. Upon the occurrence of specified change of
control events, as described in the indenture, each holder of the notes will
have the right to require us to purchase such notes at a price equal to 101% of
the principal and amount thereof, plus accrued and unpaid interest, if any, to
the date of purchase. In addition, pursuant to the indenture, we and our
restricted subsidiaries are subject to certain restrictive covenants, including,
without limitation, our ability to incur indebtedness, to pay dividends and to
make investments.
DOCUMENTS ON DISPLAY
You may read and copy this annual report, including the attached
exhibits, and any reports, statements or other information that we submit to the
SEC at the SEC's public reference room in Washington, D.C. You can request
copies of these documents, upon payment of a duplicating fee, by writing to the
SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference rooms.
In addition, the indenture governing the notes requires us to deliver
to our note holders and to the trustee for the note holders copies of all
reports that we submit to the SEC without any cost to our note holders. We will
also furnish those other reports as we may determine or as the law requires. So
long as the notes continue to be listed on the Luxembourg Stock Exchange, copies
of any such reports will be available during normal business hours on any
business day at the office of Banque Internationale a Luxembourg.
You should rely only on the information provided in this annual report.
No person has been authorized to provide you with different information.
The information in this annual report is accurate as of the date on the
front cover. You should not assume that the information contained in this annual
report is accurate as of any other date.
Some terms mentioned in this annual report are registered in some
jurisdictions as our trademarks. This annual report also refers to the
trademarks of other companies.
Item 11. Quantitative and Qualitative Disclosures About Market Risk.
Financial Risk Management
Our business operations give rise to market risks exposure due to
changes in foreign exchange and interest rates. Also our high level of debt
makes us exposed to changes in interest rates. To manage these risks, we enter
into hedging transactions and generally use derivative financial instruments,
pursuant to established guidelines and policies, which enable us to mitigate the
adverse effects of financial market risk. These hedging instruments are
classified in a manner consistent with the item being hedged, meaning that the
associated asset and liability items are marked-to-market at each balance sheet
date through current period earnings.
We do not anticipate any material adverse effect on our consolidated
position, result of operations, or cash flows, resulting from the use of
derivative financial instruments. We cannot guarantee, however, that our hedging
strategies will be effective, or that translation losses can be minimized or
forecast accurately.
Foreign Exchange Risk and Interest Rate Risk
Our operations are conducted by many entities in many countries, and
accordingly, our results of operations are subject to currency transaction risk
and currency translation risk. Dynea's historical results were particularly
affected by exchange rate fluctuations between the euro and other currencies,
such as the U.S. dollar, the Norwegian kroner, and the Canadian dollar and by
exchange rate fluctuations between the Norwegian kroner against other
currencies, such as the U.S. dollar. Foreign exchange exposures are managed
against various local currencies, as we have a significant amount of worldwide
production and sales.
Because we have global investments, production facilities and other
operations, we have assets and liabilities and cash flows in currencies other
than the euro. The equity changes caused by movements in foreign exchange rates
are shown as translation difference in our financial statements. We hedge our
exposures on a net exposure basis using foreign currency forward contracts.
Dynea International's main exposures are related to assets and liabilities
denominated in the currencies of the United States, Norway and Canada. Our
businesses includes a large portion of cross border and other sales incurring
foreign exchange transaction risks, as well as raw material sourcing and other
costs in various currencies. Our main adhesive resin business sales are,
however, largely conducted within a limited geographic area near our production
sites, which somewhat limits our foreign exchange transaction exposures.
Our main objective of interest rate risk management will continue to be
to reduce our total funding cost and to alter the interest rate exposure to the
desired risk profile. Under the terms of the senior credit agreement, we were
required to hedge at least 50% of the aggregate amount of the senior term loans
through interest rate protection agreements for a period of at least three
years. We have historically primarily borrowed in the euro, U.S. dollar,
Canadian dollar, and Norwegian kroner, among other currencies. Our historical
policy was to hedge approximately 50% of borrowings against future movements in
interest rates.
Interest Rate Exposure
As of December 31, 2002, Dynea International had (euro)277.5 million in
syndicated long-term variable rate debt, of which (euro)92.3 million was hedged
through LIBOR-based interest rate swaps, of which (euro)75.2 million were
participating swaps. The participating swaps effectively hedge for 50% interest
rate change until the defined capped rate of interest, after which the hedge is
100%. The swaps had a remaining average life of approximately 9 months. Capped
interest rates for Norwegian kroner, Canadian dollar, and U.S. dollars were
8.0%, 7.0% and 7.5%, respectively. An interest rates average increase of 25
basis points would cause Dynea International's annual interest expense to
increase about (euro)0.5 million, with those interest rates being below the
capped rates of interest. Additionallly variable rate debt was hedged with
(euro)20 million EURIBOR-based futures contracts, which had a remaining average
life of approximately 7 months.
Interest rate swaps involve the exchange of floating for fixed rate
interest payments to effectively convert floating rate debt into fixed rate
debt. The fair value of Dynea International's interest rate derivatives
outstanding as of December 31, 2002 and December 31, 2001 were (euro)(0.4)
million and (euro)(3.7), respectively.
Notional
Interest Rate Swaps at December 31, 2002 Amount Maturity
---------------------------------------- ------ --------
(in (euro) 000)
Variable to Fixed:
Norwegian kroner................... 42.1 October 2003
U.S. dollar ....................... 38.1 January 2003 / November 2004
Canadian dollar ................... 12.1 January 2003
Short-term loans also involve interest rate risk. We mainly borrow
under our revolving credit facility to cover working capital and other needs.
The balance of revolving credit facility was (euro)89.9 million as of December
31, 2002.
Foreign Currency Exchange Rate Exposure
At December 31, 2002, Dynea International had foreign exchange
contracts outstanding in various currencies. Dynea International's primary net
foreign currency exposures at December 31, 2002 included U.S. dollar, Norwegian
kroner and Canadian dollar. As of December 31, 2002 and December 31, 2001, Dynea
International recognized a net loss of (euro)1.7 million and a net loss of
(euro)5.9 million, respectively, related to foreign currency forwards. There
were no gains or losses deferred at either date. Consistent with the nature of
the economic hedge of those foreign currency exchange contracts, decreases or
increases of the underlying instrument or transaction being hedged would offset
the corresponding unrealized gains or losses, respectively. The fair value of
Dynea International's forward exchange contracts that were outstanding as of
December 31, 2002 and December 31, 2001, were (euro)4.4 and (euro)(1.6) million,
respectively.
Item 12. Description of Securities Other than Equity Securities.
Not applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies.
Not applicable.
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds.
Not applicable.
Item 15. Controls and Procedures.
Within the 90 days prior to the date of this report, the Company
carried out an evaluation under the supervision and with the participation of
the Company's management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. There are inherent limitations to
the effectiveness of any system of disclosure controls and procedures, including
the possibility of human error and the circumvention or overriding of the
controls and procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their control
objectives. Based upon and as of the date of the Company's evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the disclosure
controls and procedures are effective in all material respects to ensure that
information required to be disclosed in the reports the Company files and
submits under the Exchange Act is recorded, processed, summarized and reported
as and when required.
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect these controls subsequent to
the date our Chief Executive Officer and our Chief Financial Officer completed
their evaluation, nor were there any significant deficiencies or material
weaknesses in the Company's internal controls requiring corrective actions.
Item 16. [Reserved].
PART III
Item 17. Financial Statements.
See pages F-1 to F-43 and G-1 to G-36.
Item 18. Financial Statements.
Not applicable.
Item 19. Exhibits.
Item Exhibit
---- -------
1.1* Articles of Association of Dynea Chemicals Oy (formerly Neste Chemicals
Oy)
1.2* Articles of Association of Dynea International Oy (formerly Neste
Chemicals International Oy)
2.1** Indenture, dated as of August 8, 2000, among Neste Chemicals
International Oy, Neste Chemicals Oy and The Bank of New York.
4.1* Amendment And Restatement Agreement Relating To A Credit Agreement
Dated 7 August 2000, dated November 15, 2001 between Dynea Chemicals
Oy, Nordkem As, Citibank International Plc, Citibank International Plc,
Citibank, N.A. and Salomon Brothers International Limited.
4.2*** Amendment dated February 11, 2003 to terms of Senior Credit Agreement
dated August 8, 2000 among Dynea Chemicals Oy, certain banks, Citibank
International plc, Citibank N.A. and Salomon Brothers International
Limited (as amended from time to time).
4.3* Amendment Agreement dated February 6, 2002 to the Sale and Purchase
Agreement dated 8th August 2000 relating to the explosive business of
the Dyno ASA Group between Dyno ASA, Dyno Industries USA Inc., Dyno
Nederland B.V. (as Sellers) and Dyno Nobel ASA, Dyno Nobel Holding USA
Inc., Dyno Nobel Holding Australia Ltd, Dyno Nobel Holding Sweden AB,
and Dyno Nobel B.V. (as Buyers).
4.4(1)** Master Business Purchase Agreement, dated February 23, 2001, by and
between Neste Chemicals Oy as Seller on behalf of itself and The
Polyester Group Companies and Ashland Inc. as Purchaser.
4.5 Master Business Purchase Agreement, dated January 28, 2003, by and
between Dynea Chemicals Oy as Seller and the DOFC Group Companies and
MI, L.C.C. as Purchaser
4.6 Toll Management Agreement for Oil Field Chemicals, dated January 28,
2003, by and between Dynea ASA and M-I Norge AS.
8.1 Principal subsidiary undertakings as at December 31, 2002.
- ------------------
* Exhibits to the company's Annual Report on Form 20-F filed April 30,
2001, under the Securities Exchange Act, as amended, hereby
incorporated by reference in this annual report.
** Exhibits to the company's Registration Statement on Form F-4 (No.
333-13782 and 333-13782-01) filed August 2, 2001 under the Securities
Act of 1933, as amended, hereby incorporated by reference in this
annual report.
*** Exhibit to the company's Report on Form 6-K submitted February 19,
2003, under the Securities Exchange Act, as amended, hereby
incorporated by reference in this annual report.
(1) Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment filed with the Commission under 17 C.F.R.
ss.200.80(b).
SIGNATURES
The company hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
DYNEA INTERNATIONAL OY
Company
/s/ Filip Frankenhaeuser
------------------------
Name: Filip Frankenhaeuser
Title: Executive Vice President and
Chief Financial Officer
DYNEA CHEMICALS OY
Company
/s/ Filip Frankenhaeuser
------------------------
Name: Filip Frankenhaeuser
Title: Executive Vice President and
Chief Financial Officer
Date: April 14, 2003
Exhibit 4.5 to the company's
annual report for the year
ended December 31, 2002
----------------------------
M A S T E R B U S I N E S S P U R C H A S E
A G R E E M E N T
BY AND BETWEEN
DYNEA CHEMICALS OY
AS SELLER
ON BEHALF OF ITSELF AND
THE DOFC GROUP COMPANIES
and
M-I, L.L.C.
AS PURCHASER
28 day of January, 2003
EXECUTION COPY
TABLE OF CONTENTS
1. DEFINITIONS.............................................................................................2
2. PURCHASE AND SALE......................................................................................13
2.1 PURCHASE AND SALE OF THE BUSINESS INCLUDING THE SHARES AND DOFC ASSETS;
TRANSFER OF DOFC EMPLOYEES......................................................................13
2.2 TRANSFER AGREEMENTS.............................................................................13
2.3 BEST EFFORTS....................................................................................14
2.4 AGREEMENTS INTEGRATED...........................................................................14
2.5 SELLER AND PURCHASER AS REPRESENTATIVES.........................................................14
3. ASSETS AND SHARES......................................................................................15
3.1 FIXED ASSETS....................................................................................15
3.2 RECEIVABLES.....................................................................................17
3.3 GOODWILL........................................................................................17
3.4 INVENTORY.......................................................................................17
3.5 COMMERCIAL CONTRACTS............................................................................17
3.6 SHARES..........................................................................................18
3.7 EXCLUDED ASSETS.................................................................................18
4. LIABILITIES............................................................................................18
4.1 ASSUMED LIABILITIES.............................................................................19
4.2 EXCLUDED LIABILITIES............................................................................19
4.3 INDEMNIFICATION.................................................................................20
5. TRANSFER OF TITLE, POSSESSION AND RISK OF LOSS.........................................................21
6. PURCHASE PRICE.........................................................................................21
6.1 PURCHASE PRICE..................................................................................21
6.2 RETAINED PURCHASE PRICE.........................................................................23
6.3 ALLOCATION OF PURCHASE PRICE....................................................................24
6.4 EARNOUT MODEL...................................................................................25
7. CLOSING ACCOUNTS AND DETERMINATION OF CAPITAL EMPLOYED LEVEL...........................................26
8. PAYMENT OF TAXES.......................................................................................27
9. PRE-CLOSING COVENANTS..................................................................................28
9.1 NOTIFICATIONS, FILINGS, ETC.....................................................................28
9.2 CONDUCT OF BUSINESS PRIOR TO CLOSING............................................................29
9.3 NOTICE OF CERTAIN EVENTS........................................................................31
9.4 BEST EFFORTS AND GOOD FAITH.....................................................................32
9.5 ASSIGNMENTS.....................................................................................32
10.CLOSING................................................................................................34
10.1 CLOSING.........................................................................................34
10.2 SELLER'S CONDITIONS PRECEDENT...................................................................34
10.3 PURCHASER'S CONDITIONS PRECEDENT................................................................35
10.4 DELIVERIES AT CLOSING...........................................................................37
10.5 BEST EFFORTS TO CLOSE...........................................................................38
11. DOFC EMPLOYEES........................................................................................39
11.1 TRANSFER OF DOFC EMPLOYEES......................................................................39
11.2 ACCRUED LIABILITIES.............................................................................39
11.3 PENSION ASSETS..................................................................................40
11.4 UNFUNDED PENSION LIABILITIES....................................................................41
11.5 EMPLOYEE NEGOTIATIONS...........................................................................41
12. ORDERS AND TENDERS....................................................................................41
12.1 RIGHTS AND OBLIGATIONS IN RELATION TO ORDERS....................................................41
12.2 TENDERS.........................................................................................42
13. TRANSFER OF NEW COMMERCIAL CONTRACTS..................................................................42
13.1 NEW CONTRACTS...................................................................................42
13.2 RESPONSIBILITY FOR FULFILMENT...................................................................42
14. REPRESENTATIONS AND WARRANTIES OF SELLER..............................................................42
14.1 GENERAL.........................................................................................43
14.2 TITLE AND AUTHORITY TO TRANSFER THE DOFC ASSETS; CAPITALIZATION.................................43
14.3 SHARES..........................................................................................44
14.4 VALIDITY OF AGREEMENT...........................................................................44
14.5 EXISTENCE.......................................................................................44
14.6 NO VIOLATION OR CONFLICT........................................................................45
14.7 CORPORATE RECORDS AND DOCUMENTATION.............................................................45
14.8 THE ACCOUNTS AND THE CLOSING ACCOUNTS...........................................................46
14.9 CONDUCT OF BUSINESS.............................................................................46
14.10 WORKING ORDER AND CONDITIONS................................................................46
14.11 LEASES.......................................................................................47
14.12 CONTRACTS....................................................................................47
14.13 INTELLECTUAL PROPERTY RIGHTS.................................................................48
14.14 [NOT USED]...................................................................................49
14.15 GOVERNMENTAL AUTHORIZATIONS..................................................................49
14.16 ENVIRONMENTAL MATTERS........................................................................49
14.17 INSURANCE....................................................................................50
14.18 EMPLOYMENT AND PENSION AGREEMENTS............................................................51
14.19 CLAIMS, LITIGATION...........................................................................53
14.20 ORDINARY COURSE OF BUSINESS..................................................................53
14.21 INVENTORIES..................................................................................53
14.22 ACCOUNTS RECEIVABLE..........................................................................54
14.23 ENTIRE BUSINESS..............................................................................54
14.24 SELLER PROVIDED SERVICES.....................................................................54
14.25 TAX WARRANTIES...............................................................................55
14.26 CONDITION OF FIXED ASSETS....................................................................56
14.27 NO UNDISCLOSED LIABILITIES...................................................................56
14.28 PRODUCT AND SERVICES WARRANTIES..............................................................56
14.29 COMPLIANCE WITH LAW..........................................................................57
14.30 OTHER WARRANTIES.............................................................................58
14.31 ACCURACY OF INFORMATION......................................................................58
15. DUE DILIGENCE DOCUMENTATION...........................................................................58
16. THE PURCHASER'S EXAMINATION...........................................................................59
17. REPRESENTATION AND WARRANTIES OF THE PURCHASER........................................................59
17.1 EXISTENCE.......................................................................................59
17.2 POWER AND AUTHORITY REGARDING THE TRANSACTION...................................................59
17.3 FINANCING.......................................................................................60
18. INDEMNIFICATION.......................................................................................60
18.1 OBLIGATION OF THE SELLER TO INDEMNIFY...........................................................60
18.2 SPECIFIC SELLER INDEMNIFIED MATTERS.............................................................61
18.3 OBLIGATION OF THE PURCHASER TO INDEMNIFY........................................................63
18.4 MITIGATION......................................................................................64
18.5 NOTICE AND DEFENCE OF THIRD PARTY CLAIMS AND RECOVERY...........................................64
18.6 LIMITATIONS.....................................................................................65
19. CERTAIN UNDERTAKINGS..................................................................................66
19.1 CONFIDENTIALITY.................................................................................67
19.2 NON-COMPETITION UNDERTAKING.....................................................................67
19.3 RETIRING DIRECTORS..............................................................................69
19.4 RELIANCE........................................................................................69
19.5 NAMES OF DOFC SUBSIDIARIES AND TRADENAMES AND TRADEMARKS........................................69
19.6 SELLER PROVIDED SERVICES........................................................................70
20. MISCELLANEOUS.........................................................................................71
20.1 NOTICES.........................................................................................71
20.2 SCHEDULES.......................................................................................72
20.3 HEADINGS AND INTERPRETATION.....................................................................72
20.4 ASSIGNMENT......................................................................................73
20.5 INTEGRATION.....................................................................................73
20.6 COSTS...........................................................................................73
20.7 GOVERNING LAW...................................................................................73
20.8 ARBITRATION.....................................................................................73
20.9 AMENDMENTS......................................................................................73
20.10 SEVERABILITY....................................................................................74
20.11 PUBLICITY.......................................................................................74
20.12 COUNTERPARTS OF AGREEMENT.......................................................................74
List of schedules
Schedule A DOFC Group Companies
Schedule B.1 DOFC Subsidiaries
Schedule B.2 Chemicals Subsidiaries
Schedule 1.1 Accounting Principles
Schedule 1.18 Disclosure Letter
Schedule 1.27 Forecasted Capital Employed Level
Schedule 1.34 Essential Employees
Schedule 3.1 (a) & (b) Immovable and Movable Assets
Schedule 3.1 (c) Intellectual Property Rights
Schedule 3.4 Inventory
Schedule 3.6 Shares
Schedule 6.1 (a) Preliminary Amounts for Pre-closing Adjustments
Schedule 6.4 Budgeted Value Add
Schedule 7 (f) Net Cash Flow
Schedule 9.5 (b) Key Commercial Contracts
Schedule 10.2 (b) Guarantees and Undertakings
Schedule 10.3 (f) Shares and DOFC Assets: Acceptable Liens, Pledges, Charges and Other
Encumbrances
Schedule 11.1 DOFC Employees
Schedule 14.7 Corporate Records and Documentation
Schedule 14.12 Material Commercial Contracts
Schedule 14.13 (f) Royalty Obligations
Schedule 14.16 (1) Environmental Issues
Schedule 14.16 (2) Pending or Threatened Legal Actions Relating to Environmental Issues
Schedule 14.17 (1) Insurance Policies
Schedule 14.17 (2) Claims Pending Under Insurance Policies
Schedule 14.19 Pending or Threatened Claims and Litigation
Schedule 14.28 Product and Services Warranties
Schedule 18.2 (a) Due Diligence Findings
Schedule 18.2 (c) Money Holdback Items
Schedule 19.5.2 Copy of Dyno/Dynea agreement
MASTER BUSINESS PURCHASE AGREEMENT
THIS MASTER BUSINESS PURCHASE AGREEMENT is entered into on this 28 January,
2003, by and between
Dynea Chemicals Oy, a corporation incorporated and existing under the laws of
Finland, having its registered domicile in Helsinki, Finland (the "Seller")
and
M-I, L.L.C., a company established under the laws of Delaware, having its
registered domicile in Houston, Texas, U.S.A. (the "Purchaser").
RECITALS:
A. The Seller owns indirectly, the shares in the subsidiaries listed in
Schedule A (such companies are collectively referred to as the "DOFC
Group Companies").
B. Certain of the DOFC Group Companies are engaged solely in the business
of development, manufacture and/or sale of oil field chemicals
(hereinafter referred to as the "DOFC Subsidiaries") and listed in
Schedule B.1. Other DOFC Group Companies are engaged both in the
Business and other businesses (hereinafter referred to as the
"Chemicals Subsidiaries") and listed in Schedule B.2.
C. The DOFC Group Companies own the DOFC Assets, and employ the DOFC
Employees.
D. The Seller desires to sell and the Purchaser and Purchaser's Affiliates
desires to purchase the Business subject to the terms and conditions
below, by way of transferring the DOFC Assets of the Chemicals
Subsidiaries and the shares of the DOFC Subsidiaries (the "Shares") and
by way of Purchaser assuming the DOFC liabilities as set out in Section
4 and employing the DOFC Employees as defined in this Agreement.
E. In order to facilitate the continuity of the Business the Seller and
the Purchaser desire to continue the manufacture of certain oil field
chemicals at the Seller's plants based on a Toll Manufacturing
Agreement pertaining to the plant at Lillestrom to be concluded before
Closing Date.
NOW THEREFORE, the Parties (as defined below) hereby agree as follows:
1. DEFINITIONS
As used in this Agreement the following terms shall have the following meanings
and references to Schedules and Sections shall mean Schedules and Sections of
this Agreement:
1.1 "Accounting Principles" Shall mean generally accepted
International Accounting Standards
(IAS) as consistently applied by Seller
and DOFC Group Companies and as set out
in Schedule 1.1 hereto.
1.1 (a) "Accounts" Shall mean Audited Consolidated
Financial Statements of DOFC Group
Companies as December 31, 2001 and
Consolidated Financial Statements of
DOFC Group Companies for SEC filing 6-K
Q 3 as of September 30, 2002 - as
presented in the data room.
1.1 (b) "Accounts Date" Shall mean 30 September 2002.
1.1 (c) "Accounts Receivables" Shall mean all accounts receivable,
contract price, drafts, notes and other
forms of claims, demands, receivables
and rights to payment of money, whether
for services performed or products
sold, or otherwise, owned by the DOFC
Group Companies and related to the
Business including without limitation,
those reflected in the Closing
Accounts, those due from the Seller,
and all guarantees, security agreements
and rights and interests securing the
same.
1.2 "Affiliate" Shall mean a Person which (whether
directly or indirectly) is controlled
or owned in a similar manner by the
Seller or the Purchaser.
1.3 "Agreement" Shall mean this master business
purchase agreement and the Schedules
hereto.
1.4 [Not used]
1.5 "Board" Shall mean the board of directors, or
equivalent government of managers of
the Person at question.
1.6 "Business" Shall mean the business presently
conducted by the DOFC Group Companies
within the business of development,
manufacture, and/or sale of oil field
chemicals.
1.7 "Business Day" Shall mean a day other than Saturday,
Sunday or other day of public holiday
in Norway.
1.8 "Capital Employed Level" Shall mean Net Working Capital plus
Fixed Assets.
1.9 "Cash" Shall mean deposits on bank accounts.
1.10 "Chemicals Subsidiaries" Shall have the meaning set out in the
Recitals, Section B, listed in Schedule
B.2.
1.11 "Closing" Shall mean the consummation of the
transaction as contemplated in Section
10.
1.12 "Closing Accounts" Shall mean the consolidated financial
statements of the Business as at the
Effective Date prepared in accordance
with the Accounting Principles as set
out in Schedule 1.1 hereto.
1.13 "Closing Date" Shall mean 28 January 2003, or such
later date as set out in Section 10.1.
1.14 "Commercial Contracts" Shall mean the commercial contracts to
be transferred to the Purchaser or the
Purchaser's Affiliates described in
Section 3.5.
1.15 "Confidential Information" Shall mean any and all information of
any kind or nature whatsoever, whether
written or oral, including, without
limitation, financial information,
trade secrets, client lists and other
proprietary business information
regarding the Business, the DOFC Group
Companies or the Seller, which
information is not known to the general
public or to persons unaffiliated with
the DOFC Group Companies or the Seller,
as the case may be.
1.16 "Directors" Shall mean the members and deputy board
members of the Board at question on the
date hereof.
1.17 "Disclosure Material" Shall mean all the material in the data
room made available by the Seller and
Disclosure Letter and the schedules to
this Agreement.
1.18 "Disclosure Letter" Shall mean the disclosure letter issued
by the Seller as at the Signing,
attached as Schedule 1.18 hereto.
1.19 "DOFC Assets" Shall mean the assets and property of
the DOFC Group Companies required
solely for the conduct of the Business
as described in Sections 3.1 - 3.5, to
be transferred to the Purchaser or
Purchaser's Affiliates.
1.20 "DOFC Subsidiaries" Shall have the meaning set out in the
Recitals, Section B listed in Schedule
B.1, hereto.
1.21 "DOFC Employees" Shall mean the employees of the DOFC
Group Companies employed for the
conduct of the Business as described in
Section 11 and as listed in Schedule
11.1.
1.22 "DOFC Group Companies" Shall have the meaning set out in the
Recitals, Section A, listed in Schedule
A.
1.22 (a) EBITDA Shall mean Earning Before Interest
Taxes Depreciation Amortization.
1.22 (b) "Effective Date" Shall mean 1 January 2003 at 00.01.
1.23 "Employee Benefit Plan" Shall mean any written or unwritten
employee benefit, bonus incentive
compensation, profit sharing, pension,
savings, deferred compensation, fringe
benefit, insurance, medical, medical
reimbursement, post-retirement health
or welfare benefit, sick pay, vacation
pay, severance or termination pay,
travel or other privileges, or other
plan, agreement, contract, policy,
trust fund or arrangement, maintained
or sponsored by the Seller or the DOFC
Group Companies, or as to which the
Seller or the DOFC Group Companies is
liable or obligated (whether by
contract, applicable law or otherwise)
with respect to the DOFC Employees,
including, without limitation, those
described in Schedule 11.1.
1.24 "Excluded Assets" Shall have the meaning set out in
Section 3.7.
1.25 "Excluded Liabilities" Shall mean the excluded liabilities as
set out in Section 4.2.
1.26 "Fixed Assets" Shall mean the assets set out in
Section 3.1.
1.27 "Forecasted Capital Employed Shall mean the forecast made November 8
2002, of the Level" Capital Employed
Level at the Effective Date, as set out
in Schedule 1.27, hereto.
1.28 "Governmental Authority" Shall mean any (i) multinational,
federal, provincial, state, municipal,
local or other governmental or public
department, central bank, court,
commission, board, bureau, agency or
instrumentality, domestic or foreign,
(ii) any subdivision or authority of
any of the foregoing, or (iii) any
quasi-governmental or private body
exercising any regulatory,
expropriation or taxing authority under
or for the account of any of the above.
1.29 "Intellectual Property Rights" Shall have the meaning as set out in
Section 14.13.
1.30 "Interest Bearing Debt" Shall mean interest bearing debt that
has been taken to finance the business
operations including but not limited to
interest bearing debt to the Seller and
Seller's Affiliates.
1.31 "Interest Bearing Receivables" Shall mean financial investments in
interest bearing assets.
1.32 "Inventory" Shall mean the inventory of the Seller
and each of the DOFC Group Companies as
set out in Section 3.4.
1.33 "Key Commercial Contracts" Shall mean the commercial contracts set
out in Schedule 9.5 (b) hereto.
1.34 " Essential Employees" Shall mean the employees set out in
Schedule 1.34 hereto.
1.35 [Not used]
1.36 [Not used]
1.37 "Material Adverse Effect" Shall mean a material adverse effect on
the Business, the DOFC Assets, the
Shares, the financial condition of the
Business or result of operation of the
affected part of the Business.
1.37 (a) "Net Cash Flow" Shall mean the net cash generated or
utilized by the business in the
Chemical Subsidiaries between the
Effective Date and the Closing Date.
1.38 "Net Working Capital" Shall mean the Business related
non-interest bearing receivables plus
Inventory minus non-interest bearing
liabilities relating to the Business.
1.39 "Parties" Shall mean the Seller and the
Purchaser, or their Affiliates as
applicable.
1.40 "Party" Shall mean the Seller or the Purchaser
individually.
1.41 "Pension Assets" Shall mean any and all assets, funds
and accounts attributable to or held
under any Employee Benefit Plan
including pension plan as described in
Schedule 11.1 to the extent the same
relate to DOFC Employees who become
employees of the Purchaser or the
Purchaser's Affiliates on and after the
Closing Date, including without
limitation, assets contributed by the
Seller or the DOFC Group Companies to
any Employee Benefit Plan prior to the
Closing, any such assets reflected in
the Accounts or the Closing Accounts
and any prepaid administrative or other
expenses attributable to any Employee
Benefit Plan.
1.42 "Person" Shall mean any individual, corporation,
partnership, firm, joint venture,
association, joint stock company,
trust, unincorporated organization,
Governmental Authority or other entity.
1.43 "Purchase Price" Shall have the meaning set out in
Section 6.1.
1.44 "Purchaser" Shall have the meaning set out in the
introductory paragraph hereof, i.e.
M-I, L.L.C.
1.45 "Purchaser's Affiliates" Shall mean the Affiliates of the
Purchaser described in Section 2.5.
1.46 "Seller" Shall have the meaning set out in the
introductory paragraph hereof, i.e.
Dynea Chemicals Oy.
1.47 "Seller's Best Knowledge" Shall mean the best knowledge of the
Seller after due inquiry.
1.48 "Shares" Shall mean all the issued and
outstanding shares of the DOFC
Subsidiaries as set out in the
Recitals, Section D.
1.49 "Signing" Shall mean the signing of this
Agreement on the date hereof.
1.50 "Taxes" Shall mean all income tax, value added
tax and any other taxes imposed by any
tax authority, including all penalties
and interest.
1.51 "Tax Returns" Shall mean all returns, declaration,
reports, statements and other documents
required to be filed in respect of
Taxes, and the term Tax Return shall
mean any of the foregoing Tax Returns.
1.52 "Third Party Claim" Shall mean any claim by a third party
(including tax and other authorities)
relating to the Business against any of
the DOFC Group Companies.
1.53 "Third Party Consent" Shall mean any consent, contractual or
mandatory by law, needed from a third
party for transfer of rights between
the Seller or the DOFC Group Companies
to the Purchaser or the Purchaser's
Affiliates.
1.54 "Toll Manufacturing Agreement" Shall mean the toll manufacturing
agreement pertaining to production of
oil field chemicals at Dynea ASA's
plant at Lillestrom, Norway.
1.55 "Transfer Agreement" Shall mean the short form transfer
agreements described in Section 2.2.
1.56 "Value Add" Shall mean gross sales less sales
commission, less all other freight of
products less freight included in gross
sales, less raw materials and utilities
used in production.
2. PURCHASE AND SALE
2.1 Purchase and Sale of the Business including the Shares and
DOFC Assets; Transfer of DOFC Employees
On the terms and subject to the conditions set out herein, the Seller on behalf
of itself and each of the DOFC Group Companies hereby sells and the Purchaser on
behalf of itself and each of the Purchaser's Affiliates purchases the Business
by way of purchasing the Shares and the DOFC Assets together with all rights
attaching or accruing thereto and assuming the DOFC liabilities as set out in
Section 4, as further provided for in this Agreement, effective on the Closing
Date.
On the terms and subject to the conditions set out herein the DOFC Employees
shall transfer and become employees of Purchaser or Purchaser's Affiliates
effective on the Closing Date.
2.2 Transfer Agreements
In jurisdictions where required or deemed desirable by the Seller or the
Purchaser, the transfers and deliveries of the Shares and the Assets shall be
confirmed by short form transfer agreements implementing the transactions
contemplated hereby. Each of the Seller and the Purchaser shall ensure that the
relevant entities enter into such transfer agreements and that they execute any
other document that may be required for the consummation of the transaction
contemplated herein.
2.3 Best Efforts
The Seller and the Purchaser undertake to use their best efforts to consummate
the transactions contemplated hereby and to carry out in all other respects
their obligations hereunder and under the respective Transfer Agreements.
2.4 Agreements Integrated
The terms of this Agreement shall mutatis mutandis be deemed to form an integral
part of each of the Transfer Agreements once executed, unless otherwise
expressly provided in the relevant Transfer Agreement. In case of a conflict
between the terms of this Agreement and the terms of a Transfer Agreement, this
Agreement shall govern, unless otherwise is specifically stated in any Transfer
Agreement with effect for particularly enumerated provisions in any such
Transfer Agreement.
2.5 Seller and Purchaser as Representatives
In and for the purpose of this Agreement and the Transfer Agreements, the DOFC
Group Companies are represented by the Seller, who shall be jointly and
severally liable together with the relevant DOFC Group Company for the due
performance of all the obligations of the relevant DOFC Group Companies under
the relevant Transfer Agreement and this Agreement.
If the Purchaser desires to consummate the transactions contemplated hereby
through local Affiliates, then the Purchaser shall have a right to nominate such
Affiliates prior to the Closing ("Purchaser's Affiliates"). In such case and for
the purpose of this Agreement and the Transfer Agreements, the Purchaser's
Affiliates are represented by the Purchaser, who shall be jointly and severally
liable together with the relevant Purchaser's Affiliate for the due performance
of all the obligations of the relevant Purchaser's Affiliate under the relevant
Transfer Agreement.
In their capacities as representatives of the DOFC Group Companies and the
Purchaser's Affiliates, respectively, the Seller and the Purchaser shall be
authorised to give, send, receive or accept or otherwise act on behalf and in
the place of the DOFC Group Companies and the Purchaser's Affiliates
respectively in regard to any matter relating to this Agreement, the Transfer
Agreements and the consummation of the transactions contemplated there under.
The Seller and the Purchaser, respectively, shall procure that such
authorisation is given by each of the DOFC Group Companies and each of the
Purchaser's Affiliates.
3. ASSETS AND SHARES
This transaction comprises the Shares and the DOFC Assets referred to below in
Sections 3.1 through 3.6.
3.1 Fixed Assets
(a) Immovable Assets
The immovable assets to be transferred to the Purchaser or its
Affiliates hereunder comprise the land, buildings and constructions
(the "Properties") of the Seller and the DOFC Group Companies and that
are related to the Business as listed in Schedule 3.1 (a) & (b).
(b) Movable Assets
The movable assets to be transferred to the Purchaser or its Affiliates
hereunder comprise all the machinery, equipment, fixtures, vehicles and
furniture and other movable assets of the DOFC Group Companies related
to the Business as listed in Schedule 3.1 (a) and (b).
(c) Intellectual Property Rights
Title and ownership of all the Intellectual Property Rights held by the
Seller and the DOFC Group Companies related to the Business including,
but not limited to the Intellectual Property Rights as listed in
Schedule 3.1 (c), to be transferred to the Purchaser or its Affiliates.
However, to the extent the utilisation of an Intellectual Property
Right, or license thereto, is necessary to conduct the Seller's current
business with the exception of the Business being transferred to the
Purchaser or its Affiliates, the following shall apply: For
Intellectual Property Rights utilised in or related to the Business,
but which also are necessary for conducting the Seller's business
(other than the Business) after Closing, the Purchaser shall grant the
Seller or the Seller's Affiliate a worldwide, non-exclusive license, or
if applicable sublicense, to utilise the Intellectual Property Right to
the extent necessary to conduct the Seller's business for a period of
up to 18 months following Closing Date. The royalty due to the
Purchaser or its Affiliates for the Seller's or the Seller's
Affiliates' utilisation of such a license is included in the Purchase
Price set out in Section 6, and the Seller and/or its Affiliates have
no obligation to pay additional royalty or consideration to the
Purchaser or its Affiliates for such a license or utilisation.
This time limit shall, however, not apply to any Intellectual Property
Right(s) or license thereto utilised by the Seller or Seller's
Affiliates in relation to the manufacturing of oil field chemicals at
the Lillestrom plant for the sole purpose of fulfilling its obligations
under the Toll Manufacturing Agreement to be entered into between Dynea
ASA and M-I Norge AS at the date hereof.
3.2 Receivables
The receivables to be transferred to the Purchaser or its Affiliates shall not
include Dynea ASA's accounts receivables, but shall comprise other Accounts
Receivables, prepaid expenses and other business related non-interest bearing
receivables of the DOFC Group Companies.
3.3 Goodwill
The goodwill in the Chemicals Subsidiaries related to the Business shall be
transferred to the Purchaser or its Affiliates.
3.4 Inventory
The inventory to be transferred to the Purchaser or its Affiliates hereunder
comprises the DOFC Group Companies' inventory related to the Business including
without limitation raw materials, work in progress and finished products and
goods for resale as at the Closing Date (the "Inventory"), including but not
limited to the Inventory set out in Schedule 3.4.
3.5 Commercial Contracts
The commercial contracts to be transferred to the Purchaser or its Affiliates
hereunder (the "Commercial Contracts") comprise all the distribution,
representation and agency agreements, sales agreements, purchase agreements,
lease agreements, license agreements, co-operation agreements and commitments
made in connection with bid and tenders and other contracts and agreements of
the DOFC Group Companies related to the Business including but not limited to
the Material Commercial Contracts listed in Schedule 14.12. In addition any new
commercial contracts and/or tenders, bids, orders, offers made or entered into
between the date of this Agreement and the Closing Date shall be transferred to
the Purchaser or its Affiliates subject to that these commercial contracts
and/or tenders, bids, orders, offers are made or entered into in ordinary course
of business.
3.6 Shares
The Shares to be transferred to Purchaser or its Affiliates hereunder are listed
in Schedule 3.6.
3.7 Excluded Assets
The Assets comprised by this transaction are the DOFC Assets and the Shares only
(the "Acquired Assets"). All other assets (the "Excluded Assets") shall be
excluded from and not be part of this transaction.
The Parties specifically agree that the financial assets comprising each of the
DOFC Group Companies Cash, Interest Bearing Debt and Interest Bearing
Receivables related to the Business as at the Effective Date shall not be
included in the transaction contemplated by this Agreement nor transferred to
the Purchaser.
If for practical reasons part of the Cash and Interest Bearing Receivables and
Interest Bearing Debt will be transferred to the Purchaser or its Affiliates in
connection with the transfer of the shares of the DOFC Subsidiaries, the net
amount at Effective Date will be taken into account as a purchase price
adjustment.
It is assumed that the amount of transferred DOFC Companies' financial loans
plus accrued interest at the Effective Date to other Dynea companies will be
paid less applicable withholding taxes by the Purchaser as part of the
adjustment (cf. Section 6.1 (c).
4. LIABILITIES
4.1 Assumed Liabilities
Upon Closing the Purchaser and/or the Purchaser's Affiliates shall assume the
DOFC Group Companies' liabilities, obligations and other responsibilities
arising out of the Acquired Assets regardless of whether such liabilities,
obligations and other responsibilities is a result of events or circumstances
prior to or after the Closing Date (the "Assumed Liabilities"), unless otherwise
agreed in section 4.2 below.
4.2 Excluded Liabilities
The Seller and the Seller's Affiliates shall retain any and all liabilities,
obligations and other responsibilities without any limitations related to
Excluded Assets.
The Purchaser or its Affiliates shall have no responsibility whatsoever for any
tax or VAT liability, other than those transferred as a part of the transfer of
the DOFC Subsidiaries unless otherwise agreed in Section 8. For the avoidance of
doubt the tax liability for the DOFC Subsidiaries shall be limited as set out
immediately below.
Subject to the limitations set out in this Agreement (including but not limited
to section 16, 18.1, 18.4, 18.5, 18.6 and 19.4) the Seller and the Seller's
Affiliates shall retain the following liabilities, obligations and other
responsibilities related to the Acquired Assets (the "Excluded Liabilities"):
(a) any liability or obligation of any of the DOFC Subsidiaries for Taxes
arising out of transactions on or prior to the Effective Date or
incurred or accrued on or prior thereto (the "Seller Tax Liability").
The Seller Tax Liability shall include (i) liability for Taxes
attributable to any of the DOFC Subsidiaries for tax periods or
portions thereof ending on or before the Effective Date, and (ii)
liability for Taxes imposed on any of the DOFC Subsidiaries; For DOFC
Subsidiaries, the Effective Date will be deemed to create a closing of
the tax year with the resulting income tax liability allocated to the
Seller. Furthermore, non-income based taxes are to be allocated on a
pro-rata basis;
(b) any liability or obligation of any of the DOFC Group Companies arising
from existing litigation, and claim, or act or event relating to the
operation of the Business prior to Effective Date;
(c) any liability or obligation of any of the DOFC Group Companies for
death, personal injury, or other injury to persons (including the DOFC
Employees), property damage, losses, deprivation of rights caused by or
resulting from any defect or claimed defect in or with respect to any
products of the Business manufactured on or prior to the Effective Date
(the foregoing being hereinafter referred to as the "Seller Products'
Liability Claims");
(d) any liability or obligation of any of the DOFC Group Companies arising
out of or related to discharges, releases, spills or emissions of
hazardous materials to the ground, air or water on or prior to the
Effective Date; and any liability or obligation arising out of or
related to any contamination or pollution on, or emanating from any of
the properties acquired by the Purchaser or any of the Purchaser's
Affiliates pursuant to this Agreement or any Transfer Agreement,
whether resulting from any acts or omissions of any of the DOFC Group
Companies or otherwise caused on or prior to the Effective Date;
("Seller Environmental Liabilities");
(e) any liability or obligation arising out of claims related to the title
and ownership of the DOFC Assets and the Shares.
4.3 Indemnification
The Seller shall, subject to any limitations set out in this Agreement including
but not limited to sections 16, 18 and 19, indemnify, defend and hold harmless
the Purchaser and its Affiliates of all claims relating to Excluded Liabilities.
The Purchaser shall indemnify, defend and hold harmless the Seller and its
Affiliates of all claims relating to Assumed Liabilities.
5. TRANSFER OF TITLE, POSSESSION AND RISK OF LOSS
The title to and possession of the Business including the Shares and DOFC Assets
and consequently the risk of loss of the Business shall be deemed to pass and be
transferred from the Seller and each relevant DOFC Group Companies to the
Purchaser and each relevant Purchaser's Affiliates as of 1 January 2003 at
00.01, subject to Closing as set out in Section 10.
6. PURCHASE PRICE
6.1 Purchase Price
The purchase price for the Business (including the Shares and the DOFC Assets)
shall be EUR 76,000,000 (the "Purchase Price"). The Purchase Price shall be
subject to the pre-closing and the post-closing adjustments as set out in this
Section 6.1.
(a) The payable Purchase Price at Closing Date shall be EUR 76,000,000,
adjusted for the following pre-closing preliminary adjustments factors:
(i) Retained Amount as set out in Section 6.2; (ii) Interest Bearing
Debt in the DOFC Subsidiaries; (iii) cash balance in the DOFC
Subsidiaries; (iv) less any applicable withholding taxes; and (v) any
difference between the preliminary Actual Capital Employed Level and
the Forecasted Capital Employed Level plus preliminary adjustments for
the Dynea ASA trade Receivables and Dynea ASA liabilities not assumed
by the Purchaser or Purchaser's Affiliates as per the Effective Date.
The preliminary amounts related to these pre-closing adjustment factors
are set out in Schedule 6.1 (a). All pre-closing preliminary
adjustments are subject to possible post-closing adjustment as
described in section 6.1 (c).
(b) The payable Purchase Price as set out in Section 6.1 (a) shall be paid
in full at Closing Date less applicable withholding taxes to the bank
account identified by the Seller, however subject to any adjustments
set out in Section 10.1, last paragraph.
(c) After Closing Date the payable Purchase Price shall be adjusted by the
difference between the actual Capital Employed Level as per the
Effective Date, and possible adjustments of the amounts calculated
according to Section 3.7 paragraph 3 and 4, and the Forecasted Capital
Employed Level as per the Effective Date and the Net Cash Flow that is
generated by the Business in the Chemical Subsidiaries from the
Effective Date to the Closing Date according to Section 7 (f). For the
avoidance of doubt the cash flow generated from any toll manufacturing
arrangement at Lillestrom shall not be regarded as cash flow generated
by the Business. Such amount (payable Purchase Price plus or minus the
adjustment) shall constitute the final Purchase Price. The actual
Capital Employment Level shall among other accounts be reduced by the
Dynea ASA's accounts receivables less Dynea ASA's liabilities not
assumed by the Purchaser or the Purchaser's Affiliates as of the
Effective Date. In addition, as the Business is financed by Dynea
internal interest bearing loans the payable Purchase Price shall be
adjusted with the differences in such loan balances between the
Effective Date and the Closing Date. To the extent the difference is a
decrease in the loan balance the Seller will compensate the Purchaser
for such difference and to the extent the difference is an increase in
the loan balance the Purchaser shall compensate the Seller for such
difference.
Any amount resulting from a positive adjustment is to be paid by the
Purchaser, and any amount resulting from a negative adjustment is to be
paid by the Seller (the "Adjustment Amount").
The Adjustment Amount shall be reduced by the adjustment set out in
Section 11.2 (Accrued Liabilities) and by the unfunded pension
liabilities as set out in Section 11.4 (Unfunded Pension Liabilities)
(hereinafter referred to as the "Final Adjustment Amount").
The Adjustment Amount shall be increased by the lesser amount of (i)
the accrued interest calculated in arrears with an interest rate of 3
month EURIBOR on the Purchase Price from 1 January 2003 to and
including the Closing Date, and (ii) the EBITDA of the Business from 1
January 2003 to and including the Closing Date, as set out in the
Closing Accounts as agreed between the Parties or as determined by the
Independent Auditor, however, if the amount set out in (ii) above is
negative, the Adjustment Amount shall be increased by the amount as set
out in (i) above.
(d) The Seller or the Purchaser, as the case may be, shall pay the Final
Adjustment Amount by wire transfer of immediately available funds to an
account designated in writing by the Seller or the Purchaser, as the
case may be, no later than (i) thirty (30) Business Days following
delivery of the Closing Accounts including the Capital Employed Level,
or (ii) fourteen (14) Business Days following the resolution of a
dispute with respect to any items on the Closing Accounts or the
Capital Employed Level as set out in section 7 (d).
6.2 Retained Purchase Price
The Purchaser shall be entitled to retain EUR 198,303 (conversion of USD 215,000
at the rate of 1.0842) of the Purchase Price as security for a close-out of the
"Money Holdback Items" listed in Section 18.2 (c) (the "Retained Amount").The
Retained Amount is equal to the amount allocated to the "Money Holdback Items"
less the additional amount the Purchaser shall contribute according to Section
18.2 (b) (the Hinds-Block Agreement settlement contribution). For the avoidance
of doubt, the maximum liability of the Seller related to the "Money Holdback
Items" is EUR 313,595 (conversion of USD 340.000 at the rate of 1.0842) and
subject to the Seller not being in breach of the representations and warranties
related to these Money Holdback Items.
The retained amount must be used by the Purchaser in order to settle these items
only and shall do so within twelve (12) months of the Closing Date and in
accordance with Section 18.2 (c ). All documented costs and expenses relating to
each individual specific item shall be deducted from the retained amount
relating to each individual specific item. To the extent the aggregate
settlement amount related to the Money Holdback Items is less than the retained
amount such excess shall be paid to the Seller's nominated bank account within
fourteen (14) days after the expiry of the above-mentioned twelve (12) month
period.
The Purchaser shall be entitled to use the aggregate Retained Amount to satisfy
any specific item so long as the settlement of all specific items does not
exceed the amount allocated to the Money Holdback Items.
6.3 Allocation of Purchase Price
On or before sixty (60) days after the Closing Accounts have been agreed, the
Purchaser will provide an Allocation Statement allocating the Purchase Price
added the fair market value of the Assumed Liabilities to the Shares and the
DOFC Assets to the Seller for review. The Seller shall have thirty (30) days to
accept or object to the Allocation Statement. The Purchaser and the Seller shall
in good faith endeavour to resolve any dispute concerning the Allocation
Statement within thirty (30) days of the Purchaser's receipt of the Seller's
written notice of dispute, failing which the matter will be resolved in
accordance with Section 7(d) of this Agreement.
The allocation shall be based on a fair market value of the DOFC Assets and
Shares as of the Effective Date. The allocation statement shall, if the Seller
and the Purchaser do not agree, be as reasonably requested by the Purchaser. The
Seller, the DOFC Group Companies and the Purchaser or the Purchaser's Affiliates
shall file and cause to be filed all Tax Returns, and execute such other
documents as may re required by any taxing authority, in a manner consistent
with the allocation statement.
6.4 Earnout Model
In addition to the Purchase Price, the Purchaser shall pay to the Seller EUR 2
million if the budgeted Value Add for the DOFC Business in 2003, totalling EUR
27,911,000 as set out in Schedule 6.4, is achieved.
The Purchaser shall quarterly provide to the Seller Value Add reports for
information purposes, which shall be prepared in accordance with the Accounting
Principles.
On 30 January 2004 the Purchaser shall submit the consolidated Value Add figures
for 2003 for the Seller's review. If the Purchaser's consolidated Value Add
figures for 2003 amount to the said budgeted value add of EUR 27,911,00 or more,
the payment of EUR 2 million shall be made to the Seller within 1 March 2004,
without any interest.
If the Purchaser's consolidated Value Add figures for 2003 do not amount to the
said budgeted Value Add, and that is accepted by the Seller, the Purchaser has
no obligation to pay the EUR 2 million or parts thereof to the Seller.
If the Purchaser's consolidated Value Add figures for 2003 are not
approved/accepted by the Seller, the Seller shall give a written notice of
disagreement to the Purchaser specifying in reasonable detail the nature of the
disagreement. Such notice of disagreement shall be given no later than 27
February 2004, provided, however, that the Purchaser has presented the
consolidated Value Add figures prior to or on 30 January 2004. Purchaser and
Seller shall in good faith endeavour to resolve any disagreement concerning the
Value Add achieved for the Business in 2003, within thirty (30) days from the
date of receipt by the Purchaser of the Seller's written notice of disagreement,
failing which the matter shall be resolved by KPMG ("Independent Auditor")
within ten (10) days from the submission of any such dispute. The Independent
Auditor shall render a decision on the items in dispute together with the
reasons therefore. Each Party may dispute the decision by the Independent
Auditor by initiating arbitral proceedings according to Section 20.8 hereunder
within fourteen (14) days from the decision of the Independent Auditor.
7. CLOSING ACCOUNTS AND DETERMINATION OF CAPITAL EMPLOYED LEVEL
(a) As promptly as practicable, and in any event not more than Sixty (60)
days following the Closing Date, the Purchaser shall prepare the
Closing Accounts. The Purchaser shall co-operate with the Seller in
preparation of the Closing Accounts and provide the Seller and the
Seller's auditors access to the books and other material and
documentation pertaining to the Closing Accounts. The Closing Accounts
shall be prepared in accordance with the Accounting Principles.
(b) The Seller and the Purchaser shall in co-operation as promptly as
practicable after the Closing Date undertake a physical inventory
concerning the DOFC Assets and the Inventory of the DOFC Group
Companies as at the Closing Date, in respect of which a detailed report
shall be prepared and signed by the Parties. The findings of the
physical inventory shall be reflected in the Closing Accounts and
corresponding adjustments made thereto (as provided in this Agreement),
as the case may be.
(c) If the Seller disagrees with respect to the Closing Accounts prepared
by the Purchaser, the Seller shall give a written notice of
disagreement to the Purchaser specifying in reasonable detail the
nature of the disagreement. Such notice of disagreement shall be given
no later than thirty (30) Business Days after the Seller has received
the Closing Accounts prepared by the Purchaser. Failure by the Seller
to notify the Purchaser within the said time limit shall be deemed to
constitute an agreement by the Parties to the Closing Accounts.
(d) The Purchaser and the Seller shall in good faith endeavour to resolve
any dispute concerning the Closing Accounts within thirty (30) days
from the date receipt by the Seller of the Purchaser's written notice
of dispute, failing which the matter shall be resolved by KPMG
("Independent Auditor"). Within ten (10) days from the submission of
any such dispute, the Independent Auditor shall render a decision on
the items in dispute together with the reasons therefore. Each Party
may dispute the decision by the Independent Auditor by initiating
arbitral proceedings according to Section 20.8 hereunder within
fourteen (14) days from the decision of the Independent Auditor.
(e) Any adjustment of the Purchase Price based on an increase or decrease
of the Capital Employed Level shall carry interest at the rate of 3
month EURIBOR on the amount of adjustment from the Closing Date until
the date of actual payment.
(f) Immediately after the Closing Accounts have been agreed by the
Purchaser and the Seller, the Seller shall prepare a statement of Net
Cash Flow related to the business acquired from each Chemical
Subsidiary for the period from the Effective Date to the Closing Date.
The Net Cash Flow from the business will be included as an adjustments
to the Purchase Price in accordance with Section 6.1(c). The Net Cash
Flow shall be calculated as set out in Schedule 7 (f). For the
avoidance of doubt the cash flow generated from any toll manufacturing
arrangement at Lillestrom shall not be regarded as cash flow generated
by the Business.
8. PAYMENT OF TAXES
The Purchaser shall be liable for and shall pay all applicable sales taxes,
transfer taxes, value added taxes (but not income and withholding taxes of the
Seller or the Chemicals Subsidiaries), duties and other like charges properly
payable upon and in connection with the consummation of this Agreement. The
Seller will do and cause to be done such things as are reasonably requested to
enable the Purchaser to comply with such obligations in an efficient manner.
In the event that the Seller is required by the proper authority to pay such
taxes, duties or charges, the Seller can seek recourse from the Purchaser who
shall indemnify the Seller in full regardless of any limitations to the
Purchaser's liability pursuant to this Agreement. As this Agreement comprises a
complete transfer of the Business Norwegian VAT does not apply.
Notwithstanding the above, the Seller will fully reimburse the Purchaser, the
Purchaser's Affiliates or the DOFC Subsidiaries acquired by the Purchaser or the
Purchaser's Affiliates, without any limitations set out in this Agreement for
any De-grouping Tax incurred or deemed to be incurred post-closing as a direct
result of the execution or completion of this Agreement by the Purchaser, the
Purchaser's Affiliates or the DOFC Subsidiaries. A Degrouping Tax is herein
defined as any tax imposed on a DOFC subsidiary as a result of the DOFC
subsidiary leaving the DOFC Group Companies, as ultimately controlled by the
Seller and which reports its tax status as a consolidated or affiliated group in
any jurisdiction.
9. PRE-CLOSING COVENANTS
9.1 Notifications, Filings, etc.
As promptly as practical after the signing of this Agreement, each Party shall
make all filings, registrations and notifications, and shall apply for (and
otherwise use all reasonable efforts to obtain) all approvals, permits, licenses
and consents as required of such Party for the consummation of the transactions
contemplated herein.
9.2 Conduct of Business Prior to Closing
During the period from the Effective Date to the Closing Date, the Business
shall be conducted by the Seller and the DOFC Group Companies in its ordinary
course consistent with past custom and practice, and the Seller and the DOFC
Group Companies shall use all reasonable commercial efforts to preserve intact
the Business and relationships with third parties and to keep available the
services of the DOFC Employees conducting the Business. Without limiting the
generality of the foregoing, unless the Purchaser shall grant its prior written
consent, during the period beginning on the Effective Date hereof through the
Closing Date, the Seller or the DOFC Group Companies shall not take any of the
actions set forth below:
a) disposition of any significant assets other than in the ordinary course
of business;
b) major expenditures, transactions, commitments, undertakings or actions
outside the normal course of business;
c) But shall conduct the Business only in the ordinary course of business;
d) amending the charter or by-laws of the DOFC Group Companies, except as
may be first approved in writing by Purchaser;
e) making any material change in the DOFC Group Companies accounting
practices or procedures;
f) Other than in the ordinary course of business, (i) making any
purchases, sales or transfers of any material assets of the DOFC Group
Companies; (ii) entering into any leases, contracts or commitments that
would be required to be disclosed under this Agreement; (iii)
mortgaging, pledging, subjecting to lien or otherwise encumbering any
DOFC Assets; (iv) borrowing or loaning any funds; (v) terminating or
permitting to terminate any permit or Commercial Contract, except as
may be first approved in writing by Purchaser (vi) waiving or
permitting to terminate any material right of the DOFC Group Companies;
g) Mortgaging, pledging, subjecting to lien or otherwise encumbering any
of the Shares;
h) incurring any obligations or liabilities other than those that are
usual and normal in the ordinary course of business;
i) making any change in compensation or benefit payable or to become
payable to any DOFC Employees or making any new bonus payment or
arrangement or benefit to or with any of them;
j) changing the number of shares in any of the DOFC Subsidiaries, from
issuing any new shares, debentures, convertible debentures or other
securities of the DOFC Subsidiaries, from declaring, setting aside or
paying any dividend or other distribution with respect to the Shares,
or from directly or indirectly redeeming, purchasing or otherwise
acquiring any additional shares of the DOFC Subsidiaries or effecting a
split, reclassification or other change in or of the Shares;
k) But shall have in effect and maintain at all times insurance now in
force;
l) But shall use its best efforts to preserve the Business' market
position and business organization intact, to preserve and maintain all
Intellectual Property Rights, to keep available the services of the
present officers and employees of the DOFC Group Companies, and to
preserve the goodwill of all suppliers, customers, licensors, sales
representatives and others having business relations with the DOFC
Group Companies.
m) But shall conduct the DOFC Group Companies' business and operations in
accordance with applicable law.
The Seller undertakes to keep the Purchaser informed of the development of the
DOFC Group Companies' business after the date hereof by providing the Purchaser
with copies of the monthly management reports, which the Seller receives from
the DOFC Group Companies. The Purchaser shall be entitled to have an observer at
all board meetings, except for subjects related directly to this Agreement.
Until Closing, the Seller and the DOFC Group Companies shall give the Purchaser
and its representatives full access during normal business hours to the
Business's premises and to all relevant books and records of the DOFC Group
Companies.
9.3 Notice of Certain Events
The Seller shall promptly notify the Purchaser of:
(i) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication from any Governmental Authority in
connection with the transactions contemplated by this Agreement;
(iii) any actions, suits, claims, investigations or proceedings commenced or,
to its knowledge threatened against, relating to or involving or
otherwise affecting or that relate to the Business, any DOFC Asset, the
Shares or the consummation of the transactions contemplated by this
Agreement; and
(iv) any event or circumstance that has rendered, or could reasonably be
expected to render, any representation or warranty of the Seller
contained in this Agreement untrue in any material respect.
9.4 Best Efforts and Good Faith
The Parties hereto agree that, subject to the terms and conditions of this
Agreement, each Party will use its best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary or desirable
under applicable laws and regulations to consummate the transactions
contemplated by this Agreement. The Seller and the Purchaser each agree, subject
to the terms and conditions of this Agreement, and shall cause their Affiliates
to execute and deliver such other documents, certificates, agreements and other
writings and to take such other actions as may be necessary or desirable in
order to consummate or implement expeditiously the transactions contemplated by
this Agreement.
9.5 Assignments
(a) As soon as practicable after Signing, the Seller and the Purchaser
shall co-operate, and use its best efforts, to obtain the written
consent of all relevant third parties to the assignment, as of the
Closing Date, of all Commercial Contracts.
(b) As soon as practical after Signing, and in any event prior to the
Closing Date, the Seller and the Purchaser shall together approach
relevant third parties in order to obtain approval for assignment of
the Key Commercial Contracts provided for in Schedule 9.5 (b), from the
Seller or the DOFC Group Companies to the Purchaser or the Purchaser's
Affiliates. The Seller shall give the Purchaser all reasonable
assistance in order for the Purchaser or the Purchaser's Affiliates to
be able to obtain such approval to assignment of other Commercial
Contracts.
(c) Notwithstanding the foregoing, this Agreement shall not constitute an
agreement to assign any Commercial Contracts if an attempted assignment
thereof, without the consent of a third party thereto if such consent
is required, would constitute a breach thereof or adversely affect the
rights of the Purchaser, the Purchaser's Affiliates or the Seller
thereunder. If the assignment of any Commercial Contracts intended to
be assigned hereunder is not consummated prior to or at the Closing
Date, whether as a result of circumstances referred to in the preceding
sentence or for any other reason, then the Seller or the Chemicals
Subsidiaries shall thereafter hold such Commercial Contracts for the
use and benefit of the Purchaser or the Purchaser's Affiliates (at the
risk and expense of the Purchaser or the Purchaser's Affiliates). In
addition, the Seller or the Chemicals Subsidiaries shall take such
other actions as may be reasonably requested by the Purchaser or the
Purchaser's Affiliates, including, without limitation, entering into a
subcontract or other similar arrangement with the Purchaser or the
Purchaser's Affiliates, in order to place the Purchaser or the
Purchaser's Affiliates, insofar as reasonably possible, in the same
position as if such Commercial Contracts had been transferred as
contemplated hereby and so that all the benefits and burdens relating
to such Commercial Contracts, including possession, use, risk of loss,
potential for gain, and dominion, control and command over such
Commercial Contracts, is to inure from and after the Closing Date to
the Purchaser or the Purchaser's Affiliates. In any such case, the
Seller or the Chemicals Subsidiaries shall continue to be bound by any
Commercial Contracts, unless not permitted by law or the terms thereof,
and the Purchaser or the Purchaser's Affiliates shall, as agent or
subcontractor for the Seller or the Chemicals Subsidiaries, perform and
discharge fully all the obligations of the Seller or the Chemicals
Subsidiaries thereunder from and after the Closing Date. The Seller
shall, without further consideration, pay and remit, or cause to be
paid or remitted, to the Purchaser or the Purchaser's Affiliates
promptly all money, rights and other consideration received by it in
respect of such performance. If and when any such consent shall be
obtained or such Commercial Contracts shall otherwise become
assignable, the Seller or the Chemicals Subsidiaries shall thereafter
assign such Commercial Contracts to the Purchaser or the Purchaser's
Affiliates without payment to the Seller or the Chemicals Subsidiaries
of further consideration and the Purchaser or Purchaser's Affiliates
shall, without payment to the Seller or its Affiliates of any
consideration, assume such rights and obligations.
10. CLOSING
10.1 Closing
Closing shall take place on the Closing Date starting at 0900 a.m. at the
offices of Bugge, Arentz-Hansen & Rasmussen, Stranden 1, Oslo, Norway.
The Closing Date shall be 28 January 2003 or if all the conditions in Sections
10.2 and 10.3 have not been satisfied (or not waived) by such date within 10
(ten) Business days after they have been satisfied (or waived).
Closing of part of the transaction shall not be prevented by restrictions to
close other parts of the transaction, provided that the non-closing part is not
substantial compared to the Business as a whole and that the non-closing part
does not have any Material Adverse Effect on the Business. In the event of a
partial non-closing the Purchaser will be entitled to retain such part of the
payable Purchase Price as allocated to the non-closing part according to Section
6.3.
10.2 Seller's Conditions Precedent
The obligation of the Seller to close hereunder shall be subject to the
fulfilment, on or before the Closing Date, of each of the following conditions
(to the extent not waived by the Seller):
(a) Authority Approvals
The Seller shall have obtained any authorizations, approvals and
consents from all relevant national or supra-national authorities, as
the case may be, that are required for the Seller's lawful and valid
consummation of the transactions contemplated hereunder.
(b) Guarantees
The Seller and the Chemicals Subsidiaries shall have been released from
all guarantees and other undertakings referred to in Schedule 10.2 (b).
10.3 Purchaser's Conditions Precedent
The obligation of the Purchaser to close hereunder shall be subject to the
satisfaction, on or before the Closing Date, of the following condition (to the
extent not waived by the Purchaser):
(a) Authority Approvals
The Purchaser or the Purchaser's Affiliates shall, with the
co-operation of the Seller, have obtained all necessary authorizations,
approvals and consents from all relevant national or supra-national
authorities, as the case may be, required for the lawful and valid
consummation of the transactions contemplated hereunder. Any
restrictions on, or conditions to such an authorization, approval or
consent by such authority, including without limitation any obligations
to dispose of any of the Shares or the DOFC Assets shall not affect the
Purchaser's obligation to close the transactions contemplated by this
Agreement unless these restrictions may reasonable be deemed to have
Material Adverse Effect on the transactions in their entirety;
In the event any necessary authorisations, approvals and/or consents
are not obtained, the Purchaser has the obligation to close parts of
the transactions that are not materially affected, by not having
obtained such authorisation, approval and/or consent. In such event the
payable Purchase Price at Closing shall be adjusted as set out in
section 10.1 third paragraph;
(b) the Seller has performed in all material respects all of its
obligations hereunder required to be performed by it on or prior to the
Closing Date;
(c) No injunction or restraining order or other order shall be in effect
preventing or forbidding the consummation of the transactions
contemplated hereby or impairing the Purchaser's or its Affiliates'
ability to operate the Business and no legal action or governmental
investigation shall be pending or threatened which, if adversely
determined, would reasonably be expected to result in any such
injunction or order;
(d) No suit, claim, action, investigation, challenge, inquiry or other
proceeding by any Governmental Authority or other Person shall be
pending, threatened or in effect which seeks to obtain material damages
from the Purchaser or any of its Affiliates in connection with any of
the transactions contemplated by this Agreement or any related
agreements;
(e) The warranties of the Sellers shall be true and correct as of the
Closing Date, and the Seller and the DOFC Group Companies shall have
performed all agreements and obligations required by this Agreement or
the agreements contemplated hereby to be performed or complied with by
them on or prior to Closing Date;
(f) The Shares and DOFC Assets will not at Closing be subject to any lien,
pledge, charge or other encumbrance of any nature;
(g) The Seller or the DOFC Group Companies shall have obtained the written
consent of relevant third parties (or other mutually agreeable
arrangements) to the assignment and transfer to the Purchaser or the
Purchaser's Affiliates of all Key Commercial Contracts, including all
property lease, in each case in such manner as will vest in the
Purchaser or Purchaser's Affiliates rights and obligations thereunder
that are substantially the same as the rights and obligations of the
Seller or the DOFC Group Companies thereunder prior to such assignment
and transfer;
(h) The "Essential Employees" as described in Schedule 1.34 shall have
entered into new or revised employment agreements with the Purchaser or
the Purchaser's Affiliates;
(i) The Purchaser shall have received the opinion of legal counsel to the
Seller, in form and scope reasonably satisfactory to the Purchaser to
the effect that (A) this Agreement has been duly executed by the Seller
and the DOFC Group Companies, (B) the execution, delivery and
performance of this Agreement by the Seller and the DOFC Group
Companies have been duly authorized by all necessary corporate action
on the part of the Seller and the DOFC Group Companies and (C) this
Agreement is enforceable against the Seller in accordance with its
terms ;and
(j) Toll Manufacturing Agreement, shall have been entered into between
Dynea ASA and the Purchaser or the Purchaser's Affiliates.
10.4 Deliveries at Closing
(a) The Purchaser shall pay the Purchase Price to Seller; as set out in
Section 6.;
(b) The Seller shall sell and transfer to the Purchaser or Purchaser's
Affiliates the Shares and deliver to Purchaser or Purchaser's
Affiliates the certificates corresponding to the Shares where
applicable duly endorsed (together with any coupons and/or talons
appertaining thereto);
(c) The Parties shall execute or cause to be executed, as the case may be,
the Transfer Agreements pursuant to Section 2.2;
(d) The Parties shall convey copies or extracts of resolutions of the
Boards of the respective Parties and DOFC Group Companies authorizing
the execution and completion of this Agreement and the consummation of
the transactions contemplated herein;
(e) The Purchaser shall deliver to Seller evidence of the release of the
guarantees and other undertakings pursuant to Section 10.2 (b);
(f) the Parties shall deliver to each other evidence of the necessary
authority approvals, where applicable; and
(g) Such additional documents, certificates, payments and other deliveries
as may be specified in any of the other documents listed or referred to
in this Agreement which are reasonably required to consummate the
transaction contemplated hereby.
10.5 Best Efforts to Close
The Parties shall use their respective best efforts to cause all necessary
actions to be taken in order to have the conditions precedent for Closing to be
fulfilled as promptly as practicable and to have all deliveries as provided in
Section 10.4 made timely and properly. Inter alia, the Purchaser shall duly and
in good faith offer all reasonable proposals for undertakings towards public
authorities in order to cause the condition precedent in Section 10.2 (a) and
10.3 (a) to be fulfilled.
Provided Closing or any Partial Closing has not taken place by 15 April 2003,
either Party may cancel this Agreement without prejudice to any remedies
available to the Parties hereunder or under law.
11. DOFC EMPLOYEES
11.1 Transfer of DOFC Employees
For the purposes of this Agreement, the employees presently employed by the DOFC
Group Companies in the Business as listed in Schedule 11.1 (the "DOFC
Employees") will transfer and become employees of the relevant purchasing entity
as from the Closing Date in accordance with applicable mandatory law, unless
otherwise provided by mandatory legislation in a relevant jurisdiction, in which
case the Purchaser or the Purchaser's Affiliates shall offer employment to the
DOFC Employees in that jurisdiction at terms and conditions equivalent to the
terms and conditions of their present employment agreements.
11.2 Accrued Liabilities
All accrued unpaid liabilities under any employment contract or Employee Benefit
Plan, including but not limited to, accrued right to paid holiday and holiday
pay as of Effective Date relating to the DOFC Employees transferring to the
relevant purchasing entity arisen in the conduct of the Business prior to
Effective Date or otherwise imposed on the employer by operation of law or other
mandatory regulations will be assumed by the Seller. All liabilities accrued
thereafter, to the extent such Employees become employees of the Purchaser or
the Purchaser's Affiliates, shall be for the account of the Purchaser or
Purchaser's Affiliates, and any necessary apportionments shall be made as of the
Closing Date.
Any liability relating to bonus payment according to any compensation agreement
between the Seller or the DOFC Group Companies and the DOFC Employees payable in
the event of a successful sale of the Business, will be assumed by the Seller,
even if the liability is payable and due after Closing.
The amounts assumed by the Seller shall be deducted from the Adjustment Amount.
11.3 Pension Assets
All pension schemes maintained by the Seller and any of the DOFC Group Companies
with respect to the DOFC Employees are described in Schedule 11.1 and all such
pensions schemes are in full force and effect on the date hereof and will remain
in full force and effect up to the Closing Date. All premiums payable under all
such pension schemes have been paid and the Seller or any of the DOFC Group
Companies are otherwise in full compliance with the terms and conditions of all
such pension schemes. The pension schemes are to the Seller's Best Knowledge of
the type and in amounts customarily carried by Persons conducting businesses
similar to the Business. The Seller or the DOFC Group Companies do not know of
any threatened termination of, or premium increase with respect to, any of such
policies.
For pension assets under Norwegian lawfully linear pre-paid policies shall be
issued by the Sellers insurance company to all employees comprised by the
applicable pension schemes according to the applicable rules and regulations as
of Closing date.
For pension assets under other jurisdictions, the Purchaser or Purchaser's
Affiliates shall have the option of having the pension assets transferred,
having pre-paid policies issued to the Employees, or using other measures
provided by legislation in order to transfer the pension assets currently held
by the Seller, its insurance company or any other Person.
11.4 Unfunded Pension Liabilities
Any unfunded pension liabilities at Closing of the pension assets of the
Employees to be employed by the Purchaser or Purchaser's Affiliates at Closing,
shall be calculated immediately prior to Closing by the actuary of the Person
holding the Pension Assets, and will be calculated using the same actuarial
assumptions and methodologies used in the Accounts. Any such unfunded pension
liabilities shall be deducted from the Adjustment Amount.
11.5 Employee Negotiations
The Seller and/or the Purchaser or Purchaser's Affiliates/where applicable,
shall enter into and properly conduct negotiations with the DOFC Employees
and/or their trade union representatives as required by law and/or any
applicable collective bargaining agreements.
The Purchaser, and the Seller where applicable, agrees to co-operate fully with
the other Party in the employee negotiations.
12. ORDERS AND TENDERS
12.1 Rights and Obligations in Relation to Orders
All orders and contracts for delivery of products or services related to the
Business, whether performed or not, together with new orders, partly or wholly
unfulfilled on the Closing Date, shall be transferred to the Purchaser or the
relevant Purchaser's Affiliates as from the Closing Date, as long as they are
made or entered into in the ordinary course of business.
12.2 Tenders
The Purchaser or Purchaser's Affiliates shall assume responsibility for all
tenders relating to the Business binding upon the DOFC Group Companies on the
Closing Date, as long as they are made or entered into in the ordinary course of
business.
The Seller undertakes to direct all tender requests and orders relating to the
Business received by it after the Closing Date to the Purchaser.
13. TRANSFER OF NEW COMMERCIAL CONTRACTS
13.1 New Contracts
All new agreements and contracts relating to the Business shall be entered into
in the name of the Seller (or a DOFC Group Company) until the Closing Date,
where after they shall be entered into in the name of the Purchaser (or a
Purchaser's Affiliate). The Seller undertakes not to conclude any material
agreement or contract outside the ordinary course of the Business after the
Effective Date without the consent of the Purchaser.
13.2 Responsibility for Fulfilment
The Purchaser together with the relevant Purchaser's Affiliate shall be jointly
responsible for the proper performance of the Commercial Contracts and the
orders and tenders referred to in Section 12 transferred to the Purchaser or the
relevant Purchaser's Affiliate.
14. REPRESENTATIONS AND WARRANTIES OF SELLER
14.1 General
Subject to the limitations set out in this Agreement (including but not limited
to those in sections 16, 18.1, 18.4, 18.5, 18.6 and 19.4 the Seller and each of
the DOFC Group Companies hereby gives the following representations and
warranties as at the Signing and at the Closing Date, unless otherwise
specifically, and accurately disclosed and contain no material omission in the
Disclosure Material.
These representations and warranties are given subject to the applicable laws
and regulations in force at Closing.
14.2 Title and Authority to Transfer the DOFC Assets; Capitalization
(a) The Seller and each of the DOFC Group Companies have the power and
lawful authority required, (however not including any lack of power or
authority ensuing from non-compliance with competition law or
governmental authorisations and except as such authorizations,
approvals and consents as described in section 10.2 (a) which shall be
applied and obtained by the Purchaser), to enter into, execute and
deliver this Agreement and the agreements contemplated hereby and to
perform their obligations hereunder and thereunder.
However, the Purchaser is aware that there are certain Commercial
Contracts, orders, tenders and leases etc. where the transfer is
subject to Third Party Consent.
(b) The Seller and the DOFC Group Companies have title to the DOFC Assets
and the Shares except for such assets that are leased or licensed. The
Seller and the DOFC Group Companies will on the Closing Date sell,
transfer and deliver good and valid title to the DOFC Assets and the
Shares, free and clear of any liens, mortgages, charges or other
encumbrances, except for
i. liens reflected in the Accounts.
ii. liens consisting of zoning or planning restrictions,
easements, permits and other restrictions or limitations on
the use of real property or irregularities in title thereto
which do not materially detract from the value of, or impair
the use of, such property by the Purchaser or any of the
Purchaser's Affiliates, as the case may be, in the operations
of the Business,
iii. liens arising by operation of law, and
iv. liens for current taxes, assessments or governmental charges
or levies on property not yet due.
14.3 Shares
The Shares have been legally and validly issued and are fully paid and are free
and clear of any liens, mortgages, charges or other encumbrances. There are no
outstanding obligations, warrants, options, depository receipts, subscriptions,
pre-emptive rights, contracts or agreements to which the Seller or any of the
DOFC Subsidiaries are bound, providing for the issuance of any additional shares
of the respective DOFC Subsidiary.
14.4 Validity of Agreement
This Agreement has been, and the agreements contemplated hereby will, on or
prior to Closing be, duly executed by the Seller and each of the DOFC Group
Companies, and are or will be, as the case may be, the valid and binding
obligation of the Seller and each of the DOFC Group Companies enforceable
against the Seller and each of the DOFC Group Companies in accordance with their
respective terms.
14.5 Existence
The Seller and each of the DOFC Group Companies are duly organized and validly
existing under the laws of the jurisdiction of their incorporation and are not
in violation of any applicable substantial corporate rules and have full
corporate power to carry on the Business as conducted on the Closing Date,
except where the failure to have such corporate power and authority could not
reasonably be expected to have a Material Adverse Effect.
14.6 No Violation or Conflict
Neither the entry into this Agreement nor the consummation of the transactions
contemplated hereby will
(i) conflict with or violate any provision of the articles of
association of the Seller or the DOFC Group Companies or any
resolution adopted by the Board of the Seller or the DOFC
Group Companies; or constitute a violation of any judgment,
order, injunction, award, decree, law or regulation applicable
to the Seller, any of the DOFC Group Companies or the
Business, except where non-compliance could not reasonably be
expected to have a Material Adverse Effect or the
non-compliance is with reference to any competition law issues
or other issues pertaining to authorisations, (except for such
authorizations, approvals and consents as described in section
10.2 (a) which shall be applied and obtained by the Seller or
the DOFC Companies) cause the Purchaser or Purchaser's
Affiliates to become subject to, or liable for, the payment of
any Tax related to the Business, the Acquired Assets, the
Excluded Assets, the Excluded Liabilities or the Assumed
Liabilities in respect of the period prior to and including
the Closing Date, arising as a result of the Closing taken
place except for transfer taxes, stamp duties and the like.
14.7 Corporate Records and Documentation
(a) True, complete and current copies of the articles of association and
registration certificates of each of the DOFC Subsidiaries are attached
hereto as Schedule 14.7.
(b) All corporate documentation of the DOFC Subsidiaries, including,
without limitation, share registers, minutes of the Board meetings and
Shareholders' Meetings exist and are safely kept and correct.
(c) The DOFC Subsidiaries have not failed to file their annual reports with
the relevant authorities, as required.
14.8 The Accounts and the Closing Accounts
The Accounts have been prepared in accordance with the Accounting Principles and
fairly represent the financial condition of the Business as of the Accounts Date
and the operations of the Business for the period ended on the Accounts Date.
All liabilities reflected in the Accounts are related to the Business and arose
only out of, or were incurred only in connection with, the conduct of the
Business.
The Closing Accounts will be prepared in accordance with the Accounting
Principles and fairly represent the financial condition of the Business as of
the Closing. All liabilities reflected in the Closing Accounts are related to
the Business and arose only out of, or were incurred only in connection with,
the conduct of the Business.
14.9 Conduct of Business
Since the Accounts Date, the Seller and any of the DOFC Group Companies have
carried on the Business in the ordinary and usual course consistent with past
practice, there has not been any Material Adverse Effect or any event or
occurrence which could reasonably be expected to result in a Material Adverse
Effect and no event or transaction of the type prohibited or restricted by
Sections 9.2 and 9.3 exists or has occurred without the consent of the Purchaser
under Section 9.2.
14.10 Working Order and Conditions
To Seller's Best Knowledge the material properties and assets of Seller and each
DOFC Group Company used in the Business are in good working order and condition,
with the exception of ordinary wear and tear.
14.11 Leases
All leases pursuant to which the DOFC Subsidiaries lease real property or
premises or leases being part of the DOFC Assets, extending beyond the Closing
Date, are valid and effective in accordance with their respective terms, and to
the Seller's Best Knowledge there exists no default under any such lease.
14.12 Contracts
(a) To Seller's Best Knowledge there are no Commercial Contract of material
importance to the Business with respect to the level of turnover and
sales and strategic importance of the customer (the "Material
Commercial Contracts"), other than those listed in Schedule 14.12. The
Purchaser is however aware of the fact that the Business' sales to a
large degree are based on single purchase orders. Such purchase orders
are included in Schedule 14.12 only to the extent the value (purchase
price) is in excess of EUR 100.000 or the purchase order otherwise is
regarded to be of material importance to the Business.
(b) As of the date hereof, neither the Seller nor any of the DOFC Group
Companies have received or given notice of termination of any material
Commercial Contract.
(c) To Seller's Best Knowledge, neither the Seller nor any of the DOFC
Group Companies are in default causing a Material Adverse Effect under
any Commercial Contract.
14.13 Intellectual Property Rights
(a) The Seller or the DOFC Group Companies holds, and shall transfer to the
Purchaser or Purchaser's Affiliates, all rights related to intellectual
property presently owned, licensed and/or utilised by the Seller or the
DOFC Group Companies in the Business prior to Closing, including but
not limited to the DOFC products formulations, patents and patent
applications, inventions, registered and unregistered trademarks,
service marks, trade names and applications therefore, registered and
unregistered copyrights and design rights and applications therefore,
software, owned or used by the Business, domain names owned or used by
the Seller or the DOFC Group Companies in the Business, and know-how of
the Seller and the DOFC Group Companies used in the Business
(collectively the "Intellectual Property Rights").
(b) Schedule 3.1(c) sets forth a correct description of (a) the DOFC
products formulation database as a centralised and controlled
confidential lotus notes database consisting of more than 1500 product
formulas and specifications related to the Business, and the complete
and correct list of (b) patents and patent applications (c) registered
trademarks, service marks, trade names and applications therefore, and
(d) domain names owned or used by the Seller or the DOFC Group
Companies in connection with the Business, and specifically identifies
which is owned and which is merely used or licensed.
The Intellectual Property Rights being transferred to the Purchaser or
Purchaser's Affiliates are not the subject of any claim (filed and
served) of invalidity or infringement and in full force and effect.
(c) To the Seller's Best Knowledge there is not pending or threatened any
claim, action or objection against the Seller or the DOFC Group
Companies contesting the rights to any Intellectual Property Rights or
the validity of the Intellectual Property Rights, and no infringement
of the Intellectual Property Rights by any other third party.
(d) To the Seller's Best Knowledge neither the Intellectual Property Rights
nor any of the products of the Business infringe or have infringed the
intellectual property rights of any third party.
(e) The Seller or the DOFC Group Companies owns or has valid licenses to
use as of the date hereof and at Closing all the Intellectual Property
Rights which are related to the Business and will transfer such to the
Purchaser or Purchaser's Affiliates on Closing.
f) Schedule 14.13 (f) sets forth an exhaustive list of the Business's
obligations to pay royalties to third parties for the use of the
Intellectual Property Rights as at Closing and lists all agreements,
together with all amendments thereto, that comprise or are related to
the Intellectual Property Rights.
14.14 [Not used]
14.15 Governmental Authorizations
All material governmental licenses, permits and authorizations necessary for the
Seller and the DOFC Group Companies to carry on the Business as conducted on the
Closing Date are in full force and effect and there are to the Seller's Best
Knowledge no currently existing violations of any such licenses, permits or
authorizations. There is, to the Seller's Best Knowledge, no pending action or
other proceeding which seeks the revocation of any such existing licenses,
permits or authorizations.
14.16 Environmental Matters
The Seller and each of the DOFC Group Companies currently hold all material
environmental permits, licenses and approvals of governmental authorities and
agencies required for the current operations of the Business.
Neither the Seller nor any of the DOFC Group Companies have received notice of
any violation of any applicable environmental statute, regulation, ordinance or
decree binding upon it that has not been substantially corrected, except for
violations that could not reasonably be expected to have a Material Adverse
Effect.
To Seller's Best Knowledge, except as set out in Schedule 14.16, the Business
and the DOFC Group Companies are in compliance with all environmental laws and
internal procedures (including but not limited to there being no release of any
hazardous substances from the operation of the Business or responsibility for
any clean-ups or corrective action under any environmental laws, that would have
Material Adverse Effect). The Seller and the DOFC Group Companies do not have
knowledge of any environmental condition that could reasonably be expected to
result in a Material Adverse Effect. Except as set forth in Schedule 14.16,
there are no civil, criminal or administrative action, suit, investigation or
proceeding pending or, to the Seller's Best Knowledge, threatened against the
DOFC Group Companies, the DOFC Assets or the Business relating to or arising
from any environmental law which, for any such matter except for criminal
actions, suits, investigations or proceedings, that would have no Material
Adverse Effect.
14.17 Insurance
All insurance policies (the "Insurance Policies") maintained by the Seller and
any of the DOFC Group Companies with respect to the DOFC Assets and operations
of the Business are described in Schedule 14.17 (1) and all such Insurance
Policies are in full force and effect on the date hereof and will remain in full
force and effect up to the Closing Date. Except as set forth in Schedule 14.17
(2), there is to the Seller's Best Knowledge no claim by the Seller or the DOFC
Group Companies pending under any of such policies as to which coverage has been
questioned, denied or disputed by the underwriters of such policies. All
premiums payable under all such policies and bonds have been paid and the Seller
or any of the DOFC Group Companies are otherwise in full compliance with the
terms and conditions of all such policies and bonds. Such policies of insurance
are to the Seller's Best Knowledge of the type and in amounts customarily
carried by Persons conducting businesses similar to the Business. The Seller or
the DOFC Group Companies do not know of any threatened termination of, or
premium increase with respect to, any of such policies.
The Purchaser shall at its own expense procure insurance policies providing
adequate coverage for the relevant Companies and Assets as of Closing and
thereafter.
14.18 Employment and Pension Agreements
The DOFC Employees are specified in Schedule 11.1, which also specifies the
remuneration, terms and conditions and benefits under any Employee Benefit Plan
including notice period. No Employee Benefit Plan exists other than those listed
in Schedule 11.1, and the Seller or DOFC Group Companies have as at Closing no
obligation to establish any other Employee Benefit Plan. The Seller and DOFC
Group Companies are in compliance with all Employee Benefit Plans and with all
material applicable laws, codes, regulations and terms of employment relating to
the Employee Benefit Plans, employment and employment practices, terms and
conditions of employment, wages and hours. Each Employee Benefit Plan is funded
in accordance with applicable laws and the funding thereof and liabilities
thereunder are accurately reflected in the Accounts. No severance benefits,
termination indemnities or similar benefits provided pursuant to any Employee
Benefit Plan, local laws, practice or custom or otherwise, shall be payable as a
result of the transactions contemplated hereby.
The Seller and the DOFC Group Companies warrant that the relevant works council,
worker committee, trade union, staff association or other appropriate employee
representative body have been informed of and consulted with in connection with
the entering into of this Agreement and the transaction contemplated hereby in
compliance with any obligations imposed by the applicable local laws.
(a) No employees other than those listed on Schedule 11.1 are entitled to
employment with the Seller and the DOFC Group Companies with regard to
the Business or have to the Seller's Best Knowledge any claim against
the Business.
(b) Within the last two (2) years, neither the Seller nor the DOFC Group
Companies as it relates to the Business, nor the Business have
experienced material work stoppage or other labour disputes, and there
are no labour strikes, requests for representation, slow downs or
stoppages actually pending or to Seller's Best Knowledge threatened
against or affecting the Seller, the DOFC Group Companies or the
Business.
(c) All Employee Benefit Plan contributions required by applicable law, the
terms of any Employee Benefit Plan to be made by the Seller or the DOFC
Group Companies have been made within the time prescribed by such law,
Employee Benefit Plan, and all such monies and all Pension Assets will
be transferred to the Purchaser at the Closing. The Pension Assets that
will be transferred to the Purchaser are as at Closing sufficient to
satisfy all liabilities under each such Employee Benefit Plan.
(d) Seller or the DOFC Group Companies will retain responsibility for all
post retirement health, pension, life insurance and welfare benefits
for employees who do not become employees of the Purchaser or
Purchaser's Affiliates as of the Closing Date.
(e) Neither the Seller nor the DOFC Group Companies nor any Employee
Benefit Plan, nor any officer of the Seller or the DOFC Group Companies
of any Employee Benefit Plan, is a party to any litigation relating to
any Employee Benefit Plan. There are to the Seller's Best Knowledge no
pending or threatened claims, investigations, audits, lawsuits or
arbitrations which have been or may be asserted or instituted against
any Employee Benefit Plan or against the Seller or the DOFC Group
Companies with respect to any Employee Benefit Plan.
14.19 Claims, Litigation
Except as otherwise set forth in Schedule 14.19, (i) there are no actions,
suits, litigation or proceedings (including claims to any tribunal or equivalent
body) pending or, to the Seller Best Knowledge, threatened, against or affecting
the Business before any court, arbitrator or any administrative or governmental
body and (ii) there are no judgments, awards, orders, writs, injunctions or
decrees issued by any court, arbitrator or Governmental Authority affecting the
Business or any Acquired Asset or Assumed Liability.
The Seller or the DOFC Group Companies is not in material violation of or
material default under any material law, regulation or order applicable to the
Business. This provision shall not supersede any specific Seller representation
or warranty.
14.20 Ordinary Course of Business
During the period from Effective Date until Closing, the Seller and the DOFC
Group Companies shall have conducted the Business as set out in Section 9.2.
14.21 Inventories
The Inventory have been produced or purchased in the ordinary course of business
and consistent with the anticipated requirements of the Business, and the
purchase thereof or orders therefore has not been reduced or increased in
anticipation of the transactions contemplated by this Agreement. The Inventory
are located on the premises of the Business, except to the extent located with
sub-contractors or being transported from or to such sub-contractors, and are
free from consignment or similar arrangement. The Inventory, in the case of raw
materials, are of a quality and specification conforming to the usual standards
of materials used in connection with the Business, and in the case of work in
progress and finished goods, are of merchantable quality, workmanship and
material, or as reflected in the Accounts. The Inventory are sufficient to
permit the Purchaser or the Purchaser's Affiliates to conduct the Business from
and after the Closing Date in the same manner as the Business was conducted by
the Seller or the DOFC Group Companies prior to the Closing Date. All the
Inventory of the Seller and the DOFC Group Companies that relate to the Business
are included in the Inventory and have been identified and will prior to the
Closing be segregated from all other inventories of the Seller or DOFC Group
Companies.
14.22 Accounts Receivable
The Accounts Receivable have been incurred in the ordinary course of business
consistent with past practice and are bona fide. The Accounts Receivable include
all amounts payable to the Business with respect to work performed by the
Business for the Seller and the DOFC Group Companies prior to the Closing and
have been determined in accordance with the Accounting Principles. All Accounts
Receivables are to Sellers Best Knowledge fully collectible, without any
counterclaims or set-off and without resort to litigation, within sixty (60)
Business Days after Closing Date. The Seller does, however, not warrant the
Accounts Receivables collectibility or the debtors willingness or ability to
meet payments.
14.23 Entire Business
The DOFC Assets and Shares transferred to the Purchaser or Purchaser's
Affiliates at the Closing will be sufficient for the Purchaser to conduct the
Business in the same manner conducted by the Seller and the DOFC Group Companies
prior to the Closing Date and will constitute all assets material to the
operation of the Business.
14.24 Seller Provided Services
The Seller and the Seller's Affiliates have provided services to the Business
only to the extent such services are reflected in the Accounts of the Business
or the Disclosure Material, and all such services can be terminated by giving
fourteen (14) days written notice of termination.
14.25 Tax Warranties
The Seller and the DOFC Group Companies have correctly and timely filed all Tax
Returns required to be filed by it and has paid all Taxes shown thereon as due
and payable. There is no claim or assessment pending against the Seller or the
DOFC Group Companies with respect to activities prior to the Closing based on an
alleged failure to pay Taxes or other similar charges, duties, interest or
penalties or any pending dispute between the Seller or DOFC Group Companies and
any taxing authority. No relief from, against or in respect of any Tax or Taxes
relating to the Business or the acquired Assets or Assumed Liabilities has been
claimed or received by the Seller or the DOFC Group Companies that could be
withdrawn, restricted or otherwise terminated as a result of any act or omission
occurring in connection with or after the Closing. The Purchaser or the
Purchaser's Affiliates will not be liable for any Tax, Taxes or similar charge,
duty, interest or penalty incurred by the Seller or the DOFC Companies or in
respect of the Acquired Assets or Assumed liabilities in respect of the period
up to and including the Effective Date. There are no outstanding agreements or
waivers extending the applicable statutory periods of limitation for Taxes for
any period. All Taxes that the Seller or the DOFC Group Companies have been
required to collect or withhold have been duly collected or withheld and, to the
extent required, have been paid to the proper taxing authority, and all Taxes
not yet due for payment have been fully reserved for in the Accounts. To
Seller's Best Knowledge there are no pending reassessment, and no circumstances
that will lead to such a reassessment from the proper tax authorities of
previous tax returns or tax assessments related to the Business or DOFC Group
Companies. The Seller or the DOFC Group Companies do not operate the Business
through any office, location or permanent establishment not located on the real
property leased by the Seller and the DOFC Group Companies and forming a part of
the Business, and does not have any substantial assets in any country other than
Azerbaijan and Denmark.
14.26 Condition of Fixed Assets
The DOFC Assets are listed in Schedule 3.1 a and b, except to the extent
disposed in the ordinary course of the Business since the date of this
Agreement. The DOFC Assets are free from material defects, have been maintained
in accordance with normal industry practice and regulatory requirements, are in
good operating condition and repair (subject to normal wear and tear), and are
to Seller's Best Knowledge suitable for the purposes for which they presently
are used and is proposed to be used and its use is permitted by applicable laws.
14.27 No Undisclosed Liabilities
To the Seller's Best Knowledge, there are no liability related to the Business,
the Shares or the DOFC Assets, and there is no basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand against the Seller or the DOFC Group Companies that could give rise to a
liability related to the Business, the Shares or DOFC Assets, except for
liabilities reflected in the Accounts or otherwise disclosed in the Disclosure
Material, and except where such action, suit etc. cannot reasonably be deemed to
have or result in a Material Adverse Effect on the Business.
14.28 Product and Services Warranties
Each product manufactured, sold, leased, or delivered and each service performed
by the Seller or the DOFC Group Companies related to the conduct of the Business
have to the Seller's Best Knowledge been in conformity with the applicable
Commercial Contracts and all other applicable commitments, regulatory
requirements and all express and implied warranties, except as set out in
Schedule 14.28, and the Seller or the DOFC Group Companies have to the Seller's
Best Knowledge no liability and there is no basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against the Seller or the DOFC Group Companies that could give rise to a
liability for replacement or repair thereof or other damages in connection
therewith, subject only to the warranty reserve set forth in the Accounts as
adjusted for the passage of time through the Closing Date in a manner consistent
with past practice and the Accounting Principles. To the Seller's Best
Knowledge, no work performed by the Seller or the DOFC Group Companies related
to the conduct of the Business is subject to any guarantee, warranty, or other
indemnity beyond the applicable standard terms of trade.
14.29 Compliance with Law
Except as otherwise specifically provided for in this Agreement, the Seller and
the DOFC Group Companies are in compliance with, and is not in default or
violation in any respect of any applicable law, regulation, permit or ordinance
affecting its properties or the operation of its businesses.
Except as otherwise specifically provided for in this Agreement, the Seller or
the DOFC Group Companies have to the Seller's Best Knowledge not committed or is
liable for any criminal, illegal, unlawful or unauthorised act or breach of any
obligation or duty whether imposed by or pursuant to statute, contract or
otherwise, and no claim that is or remains outstanding against any such member,
except where such non-compliance would not result in a Material Adverse Effect.
Except as otherwise specifically provided for in this Agreement, the Seller or
the DOFC Group Companies are not nor have been a party to and are not nor have
been concerned in any agreement or arrangement and is not conducting nor have
been conducting itself (whether by omission or otherwise) in respect of the
Business in a manner which infringes Article 81 or 82 of the Treaty establishing
the European Community, Article 53 or 54 of the Agreement on the European
Economic Area or any other anti-trust or similar legislation in any jurisdiction
in which the Business has assets or carries or intends to carry on business or
where its activities may have an effect.
14.30 Other Warranties
It is specifically stated and agreed that Seller has not made, and the Purchaser
has not relied on, any other expressed or implied warranties or representations
regarding the Business, DOFC Assets, the Shares, or the DOFC Group Companies
than those contained in this Agreement.
14.31 Accuracy of Information
The Purchaser has been given access to the Disclosure Material. The Disclosure
Material is accurate and complete in all material respects, and the Seller after
due inquiry is not aware of any facts or information of material significance to
the Business, its properties, business, assets, liabilities, operations,
condition (financial or otherwise), earnings and prospects which are not
disclosed in this Agreement, the Schedules or the Disclosure Material.
In the Agreement, the Schedules and the Disclosure Material the Seller has to
Seller's Best Knowledge disclosed all material matters concerning the Business.
15. DUE DILIGENCE DOCUMENTATION
The Purchaser has been given access to copies of specific documents concerning
the Business, the DOFC Assets and the Shares ("the Disclosure Material"). Upon
Closing, the Disclosure Material shall become the property of the Purchaser, and
the Seller shall be provided with a copy. Bugge, Arentz-Hansen & Rasmussen and
Arntzen de Besche will keep one copy each of the Disclosure Material.
16. THE PURCHASER'S EXAMINATION
Notwithstanding anything to the contrary contained in this Agreement, the
Purchaser shall not be entitled to invoke as a breach of any warranty given by
the Seller, or as grounds for any other claim against the Seller, any fact or
circumstance whether related to an Excluded Liability or an Assumed Liability,
which were correctly and accurately disclosed in the Disclosure Material without
any material omissions.
17. REPRESENTATION AND WARRANTIES OF THE PURCHASER
The Purchaser hereby makes and gives the following representations and
warranties as at the Signing and at the Closing Date:
17.1 Existence
The Purchaser is duly organized and validly existing and in good standing under
the laws of the jurisdiction of its formation and has full corporate power and
all necessary licenses, permits and authorizations to carry on its businesses as
conducted on the Closing Date.
17.2 Power and Authority Regarding the Transaction
The Purchaser has the full legal and corporate power to enter into this
Agreement and to consummate the transactions contemplated hereby, not including
any lack of power or authority ensuing from non-compliance with competition law
or governmental authorisations.
The execution of this Agreement, the consummation of the transactions
contemplated hereby and the fulfilment of the terms hereof, will not result in a
breach of any judgment, decree or order of any national or supra-national court,
governmental or other body, any applicable law or regulation or the articles of
association of the Purchaser, not including any lack of power or authority
ensuing from non-compliance with competition law or governmental authorisations.
For purposes of this representation the Purchaser has made a complete and
diligent assessment of competition law issues and its merger control position
with respect to consummating the transactions contemplated in this Agreement,
and no issues preventing the Closing have been identified.
17.3 Financing
The Purchaser has sufficient funds available to purchase the Business including
the Shares and the DOFC Assets pursuant to this Agreement and to satisfy its
other obligations pursuant to this Agreement.
18. INDEMNIFICATION
18.1 Obligation of the Seller to Indemnify
Subject to the limitations contained in this Agreement, the Seller agrees to
indemnify, defend and hold harmless the Purchaser and its Affiliates (with any
payment to the Purchaser being a reduction of the Purchase Price) from and
against and pay or reimburse them for all losses (including reasonable
attorneys' and other expenses of enforcing this indemnity), whether or not
arising from third party claims, suffered based upon, arising out of or
otherwise in respect of any breach of any of the Sellers' warranties, or any
covenant or agreement of the Seller contained in this Agreement or in any
certificate, document or instrument being a part of this Agreement or delivered
by the Seller to the Purchaser hereunder.
The Seller also agrees to indemnify the Purchaser or the Purchaser's Affiliates
for any claims or suits made towards the Purchaser or the Purchaser's Affiliates
with regard to the Excluded Assets.
Such breach shall not entitle Purchaser to any indirect or consequential
damages, including without limitation any compensation for loss of profit or
loss of chance (opportunity).
18.2 Specific Seller indemnified matters
(a) Due diligence findings. During the due diligence review, the Purchaser
has identified the matters, claims and contingent liabilities set out
in Schedule 18.2 (a). In the event such matters, claims and contingent
liabilities materialise, the Seller agrees to indemnify, defend and
hold the Purchaser or Purchaser's Affiliates harmless without any
limitation set out in this Agreement, including but not limited to the
limitations found in Section 18.6, to the extent such matters, claims
or liabilities have not been sufficiently provided for in the Accounts.
(b) The Hinds-Block Agreement. During the due diligence review, the
Purchaser has identified the contract between Dynea USA Inc., DOFC-USA
LLC and Hinds Capital LLC and Block Energy LLC dated August 2002
regarding licensing and distribution (the "Hinds-Block Agreement"). The
Purchaser is not interested in continuing the Hinds-Block Agreement and
hence the Hinds-Block Agreement is Excluded Asset. The Seller will
terminate the Hinds-Block Agreement. The Purchaser has paid USD 125.000
to the Seller in order to contribute to any settlement cost the Seller
may have as a result of the termination. The Purchaser and Purchaser's
Affiliates have no obligation whatsoever to pay to the Seller, Seller's
Affiliates or the parties to the Hinds-Block Agreement any additional
amount and the Seller will indemnify, defend and hold the Purchaser and
its Affiliates harmless from all claims from the parties to the
Hinds-Block Agreement, which may arise out of the Hinds-Block
Agreement. Notwithstanding anything to the contrary contained in this
Agreement, including specifically the provisions of Section 18 the
Seller's indemnification obligation shall be absolute and without
limitations. However, Purchaser agrees that for a period of ninety (90)
days from Closing, Seller and its Affiliates shall not be deemed in
breach of its representations, warranties or covenants to Purchaser or
Purchaser's Affiliates under this Agreement, specifically, but not
limited to Section 14.13 Intellectual Property Rights and Section 19.2
Non-Competition Undertaking, to the extent such relates to Seller's or
its Affiliates' current obligations under the Hinds-Block Agreement
and/or Seller's or its Affiliates' efforts to negotiate a settlement of
the termination of said Hinds-Block Agreement.
(c) Money Holdback Items. During the due diligence review, the Purchaser
has identified the matters, claims and contingent liabilities set out
in Schedule 18.2 (c ) (hereinafter referred to as the "Money Holdback
Items"). As set out in Section 6.2, the Purchaser is entitled to retain
money from the payment to be made according to Section 6.1 (a). The
maximum liability of the Seller related to the "Money Holdback Items"
is EUR 313,595 conversion of USD 340.000 at the rate of 1.0842), and
subject to the Seller or Seller's Affiliates not being in breach of the
representations and warranties related to these Money Holdback Items.
To the extent the aggregate retained amount is higher than the actual
amounts needed to settle the Money Holdback Items according to any
legal requirement or the recommendations referred to in Scheduled 18.2
(c ) such excess amount shall be paid to the Seller according to
Section 6.2.
(d) Specific Tax Matters. Seller agrees to indemnify, defend and hold the
Purchaser, the Purchaser's Affiliates or the DOFC Subsidiaries or it's
Affiliates harmless from, without any limitations set out elsewhere in
this Agreement, including but not limited to Section 18.6, any taxes
including interest and penalties (i) assessed to Dyno Industries (U.K.)
Limited (ii) arisen as a result of the Seller or the DOFC Group
Companies being deemed to having permanent establishment in any
jurisdictions which is not accrued for in the Accounts, (iii) the
impairment of any tax asset on the balance sheet of the DOFC
Subsidiaries at the Effective Date as determined under accepted
accounting practices, the applicable tax rules and regulations of the
relevant jurisdiction or by the appropriate taxing authority. An
impairment of a tax asset will occur when such asset cannot be utilized
or is completely or partially reduced from what is represented in DOFC
Subsidiaries' Closing Accounts, and (iv) assessed to DOFC Group
Companies regarding Transfer Pricing Liability. Transfer Pricing
Liability shall mean all aspects of inter and intra company pricing
arrangements between related business entities resulting from inter and
intra company transfers of tangible and intangible property as well as
inter and intra company services
In addition Seller agrees to indemnify, defend and hold the Purchaser,
the Purchaser's Affiliates or the DOFC Subsidiaries or it's Affiliates
harmless from, without any limitations set out elsewhere in this
Agreement, including but not limited to Section 18.6, all tax
receivables in PT Dynea Oilfield Chemicals (Indonesia), Dynea Oil Field
Asia Pacific Pte. Ltd., and Dynea Oil Field Chemicals ME FZE that are
not collected within eighteen (18) months of Closing Date. The Seller
agrees to reimburse the Purchaser, the Purchaser's Affiliates or the
DOFC Subsidiaries or it's Affiliates for all fees, including but not
limited to filing and advisory fees incurred in connection with any
issue covered by the tax indemnifications.
18.3 Obligation of the Purchaser to Indemnify
The Purchaser agrees to indemnify, defend and hold harmless the Seller from and
against any losses, liability or damage based upon, arising out of or otherwise
in respect of any breach of any representation, warranty, covenant or agreement
contained in this Agreement. Such breach shall not entitle the Seller or the
Chemicals Subsidiaries to any indirect or consequential damages, including
without limitation any compensation for loss of profit or loss of chance
(opportunity).
18.4 Mitigation
Each Party has an obligation to mitigate any loss or damage that the Party may
suffer, and shall not be entitled to indemnification or compensation for loss or
damage that reasonably could be avoided or repaired.
18.5 Notice and Defence of Third Party Claims and Recovery
In case the Purchaser becomes aware of any Third Party Claim, which could lead
to a breach of this Agreement, the Purchaser shall, in order to maintain the
right to bring a claim against the Seller:
(i) as soon as reasonably practicable, but in no event later
than forty five (45) days after the date the Purchaser
became aware of any circumstance giving rise to a Third
Party Claim, give notice thereof to the Seller;
(ii) not make any admission of liability, agreement or
compromise with any person, body or authority in relation
thereto, without obtaining the prior consent of the Seller;
(iii) in any action resist, defend, appeal and settle such claim
in the best interest of the Seller;
(iv) give the Seller, or the Seller's duly authorized
representatives, reasonable access to the personnel of the
Purchaser and its affiliates and to any relevant premises,
accounts, documents and records within their respective
power, to enable the Seller, or the Seller's duly
authorized representatives, to examine such claim,
premises, accounts, documents and records and to take
copies or photocopies thereof.
In case a Third Party Claim would arise that could lead to a breach of this
Agreement, any negotiation, dispute or litigation relating thereto with any
third party shall, at the sole discretion of the Seller, be handled by the
Seller or Purchaser. However, if a dispute caused by such Third Party Claim is
by the Purchaser regarded as commercially sensitive and that the handling and/or
result of such dispute may cause damage to the overall business relationship
between the Purchaser or the Purchaser's Affiliates and the Third Party, the
Purchaser shall have the right to control and handle the dispute. Any settlement
of such claim shall be approved by the Seller (as such cost shall be paid by the
Seller).
If the Seller has made any payment to the Purchaser as a settlement of any claim
and the Purchaser has the right to recover from any third party any amount
payable as a result of facts or circumstances forming the basis of such claim,
then the Purchaser shall, upon request of the Seller, either assign that right
to the Seller or, if the Seller so directs, the Purchaser shall at the direction
and cost of the Seller pursue the said recovery and account to the Seller for
any monies or property recovered. The Purchaser shall not be obligated to pursue
such recovery if such recovery is regarded as commercially sensitive and if it
is regarded that the handling and/or result of such dispute may cause damage to
the overall business relationship between the Purchaser or Purchaser's
Affiliates and the Third Party .
If Purchaser decides not to pursue such recovery, the Purchaser is obliged to
assign all rights and positions to the Seller in order to enable the Seller to
pursue such recovery.
18.6 Limitations
Except as otherwise provided in this Agreement, the Indemnifying Party shall not
be obligated to pay any amounts of indemnification to the Indemnified Party
under this Agreement until the aggregate amount of liability for which
indemnification may be sought equals EUR 250,000 (the "Basket Amount"). If the
aggregate amount of indemnification exceeds the Basket Amount, the
indemnification shall be made only for the amount exceeding the Basket Amount.
Individual claims in an amount per item of less than EUR 15,000 shall not be
aggregated for purposes of calculating whether the Basket Amount has been
reached and the Purchaser may not seek indemnification in respect thereof,
provided that claims arising from the same event shall be aggregated and shall
not be subject to the exclusions set forth in this sentence.
Notwithstanding the foregoing, the aggregate amount of indemnification payable
by the Sellers shall in no event exceed EUR 15,000,000.
If a claim for indemnification shall not have been notified to the Indemnifying
Party at the end of the 18 months period commencing on Closing (whether or not
such fact, circumstance, action or proceeding is within the Indemnified Party's
knowledge at the end of such 18 months period) the Indemnifying Party's
obligation to pay any amounts for indemnification to the Indemnified Party under
this Agreement shall expire. The warranties contained in Section 14.25 (Taxes),
however, shall not terminate until two months after the expiry of the statute of
limitation under which claims of the competent tax authorities may be raised
against the Business.
It is explicitly agreed that the limitations set out in this Section 18.6 shall
apply to any and all claims from the Purchaser against the Seller for
indemnification or other compensation, regardless of whether the claim is
arising out of an Excluded Liability or an Assumed Liability. However, no
limitation found in this Section 18.6 shall apply in the event of wilful
misrepresentation or gross negligence on the part of the Sellers nor in the
event the Seller and/or its Affiliates lacks title to the Shares and DOFC Assets
and claims and liabilities with regard to Excluded Assets.
19. CERTAIN UNDERTAKINGS
19.1 Confidentiality
The Parties undertake not to disclose any Confidential Information unless (i)
required to do so by law, including any obligation to inform the employees of in
the Business, or by any applicable stock exchange regulations, or (ii) such
disclosure has been consented to by the other Party.
19.2 Non-Competition Undertaking
(a) The Seller agrees that for a period of three years from the Closing
Date (the "Non- Compete Period"), neither it nor any of its Affiliates
shall engage, either directly or indirectly, as a principal or for its
own account or solely or jointly with others, or as stockholder in any
corporation or joint stock association, in any business (a "Competing
Business") that competes anywhere in the world with the Business as
conducted at the time of Closing.
(b) The restrictions contained in (a) above shall not prevent the
acquisition by the Seller or its Affiliates of less than 5 % of the
outstanding voting power, amount and number of securities in a
Competing Business.
(c) Neither shall the restrictions contained in (a) above prevent the
acquisition by the Seller or its Affiliates of another entity as long
as less than 25 % of the entity's aggregate annual turnover at the time
of the acquisition is generated in the oil field chemical business in
competition with the Business as conducted at Closing, subject to the
Seller (or any other acquiring Affiliates as the case may be) offering
the Competing Business to the Purchaser (or a company nominated by the
Purchaser) on market terms. The Seller (or any other acquiring
Affiliates as the case may be) shall use its best efforts to negotiate
a purchase agreement with the Purchaser (or a company nominated by the
Purchaser). If no purchase agreement is entered into between the Seller
(or any other acquiring Affiliates as the case may be) and the
Purchaser (or a company nominated by the Purchaser), the Seller (or any
other acquiring Affiliates as the case may be) may continue to own such
Competing Business, but if the Seller (or the acquiring Affiliate as
case may be) during the Non-Compete Period intends to dispose of
Competing Business acquired according to this paragraph (c), Purchaser
(or a company nominated by Purchaser) shall be given a first right of
refusal on the same terms as the third party.
(d) Neither shall the restrictions contained in (a) above prevent the
acquisition by the Seller or its Affiliates of another entity as long
as less than 50 % of the entity's aggregate annual turnover at the time
of the acquisition is generated in the oil field chemical business in
competition with the Business as conducted at Closing, subject to the
Seller (or any other acquiring Affiliates as the case may be) offering
the Competing Business to the Purchaser (or a company nominated by the
Purchaser) on market terms. The Seller (or any other acquiring
Affiliates as the case may be) shall use its best efforts to negotiate
a purchase agreement with the Purchaser (or a company nominated by the
Purchaser). If no purchase agreement is entered into between the Seller
(or any other acquiring Affiliates as the case may be) and the
Purchaser (or a company nominated by the Purchaser), the Seller (or any
other acquiring Affiliates as the case may be) shall use its best
efforts to actively market and within reasonable time dispose of such
Competing Business. The Purchaser (or a company nominated by Purchaser)
shall, however, for any such contemplated disposal of such Competing
Business during the Non-Compete Period, have a right of first refusal
on the same terms as the third party.
(e) The Seller agrees, to the fullest extent permitted by applicable law,
that for a period of 5 years from the date hereof neither it nor any of
its Affiliates shall either alone or jointly with or on behalf of any
Person solicit or entice away or endeavour to solicit or entice away,
any employee who was employed as of the date of this Agreement or as of
the Closing Date in the Business.
(f) Notwithstanding anything to the contrary above, the Seller or its
Affiliates' sale of formaldehyde from the Lillestrom plant to Competing
Business of M-I shall be subject to M-I's prior approval and to the
sales being concluded on non preferential market rates (e.g. market
price with no discount). This Agreement shall, however, not restrict
the Seller or its Affiliates' right to sell formaldehyde manufactured
at, or sold out of, other locations than Lillestrom, to Competing
Business of M-I or any other customer.
19.3 Retiring Directors
At the next annual general meeting of each of the DOFC Subsidiaries, the
Purchaser or Purchaser's Affiliates undertake to procure that those Directors
and Managing Directors in the DOFC Subsidiaries who have resigned or been
replaced in connection with this transaction or thereafter are granted discharge
from liability for their management and administration until the Closing Date
(or the earlier date of their resignation or replacement) if the auditors of the
DOFC Subsidiaries in their reports for the relevant period do not recommend
against such discharge.
19.4 Reliance
The Parties agree that this Agreement includes all the representations and
warranties given by the Parties. The Seller gives no representations or
warranties regarding projection or forecast that may have been delivered by or
on behalf of the Seller to the Purchaser. The Purchaser acknowledges that (a)
there are uncertainties inherent in attempting to make such projections and
forecasts, (b) it is familiar with such uncertainties, and (c) it is taking full
responsibility for making its own evaluation of the adequacy and accuracy of all
such projections and forecasts so furnished to it.
19.5 Names of DOFC Subsidiaries and Tradenames and Trademarks
19.5.1 Subject to 19.5.2 Purchaser or Purchaser's Affiliates are entitled to
use all trademarks and trade names related to the Business.
19.5.2 Purchaser or Purchaser's Affiliates are not entitled to use trademarks
and trade names containing "Dyno" or "Dynea" or any other name or
trademark that is confusingly similar to "Dyno" or "Dynea".
19.5.3 Notwithstanding Section 19.5.2 the Purchaser or Purchaser's Affiliates
are entitled to use the trademarks and trade names containing "Dyno" as
set out in Schedule 19.5.2 in relation to its production and sale of
products related to the Business until 6 February 2005. Purchaser or
Purchaser's Affiliates are also entitled to such use of trademarks
containing "Dynea" for the same period.
19.5.4 Except as set out Section 19.5.3, the Purchaser or Purchaser's
Affiliates are obliged to change the names of DOFC Subsidiaries, trade
names or trademarks containing "Dyno" or "Dynea" or any other trade
name or trademarks that are confusingly similar to "Dyno" or "Dynea" at
the latest within the period of six months from the Closing Date.
19.6 Seller provided services
The Seller and each of the Chemicals Subsidiaries undertake to provide to the
Business for a period of 90 days as from the Closing Date such shared services
as currently being provided by the Seller and/or the respective Chemicals
Subsidiary and as reasonably requested by the Purchaser. The Purchaser shall pay
to the Seller and/or the respective Chemicals Subsidiary, as applicable, the
actual costs of providing such services which cost shall not exceed EUR 100,000.
20. MISCELLANEOUS
20.1 Notices
All notices, demands or other communication, which all shall be in the English
language, to or upon the respective Parties shall be deemed to have been duly
given or made when delivered by mail, telefax, electronic mail or cable to the
party in question as follows:
If to Purchaser: M-I, L.L.C.
address: 5950 North Course Drive
5th Floor
HOUSTON, TEXAS 77072
USA
telefax: +1 832 295 2500
attention: Richard Chandler
with a copy to: Arntzen de Besche Advokatfirma AS
address: P.O. Box 2734 Solli
NO-0104 OSLO, NORWAY
telefax: +47 23 89 40 01
attention: Terje Granvang
If to Seller: Dynea Chemicals OY
address: Snellmaninkatu 13
FIN-00170 HELSINKI
FINLAND
telefax: +358 10 585 2083
attention: General Counsel
with a copy to: Bugge, Arentz-Hansen & Rasmussen
address: P.O. Box 1524 Vika, N-0117 Oslo, Norway
telefax: +47 22 83 07 95
attention: Christian Lund
or at such other address as the respective Party may hereafter specify in
writing to the other Party.
20.2 Schedules
Each Schedule to which reference is made herein and which is attached hereto
shall be deemed incorporated in this Agreement by such reference.
20.3 Headings and Interpretation
The headings and the table of contents of this Agreement are for convenience of
reference only and shall not in any way limit or affect the meaning or
interpretation of the provisions of this Agreement.
The Parties have participated jointly in negotiating and drafting this
Agreement. If an ambiguity or a question of intent arises, this Agreement shall
be construed as if drafted jointly by the Parties and no presumption or burden
of proof shall arise favouring or disfavouring any Party by virtue of authorship
of any of the provisions of this Agreement.
20.4 Assignment
This Agreement and the rights and obligations specified herein shall be binding
upon and inure to the benefit of the Parties and shall not be assignable by
either Party.
20.5 Integration
This Agreement represents the entire understanding and agreement between the
Parties with respect to the subject matter hereof and supersedes all prior
negotiations, understandings and agreements relating to the subject matter
hereof.
20.6 Costs
Each Party shall bear its own costs.
20.7 Governing Law
This Agreement shall be governed by and construed in accordance with the laws of
Norway.
20.8 Arbitration
Any dispute, controversy or claim arising out of or relating to this Agreement
or the breach, termination or invalidity thereof shall be finally settled by
arbitration in accordance with Chapter 32 of Norwegian Act on Civil Procedure
("tvistemalsloven") or its enacted successor. The arbitration shall be held in
Oslo and the arbitral proceedings shall be conducted in the English language.
20.9 Amendments
Any amendment to this Agreement shall be in writing and shall have no effect
before signed by the duly authorized representatives of both Parties.
20.10 Severability
If any provision hereof shall be held invalid or unenforceable by any court of
competent jurisdiction or as a result of future legislative action, such holding
or action shall be strictly construed and shall not affect the validity or
effect of any other provision hereof, as long as the remaining provisions, taken
together, are sufficient to carry out the overall intentions of the Parties as
evidenced hereby. The provisions as amended due to any partial invalidity or
unenforceability shall remain in full force and effect.
20.11 Publicity
Save as required by law, governmental decree, applicable stock exchange rules,
any other applicable regulations or any official action, the contents of this
Agreement shall remain secret indefinitely. All press releases and other public
relations activities of the Parties with regard to this Agreement shall be
mutually approved by the Seller and the Purchaser in advance.
20.12 Counterparts of Agreement
This Agreement has been executed in two (2) identical counterparts, one (1) for
the Seller and one (1) for the Purchaser.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement in Oslo
as of the day and year first above written.
DYNEA CHEMICALS OY M-I, L.L.C.
- ---------------------------- ----------------------------
0ivind Isaksen Loren K. Carroll
- ---------------------------- ----------------------------
Kyosti Siltala Christopher I. S. Rivers
- ----------------------------
Kyosti Sysio
Exhibit 4.6 to the company's
annual report for the year
ended December 31, 2002
----------------------------
TOLL MANUFACTURING
AGREEMENT FOR OIL FIELD CHEMICALS
AT DYNEA'S LILLESTR0M PLANT
This Toll Manufacturing Agreement (the "Agreement") is concluded on the 28 day
of January, 2003 by and between Dynea ASA ("Dynea"), a corporation organized and
existing under the laws of Norway and M-I Norge AS ("M-I"), a corporation
organized and existing under the laws of Norway (jointly the "Parties").
RECITALS:
A. M-I has entered into a Master Business Purchase Agreement ("MBPA") with
Dynea Chemical OY on January 28, 2003, whereby Dynea Chemicals OY will
sell and transfer and M-I L.L.C. will purchase the present oil field
chemicals business of Dynea Chemicals OY and its subsidiaries,
including the oil field chemical business of Dynea, as set forth in the
MBPA (the "Business");
B. The manufacturing assets located in Dynea's Lillestrom plant, including
among other assets reactors, pipes, tanks as well as the manufacturing
employees shall not form part of the Business as defined in the MBPA
and shall not be transferred to M-I L.L.C. but will remain the property
and the employees of Dynea;
C. Dynea and M-I agree that in order to facilitate the continuity of the
Business sold to M-I L.L.C, and to keep the highest possible
utilisation of the Lillestrom plant, the Parties wish to continue the
manufacturing of oil field chemicals at the Lillestrom plant as
provided hereunder;
D. Pursuant to the MBPA M-I L.L.C. will be the owner of the recipes
utilised for the manufacture of oil field chemicals oil field chemical
products, as specified in the MBPA Section 3.1 c). Pursuant to this
Toll Manufacturing Agreement Dynea is granted the right to use certain
recipes for the toll manufacturing of such oil field chemical products
for the sole purposes of fulfilling its obligations hereunder;
E. Dynea has the capability, capacity and, following the closing of the
acquisition under the MBPA, is willing to manufacture, store and load
the oil field chemical products required by M-I subject to the terms
and conditions set out herein at its existing Lillestrom plant;
F. M-I as of the closing of the acquisition under the MBPA desires to
retain Dynea as an independent contractor for the purposes of
manufacturing, storage and loading of the oil field chemical products
at the Lillestrom plant.
NOW, THEREFORE, the Parties hereto agree as follows:
1. OIL FIELD CHEMICAL PRODUCTS AND CAPACITY
1.1 Dynea agrees to produce, store and load, in accordance with M-I's
technical instructions and specifications, the oil field chemical
products at its plant in Lillestrom.
Both parties shall use best efforts and cooperate with the aim of
establishing a flexible and cost-effective manufacturing of the oil
field chemical products and operation of the plant as a whole.
M-I will have access to the reactors, storage tanks and other assets
presently used for the manufacturing of oil field chemicals as set out
in Schedule A, such reactors storage tanks and other assets to be
dedicated to such manufacturing for M-I. However, as long as Dynea can
manufacture the volumes of oil field chemical products ordered by M-I
pursuant to this Agreement, Dynea shall, as permitted by M-I and
subject to Section 1.2, have the right to temporarily utilise the said
reactors, tanks and other assets, in order to secure effective
operation of the plant. Subject to Sections 1.2 and 1.6 M-I may have
access to further reactors, storage tanks etc., to the extent permitted
by the plant's capacity and the manufacturing of other oil field
chemical products.
Dynea shall be obligated to maintain the assets used in the oil field
chemical production, and to replace or repair such assets if necessary.
Dynea shall be obligated to allocate priority to maintenance and repair
of such assets and shall make essential maintenance and repairs in a
timely manner.
1.2 If additional assets dedicated to toll manufacturing pursuant to
Section 1.1. are required for the production of oil field chemicals as
specified by M-I, Dynea will at the request of M-I provide such
additional assets for the use and for the purpose of the oil field
chemicals production Dynea's consent to such a request shall not be
unreasonably withheld, but may for example be denied based on the
plant's capacity or the manufacturing of other products. Vice versa, if
Dynea should require some of the assets dedicated to M-I pursuant to
section 1.1, M-I will at the request of Dynea temporarily provide such
assets to Dynea. M-I's consent to such a request shall not be
unreasonably withheld.(but may for example be denied based on the
capacity required to manufacture rush-orders for M-I).
In the event utilisation of such additional assets will have a material
impact on the production or the production planning or on the cost
allocation between the Parties, they shall negotiate with the aim of
adjusting the production planning and reallocating such costs as are
related to the use of the additional assets.
1.3 Subject to Sections 1.5 and1.6, M-I shall pay a fee as set out in
Schedule A.
1.4 The costs and allocation of cost pertaining to personnel and site
services/rental, as covered by the fees set out in Schedules C and D
respectively for the year 2003, shall be adjusted each year-end
according to the budget for the following year, with effect from
January 1.
1.5 Notwithstanding anything to the contrary in Section 1.3, if production
level is decreased by more than 20 % based on the previous years total
production level, the parties shall use best efforts to re-negotiate a
decrease in the fees set out in Schedules C and D. The decrease in fees
to M-I will occur as soon as the costs savings are achieved by Dynea,
e.g the expiry of the termination period for employees.
1.6 Notwithstanding anything to the contrary in Section 1.3, if production
level is increased more than 20 % based on the previous years total
production level, the parties shall use best efforts to re-negotiate an
increase in the fees set out in Schedules C and D. The increase in fees
to M-I will occur as soon as the costs have increased e.g. the hiring
of new employees or the implementation of an additional shift.
1.7 M-I shall as a main rule place it's orders for the manufacture of oil
field chemical products with Dynea on a weekly basis, each order
comprising all oil field chemical products to be manufactured within
the following week, provided all necessary raw materials delivered by
M-I are in place. M-I shall provide Dynea with quarterly and yearly
estimates of the volumes of the oil field chemical products to be
manufactured.
Subject to Section 1.1 M-I shall have the right to place orders ("rush
orders") that shall be executed by Dynea within a time frame requested
by M-I that shall exceed 8 hours. The annual aggregate volume of such
orders shall not exceed 15 % of the total aggregate volume of oil field
chemical products toll manufactured by Dynea for M-I.
Subject to the limitations set out herein, M-I may change the
production plan. M-I has the overall responsibility of prioritising the
different orders including rush orders placed with Dynea, so that
unless otherwise instructed by M-I with reasonable notice, all orders
including rush orders received from M-I will be executed by Dynea after
all previously received orders are executed.
1.8 Dynea will manufacture certain of the oil field chemical products using
formaldehyde manufactured, sold and supplied by Dynea as set out in the
Supply Agreement for Formaldehyde. The price for methanol will be based
on the average Dynea purchase price net of any discounts for the
previous month. Any rebates or discounts will be credited to M-I when
received by Dynea. The calculation used in Schedule B will be adjusted
for future efficiencies in the manufacturing process.
Other raw materials for use in the manufacturing of the oil field
chemical products will be purchased and supplied by M-I, unless
otherwise agreed. The parties will mutually agree on possible joint
purchasing of certain raw materials. Dynea accounting is to provide the
Schedule B at the end of each month. The profit margin established in
this Schedule B is to be credited to M-I and applied to the fee set out
in Schedule C. Should this credit exceed the fee set out in Schedule C,
the remaining balance will be applied to other Dynea invoices.
1.9 The quality of the oil field chemical products shall meet M-I`s
specifications. Should it be necessary to amend the specifications, the
Parties shall enter into good faith negotiations to find a mutual
understanding on such matters.
1.10 Notwithstanding anything to the contrary above, M-I accepts a level of
off-specification oil field chemical products manufactured under
so-called routine production at the level of such off-specification oil
field chemical products at the time of the entering into of the
Agreement equal to less than 0.5%. By routine production is meant any
production after the first five batches. The first five batches will be
regarded as development, introduction and scale-up of new products and
thus supervised by M-I personnel.
M-I shall have no remedy available unless the level of such
off-specification oil field chemical products exceeds the present level
of 0.5%, and then only for the exceeding volume of such oil field
chemical products. Dynea shall bear all cost related to the
manufacturing of such off-specification products, including cost of raw
materials and disposal cost for any off-specification products that
exceed 0.5% not complying with M-I specifications.
M-I shall bear all cost related to the manufacturing and disposal of
off-specification products produced during the development,
introduction and scale-up of new products limited to the first five
batches of any new product.
Both parties shall use best efforts and cooperate in order to minimize
the level of off-specification oil field chemical products, and to
salvage or make use of any such oil field chemical products in the
manufacturing process or otherwise.
1.11 A maximum loss of 0.5 weight percent in the raw material storage,
manufacturing, blending, packaging and loading operations will be
deemed allowable. This percentage loss applies to the total weight of
M-I supplied raw materials used in the manufacture of oilfield
chemicals oil field chemical products at Lillestrom.
M-I shall require compensation for any M-I raw materials used in losses
exceeding 0.5 % of the total quantity of the oilfield chemical product
manufactured by Dynea, based on M-I's actual costs related to the
purchase of any such raw materials.
The parties acknowledge that the said percentages reflect the estimated
historic loss in normal production of oil field products at the
Lillestrom plant. The parties shall use best efforts and negotiate in
good faith to verify, confirm and if necessary adjust the said
percentages within the first year of the entering into of this
Agreement, based on the actual loss in normal production. Until an
agreement on such adjustment is reached, a loss of 0.5 % shall be
allowed.
Notwithstanding anything to the contrary above, any loss referred to in
this Section 1.11 which is caused by negligence on the part of Dynea,
shall not be taken into account when determining the allowable losses
(estimated 0.5%) pursuant to this Section 1.11, and shall be fully
compensated by Dynea. Any loss caused by negligence on the part of M-I,
shall be allowed in addition to the level of maximum losses (estimated
0.5%) set out above.
1.12 Dynea undertake to upkeep and maintain all permits, authorisations and
standards, including without limitation those related to environment,
health/safety, as well as ISO Certification(s), as at the entering into
of this agreement.
1.13 All toll manufacturing pursuant to this Agreement shall be performed in
accordance with the permits etc. set out in Section 1.12 and Dynea's
internal practices and regulations.
2. RAW MATERIALS
Dynea will manufacture some of the oil field chemical products using
formaldehyde manufactured, sold and supplied by Dynea as set out in
Schedule B. All other raw materials for use in the manufacturing of the
oil field products will be purchased and supplied by M-I, unless
otherwise agreed. The parties will mutually agree on possible joint
purchasing of certain raw materials. The storage of raw materials shall
be in accordance with M-I's instructions.
In the event of joint purchasing, all raw materials will be supplied by
Dynea to M-I or vice versa at cost, with the exception of formaldehyde,
which is dealt with under Schedule B.
3. PRODUCTION EMPLOYEES
The employees of Dynea listed in Schedule C shall be dedicated to the
efficient and timely production of oil field chemicals for the benefit
of M-I. However, the employees shall continue to be employed by Dynea,
which shall have the responsibility for such personnel.
M-I shall pay fee according to Section 9.1 b) for the personnel listed
in Schedule C along with the associated production cost as set out
Schedule C.
If deemed necessary by M-I to increase production capacity in certain
periods, Dynea will at the reasonable request of M-I place additional
personnel at M-I's temporary disposal. Dynea's consent to such a
request shall not be unreasonably withheld. Vice versa, if requested by
Dynea, M-I shall at the reasonable request of Dynea, place personnel
dedicated to M-I manufacturing at Dynea's temporary disposal. M-I's
consent to such a request shall not be unreasonably withheld.
In the event such additional personnel or labour will have an impact on
the production or the production planning or on each parties cost, the
parties shall negotiate with the aim of adjusting the production
planning and reallocating such costs as are related to the use of the
additional personnel.
4. Ownership of Materials and oil field chemical products
Title to all methanol and formaldehyde for use in the manufacturing of
certain oil field chemicals shall remain with Dynea.
Title to all other raw materials purchased by M-I from any source for
use in the manufacturing of the oil field chemical products shall
remain with M-I.
The recipes of the oil field chemical products and all the intellectual
property rights as set out in section 3.1.c of the MBPA, together with
any improvements thereof, relating to the recipes of the oil field
chemical products (collectively the "IPR") shall remain and vest with
M-I exclusively. Dynea is only entitled to use the IPR for the
manufacture of the oil field chemical products at Lillestrom for the
sole purpose of fulfilling its obligations under this Agreement.
Title to the finished oil field chemical products shall remain with
M-I.
5. Handling and Loading of oil field chemical products
5.1 M-I shall provide Dynea with relevant and accurate written loading
instructions for the oil field chemical products and Dynea shall load
the oil field chemical products according to such written instructions.
The storage of finished oil field chemical products shall be in
accordance with M-I's instructions.
5.2 Dynea shall in connection with every delivery of oil field chemical
products take and analyse a sample of the finished oil field chemical
products loaded and provide M-I with a product specification and
analysis for every such delivery. Dynea shall get an approval from M-I
before every delivery.
5.3 The oil field chemical products supplied hereunder are delivered by
Dynea FCA (ref. INCOTERMS 2000), however, M-I shall handle all
necessary documentation regarding the transportation, delivery and
customs clearance, and cover the costs related thereto.
6. NEW Raw Materials and new oil field chemical products
Any decision to utilise formerly not used raw materials is subject to
Dynea's prior approval.
Formerly not manufactured oil field chemical products shall be
introduced and manufactured according to Dynea's regulations and
practices pertaining to such new oil field chemical products.
7. UTILITIES
Dynea shall supply the directly consumed utilities necessary for the
manufacturing of the oil field chemical products, including steam,
electrical energy, cooling water, municipal water, fire water supply
and compressed air.
For the use of such utilities, M-I shall pay a utilities fee according
to actual consumption of electricity and certain other utilities, and a
percentage of the overall consumption of other utilities, as shown in
the example set out in schedule E.
Heated oil and heated oil treatment shall be provided by Dynea as a
part of their obligations pursuant to this Agreement.
8. SITE SERVICES AND RENTAL
Dynea shall provide site services related to the manufacturing of the
oil field chemical products, and offices to M-I or personnel involved
in the said manufacturing, as set out in Schedule D.
For rental and site services rendered the first year of the term of
this Agreement, M-I shall pay a fee based on allocation of costs for
services utilised in relation to the oil field chemicals manufacturing
as at the entering into of this agreement, as set out in Schedule D.
Should M-I wish to reduce the level of site services or make any other
changes to the rental and site services presently being provided, the
parties shall negotiate with the aim of establishing M-I's need for
site services and the fee/allocation of costs on these services. If
such an agreement is reached within July 1, in any year following the
first year, it will take effect January 1, the following year.
9. FEES - PRICING - INVOICING ETC.
9.1 For the manufacturing of the oil field chemical products M-I shall pay
the following cost-based fees, based on the costs set out in the
Schedules, as revised each year according to the budgets for the year
in question.
a) Assets/depreciation fee, as set out in Schedule A.
b) Labour costs/operating cost as set out in Schedules C.
c) Site service and rental fee for the Lillestrom Production team
as set out in Schedule D.
d) Site service and rental fee for M-I employees as set out in
Schedule D.
e) Utilities fee based on actual consumption of electricity and
certain other utilities, and a percentage of the overall
consumption of other utilities, as shown in the example set
out in schedule E..
f) Price for formaldehyde as set out in Schedule B.
9.2 The fees are payable in the currency of NOK.
9.3 The Assets/depreciation fee (9.1 a)) and the Labour costs/operating
cost fee (9.1 b)) shall be invoiced together, with a separate line on
the invoice for each fee. This invoice will be submitted to M-I on the
15th of each month, the invoice covering such depreciation and costs
for the said month, with a payment term of 15 days from invoicing.
The Site service and rental fee for the Lillestrom Production team
(9.1c)) and the Site service and rental fee for M-I employees (9.1 d))
shall be invoiced on the 1st working day of the month, covering the
previous month with a payment term of 10 days from invoicing.
The utilities fee (9.1 e)) and formaldehyde price (9.1 f)) shall be
invoiced together on the 1st working day of each month, the invoice
covering all utilities supplied and all formaldehyde delivered the
previous month, with a payment term of 15 days from invoicing.
9.4 The fees in Section 9.1 a) and 9.1 b) ( e.g. covering. labour cost and
depreciation) shall be yearly adjusted effective as of January 1, e.g.
based on (i) the average salary increase (the official average salary
increase for workers in the Norwegian chemical industry) and (ii) any
changes in the assets' value which directly or indirectly alters the
basis for or amount of depreciation, including without limitation any
new equipment requested by M-I and approved by Dynea or requested by
Dynea and approved by M-I, and (iii) any change in the product mix that
requires additional personnel or assets to manufacture. Additional
adjustment shall be performed according to Section 1.4.
9.5 At the beginning of each calendar year, the Parties shall compare the
total amount paid by M-I the previous year in Assets/depreciation fee
(9.1 a)), Labour costs/operating cost fee (9.1 b)) and site service
fees (9.1 c) and 9.1. d)), to the total actual costs of Dynea
pertaining to such depreciation, labour/operating costs and site
service. M-I will be credited 50% of any payments of such fees in
excess of such actual costs, and shall make an additional payment to
Dynea of 50% of all such actual costs exceeding the total payments of
such fees. Excluded from the actual cost basis in relation to this
provision are any actual costs induced by acts, decisions or requests
by M-I, which M-I will cover in full unless otherwise provided for
herein. However, the additional payment to Dynea in case of cost
increase, and the credit to M-I in case of cost reduction, shall be
limited to 2 % of the total consideration paid each year to Dynea under
this agreement.
9.6 If, during a calendar year, the costs allocated to the oil filed
chemicals production is increased by more than 5% per cost centre, the
parties shall negotiate in good faith with the aim of evaluating the
increase and the fair allocation of the costs. The threshold of 5 %
increase shall, however, not apply to cost increases directly related
to the production and its volume or that originates from circumstances
outside Dynea's sphere of control, such as - but not limited to - an
increase in the price of oil or electricity, or increased salaries
costs as described in Section 9.4, or costs induced by acts, decisions
or requests by M-I, which M-I will cover in full unless otherwise
provided for herein.
10. Force Majeure
The Parties shall not be held responsible if the performance of any of
their obligations under this Agreement is prevented, hindered or
delayed as a result of circumstances outside its reasonable control
(including but not limited to Acts of God, Acts of Government, War,
Civil Commotion, Strikes, Labor Disputes, Lock-Outs and extraordinary
weather conditions) (the "Force Majeure") and will be entitled to a
reasonable extension of time within which to perform its obligations.
As soon as possible after the occurrence of a Force Majeure, the Party
claiming to be affected will inform the other Party by notice in
writing of the circumstances and of the date on which the prevention or
delay began. Thereupon the Parties will consult with each other with a
view to agreeing on a course of action to overcome the consequences of
the prevention or delay. Failing an agreement, the differences shall be
resolved as set forth in Section 22 below.
In event of Force Majeure M-I will only pay those costs that are fixed
e.g depreciation and not any of the variable cost associated with
production. This mean that all other costs will be suspended until the
Force Majoure is ended.
11. AUDIT
Dynea shall once a year or as reasonably requested upon three months
written notice, provide M-I access to the books and other material and
documentation pertaining to the calculation of the fee structure, so
that M-I is able to perform a limited audit of the financial accounts
effecting the oil field chemical production.
12. Confidentiality
Except for the use of such information and documents in connection with
the fulfilment of this Agreement or as otherwise required by law or
regulations each party agrees to keep confidential any information
obtained by it from the other party in connection with this Agreement.
13. Term
13.1 This Agreement shall become effective upon closing of the acquisition
under the Business Purchase Agreement.
13.2 The obligations and rights of the Parties relating to this Agreement,
shall be in force for a period of five (5) years from the above
effective date. The term of the Agreement shall automatically continue
for another successive two (2) year period unless M-I gives a written
notice one (1) year prior to the end of the initial term of this
Agreement or either party gives one (1) years notice prior the end of
the second option period.
14. Early Termination
14.1 This Agreement may be terminated by either party with 60 days prior
written notice to the other party in the event such other party becomes
insolvent or files a petition for bankruptcy or a petition for
bankruptcy is filed against such other party and is not dismissed
within 30 days.
14.2 In the event of default by a party in performing its obligations
pursuant to this Agreement, the other party shall give notice thereof
and request the defaulting party to cure such default within forty-five
(45) days after receipt of the notice. If, at the expiry of said
forty-five days period the default is not cured, the party not being in
default shall have the right to terminate the agreement upon giving the
defaulting party thirty (30) days prior written notice.
14.3 Exercise of or failure to exercise any termination right specified in
this Section 14 shall not prejudice any other right which party may
have at law or in equity.
15. CONSEQUENTIAL DAMAGES
M-I will hold Dynea harmless from any claims from third parties based
on defects or flaws in the manufactured oil field chemical products
sold by M-I, to the extent that the claims are not based on Dynea's
demonstrated gross negligence or wilful misconduct with regard to its
production procedures and/or facilities.
The Parties shall be liable for damages due to any breach of this
agreement. However, neither party shall be liable under this Agreement
for consequential damages, including loss of revenues or profit or
increased costs of production, except in cases of gross negligence or
wilful breach of contract.
16. No Waiver
The failure by either party to insist, in any one or more instance,
upon a strict performance of any the terms or conditions of this
Agreement, or the waiver by either party of any term, condition or
right hereunder or of any default by the other party, shall not be
deemed or construed to be a waiver by such party of any term,
condition, right, or default in any other instance.
17. Notices
All notices or other communications required or permitted hereunder
shall be in writing and shall be deemed given or delivered within 14
days, if sent by registered mail or private courier, and on receipt if
by telefax, evidenced by receipt.
If to M-I:
Address: M-I Norge AS
Tangen 12
4070 Randaberg
Norway
Telefax: + 47 51 41 00 96
Attention: Arve Sem-Henriksen
If to Dynea:
Address: Dynea ASA, PB 160, 2001 Lillestrom, Norway
(visiting address: Svellev. 33, 2004
Lillestrom)
Telefax: + 47 63 89 76 10
Attention: Svein Rosseland
or to such other address as such party may indicate by a notice
delivered to the other party hereto.
18. Assignment and non-competition
Each party shall have the right to with the other party's consent,
which shall not be unreasonably withheld, assign and transfer its
rights and obligations under this Agreement .
Any transfer or assignment by Dynea of rights or obligations under this
agreement, is subject to the non-competition provisions of the MBPA
Section 19.2.
Subject to M-I's prior approval, Dynea shall be entitled to sell
formaldehyde from the Lillestrom plant to Competing Business of M-I (as
defined in the MBPA) as long as this is done on non preferential market
rates (e.g market price with no discount). This Agreement do not
restrict Dynea's right to sell formaldehyde manufactured elsewhere to
Competing Business of M-I.
19. Entire Agreement; Amendments
This Agreement constitutes the entire agreement between the Parties
relating to the subject matter hereof, and no prior or other
representation, understanding or agreement, whether written or oral,
shall bind either party hereto in respect of the manufacture of Product
by Dynea. This Agreement may be amended only by a written instrument
properly signed by authorized representative(s) of both Parties. No
document used in connection with estimates, production or delivery
orders, or acknowledgement thereof, shall amend, modify, revoke or
otherwise affect the provisions of this Agreement.
20. Severability
In the event that any one or more of the provisions of this Agreement
are held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions shall
not be affected or impaired thereby.
21. Governing Law
This Agreement shall be governed by and construed and enforced in
accordance with the laws of Norway, without regard to conflict of law
principles.
22. DISPUTE RESOLUTION
The parties shall negotiate in good faith to resolve any dispute,
controversy or claim arising out of or relating to this Agreement.
Should the parties not reach a settlement by such negotiations, the
dispute shall be finally settled by arbitration in accordance with
Chapter 32 of Norwegian Act on Civil Procedure ("tvistemalsloven") or
its enacted successor. The arbitration shall be held in Oslo and the
arbitral proceedings shall be conducted in the English language.
IN WITNESS WHEREOF, this Agreement has been executed in duplicate as of
the date first set forth above.
M-I NORGE AS DYNEA ASA
- ---------------------------- ---------------------------
Exhibit 8.1 to the company's
annual report for the year
ended December 31, 2002
----------------------------
Our principal subsidiary undertakings as at December 31, 2002 are as follows:
Country of Ownership as of
Subsidiary Incorporation December 31, 2002
------------------------- --------------------------- -------------------
Dynea ASA Norway 100%
Dynea Austria GmbH Austria 100%
Dynea B.V. Netherlands 100%
Dynea Chemicals Oy Finland 100%
Dynea Ireland Ltd Ireland 100%
Dynea NV Belgium 100%
Dynea Finland Oy Finland 100%
Dynea UK Ltd UK 100%
Dyno Nederland BV Netherlands 100%
Dynea Canada Inc Canada 100%
Dynea Overlays WI Inc USA 100%
Dynea U.S.A. Inc USA 100%
Dynea Singapore Pte. Ltd Singapore 100%
PT Dynea Indria Indonesia 51%
Dynea NZ Ltd New Zealand 100%