As filed with the Securities and Exchange Commission on September __, 2001
Registration No. 333 ________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM S-4
Registration Statement
Under
THE SECURITIES ACT OF 1933
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ISP CHEMCO INC.
(Exact name of registrant as specified in its charter)
Delaware 2869 51-0382622 300 Delaware Avenue, Suite 303
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer Wilmington, Delaware 19801
of Classification Code Number) Identification Number) (302) 427-5818
incorporation or (Name, address, including zip code, and
organization) telephone number, including area code, of
registrant's principal executive offices)
-----------------------
ISP CHEMICALS INC.
(Exact name of registrant as specified in its charter)
Delaware 2869 22-3807357 Route 95 Industrial Area, P.O.Box 37
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer Calvert City, Kentucky 42029
of Classification Code Number) Identification Number) (270) 395-4165
incorporation or (Name, address, including zip code, and
organization) telephone number, including area code, of
registrant's principal executive offices)
-----------------------
ISP MINERALS INC.
(Exact name of registrant as specified in its charter)
Delaware 2869 22-3807370 34 Charles Street
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer Hagerstown, Maryland 21740
of Classification Code Number) Identification Number) (301) 733-4000
incorporation or (Name, address, including zip code, and
organization) telephone number, including area code, of
registrant's principal executive offices)
-----------------------
ISP TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Delaware 2869 22-3807372 4501 Attwater Avenue and State Highway 146
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer Texas City, Texas 77590
of Classification Code Number) Identification Number) (409) 945-3411
incorporation or (Name, address, including zip code, and
organization) telephone number, including area code, of
registrant's principal executive offices)
-----------------------
See Table of Additional Registrants Below
With copies to: Richard A. Weinberg, Esq.
Michael E. Lubowitz, Esq. c/o ISP Management Company, Inc.
Weil, Gotshal & Manges LLP 1361 Alps Road
767 Fifth Avenue Wayne, New Jersey 07470
New York, New York 10153-0119 (973) 628-4000
(212) 310-8000 (Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: |_|
CALCULATION OF REGISTRATION FEE
==============================================================================================================================
Amount to Proposed Maximum Proposed Maximum
Title of Each Class of be Offering Price Aggregate Amount of
Securities to be Registered Registered(1) Per Unit Offering Price Registration Fee
--------------------------------------------- --------------- ------------------- ---------------------- ---------------------
10 1/4% Series B Senior Subordinated Notes Due $205,000,000 98.470% $201,863,500 $50,466
2011
10 1/4% Series B Senior Subordinated Notes Due $100,000,000 99.500% $99,500,000 $24,875
2011
Guarantees of 10 1/4% Series B Senior $305,000,000 N/A N/A $0(2)
Subordinated Notes Due 2011
==============================================================================================================================
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 (f)(2) under the Securities Act of 1933, as amended (the
"Securities Act").
(2) The Additional Registrants, each a wholly owned subsidiary of ISP Chemco
Inc., will guarantee the payment of the 10 1/4% Series B Senior
Subordinated Notes Due 2011. Pursuant to Rule 457(n) under the Securities
Act of 1933, no filing fee is required.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
ADDITIONAL REGISTRANTS
Exact name of State or other Primary Address, including zip
registrant jurisdiction of Standard code and telephone number,
as specified in incorporation Industrial I.R.S. Employer including area code, of
its or Classification Identification registrant's principal Registration
charter organization Code Number Number executive office No.
---------------- --------------- -------------- --------------- -------------------------- ------------
ISP Management Delaware 7389 22-3807364 1361 Alps Road 333-
Company, Inc. Wayne, New Jersey 07470
(973) 628-4000
Bluehall Delaware 6719 13-3335905 818 Washington Street 333-
Incorporated Wilmington, Delaware 19801
(302) 651-0165
Verona Inc. Delaware 6719 22-3036319 1361 Alps Road 333-
Wayne, New Jersey 07470
(973) 628-4000
ISP Real Estate Delaware 6512 22-2886551 1361 Alps Road 333-
Company, Inc. Wayne, New Jersey 07470
(973) 628-4000
ISP Freetown Fine Delaware 2869 52-2069636 238 South Main Street 333-
Chemicals Inc. Assonet, MA 02702
(508) 672-0634
ISP International Delaware 6719 51-0333734 818 Washington Street 333-
Corp. Wilmington, Delaware 19801
(302) 429-7493
ISP (Puerto Rico) Delaware 2869 22-2934561 Mirador de Bairoa 333-
Inc. Calle 27 ST-14
HC01 Box 29030
PMB 15
Caquas, PR 00725-8900
(787) 744-3188*
ISP Alginates Inc. Delaware 2869 22-3676745 6605 Nancy Ridge Drive 333-
San Diego, CA 92121
(619) 557-3100
ISP Environmental Delaware 6719 51-0333801 1361 Alps Road 333-
Services Inc. Wayne, New Jersey 07470
(973) 628-4000
ISP Global Delaware 6719 22-3807358 300 Delaware Avenue 333-
Technologies Suite 303
Inc. Wilmington, DE 19801
(302) 427-5852
ISP Investments Delaware 6719 22-3807361 300 Delaware Avenue 333-
Inc. Suite 303
Wilmington, DE 19801
(302) 427-5822
ISP Chemicals LLC Delaware 6719 22-3807378 Route 95 Industrial Area 333-
P.O. Box 37
Calvert City, KY 42029
(270) 395-4165
ISP Management LLC Delaware 6719 22-3807385 1361 Alps Road 333-
Wayne, New Jersey 07470
(973) 628-4000
ISP Minerals LLC Delaware 6719 22-3807387 34 Charles Street 333-
Hagerstown, MD 21740
(301) 733-4000
ISP Technologies Delaware 6719 22-3807390 4501 Attwater Avenue and 333-
LLC State Highway 146
Texas City, TX 77590
(409) 945-3411
ISP Investments Delaware 6719 22-3807381 300 Delaware Avenue 333-
LLC Suite 303
Wilmington, DE 19801
(302) 427-5822
ISP Global Delaware 6719 22-3807380 300 Delaware Avenue 333-
Technologies Suite 303
LLC Wilmington, DE 19801
(302) 427-5822
The information in this prospectus is not complete and may be changed. We may
not sell or offer these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 25, 2001
PROSPECTUS
Exchange Offer for
$305,000,000 10 1/4% Series A Senior Subordinated Notes due 2011
of
ISP Chemco Inc.
ISP Chemicals Inc.
ISP Minerals Inc.
ISP Technologies Inc.
Co-Issuers
-----------------
MATERIAL TERMS OF THE EXCHANGE OFFER
o Expires at 5:00 p.m., New York City time, on , 2001, unless
extended.
o The only conditions to completing the exchange offer are that the
exchange offer not violate applicable law or applicable interpretation
of the staff of the Securities and Exchange Commission and no
injunction, order or decree has been issued which would prohibit,
prevent or materially impair our ability to proceed with the exchange
offer.
o All old notes that are validly tendered and not validly withdrawn will
be exchanged.
o Tenders of old notes may be withdrawn at any time prior to the
expiration of the exchange offer.
o The terms of the registered notes to be issued in the exchange offer
are substantially identical to the old notes that we issued on June
27, 2001 and July 31, 2001, except for transfer restrictions,
registration rights and additional interest.
o The old notes are, and the registered notes will be, fully and
unconditionally guaranteed, jointly and severally, on a senior,
unsecured basis by all of our domestic subsidiaries (other than some
immaterial subsidiaries and our accounts receivable financing
subsidiary).
------------------
Consider carefully the "Risk Factors" beginning on page 14 of this
prospectus.
-----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
-----------------
The date of this prospectus is [ ], 2001
PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus and may
not contain all information that may be important to you. This prospectus
includes specific terms of the exchange offer, as well as information regarding
our business and detailed financial data. We encourage you to read the detailed
information and financial statements appearing elsewhere in this prospectus.
Unless otherwise specifically indicated, "we," "us" and "our" refers to ISP
Chemco Inc. and its consolidated subsidiaries. "ISP" refers to International
Specialty Products Inc., our indirect parent, and its consolidated subsidiaries.
The Exchange Offer
We issued in a private placement $205.0 million in aggregate principal
amount of our 10 1/4% Series A Senior Subordinated Notes due 2011 on June 27,
2001 and an additional $100.0 million in aggregate principal amount of those
notes on July 31, 2001. We refer to these notes in this prospectus as the "old
notes." We entered into a registration rights agreement with the initial
purchasers of the old notes in which we agreed to deliver to you this
prospectus. You are entitled to exchange your old notes in the exchange offer
for our 10 1/4% Series B Senior Subordinated Notes due 2011, which we refer to
in this prospectus as the "registered notes," with substantially identical
terms. We refer to the old notes and the registered notes collectively as the
"notes." We believe that the registered notes to be issued in the exchange offer
may be resold by you without compliance with the registration and prospectus
delivery requirements of the Securities Act of 1933, subject to certain limited
conditions. You should read the discussion under the headings "The Exchange
Offer" and "Description of the Registered Notes" for further information
regarding the registered notes.
In connection with the offerings of the old notes, we also entered into
$450.0 million of new senior secured credit facilities, which we refer to in
this prospectus as the "Senior Credit Facilities." We used the initial
borrowings under the Senior Credit Facilities to repay amounts outstanding under
our then-existing credit facility. The Senior Credit Facilities are secured by a
first-priority security interest in substantially all of our assets and the
assets of our subsidiaries and are guaranteed by the same subsidiaries that have
guaranteed the old notes and that will guarantee the registered notes.
In connection with the offerings of the old notes, ISP also completed a
restructuring of its business in order to separate its investment assets from
its specialty chemicals business, which we refer to in this prospectus as the
"Restructuring." As part of the Restructuring, ISP Chemco transferred all of its
investment assets to a newly formed parent company of ISP Chemco, Newco Holdings
Inc., which, in turn, transferred those assets to Newco Holdings' newly formed
subsidiary, ISP Investco LLC. As a result of the Restructuring, ISP Chemco's
assets now consist solely of those related to ISP's specialty chemicals
business. For a more detailed description of the Restructuring, see "The
Restructuring."
We refer to the offerings of the old notes, the entering into of the Senior
Credit Facilities and the Restructuring in this prospectus as the
"Transactions."
Who We Are
We develop, manufacture and market specialty chemicals and have leading
positions in niche markets throughout the world. Our broad spectrum of
highly-engineered specialty chemicals has numerous applications in consumer and
industrial products. Our specialty chemicals are often critical ingredients in
the formulation of our customers' products, but typically represent only a small
portion of their product costs. We sell these specialty chemicals in domestic
and international markets, primarily for use in branded consumer products
manufactured by companies engaged in relatively non-cyclical industries, such as
the cosmetics, pharmaceuticals and beverage industries. We sell over 400
specialty chemical and mineral products to over 6,000 customers in over 90
countries, with sales outside of the United States accounting for approximately
50% of our net sales for the year ended December 31, 2000. We are also the
second largest producer of mineral products for roofing applications in the
United States.
* * *
1
The executive offices of ISP Chemco Inc., ISP Global
Technologies Inc., ISP Global Technologies LLC, ISP Investments Inc. and ISP
Investments LLC are located at 300 Delaware Avenue, Suite 303, Wilmington,
Delaware 19801 and the telephone numbers for each company are (302) 427-5818,
(302) 427-5852, (302) 427-5852, (302) 427-5822 and (302) 427-5822, respectively.
The executive offices of Bluehall Incorporated and ISP International Corp. are
located at 818 Washington Street, Wilmington, Delaware 19801 and the telephone
numbers for each company are (302) 651-0165 and (302) 429-7493, respectively.
The executive offices of ISP Environmental Services Inc., ISP Management
Company, Inc., ISP Management LLC, ISP Real Estate Company Inc. and Verona Inc.
are located at 1361 Alps Road, Wayne, New Jersey 07470 and the telephone number
for each company is (973) 628-4000. The executive offices of ISP (Puerto Rico)
Inc. are located at Mirador de Bairoa, Calle 27 ST-14, HC01 Box 29030, PMB 15,
Caquas, Puerto Rico 00725-8900 and the telephone number is (787) 744-3188. The
executive offices of ISP Alginates Inc. are located at 6605 Nancy Ridge Drive,
San Diego, California 92121 and the telephone number is (619) 557-3100. The
executive offices of ISP Chemicals Inc. and ISP Chemicals LLC are located at
Route 95 Industrial Area, P.O. Box 37, Calvert City, Kentucky 42029 and the
telephone number is (270) 395-4165. The executive offices of ISP Freetown Fine
Chemicals Inc. are located at 238 South Main Street, Assonet, Massachusetts
02702 and the telephone number is (508) 672-0634. The executive offices of ISP
Minerals LLC and ISP Minerals Inc. are located at 34 Charles Street, Hagerstown,
Maryland 21740 and the telephone number of each company is (301) 733-4000. The
executive offices of ISP Technologies Inc. and ISP Technologies LLC are located
at 4501 Attwater Avenue and State Highway 146, Texas City, Texas 77590 and the
telephone number for each company is (409) 945-3411.
2
Summary of the Terms of the Exchange Offer
The exchange offer relates to the exchange of up to $305.0 million
aggregate principal amount of old notes for an equal aggregate principal amount
of registered notes. We issued and sold in two separate private placements
$205.0 million in aggregate principal amount of the old notes on June 27, 2001
and an additional $100.0 million in aggregate principal amount of the old notes
on July 31, 2001. The form and terms of the registered notes are substantially
the same as the form and terms of the old notes, except that the registered
notes have been registered under the Securities Act of 1933 and will not bear
legends restricting their transfer. We issued the old notes under an indenture
that grants you certain rights. The registered notes also will be issued under
that indenture and you will have the same rights under the indenture as the
holders of the old notes. See "Description of the Registered Notes."
Registration Rights Agreement.......... You are entitled under the registration rights agreement to exchange your
old notes for registered notes with substantially identical terms. The
exchange offer is intended to satisfy these rights. After the exchange
offer is complete, except as set forth in the next paragraph, you will no
longer be entitled to any exchange or registration rights with respect to
your old notes.
The registration rights agreement requires us to file a registration statement
for a continuous offering in accordance with Rule 415 under the Securities Act
for your benefit if you would not receive freely tradeable registered notes in
the exchange offer or you are ineligible to participate in the exchange offer
and indicate that you wish to have your old notes registered under the
Securities Act. See "The Exchange Offer--Procedures for Tendering."
The Exchange Offer..................... We are offering to exchange $1,000 principal amount of 10 1/4% Series B Senior
Subordinated Notes due 2011, which have been registered under the Securities
Act, for each $1,000 principal amount of 10 1/4% Series A Senior Subordinated
Notes due 2011 which were issued on June 27, 2001 and July 31, 2001 in private
placements. In order to be exchanged, an old note must be properly tendered and
accepted. All old notes that are properly tendered and not properly withdrawn
will be exchanged.
As of this date, there are $305.0 million aggregate principal amount of old
notes outstanding.
We will issue the registered notes promptly after the expiration of the exchange
offer.
Resales of the Registered
Notes............................. We believe that registered notes to be issued in the exchange offer may
be offered for resale, resold and otherwise transferred by you without
compliance with the registration and prospectus delivery provisions of
the Securities Act if you meet the following conditions:
(1) the registered notes are acquired by you in the ordinary course of your
business;
(2) you are not engaging in and do not intend to engage in a distribution of
the registered notes;
3
(3) you do not have an arrangement or understanding with any person to
participate in the distribution of the registered notes; and
(4) you are not an affiliate of ours, as that term is defined in Rule 405 under
the Securities Act.
If you do not meet the above conditions, you may incur liability under the
Securities Act if you transfer any registered note without delivering a
prospectus meeting the requirements of the Securities Act. We do not assume or
indemnify you against that liability.
Each broker-dealer that is issued registered notes in the exchange offer for its
own account in exchange for old notes which were acquired by that broker-dealer
as a result of market-making activities or other trading activities must
acknowledge that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of the registered notes. A
broker-dealer may use this prospectus for an offer to resell or to otherwise
transfer these registered notes.
Expiration Date........................ The exchange offer will expire at 5:00 p.m., New York City time, on
[ ], 2001, unless we decide to extend the exchange offer. We do
not intend to extend the exchange offer, although we reserve the right to
do so. If we determine to extend the exchange offer, we do not intend to
extend it beyond [ ], 2001.
Conditions to the Exchange
Offer............................. The only conditions to completing the exchange offer are that the
exchange offer not violate applicable law or any applicable
interpretation of the staff of the Commission and no injunction, order or
decree has been issued which would prohibit, prevent or materially impair
our ability to proceed with the exchange offer. See "The Exchange
Offer--Conditions."
Procedures for Tendering Old
Notes Held in the Form of
Book-Entry Interests.............. The old notes were issued as global securities in fully registered form
without coupons. Beneficial interests in the old notes which are held by
direct or indirect participants in The Depository Trust Company through
certificateless depositary interests are shown on, and transfers of the
notes can be made only through, records maintained in book-entry form by
DTC with respect to its participants.
If you are a holder of an old note held in the form of a book-entry interest and
you wish to tender your old note for exchange pursuant to the exchange offer,
you must transmit to Wilmington Trust Company, as exchange agent, on or prior to
the expiration of the exchange offer either:
o a written or facsimile copy of a properly completed and executed letter of
transmittal and all other required documents to the address set forth on
the cover page of the letter of transmittal; or
o a computer-generated message transmitted by means of DTC's Automated Tender
Offer Program system and forming a part of a confirmation of book-entry
transfer in which you acknowledge
4
and agree to be bound by the terms of the letter of transmittal.
The exchange agent must also receive on or prior to the expiration of the
exchange offer either:
o a timely confirmation of book-entry transfer of your old notes into the
exchange agent's account at DTC, in accordance with the procedure for
book-entry transfers described in this prospectus under the heading "The
Exchange Offer--Book-Entry Transfer," or
o the documents necessary for compliance with the guaranteed delivery
procedures described below.
A letter of transmittal accompanies this prospectus. By executing the letter of
transmittal or delivering a computer-generated message through DTC's Automated
Tender Offer Program system, you will represent to us that, among other things:
o the registered notes to be acquired by you in the exchange offer
are being acquired in the ordinary course of your business;
o you are not engaging in and do not intend to engage in a
distribution of the registered notes;
o you do not have an arrangement or understanding with any person
to participate in the distribution of the registered notes; and
o you are not our affiliate.
Procedures for Tendering
Certificated Old Notes............ If you are a holder of book-entry interests in the old notes, you are
entitled to receive, in limited circumstances, in exchange for your
book-entry interests, certificated notes that are in equal principal
amounts to your book-entry interests. See "Description of the Registered
Notes--Form of Registered Notes." No certificated notes are issued and
outstanding as of the date of this prospectus. If you acquire
certificated old notes prior to the expiration of the exchange offer, you
must tender your certificated old notes in accordance with the procedures
described in this prospectus under the heading "The Exchange
Offer--Procedures for Tendering--Certificated Old Notes."
5
Special Procedures for
Beneficial Owner.................. If you are the beneficial owner of old notes and they are registered in
the name of a broker, dealer, commercial bank, trust company or other
nominee, and you wish to tender your old notes, you should promptly
contact the person in whose name your old notes are registered and
instruct that person to tender on your behalf. If you wish to tender on
your own behalf, you must, prior to completing and executing the letter
of transmittal and delivering your old notes, either make appropriate
arrangements to register ownership of the old notes in your name or
obtain a properly completed bond power from the person in whose name your
old notes are registered. The transfer of registered ownership may take
considerable time. See "The Exchange Offer--Procedures for
Tendering--Procedures Applicable to All Holders."
Guaranteed Delivery
Procedures........................ If you wish to tender your old notes and:
(1) they are not immediately available;
(2) time will not permit your old notes or other required documents
to reach the exchange agent before the expiration of the
exchange offer; or
(3) you cannot complete the procedure for book-entry transfer on a
timely basis,
you may tender your old notes in accordance with the guaranteed delivery
procedures set forth in "The Exchange Offer--Procedures for
Tendering--Guaranteed Delivery Procedures."
Acceptance of Old Notes
and Delivery of
Registered Notes.................. Except under the circumstances described above under "Conditions to the
Exchange Offer," we will accept for exchange any and all old notes that
are properly tendered in the exchange offer prior to 5:00 p.m., New York
City time, on the expiration date. The registered notes to be issued to
you in the exchange offer will be delivered promptly following the
expiration date. See "The Exchange Offer--Terms of the Exchange Offer."
Withdrawal............................. You may withdraw the tender of your old notes at any time prior to 5:00
p.m., New York City time, on the expiration date. We will return to you
any old notes not accepted for exchange for any reason without expense to
you as promptly as we can after the expiration or termination of the
exchange offer.
Exchange Agent......................... Wilmington Trust Company is serving as the exchange agent in connection
with the exchange offer.
Consequences of Failure to
Exchange.......................... If you do not participate in the exchange offer, upon completion of the
exchange offer, the liquidity of the market for your old notes could be
adversely affected. See "The Exchange Offer--Consequences of Failure to
Exchange."
6
Federal Income Tax
Consequences...................... The exchange of old notes will not be a taxable event for federal income
tax purposes. See "Federal Income Tax Considerations."
7
Summary of the Terms of the Registered Notes
Issuers........................................ The registered notes will be jointly issued by ISP Chemco Inc., ISP
Chemicals Inc., ISP Minerals Inc. and ISP Technologies Inc.
Notes Offered.................................. $305.0 million in aggregate principal amount of 10 1/4% Series B
Senior Subordinated Notes due 2011.
Maturity....................................... July 1, 2011.
Interest Payment Dates......................... January 1 and July 1 of each year. The first interest payment will
be made on January 1, 2002.
Guarantees..................................... The registered notes will be unconditionally guaranteed, jointly
and severally, by all of our domestic subsidiaries, other than
some immaterial subsidiaries and our accounts receivable
financing subsidiary. We refer to these companies in this
prospectus as the "guarantors."
Optional Redemption............................ We may redeem the notes on or after July 1, 2006 at the redemption
prices listed under "Description of the Registered Notes--Optional
Redemption."
Prior to July 1, 2004, we may use the proceeds of certain sales of
our equity to redeem up to 35% of the original principal amount of
the notes at a redemption price of 110.25% of their principal
amount, plus accrued and unpaid interest to the redemption date.
Change of Control Offer........................ If we experience a change of control, holders of the notes may
require us to repurchase part or all of their notes at 101% of
their principal amount, plus accrued and unpaid interest and
liquidated damages, if any, to the redemption date.
Ranking; Escrow................................ The registered notes will be senior subordinated indebtedness and
will be junior in right of payment to all of our existing and
future senior indebtedness, including our obligations under the
Senior Credit Facilities. See "Description of Other
Indebtedness--Senior Credit Facilities."
The guarantees of the registered notes will be senior subordinated
obligations of the guarantors and will be junior in right of
payment to all of the guarantors' existing and future senior
indebtedness, including their guarantees under the Senior Credit
Facilities.
The registered notes and the guarantees will be unsecured except
that the notes have the benefit of a security interest in the
escrow accounts into which the net proceeds of the private
placements of the old notes, other than $0.9 million of accrued
interest, was deposited pending retirement of some outstanding
notes of ISP.
Covenants...................................... We will issue the registered notes under the indenture with
Wilmington Trust Company, as trustee, under which we issued the old
notes. The indenture, among other things, restricts our ability to:
o sell all or substantially all of our assets or merge or
consolidate with or into other companies;
8
o incur secured debt or allow liens to exist on our assets;
o pay dividends or make other distributions;
o make other restricted payments and investments;
o incur restrictions on the ability of some of our
subsidiaries to pay dividends or other payments to us; and
o enter into transactions with some of our affiliates.
The indenture also provides that during any period of time that
the notes have an investment grade rating from Moody's Investors
Services, Inc. and Standard & Poor's Ratings Services, neither of
these rating agencies has attached any "negative outlook" to the
rating of the notes and no default under the indenture has
occurred, we will not be subject to many of these covenants. See
"Description of the Registered Notes--Certain Covenants--Changes
in Covenants When Notes Rated Investment Grade."
If either of the rating agencies downgrade the ratings assigned to
the notes below an investment grade rating, we will again be
subject to those covenants.
Registration Rights;
Liquidated Damages........................ In connection with the offering of the old notes, we granted
registration rights to holders of the old notes and any additional
notes treated as the same class of notes under the indenture. We
agreed to:
o file, on or prior to September 25, 2001, a registration statement
with respect to an offer to exchange the old notes for the
registered notes which will be identical in all material respects
to the old notes except that they will not contain terms with
respect to transfer restrictions or registration rights and will
be registered under the Securities Act;
o use reasonable efforts to cause the registration statement to
become effective under the Securities Act on or prior to December
24, 2001; and
o use reasonable efforts to consummate the offer to exchange within
30 business days after the effective date of the registration
statement.
In addition, under certain circumstances, we may be required to file a
shelf registration statement to cover resales of the old notes held by
you.
If:
o we fail to file any of the registration statements required by the
registration rights agreement on or before the date specified for
that filing; or
9
o any of those registration statements are not declared effective by
the Commission on or prior to the date specified for their
effectiveness; or
o we fail to consummate the exchange offer within 30 business days
of December 24, 2001; or
o the shelf registration statement or this registration statement is
declared effective but thereafter ceases to be effective or usable
in connection with resales of transfer restricted securities
during the periods specified in the registration rights agreement
(each event referred to above, a "registration default"),
then we and the guarantors will pay liquidated damages to each holder of
old notes, with respect to the first 90-day period immediately following
the occurrence of the first registration default in an amount equal to
$.05 per week per $1,000 principal amount of notes held by that holder.
The amount of the liquidated damages will increase by an additional $.05
per week per $1,000 principal amount of old notes with respect to each
subsequent 90-day period until all registration defaults have been cured,
up to a maximum amount of liquidated damages for all registration
defaults of $.50 per week per $1,000 principal amount of notes. Following
the cure of all registration defaults, the accrual of liquidated damages
will cease.
Form of Registered Notes....................... The registered notes to be issued in the exchange offer will be
represented by one or more global securities deposited with
Wilmington Trust Company for the benefit of DTC. You will not
receive registered notes in certificated form unless one of the
events set forth under the heading "Description of the Registered
Notes--Form of Registered Notes" occurs. Instead, beneficial
interests in the registered notes to be issued in the exchange
offer will be shown on, and transfer of these interests will be
effected only through, records maintained in book-entry form by DTC
with respect to its participants.
Use of Proceeds................................ The net proceeds of the offerings of the old notes, other than $0.9
million of accrued interest, were placed into two separate escrow
accounts. We intend to distribute the net proceeds of the $205.0
million offering of old notes to ISP to enable it to retire on or
prior to maturity the full amount of its 9 3/4% Senior Notes due 2002,
which we refer to in this prospectus as the "2002 Notes." On
September 15, 2001, ISP sent a notice of redemption to all holders
of the 2002 Notes. Similarly, we intend to distribute the net
proceeds of the $100.0 million offering of old notes to ISP to
enable it to retire on or prior to maturity a portion of its
outstanding 9% Senior Notes due 2003, which we refer to in this
prospectus as the "2003 Notes." We will not receive any cash
proceeds upon completion of the exchange offer.
You should refer to the section entitled "Risk Factors" for an explanation
of certain risks of participating in the exchange offer and investing in the
notes.
10
Summary Financial Data
The following information sets forth our summary consolidated financial
data. The results of any interim period do not necessarily indicate the results
for the full year. This information should be read in conjunction with the
information in "Capitalization," "Unaudited Pro Forma Consolidated Financial
Statements," "Selected Financial Data," "The Restructuring" and the Consolidated
Financial Statements included elsewhere in this prospectus. ISP Chemco Inc.
(formerly known as ISP Opco Holdings Inc.) was formed in June 1998 in connection
with the merger of International Specialty Products Inc. with and into ISP
Holdings Inc., which occurred on July 15, 1998. In connection with that merger,
ISP Holdings changed its name to International Specialty Products Inc. ISP
Chemco and the other co-issuers of the notes are indirect wholly owned
subsidiaries of ISP.
We have prepared the financial data presented below on a basis that
retroactively reflects our formation for all periods presented. In addition, our
financial data presented below for periods prior to the merger of International
Specialty Products Inc. with and into ISP Holdings represent the results of the
predecessor company to ISP.
The As Adjusted balance sheet data give effect to the issuance of $100.0
million in aggregate principal amount of old notes on July 31, 2001 as if that
issuance had been completed as of July 1, 2001. The pro forma operating data
give effect to the Transactions as if they had been completed as of January 1,
2000. The pro forma financial data presented below does not purport to project
the financial position or the results of operations for any future period or to
represent what the financial position or results of operations would have been
if the Transactions had been completed at the dates indicated.
Six Months Ended
-------------------------
Year Ended December 31, July 2, July 1,
---------------------------------- 2000 2001
1998 1999 2000 (Unaudited) (Unaudited)
-------- -------- -------- ----------- -----------
(In millions)
Operating Data:
Net sales............................. $ 784.6 $ 787.4 $ 783.9 $ 398.2 $ 406.5
Operating income...................... 71.6 146.5 82.3 55.5 61.8
Interest expense(1)................... 56.0 59.2 62.8 31.8 29.5
Income from continuing operations
before income taxes................. 37.8 84.4 151.6 32.4 51.0
Income from continuing operations..... 22.5 54.8 98.4 21.1 33.1
Income before cumulative effect of
accounting change................... 24.6 80.1 98.4 21.1 33.1
Net income............................ 24.6 80.1 98.4 21.1 32.6
July 1, 2001
-------------------------------
December 31, Actual As Adjusted(2)
2000 (Unaudited) (Unaudited)
------------ ----------- --------------
(In millions)
Balance Sheet Data:
Cash and short-term investments.................... $ 535.5 $ 7.2 $ 4.6
Restricted cash(3)................................. -- 197.3 --
Total working capital.............................. 310.9 193.8 193.8
Total assets....................................... 1,923.5 1,667.6 1,469.3
Total long-term debt(4)............................ 572.6 799.2 600.8
Shareholder's equity............................... 807.6 488.2 488.2
11
Six Months Ended
------------------------
Year Ended December 31, July 2, July 1,
-------------------------------- 2000 2001
1998 1999 2000 (Unaudited) (Unaudited)
--------- --------- --------- ----------- -----------
(In millions, except ratio data)
Other Data:
Depreciation.................................... $ 48.9 $ 48.2 $ 50.9 $ 24.9 $ 25.9
Goodwill amortization........................... 14.9 16.2 16.0 8.0 8.0
Capital expenditures and acquisitions........... 163.8 108.9 58.4 22.2 44.1
Cash flows from:
Operating activities.......................... 166.8 123.1 62.6 28.2 188.6
Investing activities.......................... (315.0) (36.0) (51.2) (55.2) (133.1)
Financing activities.......................... 151.0 (88.0) (18.0) 17.4 (63.0)
EBITDA(5)(8).................................... 157.5 208.0 281.3 97.0 114.4
Ratio of earnings to fixed charges(6)........... 1.6x 2.3x 3.2x 1.9x 2.6x
Ratio of EBITDA to interest expense(5).......... 2.8x 3.5x 4.5x 3.1x 3.9x
Six Months Ended
----------------------
Year Ended July 2, July 1,
December 31, 2000 2000 2001
----------------- ------- --------
(In millions, except ratio data)
(Unaudited)
Pro Forma Operating Data:(7)
EBITDA(8)..................................................... $ 137.1 $ 88.8 $ 86.8
Interest expense.............................................. 56.7 28.7 27.5
Income before cumulative effect of accounting change.......... 7.9 17.7 16.4
Ratio of earnings to fixed charges(6)......................... 1.2x 1.8x 1.8x
Ratio of EBITDA to interest expense(8)........................ 2.4x 3.1x 3.2x
----------
(1) Includes the effect of the retroactive push down of the 2002 Notes and
$98.0 million of the 2003 Notes on to the balance sheet of ISP Chemco Inc.
for all periods presented.
(2) The As Adjusted balance sheet data give effect to the issuance of $100.0
million in aggregate principal amount of old notes on July 31, 2001 and the
repayment of the 2002 Notes as if that issuance and repayment had been
completed as of July 1, 2001. See "Unaudited Pro Forma Consolidated
Financial Statements."
(3) Represents net proceeds from the issuance of $205.0 million in aggregate
principal amount of old notes, which were placed in an escrow account and
will be distributed to our parent, ISP, to retire the 2002 Notes on or
prior to their maturity.
(4) See "Capitalization" and Note 13 to Consolidated Financial Statements.
(5) EBITDA is calculated as income from continuing operations before income
taxes, increased by interest expense, depreciation and goodwill
amortization. As an indicator of operating performance, EBITDA should not
be considered as an alternative to net income or any other measure of
performance under generally accepted accounting principles.
(6) For purposes of these computations, earnings consist of income from
continuing operations before income taxes, plus fixed charges. Fixed
charges consist of interest expense, plus that portion of lease rental
expense representative of interest (estimated to be one-third of lease
rental expense).
(7) The pro forma operating data give effect to the Transactions as if they had
been completed as of January 1, 2000. See "Unaudited Pro Forma Consolidated
Financial Statements."
(footnotes continued on following page)
12
(footnotes continued form previous page)
(8) The details of the calculation of EBITDA are set forth below:
Six Months Ended Pro Forma
----------------------- ------------------------------------
Year Ended December 31, July 2, July 1, Year Six Months Six Months
------------------------------- 2000 2000 2000 2000 2001
1998 1999 2000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------- ------- ------- ----------- ----------- ----------- ----------- -----------
(Thousands)
Income from
continuing
operations before
income taxes.... $ 37,757 $84,407 $151,562 $32,408 $ 50,965 $ 13,473 $27,222 $25,332
Add:
Interest expense 56,006 59,217 62,802 31,751 29,475 56,688 28,741 27,466
Depreciation.... 48,872 48,191 50,894 24,858 25,941 50,894 24,858 25,941
Goodwill
amortization.... 14,875 16,195 16,042 8,021 8,021 16,042 8,021 8,021
-------- -------- -------- ------- -------- -------- ------- -------
EBITDA.......... $157,510 $208,010 $281,300 $97,038 $114,402 $137,097 $88,842 $86,760
======== ======== ======== ======= ======== ======== ======= =======
13
RISK FACTORS
An investment in the registered notes is subject to a number of risks. You
should carefully consider the following factors, as well as the more detailed
descriptions elsewhere in this prospectus in evaluating the exchange offer. Any
reference to "notes" in this prospectus refers to both old notes and registered
notes, unless the context otherwise requires.
We are substantially leveraged which could affect our ability to fulfill our
obligations under the notes.
Our substantial outstanding debt has important consequences to you,
including the risk that we may not generate sufficient cash flow from operations
to pay principal of and interest on our indebtedness, including the notes, or to
invest in our businesses. If we are unable to satisfy our obligations with cash
flow from operations and refinancings, we might have to attempt to raise cash to
satisfy our obligations through potential sales of assets or equity. Our ability
to raise funds by selling either assets or equity depends on a number of
factors, including market conditions, restrictions contained in the Senior
Credit Facilities, the indenture governing the notes and the indentures
governing the outstanding indebtedness of ISP, our ultimate parent corporation,
and other factors. If we are unable to refinance indebtedness or raise funds
through sales of assets or equity or otherwise, we may be unable to pay
principal of and interest on the notes.
At July 1, 2001, after giving pro forma effect to the issuance of $100.0
million in aggregate principal amount of old notes on July 31, 2001, we had
total outstanding debt of $600.9 million and shareholder's equity of $488.2
million. In addition, subject to covenants contained in the Senior Credit
Facilities, the indenture governing the notes and the indentures governing the
outstanding indebtedness of ISP, we may incur additional indebtedness.
The notes and guarantees are subordinate to all of our existing and future
senior debt.
Your right to receive payments of principal of and interest on the notes is
subordinate to all of our existing and future senior debt, including the Senior
Credit Facilities. Similarly, each guarantee of the notes is subordinate to all
existing and future senior debt of the guarantors, including the guarantors'
guarantees under the Senior Credit Facilities. In the event of a bankruptcy,
liquidation, dissolution, reorganization or similar proceeding with respect to
us or any guarantor, our assets or the guarantor's assets are available to pay
obligations on the notes or the applicable guarantee only after all outstanding
senior debt of that party has been paid in full. There may not be sufficient
assets remaining to make payments on amounts due on any or all of the notes then
outstanding or any guarantee. In addition, under certain circumstances, an event
of default in the payment of senior indebtedness, including senior indebtedness
under the Senior Credit Facilities, will prohibit us and the guarantors from
paying amounts due on the notes or from purchasing or otherwise retiring the
notes. As of July 1, 2001, after giving pro forma effect to the issuance of
$100.0 million in aggregate principal amount of old notes on July 31, 2001, our
obligations under the notes are subordinate to $299.5 million of senior debt.
The notes and guarantees are unsecured.
In addition to being subordinated to all of our existing and future senior
indebtedness, the notes are not secured by any of our assets or the assets of
our subsidiaries except to the extent that the trustee has been granted a
security interest in the escrow accounts. See "Description of the Registered
Notes--Escrow Accounts." Obligations under the Senior Credit Facilities,
however, are secured by a pledge of all of our tangible and intangible assets
(including the capital stock of the guarantors and 66% of the voting stock of
our direct foreign subsidiaries). If we become insolvent or are liquidated, or
if payment under the Senior Credit Facilities is accelerated, the lenders under
the Senior Credit Facilities will be entitled to exercise all of their available
legal remedies and will have a priority claim to our assets. See "Description of
Other Indebtedness--Senior Credit Facilities."
14
Not all subsidiaries are guarantors and creditors of non-guarantor subsidiaries
will be senior to the holders of the notes.
The obligations under the notes are fully and unconditionally guaranteed on
a joint and several basis by the guarantors. All of our domestic subsidiaries
guarantee the notes, other than our accounts receivable financing subsidiary and
some immaterial subsidiaries. Our foreign subsidiaries do not guarantee the
notes. In the event of a bankruptcy, liquidation or reorganization of any of our
subsidiaries which are not guarantors, holders of their indebtedness and their
trade creditors will generally be entitled to payment of their claims from the
assets of those subsidiaries before any assets are made available for
distribution to us.
We may be unable to repurchase the notes upon a change of control.
We cannot assure you that we will have enough funds to pay our obligations
under the notes upon a change of control. In addition, the terms of the Senior
Credit Facilities prohibit our repayment of the notes in that event, unless and
until the time the indebtedness under the Senior Credit Facilities is repaid in
full. Moreover, the occurrence of the events that would constitute a change of
control, as defined in the indenture governing the notes, may result in a
default or otherwise require repayment of indebtedness under the Senior Credit
Facilities. Our failure to make those repayments upon a change of control would
result in a default under the notes and the Senior Credit Facilities.
In addition, we have been advised by G-I Holdings Inc., which in January
2001 filed a voluntary petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code due to asbestos-related claims, that in 2000 three actions were
commenced by creditors or potential creditors of G-I Holdings alleging that the
distribution of the capital stock of ISP to Samuel J. Heyman and certain other
stockholders by G-I Holdings through a series of transactions in 1997 was a
fraudulent conveyance. If these actions are successful, the plaintiffs could
seek to unwind those transactions which could cause the capital stock owned by
Mr. Heyman and those other shareholders to once again become owned by G-I
Holdings. If that were to happen, creditors in G-I Holdings' bankruptcy
proceeding could seek to cause the sale of the capital stock of ISP to satisfy
their claims, which could result in a change of control. The Senior Credit
Facilities can be terminated if a change of control occurs under their terms,
which would cause all loans outstanding under the facilities to be accelerated.
This event could also cause other indebtedness of ours and of ISP (including the
notes) to become accelerated. That event could have a material adverse impact on
our financial condition if we are unable to refinance that indebtedness.
Federal and state statutes allow courts, under specific circumstances, to void
guarantees and require noteholders to return payments received from guarantors.
Under the federal bankruptcy laws and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of a
guarantee could be subordinated to all other debts of that guarantor if, among
other things, the guarantor, at the time it incurred the indebtedness evidenced
by its guarantee:
o received less than reasonably equivalent value or fair consideration
for the incurrence of the guarantee;
o was insolvent or rendered insolvent by reason of that incurrence;
o was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
o intended to incur, or believed that it would incur, debts beyond its
ability to pay those debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could
be voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor.
15
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
o the sum of its debts, including contingent liabilities, were greater
than the fair saleable value of all of its assets;
o the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become
absolute and mature; or
o it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that each guarantor, at the time it incurred the
indebtedness evidenced by its guarantee, was not insolvent, did not have
unreasonably small capital for the business in which it is engaged and did not
incur debts beyond its ability to pay those debts as they mature. We cannot
assure you as to the standard a court would apply in making its determination or
that a court would agree with our conclusions.
Risks Related to Our Business
We may experience foreign currency fluctuations.
For the year ended December 31, 2000, approximately 50% of our net sales
was attributable to our international operations. Fluctuations in the value of
foreign currencies may cause our U.S. dollar-denominated sales and profits with
respect to those operations to decrease or increase without relation to the
actual sales or profits of our international operations. For a discussion of our
international operations, see "Business--Specialty Chemicals--International
Operations," and for a discussion of the impact of currency fluctuations on our
historical results of operations and our policy to manage our foreign currency
exposure, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
We may be held responsible for a tax claim against G-I Holdings Inc.
ISP and/or some of our subsidiaries were members of the G-I Holdings Inc.
consolidated group for federal income tax purposes in certain prior years. As a
result, they would be severally liable for any tax liability of the G-I Holdings
consolidated tax group in respect of those prior years. On September 15, 1997,
G-I Holdings received a tax deficiency notice from the IRS in the amount of
$84.4 million (after taking into account the use of net operating losses and
foreign tax credits otherwise available for use in later years) for the 1990
fiscal year relating to Rhone-Poulenc Surfactants and Specialties, L.P., a
partnership in which G-I Holdings held an interest. On September 21, 2001, the
IRS filed a proof of claim (with respect to this deficiency in the G-I Holdings
bankruptcy. If that proof of claim is sustained, ISP and/or some of our
subsidiaries, together with G-I Holdings and several current and former
subsidiaries of G-I Holdings, would be severally liable for taxes, and interest
in an amount of approximately $250.0 million should G-I Holdings be unable to
satisfy that liability.
We are dependent on others for supply of one of our principal raw materials.
Approximately 62% of our sales of specialty chemicals are derived from
acetylene which is either purchased in the United States as a raw material or is
produced by our wholly owned subsidiary, ISP Acetylene GmbH, in Marl, Germany.
Acetylene is available as a raw material from a limited number of suppliers and,
because of its instability, can only be transported short distances. We obtain
acetylene for domestic use from two unaffiliated suppliers pursuant to supply
contracts. In the event of a substantial interruption in the supply of acetylene
from current sources, we may be unable to obtain as much acetylene from other
sources as would be necessary to meet our supply requirements. A substantial
interruption of our supply of acetylene or a substantial increase in its cost
could have a material adverse effect on our business and operations.
16
The sales prices of butanediol can fluctuate.
Sales prices of butanediol, one of our industrial products that represented
8% of our net sales for the year ended December 31, 2000, have fluctuated based
on supply and demand. We cannot assure you that future growth in demand for
butanediol will be sufficient to keep pace with future increases in supply.
The loss of a significant customer could have an adverse effect on the mineral
products segment of our business.
In 2000, Building Materials Corporation of America, an indirect subsidiary
of G-I Holdings Inc. and an affiliate of ours, and its subsidiaries purchased
approximately $59.3 million of mineral products from us, representing
approximately 7.6% of our net sales. BMCA and its subsidiaries purchase from us
all of their colored roofing granules requirements (except for the requirements
of certain of their roofing plants which are supplied by third parties) under a
requirements contract which expires on December 31, 2001 unless extended by the
parties. A substantial decrease in business from BMCA could have an adverse
impact on the financial condition of our mineral products segment.
We are subject to environmental and other regulations.
Aspects of our business and operations are subject to a wide variety of
federal, state, local and foreign environmental and occupational health and
safety laws and regulations, including laws and regulations governing the
storage and handling of chemicals and hazardous substances. We are also subject
to liability for the investigation and remediation of environmental
contamination at certain properties that we own or operate and at other
properties where we or our predecessors have operated or arranged for the
disposal of hazardous substances. We cannot predict whether additional
expenditures, beyond those currently included in capital and operating budgets,
may be required in order to comply with new environmental legislation and
regulations.
We are controlled by an existing shareholder.
As of September 1, 2001, Samuel J. Heyman, Chairman of the Board of
Directors of ISP, beneficially owned (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934) approximately 80% of ISP's outstanding voting
stock. Accordingly, Mr. Heyman has the ability to elect our entire Board of
Directors and determine the outcome of any other matter submitted to
shareholders for approval. In particular, subject to the terms of our existing
indebtedness, Mr. Heyman has the ability to effect certain corporate
transactions, including mergers, consolidations and the sale of all or
substantially all of our assets.
The liquidity of any market for the old notes could be adversely affected after
completion of the exchange offer. In addition, there may be no active trading
market for the registered notes to be issued in the exchange offer.
There has been no public market for the old notes. If most holders of the
old notes tender their notes in the exchange offer, the liquidity for the old
notes not tendered in the exchange offer could be adversely affected upon
completion of the exchange offer. In addition, we cannot assure you with respect
to:
(1) the liquidity of any market for the registered notes that may develop;
(2) your ability to sell registered notes; or
(3) the price at which you will be able to sell those registered notes.
If a public market were to exist, the registered notes could trade at prices
that may be higher or lower than their principal amount or purchase price,
depending on many factors, including prevailing interest rates, the market for
similar notes, and our financial performance. We do not intend to list the
registered notes to be issued to you in the exchange offer on any securities
exchange or to seek approval for quotations through any automated quotation
system. No active market for the registered notes is currently anticipated. The
initial purchasers of the old notes
17
have advised us that they currently anticipate making a secondary market for the
registered notes, but they are not obligated to do so. We cannot assure you that
an active or liquid public trading market will develop for the registered notes.
18
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4 with respect to the registered notes. This prospectus,
which is a part of the registration statement, omits some of the information
included in the registration statement. Statements made in this prospectus as to
the contents of any contract, agreement or other document are not necessarily
complete. With respect to each contract, agreement or other document filed as an
exhibit to the registration statement, we refer you to that exhibit for a more
complete description of the matter involved, and each of those statements is
deemed qualified in its entirety to that reference.
FORWARD-LOOKING STATEMENTS
This prospectus contains both historical and forward-looking statements.
All statements other than statements of historical fact are, or may be deemed to
be, forward-looking statements within the meaning of section 27A of the
Securities Act and section 21E of the Exchange Act. These forward-looking
statements are only predictions and generally can be identified by use of
statements that include phrases such as "believe," "expect," "anticipate,"
"intend," "plan," "foresee" or other similar words or phrases. Similarly,
statements that describe our objectives, plans or goals also are forward-looking
statements. Our operations are subject to certain risks and uncertainties that
could cause actual results to differ materially from those contemplated by the
relevant forward-looking statement. You are urged to consider these factors
carefully in evaluating the forward-looking statements, including the factors
described under "Risk Factors." The forward-looking statements included in this
prospectus are made only as of the date of this prospectus and we undertake no
obligation to publicly update any forward-looking statements to reflect
subsequent events or circumstances. We cannot assure you that projected results
or events will be achieved.
19
THE EXCHANGE OFFER
Purpose and Effect
We issued the old notes on June 27, 2001 and July 31, 2001 in private
placements. In connection with the issuance of the old notes, we entered into
the indenture and the registration rights agreement. These agreements require
that we file a registration statement under the Securities Act with respect to
the registered notes to be issued in the exchange offer and, upon the
effectiveness of the registration statement, offer to you the opportunity to
exchange your old notes for a like principal amount of registered notes. These
registered notes will be issued without a restrictive legend and, except as set
forth below, may be reoffered and resold by you without registration under the
Securities Act. After we complete the exchange offer, our obligations with
respect to the registration of the old notes and the registered notes will
terminate, except as provided in the last paragraph of this section. A copy of
the indenture relating to the notes and the registration rights agreement have
been filed as exhibits to the registration statement of which this prospectus is
a part. We refer to this indenture in this prospectus as the "indenture." As a
result of the filing and the effectiveness of the registration statement,
assuming we complete the exchange offer no later than 30 business days after the
effectiveness of the registration statement, certain prospective increases in
the interest rate on the old notes provided for in the registration rights
agreement will not occur.
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, if you are not our "affiliate" within
the meaning of Rule 405 under the Securities Act or a broker-dealer referred to
in the next paragraph, we believe that registered notes to be issued to you in
the exchange offer may be offered for resale, resold and otherwise transferred
by you, without compliance with the registration and prospectus delivery
provisions of the Securities Act. This interpretation, however, is based on your
representation to us that:
(1) the registered notes to be issued to you in the exchange offer are
acquired in the ordinary course of your business;
(2) you are not engaging in and do not intend to engage in a distribution
of the registered notes to be issued to you in the exchange offer; and
(3) you have no arrangement or understanding with any person to
participate in the distribution of the registered notes to be issued
to you in the exchange offer.
If you tender in the exchange offer for the purpose of participating in a
distribution of the registered notes to be issued to you in the exchange offer,
you cannot rely on this interpretation by the staff of the Commission. Under
those circumstances, you must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. Each broker-dealer that receives registered notes in the
exchange offer for its own account in exchange for old notes that were acquired
by the broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of those
registered notes. See "Plan of Distribution."
If you will not receive freely tradeable registered notes in the exchange
offer or are not eligible to participate in the exchange offer, you can elect,
by indicating on the letter of transmittal and providing certain additional
necessary information, to have your old notes registered in a "shelf"
registration statement on an appropriate form pursuant to Rule 415 under the
Securities Act. In the event that we are obligated to file a shelf registration
statement, we will be required to keep the shelf registration statement
effective for a period of two years following the date of original issuance of
the old notes or such shorter period that will terminate when all of the old
notes covered by the shelf registration statement have been sold pursuant to the
shelf registration statement. Other than as set forth in this paragraph, you
will not have the right to require us to register your old notes under the
Securities Act. See "--Procedures for Tendering."
20
Consequences of Failure to Exchange
After we complete the exchange offer, if you have not tendered your old
notes, you will not have any further registration rights, except as set forth
above. Your old notes will continue to be subject to certain restrictions on
transfer. Therefore, the liquidity of the market for your old notes could be
adversely affected upon completion of the exchange offer if you do not
participate in the exchange offer.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all old notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the
expiration date. We will issue $1,000 principal amount of registered notes in
exchange for each $1,000 principal amount of old notes accepted in the exchange
offer. You may tender some or all of your old notes pursuant to the exchange
offer. However, old notes may be tendered only in integral multiples of $1,000
in principal amount.
The form and terms of the registered notes are substantially the same as
the form and terms of the old notes, except that the registered notes to be
issued in the exchange offer have been registered under the Securities Act and
will not bear legends restricting their transfer. The registered notes will be
issued pursuant to, and entitled to the benefits of, the indenture. The
indenture also governs the old notes. The registered notes and the old notes
will be deemed one issue of notes under the indenture.
As of the date of this prospectus, $305.0 million in aggregate principal
amount of the old notes were outstanding. This prospectus, together with the
letter of transmittal, is being sent to all registered holders and to others
believed to have beneficial interests in the old notes. You do not have any
appraisal or dissenters' rights in connection with the exchange offer under the
General Corporation Law of the State of Delaware or the indenture. We intend to
conduct the exchange offer in accordance with the applicable requirements of the
Exchange Act and the rules and regulations of the Commission promulgated under
the Exchange Act.
We will be deemed to have accepted validly tendered outstanding notes when,
as, and if we have given oral or written notice of our acceptance to the
exchange agent. The exchange agent will act as our agent for the tendering
holders for the purpose of receiving the registered notes from us. If we do not
accept any tendered notes because of an invalid tender, the occurrence of
certain other events set forth in this prospectus or otherwise, we will return
certificates for any unaccepted old notes, without expense, to the tendering
holder as promptly as practicable after the expiration date.
You will not be required to pay brokerage commissions or fees or, except as
set forth below under "--Transfer Taxes," transfer taxes with respect to the
exchange of your old notes in the exchange offer. We will pay all charges and
expenses, other than certain applicable taxes, in connection with the exchange
offer. See "--Fees and Expenses" below.
Expiration Date; Amendments
The exchange offer will expire at 5:00 p.m., New York City time, on [ ],
2001, unless we determine, in our sole discretion, to extend the exchange offer,
in which case, it will expire at the later date and time to which it is
extended. We do not intend to extend the exchange offer, although we reserve the
right to do so. If we determine to extend the exchange offer, we do not intend
to extend it beyond [ ], 2001. If we extend the exchange offer, we will give
oral or written notice of the extension to the exchange agent and give each
registered holder notice by means of a press release or other public
announcement of any extension prior to 9:00 a.m., New York City time, on the
next business day after the scheduled expiration date.
21
We also reserve the right, in our sole discretion,
(1) to delay accepting any old notes or, if any of the conditions set
forth below under "--Conditions" have not been satisfied or waived, to
terminate the exchange offer by giving oral or written notice of the
delay or termination to the exchange agent, or
(2) to amend the terms of the exchange offer in any manner, by complying
with Rule 14e-l(d) under the Exchange Act to the extent that rule
applies.
We acknowledge and undertake to comply with the provisions of Rule 14e-l(c)
under the Exchange Act, which requires us to pay the consideration offered, or
return the old notes surrendered for exchange, promptly after the termination or
withdrawal of the exchange offer. We will notify you as promptly as we can of
any extension, termination or amendment.
Procedures for Tendering
Book-Entry Interests
The old notes were issued as global securities in fully registered form
without interest coupons. Beneficial interests in the global securities, held by
direct or indirect participants in DTC, are shown on, and transfers of these
interests are effected only through, records maintained in book-entry form by
DTC with respect to its participants.
If you hold your old notes in the form of book-entry interests and you wish
to tender your old notes for exchange pursuant to the exchange offer, you must
transmit to the exchange agent on or prior to the expiration date either:
(1) a written or facsimile copy of a properly completed and duly executed
letter of transmittal, including all other documents required by the
letter of transmittal, to the exchange agent at the address set forth
on the cover page of the letter of transmittal; or
(2) a computer-generated message transmitted by means of DTC's Automated
Tender Offer Program system and received by the exchange agent and
forming a part of a confirmation of book-entry transfer, in which you
acknowledge and agree to be bound by the terms of the letter of
transmittal.
In addition, in order to deliver old notes held in the form of book-entry
interests:
(1) a timely confirmation of book-entry transfer of those notes into the
exchange agent's account at DTC pursuant to the procedure for
book-entry transfers described below under "--Book-Entry Transfer"
must be received by the exchange agent prior to the expiration date;
or
(2) you must comply with the guaranteed delivery procedures described
below.
The method of delivery of old notes and the letter of transmittal and all
other required documents to the exchange agent is at your election and risk.
Instead of delivery by mail, we recommend that you use an overnight or hand
delivery service. In all cases, sufficient time should be allowed to assure
delivery to the exchange agent before the expiration date. You should not send
the letter of transmittal or old notes to us. You may request your broker,
dealer, commercial bank, trust company, or nominee to effect the above
transactions for you.
22
Certificated Old Notes
Only registered holders of certificated old notes may tender those notes in
the exchange offer. If your old notes are certificated notes and you wish to
tender those notes for exchange pursuant to the exchange offer, you must
transmit to the exchange agent on or prior to the expiration date, a written or
facsimile copy of a properly completed and duly executed letter of transmittal,
including all other required documents, to the address set forth below under
"--Exchange Agent." In addition, in order to validly tender your certificated
old notes:
(1) the certificates representing your old notes must be received by the
exchange agent prior to the expiration date or
(2) you must comply with the guaranteed delivery procedures described
below.
Procedures Applicable to All Holders
If you tender an old note and you do not withdraw the tender prior to the
expiration date, you will have made an agreement with us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
letter of transmittal.
If your old notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you wish to tender your
notes, you should contact the registered holder promptly and instruct the
registered holder to tender on your behalf. If you wish to tender on your own
behalf, you must, prior to completing and executing the letter of transmittal
and delivering your old notes, either make appropriate arrangements to register
ownership of the old notes in your name or obtain a properly completed bond
power from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible institution unless:
(1) old notes tendered in the exchange offer are tendered either
(A) by a registered holder who has not completed the box entitled
"Special Registration Instructions" or "Special Delivery
Instructions" on the letter of transmittal or
(B) for the account of an eligible institution; and
(2) the box entitled "Special Registration Instructions" on the letter of
transmittal has not been completed.
If signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, the guarantee must be by a financial institution,
which includes most banks, savings and loan associations and brokerage houses,
that is a participant in the Securities Transfer Agents Medallion Program, the
New York Stock Exchange Medallion Program or the Stock Exchanges Medallion
Program.
If the letter of transmittal is signed by a person other than you, your old
notes must be endorsed or accompanied by a properly completed bond power and
signed by you as your name appears on those old notes.
If the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, those
persons should so indicate when signing. Unless we waive this requirement, in
this instance you must submit with the letter of transmittal proper evidence
satisfactory to us of their authority to act on your behalf.
We will determine, in our sole discretion, all questions regarding the
validity, form, eligibility, including time of receipt, acceptance and
withdrawal of tendered old notes. This determination will be final and binding.
23
We reserve the absolute right to reject any and all old notes not properly
tendered or any old notes our acceptance of which would, in the opinion of our
counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular old notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and inding on all
parties.
You must cure any defects or irregularities in connection with tenders of
your old notes within the time period we will determine unless we waive that
defect or irregularity. Although we intend to notify you of defects or
irregularities with respect to your tender of old notes, neither we, the
exchange agent nor any other person will incur any liability for failure to give
this notification. Your tender will not be deemed to have been made and your
notes will be returned to you if:
(1) you improperly tender your old notes;
(2) you have not cured any defects or irregularities in your tender; and
(3) we have not waived those defects, irregularities or improper tender.
The exchange agent will return your notes, unless otherwise provided in the
letter of transmittal, as soon as practicable following the expiration of the
exchange offer.
In addition, we reserve the right in our sole discretion to:
(1) purchase or make offers for, or offer registered notes for, any old
notes that remain outstanding subsequent to the expiration of the
exchange offer;
(2) terminate the exchange offer; and
(3) to the extent permitted by applicable law, purchase notes in the open
market, in privately negotiated transactions or otherwise.
The terms of any of these purchases or offers could differ from the terms
of the exchange offer.
By tendering, you will represent to us that, among other things:
(1) the registered notes to be acquired by you in the exchange offer are
being acquired in the ordinary course of your business,
(2) you are not engaging in and do not intend to engage in a distribution
of the registered notes to be acquired by you in the exchange offer,
(3) you do not have an arrangement or understanding with any person to
participate in the distribution of the registered notes to be acquired
by you in the exchange offer and
(4) you are not our "affiliate," as defined under Rule 405 of the
Securities Act.
In all cases, issuance of registered notes for old notes that are accepted
for exchange in the exchange offer will be made only after timely receipt by the
exchange agent of certificates for your old notes or a timely book-entry
confirmation of your old notes into the exchange agent's account at DTC, a
properly completed and duly executed letter of transmittal, or a
computer-generated message instead of the letter of transmittal, and all other
required documents. If any tendered old notes are not accepted for any reason
set forth in the terms and conditions of the exchange offer or if old notes are
submitted for a greater principal amount than you desire to exchange, the
unaccepted or non-exchanged old notes, or old notes in substitution therefor,
will be returned without expense to you. In addition, in the case of old notes,
tendered by book-entry transfer into the exchange agent's account at DTC
pursuant to the book-entry transfer procedures described below, the
non-exchanged old notes will
24
be credited to your account maintained with DTC, as promptly as practicable
after the expiration or termination of the exchange offer.
Guaranteed Delivery Procedures
If you desire to tender your old notes and your old notes are not
immediately available or one of the situations described in the immediately
preceding paragraph occurs, you may tender if:
(1) you tender through an eligible financial institution;
(2) on or prior to 5:00 p.m., New York City time, on the expiration date,
the exchange agent receives from an eligible institution, a written or
facsimile copy of a properly completed and duly executed letter of
transmittal and notice of guaranteed delivery, substantially in the
form provided by us; and
(3) the certificates for all certificated old notes, in proper form for
transfer, or a book-entry confirmation, and all other documents
required by the letter of transmittal, are received by the exchange
agent within three NYSE trading days after the date of execution of
the notice of guaranteed delivery.
The notice of guaranteed delivery may be sent by facsimile transmission,
mail or hand delivery. The notice of guaranteed delivery must set forth:
(1) your name and address;
(2) the amount of old notes you are tendering; and
(3) a statement that your tender is being made by the notice of guaranteed
delivery and that you guarantee that within three New York Stock
Exchange trading days after the execution of the notice of guaranteed
delivery, the eligible institution will deliver the following
documents to the exchange agent:
(A) the certificates for all certificated old notes being tendered,
in proper form for transfer or a book-entry confirmation of
tender;
(B) a written or facsimile copy of the letter of transmittal, or a
book-entry confirmation instead of the letter of transmittal; and
(C) any other documents required by the letter of transmittal.
Book-Entry Transfer
The exchange agent will establish an account with respect to the book-entry
interests at DTC for purposes of the exchange offer promptly after the date of
this prospectus. You must deliver your book-entry interest by book-entry
transfer to the account maintained by the exchange agent at DTC. Any financial
institution that is a participant in DTC's systems may make book-entry delivery
of book-entry interests by causing DTC to transfer the book-entry interests into
the exchange agent's account at DTC in accordance with DTC's procedures for
transfer.
If one of the following situations occur:
(1) you cannot deliver a book-entry confirmation of book-entry delivery of
your book-entry interests into the exchange agent's account at DTC; or
25
(2) you cannot deliver all other documents required by the letter of
transmittal to the exchange agent prior to the expiration date,
then you must tender your book-entry interests according to the guaranteed
delivery procedures discussed above.
Withdrawal Rights
You may withdraw tenders of your old notes at any time prior to 5:00 p.m.,
New York City time, on the expiration date.
For your withdrawal to be effective, the exchange agent must receive a
written or facsimile transmission notice of withdrawal at its address set forth
below under "--Exchange Agent" prior to 5:00 p.m., New York City time, on the
expiration date.
The notice of withdrawal must:
(1) state your name;
(2) identify the specific old notes to be withdrawn, including the
certificate number or numbers and the principal amount of withdrawn
notes;
(3) be signed by you in the same manner as you signed the letter of
transmittal when you tendered your old notes, including any required
signature guarantees or be accompanied by documents of transfer
sufficient for the exchange agent to register the transfer of the old
notes into your name; and
(4) specify the name in which the old notes are to be registered, if
different from yours.
We will determine all questions regarding the validity, form and
eligibility, including time of receipt, of withdrawal notices. Our determination
will be final and binding on all parties. Any old notes withdrawn will be deemed
not to have been validly tendered for exchange for purposes of the exchange
offer. Any old notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to you without cost as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. Properly withdrawn old notes may be retendered by following one of the
procedures described under "--Procedures for Tendering" above at any time on or
prior to 5:00 p.m., New York City time, on the expiration date.
Conditions
Notwithstanding any other provision of the exchange offer and subject to
our obligations under the registration rights agreement, we will not be required
to accept for exchange, or to issue registered notes in exchange for, any old
notes and may terminate or amend the exchange offer, if at any time before the
acceptance of any old notes for exchange any of the following events shall
occur:
(1) any injunction, order or decree shall have been issued by any court or
any governmental agency that would prohibit, prevent or otherwise
materially impair our ability to proceed with the exchange offer; or
(2) the exchange offer shall violate any applicable law or any applicable
interpretation of the staff of the Commission.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances giving rise to any condition, subject to applicable law. We
also may waive in whole or in part at any time and from time to time any
particular condition in our sole discretion. If we waive a condition, we may be
required in order to comply with applicable securities laws, to extend the
expiration date of the exchange offer. Our failure at any time
26
to exercise any of the foregoing rights will not be deemed a waiver of these
rights and these rights will be deemed ongoing rights which may be asserted at
any time and from time to time.
In addition, we will not accept for exchange any old notes tendered, and no
registered notes will be issued in exchange for any of those old notes, if at
the time the notes are tendered any stop order shall be threatened by the
Commission or be in effect with respect to the registration statement of which
this prospectus is a part or the qualification of the indenture under the Trust
Indenture Act of 1939.
The exchange offer is not conditioned on any minimum principal amount of
old notes being tendered for exchange.
Exchange Agent
We have appointed Wilmington Trust Company as exchange agent for the
exchange offer. Questions, requests for assistance and requests for additional
copies of the prospectus, the letter of transmittal and other related documents
should be directed to the exchange agent addressed as follows:
By Overnight Delivery or
Registered or Certified Mail: By Hand in New York: By Hand in Delaware:
Wilmington Trust Company Wilmington Trust Company Wilmington Trust Company
Rodney Square North c/o Computershare Trust 1105 Rodney Square North
1100 Rodney Square North Company of New York Wilmington, DE
Wilmington, DE 19890 Wall Street Plaza Attn: Corporate Trust, 1st Floor
Attn: Corporate Trust 88 Pine Street, 19th Floor
New York, NY 10005
Facsimile Transmission Number:
(For Eligible Institutions Only)
(302) 651-1079
Confirm Receipt of Facsimile
by Telephone:
(302) 651-8869
The exchange agent also acts as trustee under the indenture.
Fees and Expenses
We will not pay brokers, dealers, or others soliciting acceptances of the
exchange offer. The principal solicitation is being made by mail. Additional
solicitations, however, may be made in person or by telephone by our officers
and employees.
We will pay the estimated cash expenses to be incurred in connection with
the exchange offer. These are estimated in the aggregate to be approximately
$[ ] which includes fees and expenses of the exchange agent, accounting, legal,
printing and related fees and expenses.
Transfer Taxes
You will not be obligated to pay any transfer taxes in connection with a
tender of your old notes for exchange unless you instruct us to register
registered notes in the name of, or request that old notes not tendered or not
accepted in the exchange offer be returned to, a person other than the
registered tendering holder, in which event the registered tendering holder will
be responsible for the payment of any applicable transfer tax.
27
Accounting Treatment
We will not recognize any gain or loss for accounting purposes upon the
consummation of the exchange offer. We will amortize the expense of the exchange
offer over the term of the registered notes under generally accepted accounting
principles.
28
CAPITALIZATION
The following table sets forth our consolidated capitalization as of July
1, 2001 (A) on a historical basis and (B) on a pro forma basis to give effect to
the issuance of $100.0 million in aggregate principal amount of old notes on
July 31, 2001 as if that issuance had been completed as of July 1, 2001.
As of July 1, 2001
(Unaudited)
-----------------------------
Actual Pro Forma
---------- ----------
(Thousands)
Senior Credit Facilities:
Revolver..................................... $ 74,000 $ 74,000
Term Loan.................................... 225,000 225,000
2002 Notes(1)................................... 199,871 --
2003 Notes(1)................................... 98,000 --
10 1/4% Senior Subordinated Notes due 2011(2)... 201,864 301,364
Other........................................... 454 454
---------- ----------
Total long-term debt.................. 799,189 600,818
Shareholder's equity............................ 488,184 488,184
---------- ----------
Total capitalization.................. $1,287,373 $1,089,002
========== ==========
----------
(1) In connection with of the issuance of the old notes, the 2002 Notes and
$98.0 million of the 2003 Notes have been retroactively presented on our
balance sheet in order to reflect the retirement of the 2002 Notes and
$98.0 million of the 2003 Notes. The net proceeds from the old notes, other
than $0.9 million in accrued interest, were placed in escrow until used to
retire the 2002 Notes and $98.0 million of the 2003 Notes at or prior to
maturity.
(2) Gives effect to the offering of $100.0 million in aggregate principal
amount of the old notes on July 31, 2001 at an offering price of 99.5%.
29
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
We have prepared the following unaudited pro forma consolidated financial
statements on the basis set forth in the accompanying notes. The accompanying
pro forma consolidated balance sheet gives effect to the issuance of $100.0
million in aggregate principal amount of old notes on July 31, 2001 as if that
issuance had been completed as of July 1, 2001. The accompanying pro forma
consolidated statements of income give effect to the Transactions as if they had
been completed as of January 1, 2000. The unaudited pro forma consolidated
financial statements do not purport to project the results of operations for any
future period or to represent what the financial position or results of
operations would have been if the Transactions had been completed as of the
dates indicated.
30
ISP CHEMCO INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
As of July 1, 2001
(Thousands)
(Unaudited)
Adjustments
----------------------------
Repayment of
2002 Notes
Offerings of and
Actual Old Notes 2003 Notes Pro Forma
---------- ------------ ------------ ----------
ASSETS
Current assets:
Cash............................................. $ 7,221 $ 98,000 (1) $ (2,620) (3) $ 4,601
(98,000) (4)
Restricted cash.................................. 197,251 (197,251) (3) --
Accounts receivable trade........................ 94,754 94,754
Accounts receivable other........................ 25,505 25,505
Receivable from related parties, net............. 16,174 16,174
Inventories...................................... 181,984 181,984
Other current assets............................. 34,087 34,087
---------- ---------- ---------- ----------
Total current assets............................. 556,976 98,000 (297,871) 357,105
Property, plant and equipment....................... 550,769 550,769
Receivable from related party....................... 20,000 20,000
Goodwill, net....................................... 483,922 483,922
Other assets........................................ 55,964 1,500 (2) 57,464
---------- ---------- ---------- ----------
Total assets........................................ $1,667,631 $ 99,500 $ (297,871) $1,469,260
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term debt.................................. $ 77 $ -- $ -- $ 77
Current maturities of long-term debt............. 202,374 (199,871) (3) 2,503
Accounts payable................................. 59,266 59,266
Accrued liabilities ............................. 86,634 86,634
Income taxes..................................... 14,826 14,826
---------- ---------- ---------- ----------
Total current liabilities........................ 363,177 -- (199,871) 163,306
Long-term debt less current maturities............ 596,815 99,500 (1) (98,000) (4) 598,315
Deferred taxes...................................... 157,169 157,169
Other liabilities................................... 62,286 62,286
Shareholder's equity:
Common stock and additional paid-in capital...... 438,237 438,237
Retained earnings................................ 85,116 85,116
Accumulated other comprehensive loss............. (35,169) (35,169)
---------- ---------- ---------- ----------
Total shareholder's equity......................... 488,184 -- -- 488,184
---------- ---------- ---------- ----------
Total liabilities and shareholder's equity......... $1,667,631 $ 99,500 $ (297,871) $1,469,260
========== ========== ========== ==========
See accompanying Notes to Pro Forma Consolidated Financial Statements.
31
ISP CHEMCO INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 2000
(Thousands)
(Unaudited)
Adjustments
-------------------------------------------
Repayment of
2002 Notes
Offerings of and Other
Actual Old Notes 2003 Notes Adjustments Pro Forma
---------- ----------- ---------- ----------- ----------
Net sales.......................... $ 783,941 $ -- $ -- $ -- $ 783,941
Cost of products sold.............. (514,599) (514,599)
Selling, general and administrative (156,571) (156,571)
Provision for restructuring........ (14,429) (14,429)
Goodwill amortization.............. (16,042) (16,042)
---------- ---------- ---------- ---------- ----------
Operating income................... 82,300 -- -- -- 82,300
Interest expense................... (62,802) (32,317) (5) 19,515 (3) 17,447 (6) (56,689)
9,262 (4) (7,794) (7)
Gain on contract settlement........ 3,450 3,450
Other income (expense), net........ 128,614 (144,203) (6) (15,589)
---------- ---------- ---------- ---------- ----------
Income before income taxes......... 151,562 (32,317) 28,777 (134,550) 13,472
Income taxes....................... (53,199) 12,088 (10,764) 46,331 (5,544)
---------- ---------- ---------- ---------- ----------
Net income......................... $ 98,363 $ (20,229) $ 18,013 $ (88,219) $ 7,928
========== ========== ========== ========== ==========
See accompanying Notes to Pro Forma Consolidated Financial Statements.
32
ISP CHEMCO INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Six Months Ended July 2, 2000
(Thousands)
(Unaudited)
Adjustments
-------------------------------------------
Repayment of
2002 Notes
Offerings of and Other
Actual Old Notes 2003 Notes Adjustments Pro Forma
---------- ----------- ---------- ----------- ----------
Net sales.......................... $ 398,198 $ -- $ -- $ -- $ 398,198
Cost of products sold.............. (256,400) (256,400)
Selling, general and administrative (78,237) (78,237)
Goodwill amortization.............. (8,021) (8,021)
---------- ---------- ---------- ---------- ----------
Operating income................... 55,540 -- -- -- 55,540
Interest expense................... (31,751) (16,158) (5) 9,758 (3) 8,851 (6) (28,741)
4,631 (4) (4,072) (7)
Gain on contract settlement ....... 3,450 3,450
Other income (expense), net........ 5,169 (8,196) (6) (3,027)
---------- ---------- ---------- ---------- ----------
Income before income taxes......... 32,408 (16,158) 14,389 (3,417) 27,222
Income taxes....................... (11,336) 5,636 (5,019) 1,198 (9,521)
---------- ---------- ---------- ---------- ----------
Net income......................... $ 21,072 $ (10,522) $ 9,370 $ (2,219) $ 17,701
========== ========== ========== ========== ==========
See accompanying Notes to Pro Forma Consolidated Financial Statements.
33
ISP CHEMCO INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Six Months Ended July 1, 2001
(Thousands)
(Unaudited)
Adjustments
-------------------------------------------
Repayment of
2002 Notes
Offerings of and Other
Actual Old Notes 2003 Notes Adjustments Pro Forma
---------- ----------- ---------- ----------- ----------
Net sales.......................... $ 406,491 $ -- $ -- $ -- $ 406,491
Cost of products sold.............. (255,595) (255,595)
Selling, general and administrative (81,054) (81,054)
Goodwill amortization.............. (8,021) (8,021)
---------- ---------- ---------- ---------- ----------
Operating income................... 61,821 -- -- -- 61,821
Interest expense................... (29,475) (15,925) (5) 9,904 (3) 7,196 (6) (27,466)
4,631 (4) (3,797) (7)
Other income (expense), net........ 18,619 (27,642) (6) (9,023)
---------- ---------- ---------- ---------- ----------
Income before income taxes......... 50,965 (15,925) 14,535 (24,243) 25,332
Income taxes....................... (17,892) 5,591 (5,103) 8,510 (8,894)
---------- ---------- ---------- ---------- ----------
Income before cumulative effect of
accounting change................ 33,073 (10,334) 9,432 (15,733) 16,438
Cumulative effect of change in
accounting principle, net of
taxes............................ (440) (440)
---------- ---------- ---------- ---------- ----------
Net income......................... $ 32,633 $ (10,334) $ 9,432 $ (15,733) $ 15,998
========== ========== ========== ========== ==========
See accompanying Notes to Pro Forma Consolidated Financial Statements.
34
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following Notes to Pro Forma Consolidated Financial Statements should
be read in conjunction with the description of the Transactions included
elsewhere in this prospectus.
(1) Reflects the issuance of an additional $100.0 million in aggregate
principal amount of old notes for net proceeds of $98.0 million.
(2) Represents $1.5 million of deferred financing fees related to the
offering of the additional $100.0 million in aggregate principal
amount of old notes.
(3) Reflects the repayment of the 2002 Notes and the elimination of the
related interest expense.
(4) Reflects the repayment of $98.0 million of the 2003 Notes and the
elimination of the related interest expense.
(5) Reflects interest expense, including amortization of original issue
discount and amortization of deferred financing fees, relating to the
old notes.
(6) Represents interest expense and investment income transferred to ISP
Investco LLC in the Restructuring.
(7) Represents incremental interest expense, including amortization of
deferred financing fees, in connection with replacing our previous
bank credit facility with the Senior Credit Facilities.
35
SELECTED FINANCIAL DATA
The following information sets forth our selected historical consolidated
financial data. The results of any interim period do not necessarily indicate
the results for the full year. This information should be read in conjunction
with the information in "Summary Financial Data," "Capitalization," "Unaudited
Pro Forma Consolidated Financial Statements," "The Restructuring" and the
Consolidated Financial Statements included elsewhere in this prospectus. ISP
Chemco Inc. (formerly known as ISP Opco Holdings Inc.) was formed in June 1998
in connection with the merger of International Specialty Products Inc. with and
into ISP Holdings Inc., which occurred on July 15, 1998. In connection with that
merger, ISP Holdings changed its name to International Specialty Products Inc.
ISP Chemco Inc. and the other co-issuers of the notes are indirect wholly owned
subsidiaries of ISP.
We have prepared the financial data presented below on a basis which
retroactively reflects our formation for all periods presented. In addition, our
financial data presented below for periods prior to the merger of International
Specialty Products Inc. with and into ISP Holdings represent the results of the
predecessor company to ISP.
The As Adjusted balance sheet data give effect to the issuance of $100.0
million in aggregate principal amount of old notes on July 31, 2001 as if that
issuance had been completed as of July 1, 2001. The pro forma operating data
give effect to the Transactions as if they had been completed as of January 1,
2000. The pro forma financial data presented below does not purport to project
the financial position or the results of operations for any future period or to
represent what the financial position or results of operations would have been
if the Transactions had been completed at the dates indicated.
Six Months Ended
-------------------------
Year Ended December 31, July 2, July 1,
------------------------------------------------------ 2000 2001
1996 1997 1998 1999 2000 (Unaudited) (Unaudited)
-------- -------- -------- -------- -------- ----------- -----------
(In millions)
Operating Data:
Net sales.................. $ 677.0 $ 709.0 $ 784.6 $ 787.4 $ 783.9 $ 398.2 $ 406.5
Operating income........... 135.8 138.4 71.6 146.5 82.3 55.5 61.8
Interest expense(1)........ 41.9 55.1 56.0 59.2 62.8 31.8 29.5
Income from continuing
operations before income
taxes.................... 112.6 110.8 37.8 84.4 151.6 32.4 51.0
Income from continuing
operations............... 72.0 70.9 22.5 54.8 98.4 21.1 33.1
Income before cumulative
effect of accounting
change................... 72.2 73.2 24.6 80.1 98.4 21.1 33.1
Net income................. 72.2 73.2 24.6 80.1 98.4 21.1 32.6
July 1, 2001
December 31, ---------------------------
------------------------------------------------------ Actual As Adjusted(2)
1996 1997 1998 1999 2000 (Unaudited) (Unaudited)
-------- -------- -------- -------- -------- ----------- --------------
(In millions)
Balance Sheet Data:
Cash and short-term
investments.................. $ 141.0 $ 188.9 $ 329.0 $ 349.4 $ 535.5 $ 7.2 $ 4.6
Restricted cash(3)......... -- -- -- -- -- 197.3 --
Total working capital...... 221.1 274.4 376.6 384.4 310.9 193.8 193.8
Total assets............... 1,316.6 1,393.9 1,718.3 1,805.1 1,923.5 1,667.6 1,469.3
Total long-term debt(4).... 671.4 627.2 720.3 682.2 572.6 799.2 600.8
Shareholder's equity....... 406.9 491.1 614.8 694.9 807.6 488.2 488.2
36
Six Months Ended
-------------------------
Year Ended December 31, July 2, July 1,
------------------------------------------------------ 2000 2001
1996 1997 1998 1999 2000 (Unaudited) (Unaudited)
-------- -------- -------- -------- -------- ----------- -----------
(In millions, except ratio data)
Other Data:
Depreciation............... $ 37.8 $ 40.9 $ 48.9 $ 48.2 $ 50.9 $ 24.9 $ 25.9
Goodwill amortization...... 13.2 13.2 14.9 16.2 16.0 8.0 8.0
Capital expenditures and
acquisitions............. 51.4 67.6 163.8 108.9 58.4 22.2 44.1
Cash flows from:
Operating activities..... 93.8 55.2 166.8 123.1 62.6 28.2 188.6
Investing activities..... (48.1) (40.9) (315.0) (36.0) (51.2) (55.2) (133.1)
Financing activities..... (42.4) (12.2) 151.0 (88.0) (18.0) 17.4 (63.0)
EBITDA(5).................. 205.5 220.0 157.5 208.0 281.3 97.0 114.4
Ratio of earnings to fixed
charges(6)............... 3.6x 2.9x 1.6x 2.3x 3.2x 1.9x 2.6x
Ratio of EBITDA to interest
expense(5)............... 4.9x 4.0x 2.8x 3.5x 4.5x 3.1x 3.9x
Six Months Ended
Year Ended ---------------------------
December 31, July 2, July 1,
2000 2000 2001
------------ ------- --------
(In millions, except ratio data)
(unaudited)
Pro Forma Operating Data (7):
EBITDA(5)............................................. $137.1 $ 88.8 $ 86.8
Interest expense...................................... 56.7 28.7 27.5
Income before cumulative effect of accounting change.. 7.9 17.7 16.4
Ratio of earnings to fixed charges(6)................. 1.2x 1.8x 1.8x
Ratio of EBITDA to interest expense(5)................ 2.4x 3.1x 3.2x
----------
(1) Includes the effect of the retroactive push down of the 2002 Notes and
$98.0 million of the 2003 Notes on to the balance sheet of ISP Chemco Inc.
for all periods presented.
(2) The As Adjusted balance sheet data give effect to the issuance of $100.0
million in aggregate principal amount of old notes on July 31, 2001 and the
repayment of the 2002 Notes as if that issuance and repayment had been
completed as of July 1, 2001. See "Unaudited Pro Forma Consolidated
Financial Statements."
(3) Represents net proceeds from the issuance of $205.0 million in aggregate
principal amount of old notes, which were placed in an escrow account and
will be distributed to our parent, ISP, to retire the 2002 Notes on or
prior to their maturity.
(4) See "Capitalization" and Note 13 to Consolidated Financial Statements.
(5) EBITDA is calculated as income from continuing operations before income
taxes, increased by interest expense, depreciation and goodwill
amortization. As an indicator of operating performance, EBITDA should not
be considered as an alternative to net income or any other measure of
performance under generally accepted accounting principles.
(6) For purposes of these computations, earnings consist of income from
continuing operations before income taxes, plus fixed charges. Fixed
charges consist of interest expense, plus that portion of lease rental
expense representative of interest (estimated to be one-third of lease
rental expense).
(7) The pro forma operating data give effect to the Transactions as if they had
been completed as of January 1, 2000. See "Unaudited Pro Forma Consolidated
Financial Statements."
37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of our financial condition and
results of operations for the six months ended July 2, 2000 and July 1, 2001 and
the years ended December 31, 1998, 1999 and 2000. In October 1999, we sold the
stock of our filter products subsidiaries (see Note 7 to Consolidated Financial
Statements). Accordingly, the results of operations of those filter products
subsidiaries have been classified as a "Discontinued Operation" within the
Consolidated Financial Statements for the years 1998 and 1999. The following
discussion is on a continuing operations basis. Set forth below are the net
sales and operating income for our business segments related to continuing
operations for 1998, 1999 and 2000 and the six months ended July 2, 2000 and
July 1, 2001.
Six Months Ended
Year Ended -------------------------
December 31, July 2, July 1,
----------------------------- 2000 2001
1998 1999 2000 (Unaudited) (Unaudited)
------- ------- ------- ----------- -----------
(Millions)
Net sales:
Personal care........................ $ 189.4 $ 187.1 $ 189.0 $ 95.5 $ 105.1
Pharmaceutical, food and beverage.... 157.9 177.3 232.8 119.0 115.8
Performance chemicals, fine chemicals
and industrial....................... 342.8 335.7 290.2 147.0 145.6
------- ------- ------- ------- -------
Total specialty chemicals.... 690.1 700.1 712.0 361.5 366.5
Mineral products..................... 94.5 87.3 71.9 36.7 40.0
------- ------- ------- ------- -------
Net sales.............................. $ 784.6 $ 787.4 $ 783.9 $ 398.2 $ 406.5
======= ======= ======= ======= =======
Operating income:
Personal care........................ $ 37.6 $ 47.9 $ 34.7 $ 15.5 $ 21.3
Pharmaceutical, food and beverage.... 33.6 42.1 50.8 25.2 26.6
Performance chemicals, fine chemicals
and industrial....................... 64.0 41.8 0.1 9.5 9.9
------- ------- ------- ------- -------
Total specialty chemicals.... 135.2 131.8 85.6 50.2 57.8
Mineral products..................... 20.5 16.1 9.4 5.3 3.4
------- ------- ------- ------- -------
Total segment operating income 155.7 147.9 95.0 55.5 61.2
Unallocated corporate office income
(expenses)........................ (3.1) (1.0) 1.7 -- 0.6
Provision for restructuring, staff
reduction and impairment loss........ (73.0) (0.4) (14.4) -- --
Merger-related expenses.............. (8.0) -- -- -- --
------- ------ ------ ------- -------
Operating income....................... $ 71.6 $ 146.5 $ 82.3 $ 55.5 $ 61.8
======= ======= ======= ======= =======
Results of Operations
First Six Months of 2001 Compared With First Six Months of 2000
For the first six months of 2001, we recorded net income of $32.6 million
compared with $21.1 million in the first six months of 2000. The results for the
first six months of 2001 include an after-tax charge of $0.4 million,
representing the cumulative effect of adopting Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities." Excluding the effect of that charge and a one-time gain of $3.5
million in the first six months of 2000 from a contract settlement, net income
for the first six months of 2001 was $33.1 million versus $18.8 million in the
same period last year. On a comparable basis, the improved results were
attributable to higher operating and investment income and lower interest
expense.
Net sales for the first six months of 2001 were $406.5 million compared
with $398.2 million for the same period in 2000. The increase in sales resulted
primarily from higher unit volumes in the personal care, pharmaceutical,
performance chemicals and mineral products businesses and improved pricing in
the industrial business, partially offset by lower unit volumes in the
industrial, alginates and fine chemicals businesses and by the adverse effect of
the stronger U.S. dollar in Europe.
Operating income for the first six months of 2001 was $61.8 million
compared with $55.5 million for the first six months of 2000. The 11% increase
in operating income was primarily attributable to improvements in operating
profits in the personal care and pharmaceutical businesses resulting from higher
unit volumes and
38
favorable manufacturing costs, and improved pricing in the industrial business,
partially offset by lower unit volumes in the industrial and alginates
businesses, higher energy costs in the mineral products business segment and by
the adverse effect of the stronger U.S. dollar in Europe.
Interest expense for the first six months of 2001 was $29.5 million
compared with $31.8 million for the same period last year. The decrease was due
mainly to lower average borrowings and, to a lesser extent, lower average
interest rates. Other income, net, for the first six months of 2001 was $18.6
million compared with $5.2 million for the same period last year, with the
increase due to higher investment income.
Business Segment Review
A discussion of operating results for each of our business segments
follows. We operate our specialty chemicals business through three reportable
business segments, in addition to the mineral products segment.
Personal Care
Sales in the first six months of 2001 were $105.1 million compared with
$95.5 million for the same period last year, while operating income for the
first six months of 2001 increased to $21.3 million from $15.5 million in the
same period last year. The 10% increase in sales resulted from higher unit
volumes in the North American and European hair care markets, partially offset
by the adverse effect of the stronger U.S. dollar in Europe. Operating profits
improved 37% as a result of the higher unit volumes and due to higher gross
margins which were attributable to favorable manufacturing costs.
Pharmaceutical, Food and Beverage
Sales for the pharmaceutical, food and beverage segment were $115.8 million
for the first six months of 2001 compared with $119.0 million for the first six
months of 2000, while operating income increased to $26.6 million versus $25.2
million last year. Sales for the pharmaceutical and beverage business increased
by 5% in the first six months of 2001, primarily reflecting higher
pharmaceutical unit volumes in the antiseptics and excipients markets. Sales for
the alginates business decreased by 22% due to lower unit volumes, primarily in
the food, pharmaceutical and industrial markets.
Operating income for the pharmaceutical and beverage business increased 25%
in the first six months of 2001 compared with the same period in 2000, while the
operating margin improved from 24% in the first six months of 2000 to 28% for
the same period this year. The improvement reflected the higher unit volumes and
higher gross margins as a result of favorable manufacturing costs. Operating
income for the alginates business decreased by 56% in the first six months of
2001 due to the lower unit volumes and unfavorable manufacturing costs related
to lower production volumes.
Performance Chemicals, Fine Chemicals and Industrial
Sales in the first six months of 2001 were $145.6 million compared with
$147.0 million in the first six months of 2000. The lower sales were primarily
attributable to a 4% sales decline in the industrial business due to lower
volumes and the unfavorable impact ($3.5 million) of the stronger U.S. dollar in
Europe, offset by improved pricing. Sales for the fine chemicals business were
9% lower, reflecting unit volume decreases related to contract sales to Polaroid
Corporation, with sales to Polaroid expected to continue to decline. Sales for
the performance chemicals business increased by 10%, mainly reflecting volume
increases in the North American agricultural market.
Operating income for the performance chemicals, fine chemicals and
industrial segment increased 4% for the first six months of 2001 to $9.9 million
compared with $9.5 million for the same period last year. The improved results
were attributable to higher industrial operating income due to improved pricing.
Offsetting the improved industrial results were 33% and 10% lower operating
income for the performance chemicals and fine chemicals businesses,
respectively. The unfavorable results for the performance chemicals business
were attributable to an unfavorable product mix and higher operating expenses,
which offset the impact of the higher unit
39
volumes. The lower operating income for the fine chemicals business also
reflected an unfavorable product mix and higher operating expenses.
Mineral Products
Sales for the mineral products segment for the first six months of 2001
were $40.0 million compared with $36.7 million for the first six months of 2000.
The higher sales were attributable to a $3.3 million (68%) increase in trade
sales due to higher unit volumes. Sales to Building Materials Corporation of
America, an affiliate, remained level for the period at $31.8 million as
compared with last year. Operating income for the first six months of 2001 was
$3.4 million compared with $5.3 million for the first six months of 2000,
reflecting lower gross margins due to unfavorable pricing and higher energy
costs, and also higher operating expenses due mainly to an increased provision
for doubtful accounts.
2000 Compared With 1999
We recorded income from continuing operations in 2000 of $98.4 million
compared with $54.8 million in 1999. Including income from a discontinued
operation of $25.3 million, which reflected an after-tax gain of $23.5 million
from the sale of our filter products subsidiaries, net income in 1999 was $80.1
million.
The results for 2000 include a $14.4 million provision for restructuring
and a $3.5 million gain on a contract settlement, while the results for 1999
included an $8.5 million pre-tax gain from the sale of our pearlescent pigments
business, a non-core product line. Also in 1999, we reversed previously recorded
restructuring reserves in the amount of $1.9 million and established a staff
reduction program for which a pre-tax provision for severance of $2.3 million
was recorded (see Note 4 to Consolidated Financial Statements). Excluding the
effect of those nonrecurring items in each period, income from continuing
operations for 2000 was $105.5 million compared with $49.5 million in 1999. On a
comparable basis, the higher income from continuing operations in 2000 was
attributable to higher investment income, partially offset by lower operating
income and higher interest expense.
Sales for 2000 were $783.9 million compared with $787.4 million in 1999.
The decrease in sales was primarily attributable to lower volumes in the fine
chemicals, mineral products and performance chemicals businesses ($50.1
million), the adverse effect of the stronger U.S. dollar ($27.5 million),
principally in Europe, and to lower pricing in the industrial business,
partially offset by the full year's contribution to sales by the alginates
business acquired in October 1999 (see Note 9 to Consolidated Financial
Statements) and by improved volumes in the pharmaceutical and beverage business
and the personal care segment. Sales in 2000 reflect 13% and 23% higher sales in
the Asia-Pacific and Latin America regions, respectively, offset by lower sales
in the U.S. and Europe.
Operating income was $82.3 million in 2000 compared with $146.5 million in
1999. Excluding nonrecurring items in each year, operating income for 2000 was
$96.7 million compared with $138.4 million in 1999. The decrease in 2000 was
attributable to lower pricing in the industrial business, the adverse effect of
the stronger U.S. dollar in Europe, higher raw material and energy costs which
lowered gross margins, and lower volumes in fine chemicals, mineral products and
performance chemicals, partially offset by the full year's contribution to
operating income of the alginates business. Operating income in 2000 decreased
in the U.S. and Europe, due to the factors discussed above, while the
Asia-Pacific and Latin America regions experienced a 50% and 14%, respectively,
growth in operating income in 2000 over 1999.
Interest expense for 2000 was $62.8 million, a $3.6 million (6%) increase
over the $59.2 million recorded in 1999, with the increase due primarily to
higher average interest rates, partially offset by lower average borrowings.
Other income (expense), net, comprises net investment income, foreign
exchange gains/losses resulting from the revaluation of foreign
currency-denominated accounts receivable and payable as a result of changes in
exchange rates, and other nonoperating and nonrecurring items of income and
expense. Other income, net, was $128.6 million in 2000 compared with other
expense of $2.9 million in 1999, with the increase the result of higher
investment income, reflecting net gains in 2000 of $123.5 million from the sale
of our investments in Dexter Corporation and Life Technologies, Inc. (see Note 3
to Consolidated Financial Statements). Our total gain related to these
investments prior to and in 1999 and 2000 was approximately $146.0 million prior
to expenses.
40
Business Segment Review
Personal Care
Sales for the personal care business segment in 2000 were $189.0 million
compared with $187.1 million in 1999, while operating income in 2000 was $34.7
million compared with $47.9 million in 1999, which included an $8.5 million
pre-tax gain on the sale of the pearlescent pigments business, a non-core
product line. The sales increase reflected higher volumes, mainly in hair care
products, partially offset by the adverse effect of the stronger U.S. dollar in
Europe ($5.9 million) and lower average pricing in both hair care and skin care.
Operating income, excluding the gain in 1999 on the sale of the pearlescent
pigments business, decreased by $4.7 million in 2000 to $34.7 million, as the
impact of volume increases was offset by higher manufacturing and operating
expenses, the adverse effect of the stronger U.S. dollar in Europe ($4.8
million) and lower average pricing.
Pharmaceutical, Food and Beverage
Sales for the pharmaceutical, food and beverage business segment were
$232.8 million in 2000 compared with $177.3 million in 1999, principally
reflecting a full year's contribution to sales from the alginates business
($66.5 million), compared with $12.8 million in 1999 after the date of its
acquisition in October 1999. Sales for the pharmaceutical and beverage
businesses increased $1.8 million, reflecting volume growth across all regions,
partially offset by the impact of the stronger U.S. dollar ($6.5 million). The
sales growth was primarily the result of strong sales in the oral care and
excipients markets, partially offset by lower sales in the beverage business.
Operating income was $50.8 million in 2000, a 21% improvement compared with
$42.1 million in 1999, with the increase resulting from the full year's
contribution from the alginates business. Operating income for the
pharmaceutical and beverage business decreased 5% in 2000 as the impact of
favorable volumes was offset by the adverse impact of the stronger U.S. dollar
in Europe ($5.2 million) and higher operating expenses.
Performance Chemicals, Fine Chemicals and Industrial
Sales for the performance chemicals, fine chemicals and industrial business
segment were $290.2 million for 2000, a decrease of $45.5 million (14%) compared
with $335.7 million in 1999, while operating income declined to $0.1 million in
2000 compared with $41.8 million in 1999. Although all three businesses
experienced significant sales declines in 2000, the decrease in sales was
primarily attributable to 34% lower fine chemicals sales.
Sales for the performance chemicals business decreased by $12.3 million
(13%) in 2000, while operating income decreased by $3.0 million (20%). The
primary factors for the decline in sales were lower volumes, mainly in Europe
and North America in PVP polymers in the household, industrial and institutional
markets, in addition to the adverse impact of the stronger U.S. dollar in Europe
($3.0 million). Operating income for the performance chemicals business
decreased by $3.0 million (20%) in 2000 due to the volume shortfalls and the
stronger dollar ($2.4 million), partially offset by an improved gross margin due
to favorable manufacturing costs.
Sales for the fine chemicals business decreased $23.9 million (34%) in
2000, while operating income decreased $19.1 million (85%). The fine chemicals
business was significantly impacted by the expiration of a substantial custom
manufacturing agreement at the end of 1999. Sales related to this agreement
contributed $32.2 million of sales and $17.4 million of gross margin in 1999.
Higher sales volumes of other fine chemicals products partially offset the
impact of this contract termination. The lower operating income in 2000 was also
impacted by higher energy costs and lower plant utilization.
Sales for the industrial business decreased by $9.3 million in 2000, with
the decrease resulting from unfavorable selling prices and the adverse impact of
the stronger U.S. dollar in Europe ($12.1 million), partially offset by volume
increases in Europe and Asia-Pacific. As a result of the unfavorable pricing and
the impact of the stronger dollar ($3.1 million), the industrial business
experienced a loss of $15.4 million in 2000.
41
Mineral Products
Sales for the mineral products business segment in 2000 were $71.9 million,
a $15.4 million (18%) decrease compared with sales of $87.3 million in 1999,
while operating income decreased $6.7 million (42%) to $9.4 million in 2000. The
lower sales and operating income resulted from substantially lower trade sales,
resulting from the loss of two major trade customers for colored roofing
granules in the fourth quarter of 1999, which together accounted for
approximately 68% of mineral products trade sales and approximately 23% of total
mineral products sales in 1999. The loss of these customers adversely impacted
the year 2000 sales by $19.3 million. Operating income in 2000 was also impacted
by higher energy costs.
1999 Compared With 1998
We recorded income from continuing operations in 1999 of $54.8 million
compared with $22.5 million in 1998. Including income from a discontinued
operation of $25.3 million, which reflected an after-tax gain of $23.5 million
from the sale of our filter products subsidiaries, net income in 1999 was $80.1
million compared with net income of $24.6 million in 1998.
The results for 1999 included an $8.5 million pre-tax gain from the sale of
our pearlescent pigments business, a non-core product line. The results for 1998
reflected a restructuring and impairment loss of $73.0 million and $8.0 million
of charges related to the merger of International Specialty Products Inc. with
and into ISP Holdings. Also in 1999, we reversed previously recorded
restructuring reserves in the amount of $1.9 million and established a staff
reduction program for which a pre-tax provision for severance of $2.3 million
was recorded (see Note 4 to Consolidated Financial Statements). In 1998, we also
recorded a pre-tax gain of $1.2 million from the sale of our tennis court
materials business, which was part of the mineral products business segment.
Excluding the effect of the nonrecurring items in each period, income from
continuing operations for 1999 was $49.5 million compared with $70.2 million in
1998. On a comparable basis, the lower income from continuing operations in 1999
was the result of lower investment income and, to a lesser extent, lower
operating income.
Sales for 1999 were $787.4 million compared with $784.6 million in 1998.
The increase in sales was attributable to product exchange arrangements pursuant
to which we sold butanediol, at cost, to other butanediol producers, accounting
for $15.3 million of sales, increased revenues in the fine chemicals business
($14.7 million), the acquisition of the alginates business (see Note 9 to
Consolidated Financial Statements), which recorded sales of $12.8 million in
1999 after the date of its acquisition, and higher sales in the pharmaceutical
business. These sales increases were offset by lower sales in the industrial
business and in the mineral products and personal care business segments. The
overall sales increase was attributable to increased sales volumes ($51.9
million), offset by unfavorable pricing, principally in the industrial business,
and the unfavorable effect ($5.4 million) of the stronger U.S. dollar relative
to other currencies in certain areas of the world. Sales in 1999 reflected
slightly higher sales in the U.S., Europe and in the Asia-Pacific region,
partially offset by 10% lower sales in Latin America.
Operating income was $146.5 million in 1999 compared with $71.6 million in
1998. Excluding nonrecurring items in each year, operating income for 1999 was
$138.4 million compared with $151.4 million in 1998. The lower results in 1999
were attributable to lower gross margins as a result of lower pricing in
intermediates (including butanediol) and solvents and unabsorbed manufacturing
costs across all business segments that resulted from our program to reduce
inventory levels during the fourth quarter of 1999. The results in 1999 were
also impacted by lower operating profits for the mineral products business
segment, partially offset by lower operating expenses that resulted from our
third quarter 1999 reduction in corporate staff and other expense reduction
efforts. Total selling, general and administrative expenses decreased by 3% in
1999 and, as a percent of sales, decreased from 19.7% in 1998 to 19.1% in 1999.
Operating income in 1999 decreased in the U.S., Europe and Latin America, all
due to the factors discussed above, while the Asia-Pacific region experienced a
slight growth in operating income in 1999 over 1998.
Interest expense for 1999 was $59.2 million, a $3.2 million (6%) increase
over the $56.0 million recorded in 1998, with the increase due primarily to
higher average borrowings, partially offset by lower average interest rates.
Other expense, net, was $2.9 million in 1999 compared with other income of $20.7
million in 1998, with the decrease principally reflecting lower net investment
income.
42
Business Segment Review
Personal Care
Sales for the personal care business segment in 1999 were $187.1 million
compared with $189.4 million in 1998, while operating income in 1999, including
an $8.5 million pre-tax gain on the sale of the pearlescent pigments business, a
non-core product line, improved to $47.9 million from $37.6 million in 1998. The
lower sales in 1999 primarily resulted from the sale of the pearlescent pigments
business and lower average pricing in both skin care and hair care. The
sunscreen market continued to experience lower average price levels in some
products in 1999. In addition, the skin care business experienced a decline in
sales volumes to a major customer who advised us that our application was
discontinued. These factors combined to offset sales volume improvements due to
growth in new products and in preservatives.
Operating income, excluding the gain on the sale of the pearlescent
pigments business, improved by 5% in 1999, as the operating margin increased to
21.0% compared with 19.9% in 1998. The improvements reflected cost containment
in operating expenses, specifically selling and supply chain costs.
Pharmaceutical, Food and Beverage
Sales for the pharmaceutical, food and beverage business segment were
$177.3 million in 1999, including $12.8 million in sales for the alginates
business after the date of its acquisition in October 1999, compared with $157.9
million in 1998. Excluding the alginates business, sales for the pharmaceutical
and beverage businesses increased 4% to $164.5 million in 1999. The increased
sales reflected sales volume increases, primarily in the Asia-Pacific region and
Europe and favorable pricing in North America, partially offset by the
unfavorable impact of the U.S. dollar in Europe ($1.8 million).
The increased sales in the pharmaceutical, food and beverage business
segment were principally attributable to higher sales volumes in the
pharmaceutical business. The sales growth primarily reflected increased volumes
in the excipients and oral care markets and, to a lesser extent, the denture
adhesives market, with strong growth registered in the Asia-Pacific region.
Favorable pricing in the U.S. for PVP-Iodine and the Gantrez(R) product line
also contributed to the sales growth.
Decreased sales in the beverage business partially offset the sales gains
in the pharmaceutical business. Beverage sales declined primarily due to lower
sales volumes, particularly in Latin America. The adverse impact of the stronger
U.S. dollar in Europe and competitive pricing pressures in Europe further
contributed to the sales decline.
Operating income for the pharmaceutical, food and beverage business segment
was $42.1 million in 1999, a 25% improvement compared with $33.6 million in
1998, while operating margins improved from 21.3% in 1998 to 23.7% in 1999. The
improved results reflected the higher sales volumes and favorable pricing in the
pharmaceutical business, as well as favorable manufacturing and selling costs.
Performance Chemicals, Fine Chemicals and Industrial
Sales for the performance chemicals, fine chemicals and industrial business
segment were $335.7 million for 1999 compared with $342.8 million in 1998, while
operating income declined to $41.8 million in 1999 compared with $64.0 million
in 1998. The decrease in sales was attributable mainly to lower industrial and
performance chemicals sales, partially offset by a 26% increase in fine
chemicals sales.
Sales for the performance chemicals business decreased by $4.8 million (5%)
in 1999, while operating income decreased by $0.7 million (4%). The primary
factors for the decline in sales were significantly lower volumes and lower
pricing for the solvent chemicals market in all regions, particularly in Europe.
Excluding the negative impact resulting from the solvents market, sales for the
performance chemicals business grew 10% in 1999. The growth in the non-solvents
markets was driven by new products and applications in Europe, combined with an
increase in the U.S. base business.
43
Sales for the fine chemicals business increased $14.7 million (26%) in
1999, while operating income improved $5.1 million (29%). The higher sales and
operating income in 1999 were primarily attributable to the increase in sales of
an intermediate to a pharmaceutical company. Sales of this product contributed
$32.2 million of sales and $17.4 million of gross margin in 1999. However, as
explained in "Results of Operations--2000 Compared With 1999," the custom
manufacturing agreement for this product expired at the end of 1999,
significantly impacting the sales and operating income of the fine chemicals
business in 2000.
Sales for the industrial business decreased by $17.0 million in 1999.
Excluding sales of $15.3 million from product exchange arrangements pursuant to
which we sold butanediol, at cost, to other butanediol producers, the sales
decline for the year was $32.3 million (17%), primarily resulting from
unfavorable selling prices and sales volume declines for butanediol and N-methyl
pyrrolidone and unfavorable pricing for tetrahydrofuran. As a result of those
sales decreases, the industrial business experienced an 86% decrease in
operating profits in 1999.
Mineral Products
Sales for the mineral products business segment in 1999 were $87.3 million,
a $7.2 million (8%) decrease compared with sales of $94.5 million in 1998, while
operating income decreased $4.4 million (21%) to $16.1 million in 1999. The
lower sales and operating income resulted from a $5.3 million decrease in sales
to an affiliate, BMCA (see Note 16 to Consolidated Financial Statements),
resulting primarily from lower pricing and, to a lesser extent, lower volumes.
Sales to trade customers decreased $1.9 million (6%) in 1999 due primarily to
the sale of the tennis court materials business in September 1998, which
accounted for $1.4 million of sales in 1998.
Liquidity and Financial Condition
During the first six months of 2001, our net cash flow before financing
activities was $55.5 million, including $188.6 million of cash generated from
operations, the reinvestment of $44.1 million for capital programs and the
acquisition of FineTech Ltd. (see Note 9 to Consolidated Financial Statements)
and the use of $89.1 million of cash for net purchases of available-for-sale
securities and other short-term investments.
Cash generated from operations in the first six months of 2001 reflected a
$159.0 million net cash inflow related to net sales of trading securities.
Excluding this cash flow, cash provided from operations totaled $29.7 million.
Cash invested in additional working capital totaled $30.0 million during the
first six months of 2001, reflecting a $31.0 million increase in inventories,
mainly due to higher production levels in line with increased sales, and a $6.7
million increase in receivables due to higher sales in the second quarter of
2001 compared with the fourth quarter of 2000, partially offset by a $7.1
million net increase in payables and accrued liabilities.
Net cash used in financing activities during the first six months of 2001
totaled $63.0 million, reflecting the debt financing transactions discussed
below, financing fees and expenses of $10.4 million related to the financing
transactions, repayments of long-term debt totaling $28.2 million and a $108.6
million decrease in short-term borrowings. Financing activities in the first six
months of 2001 also included a $28.9 million increase in loans from and a $7.8
million capital contribution from our parent company, partially offset by $35.0
million of dividends and distributions to our parent company. Also, as a result
of the restructuring of our business in June 2001 (see Note 1 to Consolidated
Financial Statements), $22.2 million of cash was transferred to ISP Investco
LLC.
On June 27, 2001, we and three of our wholly owned subsidiaries issued
$205.0 million in aggregate principal amount of the old notes. The net proceeds
of $197.3 million, after discounts and fees, were placed in an escrow account
and will be distributed to our parent, ISP, to be used to retire the 2002 Notes
on or prior to their maturity. On September 15, 2001, ISP sent a notice of
redemption to all holders of the 2002 Notes. On July 31, 2001, we and the three
wholly owned subsidiaries issued an additional $100.0 million in aggregate
principal amount of the old notes. The net proceeds were $98.9 million,
including $0.9 million of accrued interest from June 27, 2001 to the date of
issuance, of which $98.0 million were placed in an escrow account and will be
distributed to ISP to be used to retire a portion of the 2003 Notes on or prior
to their maturity. All of the notes were guaranteed by substantially all of our
other domestic subsidiaries. The notes were issued under an indenture which,
among other things, places limits on our and our subsidiaries' ability to incur
additional debt, issue preferred stock, incur liens, and pay dividends or make
certain other restricted payments and restricted investments.
44
In a related transaction, we and these three subsidiaries also entered into
the Senior Credit Facilities. The initial borrowings were used to repay amounts
outstanding under our previous credit facility. The Senior Credit Facilities are
comprised of a $225.0 million term loan with a maturity of seven years, with
quarterly repayments, and a $225.0 million revolving credit facility which will
terminate in five years. See "Description of Other Indebtedness--Senior Credit
Facilities." The revolving credit facility includes a borrowing capacity not in
excess of $50.0 million for letters of credit. All borrowings under the Senior
Credit Facilities will be based on either an alternate base rate (based on the
banks' base rate or on the federal funds rate) or on the eurodollar rate plus a
margin based on the ratio of our total consolidated debt to EBITDA (as defined
in the Senior Credit Facilities). The Senior Credit Facilities require
compliance with various financial covenants, including a total debt leverage
maintenance ratio, a senior debt leverage maintenance ratio, an interest
coverage ratio and a minimum adjusted net worth. As of July 1, 2001, $74.0
million of borrowings and $5.6 million of letters of credit were outstanding
under the revolving credit facility.
As a result of the foregoing factors, cash and cash equivalents decreased
by $7.5 million during the first six months of 2001 to $7.2 million.
In December 2000, we shut down our Seadrift, Texas butanediol manufacturing
facility and shut down production of butanediol at our Texas City, Texas
manufacturing facility in the first quarter of 2001. Accordingly, we recorded a
one-time restructuring charge against operating income in 2000 of $2.5 million,
including an accrual of $2.1 million for cash costs to be incurred in 2001 for
severance and for decommissioning and remediation costs. In the first six months
of 2001, $1.8 million of costs were charged against this reserve, leaving a
reserve balance of $0.3 million as of the end of the second quarter of 2001.
In connection with the relocation of certain of our production lines for
personal care products to our Freetown, Massachusetts facility, we shut down our
manufacturing operation in Belleville, New Jersey in the first quarter of 2001.
Accordingly, we recorded a restructuring charge against operating income in 2000
of $11.9 million, which included a $10.4 million write-off of production assets.
The total charge included an accrual of $1.5 million for cash costs to be
incurred in 2001, mainly for severance and other shutdown-related costs. In the
first six months of 2001, $0.8 million of costs were charged against this
reserve, principally for severance costs, leaving a reserve balance of $0.7
million as of the end of the second quarter of 2001.
During 2000, our net cash flow before financing activities was $11.4
million, including $62.6 million of cash generated from operations, the
reinvestment of $61.7 million for capital programs, and $3.3 million of purchase
accounting adjustments related to the 1999 acquisition of the alginates business
(see Note 9 to Consolidated Financial Statements), including a $4.9 million cash
arbitration award which resulted in an adjustment of the purchase price of the
acquisition. Cash flow before financing activities also included $7.2 million of
cash generated from net sales of available-for-sale securities.
Cash from operations for 2000 reflected a $150.6 million cash outflow for
net purchases of trading securities. Excluding this cash outflow, cash provided
from operations for 2000 totaled $213.2 million. Cash generated from a reduction
in working capital totaled $8.7 million, primarily reflecting a net increase of
$13.2 million in payables and accrued liabilities, partially offset by a $4.5
million increase in inventories. Also, net cash generated from a decrease in
other assets reflected a $6.6 million loan against company-owned insurance
policies.
Net cash used in financing activities in 2000 totaled $18.0 million and
included a $99.0 million reduction in borrowings under our previous credit
facility and $10.6 million of repayments of long-term debt, partially offset by
a $70.2 million increase in short-term borrowings. Financing activities in 2000
also included a $29.6 million increase in loans from, and a $19.3 million
capital contribution from, our parent company, partially offset by a $25.0
million dividend to our parent company.
As a result of the foregoing factors, cash and cash equivalents decreased
by $6.6 million during 2000 to $14.8 million, excluding $520.7 million of
trading and available-for-sale securities and other short-term investments.
As of December 31, 2000, our current maturities of long-term debt,
scheduled to be repaid during 2001, totaled $224.4 million, including a $28.1
million mortgage obligation on our headquarters property which was
45
repaid in January 2001, and $196.0 million of borrowings under our previous
credit facility, based on its expiration in July 2001.
In July 1996, we entered into our previous credit facility with a group of
banks, which provided for loans of up to $400.0 million and letters of credit of
up to $75.0 million (see Note 13 to Consolidated Financial Statements). As of
December 31, 2000, loans in the amount of $196.0 million and letters of credit
in the amount of $5.6 million were outstanding under the previous credit
facility.
Our borrowings are subject to the application of certain financial
covenants contained in the Senior Credit Facilities, the indenture governing the
notes and in the indentures relating to ISP's outstanding debt. As of July 1,
2001, we were in compliance with those covenants, and the application of those
covenants would not have restricted the amount available for borrowing under the
Senior Credit Facilities. The Senior Credit Facilities, the indenture governing
the notes and the indentures relating to ISP's outstanding debt limit the amount
of cash dividends, purchases of treasury stock, and other restricted payments
(as defined) by us. As of July 1, 2001, under the most restrictive of the
limitations, we could have paid dividends and other restricted payments of up to
$58.0 million. See Note 13 to Consolidated Financial Statements.
Subject to restrictions in our Senior Credit Facilities, the indenture
governing the notes and the indentures governing the outstanding indebtedness of
ISP, we may incur more debt for working capital, capital expenditures,
acquisitions and other purposes.
Capital expenditures are expected to be approximately $53.3 million in 2001
and approximately $50.0 million in 2002. Approximately two-thirds of our capital
expenditures in 2001 are expected to consist of maintenance and compliance
expenditures.
At December 31, 2000, we held an investment in Hercules Incorporated of
$204.3 million (based on market value), representing approximately 9.9% of the
outstanding common stock of Hercules at that date. We solicited proxies to elect
a slate of four directors at the Hercules 2001 annual meeting of shareholders.
All four of our nominees received a substantial plurality of the votes cast for
directors and were elected to the Hercules Board of Directors. The investment in
Hercules was transferred to ISP Investco LLC in connection with the
Restructuring.
For information with respect to income taxes, see Note 8 to Consolidated
Financial Statements.
We do not believe that inflation has had an effect on our results of
operations during the past three years. However, there can be no assurance that
our business will not be affected by inflation in the future.
We have received site designation from the New Jersey Hazardous Waste
Facilities Siting Commission for the construction of a hazardous waste
treatment, storage and disposal facility at our Linden, New Jersey property and
have received approval from the New Jersey Turnpike Authority for a direct
access ramp from the Turnpike to the site. If we are successful in securing the
necessary permits to construct and operate the hazardous waste facility and
decide to proceed with this project, we would develop and operate the facility
in a separate subsidiary, either on our own or in a joint venture with a
suitable partner. We estimate that the cost of constructing the facility will be
approximately $100 million and, if approved, the facility is anticipated to be
in operation three years after commencement of construction. We anticipate
utilizing internally generated cash and/or seeking project or other independent
financing for this project. Accordingly, we would not expect the facility to
impact materially our liquidity or capital resources. We are also investigating
other development opportunities at this site.
We, together with other companies, are a party to a variety of proceedings
and lawsuits involving environmental matters. See Note 20 to Consolidated
Financial Statements for further information.
Market-Sensitive Instruments and Risk Management
Prior to the Restructuring, our investment strategy was to seek returns in
excess of money market rates on our available cash while minimizing market
risks. We invested primarily in international and domestic arbitrage and
securities of companies involved in acquisition or reorganization transactions,
including at times, common stock short positions which were offsets against long
positions in securities which were expected, under certain circumstances, to be
46
exchanged or converted into the short positions. With respect to our equity
positions, we were exposed to the risk of market loss. See Notes 2 and 3 to
Consolidated Financial Statements.
We enter into financial instruments in the ordinary course of business in
order to manage our exposure to market fluctuations in interest rates and
foreign currency rates. The financial instruments we employ to reduce market
risk include swaps, futures and forwards. The financial instruments are subject
to strict internal controls. The counterparties to these financial instruments
are major financial institutions with high credit standings. The amounts
subjected to credit risk are generally limited to the amounts, if any, by which
the counterparties' obligations exceed our obligations. We control credit risk
through credit approvals, limits and monitoring procedures.
December 31, 1999 December 31, 2000
------------------- -------------------
Notional Fair Notional Fair
Amount Value Amount Value
-------- ----- ------- -----
(Millions)
Interest rate financial instruments $ 100.0 $ 0.7 $ 100.0 $(0.8)
Foreign currency financial $ 57.4 $(0.3) $ 20.9 $ 0
instruments.......................
Equity-related financial instruments $ 45.6 $ 0 $ 30.2 $ 0
All of the financial instruments in the above table have a maturity of less
than one year, except that $100.0 million notional amount of interest rate swap
agreements, with a fair value of $(0.8) and $(2.5) million as of December 31,
2000 and July 1, 2001, respectively, mature in 2002.
Our objectives in utilizing interest rate swaps are to lower funding costs,
diversify sources of funding and manage interest rate exposure. As of December
31, 2000, we had entered into interest rate swaps with a notional value of
$100.0 million in order to convert to fixed rates $100.0 million of our exposure
to floating interest rates. By utilizing interest rate swaps, we reduced our
interest expense by $1.7 and $0.3 million in 1998 and 1999, respectively, and $0
in 2000.
We entered into forward foreign exchange instruments with off-balance-sheet
risk in order to hedge a portion of both our borrowings denominated in foreign
currency and our firm or anticipated purchase commitments related to the
operations of our foreign subsidiaries. Forward contract agreements required us
and the counterparty to exchange fixed amounts of U.S. dollars for fixed amounts
of foreign currency on specified dates. All forward contracts were in major
currencies with highly liquid markets and matured within one year. Hedging
strategies were approved by senior management before they were implemented.
As of December 31, 1999 and 2000, the U.S. dollar equivalent notional value
of outstanding forward foreign exchange contracts was $57.4 and $20.9 million,
respectively. The U.S. dollar equivalent notional value of foreign exchange
contracts outstanding as of December 31, 1999 and 2000, which were entered into
as a hedge of non-local currency intercompany loans, was $33.9 and $17.0
million, respectively, representing 100% of our foreign currency exposure with
respect to those loans.
We entered into equity-related financial instruments as a means to manage
our exposure to market fluctuations on our short-term investments. As of
December 31, 2000, the value of equity-related long contracts was $30.2 million,
which were marked-to-market each month, with unrealized gains and losses
included in the results of operations. As such, there was no economic cost to
terminate these instruments and therefore the fair market value was zero.
The Senior Credit Facilities significantly limit our ability to make
investments. We are prohibited from investing in equity securities in excess of
$5.0 million.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS No. 133
requires that changes in a derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement.
47
We adopted SFAS No. 133 as of January 1, 2001. Accounting for interest rate
swaps and foreign exchange forward contracts held by us is affected by
implementation of this standard. The earnings impact of the transition
adjustments related to the initial adoption of the standard was an after-tax
loss of $0.4 million, which was recorded in the first quarter of 2001 as the
cumulative effect of a change in accounting principle.
The Senior Credit Facilities include a $225.0 million term loan. Borrowings
against this term loan are based on either an alternate base rate or on the
eurodollar rate plus a margin based on the ratio of our total consolidated debt
to EBITDA. We have designated interest rate swaps, with a notional amount of
$100 million, as a hedge of our exposure to changes in the eurodollar rate. The
interest rate swaps are structured to receive interest based on the eurodollar
rate and pay interest on a fixed rate basis. A cash flow hedging relationship
has been established whereby the interest rate swaps hedge the risk of changes
in the eurodollar rate related to forecasted borrowings against the term loan.
The interest rate swaps hedge forecasted exposure to changes in the eurodollar
rate through July 2002.
On June 30, 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting and eliminates the pooling method of
accounting. SFAS No. 141 will not have an impact on our business since we have
historically accounted for all business combinations using the purchase method
of accounting. With the adoption of SFAS No. 142, effective January 1, 2002,
goodwill will no longer be subject to amortization over its estimated useful
life. However, goodwill will be subject to at least an annual assessment for
impairment and more frequently if circumstances indicate a possible impairment.
Companies must perform a fair-value-based goodwill impairment test. In addition,
under SFAS No. 142, an acquired intangible asset should be separately recognized
if the benefit of the intangible asset is obtained through contractual or other
legal rights, or if the intangible asset can be sold, transferred, licensed,
rented or exchanged. Intangible assets will be amortized over their useful
lives. Early adoption of SFAS No. 142 is not permitted. On an annualized basis,
our net income will increase by approximately $16.0 million, unless any
impairment charges are necessary.
48
THE RESTRUCTURING
Prior to issuing the notes, ISP completed an internal restructuring in
order to separate its investment assets from its specialty chemicals business.
As part of these transactions, we transferred those investment assets,
associated short-term debt and the outstanding stock of certain subsidiaries to
a newly formed parent company, Newco Holdings Inc. Newco Holdings then
transferred those assets and debt to another newly formed subsidiary of Newco
Holdings, ISP Investco LLC. After completing these transactions, our assets
consist solely of those related to our specialty chemicals business. We refer to
these transactions in this prospectus as the "Restructuring."
Prior to these transfers, all intercompany debt owed to entities that are
now part of ISP's investment business by entities that are now part of our
specialty chemicals business following the Restructuring, which as of June 27,
2001 equaled approximately $6.2 million, was repaid. In addition, all
intercompany debt owed by entities that are now part of ISP's investment
business to entities that are now part of our specialty chemicals business
following the Restructuring, which as of June 27, 2001 equaled approximately
$85.1 million, was distributed to our parent company, Newco Holdings.
After these transfers to ISP Investco LLC, we undertook a series of
internal stock and asset transfers and merger transactions with respect to our
chemicals assets. In connection with the Restructuring, we formed several new
corporations, three of which, along with their direct parent, ISP Chemco Inc.,
are co-issuers of the notes. The Restructuring also included the distribution of
all of our operating assets (other than some real property and stock of some
existing subsidiaries of ISP Chemco Inc.) to these three new corporations and
another subsidiary of ISP Chemco Inc. All domestic subsidiaries of ISP Chemco
Inc. that exist after the Restructuring, other than the co-issuers of the notes,
some immaterial subsidiaries and our accounts receivable financing subsidiary,
are guarantors of the notes.
In addition to the above transactions, as part of the Restructuring, we
refinanced a substantial portion of our and ISP's debt through the offerings of
the old notes and by entering into the Senior Credit Facilities.
49
BUSINESS
General
We are a leading multinational manufacturer of specialty chemicals and
mineral products. The business of our ultimate parent, ISP, primarily consists
of owning all of the issued and outstanding capital stock of Newco Holdings
Inc., which was formed in 2001 in connection with the Restructuring. Newco
Holdings owns all of the issued and outstanding capital stock of ISP Chemco Inc.
(formerly known as ISP Opco Holdings Inc.), and ISP Investco LLC. ISP Chemco
operates ISP's specialty chemicals business, exclusively through its direct and
indirect subsidiaries. ISP Investco LLC was formed in 2001 for the purpose of
holding all of ISP's investment assets and related liabilities.
We recently completed the acquisition of all of the operating assets of
FineTech Ltd., a pharmaceutical research company based in Haifa, Israel. This
acquisition will complement our existing technologies and expand our fine
chemicals customer base. FineTech specializes in the design of proprietary
synthetic routes and methodologies used in the production of highly complex and
valuable organic compounds for the pharmaceutical industry. Its customers
include some of the leading pharmaceutical and fine chemical companies in North
America and Europe. We funded this acquisition through borrowings under our
previous credit facility.
As used in this prospectus, "G-I Holdings" includes G-I Holdings Inc. and
any and all of its predecessors, including GAF Corporation, G-I Holdings Inc.
and GAF Fiberglass Corporation.
Specialty Chemicals
Products and Markets
We manufacture a broad spectrum of specialty chemicals having numerous
applications in consumer and industrial products. We use proprietary technology
to convert various raw materials, through a chain of one or more processing
steps, into increasingly complex and higher value-added specialty chemicals
specifically developed to meet customer requirements.
Our specialty chemicals business is organized based upon the markets for
our products. Accordingly, we manage our specialty chemicals in the following
three business segments:
o Personal Care--whose products are sold to the skin care and hair care
markets;
o Pharmaceutical, Food and Beverage--whose products are sold to these
three government-regulated industries; and
o Performance Chemicals, Fine Chemicals and Industrial--whose products
are sold to numerous consumer and industrial markets.
For the year ended December 31, 2000, sales of specialty chemicals
represented approximately 91% of our revenues. Most of our specialty chemical
products fall within the following categories:
o vinyl ether monomers--includes several products for use in specialty
and radiation-cured coatings. Our vinyl ether monomers are marketed by
the performance chemicals group of our performance chemicals, fine
chemicals and industrial business segment.
o vinyl ether copolymers--includes our Gantrez(R) line of products.
These products serve as a bioadhesive resin in such consumer products
as tartar-control toothpaste, denture adhesives and facial pore
strips. Vinyl ether copolymers are marketed by our personal care and
pharmaceutical, food and beverage business segments.
o polyvinyl pyrrolidone (PVP) polymers and copolymers--represents our
largest product group. These polymers and copolymers are marketed by
all of our business segments.
50
Our Plasdone(R), Polyclar(R) and Gafquat(R) product lines, which are
used as tablet binders, beverage clarifiers and hair fixative resins,
respectively, are included in this group.
o intermediates--includes butanediol, butenediol, butynediol, and
propargyl alcohol for use in numerous industrial applications.
Intermediates are marketed by our performance chemicals, fine
chemicals and industrial business segment. Our largest selling
intermediate product is butanediol, which is utilized by industrial
companies to manufacture spandex fibers and polybutylene terephthalate
(PBT) plastics for use in automobiles.
o solvents--includes our M-pyrol(R) brand of N-methyl pyrrolidone (NMP),
for use in metal degreasing and paint stripping, BLO(R) brand of
gamma-butyrolactone, for use by electronics companies in the
manufacture of semiconductors and micro-processing chips, and
tetrahydrofuran (THF), which is used in the manufacture and
installation of PVC pipe. Solvents are also marketed by our
performance chemicals, fine chemicals and industrial business segment.
o alginates--includes sodium alginate, propylene glycol alginate and
other alginate derivatives for use as thickeners, stabilizers and
viscosity modifiers. These products are marketed by our
pharmaceutical, food and beverage business segment, with the majority
of our sales to the food industry.
The balance of our specialty chemical products includes materials (marketed
by our performance chemicals, fine chemicals and industrial business segment),
sunscreens, preservatives and emollients (each marketed by our personal care
business segment).
Personal Care. Our personal care business segment markets numerous
specialty chemicals that serve as critical ingredients in the formulation of
many well-known skin care, hair care, toiletry and cosmetic products.
Our skin care ingredients include:
o ultraviolet (UV) light absorbing chemicals, which serve as sunscreens;
o emollients, which provide skin softness;
o moisturizers, which enhance the skin's water balance;
o waterproofing agents, which enhance the performance of eye-liners and
sunscreens in wet environments; and
o preservatives, which extend the shelf life of aqueous-based cosmetic
formulations by preventing the growth of harmful bacteria.
Our Escalol(R) sunscreen actives serve as the primary active ingredient in
many of the most popular sunscreens today and increasingly find applications in
many other products such as lipsticks and facial creams. We recently introduced
our SunSpheres(TM) product which was developed through our strategic alliance
with a third party. This product significantly enhances the sun protection
properties of UV absorbers used in skin care, makeup and beach products. Our
Ceraphyl(R) line of emollients and moisturizers provide a variety of popular
bath products with their softening and moisturizing characteristics. We produce
a growing number of specialty preservatives, including Germall(R) Plus, a
patented product that offers broad-spectrum anti-microbial activity, and
Suttocide(R) A, a preservative gentle enough for infant care products.
Our hair care ingredients, marketed under the Gantrez(R), Gafquat(R), and
PVP/VA family of products, include a number of specially formulated fixative
resins which provide hairsprays, mousses and gels with their holding power, as
well as thickeners and stabilizers for shampoos and conditioners. Utilizing our
combined expertise in hair care and sunscreen applications, we developed the
world's first high performance hair protectant,
51
Escalol(R) HP-610, to prevent sun damage to hair. We also developed a new
polymer, Aquaflex(R) FX-64, for use in styling products and low VOC hair sprays
where it provides a soft feeling with a long lasting hold for both aerosol and
pump spray applications.
Pharmaceutical, Food and Beverage. Our specialty chemicals for the
pharmaceutical, food and beverage markets provide a number of end-use products
with their unique properties while enabling these products to meet increasingly
strict regulatory requirements.
In the pharmaceutical market, our specialty chemicals serve as key
ingredients in the following types of products:
o prescription and over-the-counter tablets;
o injectable prescription drugs and serums;
o cough syrups;
o antiseptics;
o toothpastes; and
o denture adhesives.
Our Plasdone(R) and Polyplasdone(R) polymers for tablet binders and tablet
disintegrants are established excipients for use in the production of wet
granulated tablets, and our Gantrez(R) bioadhesive polymers serve as critical
ingredients in denture adhesives and tartar control toothpastes.
Our advanced materials product line includes the Ferronyl(R) brand of
dietary iron supplement, which is marketed to the pharmaceutical industry.
In the food and beverage markets, our alginates and acetylene-derived
polymers serve as critical ingredients in the manufacture of numerous consumer
products, including salad dressings, cheese sauces, fruit fillings, beer and
health drinks. For example, our alginates products, marketed under the
Kelcoloid(R) tradename, are used as stabilizers in many well-known consumer
products, while our acetylene-based specialty polymers, marketed under the
Polyclar(R) tradename, serve the beverage market by assuring the clarity and
extending the shelf life of beer, wine and fruit juices.
Performance Chemicals, Fine Chemicals and Industrial. Our performance
chemicals business includes acetylene-based polymers, vinyl ether monomers and
advanced materials for consumer, agricultural and industrial applications. Our
acetylene-based chemistry produces a number of performance chemicals for use in
a wide range of markets including:
o coatings;
o agriculture;
o imaging;
o detergents;
o electronics; and
o metalworking.
52
ViviPrint(TM) is our new line of polymers developed for specialty coating
applications in ink jet printing. These products provide significant moisture
and abrasion resistance, high gloss and excellent resolution for high quality
printers and photo reproductions.
Our advanced materials product line includes high-purity carbonyl iron
powders, sold under the Micropowder(R) name, for use in the aerospace, defense,
electronics and powder metallurgy industries.
Our fine chemicals business focuses on the production of a variety of
highly specialized products sold to the pharmaceutical, biotechnology,
agricultural and imaging markets. We also offer custom manufacturing services
for these industries.
We manufacture a broad range of fine chemicals under U.S. FDA current good
manufacturing practices (cGMP) at our Columbus, Ohio facility. These fine
chemicals include:
o bulk pharmaceuticals, such as flunixin meglumine, a veterinary drug,
and mitotane, a cancer treatment drug;
o pharmaceutical intermediates, manufactured under contract for
well-known pharmaceutical companies whose end products treat heart and
kidney diseases, viral infections, and lower cholesterol; and
o pheromones, for use in insect population measurement and control.
We expanded our presence in the fine chemicals market with the February
1998 acquisition of our Freetown, Massachusetts manufacturing facility from
Polaroid Corporation. We have expanded that facility's production capabilities
to allow for the manufacture of certain specialty chemical product lines for our
personal care business segment and to offer custom manufacturing capability to
the pharmaceutical, biotechnology, agricultural and chemical process industries.
In connection with the relocation of certain of our production lines for our
personal care business segment to our Freetown facility, we have shut down
substantially all of our manufacturing operation at our Belleville, New Jersey
plant in the first quarter of 2001 and have written off the associated assets.
In our industrial business, we market several intermediate and solvent
products, such as butanediol, tetrahydrofuran (THF) and N-methyl pyrrolidone
(NMP), for use in a variety of industries, including:
o high performance plastics;
o lubricating oil and chemical processing;
o electronics cleaning; and
o coatings.
In addition, we offer a family of environmentally friendly products that
can replace chlorinated and other volatile solvents for a variety of industrial
uses, including cleaning, stripping and degreasing.
Effective April 1, 1998, we acquired the remaining 50% interest in GAF-Huls
Chemie GmbH, now known as ISP Marl GmbH, our joint venture with a subsidiary of
Huls AG, based in Marl, Germany. As part of the transaction, we also acquired
the fully-dedicated, modern production facility that provides ISP Marl with its
primary raw material, acetylene. We believe that the production costs for
butanediol and THF at ISP Marl are among the most competitive in the industry.
We believe that this acquisition provides us with continued access to a low-cost
supply of butanediol that is critical to the manufacture of many of our
downstream polymers.
During 1999, based on a review of our entire butanediol manufacturing
network, which has included the Texas City, Texas; Calvert City, Kentucky; and
Marl, Germany plants, we shut down the butanediol production unit at our Calvert
City plant, writing off the associated assets, and evaluated curtailing
production of butanediol at our Texas City plant. As a result of this
evaluation, we wrote down to fair value certain butanediol
53
assets at our Texas City and Seadrift, Texas manufacturing facilities. In
December 2000, we shut down production at our Seadrift facility, and in the
first quarter of 2001, we shut down production of butanediol at our Texas City
facility. We continue to produce polymers at our Calvert City and Texas City
plants and also continue to produce propargyl alcohol from butynediol.
Marketing and Sales
We market our specialty chemicals using a worldwide marketing and sales
force, typically chemists or chemical engineers, who work closely with our
customers to familiarize themselves with our customers' products, manufacturing
processes and markets. We conduct our domestic marketing and sales efforts from
our facility in Wayne, New Jersey and regional offices strategically located
throughout the United States.
International Operations
We conduct our international operations through 39 subsidiaries and 48
sales offices located in Europe, Canada, Latin America and the Asia-Pacific
region. We also use the services of local distributors to reach markets that
might otherwise be unavailable to us.
International sales of our specialty chemicals in 2000 were approximately
50% of our net sales for that period. Approximately 36% of our specialty
chemicals sales in 2000 were in Europe and Japan. Sales in these regions are
subject to exchange rate fluctuation risks. For a discussion of our policy
regarding the management of these risks, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Financial Condition." Other countries in which we have sales are subject to
additional risks, including high rates of inflation, exchange controls,
government expropriation and general instability.
We own and operate ISP Marl, primarily a butanediol manufacturing facility,
and ISP Acetylene GmbH, an acetylene production plant. Both production
facilities are located at Degussa-Huls' Chemiepark site in Marl, Germany, and
each relies upon Degussa-Huls to provide certain services, including utilities,
rail transport and waste handling. ISP Acetylene, which employs electric arc
technology for the production of acetylene from various hydrocarbon feedstocks,
was built in 1992 to replace an older facility and utilizes state-of-the-art gas
separation technology. ISP Acetylene's entire production is dedicated to
fulfilling ISP Marl's requirements and has no third-party sales.
In October 1999, we acquired an alginates manufacturing plant in Girvan,
Scotland and a research and administrative center in Tadworth, England. In
addition, we acquired equity investments in three seaweed processing joint
ventures located in Ireland, Iceland and Tasmania. These joint ventures serve to
provide our alginates business with a steady supply of its primary raw material,
seaweed.
Raw Materials
Because of the multi-step processes required to manufacture our specialty
chemicals, we believe that our raw materials costs represent a smaller
percentage of the cost of goods sold than for most other chemical companies. We
estimate that approximately one-third of our manufacturing costs are for raw
materials (including energy and packaging). As a result, we believe that
fluctuations in the price of raw materials have less of an impact on our
specialty chemicals business than on those chemical companies for which raw
materials costs represent a larger percentage of manufacturing costs.
The principal raw materials used in the manufacture of our acetylene-based
specialty chemicals are acetylene, methanol and methylamine. Most of the raw
materials for consumption in the United States are obtained from third party
sources pursuant to supply agreements. Acetylene, a significant raw material
used in the production of most of our specialty chemicals, is obtained by us for
domestic use from two unaffiliated suppliers pursuant to supply contracts. At
our Texas City, Texas plant, acetylene is supplied via pipeline by a neighboring
large multinational company that generates this raw material as a by-product
from the manufacture of ethylene. At our Calvert City, Kentucky facility,
acetylene is supplied via pipeline by a neighboring company that generates it
from calcium carbide.
54
Due to the nature of the manufacturing process, electricity and hydrocarbon
feedstocks (primarily butane) are critical raw materials for the production of
acetylene at our operations in Marl, Germany, where methanol is also a principal
raw material. Electricity, butane and methanol for our Marl, Germany operations
are supplied by Degussa-Huls pursuant to a long-term supply agreement.
We believe that the diversity of our acetylene supply sources and our use
of a number of acetylene production technologies (ethylene by-product, calcium
carbide and electric arc technology) provide us with a reliable supply of
acetylene. In the event of a substantial interruption in the supply of acetylene
from current sources, or, in the case of ISP Marl, electricity and hydrocarbon
feedstocks, we cannot assure that we would be able to obtain as much acetylene
from other sources as would be necessary to meet our supply requirements. To
date, we have not experienced an interruption of our acetylene supply that has
had a material adverse effect on our sales of specialty chemicals.
The principal raw material used in the manufacture of alginates is certain
select species of seaweed. We process seaweed in both wet and dry forms. We use
our own specially designed vessels to harvest, under government license, wet
seaweed from leased kelp beds in the Pacific Ocean to supply our San Diego,
California facility. Our Girvan, Scotland facility processes primarily dry
seaweed purchased from our joint ventures in Iceland, Ireland and Tasmania, as
well as from independent suppliers in South America. We believe that the species
of seaweed required to manufacture alginates will remain readily available and
that we will have adequate access to this seaweed to provide us with adequate
supplies of this raw material for the foreseeable future.
Availability of other raw materials, including methanol and methylamine,
remained adequate during 2000. We believe that, in the event of a supply
interruption, we could obtain adequate supplies of such raw materials from
alternate sources.
We use natural gas and raw materials derived from petroleum in many of our
manufacturing processes and, consequently, the price and availability of natural
gas and petroleum could be material to our operations. During 2000, crude oil
and natural gas supplies remained adequate; however, significant increases in
the price of crude oil and natural gas had a substantial impact on our operating
income in 2000. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations--2000 Compared with 1999."
Mineral Products
Products and Markets. We manufacture mineral products consisting of
ceramic-coated colored roofing granules, which are produced from rock deposits
that are mined and crushed at our quarries and are colored and coated using a
proprietary process. We sell our mineral roofing granules primarily to the
United States roofing industry for use in the manufacture of asphalt roofing
shingles. The granules help to provide weather resistance, decorative coloring,
heat deflection and increased weight in the shingle. We are the second largest
of only three major suppliers of colored roofing granules in the United States.
We estimate that more than 80% of the asphalt shingles currently produced
by the roofing industry are sold for the reroofing/replacement market, in which
demand is driven not by the pace of new home construction but by the needs of
homeowners to replace existing roofs. Homeowners generally replace their roofs
either because they are worn, thereby creating concerns as to weather-tightness,
or because of the homeowners' desire to upgrade the appearance of their homes.
We estimate that the balance of the roofing industry's asphalt shingle
production historically has been sold primarily for use in new housing
construction. Sales of our colored mineral granules have benefited from a trend
toward the increased use of heavyweight, three-dimensional laminated roofing
shingles which results in both functional and aesthetic improvements. These
shingles require, on average, approximately 60% more granules than traditional
three-tab, lightweight roofing shingles.
Sales to Building Materials Corporation of America, an affiliate, and its
subsidiaries constituted approximately 83% of our mineral products net sales in
2000. See "Certain Relationships" and Note 16 to Consolidated Financial
Statements. See also "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations--2000 Compared with
1999."
55
Raw Materials. We own rock deposits that have specific performance
characteristics, including weatherability, the ability to reflect UV light,
abrasion-resistance, non-staining characteristics and the ability to absorb
pigments. We own three quarries, each with proven reserves, based on current
production levels, of more than 20 years.
Competition
We believe that we are either the first or second largest seller, based on
revenues, worldwide of our specialty chemicals derived from acetylene, other
than butanediol and tetrahydrofuran, and the second largest seller, based on
revenues, of alginates.
In each end-use market, there are a limited number of companies that
produce substitutable products for our acetylene-derived specialty chemicals.
These companies compete with us in the personal care, pharmaceutical, beverage
and industrial markets and have the effect of limiting our market penetration
and pricing flexibility. For our specialty chemicals not derived from acetylene,
including alginates, sunscreens, emollients, moisturizers and fine chemicals, a
number of world-wide competitors can provide similar products or services. We
compete on quality, customer service and price in these markets.
Butanediol, which we produce primarily for use as a raw material, is also
manufactured by a limited number of companies throughout the world for both
their captive use or to supply the merchant market. We believe that there are
four competitors of significance for merchant market butanediol. One of these
competitors sources the merchant market from its plants in the United States and
in Europe. Three other competitors each source the merchant market from their
single manufacturing plants, two in the United States and the other in Europe.
Tetrahydrofuran is manufactured by a number of companies throughout the world.
With regard to our mineral products, we have only one larger and one
smaller competitor and believe that competition has been limited by:
o the substantial capital expenditures associated with the construction
of new mineral processing and coloring plants and the acquisition of
suitable rock reserves;
o the limited availability of proven rock sources;
o the complexity associated with the construction of a mineral
processing and coloring plant, together with the technical know-how
required to operate such a plant;
o the need to obtain, prior to commencing operations, reliable data over
a substantial period of time regarding the weathering of granules in
order to assure the quality and durability of the product; and
o the difficulty in obtaining the necessary permits to mine and operate
a quarry.
Competition is largely based upon product and service quality, technology,
distribution capability and price. We believe that we are well-positioned in the
marketplace as a result of our broad product lines, sophisticated technology and
worldwide distribution network.
Properties
Our corporate headquarters and principal research and development
laboratories are located at a 100-acre campus-like office and research park
owned by one of ISP Chemco's subsidiaries at 1361 Alps Road, Wayne, New Jersey
07470.
The principal domestic and foreign real properties either owned by, or
leased to, us are described below. Unless otherwise indicated, the properties
are owned in fee. In addition to the principal facilities listed below, we
maintain sales offices and warehouses in the United States and abroad,
substantially all of which are in leased premises under relatively short-term
leases.
56
Location Facility Product Line
-------------------- ------------------------ ----------------
Domestic
Alabama
Huntsville........ Plant* Specialty
Chemicals
California
San Diego......... Plant* Specialty
Chemicals
Kentucky
Calvert City...... Plant Specialty
Chemicals
Maryland
Hagerstown........ Research Center, Design
Center,
Sales Office Mineral Products
Massachusetts
Freetown.......... Plant, Research Center Specialty
Chemicals
Missouri
Annapolis......... Plant, Quarry Mineral Products
New Jersey
Bridgewater....... Sales Office* Specialty
Chemicals
Chatham........... Plant, Research Center Specialty
Chemicals
Wayne............. Headquarters, Corporate
Administrative Offices,
Research
Center Specialty
Chemicals
Ohio
Columbus.......... Plant, Research Center, Sales
Office Specialty
Chemicals
Pennsylvania
Blue Ridge Summit. Plant, Quarry Mineral Products
Texas
Texas City........ Plant Specialty
Chemicals
Wisconsin
Pembine........... Plant, Quarry Mineral Products
International
Belgium
Sint-Niklaas...... Sales Office, Distribution Specialty
Center Chemicals
Brazil
Sao Paulo......... Sales Office*, Distribution
Center* Specialty
Chemicals
Canada
Mississauga, Ontario Sales Office*, Distribution
Center* Specialty
Chemicals
England
Tadworth.......... Research Center*, Sales Specialty
Office* Chemicals
Germany
Cologne........... European Headquarters*,
Research
Center*, Sales Office* Specialty
Chemicals
Marl.............. Plants**, Sales Office** Specialty
Chemicals
India
Nagpur............ Plant** Specialty
Chemicals
Japan
Tokyo............. Sales Office* Specialty
Chemicals
Mexico
Naucalpan de Juarez Sales Office* Specialty
Chemicals
Scotland
Girvan............ Plant Specialty
Chemicals
Singapore........... Sales Office*, Distribution
Center*, Asia-Pacific
Headquarters*, Warehouse* Specialty
Chemicals
----------
* Leased property
** Long-term ground lease
We believe that our plants and facilities, which are of varying ages and
are of different construction types, have been satisfactorily maintained, are in
good condition, are suitable for their respective operations and generally
provide sufficient capacity to meet production requirements. Each plant has
adequate transportation facilities for both raw materials and finished products.
In 2000, we made capital expenditures in the amount of $61.7 million relating to
plant, property and equipment.
57
Research and Development
Our worldwide research and development expenditures were $25.9, $23.0 and
$25.6 million in 1998, 1999 and 2000, respectively.
Our research and development activities are conducted primarily at our
worldwide technical center and laboratories in Wayne, New Jersey. Additional
research and development is conducted at plant sites in Calvert City, Kentucky;
Texas City, Texas; Chatham, New Jersey; Freetown, Massachusetts; Columbus, Ohio;
San Diego, California; and Girvan, Scotland, as well as at technical centers in
the United Kingdom, Germany, China, Singapore, Mexico and Israel. Our mineral
products research and development facility, together with our customer design
and color center, is located in Hagerstown, Maryland.
Environmental Services
We have received site designation for the construction of a hazardous waste
treatment, storage and disposal facility at our Linden, New Jersey property and
have received approval from the New Jersey Turnpike Authority for a direct
access ramp from the New Jersey Turnpike to the site. If we are successful in
securing the necessary permits to construct and operate the hazardous waste
facility and decide to proceed with this project, we would develop and operate
the facility in a separate subsidiary, either on our own or in a joint venture
with a suitable partner. We estimate that the cost of constructing the facility
will be approximately $100 million and, if approved, the facility is anticipated
to be in operation three years after commencement of construction. We anticipate
utilizing internally generated cash and/or seeking project or other independent
financing for this project. We also are investigating other development
opportunities at this site.
Patents and Trademarks
As of December 31, 2000, we owned or licensed approximately 340 domestic
and 470 foreign patents or patent applications and owned or licensed
approximately 150 domestic and 1,900 foreign trademark registrations or
applications related to our business. While we believe the patent protection
covering certain of our products is material to those products, we do not
believe that any single patent, patent application or trademark is material to
our business or operations. We believe that the duration of the existing patents
and patent licenses is consistent with our business needs.
Environmental Compliance
Since 1970, a wide variety of federal, state and local environmental laws
and regulations relating to environmental matters have been adopted and amended.
By reason of the nature of our operations and the operations of our predecessor
and certain of the substances that are or have been used, produced or discharged
at our or our predecessor's plants or at other locations, we are affected by
these environmental laws and regulations. We have made capital expenditures of
less than $5.0 million in each of the three years ended December 31, 2000, in
order to comply with these laws and regulations. These expenditures are included
in additions to property, plant and equipment. We anticipate that aggregate
capital expenditures relating to environmental compliance in 2001 and 2002 will
be approximately $10.5 and $10 million, respectively.
The environmental laws and regulations deal with air and water emissions or
discharges into the environment, as well as the generation, storage, treatment,
transportation and disposal of solid and hazardous waste, and the remediation of
any releases of hazardous substances and materials to the environment. We
believe that our manufacturing facilities comply in all material respects with
applicable environmental laws and regulations, and, while we cannot predict
whether more burdensome requirements will be adopted in the future, we believe
that any potential liability for compliance with environmental laws and
regulations will not materially affect our business, liquidity, results of
operations, cash flows or financial position.
58
Employees
At July 1, 2001, we employed approximately 2,650 people worldwide.
Approximately 750 employees in the United States were subject to seven union
contracts. We believe that our relations with our employees and their unions are
satisfactory.
Legal Proceedings
We, together with other companies, are a party to a variety of proceedings
and lawsuits involving environmental matters under the Comprehensive
Environmental Response Compensation and Liability Act, Resource Conservation and
Recovery Act and similar state laws, in which recovery is sought for the cost of
cleanup of contaminated sites or remedial obligations are imposed, a number of
which are in the early stages or have been dormant for protracted periods. We
refer to these claims in this prospectus as "Environmental Claims."
We estimate that our liability in respect of all Environmental Claims
(including those relating to our closed Linden, New Jersey plant described
below), and certain other environmental compliance expenses, as of December 31,
2000, is $20.7 million, before reduction for insurance recoveries reflected on
our balance sheet (discussed below) of $11.8 million that relate to both past
expenses and estimated future liabilities ("estimated recoveries"). In the
opinion of management, the resolution of those matters should not be material to
our business, liquidity, results of operations, cash flows or financial
position. However, adverse decisions or events, particularly as to increases in
remedial costs, discovery of new contamination, assertion of natural resource
damages and the liability and the financial responsibility of our insurers and
of the other parties involved at each site and their insurers, could cause us to
increase our estimate of our liability in respect of those matters. It is not
currently possible to estimate the amount or range of any additional liability.
After considering the relevant legal issues and other pertinent factors, we
believe that we will receive the estimated recoveries and that the recoveries
could be well in excess of the current estimated liability for all Environmental
Claims, although there can be no assurance in this regard. We believe we are
entitled to substantially full defense and indemnity under our insurance
policies for most Environmental Claims, although our insurers have not affirmed
a legal obligation under the policies to provide indemnity for those claims.
In March 1995, G-I Holdings commenced litigation on behalf of itself and
its predecessors, successors, subsidiaries and related corporate entities in the
United States District Court for the District of New Jersey seeking amounts
substantially in excess of the estimated recoveries. The court dismissed the
action in December 1997 for lack of federal jurisdiction, and defendant insurers
appealed the dismissal. The appeal was denied by the Third Circuit Court of
Appeals in March 1999. In June 1997, G-I Holdings filed a similar action against
the insurers in the Superior Court of New Jersey, Somerset County, which action
was removed to the United States bankruptcy court for the District of New Jersey
in February 2001 in connection with the filing by G-I Holdings of a petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code due to its
asbestos-related bodily injury claims. The action is currently pending in the
bankruptcy court, although the defendant insurers have filed a motion to remand
this action to the Superior Court of New Jersey, Somerset County. While we
believe that our claims are meritorious, we cannot be certain that we will
prevail in our efforts to obtain amounts equal to, or in excess of, the
estimated recoveries.
In June 1989, we entered into a Consent Order with the New Jersey
Department of Environmental Protection requiring the development of a
remediation plan for our closed Linden, New Jersey plant and the maintenance of
financial assurances (currently $7.5 million) to guarantee our performance. This
Consent Order does not address any potential natural resource damage claims. In
April 1993, the New Jersey Department of Environmental Protection issued orders
which require the prevention of discharge of contaminated groundwater and
stormwater from the site and the elimination of other potential exposure
concerns. We believe, although we cannot be certain, that, taking into account
our plans for development of the site, we can comply with the New Jersey
Department of Environmental Protection order at a cost of no more than $7.5
million. See "-- Environmental Services."
59
MANAGEMENT
The name, age and respective positions of each of the executive officers
and directors of ISP Chemco Inc. are as follows:
Name Age Position
-------------------------------------- ---- -----------------------------------------------
Sunil Kumar........................... 52 Chief Executive Officer, President and Director
Richard A. Weinberg................... 42 Executive Vice President, General Counsel and
Secretary
Susan B. Yoss......................... 42 Executive Vice President--Finance and Treasurer
Paul T. Brady......................... 38 Senior Vice President--Sales, Americas and
Director
Roger J. Cope......................... 56 Senior Vice President--Sales and Commercial
Director--Europe and Director
Stephen R. Olsen...................... 39 Senior Vice President--Corporate Development and
Strategy and Director
Steven E. Post........................ 47 Senior Vice President--Operations for Specialty
Chemicals and Director
Set forth below is a description of the backgrounds of the directors and
executive officers of ISP Chemco Inc. The officers of ISP Chemco Inc. are
elected by the Board of Directors and hold office until their respective
successors are duly elected and qualified.
Sunil Kumar--Mr. Kumar has been President and Chief Executive Officer of
ISP Chemco Inc. and its indirect parent, ISP, since June 1999. He has been a
director of ISP Chemco Inc. since June 2001, and a director of ISP since June
1999. Mr. Kumar was a director, President and Chief Executive Officer of BMCA
and certain of its subsidiaries from May 1995, July 1996 and January 1999,
respectively, to June 1999. He also was Chief Operating Officer of BMCA and
certain of its subsidiaries from March 1996 to January 1999. Mr. Kumar was
President, Commercial Roofing Products Division, and Vice President of BMCA from
February 1995 to March 1996. He also was a director and Vice-Chairman of the
Board of G-I Holdings from January 1999 to June 1999. In January 2001, G-I
Holdings filed a voluntary petition for reorganization under Chapter 11 of the
U.S. Bankruptcy Code due to its asbestos-related claims.
Richard A. Weinberg--Mr. Weinberg has been Executive Vice President,
General Counsel and Secretary of ISP Chemco Inc. and its indirect parent, ISP,
since May 1998 and was Senior Vice President, General Counsel and Secretary of
ISP and its subsidiaries from May 1996 to May 1998. He also has been a director
of certain of ISP's subsidiaries since May 1996 and was a director of ISP Chemco
Inc. from its formation to June 2001. Mr. Weinberg has been President, Chief
Executive Officer, General Counsel and Secretary of G-I Holdings since September
2000 and was Executive Vice President, General Counsel and Secretary of G-I
Holdings from May 1998 to September 2000. He also was Senior Vice President,
General Counsel and Secretary of G-I Holdings from May 1996 to May 1998. Mr.
Weinberg has served as a director of G-I Holdings since May 1996. In January
2001, G-I Holdings filed a voluntary petition for reorganization under Chapter
11 of the U.S. Bankruptcy Code due to its asbestos-related claims. Mr. Weinberg
also has been Executive Vice President, General Counsel and Secretary of BMCA
and its subsidiaries since May 1998, and was Senior Vice President, General
Counsel and Secretary of BMCA and its subsidiaries from May 1996 to May 1998.
Susan B. Yoss--Ms. Yoss has been Executive Vice President- Finance and
Treasurer of ISP Chemco Inc. and its indirect parent, ISP, since September 2000.
She was Senior Vice President and Treasurer of ISP and its subsidiaries from
July 1999 to September 2000 and was Vice President and Treasurer of ISP and its
subsidiaries from February 1998 to June 1999. She also has been Senior Vice
President and Treasurer of BMCA and its subsidiaries since July 1999 and was
Vice President and Treasurer of BMCA from February 1998 to June 1999. Ms. Yoss
also has served as Senior Vice President, Chief Financial Officer and Treasurer
of G-I Holdings since July 1999. In January 2001, G-I Holdings filed a voluntary
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code due to
its asbestos-related claims. She was Assistant Treasurer of Joseph E. Seagram &
Sons, Inc., a global beverage and entertainment company for more than five years
until February 1998.
Paul T. Brady--Mr. Brady has been Senior Vice President-Sales, Americas of
ISP Chemco Inc. and its indirect parent, ISP, and a director of ISP Chemco Inc.
since June 2001. He was Vice President-Sales, North
60
America for ISP and certain of its subsidiaries from November 2000 to June 2001.
Mr. Brady was Vice President, Global Commercial Operations- ISP Alginates Inc.
from October 1999 to November 2000. He was employed as Senior Director-Sales and
Marketing of Monsanto Company's Kelco Alginates from January 1998 to October
1999. He was Global Sales and Marketing Director of Monsanto Company's Kelco
Biopolymers from June 1997 to January 1998 and was Business Director, Nutrasweet
Kelco from November 1996 to June 1997. Mr. Brady was Business Manager, Monsanto
Company from December 1995 to November 1996.
Roger J. Cope--Mr. Cope has been Senior Vice President-Sales and Commercial
Director-Europe of ISP Chemco Inc. and its indirect parent, ISP, since July
1999. He has been a director of ISP Chemco Inc. since June 2001. He was Senior
Vice President, Pharmaceutical, Agricultural and Beverage Group of ISP and
certain of its subsidiaries from July 1998 to July 1999 and Vice President,
Asia-Pacific Region of the same corporations from March 1997 to July 1998. Mr.
Cope also held the position of Vice President-Hair Care of ISP and certain of
its subsidiaries from December 1995 to March 1997.
Stephen R. Olsen--Mr. Olsen has been Senior Vice President-Corporate
Development and Strategy of ISP Chemco Inc. and its indirect parent, ISP, since
September 2000. He has been a director of ISP Chemco Inc. since June 2001. He
was President and Chief Operating Officer of LL Building Products Inc., one of
BMCA's subsidiaries, from June 1999 to September 2000. He was Vice President,
Corporate Development and Vice President and General Manager, Accessories and
Specialty Products, of BMCA from May 1997 to October 1998 and also was Director,
Operational Planning of BMCA from December 1993 to May 1997.
Steven E. Post--Mr. Post has been Senior Vice President-Operations for
Specialty Chemicals of ISP Chemco Inc. and its indirect parent, ISP, and a
director of ISP Chemco Inc. since June 2001. He has been President of ISP
Alginates Inc. since October 1999. He was employed as President of Monsanto
Company's Kelco Alginates division from January 1999 to October 1999. He served
as Vice President and General Manager, Alginates of Monsanto Company from
December 1997 to January 1999. He was Vice President, Manufacturing of Monsanto
Company from January 1997 to December 1997. Mr. Post was Vice President,
Manufacturing Services- Nutrasweet Kelco Division of Monsanto Company from
January 1996 to January 1997.
61
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the cash and non-cash compensation for each
of the last three fiscal years awarded to or earned by ISP Chemco's Chief
Executive Officer in 2000 and the four other most highly compensated executive
officers who served in that capacity at ISP Chemco or its subsidiaries as of
December 31, 2000.
Long-Term
Compensation
-------------------------
Securities
Annual Compensation Other Restricted Underlying
------------------------------- Annual Stock Options/ All Other
Name and Principal Position(1) Year Salary Bonus(2) Compensation Awards SARs(3) Compensation
------------------------------ ---- --------- ----------- ------------ ----------- ------------ -------------
Sunil Kumar.................. 2000 $ 337,225 $ 250,000 $ 0 $ 0 $ 0 $ 19,690(4)
President and 1999 174,500(4) 300,000(4) 0 0(4) 600,000(4) 6,975(4)
Chief Executive Officer 1998 --(4) --(4) 0 --(4) --(4) --(4)
Richard A. Weinberg.......... 2000 $ 309,000 $ 300,000(5) $ 0 $ 0 $ 0 $ 933,431(5)
Executive Vice President, 1999 281,700 250,000 0 0 95,140(9) 850,694(5)
General Counsel and 1998 260,875 235,000 0 0 378,056(5) 360,705(5)
Secretary
Susan B. Yoss................ 2000 $ 249,517 $ 200,000 $ 0 $ 862,500(6)$ 0 $ 76,816(6)
Executive Vice President - 1999 217,500 160,000 0 0 32,575(9) 14,806(6)
Finance and Treasurer 1998 174,231(6) 57,172(6) 0 $ 0(6) 36,775(6) 6,496(6)
2000 $ 270,375 $ 65,000(7) $ 0 $ 0 0 $ 21,400(7)
Andrew G. Mueller(7)......... 1999 256,250 125,000 0 0 35,000 21,221(7)
Executive Vice President - 1998 250,000 90,956 0 0 25,000 25,199(7)
Operations
Randall R. Lay(8)............ 2000 $ 252,350 $ 40,000 $ 0 $ 0 $ 0 $ 193,433(8)
Executive Vice President 1999 230,000 85,000 0 0 32,500 207,590(8)
and Chief Financial Officer 1998 188,550 61,268 0 0 128,165(8) 360,545(8)
-------------
(1) ISP paid the compensation to each of the named executive officers. The
restricted stock awards and options relate to the common stock of ISP.
(2) Bonus amounts are payable pursuant to ISP's Executive Incentive
Compensation Program. See Notes (5) and (6) below for information relating
to certain stock bonuses awarded to Mr. Weinberg and Ms. Yoss in lieu of a
portion of those executive officers' annual compensation.
(3) The options are for shares of common stock of ISP. See Notes (5) and (9)
below and "--Options and Stock Appreciation Rights."
(4) Included in "All Other Compensation" for Mr. Kumar are: $12,400 and $2,869,
representing ISP's contribution under ISP's 401(k) plan in 2000 and 1999,
respectively; $5,130 and $2,736 for the premiums paid by ISP for a life
insurance policy in 2000 and 1999, respectively; and $2,160 and $1,370 for
the premiums paid by ISP for a long-term disability policy in 2000 and
1999, respectively. Mr. Kumar commenced employment with ISP and its
subsidiaries in June 1999.
(5) Included in "All Other Compensation" for Mr. Weinberg are: $12,150, $11,300
and $11,300, representing ISP's contribution under ISP's 401(k) plan in
2000, 1999 and 1998, respectively; $1,938, $1,938, and $1,264 for the
premiums paid by ISP for a life insurance policy in 2000, 1999 and 1998,
respectively; $2,160, $1,963 and $1,963 for the premiums paid by ISP for a
long-term disability policy in 2000, 1999 and 1998, respectively; and
$394,063, representing the market value of an ISP stock bonus awarded to
Mr. Weinberg in 2000. In connection with the merger of International
Specialty Products Inc. into ISP Holdings, the options to purchase shares
of redeemable convertible preferred stock of ISP Holdings, which options
are referred to in this prospectus as the "ISP Holdings options," including
ISP Holdings options held by Mr. Weinberg, were terminated. In
consideration of the termination of the ISP Holdings options held by Mr.
Weinberg, Mr. Weinberg received, subject to his continued employment
through each vesting date (the last of which will occur in December 2003),
options to purchase 378,056 shares of ISP common stock under ISP's 1991
Incentive Plan for Key Employees and Directors, as amended (which options
are included in "Securities Underlying Options/SARs" for 1998) and the
right to receive cash payments of $3,238,358 in the aggregate. Mr. Weinberg
received $523,120, $835,493 and $346,178 of these cash payments in 2000,
1999 and 1998, respectively, which amounts are included in "All Other
Compensation" for Mr. Weinberg for these years. For information regarding
other payments made to Mr. Weinberg, see "Certain Relationships--Management
Agreement."
(6) Included in "All Other Compensation" for Ms. Yoss are: $12,150, $11,450 and
$4,735, representing ISP's contribution under ISP's 401(k) plan in 2000,
1999 and 1998, respectively; $1,881, $1,649 and $393 for the premiums paid
by
62
ISP for a life insurance policy in 2000, 1999 and 1998, respectively;
$2,160, $1,707 and $1,368 for the premiums paid by ISP for a long-term
disability policy in 2000, 1999 and 1998, respectively; and $60,625,
representing the market value of an ISP stock bonus awarded to Ms. Yoss in
2000. Ms. Yoss was granted 150,000 shares of restricted ISP common stock
effective as of September 26, 2000. The value of these shares as set forth
in the table was based on the market value of these shares on the date of
grant. As of December 31, 2000, the aggregate value of such shares was
$1,003,125. These restricted shares vest in 12.5% increments every six
months, commencing on January 1, 2001 and ending on July 1, 2004. Ms. Yoss
has the right to receive dividends on these restricted shares if and when
dividends are declared and paid on ISP common stock. Ms. Yoss commenced
employment with ISP and its subsidiaries in February 1998. For information
regarding other payments made to Ms. Yoss, see "Certain
Relationships--Management Agreement."
(7) Included in "All Other Compensation" for Mr. Mueller are: $12,400, $11,700
and $11,700, representing ISP's contribution under ISP's 401(k) plan in
2000, 1999 and 1998, respectively; $6,840, $7,558 and $11,536 for the
premiums paid by ISP for a life insurance policy in 2000, 1999 and 1998,
respectively; and $2,160, $1,963 and $1,963 for the premiums paid by ISP
for a long-term disability policy in 2000, 1999 and 1998, respectively. Mr.
Mueller resigned from his position as an officer of ISP and its
subsidiaries, effective June 2001.
(8) Included in "All Other Compensation" for Mr. Lay are: $12,150, $11,450 and
$11,450, representing ISP's contribution under ISP's 401(k) plan in 2000,
1999 and 1998, respectively; $2,943, $2,814 and $1,437 for the premiums
paid by ISP for a life insurance policy in 2000, 1999 and 1998,
respectively; and $2,160, $1,806 and $1,480 for the premiums paid by ISP
for a long-term disability policy in 2000, 1999 and 1998, respectively. In
connection with the merger of International Specialty Products Inc. into
ISP Holdings, ISP Holdings options, including ISP Holdings options held by
Mr. Lay, were terminated. In consideration of the termination of the ISP
Holdings options held by Mr. Lay, Mr. Lay received, subject to his
continued employment through each vesting date (the last of which would
have occurred in December 2002), options to purchase 113,865 shares of ISP
common stock under ISP's 1991 Incentive Plan (which options are included in
"Securities Underlying Options/SARs" for 1998) and the right to receive
cash payments of $1,169,566 in the aggregate. Mr. Lay received $176,180,
$191,520 and $346,178 of these cash payments in 2000, 1999 and 1998,
respectively, which amounts are included in "All Other Compensation" for
Mr. Lay for these years. Mr. Lay resigned from his positions with ISP and
its subsidiaries, effective September 2001.
(9) Excluded are stock appreciation rights ("SARs") relating to shares of
common stock of an affiliate of ISP referred to in Note (3) under the table
under "--Options and Stock Appreciation Rights."
Options and Stock Appreciation Rights
The following table summarizes the value of unexercised options to acquire
ISP common stock held by the executive officers named in the Summary
Compensation Table above at December 31, 2000. No stock options were granted to
or exercised by such persons during 2000.
VALUE OF ISP COMMON STOCK OPTIONS AT DECEMBER 31, 2000(1)
Number Of Securities Underlying Value Of Unexercised In-The-Money
Unexercised ISP Options At 12/31/00 ISP Options At 12/31/00 (2)
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------------------------------- ---------------------------------
Sunil Kumar (3)..................... 0/100,000 $0/$190,900
Richard A. Weinberg (3)............. 217,960/292,646 $0/$90,750
Andrew G. Mueller................... 50,000/0 $0/$0
Susan B. Yoss (3)................... 9,834/59,516 $0/$6,445
Randall R. Lay(3)................... 43,524/21,666 $0/$0
-------------
(1) All stock options represent options to purchase shares of ISP common stock
and were granted under ISP's 1991 Incentive Plan. ISP's 1991 Incentive Plan
provides that the vesting of options will be accelerated automatically if
at any time following a "Change of Control" (as defined), ISP terminates
without cause the optionee's employment, the optionee's employment is
terminated as a result of his death or permanent disability or the optionee
terminates his employment for "good reason" (as defined). ISP's 1991
Incentive Plan expired in June 2000 in accordance with its terms.
(2) Options for 100,000, 50,000 and 3,075 shares of ISP common stock were
in-the-money for Messrs. Kumar, Weinberg and Ms. Yoss, respectively, at
December 31, 2000, and none of the options held by Messrs. Mueller and Lay
were in-the-money at December 31, 2000.
63
(3) Excluded are SARs relating to shares of common stock of an affiliate of ISP
held by Messrs. Kumar, Weinberg and Lay, and Ms. Yoss. These SARs represent
the right to receive a cash payment based upon the appreciation in value of
the specified number of shares of that affiliate's common stock over the
determined initial Book Value (as defined) per share of that affiliate's
common stock. The SARs vest over a five-year period, subject to earlier
vesting under certain circumstances, including in connection with a change
of control, and have no expiration date. Of the 17,810 SARs held by Mr.
Kumar, 16,088 were exercisable at December 31, 2000 and 1,722 were
unexercisable. Of the 25,409 SARs held by Mr. Weinberg, 14,219 were
exercisable at December 31, 2000 and 11,190 were unexercisable. Of the
4,363 SARs held by Ms. Yoss, 1,454 were exercisable at December 31, 2000
and 2,909 were unexercisable. Of the 3,711 SARs held by Mr. Lay, 2,969 were
exercisable at December 31, 2000 and 742 were unexercisable. None of these
SARs were in-the-money at December 31, 2000.
LONG TERM INCENTIVE PLAN
The following table sets forth information on awards granted to the
executive officers named in the Summary Compensation Table above during 2000
under ISP's 2000 Long Term Incentive Plan.
LONG TERM INCENTIVE PLAN -- AWARDS IN 2000
Estimated Future Payouts Under
Non-Stock Price-Based Plans
Performance Or ----------------------------------------------------
Number Of Other Period
Shares, Units Until
Or Other Maturation Or
Name Rights (1) Payout (2) Threshold($) (3) Target($) (4) Maximum($) (4)
---- ---------- ---------- ---------------- ------------- --------------
Sunil Kumar........... 488,818(5) -- $8.63 -- --
67,080 -- 8.99 -- --
75,000(6) -- 0.00 -- --
Richard A. Weinberg... 41,510 -- $8.99 -- --
50,000(6) 0.00 -- --
Andrew G. Mueller..... 41,642(5) -- $8.63 -- --
37,720 -- 8.99 -- --
15,000 -- 0.00 -- --
Susan B. Yoss......... 26,960 -- $8.99 -- --
3,075 -- 5.23 -- --
Randall R. Lay........ 30,434(5) -- $8.63 -- --
37,720 -- 8.99 -- --
8,000 -- 0.00 -- --
------------
(1) ISP's 2000 Long Term Incentive Plan provides long-term compensation to
employees and key management personnel based on ISP's book value. The
number of incentive units granted is determined by the Compensation and
Pension Committee of ISP's Board of Directors in its sole discretion,
subject to a maximum number of incentive units that may be received by any
employee in any calendar year.
(2) Generally, incentive units vest cumulatively, in twenty percent (20%)
increments, on each anniversary of the date the incentive units were
granted or received in exchange for stock options; however, ISP's
Compensation and Pension Committee, in its sole discretion, may grant
incentive units with any vesting schedule other than that normally provided
in the 2000 Long Term Incentive Plan. Messrs. Kumar, Weinberg, Mueller, and
Lay and Ms. Yoss each received incentive units with accelerated vesting
schedules. Vesting will end upon the termination of an employee's
employment with ISP or any subsidiary for any reason. Incentive units
generally are exercisable for a period of six years from the date of grant.
In the event of a "Change of Control" of ISP (as defined), all incentive
units will become fully and immediately vested and payable in cash.
64
(3) Set forth under the "Threshold" column is the "Initial Value" (as defined)
per unit at which the respective incentive units were granted. The value of
an incentive unit as of any "Valuation Date" (as defined) generally is
equal to ISP's total stockholders' equity (adjusted to exclude accumulated
comprehensive income and losses), divided by the total number of
outstanding shares of ISP common stock as determined on the Valuation
Date. A "Valuation Date" is the last business day of each fiscal quarter of
ISP. ISP's Compensation and Pension Committee, in its sole discretion, may
grant incentive units with an Initial Value (i.e., the value of an
incentive unit on the date of grant) that is less than the Initial Value of
the incentive units as normally determined under the 2000 Long Term
Incentive Plan.
(4) Upon exercise of an incentive unit, a participant will receive in cash the
excess, if any, of the value of the incentive unit as of the Valuation Date
on or, in the event of an exercise between Valuation Dates, immediately
preceding the exercise date, over the Initial Value of the incentive unit
(subject to all appropriate withholdings). Accordingly, the dollar value of
future payouts is not readily ascertainable.
(5) These incentive units were granted in exchange for stock options to
purchase, with respect to Messrs. Kumar, Mueller and Lay, 500,000, 60,000
and 128,165 shares, respectively, of ISP common stock previously granted
under ISP's 1991 Incentive Plan.
(6) In addition to these grants, Messrs. Kumar and Weinberg will receive two
additional grants of 75,000 and 50,000 incentive units, respectively, each
with Initial Values of $0.00 on December 31, 2001 and December 31, 2002.
The incentive units will vest in 10% increments every six months following
the date of grant.
OTHER AGREEMENTS
In connection with his becoming President and Chief Executive Officer of
ISP, on September 29, 1999, ISP granted to Mr. Kumar the right to purchase, and
on that date Mr. Kumar purchased, 318,599 shares of ISP common stock for a
purchase price of $9.563 per share, or an aggregate of $3,046,762. Under the
purchase agreement, as amended, ISP loaned to Mr. Kumar the funds to purchase
the shares, which loan is evidenced by a recourse promissory note of Mr. Kumar
in the foregoing principal amount. The note bears interest at a rate of six
percent (6%) per annum, three percent (3%) of which is payable annually during
the term of the loan with the balance payable at stated maturity or the date on
which the outstanding principal amount of the note is declared due and payable.
The principal amount of the note is payable in four installments on each June 11
of the years 2001, 2002 and 2003 and on January 11, 2004, the first three of
which are in the amount of $761,691 each and the last of which is for the
balance of the then outstanding principal amount. If Mr. Kumar remains
continuously employed by ISP or any of its subsidiaries through each installment
payment date, the principal amount due on such installment payment date will be
forgiven, so that if Mr. Kumar remains continuously employed by ISP or any of
its subsidiaries through January 11, 2004, the loan and the note will be
discharged and cancelled in full, provided that all interest due on the note has
been paid. In addition, if a "Change of Control" (as defined) occurs, and at any
time following such Change of Control, ISP (or its successor) terminates without
"cause" (as defined) Mr. Kumar's employment, or Mr. Kumar's employment is
terminated as a result of his death or "disability" (as defined), or Mr. Kumar
terminates his employment for "good reason" (as defined), the principal, amount
of the loan then outstanding shall be immediately forgiven. If Mr. Kumar's
employment with ISP is otherwise terminated for any reason whatsoever, the
entire principal balance outstanding, together with all interest accrued
thereon, will be immediately due and payable at ISP's election.
For information with respect to certain other arrangements relating to Mr.
Weinberg, see also Note (5) under "--Summary Compensation Table."
65
CERTAIN RELATIONSHIPS
Management Agreement
Pursuant to a management agreement, we provide general management,
administrative, legal, telecommunications, information and facilities services
to some of our affiliates, including BMCA and G-I Holdings. Charges by us for
providing these services aggregated $6.1 million in 2000. These charges consist
of management fees and other reimbursable expenses attributable to, or incurred
by us for the benefit of, the respective parties, which are based on an estimate
of the costs we incur to provide these services. The management agreement also
obligates us to pay to a subsidiary of G-I Holdings annual lease payments in the
amount of $57,300 for the use of one of our sales offices. Total amounts due in
connection with this lease for the year 2000 were approximately $473,000, which
amount included the annual rent and arrearages in the amount of $419,381.
Effective January 1, 2001, the management agreement was amended to extend the
term of the agreement through March 31, 2001, to provide for the automatic
extension of the agreement for successive quarterly periods unless the agreement
is terminated by a party, and to adjust the management fees payable thereunder.
In addition, the management agreement was amended to provide that BMCA, rather
than us, is responsible for providing management services to G-I Holdings and
certain of its subsidiaries and that G-I Holdings pay to BMCA a management fee
for those services. We and BMCA also allocate a portion of the management fees
payable by BMCA under the management agreement to separate lease payments for
the use of BMCA's headquarters. We also provide certain general management,
administrative, legal, telecommunications, information and facilities services
to ISP Investco LLC and its subsidiaries. We have amended the management
agreement in order to set forth the terms of those services and the charges to
ISP Investco LLC for the provision of these services. These charges consist of
management fees and other reimbursable expenses attributable to ISP Investco LLC
or its subsidiaries, or incurred by us for their benefit. The charges are based
on an estimate of the costs we incur to provide those services. The aggregate
amount payable to us under the management agreement for 2001, net of the lease
payments to a subsidiary of G-I Holdings, is expected to be approximately $8.7
million.
As of December 31, 2000, G-I Holdings owed us an aggregate of $4.3 million,
including $0.6 million of unpaid management fees under the management agreement
and $2.1 million of other payments that we made on behalf of G-I Holdings. In
January 2001, G-I Holdings filed a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code due to its asbestos-related claims. As a
result, as of December 31, 2000, we established a reserve for doubtful
receivables from G-I Holdings of $2.7 million.
Certain of our executive officers perform services for our affiliates,
pursuant to the management agreement, and we are indirectly reimbursed for those
services by virtue of the management fees and other reimbursable expenses
payable under the management agreement. In this regard, Mr. Weinberg and Ms.
Yoss received $400,000 and $230,000, respectively, of additional compensation in
connection with services performed by them for BMCA in 2000. BMCA reimbursed us
for these payments pursuant to the management agreement.
Although, due to the unique nature of the services provided under the
management agreement, comparisons with third party arrangements are difficult,
we believe that the terms of the management agreement, taken as a whole, are no
less favorable to us than could be obtained from an unaffiliated third party.
Tax Sharing Agreement
We were a party to tax sharing agreements with members of the consolidated
tax group that included G-I Holdings. We refer to the consolidated tax group as
the "G-I Holdings Group." As a result of a series of transactions that we refer
to as the "separation transactions" involving G-I Holdings and its subsidiaries
on January 1, 1997 that resulted in, among other things, the capital stock of
ISP Holdings being distributed to the stockholders of G-I Holdings, we are no
longer included in the consolidated federal income tax returns of the G-I
Holdings Group and, therefore, those tax sharing agreements are no longer
applicable with respect to our tax liabilities for periods subsequent to the
separation transactions. We remain obligated, however, with respect to tax
liabilities imposed or that may be imposed for periods prior to the separation
transactions. Among other things, those tax sharing agreements provide for the
sharing of the G-I Holdings Group's consolidated tax liability based on each
member's share of the tax as if that member filed on a separate basis.
Accordingly, a payment of tax would be made to G-I Holdings equal to our
allocable share of the G-I Holdings Group's consolidated tax liability.
66
New Tax Sharing Agreement
In connection with the Restructuring, we entered into a tax sharing
agreement with Newco Holdings with respect to the payment of federal income
taxes and certain related matters. The tax sharing agreement is substantially
similar to the current tax sharing agreement described above. During the term of
the tax sharing agreement, which will extend for as long as we or any of our
domestic subsidiaries, as the case may be, are included in a consolidated
federal income tax return filed by ISP or a successor entity, we are obligated
to pay to Newco Holdings an amount equal to the amount of federal income taxes
we would have incurred if, subject to certain exceptions, we (on behalf of us
and our domestic subsidiaries) filed our own consolidated federal income tax
return. These exceptions include, among others, that we may utilize certain
favorable tax attributes, i.e., losses, deductions and credits (except for a
certain amount of foreign tax credits and, in general, net operating losses),
only at the time those attributes reduce the federal income tax liability of ISP
and its consolidated subsidiaries. We refer to this consolidated group as the
"ISP Group." In addition, we may carry back or carry forward our favorable tax
attributes only after taking into account current tax attributes of the ISP
Group. In general, subject to the foregoing limitations, unused tax attributes
carry forward for use in reducing amounts payable by us to Newco Holdings in
future years. Subject to certain exceptions, actual payment for those attributes
will be made by Newco Holdings to us only when ISP receives an actual refund of
taxes from the Internal Revenue Service or, under certain circumstances, the
earlier of the dates of the filing of our federal income tax returns for our
taxable years following the last taxable year in which we were a member of the
ISP Group. Foreign tax credits not utilized by us in computing our tax sharing
payments will be refunded by Newco Holdings to us, if those credits expire
unutilized, upon the termination of the statute of limitations for the year of
expiration.
The tax sharing agreement provides for analogous principles to be applied
to any consolidated, combined or unitary state or local income taxes. Under the
tax sharing agreement, Newco Holdings makes all decisions with respect to all
matters relating to our obligations with respect to federal and state taxes. The
provisions of the tax sharing agreement take into account both the federal
income taxes we would have incurred if we filed our own separate federal income
tax return and the fact that we are a member of the ISP Group for federal income
tax purposes.
Sales to Affiliates
BMCA and its subsidiaries purchase from us all of their colored roofing
granules requirements under a requirements contract, except for the requirements
of certain of their roofing plants which are supplied by third parties.
Effective January 1, 2001, this contract was amended and restated to provide,
among other things, that the contract will expire on December 31, 2001, unless
extended by the parties. In 2000, BMCA and its subsidiaries purchased a total of
$59.3 million of mineral products from us, representing 7.6% of our total net
sales and 82.5% of our net sales of mineral products. Our supply arrangements
with BMCA and its subsidiaries are at prices and on terms which we believe are
no less favorable to us than could be obtained from an unaffiliated third party.
Certain Other Transactions
In February 2001, we made a loan to Mr. Weinberg in the principal amount of
$36,450 to enable him to satisfy certain withholding tax obligations in
connection with his award of 13,055 shares of unrestricted common stock of ISP.
The loan bears interest at an annual rate of 6.45% and is due and payable in
full, together with accrued interest thereon, on April 15, 2002.
In January 2001 and July 2001, we made loans to Ms. Yoss in the principal
amounts of $44,282 and $78,855, respectively, to enable her to satisfy certain
withholding tax obligations in connection with her award of 150,000 shares of
restricted common stock of ISP, 18,750 shares of which vested on each of January
1, 2001 and July 1, 2001. The remainder of those shares vest in 12.5% increments
every six months thereafter until full vesting on January 1, 2004, subject to
certain terms and conditions. Each loan bears interest at an annual rate of
6.45% and is due and payable in full, together with accrued interest thereon, on
April 15, 2002.
67
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ISP Chemco
The following table sets forth information with respect to the
ownership of ISP Chemco's common stock, as of September 1, 2001, by each other
person known to ISP Chemco to own beneficially more than 5% of the outstanding
common stock of ISP Chemco on that date, by each director of ISP Chemco and all
executive officers and directors of ISP Chemco as a group:
Name and Address of Number of Shares
Beneficial Owner(1) Beneficially Owned Percent of Class
------------------- ------------------ ----------------
Newco Holdings Inc. (1)
1361 Alps Road
Wayne, New Jersey 07470............. 100 100%
All directors and executive officers of ISP
Chemco as a group (7 persons)....... 0 0%
----------------------
(1) As of September 1, 2001, 100% of the outstanding common stock of Newco
Holdings was held by ISP. As of September 1, 2001, Mr. Samuel J. Heyman
may be deemed to beneficially own 80% of the outstanding common stock of
ISP Chemco as a result of his ownership of 80% of the outstanding shares
of ISP common stock..
ISP
As of September 1, 2001, the common stock of ISP was beneficially owned
by ISP Chemco's directors, the executive officers named in the Summary
Compensation Table and directors and executive officers of ISP as a group
outstanding on that date as follows:
Name of Number of Shares
Beneficial Owner(1) Beneficially Owned Percent of Class
------------------- ------------------ ----------------
Sunil Kumar......................... 369,152 1%
Richard A. Weinberg................. 421,571(1) 1%
Susan B. Yoss....................... 204,792(1) *
Paul T. Brady....................... 0 *
Roger J. Cope....................... 116,834(2) *
Stephen R. Olsen.................... 80,000 *
Steven E. Post...................... 0 *
All directors and executive officers of ISP
Chemco as a group (7 persons)....... 1,192,349(1) 2%
-------------
* Less than 1%.
(1) Includes with respect to Mr. Kumar, 19,553 shars held in ISP's
401(k) plan as of September 1, 2001; 11,000 shares held by Mr. Kumar's spouse
and 5,000 shares held by Mr. Kumar's daughter, as to which Mr. Kumar disclaims
beneficial ownership.
(2) Includes with respect to Mr. Weinberg, 342,516 shares; Ms. Yoss, 44,792
and Mr. Cope, 61,679 shares; and all directors and officers of ISP Chemco as a
group, 448,987 shares of ISP common stock subject to options granted under ISP's
1999 Incentive Plan which are currently exercisable or will become exercisable
within the next 60 dyas. ISP's 1991 Incentive Plan expired in accordance with
its terms in June 2000. Includes with respect to Mr. Cope 17,837 shares held in
ISP's 401(k) plan as of September 1, 2001.
68
DESCRIPTION OF OTHER INDEBTEDNESS
Senior Credit Facilities
The Senior Credit Facilities were provided by a syndicate of banks and
other financial institutions, with J.P. Morgan Securities Inc. as the exclusive
advisor, lead arranger and book runner, The Chase Manhattan Bank as the
administrative agent and collateral agent and a financial institution which is
to be appointed as syndication agent. We are co-borrowers under the Senior
Credit Facilities, which is comprised of a term loan facility and a revolving
credit facility. The term loan facility is comprised of a term loan denominated
in eurodollars or U.S. dollars in an amount equal to the U.S. dollar equivalent
of $225.0 million, which terminates on June 27, 2008. The revolving credit
facility provides for loans of up to an amount equal to the U.S. dollar
equivalent of $225.0 million, available in eurodollars or U.S. dollars, and will
include a borrowing capacity not in excess of $50.0 million for letters of
credit and a borrowing capacity not in excess of $5.0 million for borrowings on
same-day notice. The revolving credit facility terminates on June 27, 2006 and
amounts borrowed under the revolving credit facility are due on that date.
Interest Rate; Fees
All borrowings under the Senior Credit Facilities will bear interest at a
rate per annum equal to either: (a) the "eurodollar rate" (which is based on a
formula relating to the rate for eurodollar deposits for a given interest period
as quoted on the Telerate Service) plus (A) in the case of the term loan, a
margin that ranges from 2.50% to 3.25% depending on the ratio of our total
consolidated debt to EBITDA (as defined in the Senior Credit Facilities) and (B)
in the case of the revolving credit facility, a margin that ranges from 1.75% to
2.75% depending on the ratio of our total consolidated debt to EBITDA (as
defined in the Senior Credit Facilities) or (b) the "alternate base rate"
(generally, the higher of (x) the rate of interest publicly announced by Chase
as its prime rate in effect as its principal office in New York City (the "Prime
Rate") and (y) the federal funds effective rate from time to time plus 0.50%)
plus (A) in the case of the term loan facility, a margin that ranges from 1.50%
to 2.25% depending on the ratio of our total consolidated debt to EBITDA and
(ii) in the case of the revolving credit facility, a margin that ranges from
0.75% to 1.75% depending on the ratio of our total consolidated debt to EBITDA.
A commitment fee calculated at the rate of 0.50% per annum (or if the ratio
of our total consolidated debt to EBITDA is less than 2.5 to 1, then 0.375%)
will be payable on any amounts not borrowed under the revolving credit facility,
payable quarterly in arrears. For purposes of calculating the commitment fee,
same-day borrowings shall not be deemed a utilization of the revolving credit
facility.
A commission will be payable on outstanding letters of credit at a rate per
annum equal to the eurodollar rate applicable margin for loans under the
revolving credit facility on the face amount of each letter of credit and shall
be payable quarterly in arrears. In addition, a fronting fee equal to 0.25% per
annum on the face amount of each letter of credit shall be payable quarterly in
arrears to the applicable bank that issued each letter of credit for its own
account.
The Senior Credit Facilities also provide for certain other fees to be paid
to the lenders, the administrative agent and the collateral agent.
Repayment; Prepayments
The term loan facility will be repaid in (A) twenty consecutive quarterly
installments of $562,500 (0.25% of the original aggregate principal amount of
the term loans), beginning on the quarterly payment date first occurring after
the initial funding date and (B) four consecutive semi-annual payments of
$53,437,500 (23.75% of the original aggregate principal amount of the term
loans), beginning on the second quarterly payment date after the last payment is
due under clause (A) above and ending on the seventh anniversary of the initial
funding date.
In addition, under the Senior Credit Facilities, we are required to make
mandatory prepayments and commitment reductions (A) with the proceeds of the
disposition of all or substantially all of the specialty chemicals business
(other than granules or materials businesses) of the Chemco Group (as defined in
the Senior Credit Facilities to include us, the guarantors and certain other
subsidiaries) and (B) with the adjusted net cash
69
proceeds of certain dispositions in excess of $15 million per fiscal year,
subject to the borrowers' ability to reinvest those net cash proceeds in
accordance with the terms and conditions of the Senior Credit Facilities.
Guarantees; Security
Our obligations under the Senior Credit Facilities are guaranteed by all of
our direct and indirect domestic subsidiaries and (to the extent consistent with
tax efficiency) foreign subsidiaries, other than unrestricted subsidiaries (as
defined in the Senior Credit Facilities) and International Specialty Products
Funding Corporation.
All of the obligations in respect of the Senior Credit Facilities,
including hedge agreements, foreign exchange contracts and cash management
agreements involving any of the lenders and any of the Credit Parties, are
secured by a first-priority, perfected security interest in all of the real and
personal property of the Credit Parties, except (A) to the extent that the
administrative agent determines that the costs of obtaining such a security
interest are excessive in relation to the value of the security afforded
thereby, (B) to the extent that any intellectual property of a Credit Party is
subject to a negative pledge provision of which the applicable Credit Party is
unable to effect a waiver, (C) certain investment property is Holdings
Investment Subsidiary Property (as defined in the Senior Credit Facilities) and
will be transferred out of the Credit Parties on before the date that is 30 days
after the initial funding date, (D) the Linden, New Jersey and Belleville, New
Jersey real properties, (E) accounts receivable of the Credit Parties, (F) 34%
of the capital stock held by a Credit Party directly in foreign subsidiaries
that are not Credit Parties and (G) the capital stock held indirectly by a
Credit Party in a foreign subsidiary that is not a Credit Party.
Certain Covenants
The Senior Credit Facilities require compliance with various financial
covenants, including a total debt leverage maintenance ratio (total consolidated
debt to EBITDA), a senior debt leverage maintenance ratio (total consolidated
senior debt to EBITDA), an interest coverage ratio and a minimum adjusted net
worth. The Senior Credit Facilities contain a number of covenants including,
among others, covenants limiting our ability and that of certain of our
subsidiaries to incur debt and make guarantees, issue dividends or make other
payments in respect of capital stock, make certain restricted payments, incur
liens, change lines of business, engage in transactions with affiliates, sell
assets and engage in sale leaseback transactions. The Senior Credit Facilities
contain other usual and customary negative and affirmative covenants.
Events of Default
The Senior Credit Facilities contain events of default including, without
limitation (subject to customary cure periods and materiality thresholds):
o failure to make payments when due;
o material inaccuracy of representations and warranties;
o breach of covenants;
o certain cross-defaults and cross-accelerations;
o events of insolvency, bankruptcy or similar events;
o certain ERISA events;
o certain environmental matters;
o certain material judgements or injunctions;
o actual or asserted invalidity of any guarantee, security document,
security interest, or subordination agreement;
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o breach of subordination provisions of subordinated indebtedness;
o cessation or suspension of material operations; and
o a change in control.
Other Indebtedness
2003 Notes
In October 1996, ISP issued $325 million principal amount of its 2003
Notes. The 2003 Notes are not guaranteed by any of ISP's subsidiaries. Holders
of the 2003 Notes have the right to require ISP to purchase the notes at a price
of 101% of their principal amount, and ISP has the right to redeem the notes at
their principal amount plus the applicable premium set forth in the indenture
governing the 2003 Notes, together with any accrued and unpaid interest, in the
event of a change of control under that indenture. Covenants contained in the
indenture relating to the 2003 Notes apply to ISP and its subsidiaries. For
instance, the incurrence of additional debt and the issuance of preferred stock
by ISP and certain of its subsidiaries would be restricted unless, subject to
certain exceptions, the ratio of consolidated income before income taxes,
interest, depreciation and amortization expense to the consolidated interest
expense as defined in that indenture for the most recently completed four fiscal
quarters was at least 2 to 1. There are $325.0 million of the 2003 Notes
currently outstanding. The proceeds from the offering of $100.0 million in
aggregate principal amount of the old notes on July 31, 2001 will be used to
retire a portion of the 2003 Notes on or prior to their maturity.
2002 Notes
In October 1996, ISP also issued $199.9 million principal amount of the
2002 Notes. The 2002 Notes contain substantially the same terms as the 2003
Notes. The proceeds from the offering of $205.0 million in aggregate principal
amount of the old notes on June 27, 2001 will be used to retire the 2002 Notes
on or prior to their maturity. On September 15, 2001, ISP sent a notice of
redemption to all holders of the 2002 Notes.
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DESCRIPTION OF THE REGISTERED NOTES
You can find the definitions of certain terms used in this description
below under the subheading "--Certain Definitions." In this description,
"issuers" refers to ISP Chemco Inc., ISP Chemicals Inc., ISP Technologies Inc.
and ISP Minerals Inc., each of which will be jointly and severally liable with
respect to all obligations in respect of the registered notes, and not to any of
their subsidiaries.
We will issue the registered notes under the indenture with Wilmington
Trust Company, as trustee, under which we issued the old notes. We refer to the
old notes and the registered notes collectively as the "notes." The terms of the
notes include those stated in the indenture and those made part of the indenture
by reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture governing the notes. It does not restate the agreement in its
entirety. We urge you to read the indenture because it, and not this
description, defines your rights as holders of the notes. Copies of the
indenture are available as set forth below under "-- Additional Information."
Certain defined terms used in this description but not defined below under "--
Certain Definitions" have the meanings assigned to them in the indenture.
The registered holder of a note will be treated as the owner of it for all
purposes. Only registered holders will have rights under the indenture.
Brief Description of the Notes and the Guarantees
The Notes
The notes:
o are our general unsecured obligations, except to the extent of the
security interest in the escrow account as described below under the
subheading "-- Escrow Accounts";
o are subordinated in right of payment to all of our existing and future
Senior Debt;
o are equal in right of payment with any of our future senior
subordinated indebtedness; and
o are unconditionally guaranteed, on a senior subordinated basis, by the
guarantors.
The Guarantees
The notes are guaranteed by each of our present and future direct and
indirect domestic subsidiaries, other than certain immaterial subsidiaries and
our accounts receivable financing subsidiary. The notes will not be guaranteed
by any of our present or future foreign subsidiaries.
The Guarantees:
o are general unsecured obligations of the guarantors;
o are subordinated in right of payment to all of the guarantors'
existing and future Senior Debt; and
o are equal in right of payment with any of the guarantors' future
senior subordinated indebtedness.
As indicated above and as discussed in detail below under the caption "--
Subordination," payments on the notes and under these Guarantees are
subordinated to the payment of Senior Debt of the guarantors. The indenture
permits us and the guarantors to incur additional Senior Debt.
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As discussed above, not all of our subsidiaries guarantee the notes. In the
event of a bankruptcy, liquidation or reorganization of any of these
non-guarantor subsidiaries, the non-guarantor subsidiaries will pay the holders
of their debt and their trade creditors before they will be able to distribute
any of their assets to us. The guarantors generated 53% of our consolidated net
sales for the year ended December 31, 2000 and held 55% of our consolidated
total assets as of December 31, 2000. See Note 19 to Consolidated Financial
Statements included at the back of this prospectus for more detail about the
division of our consolidated results of operations and assets among the
guarantors and our non-guarantor subsidiaries.
As of July 1, 2001, all of ISP Chemco's subsidiaries, other than the
co-issuers, certain immaterial subsidiaries and its accounts receivable
financing subsidiary, are "Restricted Subsidiaries." However, under the
circumstances described below under the subheading "-- Certain
Covenants--Designation of Restricted and Unrestricted Subsidiaries," we are
permitted to designate certain of our subsidiaries as "Unrestricted
Subsidiaries." Our Unrestricted Subsidiaries are not subject to many of the
restrictive covenants in the indenture. In addition, Unrestricted Subsidiaries
do not guarantee the notes.
Principal, Maturity and Interest
We may issue additional notes under the indenture from time to time,
subject to the covenant described below under the caption "-- Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock." The
notes and any additional notes subsequently issued under the indenture will be
treated as a single class for all purposes under the indenture, including,
without limitation, redemptions of notes, offers to purchase notes, and the
percentage of notes required to consent to waivers of provisions of, and
amendments to, the indenture. We will issue notes in denominations of $1,000 and
integral multiples of $1,000. The notes mature on July 1, 2011.
Interest on the notes accrues at the rate of 10 1/4% per annum and is
payable semi-annually in arrears on January 1 and July 1 of each year,
commencing on January 1, 2002. We will make each interest payment to the holders
of record on the immediately preceding December 15 and June 15.
Interest on the notes accrues from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest is computed on the basis of a 360-day year comprised of twelve 30-day
months.
Methods of Receiving Payments on the Notes
If a holder has given us wire transfer instructions, we will pay all
principal of and interest, premium and liquidated damages, if any, on that
holder's notes in accordance with those instructions. All other payments on
notes will be made at the office or agency of the paying agent and registrar
unless we elect to make interest payments by check mailed to the holders at
their address set forth in the register of holders.
Paying Agent and Registrar for the Notes
The trustee is the paying agent and registrar. We may change the paying
agent or registrar without prior notice to the holders of the notes, and we or
any of our subsidiaries may act as paying agent or registrar.
Transfer and Exchange
A holder may transfer or exchange notes in accordance with the indenture.
The registrar and the trustee may require a holder to furnish appropriate
endorsements and transfer documents in connection with a transfer of notes.
Holders are required to pay all taxes due on transfer. We are not required to
transfer or exchange any note selected for redemption. Also, we are not required
to transfer or exchange any note for a period of 15 days before a selection of
notes to be redeemed.
Escrow Accounts
We placed the net proceeds, other than $0.9 million of accrued interest, of
each of the private placements of the old notes into two separate escrow
accounts. Pursuant to the terms of the escrow account relating to the old notes
issued on June 27, 2001, the
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assets in the applicable escrow account may only be used to redeem or otherwise
retire the outstanding 9 3/4% Senior Notes due 2002 of ISP. Pursuant to the
terms of the escrow account relating to the old notes issued on July 31, 2001,
the assets in the applicable escrow account may only be used to redeem or
otherwise retire the outstanding 9% Senior Notes due 2003 of ISP. Pending that
use, the assets in the escrow accounts may only be invested in The Wilmington
U.S. Government Portfolio/Service Class Shares or, if the fund is no longer in
existence, Cash Equivalents and Government Securities. We granted a security
interest in both of the escrow accounts to the trustee for the benefit of the
holders. Following retirement of the 2002 Notes and the 2003 notes, any
remaining assets in the escrow accounts will be released to us.
Guarantees
The notes are guaranteed by each of the issuers' current and future
domestic subsidiaries, other than certain immaterial subsidiaries and our
accounts receivable financing subsidiary. These guarantees are joint and several
obligations of the guarantors. The guarantee of each guarantor is subordinated
to the prior payment in full of all Senior Debt of that guarantor. The
obligations of each guarantor under its guarantee are limited as necessary to
prevent that guarantee from constituting a fraudulent conveyance under
applicable law. See "Risk Factors--Risks Related to the Notes--Federal and state
statutes allow courts, under specific circumstances, to void guarantees and
require noteholders to return payments received from guarantors."
A guarantor may not sell or otherwise dispose of all or substantially all
of its assets to, or consolidate with or merge with or into (whether or not that
guarantor is the surviving Person), another Person, other than any of the
issuers or another guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(2) either:
(a) the Person acquiring the property in any the sale or disposition,
or the Person formed by or surviving any consolidation or merger,
assumes all the obligations of that guarantor under the
indenture, its guarantee and the registration rights agreement
pursuant to a supplemental indenture satisfactory to the trustee;
or
(b) the Net Proceeds of the sale or other disposition are applied in
accordance with the applicable provisions of the indenture.
A guarantor will be released from all obligations with respect to its
guarantee:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that guarantor (including by way of
merger or consolidation) to a Person that is not (after giving effect
to the transaction) a Subsidiary of any of the issuers, if the sale or
other disposition complies with the "Asset Sale" provisions of the
indenture;
(2) in connection with any sale of all of the Capital Stock of a guarantor
to a Person that is not (after giving effect to the transaction) a
Subsidiary of any of the issuers, if the sale complies with the "Asset
Sale" provisions of the indenture; or
(3) if we designate any Restricted Subsidiary that is a guarantor as an
Unrestricted Subsidiary in accordance with the applicable provisions
of the indenture. See "--Repurchase at the Option of Holders--Asset
Sales."
Subordination
The payment of principal of and interest, premium, if any, and liquidated
damages, if any, on the notes by us or any guarantor is subordinated to the
prior payment in full of all of our or the guarantor's Senior Debt, including
Senior Debt incurred after June 27, 2001.
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The holders of our or any guarantor's Senior Debt will be entitled to
receive payment in full in cash of all Obligations due in respect of that Senior
Debt (including interest after the commencement of any bankruptcy proceeding at
the rate specified in the Senior Debt) before the holders of notes will be
entitled to receive any payment with respect to the notes by us or the guarantor
(except that holders of notes may receive and retain Permitted Junior Securities
and payments made from the trust described under "-- Legal Defeasance and
Covenant Defeasance") in the event of any distribution to our or the guarantor's
creditors:
(1) in a liquidation or dissolution of us or the guarantor;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to us or the guarantor or our or its property;
(3) in an assignment for the benefit of our or the guarantor's creditors;
or
(4) in any marshaling of our or the guarantor's assets and liabilities.
In addition, neither we nor any guarantor may make any payment in respect
of the notes (except in Permitted Junior Securities or from the trust described
under "-- Legal Defeasance and Covenant Defeasance") if:
(1) a payment default on our or the guarantor's Designated Senior Debt
occurs and is continuing beyond any applicable grace period; or
(2) any other default occurs and is continuing on any series of our or the
guarantor's Designated Senior Debt that permits holders of that series
of Designated Senior Debt to accelerate its maturity and the trustee
receives a notice of the default (a "Payment Blockage Notice") from us
or the guarantor or from the holders of any Designated Senior Debt.
Payments on the notes may and will be resumed:
(1) in the case of a payment default, upon the date on which the default
is cured or waived; and
(2) in the case of a nonpayment default, upon the earliest of (A) the date
on which the nonpayment default is cured or waived, (B) 179 days after
the date on which the applicable Payment Blockage Notice is received,
unless the maturity of any Designated Senior Debt has been
accelerated, and (C) the date on which the trustee receives notice
from the holder of the Designated Senior Debt rescinding the Payment
Blockage Notice.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the delivery of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the trustee will be, or be made, the
basis for a subsequent Payment Blockage Notice unless the default has been cured
or waived for a period of not less than 180 days. If the trustee or any holder
of the notes receives a payment in respect of the notes (except in Permitted
Junior Securities or from the trust described under "-- Legal Defeasance and
Covenant Defeasance") when:
(1) the payment is prohibited by these subordination provisions; and
(2) the trustee or the holder has actual knowledge that the payment is
prohibited; the trustee or the holder, as the case may be, will hold
the payment in trust for the benefit of the holders of Senior Debt.
Upon the written request of the holders of Senior Debt, the
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trustee or the holder, as the case may be, will deliver the amounts in
trust to the holders of Senior Debt or their proper representative.
We must promptly notify holders of Senior Debt if payment of the notes is
accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a bankruptcy, liquidation or reorganization of any of the issuers or any of
the guarantors, holders of notes may recover less ratably than creditors of the
issuers and the guarantors who are holders of Senior Debt. See "Risk
Factors--Risks Related to the Notes--The notes and guarantees are subordinate to
all of our existing and future senior debt."
"Designated Senior Debt" means:
(1) all Indebtedness and other Obligations of the issuers and the
guarantors under the Credit Agreement; and
(2) after payment in full of all Obligations under the Credit Agreement,
any other Senior Debt permitted by the indenture to be incurred the
principal amount of which is $25.0 million or more and that has been
designated by any issuer as "Designated Senior Debt."
"Permitted Junior Securities" means:
(1) Equity Interests in any issuer or any guarantor; or
(2) debt securities of any issuer or any guarantor that are subordinated
to all Senior Debt and any debt securities issued in exchange for
Senior Debt, in each case, to substantially the same extent as, or to
a greater extent than, the notes and the guarantees are subordinated
to Senior Debt under the indenture.
"Senior Debt" means:
(1) all Indebtedness and other Obligations of the issuers and the
guarantors under the Credit Agreement;
(2) any other Indebtedness of any issuer or any guarantor permitted to be
incurred under the terms of the indenture, unless the instrument under
which the Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the notes or any
guarantee, or that it is subordinated in right of payment to any
Senior Debt; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
(1) any liability for federal, state, local or other taxes owed or owing
by any issuer or any guarantor;
(2) any intercompany Indebtedness of any Issuer or any of its subsidiaries
to any issuer or any of its affiliates;
(3) trade payables and other Indebtedness incurred in connection with
obtaining goods or services; or
(4) the portion of any Indebtedness that is incurred in violation of the
indenture.
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Optional Redemption
At any time prior to July 1, 2004, we may on any one or more occasions
redeem up to 35% of the aggregate principal amount of notes originally issued
under the indenture at a redemption price of 110.25% of the principal amount,
plus accrued and unpaid interest and liquidated damages, if any, to the
redemption date, with the net cash proceeds of one or more Equity Offerings;
provided that:
(1) at least 65% of the aggregate principal amount of notes originally
issued under the indenture remains outstanding immediately after the
occurrence of the redemption (excluding notes held by us and our
affiliates); and
(2) notice of the redemption is given within 30 days of the date of the
closing of the Equity Offering.
Except pursuant to the preceding paragraph, the notes are not redeemable at
our option prior to July 1, 2006.
After July 1, 2006, we may redeem all or a part of the notes upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and liquidated damages, if any, on the notes redeemed, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on July 1 of the years indicated below:
Year Percentage
------------------ ----------
2006.............. 105.125%
2007.............. 103.416%
2008.............. 101.708%
2009 and thereafter 100.000%
Mandatory Redemption
We will not be required to make mandatory redemption or sinking fund
payments with respect to the notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, we will be obligated to make an offer to
each holder of notes to repurchase all or any part (equal to $1,000 or an
integral multiple of $1,000) of that holder's notes (other than notes previously
called for redemption) pursuant to a Change of Control Offer on the terms set
forth in the indenture. In the Change of Control Offer, we will offer a Change
of Control Payment in cash equal to 101% of the aggregate principal amount of
notes repurchased plus accrued and unpaid interest and liquidated damages, if
any, on the notes repurchased, to the date of purchase. Within 30 days following
any Change of Control, we will mail a notice to each holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase notes on the Change of Control Payment Date specified in the
notice, which date will be no earlier than 30 days and no later than 60 days
from the date the notice is mailed, pursuant to the procedures required by the
indenture and described in the notice. We will comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent those laws and regulations are applicable in connection
with the repurchase of the notes as a result of a Change of Control. To the
extent that the provisions of any securities laws or regulations conflict with
the Change of Control provisions of the indenture, we will comply with the
applicable securities laws and regulations and will not be deemed to have
breached our obligations under the Change of Control provisions of the indenture
by virtue of the conflict.
On the Change of Control Payment Date, we will, to the extent lawful:
(1) accept for payment all notes or portions of notes properly tendered
pursuant to the Change of Control Offer;
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(2) deposit with the paying agent an amount equal to the Change of Control
Payment in respect of all notes or portions of notes properly
tendered; and
(3) deliver or cause to be delivered to the trustee the notes properly
accepted together with an officers' certificate stating the aggregate
principal amount of notes or portions of notes being purchased by us.
The paying agent will promptly mail to each holder of notes properly
tendered the Change of Control Payment for the notes, and the trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each holder a new note equal in principal amount to any unpurchased portion of
the notes surrendered, if any; provided that each new note will be in a
principal amount of $1,000 or an integral multiple of $1,000.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, we will
either repay all outstanding Senior Debt or obtain the requisite consents, if
any, under all agreements governing outstanding Senior Debt to permit the
repurchase of notes required by this covenant. We will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
The provisions described above that require us to make a Change of Control
Offer following a Change of Control will be applicable whether or not any other
provisions of the indenture are applicable. Except as described above with
respect to a Change of Control, the indenture does not contain provisions that
permit the holders of the notes to require that we repurchase or redeem the
notes in the event of a takeover, recapitalization or similar transaction.
We will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by us and purchases all
notes properly tendered and not withdrawn under the Change of Control Offer.
The definition of Change of Control includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the properties or assets of ISP Chemco and its
subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of notes to require us to repurchase its notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than all of the assets
of ISP Chemco and its subsidiaries taken as a whole to another Person or group
may be uncertain.
Asset Sales
We will not, and will not permit any of our Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) we or the Restricted Subsidiary, as the case may be, receives
consideration at the time of the Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) the fair market value is determined by our Board of Directors and
evidenced by a resolution of our Board of Directors set forth in an
officers' certificate delivered to the trustee; and
(3) at least 75% of the consideration received in the Asset Sale by us or
the Restricted Subsidiary is in the form of cash. For purposes of this
provision, each of the following will be deemed to be cash:
(a) any liabilities, as shown on our or the Restricted Subsidiary's
most recent balance sheet, of us or any Restricted Subsidiary
(other than contingent
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liabilities and liabilities that are by their terms subordinated
to the notes or any guarantee) that are assumed by the transferee
of any of those assets;
(b) any securities, notes or other obligations received by us or any
such Restricted Subsidiary from the transferee that are
contemporaneously, subject to ordinary settlement periods,
converted or convertible by us or the Restricted Subsidiary into
cash, to the extent of the cash received or that would be
received in that conversion; and
(c) long-term assets that are used or useful in a Permitted Business.
Within 18 months after the receipt of any Net Proceeds from an Asset Sale,
ISP Chemco may apply those Net Proceeds, at its option:
(1) to repay Senior Debt and, if the Senior Debt repaid is revolving
credit Indebtedness, to correspondingly reduce commitments with
respect thereto;
(2) to acquire all or substantially all of the assets of, or a majority of
the Voting Stock of, another Permitted Business;
(3) to make a capital expenditure in a Permitted Business; or
(4) to acquire other long-term assets that are used or useful in a
Permitted Business.
Pending the final application of any Net Proceeds, ISP Chemco may
temporarily reduce revolving credit borrowings or otherwise invest the Net
Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraphs will constitute "Asset Sale Proceeds." When
the aggregate amount of Asset Sale Proceeds exceeds the Threshold Amount, ISP
Chemco will make an Asset Sale Offer to all holders of notes and all holders of
other Indebtedness that is pari passu with the notes containing provisions
similar to those set forth in the indenture with respect to offers to purchase
or redeem with the proceeds of sales of assets to purchase the maximum principal
amount of notes and the other pari passu Indebtedness that may be purchased out
of the excess of the Asset Sale Proceeds over the Threshold Amount (the excess
being referred to herein as the "Excess Proceeds"); provided, however, that ISP
Chemco shall not be obligated to make an Asset Sale Offer until the aggregate
amount of Excess Proceeds exceeds $5.0 million. The offer price in any Asset
Sale Offer will be equal to 100% of principal amount plus accrued and unpaid
interest and liquidated damages, if any, to the date of purchase, and will be
payable in cash. If any Excess Proceeds remain after consummation of an Asset
Sale Offer, ISP Chemco may use those Excess Proceeds for any purpose not
otherwise prohibited by the indenture. If the aggregate principal amount of
notes and other pari passu Indebtedness tendered into the Asset Sale Offer
exceeds the amount of Excess Proceeds, the trustee will select the notes and the
other pari passu Indebtedness to be purchased on a pro rata basis. Upon
completion of each Asset Sale Offer, the aggregate amount of Asset Sale Proceeds
will be reduced by the amount of Excess Proceeds relating to the Asset Sale
Offer.
ISP Chemco will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with each
repurchase of notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sale
provisions of the indenture, ISP Chemco will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions of the indenture by virtue of the
conflict.
The agreements governing our outstanding Senior Debt currently prohibit us
from purchasing any notes, and also provides that certain change of control or
asset sale events with respect to any issuer would constitute a default under
these agreements. Any future credit agreements or other agreements relating to
Senior Debt to which any issuer becomes a party may contain similar restrictions
and provisions. In the event a Change of Control or Asset Sale occurs at a time
when any issuer is prohibited from purchasing notes, that issuer could seek the
consent of its senior lenders to the purchase of notes or could attempt to
refinance the borrowings that contain such
79
prohibition. If that issuer does not obtain such a consent or repay those
borrowings, that issuer will remain prohibited from purchasing notes. In such
case, any issuer's failure to purchase tendered notes would constitute an Event
of Default under the indenture which would, in turn, constitute a default under
the Senior Debt. In those circumstances, the subordination provisions in the
indenture would likely restrict payments to the holders of notes.
Selection and Notice
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1) if the notes are listed on any national securities exchange, in
compliance with the requirements of the principal national securities
exchange on which the notes are listed; or
(2) if the notes are not listed on any national securities exchange, on a
pro rata basis, by lot or by such method as the trustee deems fair and
appropriate.
No notes of $1,000 or less can be redeemed in part. Notices of redemption
will be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of notes to be redeemed at its registered
address, except that redemption notices may be mailed more than 60 days prior to
a redemption date if the notice is issued in connection with a defeasance of the
notes or a satisfaction and discharge of the indenture. Notices of redemption
may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount of that note
that is to be redeemed. A new note in principal amount equal to the unredeemed
portion of the original note will be issued in the name of the holder of notes
upon cancellation of the original note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on notes or portions of them called for redemption.
Certain Covenants
Changes in Covenants When Notes Rated Investment Grade
Following the first date upon which, but only for so long as:
(1) the notes are rated Baa3 or better by Moody's Investors Services, Inc.
and BBB- or better by Standard & Poor's Ratings Services (or, in
either case, if the person ceases to rate the notes for reasons
outside of the control of the issuers, the equivalent investment grade
credit rating from any other "nationally recognized statistical rating
organization" (within the meaning of Rule 15c3-1(c)(2)(vi)(F) under
the Exchange Act) selected by the issuers as a replacement agency);
(2) neither Moody's Investors Services, Inc. or Standard & Poor's Ratings
Services has attached any "negative outlook" to the rating of the
notes; and
(3) no Default or Event of Default has occurred and is continuing the
covenants listed under "-- Repurchase at the Option of Holders--Asset
Sales," "-- Restricted Payments," "-- Incurrence of Indebtedness and
Issuance of Preferred Stock," "-- Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries," "-- Designation of
Restricted and Unrestricted Subsidiaries," "-- Transactions with
Affiliates" and "-- Business Activities" will no longer be applicable
to the notes, all Unrestricted Subsidiaries will become Restricted
Subsidiaries, and any then-existing Indebtedness of Unrestricted
Subsidiaries will constitute Existing Indebtedness.
Restricted Payments
The issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly:
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(1) declare or pay any dividend or make any other payment or distribution
on account of any issuers' or any of its Restricted Subsidiaries'
Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving any issuer or
any of its Restricted Subsidiaries) or to the direct or indirect
holders of any issuers' or any of its Restricted Subsidiaries' Equity
Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified
Stock) of any issuer or dividends or distributions payable to any
Issuer or a Restricted Subsidiary of the issuer);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving any issuer, other than in connection with the merger of an
issuer other than ISP Chemco into ISP Chemco) any Equity Interests of
any issuer or any direct or indirect parent of the issuer;
(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is
subordinated to the notes or the guarantees, except a payment of
interest or principal at the Stated Maturity thereof; or
(4) make any Restricted Investment (all such payments and other actions
set forth in these clauses (1) through (4) above being collectively
referred to as "Restricted Payments"), unless, at the time of and
after giving effect to the Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing or
would occur as a consequence of the Restricted Payment; and
(b) the issuers would, at the time of the Restricted Payment and
after giving pro forma effect thereto as if the Restricted
Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00
of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant
described below under the caption "-- Incurrence of Indebtedness
and Issuance of Preferred Stock;" and
(c) the Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the issuers and their
Restricted Subsidiaries after June 27, 2001 (excluding Restricted
Payments permitted by clauses (2), (3), (4), (5), (6), (7) (but
only to the extent set forth therein) and (8) of the next
succeeding paragraph), is less than the sum, without duplication,
of:
(i) 50% of the Consolidated Net Income of ISP Chemco for the
period (taken as one accounting period) beginning January 1,
2001 to the end of ISP Chemco's most recently ended fiscal
quarter for which internal financial statements are
available at the time of the Restricted Payment (or, if the
Consolidated Net Income for that period is a deficit, less
100% of the deficit), plus
(ii) 100% of the aggregate proceeds received by ISP Chemco since
June 27, 2001 as a contribution to common equity capital or
from the issue or sale of Equity Interests of ISP Chemco
(other than Disqualified Stock) or from the issue or sale of
convertible or exchangeable Disqualified Stock or
convertible or exchangeable debt securities of ISP Chemco
that have been converted into or exchanged for those Equity
Interests (other than Equity Interests (or Disqualified
Stock or debt securities) sold to a Subsidiary of ISP
Chemco), plus
(iii) to the extent that any Restricted Investment that was made
after June 27, 2001 is sold for cash or otherwise liquidated
or repaid for cash, the lesser of (i) the cash return of
capital with respect to the
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Restricted Investment (less the cost of disposition, if any)
and (ii) the initial amount of the Restricted Investment;
plus
(iv) $50.0 million.
So long as no Default or Event of Default has occurred and is continuing or
would be caused thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of the dividend, if at the date of declaration the
dividend payment would have complied with the provisions of the
indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of any issuer or any
guarantor or of any Equity Interests of ISP Chemco, or any dividend or
other distribution in respect thereof, in exchange for Equity
Interests (other than Disqualified Stock) of, or in an amount equal to
the net cash proceeds of a sale (other than to a Restricted Subsidiary
of ISP Chemco) of Equity Interests (other than Disqualified Stock) or
a capital contribution to the equity of, ISP Chemco in the 30-day
period prior thereto; provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition will be excluded from
clause (3)(b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition or
retirement of subordinated Indebtedness of any issuer or any guarantor
with the net cash proceeds from an incurrence of Permitted Refinancing
Indebtedness;
(4) the payment of any dividend by a Restricted Subsidiary of any issuer
to the holders of its Equity Interests on a pro rata basis;
(5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of any issuer, any Restricted Subsidiary
of any issuer, or any direct or indirect parent company of any issuer
held by any member of any issuers' management pursuant to any
management equity subscription agreement, stock option agreement or
similar agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests may not
exceed $3.0 million in any twelve-month period;
(6) any Restricted Payment for the purpose of defeasing, redeeming,
repurchasing or otherwise acquiring or retiring the 2002 Notes;
(7) any Restricted Payment for the purpose of defeasing, redeeming,
repurchasing or otherwise acquiring or retiring Qualified Subordinated
Indebtedness; provided that, to the extent that any such Restricted
Payment is made out of the net cash proceeds of the substantially
concurrent sale (other than to an issuer or a Restricted Subsidiary of
an issuer) of Equity Interests of any issuer (other than Disqualified
Stock) or the substantially concurrent incurrence (other than from an
issuer or a Restricted Subsidiary of an issuer) of Indebtedness of any
issuer permitted to be incurred by the indenture, the amount of
Restricted Payment shall be excluded from the lead-in to clause (3) of
the preceding paragraph; provided, further, that, to the extent
applicable, the amount of any such net cash proceeds that are utilized
for any such Restricted Payment will be excluded from clause (3)(b) of
the preceding paragraph; and
(8) payments required by the Tax Sharing Agreement as in effect on June
27, 2001, and amendments thereto that do not adversely affect in any
material respect the issuers or their Restricted Subsidiaries or the
holders.
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The amount of all Restricted Payments (other than cash) will be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by such issuer or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant will be determined by the Board of Directors whose resolution with
respect thereto will be delivered to the trustee. The Board of Directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $10.0 million.
Incurrence of Indebtedness and Issuance of Preferred Stock
The issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), and will not permit any of its Restricted Subsidiaries to issue any
shares of preferred stock; provided, however, that the issuers may incur
Indebtedness (including Acquired Debt), and the guarantors may incur
Indebtedness or issue preferred stock, if the Fixed Charge Coverage Ratio for
ISP Chemco's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such preferred stock is issued would have
been at least 2.0 to 1, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred or the preferred stock had been issued, as the case may be, at
the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by the issuers and the guarantors of Indebtedness (a)
under the Credit Agreement (with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of
the issuers and their Restricted Subsidiaries thereunder) or (b)
pursuant to a Qualified Securitization Program; provided that the
aggregate amount of all Indebtedness of the issuers and their
Restricted Subsidiaries incurred pursuant to this clause (1),
including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any other Indebtedness incurred pursuant to this
clause (1), does not exceed at any one time outstanding an amount
equal to $550.0 million, less the aggregate amount applied by the
issuers and their Restricted Subsidiaries to repay Indebtedness under
the Credit Agreement or a Qualified Securitization Program pursuant to
the covenant described under the caption "-- Repurchase at the Option
of Holders--Asset Sales;"
(2) the incurrence by the issuers and their Restricted Subsidiaries of
Existing Indebtedness;
(3) the incurrence by the issuers and the guarantors of Indebtedness
represented by the notes and the related guarantees to be issued on
June 27, 2001, and the exchange notes and the related guarantees to be
issued in respect thereof pursuant to the registration rights
agreement;
(4) the incurrence by the issuers and the guarantors of Indebtedness
represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case, incurred for the purpose of
financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in
the business of the issuers or their Restricted Subsidiaries, in an
aggregate amount at any one time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (4), not to exceed the
greater of (a) $25.0 million and (b) 10.0% of the issuers' Net
Tangible Assets as of the date on which any such Indebtedness is
incurred;
(5) the incurrence by any issuer or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace
Indebtedness (other than intercompany Indebtedness) that
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was permitted by the indenture to be incurred under the first
paragraph of this covenant or clauses (1), (2), (3), (4), (5), (11) or
(12) of this paragraph;
(6) the incurrence of Indebtedness between any of the issuers, or between
any of the issuers and any of their Restricted Subsidiaries, or
between any of the issuers' Restricted Subsidiaries; provided,
however, that:
(a) if any issuer or any guarantor is an obligor with respect to such
Indebtedness, such Indebtedness is expressly subordinated to the
prior payment in full in cash of all Obligations with respect to
the notes and the guarantees, as the case may be, and
(b) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other
than an issuer or a Restricted Subsidiary of any issuer, and any
sale or other transfer of any such Indebtedness to a Person that
is not either an issuer or a Restricted Subsidiary of any issuer,
will, in each case, be deemed to constitute an incurrence of such
Indebtedness by such issuer or such Restricted Subsidiary, as the
case may be, that was not permitted by this clause (6);
(7) the incurrence by any issuer or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of the indenture to be
outstanding;
(8) the guarantee by any of the issuers or any of the guarantors of
Indebtedness of an issuer or a Restricted Subsidiary of any issuer
that was permitted to be incurred by another provision of this
covenant;
(9) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the
form of additional Indebtedness with the same terms, and the payment
of dividends on Disqualified Stock in the form of additional shares of
the same class of Disqualified Stock;
(10) the incurrence by Foreign Subsidiaries of any of the issuers of
Indebtedness in an aggregate amount at any time outstanding not to
exceed $25.0 million;
(11) the incurrence by Persons that become Restricted Subsidiaries and
guarantors of Acquired Debt in an aggregate principal amount at the
date of such incurrence not to exceed $25.0 million; provided that (a)
such Acquired Debt is not incurred in connection with, or in
contemplation of, such Person merging with or into, or becoming a
Subsidiary of, any issuer or any of their other Restricted
Subsidiaries and (b) liability for such Acquired Debt shall not extend
to the issuers or any of their other Restricted Subsidiaries, or any
of their assets;
(12) the incurrence by the issuers and the guarantors of Indebtedness in
respect of industrial revenue bonds or other similar tax advantageous
financings in an aggregate amount at any one time outstanding not to
exceed $25.0 million;
(13) the incurrence by the issuers and their Restricted Subsidiaries of
Indebtedness arising from agreements providing for indemnification,
adjustment of purchase price, earn out or similar obligations, in each
case, incurred or assumed in connection with the disposition of any
business, asset or Subsidiary, other than guarantees of Indebtedness
incurred by any Person acquiring such business, asset or Subsidiary;
provided, however, that the maximum amount of all such Indebtedness
shall at no time exceed the gross proceeds actually received by such
issuer or Restricted Subsidiary in connection with such disposition;
and
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(14) the incurrence by the issuers and their Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding not to exceed $25.0
million.
For purposes of determining compliance with this covenant, in the event
that an item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (14) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
issuers will be permitted to classify such item of Indebtedness on the date of
its incurrence in any manner that complies with this covenant. Indebtedness
under the Credit Agreement outstanding on the date on which notes are first
issued and authenticated under the indenture will be deemed to have been
incurred on such date in reliance on the exception provided by clause (1) of the
definition of Permitted Debt.
No Senior Subordinated Debt
No issuer will incur any Indebtedness that is subordinate or junior in
right of payment to any Senior Debt of that issuer and senior in any respect in
right of payment to the notes. No guarantor will incur any Indebtedness that is
subordinate or junior in right of payment to the Senior Debt of that guarantor
and senior in any respect in right of payment to the guarantee of that
guarantor.
Liens
The issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien of any kind securing Indebtedness, Attributable Debt or trade
payables on any asset now owned or hereafter acquired, except Permitted Liens,
unless the notes are secured by a Lien on those assets on an equal and ratable
basis.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
the issuers or any of their Restricted Subsidiaries, or with respect
to any other interest or participation in, or measured by, its
profits, or pay any indebtedness owed to the issuers or any of their
Restricted Subsidiaries;
(2) make loans or advances to the issuers or any of their Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to the issuers or any of
their Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) agreements governing Existing Indebtedness and the Credit Agreement,
in each case as in effect on June 27, 2001, and any amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of those agreements; provided
that the amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings are no more
restrictive, taken as a whole, with respect to such dividend and other
payment restrictions than those contained in those agreements on June
27, 2001;
(2) the indenture, the notes, the exchange notes, the guarantees, and the
guarantees of the exchange notes;
85
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the issuers or any of their Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness or Capital Stock was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction
is not applicable to any other Person, or the properties or assets of
any other Person, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the indenture to be
incurred;
(5) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(6) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on that property of the
nature described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being
refinanced;
(9) Liens otherwise permitted to be incurred under the provisions of the
covenant described above under the caption "-- Liens" that limit the
right of the issuers and their Restricted Subsidiaries to dispose of
the assets subject to such Liens;
(10) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements, assets sale agreements, stock
sale agreements and other similar agreements entered into in the
ordinary course of business;
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business;
(12) any agreement governing Indebtedness of Foreign Subsidiaries permitted
under "--Incurrence of Indebtedness and Issuance of Preferred Stock;"
and
(13) any agreement governing Indebtedness incurred after June 27, 2001
permitted under "-- Incurrence of Indebtedness and Issuance of
Preferred Stock;" provided that the restrictions contained therein
are, in the good faith judgment of the Board of Directors, not
materially less favorable, taken as a whole, to the holders than those
contained in agreements governing Existing Indebtedness.
Merger, Consolidation or Sale of Assets
No issuer may, directly or indirectly: (1) consolidate or merge with or
into another Person (whether or not that issuer is the surviving corporation);
or (2) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of that issuer and its Restricted
Subsidiaries taken as a whole, in one or more related transactions, to another
Person; unless:
(1) either: (a) that issuer is the surviving corporation; or (b) the
Person formed by or surviving any such consolidation or merger (if
other than that issuer) or to which the sale, assignment, transfer,
conveyance or other disposition has been made is a corporation
organized or existing under the laws of the United States, any state
of the United States or the District of Columbia;
86
(2) the Person formed by or surviving any such consolidation or merger (if
other than any issuer) or the Person to which such sale, assignment,
transfer, conveyance or other disposition has been made (if other than
another issuer) assumes all the obligations of the issuer under the
notes, the indenture and the registration rights agreement pursuant to
agreements reasonably satisfactory to the trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) except in the case of consolidation or merger between or among the
issuers and the guarantors, the issuer or the Person formed by or
surviving any such consolidation or merger (if other than the issuer),
or to which such sale, assignment, transfer, conveyance or other
disposition has been made:
(a) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth
of such issuer immediately preceding the transaction; and
(b) will, on the date of such transaction after giving pro forma
effect thereto and any related financing transactions as if the
same had occurred at the beginning of the applicable four-
quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant
described above under the caption "-- Incurrence of Indebtedness
and Issuance of Preferred Stock."
In addition, no issuer may, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This "Merger, Consolidation or Sale of
Assets" covenant will not apply to a sale, assignment, transfer, conveyance or
other disposition of assets between or among the issuers and the guarantors.
Transactions with Affiliates
The issuers will not, and will not permit any of their Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms that are no less favorable to
any such issuer or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction by such issuer or
such Restricted Subsidiary with an unrelated Person; and
(2) the issuers deliver to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in
excess of $10.0 million, a resolution of the Board of Directors
set forth in an officers' certificate certifying that such
Affiliate Transaction complies with this covenant and that such
Affiliate Transaction has been approved by a majority of the
members of the Board of Directors who have no personal stake in
the transaction and who are not Affiliates of any party (other
than the issuers and their Restricted Subsidiaries) to the
transaction ("disinterested members"); provided that if there are
no disinterested members of the Board of Directors, the issuers
shall deliver to the trustee an opinion as to the fairness to the
holders of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking
firm of national standing; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in
excess of $30.0 million, an
87
opinion as to the fairness to the holders of such Affiliate
Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national
standing.
The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any transaction with employees of the issuers or any of their
Restricted Subsidiaries, including entering into compensation plans,
entered into in the ordinary course of business and consistent with
the past practice of the issuers or such Restricted Subsidiary;
(2) transactions between or among the issuers and their Restricted
Subsidiaries;
(3) transactions with a Person that is an Affiliate of any of the issuers
solely because any such Issuer owns an Equity Interest in, or
controls, such Person;
(4) payment of reasonable compensation (including stock and option
compensation) and expense reimbursements to members of the Board of
Directors who are not otherwise Affiliates of the issuers;
(5) sales of Equity Interests (other than Disqualified Stock) to
Affiliates of the issuers;
(6) sales of inventory to BMCA and its subsidiaries in the ordinary course
of business;
(7) transactions pursuant to the Management Agreement as in effect on June
27, 2001, and amendments thereto that do not adversely affect in any
material respect the issuers or their Restricted Subsidiaries or the
holders;
(8) transactions directly relating to the Restructuring as described under
"The Restructuring";
(9) any sale, conveyance or other transfer of accounts receivable and
other related assets customarily transferred in an accounts receivable
securitization program in a Qualified Securitization Program; and
(10) Restricted Payments that are permitted by the provisions of the
indenture described above under the caption "-- Restricted Payments."
Additional Guarantees
If the issuers or any of their subsidiaries acquires or creates another
Domestic Subsidiary after June 27, 2001, then that newly acquired or created
Domestic Subsidiary will become a guarantor and execute a supplemental indenture
and deliver an opinion of counsel to the trustee within 20 Business Days of the
date on which it was acquired or created; provided that this covenant will not
apply to any Subsidiary that has properly been designated as an Unrestricted
Subsidiary in accordance with the indenture for so long as it continues to
constitute an Unrestricted Subsidiary.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
fair market value at the time of the designation of all outstanding Investments
owned by the issuers and their Restricted Subsidiaries in the Subsidiary
properly designated will be deemed to be an Investment made as of the time of
the designation and will reduce the amount available for Restricted Payments
under the first paragraph of the covenant described above under the caption "--
Restricted Payments" or Permitted Investments, as determined by the issuers.
That designation will only be permitted if the Investment would be permitted at
that time
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and if the Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted
Subsidiary to be a Restricted Subsidiary if the redesignation would not cause a
Default.
Business Activities
The issuers will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent as
would not be material to ISP Chemco and its Restricted Subsidiaries taken as a
whole.
Payments for Consent
The issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any holder of notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the indenture or the notes unless such consideration is offered to be paid
and is paid to all holders of the notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
Reports
Whether or not required by the Securities and Exchange Commission, so long
as any notes are outstanding, the issuers will furnish to the holders of notes,
within the time periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K
if the issuers were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to the annual information
only, a report on the annual financial statements by the issuers'
certified independent accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if the issuers were required to file such
reports.
If the issuers have designated any of their subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph will include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of the issuers
and their Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the issuers.
In addition, following the consummation of the exchange offer contemplated
by the registration rights agreement, whether or not required by the Commission,
the issuers will file a copy of all of the information and reports referred to
in clauses (1) and (2) above with the Commission for public availability within
the time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
issuers and the guarantors have agreed that, for so long as any notes remain
outstanding, they will furnish to the holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
For so long as ISP Chemco is an issuer and all other issuers are
subsidiaries of ISP Chemco, the foregoing requirements shall be deemed to be
satisfied if ISP Chemco delivers the reports required thereby.
Events of Default and Remedies
Each of the following is an Event of Default:
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(1) default for 30 days in the payment when due of interest on or
liquidated damages with respect to the notes, whether or not
prohibited by the subordination provisions of the indenture;
(2) default in payment when due of the principal of or premium, if any, on
the notes, whether or not prohibited by the subordination provisions
of the indenture;
(3) failure to comply with the provisions described under the captions "--
Repurchase at the Option of Holders--Change of Control" or "--
Repurchase at the Option of Holders--Asset Sales" or "-- Certain
Covenants--Merger, Consolidation or Sale of Assets," unless such
provisions are not at the time applicable as set forth under "--
Changes in Covenants When Notes Rated Investment Grade;"
(4) failure to comply with the provisions described under the captions "--
Certain Covenants--Restricted Payments," "-- Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," unless such provisions are not at the time applicable as set
forth under "-- Changes in Covenants When Notes Rated Investment
Grade," and such failure continues for 30 days;
(5) failure for 60 days after notice to comply with any of the other
agreements in the indenture;
(6) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by any Issuer or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by any Issuer or
any of its Restricted Subsidiaries) whether such Indebtedness or
guarantee now exists, or is created after June 27, 2001, if that
default:
(a) is caused by a failure to pay principal of or interest or
premium, if any, on such Indebtedness (after giving effect to any
applicable grace period provided in such Indebtedness on the date
of such default) (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which
has been so accelerated, aggregates $15.0 million or more;
(7) failure by any issuer or any of its Restricted Subsidiaries to pay
final judgments aggregating in excess of $15.0 million, which
judgments are not paid, discharged or stayed within 60 days;
(8) except as permitted by the indenture, any guarantee shall be held in
any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or any guarantor, or any
Person acting on behalf of any guarantor, shall deny or disaffirm its
obligations under its guarantee;
(9) the issuers shall fail to place the amount contemplated above under
"-- Escrow Account" into the escrow account on June 27, 2001; or ISP
shall fail to retire the 2002 Notes on or prior to February 15, 2002;
and
(10) certain events of bankruptcy or insolvency described in the indenture
with respect to any issuer or any of its Restricted Subsidiaries.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to any issuer, any Restricted Subsidiary
that is a Significant Subsidiary or any group of Restricted
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Subsidiaries that, taken together, would constitute a Significant Subsidiary,
all outstanding notes will become due and payable immediately without further
action or notice. If any other Event of Default occurs and is continuing, the
trustee or the holders of at least 25% in principal amount of the then
outstanding notes may declare all the notes to be due and payable immediately.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding notes may direct the trustee in its
exercise of any trust or power. The trustee may withhold from holders of the
notes notice of any continuing Default or Event of Default if it determines that
withholding notes is in their interest, except a Default or Event of Default
relating to the payment of principal or interest or liquidated damages.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest or liquidated damages on, or the principal of, the notes.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of any issuer with the
intention of avoiding payment of the premium that such issuer would have had to
pay if such issuer then had elected to redeem the notes pursuant to the optional
redemption provisions of the indenture, an equivalent premium will also become
and be immediately due and payable to the extent permitted by law upon the
acceleration of the notes. If an Event of Default occurs prior to July 1, 2006,
by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of such issuer with the intention of avoiding the prohibition on
redemption of the notes prior to July 1, 2006, then the premium specified in the
indenture will also become immediately due and payable to the extent permitted
by law upon the acceleration of the notes.
The issuers are required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, the issuers are required to deliver to the trustee a statement
specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of any issuer
or any guarantor, as such, will have any liability for any obligations of the
issuers or the guarantors under the notes, the indenture, the guarantees, or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of notes by accepting a note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the notes. The waiver may not be effective to waive liabilities under the
federal securities laws.
Legal Defeasance and Covenant Defeasance
The issuers may, at their option and at any time, elect to have all of
their obligations discharged with respect to the outstanding notes and all
obligations of the guarantors discharged with respect to their guarantees
("Legal Defeasance") except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, or interest or premium and liquidated
damages, if any, on such notes when such payments are due from the
trust referred to below;
(2) the issuers' obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for payment
and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and
the issuers' and the guarantors' obligations in connection therewith;
and
(4) the Legal Defeasance provisions of the indenture.
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In addition, the issuers may, at their option and at any time, elect to
have the obligations of the issuers and the guarantors released with respect to
certain covenants that are described in the indenture ("Covenant Defeasance")
and thereafter any omission to comply with those covenants will not constitute a
Default or Event of Default with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "--Events of
Default and Remedies" will no longer constitute an Event of Default with respect
to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the issuers must irrevocably deposit with the trustee, in trust, for
the benefit of the holders of the notes, cash in U.S. dollars,
non-callable Government Securities, or a combination of cash in U.S.
dollars and non-callable Government Securities, in amounts as will be
sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, or interest
and premium and liquidated damages, if any, on the outstanding notes
on the stated maturity or on the applicable redemption date, as the
case may be, and the issuers must specify whether the notes are being
defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, the issuers have delivered to the
trustee an opinion of counsel reasonably acceptable to the trustee
confirming that (a) the issuers have received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since June
27, 2001, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion
of counsel will confirm that, the holders of the outstanding notes
will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had
not occurred;
(3) in the case of Covenant Defeasance, the issuers have delivered to the
trustee an opinion of counsel reasonably acceptable to the trustee
confirming that the holders of the outstanding notes will not
recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(4) no Default or Event of Default has occurred and is continuing on the
date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit);
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which the
issuers or any of their subsidiaries is a party or by which the
issuers or any of their subsidiaries is bound;
(6) the issuers must deliver to the trustee an officers' certificate
stating that the deposit was not made by the issuers with the intent
of preferring the holders of notes over the other creditors of the
issuers with the intent of defeating, hindering, delaying or
defrauding creditors of the issuers or others; and
(7) the issuers must deliver to the trustee an officers' certificate and
an opinion of counsel, each stating that all conditions precedent
relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
Amendment, Supplement and Waiver
Except as provided in the next three succeeding paragraphs, the indenture
or the notes may be amended or supplemented with the consent of the holders of
at least a majority in principal amount of the notes then
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outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, notes), and any existing
default or compliance with any provision of the indenture or the notes may be
waived with the consent of the holders of a majority in principal amount of the
then outstanding notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting holder):
(1) reduce the principal amount of notes whose holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes
(other than provisions relating to the covenants described above under
the caption "-- Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any
note;
(4) waive a Default or Event of Default in the payment of principal of, or
interest or premium, or liquidated damages, if any, on the notes
(except a rescission of acceleration of the notes by the holders of at
least a majority in aggregate principal amount of the notes and a
waiver of the payment default that resulted from such acceleration);
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to waivers
of past Defaults or the rights of holders of notes to receive payments
of principal of, or interest or premium or liquidated damages, if any,
on the notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders");
(8) release any guarantor from any of its obligations under its guarantee
or the indenture, except in accordance with the terms of the
indenture; or
(9) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the
indenture relating to subordination that adversely affects the rights of the
holders of the notes will require the consent of the holders of at least 75% in
aggregate principal amount of notes then outstanding.
Notwithstanding the preceding, without the consent of any holder of notes,
the issuers, the guarantors and the trustee may amend or supplement the
indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of any issuer's or guarantor's
obligations to holders of notes in the case of a merger or
consolidation or sale of all or substantially all of such issuers'
assets;
(4) to make any change that would provide any additional rights or
benefits to the holders of notes (including the provision of any Liens
for the benefit of holders as contemplated
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under "-- Certain Covenants--Liens") or that does not adversely affect
the legal rights under the indenture of any such holder;
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust Indenture
Act;
(6) to provide for the issuance of additional notes in accordance with the
limitations set forth in the indenture on June 27, 2001; or
(7) to allow any guarantor to execute a supplemental indenture and/or a
guarantee with respect to the notes.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated, except lost, stolen or
destroyed notes that have been replaced or paid and notes for
whose payment money has been deposited in trust and thereafter
repaid to the issuers, have been delivered to the trustee for
cancellation; or
(b) all notes that have not been delivered to the trustee for
cancellation have become due and payable by reason of the mailing
of a notice of redemption or otherwise or will become due and
payable within one year and any issuer or any guarantor has
irrevocably deposited or caused to be deposited with the trustee
as trust funds in trust solely for the benefit of the holders,
cash in U.S. dollars, non-callable Government Securities, or a
combination of cash in U.S. dollars and non-callable Government
Securities, in amounts as will be sufficient without
consideration of any reinvestment of interest, to pay and
discharge the entire indebtedness on the notes not delivered to
the trustee for cancellation for principal, premium and
liquidated damages, if any, and accrued interest to the date of
maturity or redemption;
(2) no Default or Event of Default has occurred and is continuing on the
date of the deposit or will occur as a result of the deposit and the
deposit will not result in a breach or violation of, or constitute a
default under, any other instrument to which any issuer or any
guarantor is a party or by which any issuer or any guarantor is bound;
(3) any issuer or any guarantor has paid or caused to be paid all sums
payable by it under the indenture; and
(4) the issuers have delivered irrevocable instructions to the trustee
under the indenture to apply the deposited money toward the payment of
the notes at maturity or the redemption date, as the case may be. In
addition, the issuers must deliver an officers' certificate and an
opinion of counsel to the trustee stating that all conditions
precedent to satisfaction and discharge have been satisfied.
Concerning the Trustee
If the trustee becomes a creditor of any issuer or any guarantor, the
indenture limits its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. The trustee will be permitted to engage in other transactions;
however, if it acquires any
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conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
occurs and is continuing, the trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
holder of notes, unless such holder has offered to the trustee security and
indemnity satisfactory to it against any loss, liability or expense.
Additional Information
Anyone who receives this prospectus may obtain a copy of the indenture and
registration rights agreement without charge by writing to International
Specialty Products Inc., 1361 Alps Road, Wayne, New Jersey 07470, Attention:
General Counsel.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection
with, or in contemplation of, such other Person merging with or into,
or becoming a Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise. For purposes of this definition, the terms
"controlling," "controlled by" and "under common control with" have correlative
meanings.
"2002 Notes" means the 93/4% Senior Notes due 2002 of ISP.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory in the ordinary course of
business consistent with past practices; provided that the sale,
conveyance or other disposition of all or substantially all of the
assets of the issuers and their Restricted Subsidiaries taken as a
whole will be governed by the provisions of the indenture described
above under the caption "-- Repurchase at the Option of
Holders--Change of Control" and/or the provisions described above
under the caption "-- Certain Covenants--Merger, Consolidation or Sale
of Assets" and not by the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests in any issuers' subsidiaries or the
sale of Equity Interests in any of its subsidiaries.
95
Notwithstanding the preceding, the following items will not be deemed to be
Asset Sales:
(1) a transfer of assets between or among the issuers and their Restricted
Subsidiaries;
(2) an issuance of Equity Interests by a Subsidiary to any issuer or to a
Restricted Subsidiary of any issuer;
(3) the sale of inventory in the ordinary course of business on ordinary
business terms;
(4) the sale or other disposition of cash or Cash Equivalents;
(5) the sale or other disposition of obsolete equipment;
(6) the sale of accounts receivable pursuant to a Qualified Securitization
Program;
(7) the sale or other disposition for consideration not to exceed $20.0
million of real property currently owned by the issuers located in
Belleville, New Jersey and Linden, New Jersey;
(8) the sale or other disposition for consideration not to exceed $25.0
million of the capital stock or assets of a Foreign Subsidiary of ISP
Chemco acquired from a fine chemicals research and development
company; and
(9) a Restricted Payment or Permitted Investment that is permitted by the
covenant described above under the caption "-- Certain
Covenants--Restricted Payments."
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13d-3 of
the Exchange Act), such "person" will be deemed to have beneficial ownership of
all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the
corporation;
(2) with respect to a partnership, the Board of Directors of the general
partner of the partnership; and
(3) with respect to any other Person, the board or committee of such
Person serving a similar function.
"Capital Lease Obligation" means, at the time any determination is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
96
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality of the
United States government (provided that the full faith and credit of
the United States is pledged in support of those securities) having
maturities of not more than six months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities
of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight
bank deposits, in each case, with any domestic commercial bank having
capital and surplus in excess of $500.0 million and a Thomson Bank
Watch Rating of "B" or better; (4) repurchase obligations with a term
of not more than seven days for underlying securities of the types
described in clauses (2) and (3) above entered into with any financial
institution meeting the qualifications specified in clause (3) above;
(5) commercial paper rated as least P-1 by Moody's Investors Services,
Inc. or at least A-1 by Standard & Poor's Ratings Services and in each
case maturing within six months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the properties or
assets of ISP Chemco and its Restricted Subsidiaries taken as a whole
to any "person" (as that term is used in Section 13(d)(3) of the
Exchange Act) other than Samuel J. Heyman or any Related Party;
(2) the adoption of a plan relating to the liquidation or dissolution of
ISP Chemco;
(3) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that any "person"
(as defined above), other than Samuel J. Heyman and his Related
Parties, becomes the Beneficial Owner of more of the Voting Stock of
ISP Chemco, measured by voting power rather than number of shares,
than Mr. Heyman and his Related Parties;
(4) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that Mr. Heyman
and his Related Parties are the Beneficial Owners of less than 25% of
the Voting Stock of ISP Chemco, measured by voting power rather than
number of shares, and any "person" (as defined above), other than Mr.
Heyman and his Related Parties, Beneficially Owns more than one-half
of the
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Voting Stock of ISP Chemco, measured by voting power rather than
number of shares, owned by Mr. Heyman and his Related Parties;
(5) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that Mr. Heyman
and his Related Parties are the Beneficial Owners of less than 10% of
the Voting Stock of ISP Chemco, measured by voting power rather than
number of shares;
(6) the first day on which a majority of the members of the Board of
Directors of ISP Chemco are not Continuing Directors; or
(7) the first day on which ISP Chemco ceases to own 100% of the
outstanding Equity Interests of the other issuers (except in the case
of the merger or consolidation of an issuer with or into another
issuer).
"Consolidated Cash Flow" means, with respect to any specified Person for
any period, the Consolidated Net Income of such Person for such period plus:
(1) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income; plus
(2) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect
of letter of credit or bankers' acceptance financings, and net of the
effect of all payments made or received pursuant to Hedging
Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income; plus
(3) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period) and other non-cash items (excluding
any such non-cash item to the extent that it represents an accrual of
or reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of such Person
and its subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash items were deducted in
computing such Consolidated Net Income; plus
(4) provision for restructuring, staff reductions and impairment loss for
the year ended December 31, 2000 of such Person and its subsidiaries
for such period to the extent that such provision was deducted in
computing such Consolidated Net Income; minus
(5) non-cash items increasing such Consolidated Net Income for such
period, other than the accrual of revenue in the ordinary course of
business, in each case, on a consolidated basis and determined in
accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the income
or profits of, and the depreciation and amortization and other non-cash expenses
of, a Restricted Subsidiary of the issuers will be added to Consolidated Net
Income to compute Consolidated Cash Flow of the issuers only to the extent that
a corresponding amount would be permitted at the date of determination to be
divided to the issuers by such Restricted Subsidiary without prior governmental
approval (that has not been obtained), and without direct or indirect
restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.
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"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
will be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person or a Wholly Owned
Restricted Subsidiary of the Person;
(2) the Net Income of any Restricted Subsidiary will be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition will
be excluded; and
(4) the cumulative effect of a change in accounting principles will be
excluded.
"Consolidated Net Worth" means, with respect to any specified Person as of
any date, the sum of:
(1) the consolidated equity of the common stockholders of such Person and
its consolidated subsidiaries as of such date; plus
(2) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the payment
of dividends unless such dividends may be declared and paid only out
of net earnings in respect of the year of such declaration and
payment, but only to the extent of any cash received by such Person
upon issuance of such preferred stock.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of ISP Chemco who:
(1) was a member of such Board of Directors on June 27, 2001; or
(2) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election.
"Credit Agreement" means that certain Credit Agreement, dated as of June
27, 2001, by and among the issuers, the guarantors and The Chase Manhattan Bank,
as administrative agent, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, modified, renewed, refunded, replaced or refinanced from
time to time.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder of the Capital Stock), or
upon the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or redeemable at the option of the
holder of the Capital Stock, in whole or in part, on or prior to the date that
is 91 days after the date on which the notes mature. Notwithstanding the
preceding sentence, any Capital Stock that would constitute Disqualified Stock
solely because the holders of the Capital Stock have the right to require the
issuers to repurchase such Capital Stock upon the occurrence of a change of
control or an asset
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sale will not constitute Disqualified Stock if the terms of such Capital Stock
provide that the issuers may not repurchase or redeem any such Capital Stock
pursuant to such provisions unless such repurchase or redemption complies with
the covenant described above under the caption "-- Certain Covenants--Restricted
Payments."
"Domestic Subsidiary" means any Restricted Subsidiary of ISP Chemco other
than the other issuers and Foreign Subsidiaries.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offerings" means (1) issuances and sales of Equity Interests (other
than Disqualified Stock) of any issuer and (2) contributions of equity to any
issuer.
"Existing Indebtedness" means Indebtedness of the issuers and their
subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on June 27, 2001, until such amounts are repaid.
"Fixed Charges" means, with respect to any specified Person for any period,
the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including,
without limitation, to the extent included in consolidated interest
expense in accordance with GAAP, amortization of debt issuance costs
and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed
interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net of the effect of all payments
made or received pursuant to Hedging Obligations; plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries, whether or not such guarantee or Lien is called upon;
plus
(4) the product of (a) all dividends, whether paid or accrued and whether
or not in cash, on any series of preferred stock of such Person or any
of its Restricted Subsidiaries, other than dividends on Equity
Interests payable solely in Equity Interests of any issuer (other than
Disqualified Stock) or to any issuer or a Restricted Subsidiary of any
issuer, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with
GAAP.
"Fixed Charge Coverage Ratio" means with respect to any specified Person
for any period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person for
such period. In the event that the specified Person or any of its Restricted
Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any
Indebtedness (other than ordinary working capital borrowings) or issues,
repurchases or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated and on or
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio will be calculated giving pro forma effect to such incurrence,
assumption, guarantee, repayment, repurchase or redemption of Indebtedness, or
such issuance, repurchase or redemption of preferred stock, and the use of the
proceeds therefrom as if the same had occurred at the beginning of the
applicable four-quarter reference period.
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In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of its
Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date will be given pro forma effect
as if they had occurred on the first day of the four-quarter reference
period and Consolidated Cash Flow for such reference period will be
calculated on a pro forma basis in accordance with Regulation S-X
under the Securities Act, but without giving effect to clause (3) of
the proviso set forth in the definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, will be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, will be excluded, but only
to the extent that the obligations giving rise to such Fixed Charges
will not be obligations of the specified Person or any of its
Restricted Subsidiaries following the Calculation Date.
"Foreign Subsidiary" means any Subsidiary of any issuer formed under the
laws of any jurisdiction other than the United States or any political
subdivision thereof and substantially all of the assets of which are located
outside of the United States or that conducts substantially all of its business
outside of the United States.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"guarantors" means: (1) each of the issuers' domestic subsidiaries other
than certain immaterial subsidiaries and ISP Chemco Inc.'s accounts receivable
financing subsidiary; (2) any other subsidiary that executes a guarantee in
accordance with the provisions of the indenture; and (3) the successors and
assigns of each Person identified in clauses (1) and (2).
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds (excluding appeal bonds), notes, debentures or
similar instruments or letters of credit (or reimbursement agreements
in respect thereof);
(3) in respect of banker's acceptances;
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(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price of
any property, except any such balance that constitutes an accrued
expense or trade payable; or
(6) representing any Hedging Obligations, if and to the extent any of the
preceding items (other than letters of credit) would appear as a
liability upon a balance sheet of the specified Person prepared in
accordance with GAAP. In addition, the term "Indebtedness" includes
all Indebtedness of others secured by a Lien on any asset of the
specified Person (whether or not such Indebtedness is assumed by the
specified Person) and, to the extent not otherwise included, the
Guarantee by the specified Person of any indebtedness of any other
Person.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any
Indebtedness issued with original issue discount; and
(2) the principal amount of the Indebtedness, together with any interest
on the Indebtedness that is more than 30 days past due, in the case of
any other Indebtedness.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If any issuer
or any Subsidiary of such issuer sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of such issuer such that, after
giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of such issuer, such issuer will be deemed to have made an Investment
on the date of any such sale or disposition equal to the fair market value of
the Equity Interests of such Subsidiary not sold or disposed of in an amount
determined as provided in the final paragraph of the covenant described above
under the caption "-- Certain Covenants--Restricted Payments." The acquisition
by any issuer or any Subsidiary of such issuer of a Person that holds an
Investment in a third Person will be deemed to be an Investment by such issuer
or such Subsidiary in such third Person in an amount equal to the fair market
value of the Investment held by the acquired Person in such third Person in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "-- Certain Covenants--Restricted Payments."
"ISP" means International Specialty Products Inc. and any and all
successors thereto.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Net Income" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:
(1) any gain or loss, together with any related provision for taxes on
such gain or loss, realized in connection with: (a) any Asset Sale; or
(b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries;
(2) any extraordinary gain or loss, together with any related provision
for taxes on such extraordinary gain or loss;
102
(3) any non-recurring gain or loss, together with any related provision
for taxes on such non-recurring gain or loss, relating to the
Restructuring; and
(4) any one-time effect of the adoption of the Proposed Statement of
Financial Accounting Standards of the Financial Accounting Standards
Board entitled Business Combinations and Intangible Assets--Accounting
for Goodwill.
"Net Proceeds" means the aggregate cash proceeds received by the issuers or
any of their Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result of the Asset Sale, taxes paid or payable as a result of the
Asset Sale, in each case, after taking into account any available tax credits or
deductions and any tax sharing arrangements, and amounts required to be applied
to the repayment of Indebtedness, other than Senior Debt, secured by a Lien on
the asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Net Tangible Assets" means, with respect to any Person as of any date of
determination, (a) the amount of property, plant and equipment of such Person
and its Restricted Subsidiaries, plus (b) the amount of current assets of such
Person and its Restricted Subsidiaries, minus (c) the amount of current
liabilities of such Person and its Restricted Subsidiaries, in each case as set
forth on such Person's consolidated balance sheet prepared in accordance with
GAAP as of such date of determination.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither the issuers nor any of their Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable as a guarantor or
otherwise, or (c) constitutes the lender; and
(2) no default with respect to which (including any rights that the
holders of the Indebtedness may have to take enforcement action
against an Unrestricted Subsidiary) would permit upon notice, lapse of
time or both any holder of any other Indebtedness (other than the
notes) of the issuers or any of their Restricted Subsidiaries to
declare a default on such other Indebtedness or cause the payment of
the Indebtedness to be accelerated or payable prior to its stated
maturity.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means any business in which the issuers and their
subsidiaries were engaged on June 27, 2001, and any business reasonably related
or complementary thereto.
"Permitted Investments" means:
(1) any Investment in the issuers or in any Restricted Subsidiary of the
issuers;
(2) any Investment in Cash Equivalents;
(3) any Investment existing on June 27, 2001;
(4) any Investment by the issuers or any Subsidiary of the issuers in a
Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of the issuers and a
guarantor; or
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(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, the issuers or a Restricted Subsidiary of the
issuers that is a guarantor;
(5) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--
Repurchase at the Option of Holders--Asset Sales," other than
securities, notes or other obligations that are deemed to be cash
pursuant to clause (3)(b) of the first paragraph of such covenant
unless actually converted into cash;
(6) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the issuers;
(7) any Investments received in compromise of obligations of such persons
incurred in the ordinary course of trade creditors or customers that
were incurred in the ordinary course of business, including pursuant
to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of any trade creditor or customer;
(8) Hedging Obligations; and
(9) other Investments in any Person (other than an Affiliate of the
issuers that is not also a Subsidiary of the issuers) having an
aggregate fair market value (measured on the date each such Investment
was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this
clause (9) since June 27, 2001, not to exceed the greater of (a) $35.0
million and (b) 5.0% of the issuers' Net Tangible Assets as of the
date on which any such Investment is made.
For the avoidance of doubt, a loan to a Person that is not a Restricted
Subsidiary of the issuers shall not, except to the extent permitted by clause
(9) above, be a Permitted Investment.
"Permitted Liens" means:
(1) Liens on assets of any issuer or any guarantor securing its Senior
Debt;
(2) Liens in favor of any issuer or any guarantor;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with any issuer or any Subsidiary
of such issuer; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated
with such issuer or the Subsidiary;
(4) Liens on property existing at the time of acquisition of the property
by any issuer or any Subsidiary of such issuer; provided that such
Liens were in existence prior to the contemplation of such
acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure Indebtedness permitted by clause (4) of the second
paragraph of the covenant entitled "-- Certain Covenants--Incurrence
of Indebtedness and Issuance of Preferred Stock" covering only the
assets acquired with such Indebtedness;
(7) Liens existing on June 27, 2001;
104
(8) Liens on accounts receivable in connection with a Qualified
Securitization Program;
(9) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded;
provided that any reserve or other appropriate provision as is
required in conformity with GAAP has been made therefor;
(10) Liens on assets of the issuers and their Restricted Subsidiaries to
secure Indebtedness permitted by clause (5) of the second paragraph of
the covenant entitled "-- Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock" to the extent (and only
to the extent) that the Indebtedness being refinanced thereby was
secured by Liens on such assets;
(11) Liens on cash and Cash Equivalents posted as margin pursuant to the
requirements of any bona fide hedge agreement relating to interest
rates, foreign exchange or commodities listed on public exchanges, but
only to the extent such Liens are required from customers generally
(regardless of creditworthiness) in accordance with customary market
practice; and
(12) Liens incurred in the ordinary course of business of any issuer or any
Subsidiary of such issuer with respect to obligations that do not
exceed $50.0 million at any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of the issuers
or any of their Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the issuers or any of their Restricted Subsidiaries
(other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal
amount (or accreted value, if applicable) of the Indebtedness
extended, refinanced, renewed, replaced, defeased or refunded (plus
all accrued interest on the Indebtedness and the amount of all
expenses and premiums incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes,
such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of
payment to, the notes on terms at least as favorable to the holders of
notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased
or refunded; and
(4) such Indebtedness is incurred either by the issuers or by the
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Qualified Securitization Program" means any financing transaction (a)
provided by one or more persons, none of which is an Affiliate of ISP Chemco,
(b) in favor of an accounts receivable financing subsidiary, (c) secured by the
grant by the accounts receivable financing subsidiary of a security interest in
(or a sale of) only accounts receivable originated by one or more of the issuers
and their Restricted Subsidiaries in connection with the sale or lease of
inventory or the rendering of services in the ordinary course of business and
the proceeds thereof and
105
(d) for which no recourse to any of the issuers, their Restricted Subsidiaries
or the accounts receivable financing subsidiary may be made other than (i) with
respect to any of the issuers or any of their Restricted Subsidiaries that sells
accounts receivable to the accounts receivable financing subsidiary in
connection with the transaction, and the accounts receivable financing
subsidiary, (A) repurchases of accounts receivable that do not qualify for
financing under terms of the transaction, (B) the amount of any dilutions in
respect of such accounts receivable and (C) customary indemnities for financing
transactions of such type and (ii) solely with respect to the accounts
receivable financing subsidiary, such accounts receivable and the proceeds
thereof; provided, however, that, in any case, no recourse to any of the issuers
or their Restricted Subsidiaries or the accounts receivable financing subsidiary
shall be permitted to be made for any credit-related default or loss with
respect to any account receivable.
"Qualified Subordinated Indebtedness" means Indebtedness of International
Specialty Products Inc. in an amount not to exceed $325.0 million issued
pursuant to the indenture dated as of October 18, 1996 between ISP Holdings Inc.
and Wilmington Trust Company, as trustee.
"Related Party" means, with respect to Samuel J. Heyman:
(1) any immediate family member of Mr. Heyman; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding an 80% or more controlling interest of which consist of Mr.
Heyman and immediate family members of Mr. Heyman.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and will not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees of the corporation,
association or other business entity is at the time owned or
controlled, directly or indirectly, by that Person or one or more of
the other subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are that Person or one or more
subsidiaries of that Person (or any combination thereof).
"Threshold Amount" means, with respect to any fiscal year of the issuers
commencing with the fiscal year in which the notes are issued, the sum of (A)
$15.0 million plus (B) with respect to each fiscal year commencing with the year
ending December 31, 2002, any Threshold Amount attributable to any prior fiscal
year that has not been applied to reduce the amount of Asset Sale Proceeds that
constitute Excess Proceeds pursuant to the provisions described under "--
Repurchase at the Option of Holders--Asset Sales;" provided, however, that at
such time as the Threshold Amount has been applied to reduce the amount of Asset
Sale Proceeds that constitute Excess Proceeds by $75.0 million, the Threshold
Amount shall thereafter be zero.
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"Unrestricted Subsidiary" means any Subsidiary of any issuer that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with any issuer or any Restricted Subsidiary of such issuer unless the
terms of any such agreement, contract, arrangement or understanding
are no less favorable to such issuer or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of such issuer;
(3) is a Person with respect to which neither such issuer nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or
preserve such Person's financial condition or to cause such Person to
achieve any specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of such issuer or any of its Restricted
Subsidiaries; and
(5) has at least one director on its Board of Directors that is not a
director of such issuer or any of its Restricted Subsidiaries.
Any designation of a Subsidiary of any issuer as an Unrestricted Subsidiary
will be evidenced to the trustee by filing with the trustee a certified copy of
the Board Resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"-- Certain Covenants--Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for
purposes of the indenture and any Indebtedness of such Subsidiary will be deemed
to be incurred by a Restricted Subsidiary of an issuer as of such date and, if
such Indebtedness is not permitted to be incurred as of such date under the
covenant described under the caption "-- Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," such issuer will be in default of
such covenant. The Board of Directors of any issuer may at any time designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation will be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of such issuer of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation will only be permitted if (1) such Indebtedness
is permitted under the covenant described under the caption "-- Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock,"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period; and (2) no Default or Event of
Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity,
in respect of the Indebtedness, by (b) the number of years (calculated
to the nearest one-twelfth) that will elapse between such date and the
making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any specified Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
will at the time be owned by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
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Form of Registered Notes
The certificates representing the registered notes will be issued in fully
registered form, without coupons. Except as described in the next paragraph, the
registered notes will be deposited with, or on behalf of, DTC, and registered in
the name of Cede & Co., as DTC's nominee, in the form of a global note. Holders
of the registered notes will own book-entry interests in the global note
evidenced by records maintained by DTC.
Book-entry interests may be exchanged for certificated notes of like tenor
and equal aggregate principal amount, if
o DTC notifies us that it is unwilling or unable to continue as
depositary or we determine that DTC is unable to continue as
depositary and we fail to appoint a successor depositary within 90
days,
o we provide for the exchange pursuant to the terms of the indenture, or
o we determine that the book-entry interests will no longer be
represented by global notes and we execute and deliver to the trustee
instructions to that effect.
As of the date of this prospectus, no certificated notes are issued and
outstanding.
108
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax
considerations relating to the exchange of old notes for registered notes in the
exchange offer. It does not contain a complete analysis of all the potential tax
considerations relating thereto. This summary is limited to holders of old notes
who hold the old notes as "capital assets" (in general, assets held for
investment). Special situations, such as the following, are not addressed:
o tax consequences to holders who may be subject to special tax
treatment, such as tax-exempt entities, dealers in securities or
currencies, financial institutions, insurance companies, regulated
investment companies, traders in securities that elect to use a
mark-to-market method of accounting for their securities holdings or
corporations that accumulate earnings to avoid U.S. federal income
tax;
o tax consequences to persons holding notes as part of a hedging,
integrated, constructive sale or conversion transaction or a straddle
or other risk reduction transaction;
o tax consequences to holders whose "functional currency" is not the
U.S. dollar;
o tax consequences to persons who hold notes through a partnership or
similar pass-through entity;
o tax consequences to holders who have ceased to be United States
citizens or to be taxed as resident aliens;
o alternative minimum tax consequences, if any; or
o any state, local or foreign tax consequences.
The discussion below is based upon the provisions of the Internal Revenue
Code of 1986, as amended, existing and proposed Treasury regulations promulgated
thereunder, and rulings, judicial decisions and administrative interpretations
thereunder, as of the date hereof. Those authorities may be changed, perhaps
retroactively, so as to result in U.S. federal income tax consequences different
from those discussed below.
Consequences of Tendering Notes
The exchange of your old notes for registered notes in the exchange offer
will not constitute an exchange for federal income tax purposes. Accordingly,
the exchange offer should have no federal income tax consequences to you if you
exchange your old notes for registered notes. For example, there should be no
change in your tax basis and your holding period should carry over to the
registered notes. In addition, the federal income tax consequences of holding
and disposing of your registered notes should also be the same as those
applicable to your old notes (including the tax treatment of the original issue
discount inherent in the notes).
The preceding discussion of certain U.S. federal income tax considerations
is for general information only and is not tax advice. Accordingly, each
investor should consult its own tax advisor as to particular tax consequences to
it of exchanging old notes for registered notes, including the applicability and
effect of any state, local or foreign tax laws, and of any proposed changes in
applicable laws.
109
PLAN OF DISTRIBUTION
Each broker-dealer that receives registered notes in the exchange offer for
its own account must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of such notes.
We reserve the right in our sole discretion to purchase or make offers for, or
to offer registered notes for, any old notes that remain outstanding subsequent
to the expiration of the exchange offer pursuant to this prospectus or otherwise
and, to the extent permitted by applicable law, purchase old notes in the open
market, in privately negotiated transactions or otherwise. This prospectus, as
it may be amended or supplemented from time to time, may be used by all persons
subject to the prospectus delivery requirements of the Securities Act, including
broker-dealers in connection with resales of registered notes received in the
exchange offer, where such notes were acquired as a result of market-making
activities or other trading activities and may be used by us to purchase any
notes outstanding after expiration of the exchange offer. We have agreed that,
for a period of 180 days after the expiration of the exchange offer, we will
make this prospectus, as amended or supplemented, available to any broker-dealer
for use in connection with any such resale.
We will not receive any proceeds from any sale of registered notes by
broker-dealers. Notes received by broker-dealers in the exchange offer for their
own account may be sold from time to time in one or more transactions in the
over-the counter market, in negotiated transactions, through the writing of
options on the registered notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such registered notes. Any
broker-dealer that resells registered notes that were received by it in the
exchange offer for its own account and any broker or dealer that participates in
a distribution of such notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of such notes
and any commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. The letter of transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus meeting the requirements of the Securities Act, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of 180 days after the expiration of the exchange offer, we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer, including the reasonable fees and expenses of counsel to the
initial purchaser of the old notes, other than commissions or concessions of any
brokers or dealers and will indemnify holders of the notes, including any
broker-dealers, against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the issuance of the registered notes and the guarantees of
the registered notes will be passed upon for us by Weil, Gotshal & Manges LLP,
New York, New York. Weil, Gotshal & Manges LLP has from time to time
represented, and may continue to represent, ISP Chemco Inc. and certain of its
affiliates (including ISP, G-I Holdings Inc. and Building Materials Corporation
of America) in connection with certain legal matters.
EXPERTS
The consolidated balance sheets of ISP Chemco Inc. as of December 31, 1999
and 2000 and the consolidated statements of income, shareholder's equity and
cash flows for each of the three years in the period ended December 31, 2000
have been audited by Arthur Andersen LLP, independent public accountants, as
stated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
110
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants............................................ F-2
Consolidated Statements of Income for the three years ended December 31, 2000 and
the six months ended July 2, 2000 and July 1, 2001 (unaudited).................. F-3
Consolidated Balance Sheets as of December 31, 1999 and 2000 and as of July 1, 2001
(unaudited)..................................................................... F-4
Consolidated Statements of Cash Flows for the three years ended December 31, 2000
and the six months ended July 2, 2000 and July 1, 2001 (unaudited).............. F-5
Consolidated Statements of Shareholder's Equity for the three years ended
December 31, 2000 and the six months ended July 1, 2001 (unaudited)............. F-7
Notes to Consolidated Financial Statements.......................................... F-9
Supplementary Data (unaudited):
Quarterly Financial Data (unaudited)............................................ F-47
SCHEDULES
Consolidated Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts................................. S-1
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ISP Chemco Inc.:
We have audited the accompanying consolidated balance sheets of ISP Chemco
Inc. (formerly known as ISP Opco Holdings Inc.) (a Delaware corporation) and
subsidiaries as of December 31, 1999 and 2000, and the related consolidated
statements of income, shareholder's equity and cash flows for each of the three
years in the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed further in Note 13, in connection with the issuance in 2001 of
senior subordinated notes due 2011, the proceeds of which will be used to
refinance debt of the Company's parent, that debt has been pushed down and
retroactively reflected in the Company's financial statements for all periods
presented.
In our opinion, the financial statements referred to above, appearing on
pages F-3 to F-47 of this Prospectus, present fairly, in all material respects,
the financial position of ISP Chemco Inc. and subsidiaries as of December 31,
1999 and 2000, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule appearing on page S-1 of
this Prospectus is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 30, 2001 (except with respect to the matter discussed in Note 13, as to
which the date is July 31, 2001)
F-2
ISP CHEMCO INC.
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended
-------------------------
Year Ended December 31, July 2, July 1,
------------------------------------ 2000 2001
1998 1999 2000 (Unaudited) (Unaudited)
---------- ---------- ---------- ----------- -----------
(Thousands)
Net sales......................... $ 784,616 $ 787,356 $ 783,941 $ 398,198 $ 406,491
Cost of products sold............. (463,511) (482,397) (514,599) (256,400) (255,595)
Selling, general and administrative (154,806) (150,368) (156,571) (78,237) (81,054)
Provision for restructuring, staff
reduction and impairment loss... (73,049) (410) (14,429) -- --
Merger-related expenses........... (7,961) -- -- -- --
Gain on sale of assets............ 1,189 8,541 -- -- --
Goodwill amortization............. (14,875) (16,195) (16,042) (8,021) (8,021)
---------- ---------- ---------- --------- ---------
Operating income.................. 71,603 146,527 82,300 55,540 61,821
Interest expense.................. (56,006) (59,217) (62,802) (31,751) (29,475)
Gain on contract settlement....... -- -- 3,450 3,450 --
Equity in earnings of joint venture 1,455 -- -- -- --
Other income (expense), net....... 20,705 (2,903) 128,614 5,169 18,619
---------- ---------- ---------- --------- ---------
Income from continuing operations
before income taxes............. 37,757 84,407 151,562 32,408 50,965
Income taxes...................... (15,226) (29,624) (53,199) (11,336) (17,892)
---------- ---------- ---------- --------- ---------
Income from continuing operations. 22,531 54,783 98,363 21,072 33,073
---------- ---------- ---------- --------- ---------
Discontinued operation:
Income from discontinued
operation, net of income
taxes........................ 2,033 1,769 -- -- --
Gain on sale of discontinued
operation, net of income
taxes of $12,725............. -- 23,529 -- -- --
---------- ---------- ---------- --------- ---------
Income from discontinued operation 2,033 25,298 -- -- --
---------- ---------- ---------- --------- ---------
Income before cumulative effect of
accounting change............... 24,564 80,081 98,363 21,072 33,073
Cumulative effect of change in
accounting principle, net of
income tax benefit of $216...... -- -- -- -- (440)
---------- ---------- ---------- --------- ---------
Net income........................ $ 24,564 $ 80,081 $ 98,363 $ 21,072 $ 32,633
========== ========== ========== ========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-3
ISP CHEMCO INC.
CONSOLIDATED BALANCE SHEETS
December 31, July 1,
----------------------- 2001
1999 2000 (Unaudited)
---------- ---------- -----------
(Thousands)
ASSETS
Current Assets:
Cash and cash equivalents...................... $ 21,324 $ 14,763 $ 7,221
Investments in trading securities.............. 6,309 279,381 --
Investments in available-for-sale securities... 307,879 222,444 --
Other short-term investments................... 13,920 18,893 --
Restricted cash................................ -- -- 197,251
Accounts receivable, trade, less reserve of
$3,411, $4,911 and $6,795................... 82,201 89,173 94,754
Accounts receivable, other..................... 23,410 19,618 25,505
Income taxes receivable........................ 13,787 -- --
Receivable from related parties, net........... 23,327 14,410 16,174
Inventories.................................... 151,775 150,948 181,984
Other current assets........................... 20,579 36,937 34,087
---------- ---------- ----------
Total Current Assets................... 664,511 846,567 556,976
Property, plant and equipment, net............... 565,246 558,688 550,769
Excess of cost over net assets of businesses
acquired, net of accumulated amortization of
$147,947, $163,989 and $172,010................ 505,073 489,032 483,922
Long-term receivable from related party.......... -- -- 20,000
Long-term loan receivable from parent company.... 36,309 1,085 --
Other assets..................................... 33,960 28,170 55,964
---------- ---------- ----------
Total Assets..................................... $1,805,099 $1,923,542 $1,667,631
========== ========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Short-term debt................................ $ 74,784 $ 143,682 $ 77
Current maturities of long-term debt........... 38,543 224,419 202,374
Loan payable to parent company................. 30,674 25,000 --
Accounts payable............................... 63,370 56,891 59,266
Accrued liabilities............................ 72,692 77,651 86,634
Income taxes................................... -- 8,036 14,826
---------- ---------- ----------
Total Current Liabilities.............. 280,063 535,679 363,177
---------- ---------- ----------
Long-term debt less current maturities........... 593,633 298,142 596,815
---------- ---------- ----------
Long-term note payable to parent company......... 50,000 50,000 --
---------- ---------- ----------
Deferred income taxes............................ 125,698 170,341 157,169
---------- ---------- ----------
Other liabilities................................ 60,828 61,731 62,286
---------- ---------- ----------
Commitments and Contingencies....................
Shareholder's Equity:
Common stock, $.01 par value per share; 1,000
shares authorized: 100 shares issued and
outstanding ................................ -- -- --
Additional paid-in capital..................... 688,844 708,165 438,237
Retained earnings.............................. 14,120 87,483 85,116
Accumulated other comprehensive income (loss).. (8,087) 12,001 (35,169)
---------- ---------- ----------
Total Shareholder's Equity............. 694,877 807,649 488,184
---------- ---------- ----------
Total Liabilities and Shareholder's Equity....... $1,805,099 $1,923,542 $1,667,631
========== ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-4
ISP CHEMCO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
--------------------------
Year Ended December 31, July 2, July 1,
----------------------------------- 2000 2001
1998 1999 2000 (Unaudited) (Unaudited)
---------- ---------- --------- --------------------------
(Thousands)
Cash and cash equivalents, beginning of
period................................ $ 19,372 $ 22,258 $ 21,324 $ 21,324 $ 14,763
---------- ---------- ---------- --------- ---------
Cash provided by (used in) operating
activities:
Net income............................ 24,564 80,081 98,363 21,072 32,633
Adjustments to reconcile net income to
net cash provided by operating
activities:
Income from discontinued operation. (2,033) (25,298) -- -- --
Cumulative effect of change in
accounting principle............. -- -- -- -- 440
Gain on sale of assets............. (1,189) (8,541) -- -- --
Provision for restructuring, staff
reduction and impairment loss.... 73,049 410 14,429 -- --
Depreciation....................... 48,872 48,191 50,894 24,858 25,941
Goodwill amortization.............. 14,875 16,195 16,042 8,021 8,021
Deferred income taxes.............. 1,798 27,065 12,053 152 (4,280)
(Increase) decrease in working
capital items.................... 681 (23,933) 8,685 (24,813) (29,963)
Purchases of trading securities.... (177,746) (134,552) (442,895) (24,898) (217,335)
Proceeds from sales of trading
securities....................... 213,611 147,386 292,339 35,270 376,292
(Increase) decrease in other assets 3,132 (506) 5,728 4,409 1,332
Increase (decrease) in other
liabilities.................... 58 502 677 (539) (1,679)
(Increase) decrease in receivable
from related parties............. (36,334) 5,474 6,240 (1,744) 439
Change in cumulative translation
adjustment.......................... 2,340 (19,366) (8,126) (6,709) (8,976)
Other, net............................ (149) 4,661 8,202 (6,917) 5,784
---------- ---------- ---------- --------- ---------
Net cash provided by continuing
operations.......................... 165,529 117,769 62,631 28,162 188,649
Net cash provided by discontinued
operation........................... 1,315 5,293 -- -- --
---------- ---------- ---------- --------- ---------
Net cash provided by operating activities 166,844 123,062 62,631 28,162 188,649
---------- ---------- ---------- --------- ---------
Cash provided by (used in) investing
activities:
Capital expenditures and acquisitions. (163,824) (108,926) (58,382) (22,241) (44,079)
Proceeds from sale-leaseback 56,050 -- -- -- --
transaction.............................
Proceeds from sale of assets.......... 2,400 11,533 -- -- --
Proceeds from sale of discontinued -- 62,000 -- -- --
operation...............................
Purchases of available-for-sale (570,270) (275,271) (430,789) (123,270) (121,299)
securities..............................
Purchases of held-to-maturity (9,763) (2,870) -- -- --
securities..............................
Purchases of other short-term (10,000) (5,600) -- -- --
investments.............................
Proceeds from sales of available-
for-sale securities................ 380,104 255,749 437,978 90,278 19,700
Proceeds from held-to-maturity 311 12,633 -- -- --
securities..............................
Proceeds from sales of other short-term
investments........................ -- 14,716 -- -- 12,529
---------- ---------- ---------- --------- ---------
Net cash used in investing activities... (314,992) (36,036) (51,193) (55,233) (133,149)
---------- ---------- ---------- --------- ---------
Cash provided by (used in) financing
activities:
Proceeds (repayments) from sale of
accounts receivable................ (4,951) 5,558 (2,485) (5,648) (2,918)
Increase (decrease) in short-term debt 43,001 (7,849) 70,230 32,539 (108,576)
Proceeds from issuance of debt........ -- -- -- -- 426,864
Increase (decrease) in borrowings under
revolving credit facility.......... 97,600 162,400 (99,000) (6,200) (122,000)
Repayments of long-term debt.......... (643) (200,378) (10,615) (10,358) (28,236)
Borrowings (repayments) with parent
company............................. 26,677 (36,309) 29,550 780 28,915
Increase in restricted cash........... -- -- -- -- (197,251)
Financing fees and expenses........... -- -- -- -- (10,389)
Effect of Restructuring - transfer of
cash to ISP Investco LLC............ -- -- -- -- (22,220)
Dividends and distributions to parent
company............................. (103,525) (27,000) (25,000) (2,370) (35,000)
Capital contribution from parent
company............................. 91,153 15,618 19,321 8,684 7,769
Other, net............................ 1,722 -- -- -- --
---------- ---------- ---------- --------- ---------
Net cash provided by (used in) financing
activities............................ 151,034 (87,960) (17,999) 17,427 (63,042)
---------- ---------- ---------- --------- ----------
Net change in cash and cash equivalents. 2,886 (934) (6,561) (9,644) (7,542)
---------- ---------- ---------- ---------- ---------
Cash and cash equivalents, end of period $ 22,258 $ 21,324 $ 14,763 $ 11,680 $ 7,221
========== ========== ========== ========= =========
F-5
ISP CHEMCO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
Six Months Ended
--------------------------
Year Ended December 31, July 2, July 1,
----------------------------------- 2000 2001
1998 1999 2000 (Unaudited) (Unaudited)
---------- ---------- --------- --------------------------
(Thousands)
Supplemental Cash Flow Information:
Effect on cash from (increase) decrease
in working capital items*:
Accounts receivable................... $ 11,126 $ (17,275) $ (301) $ (4,904) $ (6,717)
Inventories........................... (14,872) 7,627 (4,459) (1,607) (30,955)
Other current assets.................. 793 154 280 (2,780) 579
Accounts payable...................... 8,698 3,497 (6,479) (4,075) 606
Accrued liabilities................... (6,910) (1,616) (2,322) (15,645) (881)
Income taxes.......................... 1,846 (16,320) 21,966 4,198 7,405
---------- ---------- ---------- --------- ---------
Net effect on cash from
(increase) decrease in
working capital items........ $ 681 $ (23,933) $ 8,685 $ (24,813) $ (29,963)
Cash paid during the period for: ========== ========== ========== ========= =========
Interest (net of amount capitalized).. $ 57,288 $ 62,530 $ 59,828 $ 30,134 $ 26,452
Income taxes.......................... 41,844 20,222 28,696 17,433 16,046
Acquisition of remaining 50% interest in
GAF-Huls Chemie GmbH Joint venture,
net of $23,732 cash acquired**:
Fair market value of assets acquired.. $ 48,003
Purchase price of acquisition......... 23,381
----------
Liabilities assumed................... $ 24,622
==========
Acquisition of Kelco Alginates business,
net of $269 cash acquired:
Fair market value of assets acquired.. $ 41,619
Purchase price of acquisition***...... 39,731
----------
Liabilities assumed................... $ 1,888
==========
Acquisition of FineTech Ltd.:
Fair market value of assets acquired.. $ 23,547
Purchase price of acquisition......... 22,450
-----------
Liabilities assumed................... $ 1,097
===========
----------
* Working capital items exclude cash and cash equivalents, short-term
investments, short-term debt and receivables from related parties. Working
capital acquired in connection with acquisitions is reflected within
"Capital expenditures and acquisitions." The effects of reclassifications
between noncurrent and current assets and liabilities are excluded from the
amounts shown. In addition, the increase in accounts receivable shown above
does not reflect the cash proceeds from the sale of the Company's domestic
trade accounts receivable (see Note 10); such proceeds are reflected in cash
from financing activities. In connection with the financing transactions
discussed in Note 13 to Consolidated Financial Statements, the Company's
parent, International Specialty Products Inc. ("ISP") also completed a
restructuring (the "Restructuring") of its business in order to separate its
investment assets from its specialty chemicals business. As part of the
Restructuring, the Company, in a non-cash transaction, transferred all of
its investment assets, totaling $336.7 million, to a newly formed parent
company of the Company, Newco Holdings Inc., a wholly owned subsidiary of
ISP, which, in turn, transferred those assets to its newly formed
subsidiary, ISP Investco LLC.
** The Company had a 50% equity interest in the cash held by the joint venture
prior to the acquisition, which was classified within "Other assets" on the
Consolidated Balance Sheet.
*** The Company received a cash arbitration award in 2000 of $4.9 million which
lowered the purchase price of the acquisition to $34.8 million.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-6
ISP CHEMCO INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
Accumulated
Capital Stock Other Retained
and Additional Comprehensive Earnings Comprehensive
Paid-in Capital Income (Loss) (Deficit) Income (Loss)
--------------- -------------- --------- -------------
(Thousands)
Balance, December 31, 1997.............. $ 484,100 $ 7,030 $ --
Comprehensive income, year ended
December 31, 1998:
Net income......................... -- -- 24,564 $ 24,564
---------
Other comprehensive income (loss),
net of tax:
Unrealized holding losses, net of
income tax benefit of $1,325..... -- (1,914) -- (1,914)
Less: Reclassification adjustment for
gains included in net income, net
of income taxes of $10,777....... -- 22,864 -- 22,864
--------- ---------
Unrealized losses on
available-for-sale securities.... -- (24,778) -- (24,778)
Translation adjustment............. -- 2,340 -- 2,340
Minimum pension liability
adjustment....................... -- (4,023) -- (4,023)
---------
Comprehensive loss.................... $ (1,897)
=========
Dividends and distributions to parent
company............................ (40,000) -- (63,525)
Capital contribution from parent
company............................ 91,153 -- --
Effect of the Merger.................. 135,333 -- --
Effect of exercises of stock options
prior to the Merger................ 1,722 -- --
Effect of issuances of stock options as
incentives......................... 918 -- --
--------- --------- ---------
Balance, December 31, 1998.............. $ 673,226 $ (19,431) $ (38,961)
Comprehensive income, year ended
December 31, 1999:
Net income......................... -- -- 80,081 $ 80,081
---------
Other comprehensive income, net of
tax:
Unrealized holding gains, net of
income taxes of $9,438........... -- 23,089 -- 23,089
Less: Reclassification adjustment for
losses included in net income, net
of tax benefit of $656........... -- (1,422) -- (1,422)
--------- ---------
Unrealized gains on
available-for-sale securities.... -- 24,511 -- 24,511
--------- ---------
Translation adjustment............. -- (19,366) -- (19,366)
Less: Reclassification adjustment for
translation adjustment included in
net income, net of income tax
effect of $521................... -- (1,483) -- (1,483)
--------- ---------
Net translation adjustment......... -- (17,883) -- (17,883)
Minimum pension liability adjustment -- 4,716 -- 4,716
---------
Comprehensive income.................. $ 91,425
=========
Dividends and distributions to parent
company................................. -- -- (27,000)
Capital contribution from parent company 15,618 -- --
--------- --------- ---------
Balance, December 31, 1999.............. $ 688,844 $ (8,087) $ 14,120
Comprehensive income, year ended
December 31, 2000:
Net income......................... -- -- 98,363 $ 98,363
---------
Other comprehensive income, net of
tax:
Unrealized holding gains, net of
income taxes of $68,174.......... -- 137,065 -- 137,065
Less: Reclassification adjustment for
gains included in net income, net
of income taxes of $52,364....... -- 108,851 -- 108,851
--------- ---------
Unrealized gains on
available-for-sale securities.... -- 28,214 -- 28,214
Translation adjustment............. -- (8,126) -- (8,126)
---------
Comprehensive income.................. $ 118,451
=========
Dividends and distributions to parent
company............................ -- -- (25,000)
Capital contribution from parent company 19,321 -- --
F-7
ISP CHEMCO INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY--(Continued)
Accumulated
Capital Stock Other Retained
and Additional Comprehensive Earnings Comprehensive
Paid-in Capital Income (Loss) (Deficit) Income (Loss)
--------------- -------------- --------- -------------
(Thousands)
Balance, December 31, 2000.............. $ 708,165 $ 12,001 $ 87,483
Comprehensive income, six months ended
July 1, 2001 (unaudited):
Net income (unaudited)............. -- -- 32,633 $ 32,633
---------
Other comprehensive income (loss),
net of tax:
Change in unrealized gains (losses) on
available-for-sale securities:
Unrealized holding losses arising
during the period, net of income
tax benefit of $39,099 (unaudited) -- (74,884) -- (74,884)
Less: reclassification adjustment for
losses included in net income, net
of tax benefit of $311 (unaudited) -- (574) -- (574)
Effect of Restructuring (unaudited) -- 40,290 -- 40,290
--------- ---------
Total change for the period
(unaudited)...................... -- (34,020) -- (34,020)
--------- ---------
Change in unrealized losses on
derivative hedging instruments-
cash flow hedges:
Net derivative losses, net of income
tax benefit of $627 (unaudited).. -- (1,160) -- (1,160)
Less: reclassification adjustment for
losses included in net income, net
of tax benefit of $189 (unaudited) -- (350) -- (350)
--------- ---------
Total change for the period
(unaudited)...................... -- (810) -- (810)
--------- ---------
Translation adjustment (unaudited). -- (8,976) -- (8,976)
Effect of Restructuring (unaudited) -- (3,364) -- (3,364)
--------- ---------
Net translation adjustment for the
period (unaudited)............... -- (12,340) -- (12,340)
---------
Comprehensive loss (unaudited)........ $ (14,537)
==========
Effect of Restructuring (unaudited)... (277,697) -- --
Capital contribution from parent
company (unaudited)................ 7,769 -- --
Dividends and distributions to parent
company (unaudited)................ -- -- (35,000)
--------- --------- ---------
Balance, July 1, 2001 (unaudited)....... $ 438,237 $ (35,169) $ 85,116
========= ========= =========
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
F-8
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Formation of the Company, Merger of International Specialty Products
Inc. into ISP Holdings Inc. and Restructuring
On July 15, 1998, International Specialty Products Inc. ("Old ISP") merged
(the "Merger") with and into ISP Holdings Inc. ("ISP Holdings"). In connection
with the Merger, ISP Holdings changed its name to International Specialty
Products Inc. ("ISP"). In the Merger, each outstanding share of Old ISP's common
stock, other than those held by ISP Holdings, was converted into one share of
common stock of ISP, and the outstanding shares of Old ISP's common stock which
were held by ISP Holdings were converted into an aggregate of 53,833,333 shares
(or approximately 78%) of the outstanding shares of common stock of ISP.
ISP Opco Holdings Inc. which changed its name on June 5, 2001 to ISP Chemco
Inc. (the "Company"), a wholly owned subsidiary of ISP, was formed on June 24,
1998 in connection with the Merger and 100 shares of its common stock were
issued to ISP. At the time of the Merger, substantially all of the assets and
liabilities of Old ISP were transferred to the Company. The accompanying
Consolidated Financial Statements have been prepared on a basis which
retroactively reflects the formation of the Company, as discussed above, for all
periods presented. The net income presented up to the date that the Company was
formed has been reflected as dividends and/or distributions to ISP. The results
of operations for the period prior to the Merger represent the results of Old
ISP.
As a result of the Merger, the Company incurred an $8.0 million charge
against operating income in 1998 in connection with the termination of ISP
Holdings' stock appreciation rights and preferred stock option programs (see
Note 15).
In connection with the financing transactions discussed in Note 13, ISP
completed a restructuring (the "Restructuring") of its business in order to
separate its investment assets from its specialty chemicals business. As part of
the Restructuring, the Company transferred net assets of approximately $240.8
million, consisting of all of its investment assets, totaling $336.7 million,
associated short-term debt and the outstanding stock of certain subsidiaries to
a newly formed parent company, Newco Holdings Inc., a wholly owned subsidiary of
ISP, which, in turn, transferred those assets to its newly formed subsidiary,
ISP Investco LLC. After completing these transactions, the Company's assets
consist solely of those related to its specialty chemicals business.
Prior to January 1, 1997, ISP Holdings was a wholly owned subsidiary of GAF
Corporation ("GAF"). On January 1, 1997, GAF effected a series of transactions
(the "Separation Transactions") that resulted in, among other things, the
capital stock of ISP Holdings being distributed to the shareholders of GAF.
Since this distribution, ISP has not been a direct or indirect subsidiary of GAF
or its successor, G-I Holdings Inc. Effective November 2000, G-I Holdings Inc.
became the successor by merger to GAF and certain of GAF's subsidiaries.
References herein to "G-I Holdings" include G-I Holdings Inc. and any and all of
its predecessor corporations, including GAF, G-I Holdings Inc. and GAF
Fiberglass Corporation.
The Company is engaged principally in the manufacture and sale of a wide
range of specialty chemicals and mineral products. See Notes 17 and 18 for a
description of and financial information relating to the Company's business
segments and foreign and domestic operations.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation
All subsidiaries are consolidated and intercompany transactions have been
eliminated.
Financial Statement Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
certain estimates. Actual results could differ from those estimates. In the
opinion of management, the financial statements herein contain all adjustments
necessary to present fairly the financial position and the results of operations
and cash flows of the Company for the periods presented. The Company has a
policy to review the recoverability of long-lived assets and identify and
measure any potential
F-9
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
impairments. The Company does not anticipate any changes in management estimates
that would have a material impact on operations, liquidity or capital resources.
Short-term Investments
For securities classified as "trading" (including short positions),
unrealized gains and losses are reflected in the results of operations. For
securities classified as "available-for-sale," unrealized gains and losses, net
of income tax effect, are included in a separate component of shareholder's
equity, "Accumulated other comprehensive income (loss)," and amounted to $5.8
and $34.0 million as of December 31, 1999 and 2000, respectively.
"Other short-term investments" are investments in limited partnerships
which are accounted for by the equity method. Gains and losses are reflected in
"Other income (expense), net." Liquidation of partnership interests generally
requires a 30 to 45-day notice period.
Cash and cash equivalents include cash on deposit and debt securities
purchased with original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or market. The LIFO (last-in,
first-out) method is utilized to determine cost for a substantial portion of the
Company's domestic inventories. All other inventories are determined principally
based on the FIFO (first-in, first-out) method.
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation is computed principally on the straight-line method
based on the estimated economic lives of the assets. The Company uses an
economic life of 10-20 years for land improvements, 40 years for buildings, and
3-20 years for machinery and equipment, which includes furniture and fixtures.
Certain interest charges are capitalized during the period of construction as
part of the cost of property, plant and equipment.
Foreign Exchange Contracts
The Company entered into forward foreign exchange instruments with
off-balance-sheet risk in order to hedge a portion of both its borrowings
denominated in foreign currency and its firm or anticipated purchase commitments
related to the operations of foreign subsidiaries. Gains and losses on
instruments used to hedge firm purchase commitments were deferred, and
amortization was included in the measurement of the foreign currency
transactions hedged. Gains and losses on instruments used to hedge anticipated
purchases were recognized within "Other income (expense), net."
The Company enters into foreign exchange forward contracts, not designated
as hedging instruments, to offset exposure to changes in exchange rates
affecting intercompany loans. Forward contract agreements require the Company
and the counterparty to exchange fixed amounts of U.S. dollars for fixed amounts
of foreign currency on specified dates. The market value of such contracts
varies with changes in the market exchange rates. The Company is exposed to
credit loss in the event of nonperformance by the counterparties to the forward
contract agreements. However, the Company does not anticipate nonperformance by
the counterparties. The Company does not generally require collateral or other
security to support these financial instruments.
As of December 31, 1999 and 2000, the U.S. dollar equivalent notional value
of outstanding forward foreign exchange contracts was $57.4 and $20.9 million,
respectively, and the amount of net unrealized gains (losses) on such
instruments was $(0.3) million and $0, respectively. All forward contracts are
in major currencies with highly liquid markets and mature within one year. The
Company uses quoted market prices obtained from major financial institutions to
determine the market value of its outstanding forward exchange contracts. In
addition, the U.S. dollar equivalent notional value of foreign exchange
contracts outstanding as of December 31, 1999 and 2000, which were entered into
as a hedge of non-local currency intercompany loans, was
F-10
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$33.9 and $17.0 million, respectively, representing 100% of the Company's
foreign currency exposure with respect to such loans. As of July 1, 2001, the
U.S. dollar equivalent notional value of outstanding forward foreign exchange
contracts was $20.2 million (see "Derivatives and Hedging" below).
Derivatives and Hedging
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in a derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement.
The Company adopted SFAS No. 133 as of January 1, 2001. Accounting for
interest rate swaps and foreign exchange forward contracts held by the Company
is affected by implementation of this standard. The earnings impact of the
transition adjustments related to the initial adoption of the standard was an
after-tax loss of $0.4 million, which was recorded in the first quarter of 2001
as the cumulative effect of a change in accounting principle.
As discussed in Note 13, in June 2001, the Company entered into the $450.0
million Senior Credit Facilities, which include a $225.0 million term loan.
Borrowings against this term loan will be based on either an alternate base rate
or on the eurodollar rate plus a margin based on the ratio of the Company's
total consolidated debt to EBITDA. The Company has designated interest rate
swaps, with a notional amount of $100 million, as a hedge of its exposure to
changes in the eurodollar rate. The interest rate swaps are structured to
receive interest based on the eurodollar rate and pay interest on a fixed rate
basis. A cash flow hedging relationship has been established whereby the
interest rate swaps hedge the risk of changes in the eurodollar rate related to
forecasted borrowings against the term loan. The interest rate swaps hedge
forecasted exposure to changes in the eurodollar rate through July 2002.
During the first six months of 2001, a $0.5 million charge related to the
reduction in the fair market value of the interest rate swaps was reclassified
and charged against interest expense. As of July 1, 2001, the reclassification
charge to earnings related to interest accruals over the next twelve months is
estimated to be $1.3 million.
Derivatives held by the Company not designated as hedging instruments
include forward foreign exchange instruments. Foreign exchange forward contracts
are held to offset exposure to changes in exchange rates affecting intercompany
loans.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated at year-end
exchange rates. The effects of these translation adjustments are reported in a
separate component of shareholder's equity, "Accumulated other comprehensive
income (loss)," and amounted to $(13.9), $(22.0) and $(34.4) million as of
December 31, 1999 and 2000 and July 1, 2001, respectively. Income and expenses
are translated at average exchange rates prevailing during the year. Exchange
gains and losses arising from transactions denominated in a currency other than
the functional currency of the entity involved, and translation adjustments of
subsidiaries in countries with highly inflationary economies, are included in
"Other income (expense), net."
Excess of Cost Over Net Assets of Businesses Acquired ("Goodwill")
Goodwill, which arose principally from the 1989 management-led buyout of
the predecessor company to ISP's former parent company, G-I Holdings, and as a
result of the Merger (see Note 1), is amortized on the straight-line method over
a period of approximately 40 years. The Company believes that the goodwill is
recoverable. To determine if goodwill is recoverable, the Company compares the
net carrying amount to undiscounted projected cash flows of the underlying
businesses to which the goodwill pertains. If goodwill is not
F-11
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
recoverable, the Company would record an impairment based on the difference
between the net carrying amount and fair value.
Revenue Recognition
Revenue is recognized at the time products are shipped to the customer.
Shipping and Handling Costs
Shipping and handling costs included in "Selling, general and
administrative" expenses amounted to $24.0, $24.8, $30.3, $14.4 and $14.9
million for 1998, 1999 and 2000 and the first six months of 2000 and 2001,
respectively.
Debt Issuance Costs
Debt issuance costs are amortized to expense over the life of the related
debt.
Research and Development
Research and development costs are charged to operations as incurred and
amounted to $25.9, $23.0, $25.6, $13.3 and $12.2 million for 1998, 1999 and 2000
and the first six months of 2000 and 2001, respectively.
Investment in Joint Venture
Prior to April 1, 1998, the Company had a 50% equity ownership in GAF-Huls
Chemie GmbH, now known as ISP Marl GmbH ("ISP Marl"), a joint venture that
operated a chemical manufacturing plant in Germany, and was accounted for by the
equity method. Effective April 1, 1998, the Company acquired the remaining 50%
interest in ISP Marl (see Note 9). Dividends received by the Company from the
joint venture totaled $8.1 million in 1998.
Environmental Liability
The Company, together with other companies, is a party to a variety of
proceedings and lawsuits involving environmental matters. The Company estimates
that its liability in respect of such environmental matters, and certain other
environmental compliance expenses, as of July 1, 2001, is $20.4 million, before
reduction for insurance recoveries reflected on its Consolidated Balance Sheet
of $11.8 million. The Company's liability is reflected on an undiscounted basis.
See Note 20 for further discussion with respect to environmental liabilities and
estimated insurance recoveries.
Accumulated Other Comprehensive Income (Loss)
Comprehensive Income includes net income, unrealized gains and losses from
investments in available-for-sale securities, net of income tax effect,
unrealized gains and losses from derivative hedging instruments, net of tax,
foreign currency translation adjustments, and minimum pension liability
adjustments. The Company has chosen to disclose Comprehensive Income (Loss) in
the Consolidated Statements of Shareholder's Equity.
Changes in the components of "Accumulated other comprehensive income
(loss)" for the years 1998, 1999 and 2000 and the six months ended July 1, 2001
are as follows:
F-12
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Unrealized Cumulative
Unrealized Gains Losses on Foreign Minimum Accumulated
(Losses) on Derivative Currency Pension Other
Available-For- Hedging Translation Liability Comprehensive
Sale Securities Instruments Adjustment Adjustment Income (Loss)
---------------- ----------- ----------- ---------- -------------
(Thousands)
Balance, December 31, 1997...... $ 6,073 $ -- $ 1,650 $ (693) $ 7,030
Change for the year 1998........ (24,778) -- 2,340 (4,023) (26,461)
-------- ------ -------- -------- --------
Balance, December 31, 1998...... $(18,705) $ -- $ 3,990 $ (4,716) $(19,431)
Change for the year 1999........ 24,511 -- (17,883) 4,716 11,344
-------- ------ -------- -------- --------
Balance, December 31, 1999...... $ 5,806 $ -- $(13,893) $ -- $ (8,087)
Change for the year 2000........ 28,214 -- (8,126) -- 20,088
-------- ------ -------- -------- --------
Balance, December 31, 2000...... $ 34,020 $ -- $(22,019) $ -- $ 12,001
Change for the first six months of
2001 (unaudited).............. (34,020) (810) (12,340) -- (47,170)
-------- ------ -------- -------- --------
Balance, July 1, 2001 (unaudited) $ -- $ (810) $(34,359) $ -- $(35,169)
======== ====== ======== ======== ========
New Accounting Standards
On June 30, 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting and eliminates the pooling method of
accounting. SFAS No. 141 will not have an impact on the Company's business since
the Company has historically accounted for all business combinations using the
purchase method of accounting. With the adoption of SFAS No. 142, effective
January 1, 2002, goodwill will no longer be subject to amortization over its
estimated useful life. However, goodwill will be subject to at least an annual
assessment for impairment and more frequently if circumstances indicate a
possible impairment. Companies must perform a fair-value-based goodwill
impairment test. In addition, under SFAS No. 142, an acquired intangible asset
should be separately recognized if the benefit of the intangible asset is
obtained through contractual or other legal rights, or if the intangible asset
can be sold, transferred, licensed, rented or exchanged. Intangible assets will
be amortized over their useful lives. Early adoption of SFAS No. 142 is not
permitted. On an annualized basis, the Company's net income will increase by
approximately $16.0 million, unless any impairment charges are necessary.
Note 3. Short-term Investments
As discussed in Note 1, as part of the Restructuring, the Company
transferred all of its investment assets, totaling $336.7 million, to a newly
formed parent company, Newco Holdings Inc., which, in turn, transferred those
assets to its newly formed subsidiary, ISP Investco LLC. The Senior Credit
Facilities discussed in Note 13 prohibit the Company from investing in equity
securities in excess of $5.0 million.
Included in "Investments in available-for-sale securities" at December 31,
1999 was a $144.3 million investment (based on market value) in Life
Technologies, Inc. ("Life Technologies"), a 75%-owned subsidiary of Dexter
Corporation ("Dexter"). Such investment represented approximately 14% of the
outstanding common stock of Life Technologies at December 31, 1999. Also
included in "Investments in available-for-sale securities" at December 31, 1999
was a $91.4 million investment (based on market value) in Dexter, representing
approximately 10% of the outstanding common stock of Dexter at that date. Dexter
and Life Technologies were acquired by Invitrogen Corporation ("Invitrogen") in
a merger completed in September 2000. The Company sold its shares of Dexter
common stock prior to the merger and also sold all of the Invitrogen common
stock that it received in the merger for its Life Technologies shares, resulting
in net gains, after expenses, in 2000 of $123.5 million. The total gain realized
by the Company related to these investments was approximately $146.0 million
prior to expenses, of which a total of $16.4 million was recognized in 1998 and
1999.
Included in "Investments in available-for-sale securities" at December 31,
2000 was a $204.3 million investment (based on market value) in Hercules
Incorporated ("Hercules"). Such investment represented approximately 9.9% of the
outstanding common stock of Hercules at such date.
"Other income (expense), net," includes $29.6, $6.7, $150.6, $7.2 and $28.5
million of net realized and certain unrealized gains on securities in 1998, 1999
and 2000 and the first six months of 2000 and 2001, respectively. The
determination of cost in computing realized and unrealized gains and losses is
based on the
F-13
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
specific identification method. Internal costs for managing the Company's
short-term investment portfolio and generating investment income have been
charged against "Other income (expense), net," in the amount of $3.0, $3.0,
$4.3, $1.5 and $2.1 million for the years 1998, 1999 and 2000 and the first six
months of 2000 and 2001, respectively.
As of December 31, 1999 and 2000, the market value of the Company's equity
securities held long was $317.0 and $466.1 million, respectively, and the
Company had $38.8 and $223.8 million, respectively, of short positions in common
stocks, based on market value. The Company entered into equity-related financial
instruments as a means to manage its exposure to market fluctuations on its
short-term investments. As of December 31, 2000, the value of equity-related
long contracts was $30.2 million, which were marked-to-market each month, with
unrealized gains and losses included in the results of operations. The market
values referred to above are based on quotations as reported by various stock
exchanges and major broker/dealers.
Note 4. Provision for Restructuring, Staff Reduction and Impairment Loss
The Company announced in January 1999 that it was shutting down its
butanediol production unit at its Calvert City, Kentucky manufacturing facility.
The decision to shut down this production unit, the Company's highest-cost
butanediol production, resulted from significant adverse changes in the
butanediol market and the Company's acquisition of the remaining 50% interest in
ISP Marl (see Note 9). Accordingly, the Company recorded a one-time
restructuring charge against operating income in 1998 of $42.7 million, as
detailed below.
In conjunction with the decision to shut down the butanediol production
unit in Calvert City, the Company also reviewed its butanediol production assets
at its Texas City and Seadrift, Texas manufacturing facilities to determine if
the carrying amount of such assets was recoverable. As a result of determining
that the expected undiscounted cash flows of the assets was less than their
carrying amount, the Company recognized an impairment loss of $16.6 million in
1998 and wrote down these assets to fair value.
Prior to acquiring the remaining 50% interest in ISP Marl, the Company
intended to acquire or develop a European manufacturing facility to meet the
needs of the Company's European business. Costs incurred in previous years for
this project totaled $10.7 million, representing site evaluation, engineering,
infrastructure and future technology. Based on the Company's decision to
discontinue this project as no longer needed due to the adverse changes in the
butanediol market and the ISP Marl acquisition, these costs were no longer
recoverable and were written off in the fourth quarter of 1998.
In the third quarter of 1998, the Company reserved $3.0 million for the
consolidation of offices in its European operations, consisting of $0.5 million
for severance related to 52 terminated employees in the sales and marketing,
finance and accounting, and the supply chain departments, $1.7 million for lease
obligations and $0.8 million for the relocation of headquarters operations and
other related expenses. This program was completed in 1999.
The components of the $73.0 million provision for restructuring and
impairment loss in 1998 are as follows:
(Millions)
----------
Write-off of Calvert City production assets........ $ 22.1
Impairment loss on Texas City and Seadrift assets.. 16.6
Write-off of goodwill related to the butanediol 13.1
business...........................................
Write-off of fixed asset costs related to the
terminated 10.7
European expansion project.......................
Accrual for decommissioning, demolition and
remediation 4.7
costs............................................
Accrual for severance costs........................ 0.9
Accrual for costs related to the termination of raw
material 1.9
contracts and other related costs................
Accrual for consolidation of European offices...... 3.0
------
Total provision.................................... $ 73.0
======
F-14
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Of the total $70.0 million provision recorded in the fourth quarter of
1998, $7.5 million represented cash costs to be incurred, including severance
costs of $0.9 million for 41 terminated employees who were operators and
supervisors in the butanediol production unit that was shut down. During 1999,
$4.8 million of costs were charged to this accrual, principally for
decommissioning activities and severance. In 1999, the Company reversed $1.9
million of such previously recorded restructuring reserves, representing an
excess demolition reserve of $0.8 million and $1.1 million of other reserves,
mainly for raw material contract terminations, which were no longer required.
The total restructuring reserve balance as of December 31, 1999 was $0.8
million. This program was completed in the third quarter of 2000.
As a result of the write-off of property, plant and equipment and goodwill
discussed above, the Company's depreciation expense was lowered by approximately
$4.5 million per year and goodwill amortization was lowered by approximately
$0.4 million per year.
In the third quarter of 1999, the Company implemented a staff reduction
program impacting corporate and worldwide executive and administrative staff
positions. As a result, a total of 79 positions were eliminated in 1999 through
normal attrition or termination, for which the Company recorded a pre- tax
provision for severance of $2.3 million. The applicable severance reserve
remaining as of December 31, 1999 was $0.5 million, and this program was
completed in the second quarter of 2000.
As discussed above, as part of the 1998 restructuring program, the Company
wrote down to fair value the butanediol production assets at its Texas City and
Seadrift, Texas manufacturing facilities. In December 2000, the Company shut
down production at the Seadrift facility and shut down production of butanediol
at the Texas City facility in the first quarter of 2001. Accordingly, the
Company recorded a one-time restructuring charge against operating income in
2000 of $2.5 million, as detailed below. Also, in connection with the relocation
of certain of the Company's production lines for personal care products to the
Company's Freetown, Massachusetts facility, the Company shut down its
manufacturing operation in Belleville, New Jersey in the first quarter of 2001.
Accordingly, the Company recorded a restructuring charge against operating
income in 2000 of $11.9 million, as detailed below.
The components of the $14.4 million provision for restructuring in 2000 are
as follows:
Texas City/
Belleville Seadrift
---------- -----------
(Millions)
Write-off of production assets.......... $ 10.4 $ 0.4
Accrual for severance costs............. 0.9 0.7
Accrual for decommissioning and
remediation........................... -- 1.4
Accrual for other related costs......... 0.6 --
------ -----
Total provision......................... $ 11.9 $ 2.5
====== =====
Of the total $14.4 million restructuring provision, $3.6 million represents
cash costs to be incurred, including severance costs of $0.9 million for 33
plant management, supervisors and operators to be terminated at the Belleville
plant and severance costs of $0.7 million for 10 supervisors and operators at
the Texas City and Seadrift plants. These restructuring programs are expected to
be completed by the end of 2001. As a result of the write-off of property, plant
and equipment, the Company estimates that its depreciation expense will be
lowered by approximately $1.4 million per year.
In the first six months of 2001, $0.8 million of costs were charged against
the Belleville reserve, principally for severance costs, leaving a reserve
balance of $0.7 million as of July 1, 2001. In the first six months of 2001,
$1.8 million of costs were charged against the Texas City/Seadrift reserve,
primarily for severance costs, leaving a reserve balance of $0.3 million as of
July 1, 2001.
Note 5. Gain on Contract Settlement
In the first quarter of 2000, the Company received $3.5
million from the settlement of a pre-1997 contract termination dispute relating
to the Company's mineral products business segment.
F-15
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6. Disposition of Assets
In September 1998, the Company sold its tennis court materials business
that was part of the mineral products business segment, which resulted in a
pre-tax gain of $1.2 million. The tennis court materials business accounted for
$1.4 million of sales in 1998. As a result, the sale did not have a material
impact on the Company's results of operations for the year 1999.
On April 2, 1999, the Company sold its pearlescent pigments business, a
non-core product line that was part of the personal care business segment, which
resulted in a pre-tax gain of $8.5 million. The pearlescent pigments product
line accounted for $4.9 million of the Company's net sales in 1998. As a result,
the sale did not have a material impact on the Company's results of operations
for the year 1999.
Note 7. Discontinued Operation
On October 1, 1999, the Company sold the stock of its Filter Products
subsidiaries to Hayward Industrial Products, Inc. for a purchase price of $62
million. The gain on the sale was $23.5 million, after income taxes of $12.7
million. Accordingly, the Filter Products business segment is reported as a
discontinued operation in the Consolidated Financial Statements.
Summary operating results for the Filter Products business are as follows:
Year Ended
December 31,
-------------------
1998 1999
-------- --------
(Thousands)
Net sales................ $ 39,322 $ 28,730
-------- --------
Income before income taxes $ 3,248 $ 2,726
Income taxes............. (1,215) (957)
-------- --------
Net income............... $ 2,033 $ 1,769
======== ========
Note 8. Income Taxes
Income tax (provision) benefit for continuing operations consists of the
following:
Six Months Ended
--------------------------
Year Ended December 31, July 2, July 1,
----------------------------------- 2000 2001
1998 1999 2000 (Unaudited) (Unaudited)
--------- ----------- ----------- ----------- -----------
(Thousands)
Federal:
Current................. $ 5,773 $ 15,471 $(23,376) $(2,654) $(18,754)
Deferred................ (1,957) (31,406) (20,648) (3,427) 6,390
-------- -------- -------- -------- --------
Total Federal... 3,816 (15,935) (44,024) (6,081) (12,364)
-------- -------- -------- ------- --------
Foreign:
Current................. (19,106) (16,830) (17,466) (7,841) (1,691)
Deferred................ -- 5,185 9,076 3,591 (2,205)
-------- -------- -------- ------- ---------
Total foreign... (19,106) (11,645) (8,390) (4,250) (3,896)
-------- -------- -------- ------- --------
State and local:
Current................. (95) (1,200) (304) (689) (1,727)
Deferred................ 159 (844) (481) (316) 95
-------- -------- -------- -------- --------
Total state and
local......... 64 (2,044) (785) (1,005) (1,632)
-------- -------- -------- ------- --------
Income tax provision...... $(15,226) $(29,624) $(53,199) $(11,336) $(17,892)
======== ======== ======== ======== ========
The differences between the income tax provision computed by applying the
statutory Federal income tax rate to pre-tax income, and the income tax
provision reflected in the Consolidated Statements of Income are as follows:
F-16
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Six Months Ended
-------------------------
Year Ended December 31, July 2, July 1,
---------------------------------- 2000 2001
1998 1999 2000 (Unaudited) (Unaudited)
-------- -------- -------- ----------- -----------
(Thousands)
Statutory tax provision... $(13,215) $(29,542) $(53,047) $(11,343) $ (17,838)
Impact of:
Foreign operations...... 3,313 4,472 3,730 1,223 3,415
State and local taxes,
net of Federal
benefits............. 41 (1,330) (511) (654) (1,062)
Nondeductible goodwill
amortization......... (9,220) (5,671) (5,616) (2,854) (2,807)
Percentage depletion.... 1,929 1,943 1,521 1,345 574
Other, net.............. 1,926 504 724 947 (174)
-------- -------- -------- ------- ----------
Income tax provision...... $(15,226) $(29,624) $(53,199) $(11,336) $ (17,892)
======== ======== ======== ======== =========
The components of the net deferred tax liability are as follows:
December 31, July 1,
---------------------- 2001
1999 2000 (Unaudited)
--------- -------- -----------
(Thousands)
Deferred tax liabilities related to:
Property, plant and equipment.......... $ 96,747 $102,697 $ 112,120
Other.................................. 53,991 82,193 54,286
--------- -------- ---------
Total deferred tax liabilities. 150,738 184,890 166,406
--------- -------- ---------
Deferred tax assets related to:
Expenses not yet deducted for tax
purposes............................ (18,263) (19,901) (10,322)
Other.................................. (19,533) (24,042) (26,047)
--------- -------- ---------
Total deferred tax assets...... (37,796) (43,943) (36,369)
--------- -------- ---------
Net deferred tax liability............... 112,942 140,947 130,037
Deferred tax assets reclassified to other
current assets......................... 12,756 29,394 27,132
--------- -------- ---------
Noncurrent deferred tax liability........ $ 125,698 $170,341 $ 157,169
========= ======== =========
The Company and its domestic subsidiaries are a party to a Tax Sharing
Agreement with ISP with respect to the payment of Federal income taxes and
certain related matters dated as of January 1, 1997 (the "1997 Tax Sharing
Agreement"). During the term of the 1997 Tax Sharing Agreement, which extends as
long as the Company or any of its domestic subsidiaries, as the case may be, are
included in a consolidated Federal income tax return filed by ISP or a successor
entity, the Company is obligated to pay to ISP an amount equal to those Federal
income taxes the Company would have incurred if, subject to certain exceptions,
the Company (on behalf of itself and its domestic subsidiaries) filed its own
consolidated Federal income tax return. These exceptions include, among others,
that the Company may utilize certain favorable tax attributes, i.e., losses,
deductions and credits (except for a certain amount of foreign tax credits and,
in general, net operating losses), only at the time such attributes reduce the
Federal income tax liability of ISP and its consolidated subsidiaries (the "ISP
Group"); and that the Company may carry back or carry forward its favorable tax
attributes only after taking into account current tax attributes of the ISP
Group. In general, subject to the foregoing limitations, unused tax attributes
carry forward for use in reducing amounts payable by the Company to ISP in
future years. Subject to certain exceptions, actual payment for such attributes
will be made by ISP to the Company only when ISP receives an actual refund of
taxes from the Internal Revenue Service (the "IRS") or, under certain
circumstances, the earlier of the dates of the filing of Federal income tax
returns of the Company for taxable years of the Company following the last
taxable year in which it was a member of the ISP Group. Foreign tax credits not
utilized by the Company in computing its tax sharing payments will be refunded
by ISP to the Company, if such credits expire unutilized, upon the termination
of the statute of limitations for the year of expiration.
The 1997 Tax Sharing Agreement provides for analogous principles to be
applied to any consolidated, combined or unitary state or local income taxes.
Under the 1997 Tax Sharing Agreement, ISP makes all decisions with respect to
all matters relating to taxes of the ISP Group. The provisions of the 1997 Tax
Sharing Agreement take into account both the Federal income taxes the Company
would have incurred if it filed its own separate Federal income tax return and
the fact that the Company is a member of the ISP Group for Federal income tax
purposes.
F-17
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In connection with the Restructuring, the Company entered into a tax
sharing agreement with Newco Holdings with respect to the payment of Federal
Income Taxes and certain related matters. The tax sharing agreement is
substantially similar to the tax sharing agreement described above.
ISP was a party to tax sharing agreements with members of the consolidated
group that included G-I Holdings Inc. (the "G-I Holdings Group"). Since the
Separation Transactions, ISP has not been included in the consolidated Federal
income tax returns of the G-I Holdings Group and, therefore, such tax sharing
agreements are no longer applicable with respect to the tax liabilities of ISP
for periods subsequent to the Separation Transactions. ISP remains obligated,
however, with respect to tax liabilities imposed or that may be imposed for
periods prior to the Separation Transactions. Among other things, those tax
sharing agreements provide for the sharing of the G-I Holdings Group's
consolidated tax liability based on each member's share of the tax as if such
member filed on a separate basis. Accordingly, a payment of tax would be made to
G-I Holdings equal to ISP's allocable share of the G-I Holdings Group's
consolidated tax liability.
On September 15, 1997, G-I Holdings received a notice from the IRS of a
deficiency in the amount of $84.4 million (after taking into account the use of
net operating losses and foreign tax credits otherwise available for use in
later years) in connection with the formation in 1990 of Rhone-Poulenc
Surfactants and Specialties, L.P. (the "surfactants partnership"), a partnership
in which G-I Holdings held an interest. G-I Holdings has advised ISP that it
believes that it will prevail in the tax matter arising out of the surfactants
partnership, although there can be no assurance in this regard. The Company
believes that the ultimate disposition of this matter will not have a material
adverse effect on its business, financial position or results of operations. On
September 21, 2001, the IRS filed a proof of claim with respect to such
deficiency against G-I Holdings in the G-I Holdings bankruptcy. If such proof of
claim is sustained, ISP and/or some of the Company's subsidiaries, together with
G-I Holdings and several current and former subsidiaries of G-I Holdings, would
be severally liable for such taxes and interest in the amount of approximately
$250.0 million should G-I Holdings be unable to satisfy such liability. In
January 2001, G-I Holdings filed a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code due to its asbestos-related bodily injury
claims relating to the inhalation of asbestos fiber. See Note 20.
Note 9. Acquisitions
In February 1998, the Company acquired Polaroid Corporation's Freetown,
Massachusetts fine chemicals facility. In connection with the acquisition, the
Company entered into a sale-leaseback arrangement for the facility's equipment
with a third party. The lease has been accounted for as an operating lease, with
an initial term of four years and, at the Company's option, up to three one-year
renewal periods. As part of the acquisition transaction, the Company entered
into a long-term supply and license agreement with Polaroid for the imaging
chemicals and polymers manufactured at the facility and used by Polaroid in its
instant film business. The results of the Freetown facility are included in the
Company's financial statements from the date of its acquisition and were not
material to 1998 operations.
Effective April 1, 1998, the Company acquired the remaining 50% interest in
ISP Marl, its joint venture with Huls AG. ISP Marl consists of a manufacturing
facility that produces primarily butanediol and tetrahydrofuran. As part of the
transaction, the Company also acquired Huls' production facility that supplies
ISP Marl with acetylene, its primary raw material. The results of ISP Marl are
included in the Company's financial statements on a consolidated basis from the
date of its acquisition, including sales of $53.0 million for 1998.
On October 15, 1999, the Company acquired substantially all of the assets
of the Kelco Alginates division of Monsanto Company, including manufacturing
facilities in San Diego, California and Girvan, Scotland, a research facility in
Tadworth, England and equity investments in three seaweed processing joint
ventures in Ireland, Iceland and Tasmania. The alginates business manufactures
sodium alginate, propylene glycol alginate and other alginate derivatives. The
results of the alginates business, including sales of $12.8 million for 1999,
are included in the Company's financial statements from the date of its
acquisition and were not material to 1999 operations.
On June 7, 2001, the Company completed the acquisition of FineTech Ltd.
("FineTech"), a pharmaceutical research company based in Haifa, Israel. FineTech
specializes in the design of proprietary synthetic routes and methodologies used
in the production of highly complex and valuable organic compounds for the
pharmaceutical industry. The acquisition was accounted for under the purchase
method of accounting. Accordingly, the purchase price was allocated to the
estimated fair value of the identifiable net assets acquired, and the excess was
F-18
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
recorded as goodwill. The results of FineTech are included in the Company's
results from the date of acquisition and are not expected to be material to the
Company's results of operations. FineTech recorded revenues of $3.5 million in
the year 2000.
Note 10. Sale of Accounts Receivable
In June 1993, the Company sold its domestic trade accounts receivable,
without recourse, for a maximum of $25.0 million in cash to be made available to
the Company based on eligible domestic receivables outstanding from time to
time. The agreement under which the Company sells its domestic trade accounts
receivable was renewed each year through 1998 for one-year periods on
substantially the same terms and conditions, and the maximum purchase amount was
increased in January 1998 to provide for up to $33.0 million in cash. In June
1999, the agreement was extended through May 2000, and the maximum purchase
amount was increased to provide for up to $36.0 million in cash. The agreement
has been extended through October 2001 on the same terms and conditions. The
excess of accounts receivable sold over the net proceeds received is included in
"Accounts receivable, other." The effective cost to the Company varies with
LIBOR or commercial paper rates and is included in "Other income (expense), net"
in the amount of $1.8, $2.5, $2.3, $1.2 and $0.9 million for 1998, 1999 and 2000
and the first six months of 2000 and 2001, respectively.
Note 11. Inventories
Inventories comprise the following:
December 31, July 1,
--------------------- 2001
1999 2000 (Unaudited)
--------- -------- -----------
(Thousands)
Finished goods.......... $ 107,583 $ 93,356 $ 109,256
Work-in-process......... 18,457 29,022 40,611
Raw materials and supplies 25,735 28,570 32,117
--------- -------- ---------
Inventories............. $ 151,775 $150,948 $ 181,984
========= ======== =========
At December 31, 1999 and 2000 and July 1, 2001, $47.7, $38.7 and $56.5
million, respectively, of domestic inventories were valued using the LIFO
method. If the FIFO inventory method had been used to value these inventories,
they would have been $2.7 million higher at December 31, 1999, $0.1 million
lower at December 31, 2000 and $5.2 million higher at July 1, 2001.
Note 12. Property, Plant and Equipment
Property, plant and equipment comprises the following:
December 31, July 1,
---------------------- 2001
1999 2000 (Unaudited)
--------- --------- -----------
(Thousands)
Land and land improvements.... $ 75,823 $ 78,236 $ 79,245
Buildings and building equipment 99,800 105,279 107,613
Machinery and equipment....... 580,841 624,761 643,396
Construction in progress...... 75,879 60,326 52,341
--------- --------- ---------
Total............... 832,343 868,602 882,595
Less accumulated depreciation. (267,097) (309,914) (331,826)
--------- --------- ---------
Property, plant and equipment,
net......................... $ 565,246 $ 558,688 $ 550,769
========= ========= =========
See Note 20 for information regarding capital leases.
Note 13. Long-term Debt and Lines of Credit
Long-term debt comprises the following:
F-19
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, July 1,
--------------------- 2001
1999 2000 (Unaudited)
--------- --------- -----------
(Thousands)
9 3/4% Senior Notes, due February 2002.... $ 199,871 $ 199,871 $ 199,871
9% Senior Notes due October 2003......... 98,000 98,000 98,000
Senior Credit Facilities:
Term loan............................. -- -- 225,000
Revolving credit facility............. 295,000 196,000 74,000
10 1/4% Senior Subordinated Notes due
2011.................................. -- -- 201,864
Obligation on mortgaged property,
due January 2001...................... 38,125 28,125 --
Obligations under capital leases (Note 20) 945 533 410
Other.................................... 235 32 44
--------- --------- ---------
Total long-term debt........... 632,176 522,561 799,189
Less current maturities.................. (38,543) (224,419) (202,374)
--------- --------- ---------
Long-term debt less current maturities... $ 593,633 $ 298,142 $ 596,815
========= ========= =========
On June 27, 2001, the Company and three of its wholly owned subsidiaries
issued $205.0 million aggregate principal amount of 10 1/4% Senior Subordinated
Notes due 2011 (the "2011 Notes"). The net proceeds of $197.3 million, after
discount and fees, which are reflected on the Consolidated Balance Sheet as of
July 1, 2001 as "Restricted cash," were placed in an escrow account and will be
distributed to the Company's parent, ISP, to be used to retire ISP's 9 3/4%
Senior Notes due 2002 (the "2002 Notes") on or prior to their maturity. On July
31, 2001, the Company and its three wholly owned subsidiaries issued an
additional $100.0 million aggregate principal amount of 2011 Notes. These notes
have the same terms as the 2011 Notes issued in June. The net proceeds were
$98.9 million, including $0.9 million of accrued interest from June 27, 2001 to
the date of issuance, of which $98.0 million were placed in an escrow account
and will be distributed to ISP to be used to retire a portion of ISP's 9% Senior
Notes due 2003 (the "2003 Notes") on or prior to their maturity. All of the 2011
Notes were guaranteed by substantially all of the Company's other domestic
subsidiaries.
As the Company intends to use the net proceeds from the issuance of the
2011 Notes to retire ISP's 2002 Notes and a portion of ISP's 2003 Notes, the
2002 Notes and $98.0 million of the 2003 Notes have been retroactively reflected
on the Company's Consolidated Balance Sheets for all periods presented.
In a related transaction, the Company and its three subsidiaries which
issued the 2011 Notes also entered into $450.0 million of new senior secured
credit facilities (the "Senior Credit Facilities"), the initial borrowings under
which were used to repay amounts outstanding under the Company's previous credit
facility. The Senior Credit Facilities are comprised of a $225.0 million term
loan with a maturity of seven years and a $225.0 million revolving credit
facility which will terminate in five years. The revolving credit facility
includes a borrowing capacity not in excess of $50.0 million for letters of
credit. All borrowings under the Senior Credit Facilities will be based on
either an alternate base rate (based on the banks' base rate or on the federal
funds rate) or on the eurodollar rate plus a margin based on the ratio of the
Company's total consolidated debt to EBITDA (as defined in the Senior Credit
Facilities). The Senior Credit Facilities require compliance with various
financial covenants, including a total debt leverage maintenance ratio, a senior
debt leverage maintenance ratio, an interest coverage ratio and a minimum
adjusted net worth. As of July 1, 2001, $74.0 million of borrowings and $5.6
million of letters of credit were outstanding under the revolving credit
facility.
In October 1996, ISP issued $325.0 million principal amount of the 2003
Notes. The net cash proceeds of $317.2 million were utilized to consummate a
cash tender offer for all of the G-I Holdings Inc. Senior Discount Notes and
Series B Senior Discount Notes due 1998.
In October 1996, ISP consummated an offer to exchange (the "Exchange
Offer") $1,000 principal amount of the 2002 Notes for each $1,000 principal
amount of the G-I Holdings Inc. Series B 10% Senior Notes due 2006 (the "10%
Notes"). Pursuant to the Exchange Offer, an aggregate amount of $199.9 million
of the 2002 Notes were issued to the former holders of the 10% Notes.
Holders of the 2002 Notes and the 2003 Notes (collectively, the "Notes")
have the right to require ISP to purchase the Notes at a price of 101% of their
principal amount, and ISP has the right to redeem the Notes at
F-20
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
their principal amount plus the Applicable Premium (as defined), together with
any accrued and unpaid interest, in the event of a Change of Control (as
defined). Under the indentures relating to the Notes, the incurrence of
additional debt and the issuance of preferred stock by ISP would be restricted
unless, subject to certain exceptions, the ratio of consolidated income before
income taxes, interest, depreciation and amortization expense to the
consolidated interest expense (as defined) for the most recently completed four
fiscal quarters is at least 2 to 1. For the four quarters ended July 1, 2001,
ISP was in compliance with such test.
During 1997, the Company entered into five-year interest rate swaps with
banks in the aggregate notional principal amount of $100.0 million in order to
fix a portion of its interest expense and reduce its exposure to floating
interest rates. These interest rate swaps require the Company to pay a fixed
rate and receive the eurodollar rate for a period of five years. Based on the
fair value of the outstanding interest rate swaps at December 31, 1999 and 2000
and July 1, 2001, the Company would have incurred gains (losses) of $0.7, $(0.8)
and $(2.5) million, respectively, representing the estimated amount that would
be receivable or payable by the Company if the interest rate swaps were
terminated at such dates. The fair value of $(2.5) million at July 1, 2001 is
included in "Accrued liabilities" in the Consolidated Balance Sheet.
The Company may be considered to be at risk, to the extent of the costs of
replacing such interest rate swaps at current market rates, in the event of
nonperformance by counterparties. However, since the counterparties are major
financial institutions, the credit ratings of which are continually monitored by
the Company, the risk of such nonperformance is considered by the Company to be
remote.
At December 31, 2000, the Company had a $28.1 million mortgage obligation
on its headquarters property. This mortgage was repaid in January 2001. Interest
on the mortgage was at a floating rate based on LIBOR.
Borrowings by the Company, including those under the Senior Credit
Facilities are subject to the application of certain financial covenants
contained in such agreement and in the indentures relating to the Notes. As of
July 1, 2001, the Company was in compliance with such covenants, and the
application of such covenants would not have restricted the amount available for
borrowing under the Senior Credit Facilities. The Senior Credit Facilities and
the indentures relating to the Notes and the 2011 Notes also limit the amount of
cash dividends, purchases of treasury stock, and other restricted payments (as
defined) by the Company. As of July 1, 2001, under the most restrictive of such
limitations, the Company could have paid dividends and other restricted payments
of up to $58.0 million.
The Senior Credit Facilities and the indentures relating to the Notes and
the 2011 Notes contain additional affirmative and negative covenants, including
restrictions on liens, investments, transactions with affiliates, sale-leaseback
transactions, and mergers and transfers of all or substantially all of the
assets of the Company or its subsidiaries. The Senior Credit Facilities also
provide for a default if there is a change in control (as defined) of the
Company.
The Company believes that the fair value of its non-public variable rate
indebtedness approximates the book value of such indebtedness because the
interest rates on such indebtedness are at floating short-term rates. The Senior
Credit Facilities also provide for adjustments to the interest rate if there is
a change in the credit rating of the Company. With respect to the Company's
publicly traded debt securities, the Company has obtained estimates of fair
values from an independent source believed to be reliable. The estimated fair
value of the 2002 Notes as of December 31, 1999 and 2000 and July 1, 2001 was
$200.4, $165.9 and $199.9 million, respectively, and the estimated fair value of
the 2003 Notes as of December 31, 1999 and 2000 and July 1, 2001 was $318.8,
$246.7 and $312.8 million, respectively. The estimated fair value of the 2011
Notes as of July 1, 2001 was $203.5 million.
The aggregate maturities of long-term debt as of July 1, 2001 for the next
five years are as follows:
F-21
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Twelve Months
Ended June 30, (Thousands)
-------------- ------------
2002.......... $202,374
2003.......... 2,429
2004.......... 100,254
2005.......... 2,253
2006.......... 76,250
In the above table, maturities for the twelve months ended June 30, 2002
include the $199.9 million of 2002 Notes due February 2002. Maturities for the
twelve months ended June 30, 2004 include the $98.0 million of 2003 Notes due
October 2003. Maturities for the twelve months ended June 30, 2006 include the
$74.0 million of borrowings outstanding under the revolving credit facility as
of July 1, 2001, based on the expiration of the revolving credit facility in
June 2006. Each twelve-month period in the above table includes $2.3 million of
maturities relating to the term loan under the Senior Credit Facilities.
At July 1, 2001, the Company's foreign subsidiaries had total available
short-term lines of credit aggregating $3.7 million, of which $3.6 million were
unused. The weighted-average interest rate on the Company's short-term
borrowings as of December 31, 1999 and 2000 and July 1, 2001 was 5.7%, 7.0% and
15.4%, respectively.
Note 14. Benefit Plans
Eligible, full-time employees of the Company are covered by various benefit
plans, as described below.
Defined Contribution Plan
The Company provides a defined contribution plan for eligible employees.
The Company contributes up to 7% of participants' compensation (any portion of
which can be contributed, at the participants' option, in the form of ISP's
common stock), and also contributes fixed amounts, ranging from $50 to $750 per
year depending on age, to the accounts of participants who are not covered by a
Company-provided postretirement medical benefit plan. The aggregate
contributions by the Company were $8.0, $8.1, $7.7, $4.0 and $3.9 million for
1998, 1999 and 2000 and the first six months of 2000 and 2001, respectively.
Defined Benefit Plans
The Company provides a noncontributory defined benefit retirement plan for
certain hourly employees in the United States (the "Hourly Retirement Plan").
Benefits under this plan are based on stated amounts for each year of service.
The Company's funding policy is consistent with the minimum funding requirements
of ERISA.
ISP Marl provides a noncontributory defined benefit retirement plan for its
hourly and salaried employees (the "ISP Marl Plan"). Benefits under this plan
are based on average earnings over each employee's career with the Company.
The Company's net periodic pension cost (income) for the Hourly Retirement
Plan and the ISP Marl Plan included the following components:
F-22
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Hourly Retirement Plan ISP Marl Plan
Year Ended December 31, Year Ended December 31,
------------------------------- ---------------------------
1998 1999 2000 1998 1999 2000
--------- --------- ------- ------ ----- -----
(Thousands)
Service cost................... $ 313 $ 310 $ 247 $ 140 $ 176 $ 99
Interest cost.................. 1,586 1,678 1,811 172 236 132
Expected return on plan assets. (2,366) (2,314) (2,633) -- -- --
Amortization of actuarial losses -- 215 40 -- 12 --
Amortization of unrecognized
prior service cost........... 174 174 190 12 11 7
-------- -------- ------- ----- ----- -----
Net periodic pension cost
(income)..................... $ (293) $ 63 $ (345) $ 324 $ 435 $ 238
======== ======== ======= ===== ===== =====
Net periodic pension cost for the Hourly Retirement Plan was $172,000 and
$324,000, respectively, for the first six months of 2000 and 2001, and was
$225,000 and $126,000, respectively, for the ISP Marl Plan.
The following tables set forth, for the years 1999 and 2000,
reconciliations of the beginning and ending balances of the benefit obligation,
fair value of plan assets, funded status, amounts recognized in the Consolidated
Balance Sheets and changes in Accumulated Other Comprehensive Income (Loss)
related to the Hourly Retirement Plan and the ISP Marl Plan:
Hourly Retirement Plan ISP Marl Plan
December 31, December 31,
---------------------- --------------------
1999 2000 1999 2000
---------- ----------- -------- -------
(Thousands)
Change in benefit obligation:
Benefit obligation at beginning of year..... $ 24,015 $ 23,429 $ 3,378 $ 3,796
Service cost................................ 310 247 176 99
Interest cost............................... 1,678 1,811 236 132
Plan amendments............................. -- 236 -- --
Actuarial (gains) losses.................... (1,574) 1,028 6 (862)
Benefits paid............................... (1,000) (1,345) -- --
-------- -------- ------- -------
Benefit obligation at end of year........... 23,429 25,406 3,796 3,165
-------- -------- ------- -------
Change in plan assets:
Fair value of plan assets at beginning of year 21,008 23,661 -- --
Actual return on plan assets................ 2,602 3,959 -- --
Employer contributions...................... 1,051 1,857 -- --
Benefits paid............................... (1,000) (1,345) -- --
-------- -------- ------- -------
Fair value of plan assets at end of year.... 23,661 28,132 -- --
-------- -------- ------- -------
Reconciliation of funded status:
Funded status............................... 232 2,726 (3,796) (3,165)
Transition obligation....................... -- -- 159 96
Unrecognized prior service cost............. 1,062 1,109 515 (64)
Unrecognized actuarial losses............... 2,637 2,299 -- --
-------- -------- ------- -------
Net amount recognized in Consolidated
Balance Sheets......................... $ 3,931 $ 6,134 $(3,122) $(3,133)
======== ======== ======== ========
Amounts recognized in Consolidated Balance
Sheets:
Prepaid (accrued) benefit cost.............. $ 3,931 $ 6,134 $(3,122) $(3,133)
Intangible asset............................ -- -- -- --
Accumulated other comprehensive loss........ -- -- -- --
-------- -------- ------- -------
Net amount recognized....................... $ 3,931 $ 6,134 $(3,122) $(3,133)
======== ======== ======= =======
Change for the year in accumulated other
comprehensive loss:
Change in intangible asset.................. $ 1,236 -- -- --
Change in additional minimum liability...... (5,951) -- -- --
-------- -------- ------- -------
Total......................................... $ (4,715) -- -- --
======== ======== ======= =======
In determining the projected benefit obligation, the weighted-average
assumed discount rate was 7.75% and 7.50% for 1999 and 2000, respectively, for
the Hourly Retirement Plan, and was 6.5% for each year for the ISP Marl Plan.
The expected long-term rate of return on assets, used in determining net
periodic pension cost (income) for the Hourly Retirement Plan, was 11% for 1999
and 2000 and was 7% for each year for the ISP Marl Plan.
The Company also provides a nonqualified defined benefit retirement plan
for certain key employees. Expense accrued for this plan was $1.0, $0.9, $1.2,
$0.2 and $0.3 million for 1998, 1999 and 2000 and the first six months of 2000
and 2001, respectively.
F-23
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Postretirement Medical and Life Insurance
The Company generally does not provide postretirement medical and life
insurance benefits, although it subsidizes such benefits for certain employees
and certain retirees. Such subsidies were reduced as of January 1, 2000.
The net periodic postretirement benefit cost included the following
components:
Year Ended December 31,
--------------------------
1998 1999 2000
------- --------- -------
(Thousands)
Service cost............................. $ 6 $ 7 $ 109
Interest cost............................ 619 608 576
Amortization of unrecognized prior service
cost................................... (179) (179) (284)
----- ----- -----
Net periodic postretirement benefit cost. $ 446 $ 436 $ 401
===== ===== =====
Net periodic postretirement benefit cost was $151,000 and $191,000 for the
first six months of 2000 and 2001, respectively.
The following table sets forth, for the years 1999 and 2000,
reconciliations of the beginning and ending balances of the postretirement
benefit obligation, funded status and amounts recognized in the Consolidated
Balance Sheets related to postretirement medical and life insurance benefits:
December 31,
-------------------
1999 2000
------- --------
(Thousands)
Change in benefit obligation:
Benefit obligation at beginning of year.......... $ 9,249 $ 7,640
Service cost..................................... 7 109
Interest cost.................................... 608 576
Effect of plan amendments........................ -- (1,750)
Actuarial (gains) losses......................... (1,393) 2,051
Benefits paid, net of participant contributions.. (831) (458)
------- -------
Benefit obligation at end of year................ 7,640 8,168
------- -------
Change in plan assets:
Fair value of plan assets at beginning of year... -- --
Employer contributions........................... 831 458
Benefits paid, net of participant contributions.. (831) (458)
------- -------
Fair value of plan assets at end of year......... -- --
------- -------
Reconciliation of funded status:
Funded status.................................... (7,640) (8,168)
Unrecognized prior service cost.................. (975) (2,440)
Unrecognized actuarial (gains) losses............ (1,209) 842
------- -------
Net amount recognized in Consolidated Balance
Sheets as accrued benefit cost................. $(9,824) $(9,766)
======= =======
For purposes of calculating the accumulated postretirement benefit
obligation, the following assumptions were made. Retirees as of December 31,
2000 who were formerly salaried employees (with certain exceptions) were assumed
to receive a Company subsidy of $400 to $1,000 per year. For retirees over age
65, this subsidy may be replaced by participation in a managed care program.
With respect to retirees who were formerly hourly employees, most such retirees
are subject to a $5,000 per person lifetime maximum benefit. Subject to such
lifetime maximum, a 9% and 6% annual rate of increase in the Company's per
capita cost of providing postretirement medical benefits was assumed for 2000
for such retirees under and over age 65, respectively. To the extent that the
lifetime maximum benefits have not been reached, the foregoing rates were
assumed to decrease gradually to an ultimate rate of 4.5% and 6%, respectively,
by the year 2009 and remain at that level thereafter. The weighted-average
assumed discount rate used in determining the accumulated postretirement benefit
obligation was 7.75% and 7.50% for 1999 and 2000, respectively.
The health care cost trend rate assumption has an effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend rates by
one percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1999 and 2000 by $346,000 and $156,000,
respectively, and the aggregate of the service and interest cost components of
the net periodic postretirement benefit
F-24
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
cost for the years 1999 and 2000 by $25,000 and $11,000, respectively. A
decrease of one percentage point in each year would decrease the accumulated
postretirement benefit obligation as of December 31, 1999 and 2000 by $308,000
and $138,000, respectively, and the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for the years 1999
and 2000 by $22,000 and $10,000, respectively.
Note 15. Stock Option and Award Plans, Long Term Incentive Plan and Stock
Appreciation Rights
ISP's 1991 Incentive Plan for Key Employees and Directors, as amended (the
"1991 Plan"), authorized the grant of options to purchase a maximum of
13,000,000 shares of ISP's common stock. The Compensation Committee of the Board
of Directors (the "Committee") determined the exercise price and vesting
schedule of options granted under the 1991 Plan. In 1995 through 1999, ISP
granted options to certain employees to purchase an aggregate of 3,217,020
shares of ISP's common stock at exercise prices ranging from $0.625 to $5.625
below the fair market value of such shares on the date of grant. The difference
between the exercise price and the fair market value of such shares on the date
of grant is being recognized as compensation expense over the vesting period of
2 1/2 to 5 years. Compensation expense for such options was $1.9, $0.8 and $0.5
million in 1998, 1999 and 2000, respectively. All other employee options granted
under the 1991 Plan have a term of nine years, have an exercise price equal to
the fair market value of such shares on the date of grant and become exercisable
at a rate determined by the Committee at the time of grant. Special vesting
rules apply to options granted to non-employee directors. The 1991 Plan expired
in accordance with its terms in June 2000, and no additional options will be
granted under the 1991 Plan.
Effective July 1, 2000, ISP adopted the 2000 Stock Option Plan for
Non-Employee Directors (the "2000 Plan"), which authorizes the grant of options
to purchase a maximum of 200,000 shares of ISP's common stock. Under the 2000
Plan, each non-employee director is granted a non-qualified stock option to
purchase 5,000 shares of common stock (the "Initial Option") on the date such
person becomes an eligible director and an additional non-qualified option to
purchase 3,000 shares of common stock (an "Additional Option") on each
anniversary of the date of grant of the Initial Option. The term of each option
granted is nine years. Initial Options are subject to a three-year vesting
period, commencing on the first anniversary of the date of grant, and Additional
Options are subject to a one-year vesting period, becoming exercisable in full
on the first anniversary of the date of grant. The exercise price of the options
is equal to the fair market value of such shares on the date of grant. During
2000, ISP granted 15,000 options pursuant to the 2000 Plan, of which 12,000
options were outstanding at December 31, 2000.
The Company has elected the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," and applies APB Opinion No. 25 and
related interpretations in accounting for the 1991 Plan and the 2000 Plan
(collectively, the "Plans"). If the Company had elected to recognize
compensation cost based on the fair value of awards under the Plans at grant
dates, the Company's pro forma net income for the years 1998, 1999 and 2000
would have been $27.5, $82.3 and $100.9 million, respectively. The SFAS No. 123
method of accounting has not been applied to options granted prior to January 1,
1995, and the resulting pro forma compensation expense may not be indicative of
pro forma expense in future years.
The fair value of ISP's stock options used to compute pro forma net income
and earnings per share is the estimated present value at the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: risk-free interest rate of 6%; expected life of 6 years; expected
volatility of 24%; and dividend yield of 0%.
F-25
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is a summary of transactions pertaining to the Plans:
Year Ended Year Ended Year Ended
December 31, 1998 December 31, 1999 December 31, 2000
----------------------- ----------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000's) Price (000's) Price (000's) Price
------- -------- ------- -------- ------- --------
Outstanding, January 1........ 4,733 $ 9.68 6,989 $ 12.06 8,028 $ 10.93
Granted....................... 3,117 15.05 3,468 9.47 20 6.12
Exercised..................... (351) 7.70 (292) 7.03 (87) 6.40
Exchanged for Incentive Plan
Units....................... -- -- -- -- (2,033) 10.94
Forfeited..................... (510) 11.19 (2,137) 12.78 (1,303) 11.62
----- ------ ------
Outstanding, December 31...... 6,989 12.06 8,028 10.93 4,625 10.50
===== ===== =====
Options exercisable, December 31 2,190 10.63 3,162 10.81 2,669 10.24
===== ===== =====
Based on calculations using the Black-Scholes option-pricing model, the
weighted-average fair value of options granted in 1998, 1999 and 2000 under the
Plans for which the exercise price equaled the fair market value of such shares
on the date of grant was $4.40, $2.91 and $1.81 per share, respectively, and
such weighted-average fair value of options granted in 1998 and 1999 for which
the exercise price was less than the fair market value of such shares on the
date of grant was $6.42 and $5.64 per share, respectively; all options granted
in 2000 were at exercise prices equal to the fair market value at the date of
grant.
The following is a summary of the status of stock options outstanding and
exercisable under the Plans as of December 31, 2000:
Stock Options
Stock Options Outstanding Exercisable
---------------------------------- --------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Shares Exercise Contractual Shares Exercise
Range of Exercise Prices (000's) Price Life (000's) Price
------------------------- ------- -------- ----------- ------- --------
$3.781--$5.875........... 364 $ 4.91 3.92 years 74 $ 5.88
$5.876--$8.938........... 1,030 7.47 2.90 years 883 7.33
$8.939--$13.313.......... 2,389 10.84 6.19 years 1,442 11.17
$13.314--$18.625......... 842 15.65 6.43 years 270 15.99
----- -----
Total................... 4,625 10.50 5.32 years 2,669 10.24
===== =====
In February 2000, ISP adopted the 2000 Long Term Incentive Plan (the
"Incentive Plan"). The Incentive Plan authorizes the grant of incentive units
("Incentive Units") to eligible Company employees. The Incentive Plan is
administered by the Committee, which in its sole discretion determines the
number of Incentive Units to be granted to each employee. Generally, Incentive
Units vest cumulatively, in 20% increments over five years, or in 10% increments
every six months over five years. The value of Incentive Units is determined at
the end of each fiscal quarter based on ISP's total Stockholders' Equity
(excluding accumulated other comprehensive income and losses) divided by ISP's
total common shares outstanding. The Incentive Plan will terminate five years
after its effective date of February 2000, unless terminated sooner by the
Committee.
In 2000, employees exchanged an aggregate of 2,032,994 stock options
granted under the 1991 Plan (discussed above) for an aggregate of 1,508,062
Incentive Units. An additional 2,052,725 Incentive Units were granted during
2000. At December 31, 2000, 3,342,049 Incentive Units were outstanding.
Compensation expense for such Incentive Units was $2.0 million in 2000.
In 2000, ISP issued restricted stock awards to two executives totaling
230,000 shares of ISP's common stock pursuant to individual plan agreements.
Such shares were issued subject to certain conditions with respect to transfer
and other restrictions as prescribed by the plans. The restricted shares vest
over a period of four to five years. Upon the issuance of the restricted shares,
unearned compensation, equivalent to the market price of the shares on the date
of grant, in the amount of $1.3 million, was charged to ISP's Stockholders'
Equity and will be amortized to compensation expense as the shares vest. Also in
2000, ISP granted two executives stock bonus awards totaling 75,000 shares of
ISP's common stock and, in connection with such awards, also made loans totaling
F-26
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$167,000 to such executives to enable them to satisfy certain withholding tax
obligations. These loans were evidenced by recourse promissory notes with an
interest rate of 6.45% per annum and were repaid on April 15, 2001. The value of
the stock awards on the date of issuance, totaling $455,000, was charged to
compensation expense in 2000.
ISP Holdings issued options in 1996 to certain employees to purchase
138,983 shares of ISP Holdings' redeemable convertible preferred stock
("Preferred Stock"), exercisable at a price of $111.44 per share. Each share of
Preferred Stock was convertible, at the holder's option, into shares of common
stock of ISP Holdings at a formula price based on the sum of the determined
initial Book Value (as defined) plus interest on such Book Value at a specified
rate. The options vested over seven years, subject to earlier vesting under
certain circumstances including in connection with a change of control.
ISP Holdings also issued stock appreciation rights ("SARs") in 1996 related
to 27,748 shares of ISP Holdings' common stock. The SARs represented the right
to receive a cash payment based upon the appreciation in value of the specified
number of shares of common stock of ISP Holdings over the sum of the determined
initial Book Value (as defined) per share of common stock of ISP Holdings plus
interest on such Book Value at a specified rate. The SARs vested over a
five-year period, subject to earlier vesting under certain circumstances
including in connection with a change of control.
As a result of the Merger (see Note 1), ISP Holdings' Preferred Stock
option and SAR programs were terminated, and the Company charged $8.0 million
against operating income for cash payments made in 1998 for amounts vested at
that time. Additional expense is being recorded over the remaining vesting
period from the date of the Merger through 2003, including $0.8 million expensed
in 1998 after the Merger, $0.9 million in 1999, and $0.4 million in 2000.
Note 16. Related Party Transactions
Included in the Consolidated Balance Sheets are the following receivable
(payable) balances with related parties, which arise from operating transactions
between the Company and its affiliates, including the sales of mineral products
and the management agreement, as discussed below:
December 31, July 1,
-------------------- 2001
1999 2000 (Unaudited)
------- -------- -----------
(Thousands)
ISP Parent Company................... $ 6,316 $ 2,676 $ --
Building Materials Corporation of
America ("BMCA")................... 15,037 10,253 16,440
G-I Holdings......................... 1,460 1,610 --
Other................................ 514 (129) (266)
------- -------- -------
Receivable from related parties, net. $23,327 $ 14,410 $16,174
======= ======== =======
As discussed in Notes 8 and 20, in January 2001, G-I Holdings filed a
voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy
Code due to its asbestos-related claims. As a result, the Company, as of
December 31, 2000, established a reserve for doubtful receivables from G-I
Holdings of $2.7 million, representing $0.5 million of unpaid management fees
(see below) and $2.2 million of other payments which the Company made on behalf
of G-I Holdings.
BMCA, an indirect subsidiary of G-I Holdings and an affiliate of the
Company, and its subsidiaries purchase all of their colored roofing granules
requirements from the Company under a requirements contract, except for the
requirements of certain of their roofing plants which are supplied by a third
party. Effective January 1, 2001, this contract was amended and restated to
provide, among other things, that the contract will expire on December 31, 2001,
unless extended by the parties. In 2000, BMCA and its subsidiaries purchased a
total of $59.3 million of mineral products from the Company, representing 7.6%
of the Company's total net sales and 82.5% of the Company's net sales of mineral
products. Sales by the Company to BMCA and its subsidiaries totaled $62.6 and
$57.3 million for 1998 and 1999, respectively. The receivable from BMCA and its
subsidiaries for sales of mineral products as of December 31, 1999 and 2000 was
$2.9 and $7.7 million, respectively.
F-27
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pursuant to a management agreement (the "Management
Agreement"), the Company has provided certain general management,
administrative, legal, telecommunications, information and facilities services
to certain of its affiliates, including its parent company, BMCA and G-I
Holdings. Charges by the Company for providing such services aggregated $5.1,
$6.1 and $6.2 million for 1998, 1999 and 2000, respectively, and are reflected
as reductions of "Selling, general and administrative" expense. Such charges
consist of management fees and other reimbursable expenses attributable to, or
incurred by the Company for the benefit of, the respective parties, which are
based on an estimate of the costs the Company incurs to provide such services.
The receivable from such affiliates for management fees as of December 31, 1999
and 2000 was $3.1 and $1.6 million, respectively. The Management Agreement also
provides that the Company pays to a subsidiary of G-I Holdings lease payments
for the use of one of the Company's sales offices. Effective January 1, 2001,
the Management Agreement was amended to extend the term of the agreement through
March 31, 2001, to provide for the automatic extension of the agreement for
successive quarterly periods unless the agreement is terminated by a party, and
to adjust the management fees payable there under. In addition, the Management
Agreement was amended to provide that BMCA rather than the Company be
responsible for providing management services to G-I Holdings and certain of its
subsidiaries and that G-I Holdings pay to BMCA a management fee for such
services. The Company and BMCA also allocate a portion of the management fees
payable by BMCA under the Management Agreement to separate lease payments for
the use of BMCA's headquarters. In connection with the Restructuring, effective
June 27, 2001, the Company is also providing certain general management,
administrative, legal, telecommunications, information and facilities services
to ISP Investco LLC and its subsidiaries. The Management Agreement has been
amended in order to set forth the terms of those services and the charges to ISP
Investco LLC for the provision of these services. These charges consist of
management fees and other reimbursable expenses attributable to ISP Investco or
its subsidiaries, or incurred by the Company for their benefit. The aggregate
amount payable to the Company under the Management Agreement for 2001, net of
the lease payments to the subsidiary of G-I Holdings, is expected to be
approximately $8.7 million.
In September 1999, ISP granted its President and Chief Executive Officer
the right to purchase, and such officer purchased, 318,599 shares of ISP's
common stock held in treasury for a purchase price of $9.563 per share, or an
aggregate of $3.047 million. Pursuant to the purchase agreement, ISP loaned such
officer $3.047 million to purchase the shares of common stock, which loan is
evidenced by a recourse promissory note. The recourse promissory note bears
interest at the rate of 6% per annum. The principal amount of the note is
payable in four installments starting in June 2001 through January 2004.
However, if such officer remains continuously employed by the Company through
each installment date, the principal amount due on such installment date will be
forgiven. As the loan is forgiven, compensation expense will be recorded.
Note 17. Business Segment Information
The Company is a leading multinational manufacturer of a broad spectrum of
specialty chemicals and mineral products. In addition to the mineral products
business segment, the Company operates its specialty chemicals business through
three reportable business segments, organized based upon the markets for their
products and the internal management of the Company, as follows:
Personal Care products serve as critical ingredients in the formulation of
many well-known skin care, hair care, toiletry and cosmetic products. Skin care
ingredients include sunscreen actives, waterproofing agents, preservatives,
emollients and moisturizers. Hair care ingredients include a number of specially
formulated fixative resins for hairsprays, mousses and gels, as well as
thickeners and stabilizers for shampoos and conditioners.
Pharmaceutical, Food and Beverage products are sold to these three
government-regulated industries. In the pharmaceutical market, the Company's
products serve as key ingredients in prescription and over- the-counter tablets,
injectable prescription drugs and serums, cough syrups, antiseptics, toothpastes
and denture adhesives. The Company's food products are comprised of the
alginates business which was acquired in October 1999 (see Note 9). The
Company's alginates products are used as stabilizers in many well-known consumer
products. The Company's specialty polymers serve the beverage market by assuring
the clarity and extending the shelf life of beer, wine and fruit juices.
Performance Chemicals, Fine Chemicals and Industrial. The Company's
performance chemicals business includes acetylene-based polymers, vinyl ether
monomers, and advanced materials for consumer, agricultural and industrial
applications. The Company's acetylene-based chemistry produces a number of
performance polymers for use in a wide range of markets including coatings,
agriculture, imaging, detergents, electronics and metalworking. The Company
manufactures a broad range of highly specialized fine chemicals which are sold
to the pharmaceutical, biotechnology, agricultural and imaging markets,
including bulk
F-28
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
pharmaceuticals, pharmaceutical intermediates, and pheromones for use in insect
population measurement and control. The Company's industrial business markets
several intermediate and solvent products, such as butanediol, tetrahydrofuran
(THF) and N-methyl pyrrolidone (NMP), which are sold primarily to industrial
markets for use in high performance plastics, lubricating oil and chemical
processing, electronics cleaning, and coatings.
Mineral Products. The Company manufactures ceramic-coated colored roofing
granules that are sold primarily to the North American roofing industry for use
in the production of asphalt roofing shingles.
The following segment data are presented based on the Company's internal
management reporting system for the four reportable business segments. The
Company evaluates segment performance based on operating income. Therefore, the
measure of profit or loss that is reported to management for each segment is
operating income. Interest expense, other income items and income taxes are not
allocated to the business segments for management reporting. At this time, the
Company's internal management reporting system does not report assets by segment
for the three specialty chemicals reportable segments (personal care;
pharmaceutical, food and beverage; and performance chemicals, fine chemicals and
industrial), as many of the Company's plant assets are utilized by several of
the segments. Therefore, the following asset-related segment data are presented
only for specialty chemicals and mineral products.
Sales of mineral products to BMCA and its subsidiaries in 1998, 1999 and
2000 accounted for 66.2%, 65.7% and 82.5%, respectively, of the Company's net
sales of mineral products, representing 8.0%, 7.3% and 7.6%, respectively, of
the Company's total net sales. No other customer accounted for more than 5% of
the Company's total net sales in 1998, 1999 or 2000.
Year Ended December 31,
-----------------------------------
1998 1999 2000
-------- -------- --------
(Millions)
Net sales:
Personal Care.................................. $ 189.4 $ 187.1 $ 189.0
Pharmaceutical, Food and Beverage.............. 157.9 177.3 232.8
Performance Chemicals, Fine Chemicals and
Industrial................................... 342.8 335.7 290.2
-------- -------- --------
Total Specialty Chemicals.............. 690.1 700.1 712.0
Mineral Products(1)............................ 94.5 87.3 71.9
-------- -------- --------
Net sales........................................ $ 784.6 $ 787.4 $ 783.9
======== ======== ========
Operating income(2):
Personal Care(3)............................... $ 37.6 $ 47.9 $ 34.7
Pharmaceutical, Food and Beverage.............. 33.6 42.1 50.8
Performance Chemicals, Fine Chemicals and
Industrial................................... 64.0 41.8 0.1
-------- -------- --------
Total Specialty Chemicals.............. 135.2 131.8 85.6
Mineral Products(3)............................ 20.5 16.1 9.4
-------- -------- --------
Total segment operating income......... 155.7 147.9 95.0
Unallocated corporate office (expenses) income. (3.1) (1.0) 1.7
Provision for restructuring, staff reduction and
impairment loss(4).......................... (73.0) (0.4) (14.4)
Merger-related expenses........................ (8.0) -- --
-------- -------- --------
Total operating income................. 71.6 146.5 82.3
Interest expense and other, net.................. (33.8) (62.1) 69.3
-------- -------- --------
Income from continuing operations before income
taxes.......................................... $ 37.8 $ 84.4 $ 151.6
======== ======== ========
Assets:
Specialty Chemicals............................ $1,050.3 $1,182.0 $1,173.3
Mineral Products............................... 157.6 153.3 152.9
General Corporate(5)........................... 486.2 469.8 597.3
Net assets of discontinued operation........... 24.2 -- --
-------- -------- --------
Total assets........................... $1,718.3 $1,805.1 $1,923.5
======== ======== ========
Capital expenditures and acquisitions:
Specialty Chemicals............................ $ 153.7 $ 101.4 $ 53.8
Mineral Products............................... 10.1 7.5 4.6
-------- -------- --------
Total.................................. $ 163.8 $ 108.9 $ 58.4
======== ======== ========
Depreciation and goodwill amortization:
Specialty Chemicals............................ $ 50.3 $ 53.0 $ 55.9
Mineral Products............................... 11.8 11.4 11.0
Unallocated corporate office................... 1.6 -- --
-------- -------- --------
Total.................................. $ 63.7 $ 64.4 $ 66.9
======== ======== ========
----------
F-29
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(1) Includes sales to BMCA and its subsidiaries of $62.6, $57.3 and $59.3
million for 1998, 1999 and 2000, respectively.
(2) Operating income for 1998 and 1999 for the three specialty chemicals
business segments has been reclassified to conform to the 2000
presentation, based on a reallocation of certain manufacturing costs.
(3) Personal care operating income for the year 1999 includes a pre-tax gain of
$8.5 million from the sale of the pearlescent pigments product line.
Mineral products operating income for the year 1998 includes a pre-tax gain
of $1.2 million from the sale of its tennis court materials business. See
Note 5.
(4) Of the $73.0 million restructuring and impairment loss in 1998, $70.0
million related to the performance chemicals, fine chemicals and industrial
business segment. The remaining $3.0 million provision related to the
consolidation of European offices and related to all business segments
except mineral products. Of the $14.4 million provision for restructuring
in 2000, $11.9 million relates to the personal care business segment and
$2.5 million relates to the performance chemicals, fine chemicals and
industrial business segment.
(5) General Corporate assets primarily represent the Company's investments in
trading and available-for-sale securities and other short-term investments,
which are held for general corporate purposes and are not allocated to
business segments.
Note 18. Geographic Information
Financial information set forth below for foreign operations represent
sales and long-lived assets (property, plant and equipment) of foreign-based
subsidiaries. Net sales are attributed to countries based on the location of
customers and reflect the Company's internal management reporting system.
Year Ended December 31,
-------------------------------
1998 1999 2000
------- ------- -------
(Millions)
Net sales:
North America:
United States.............. $ 407.5 $ 410.5 $ 389.5
Canada..................... 16.4 16.9 21.1
------- ------- -------
Total North America... 423.9 427.4 410.6
------- ------- -------
Europe:
Germany.................... 84.4 89.0 73.0
United Kingdom............. 34.6 39.8 35.6
France..................... 21.2 17.3 19.7
Italy...................... 15.7 15.9 14.1
Spain...................... 11.2 11.4 11.2
Belgium.................... 6.1 5.6 10.5
Switzerland................ 12.4 7.7 9.3
Other European countries... 47.1 47.4 54.0
------- ------- -------
Total Europe.......... 232.7 234.1 227.4
------- ------- -------
Asia-Pacific:
Japan...................... 26.3 24.7 26.3
China...................... 9.4 12.7 15.9
South Korea................ 7.0 9.3 13.9
Australia.................. 11.0 11.5 10.9
Taiwan..................... 13.3 9.6 11.7
Other Asia-Pacific countries 20.0 21.1 21.6
------- ------- -------
Total Asia-Pacific.... 87.0 88.9 100.3
------- ------- -------
Latin America:
Brazil..................... 14.7 12.7 16.6
Mexico..................... 12.1 12.3 19.6
Other Latin American
countries................ 14.2 12.0 9.4
------- ------- -------
Total Latin America... 41.0 37.0 45.6
------- ------- -------
Total net sales....... $ 784.6 $ 787.4 $ 783.9
======= ======= =======
Property, plant and equipment,
net:
United States................. $ 471.0 $ 491.1 $ 490.8
Germany....................... 53.5 48.0 43.7
United Kingdom................ 6.3 11.3 11.3
All other foreign countries... 11.4 14.8 12.9
---- ------- -------
Total property, plant and
equipment, net.......... $ 542.2 $ 565.2 $ 558.7
======== ======= =======
F-30
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Approximately 50% of the Company's sales in 2000 were in foreign countries
which are subject to currency exchange rate fluctuation risks. See Note 2 for a
discussion of the Company's policy to manage these risks. Certain countries in
which the Company has sales are subject to additional risks, including high
rates of inflation, exchange controls, government expropriation and general
instability.
Note 19. Guarantor Financial Information
As discussed in Note 13, in June 2001, the Company and three of its wholly
owned subsidiaries issued $205.0 million aggregate principal amount of the 2011
Notes in a private placement. On July 31, 2001, the Company and its three
subsidiaries issued an additional $100.0 million of the 2011 Notes in a private
placement. The notes are guaranteed by all of the Company's other domestic
subsidiaries, other than certain immaterial subsidiaries and International
Specialty Products Funding Corporation, the Company's accounts receivable
financing subsidiary. These guarantees are full, unconditional and joint and
several.
ISP Global Technologies Inc., which is a guarantor of the 2011 Notes, is
party to a License and Royalty Agreement with non-guarantor foreign affiliates.
Under this agreement, the non-guarantor affiliates have been given license for
the use of the Patent Rights, Know-how and Trademarks in connection with the
manufacture, use and sale of ISP products.
Presented below is condensed consolidating financial information for the
Company, the guarantor subsidiaries and the non-guarantor subsidiaries. This
financial information should be read in conjunction with the Consolidated
Financial Statements and other notes related thereto. Separate financial
information for the Company's guarantor subsidiaries and non-guarantor
subsidiaries is not included herein because management has determined that such
information is not material to investors.
F-31
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ISP CHEMCO INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1998
(Thousands)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
Net sales.................... $ -- $ 460,703 $ 323,913 $ -- $ 784,616
Intercompany net sales....... -- 179,520 25,920 (205,440) --
--------- --------- --------- ---------- ---------
Total net sales.... -- 640,223 349,833 (205,440) 784,616
--------- --------- --------- ---------- ---------
Cost of products sold........ (430,057) (238,894) 205,440 (463,511)
Selling, general and
administrative............. (111) (106,232) (48,463) (154,806)
Provision for restructuring,
staff reduction and
impairment loss............ -- (70,049) (3,000) (73,049)
Merger-related expenses...... -- (7,961) -- (7,961)
Gain on sale of assets....... -- 1,189 -- 1,189
Goodwill amortization........ -- (14,875) -- (14,875)
--------- --------- --------- ---------- ---------
Operating income............. (111) 12,238 59,476 -- 71,603
Equity in income of
subsidiaries............... 47,782 -- -- (47,782) --
Intercompany royalty income
(expense), net............. -- 28,291 (28,291) --
Intercompany dividend income. -- 6,449 -- (6,449) --
Interest expense............. (27,951) (17,620) (10,435) (56,006)
Equity in earnings of joint
venture.................... -- -- 1,455 1,455
Other income (expense), net.. 1,511 (14,108) 33,302 20,705
--------- --------- --------- ---------- ---------
Income from continuing
operations before income
taxes...................... 21,231 15,250 55,507 (54,231) 37,757
Income tax (provision)
benefit.................... 9,782 (1,981) (23,027) (15,226)
--------- --------- --------- ---------- ---------
Income from continuing
operations................. 31,013 13,269 32,480 (54,231) 22,531
Income from discontinued
operation, net of income
taxes...................... -- -- 2,033 2,033
--------- --------- --------- ---------- ---------
Net income................... $ 31,013 $ 13,269 $ 34,513 $ (54,231) $ 24,564
========= ========= ========= ========== =========
F-32
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ISP CHEMCO INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1999
(Thousands)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
Net sales.................... $ -- $ 424,686 $ 362,670 $ -- $ 787,356
Intercompany net sales....... -- 166,192 21,753 (187,945) --
--------- --------- --------- ---------- ---------
Total net sales.... -- 590,878 384,423 (187,945) 787,356
--------- --------- --------- ---------- ---------
Cost of products sold........ (1,018) (420,778) (248,546) 187,945 (482,397)
Selling, general and
administrative............. -- (99,750) (50,618) (150,368)
Provision for restructuring,
staff reduction and
impairment loss............ -- (410) -- (410)
Gain on sale of assets....... -- 8,541 -- 8,541
Goodwill amortization........ (3,630) (12,565) -- (16,195)
--------- --------- --------- ---------- ---------
Operating income............. (4,648) 65,916 85,259 -- 146,527
Equity in income of
subsidiaries............... 154,063 -- -- (154,063) --
Intercompany royalty income
(expense), net............. -- 29,261 (29,261) --
Intercompany dividend income. -- 54,250 -- (54,250) --
Interest expense............. (25,553) (18,512) (15,152) (59,217)
Other income (expense), net.. 1,783 (3,986) (700) (2,903)
--------- --------- --------- ---------- ---------
Income from continuing
operations before income
taxes...................... 125,645 126,929 40,146 (208,313) 84,407
Income tax (provision)
benefit.................... 8,686 (25,944) (12,366) (29,624)
--------- --------- --------- ---------- ---------
Income from continuing
operations................. 134,331 100,985 27,780 (208,313) 54,783
--------- --------- --------- ---------- ---------
Discontinued operation:
Income from discontinued
operation, net of income
taxes................... -- -- 1,769 1,769
Gain on sale of discontinued
operation, net of income
taxes of $12,725........ -- -- 23,529 23,529
--------- --------- --------- ---------- ---------
Income from discontinued
operation.................. -- -- 25,298 -- 25,298
--------- --------- --------- ---------- ---------
Net income................... $ 134,331 $ 100,985 $ 53,078 $ (208,313) $ 80,081
========= ========= ========= ========== =========
F-33
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ISP CHEMCO INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 2000
(Thousands)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
Net sales.................... $ -- $ 413,384 $ 370,557 $ -- $ 783,941
Intercompany net sales....... -- 180,628 12,213 (192,841) --
--------- --------- --------- ---------- ---------
Total net sales.... -- 594,012 382,770 (192,841) 783,941
--------- --------- --------- ---------- ---------
Cost of products sold........ (443) (418,222) (288,775) 192,841 (514,599)
Selling, general and
administrative............. 66 (104,002) (52,635) (156,571)
Provision for restructuring,
staff reduction and
impairment -- (14,429) -- (14,429)
loss.......................
Goodwill amortization........ (3,630) (12,412) -- (16,042)
--------- --------- --------- ---------- ---------
Operating income............. (4,007) 44,947 41,360 -- 82,300
Equity in income of
subsidiaries............... 146,387 -- -- (146,387) --
Intercompany royalty income
(expense), net............. -- 26,449 (26,449) --
Intercompany dividend income. -- 27,491 -- (27,491) --
Interest expense............. (25,171) (16,917) (20,714) (62,802)
Gain on contract settlement.. -- 3,450 -- 3,450
Other income (expense), net.. (469) (11,666) 140,749 128,614
--------- --------- --------- ---------- ---------
Income before income taxes... 116,740 73,754 134,946 (173,878) 151,562
Income tax (provision)
benefit.................... 9,114 (20,502) (41,811) (53,199)
--------- --------- --------- ---------- ---------
Net income................... $ 125,854 $ 53,252 $ 93,135 $ (173,878) $ 98,363
========= ========= ========= ========== =========
F-34
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ISP CHEMCO INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Six Months Ended July 2, 2000
(Thousands)
(Unaudited)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
Net sales.................. $ -- $ 211,652 $186,546 $ -- $ 398,198
Intercompany net sales..... -- 95,945 6,891 (102,836) --
------- --------- -------- -------- ---------
Total net sales.. -- 307,597 193,437 (102,836) 398,198
------- --------- -------- -------- ---------
Cost of products sold...... (495) (210,289) (148,452) 102,836 (256,400)
Selling, general and
administrative........... -- (51,891) (26,346) (78,237)
Goodwill amortization...... (1,815) (6,206) -- (8,021)
------- --------- -------- -------- ---------
Operating income........... (2,310) 39,211 18,639 -- 55,540
Equity in income of
subsidiaries............. 49,729 -- -- (49,729) --
Intercompany royalty income
(expense), net........... -- 16,892 (16,892) --
Intercompany dividend income -- 17,073 -- (17,073) --
Interest expense........... (12,791) (10,903) (8,057) (31,751)
Gain on contract settlement -- 3,450 -- 3,450
Other income (expense), net (1,743) (1,709) 8,621 5,169
------- --------- -------- -------- ---------
Income before income taxes. 32,885 64,014 2,311 (66,802) 32,408
Income tax (provision)
benefit.................. 5,260 (13,047) (3,549) (11,336)
benefit.................... ------- --------- -------- -------- ---------
Net income (loss).......... $38,145 $ 50,967 $ (1,238) $(66,802) $ 21,072
======= ========= ========= ======== =========
F-35
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ISP CHEMCO INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Six Months Ended July 1, 2001
(Thousands)
(Unaudited)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
Net sales.................... $ -- $ 204,720 $ 201,771 $ -- $ 406,491
Intercompany net sales....... -- 103,141 13,563 (116,704) --
------- --------- --------- -------- ---------
Total net sales.... -- 307,861 215,334 (116,704) 406,491
------- --------- --------- -------- ---------
Cost of products sold........ -- (217,188) (155,111) 116,704 (255,595)
Selling, general and
administrative............. (2,429) (52,661) (25,964) (81,054)
Goodwill amortization........ (1,815) (6,206) -- (8,021)
------- --------- --------- -------- ---------
Operating income............. (4,244) 31,806 34,259 -- 61,821
Equity in income of
subsidiaries............... 58,026 -- -- (58,026) --
Intercompany royalty income
(expense), net............. -- 14,301 (14,301) --
Intercompany dividend income. -- 13,173 -- (13,173) --
Interest expense............. (13,536) (7,265) (8,674) (29,475)
Other income (expense), net.. (44) (6,130) 24,793 18,619
------- --------- --------- -------- ---------
Income before income taxes... 40,202 45,885 36,077 (71,199) 50,965
Income tax (provision) benefit 5,604 (13,090) (10,406) (17,892)
------- --------- --------- -------- ---------
Income before cumulative
effect of accounting change 45,806 32,795 25,671 (71,199) 33,073
Cumulative effect of change in
accounting principle, net of
income tax benefit of $216. -- (473) 33 (440)
------- --------- --------- -------- ---------
Net income................... $45,806 $ 32,322 $ 25,704 $(71,199) $ 32,633
======= ========= ========= ======== =========
F-36
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ISP CHEMCO INC.
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 1999
(Thousands)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents.................... $ 2,290 $ 6,338 $ 12,696 $ -- $ 21,324
Investments in trading securities............ -- -- 6,309 6,309
Investments in available-for-sale
securities................................. -- -- 307,879 307,879
Other short-term investments................. -- -- 13,920 13,920
Accounts receivable, trade, net.............. -- 11,446 70,755 82,201
Accounts receivable, other................... 551 3,194 19,665 23,410
Income taxes receivable (payable)............ 5,434 25,261 (16,908) 13,787
Receivable (payable) from related parties,
net........................................ (18,870) 42,386 (189) 23,327
Inventories.................................. -- 93,759 58,016 151,775
Other current assets......................... 2,629 12,859 5,091 20,579
----------- ---------- --------- ----------- ----------
Total Current Assets.................. (7,966) 195,243 477,234 -- 664,511
Investment in subsidiaries..................... 890,754 318,033 -- (1,208,787) --
Intercompany loans............................. 2,446 51,110 (53,556) --
Due from (to) subsidiaries, net................ 2,657 13,046 (15,703) --
Property, plant and equipment, net............. -- 491,148 74,098 565,246
Goodwill....................................... 139,904 365,169 -- 505,073
Long-term loan receivable from parent company.. 36,309 -- -- 36,309
Other assets................................... 1,731 31,192 1,037 33,960
----------- ---------- --------- ----------- ----------
Total Assets................................... $ 1,065,835 $1,464,941 $ 483,110 $(1,208,787) $1,805,099
=========== ========== ========= =========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Short-term debt.............................. $ -- $ -- $ 74,784 $ -- $ 74,784
Current maturities of long-term debt......... -- 38,497 46 38,543
Loan payable to parent company............... -- -- 30,674 30,674
Accounts payable............................. 22 39,351 23,997 63,370
Accrued liabilities.......................... 75 43,527 29,090 72,692
----------- ---------- --------- ----------- ----------
Total Current Liabilities............. 97 121,375 158,591 -- 280,063
Long-term debt less current maturities......... 297,871 295,573 189 593,633
Long-term note payable to parent company....... 50,000 -- -- 50,000
Deferred income taxes.......................... -- 119,913 5,785 125,698
Other liabilities.............................. 22,990 37,326 512 60,828
Total Shareholder's Equity..................... 694,877 890,754 318,033 (1,208,787) 694,877
----------- ---------- --------- ----------- ----------
Total Liabilities and Shareholder's Equity..... $ 1,065,835 $1,464,941 $ 483,110 $(1,208,787) $1,805,099
=========== ========== ========= =========== ==========
F-37
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ISP CHEMCO INC.
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2000
(Thousands)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents.................... $ -- $ 2,884 $ 11,879 $ -- $ 14,763
Investments in trading securities............ -- -- 279,381 279,381
Investments in available-for-sale
securities................................. -- -- 222,444 222,444
Other short-term investments................. -- -- 18,893 18,893
Accounts receivable, trade, net.............. -- 15,417 73,756 89,173
Accounts receivable, other................... -- 2,874 16,744 19,618
Receivable from related parties, net......... (18,116) 33,500 (974) 14,410
Inventories.................................. -- 92,192 58,756 150,948
Other current assets......................... (61) 20,532 16,466 36,937
----------- ----------- --------- ----------- ----------
Total Current Assets.................. (18,177) 167,399 697,345 -- 846,567
Investment in subsidiaries..................... 1,005,959 403,317 -- (1,409,276) --
Intercompany loans............................. 18,591 24,541 (43,132) --
Due from (to) subsidiaries, net................ 25,372 (6,468) (18,904) --
Property, plant and equipment, net............. -- 490,839 67,849 558,688
Goodwill....................................... 136,274 352,758 -- 489,032
Long-term loan receivable from parent company.. 1,085 -- -- 1,085
Other assets................................... 3,144 24,704 322 28,170
----------- ----------- --------- ----------- ----------
Total Assets................................... $ 1,172,248 $ 1,457,090 $ 703,480 $(1,409,276) $1,923,542
=========== =========== ========= =========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Short-term debt.............................. $ -- $ -- $ 143,682 $ -- $ 143,682
Current maturities of long-term debt......... -- 224,383 36 224,419
Loan payable to parent company............... -- -- 25,000 25,000
Accounts payable............................. 736 32,009 24,146 56,891
Accounts liabilities......................... 1,215 51,454 24,982 77,651
Income taxes................................. (5,865) (57,415) 71,316 8,036
----------- ----------- --------- ----------- ----------
Total Current Liabilities............. (3,914) 250,431 289,162 -- 535,679
Long-term debt less current maturities......... 297,871 259 12 298,142
Long-term note payable to parent company....... 50,000 -- -- 50,000
Deferred income taxes.......................... -- 159,890 10,451 170,341
Other liabilities.............................. 20,642 40,551 538 61,731
Total Shareholder's Equity..................... 807,649 1,005,959 403,317 (1,409,276) 807,649
----------- ----------- --------- ----------- ----------
Total Liabilities and Shareholder's Equity..... $ 1,172,248 $ 1,457,090 $ 703,480 $(1,409,276) $1,923,542
=========== =========== ========= =========== ==========
F-38
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ISP CHEMCO INC.
CONDENSED CONSOLIDATING BALANCE SHEET
July 1, 2001
(Thousands)
(Unaudited)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents.................... $ 2 $ 655 $ 6,564 $ -- $ 7,221
Restricted cash.............................. 197,251 -- -- 197,251
Accounts receivable, trade, net.............. -- 9,640 85,114 94,754
Accounts receivable, other................... -- 3,521 21,984 25,505
Receivable from related parties, net......... (110) 16,284 -- 16,174
Inventories.................................. -- 105,318 76,666 181,984
Other current assets......................... -- 20,706 13,381 34,087
----------- ----------- --------- ----------- ----------
Total Current Assets.................. 197,143 156,124 203,709 -- 556,976
Investment in subsidiaries..................... 676,896 111,417 -- (788,313) --
Intercompany loans............................. 15,946 (4,996) (10,950) --
Due from (to) subsidiaries, net................ -- 114,486 (114,486) --
Property, plant and equipment, net............. -- 492,434 58,335 550,769
Goodwill....................................... 134,459 346,552 2,911 483,922
Long-term receivable from related party........ -- -- 20,000 20,000
Other assets................................... 6,008 36,917 13,039 55,964
----------- ----------- --------- ----------- ----------
Total Assets................................... $ 1,030,452 $ 1,252,934 $ 172,558 $ (788,313) $1,667,631
=========== =========== ========= =========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Short-term debt.............................. $ -- $ -- $ 77 $ -- $ 77
Current maturities of long-term debt......... 202,121 217 36 202,374
Accounts payable............................. -- 35,837 23,429 59,266
Accounts liabilities......................... 12,748 53,515 20,371 86,634
Income taxes................................. 5,221 (847) 10,452 14,826
----------- ------------ --------- ----------- ----------
Total Current Liabilities............. 220,090 88,722 54,365 -- 363,177
Long-term debt less current maturities......... 297,614 299,175 26 596,815
Deferred income taxes.......................... -- 150,865 6,304 157,169
Other liabilities.............................. 24,564 37,276 446 62,286
Total Shareholder's Equity..................... 488,184 676,896 111,417 (788,313) 488,184
----------- ----------- --------- ----------- ----------
Total Liabilities and Shareholder's Equity..... $ 1,030,452 $ 1,252,934 $ 172,558 $ (788,313) $1,667,631
=========== =========== ========= =========== ==========
F-39
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ISP CHEMCO INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 1998
(Thousands)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Consolidated
--------- ------------ ------------ ------------
Cash and cash equivalents, beginning of year $ -- $ 5,282 $ 14,090 $ 19,372
--------- --------- --------- ---------
Cash provided by (used in) operating
activities:
Net income (loss)........................ (23,218) 13,269 34,513 24,564
Adjustments to reconcile net income to net
cash provided by operating activities:
Income from discontinued operation.... -- -- (2,033) (2,033)
Gain on sale of assets................ -- (1,189) -- (1,189)
Provision for restructuring, staff
reduction and impairment loss....... -- 70,049 3,000 73,049
Depreciation.......................... -- 40,129 8,743 48,872
Goodwill amortization................. -- 14,875 -- 14,875
Deferred income taxes................. -- (1,628) 3,426 1,798
(Increase) decrease in working capital
items.................................. (3,987) (8,055) 12,723 681
Purchases of trading securities.......... -- -- (177,746) (177,746)
Proceeds from sales of trading securities -- -- 213,611 213,611
(Increase) decrease in other assets...... (1,781) 617 4,296 3,132
Increase (decrease) in other liabilities. (799) 549 308 58
(Increase) decrease in receivable from
related parties....................... 3,026 (39,360) -- (36,334)
Change in amounts due to (from)
subsidiaries........................... 5,638 (6,140) 502 --
Change in investment in and advances to
affiliates............................ (11,247) (58,377) 69,624 --
Change in cumulative translation adjustment -- -- 2,340 2,340
Other, net............................... -- 7,198 (7,347) (149)
--------- --------- --------- ---------
Net cash provided by (used in) continuing
operations............................ (32,368) 31,937 165,960 165,529
Net cash provided by discontinued operation -- -- 1,315 1,315
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities............................... (32,368) 31,937 167,275 166,844
--------- --------- --------- ---------
Cash provided by (used in) investing
activities:
Capital expenditures and acquisitions.... -- (133,957) (29,867) (163,824)
Proceeds from sale-leaseback transaction. -- 56,050 -- 56,050
Proceeds from sale of assets............. -- 2,400 -- 2,400
Purchases of available-for-sale securities -- -- (570,270) (570,270)
Purchases of held-to-maturity securities. -- -- (9,763) (9,763)
Purchases of other short-term investments -- -- (10,000) (10,000)
Proceeds from sales of available-for-sale
securities............................ -- -- 380,104 380,104
Proceeds from held-to-maturity securities -- -- 311 311
--------- --------- --------- ---------
Net cash used in investing activities...... -- (75,507) (239,485) (314,992)
--------- --------- --------- ---------
Cash provided by (used in) financing
activities:
Proceeds (repayments) from sale of accounts
receivable.......................... -- -- (4,951) (4,951)
Increase (decrease) in short-term debt. -- (1,340) 44,341 43,001
Increase in borrowings under revolving
credit facility...................... -- 97,600 -- 97,600
Repayments of long-term debt........... (405) (217) (21) (643)
Borrowings (repayments) with parent company (3,997) -- 30,674 26,677
Change in net intercompany loans....... 47,420 (62,967) 15,547 --
Dividends and distributions to parent
company............................. (103,525) 6,449 (6,449) (103,525)
Capital contribution from parent company 91,153 -- -- 91,153
Other, net............................. 1,722 -- -- 1,722
--------- -------- -------- ---------
Net cash provided by financing activities 32,368 39,525 79,141 151,034
--------- -------- -------- ---------
Net change in cash and cash equivalents.. -- (4,045) 6,931 2,886
--------- -------- -------- ---------
Cash and cash equivalents, end of year... $ -- $ 1,237 $ 21,021 $ 22,258
========= ======== ======== =========
F-40
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ISP CHEMCO INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 1999
(Thousands)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Consolidated
--------- ------------ ------------ ------------
Cash and cash equivalents, beginning of year $ -- $ 1,237 $ 21,021 $ 22,258
--------- --------- --------- ---------
Cash provided by (used in) operating
activities:
Net income (loss)......................... (73,982) 100,985 53,078 80,081
Adjustments to reconcile net income to net
cash
provided by operating activities:
Income from discontinued operation... -- -- (25,298) (25,298)
Gain on sale of assets............... -- (8,541) -- (8,541)
Provision for restructuring, staff
reduction 410 -- 410
and impairment loss................
Depreciation......................... -- 39,305 8,886 48,191
Goodwill amortization................ 3,630 12,565 -- 16,195
Deferred income taxes................ -- 47,372 (20,307) 27,065
(Increase) decrease in working capital (4,238) (26,100) 6,405 (23,933)
items.....................................
Purchases of trading securities......... -- -- (134,552) (134,552)
Proceeds from sales of trading securities -- -- 147,386 147,386
(Increase) decrease in other assets..... 66 (3,171) 2,599 (506)
Increase (decrease) in other liabilities 534 623 (655) 502
Decrease in receivable from related 2,394 2,891 189 5,474
parties...................................
Change in amounts due to (from) (7,353) (1,861) 9,214 --
subsidiaries..............................
Change in investment in and advances to
affiliates........................... 160,569 (140,093) (20,476) --
Change in cumulative translation -- -- (19,366) (19,366)
adjustment................................
Other, net.............................. 1 (404) 5,064 4,661
--------- --------- --------- ---------
Net cash provided by continuing operations 81,621 23,981 12,167 117,769
Net cash provided by discontinued -- -- 5,293 5,293
--------- --------- --------- ---------
operation.................................
Net cash provided by operating activities. 81,621 23,981 17,460 123,062
--------- --------- --------- ---------
Cash provided by (used in) investing
activities:
Capital expenditures and acquisitions... -- (82,048) (26,878) (108,926)
Proceeds from sale of assets............ -- 11,533 -- 11,533
Proceeds from sale of discontinued -- -- 62,000 62,000
operation.................................
Purchases of available-for-sale securities -- -- (275,271) (275,271)
Purchases of held-to-maturity securities -- -- (2,870) (2,870)
Purchases of other short-term investments -- -- (5,600) (5,600)
Proceeds from sales of available-for-sale
securities........................... -- -- 255,749 255,749
Proceeds from held-to-maturity securities -- -- 12,633 12,633
Proceeds from sales of other short-term
investments.......................... -- -- 14,716 14,716
--------- --------- --------- ---------
Net cash provided by (used in) investing
activities.............................. -- (70,515) 34,479 (36,036)
--------- --------- --------- ---------
Cash provided by (used in) financing
activities:
Proceeds from sale of accounts receivable -- -- 5,558 5,558
Decrease in short-term debt............ -- -- (7,849) (7,849)
Increase in borrowings under revolving
credit -- 162,400 -- 162,400
facility............................
Repayments of long-term debt........... -- (200,372) (6) (200,378)
Borrowings (repayments) with parent (36,309) -- -- (36,309)
company..................................
Change in net intercompany loans....... (31,640) 35,357 (3,717) --
Dividends and distributions to parent
company............................. (27,000) 54,250 (54,250) (27,000)
Capital contribution from parent company 15,618 -- -- 15,618
--------- --------- -------- ---------
Net cash provided by (used in) financing
activities............................. (79,331) 51,635 (60,264) (87,960)
--------- --------- -------- ---------
Net change in cash and cash equivalents.. 2,290 5,101 (8,325) (934)
--------- --------- -------- ---------
Cash and cash equivalents, end of year... $ 2,290 $ 6,338 $ 12,696 $ 21,324
========= ========= ======== =========
F-41
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ISP CHEMCO INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 2000
(Thousands)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Consolidated
--------- ------------ ------------ ------------
Cash and cash equivalents, beginning of year $ 2,290 $ 6,338 $ 12,696 $ 21,324
--------- --------- --------- ---------
Cash provided by (used in) operating
activities:
Net income (loss)........................ (48,024) 53,252 93,135 98,363
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for restructuring, staff
reduction and impairment loss....... -- 14,429 -- 14,429
Depreciation.......................... -- 42,583 8,311 50,894
Goodwill amortization................. 3,630 12,412 -- 16,042
Deferred income taxes................. -- 32,308 (20,255) 12,053
(Increase) decrease in working capital
items.................................. 4,664 (44,841) 48,862 8,685
Purchases of trading securities.......... -- -- (442,895) (442,895)
Proceeds from sales of trading securities -- -- 292,339 292,339
(Increase) decrease in other assets...... (1,413) 6,426 715 5,728
Increase (decrease) in other liabilities. (2,348) 3,225 (200) 677
(Increase) decrease in receivable from
related parties....................... (754) 6,209 785 6,240
Change in amounts due to (from)
subsidiaries........................... (22,715) 19,514 3,201 --
Change in investment in and advances to
affiliates............................ 51,270 (50,822) (448) --
Change in cumulative translation adjustment -- -- (8,126) (8,126)
Other, net............................... -- 5,513 2,689 8,202
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities............................... (15,690) 100,208 (21,887) 62,631
--------- --------- --------- ---------
Cash provided by (used in) investing
activities:
Capital expenditures and acquisitions.... -- (48,294) (10,088) (58,382)
Purchases of available-for-sale securities -- -- (430,789) (430,789)
Proceeds from sales of available-for-sale
securities............................ -- -- 437,978 437,978
--------- --------- --------- ---------
Net cash used in investing activities...... -- (48,294) (2,899) (51,193)
--------- --------- --------- ---------
Cash provided by (used in) financing
activities:
Proceeds (repayments) from sale of accounts
receivable............................ -- -- (2,485) (2,485)
Increase in short-term debt.............. -- -- 70,230 70,230
Decrease in borrowings under revolving
credit facility....................... -- (99,000) -- (99,000)
Repayments of long-term debt............. -- (10,428) (187) (10,615)
Borrowings (repayments) with parent company 35,224 -- (5,674) 29,550
Change in net intercompany loans......... (16,145) 26,569 (10,424) --
Dividends and distributions to parent
company................................ (25,000) 27,491 (27,491) (25,000)
Capital contribution from parent company. 19,321 -- -- 19,321
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities............................... 13,400 (55,368) 23,969 (17,999)
--------- --------- --------- ---------
Net change in cash and cash equivalents.... (2,290) (3,454) (817) (6,561)
--------- --------- --------- ---------
Cash and cash equivalents, end of year..... $ -- $ 2,884 $ 11,879 $ 14,763
========= ========= ========= =========
F-42
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ISP CHEMCO INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended July 2, 2000
(Thousands)
(Unaudited)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Consolidated
--------- ------------ ------------ ------------
Cash and cash equivalents, beginning of
period................................... $ 2,290 $ 6,338 $ 12,696 $ 21,324
--------- -------- -------- --------
Cash provided by (used in) operating
activities:
Net income (loss)........................ (28,657) 50,967 (1,238) 21,072
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.......................... -- 20,684 4,174 24,858
Goodwill amortization................. 1,815 6,206 -- 8,021
Deferred income taxes................. -- 19,057 (18,905) 152
(Increase) decrease in working capital
items.................................. (1,671) (37) (23,105) (24,813)
Purchases of trading securities.......... -- -- (24,898) (24,898)
Proceeds from sales of trading securities -- -- 35,270 35,270
(Increase) decrease in other assets...... (4,330) 8,790 (51) 4,409
Increase (decrease) in other liabilities. (1,487) 890 58 (539)
(Increase) decrease in receivable from
related parties........................ 16,473 (18,028) (189) (1,744)
Change in amounts due to (from)
subsidiaries........................... 22,114 (24,806) 2,692 --
Change in investment in and advances to
affiliates............................ (29,726) (120,444) 150,170 --
Change in cumulative translation adjustment -- -- (6,709) (6,709)
Other, net............................... -- 996 (7,913) (6,917)
--------- -------- -------- --------
Net cash provided by (used in) operating
activities............................... (25,469) (55,725) 109,356 28,162
--------- --------- -------- --------
Cash provided by (used in) investing
activities:
Capital expenditures and acquisitions.... -- (18,266) (3,975) (22,241)
Purchases of available-for-sale securities -- -- (123,270) (123,270)
Proceeds from sales of available-for-sale
securities............................ -- -- 90,278 90,278
--------- -------- -------- --------
Net cash used in investing activities...... -- (18,266) (36,967) (55,233)
--------- -------- -------- --------
Cash provided by (used in) financing
activities:
Proceeds (repayments) from sale of accounts
receivable............................ -- -- (5,648) (5,648)
Increase in short-term debt.............. -- -- 32,539 32,539
Decrease in borrowings under revolving
credit facility........................ -- (6,200) -- (6,200)
Repayments of long-term debt............. -- (10,174) (184) (10,358)
Borrowings (repayments) with parent company 31,454 -- (30,674) 780
Change in net intercompany loans......... (14,582) 68,138 (53,556) --
Capital contribution from parent company. 8,684 -- -- 8,684
Dividends and distributions to parent
company................................ (2,370) 17,073 (17,073) (2,370)
--------- -------- -------- --------
Net cash provided by (used in) financing
activities............................... 23,186 68,837 (74,596) 17,427
--------- -------- --------- --------
Net change in cash and cash equivalents.... (2,283) (5,154) (2,207) (9,644)
--------- -------- --------- ---------
Cash and cash equivalents, end of period... $ 7 $ 1,184 $ 10,489 $ 11,680
========= ======== ======== ========
F-43
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ISP CHEMCO INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended July 1, 2001
(Thousands)
(Unaudited)
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Consolidated
--------- ------------ ------------ ------------
Cash and cash equivalents, beginning of
period................................... $ -- $ 2,884 $ 11,879 $ 14,763
--------- --------- -------- --------
Cash provided by (used in) operating
activities:
Net income (loss)........................ (25,393) 32,322 25,704 32,633
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in accounting
principle............................. -- 473 (33) 440
Depreciation............................. -- 21,642 4,299 25,941
Goodwill amortization.................... 1,815 6,206 -- 8,021
Deferred income taxes.................... -- (8,371) 4,091 (4,280)
(Increase) decrease in working capital
items.................................. 21,822 51,923 (103,708) (29,963)
Purchases of trading securities.......... -- -- (217,335) (217,335)
Proceeds from sales of trading securities -- -- 376,292 376,292
(Increase) decrease in other assets...... 2,080 (804) 56 1,332
Increase (decrease) in other liabilities. 3,922 (3,276) (2,325) (1,679)
(Increase) decrease in receivable from
related parties........................ (18,006) 17,216 1,229 439
Change in amounts due to (from)
subsidiaries........................... 25,372 (120,954) 95,582 --
Change in investment in and advances to
affiliates............................ 14,391 (81,880) 67,489 --
Change in cumulative translation adjustment -- -- (8,976) (8,976)
Other, net............................... -- (4,385) 10,169 5,784
--------- --------- -------- --------
Net cash provided by (used in) operating
activities............................... 26,003 (89,888) 252,534 188,649
--------- --------- -------- --------
Cash provided by (used in) investing
activities:
Capital expenditures and acquisitions.... -- (24,355) (19,724) (44,079)
Purchases of available-for-sale securities -- -- (121,299) (121,299)
Proceeds from sales of available-for-sale
securities............................. -- -- 19,700 19,700
Proceeds from sales of other
short-term investments................. -- -- 12,529 12,529
--------- --------- -------- --------
Net cash used in investing activities...... -- (24,355) (108,794) (133,149)
--------- --------- -------- --------
Cash provided by (used in) financing
activities:
Proceeds from sale of accounts receivable -- -- (2,918) (2,918)
Decrease in short-term debt.............. -- -- (108,576) (108,576)
Proceeds from issuance of debt........... 201,864 225,000 -- 426,864
Decrease in borrowings under revolving
credit facility....................... -- (122,000) -- (122,000)
Repayments of long-term debt............. -- (28,250) 14 (28,236)
Borrowings (repayments) with parent company (1,085) -- 30,000 28,915
Change in net intercompany loans......... 2,645 29,537 (32,182) --
Increase in restricted cash.............. (197,251) -- -- (197,251)
Financing fees and expenses.............. (4,943) (5,446) -- (10,389)
Effect of Restructuring - transfer of cash
to ISP Investco LLC................... -- -- (22,220) (22,220)
Dividends and distributions to parent
company................................ (35,000) 13,173 (13,173) (35,000)
Capital contribution from parent company 7,769 -- -- 7,769
--------- --------- -------- --------
Net cash provided by (used in) financing
activities............................... (26,001) 112,014 (149,055) (63,042)
--------- --------- --------- ---------
Net change in cash and cash equivalents.... 2 (2,229) (5,315) (7,542)
--------- --------- -------- --------
Cash and cash equivalents, end of period... $ 2 $ 655 $ 6,564 $ 7,221
========= ========= ======== ========
F-44
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 20. Commitments and Contingencies
Asbestos Litigation Against G-I Holdings
In January 2001, G-I Holdings filed a voluntary petition for reorganization
under Chapter 11 of the U.S. Bankruptcy Code due to its asbestos-related bodily
injury claims relating to the inhalation of asbestos fiber ("Asbestos Claims").
Neither the Company nor the assets or operations of the Company, which was
operated as a division of a corporate predecessor of G-I Holdings prior to July
1986, have been involved in the manufacture or sale of asbestos products. The
Company believes that it should have no legal responsibility for damages in
connection with Asbestos Claims.
ISP has been advised by Samuel J. Heyman that in 2000 three actions were
commenced by creditors or potential creditors of G-I Holdings, two of which were
filed against Mr. Heyman and the third against Mr. Heyman and certain other
stockholders of G-I Holdings. The actions allege, among other things, that the
distribution by G-I Holdings of the capital stock of ISP to Mr. Heyman and
certain G-I Holdings stockholders in the Separation Transactions was without
fair consideration and a fraudulent conveyance. These actions seek, among other
things, to set aside such distribution and to require Mr. Heyman and such other
stockholders to return to G-I Holdings the capital stock of ISP held by them as
well as an unspecified amount of damages. The defendants in such actions have
advised ISP that they believe these actions are without merit and that the
defendants intend to vigorously oppose them. However, if such actions were
successful, the plaintiffs could seek to undo the Separation Transactions, which
could result in a change of control of ISP. See Note 13 for a discussion of the
Senior Credit Facilities.
Environmental Litigation
The Company, together with other companies, is a party to a variety of
proceedings and lawsuits involving environmental matters ("Environmental
Claims"), under the Comprehensive Environmental Response Compensation and
Liability Act, Resource Conservation and Recovery Act and similar state laws, in
which recovery is sought for the cost of cleanup of contaminated sites or
remedial obligations are imposed, a number of which Environmental Claims are in
the early stages or have been dormant for protracted periods.
The Company estimates that its liability in respect of all Environmental
Claims (including those relating to its closed Linden, New Jersey plant
described below), as of July 1, 2001, is approximately $20.4 million, before
reduction for insurance recoveries reflected on the Company's Consolidated
Balance Sheet (discussed below) of $11.8 million that relate to both past
expenses and estimated future liabilities ("estimated recoveries"). The gross
environmental liability is included within "Accrued liabilities" and "Other
liabilities," and the estimated recoveries are included within "Other assets."
In the opinion of the Company's management, the resolution of the
Environmental Claims should not be material to the business, liquidity, results
of operations, cash flows or financial position of the Company. However, adverse
decisions or events, particularly as to increases in remedial costs, discovery
of new contamination, assertion of natural resource damages and the liability
and the financial responsibility of the Company's insurers and of the other
parties involved at each site and their insurers, could cause the Company to
increase its estimate of its liability in respect of such matters. It is not
currently possible to estimate the amount or range of any additional liability.
After considering the relevant legal issues and other pertinent factors,
the Company believes that it will receive the estimated recoveries and the legal
expenses incurred on the Company's behalf and that the recoveries could be well
in excess of the current estimated liability for all Environmental Claims,
although there can be no assurances in this regard. The Company believes it is
entitled to substantially full defense and indemnity under its insurance
policies for most Environmental Claims, although the Company's insurers have not
affirmed a legal obligation under the policies to provide indemnity for such
claims.
In March 1995, G-I Holdings commenced litigation on behalf of itself and
its predecessors, successors, subsidiaries and related corporate entities
seeking amounts substantially in excess of the estimated
F-45
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
recoveries. While the Company believes that its claims are meritorious, there
can be no assurance that the Company will prevail in its efforts to obtain
amounts equal to, or in excess of, the estimated recoveries.
In June 1989, the Company entered into a Consent Order with the New Jersey
Department of Environmental Protection ("NJDEP") requiring the development of a
remediation plan for its closed Linden, New Jersey plant and the maintenance of
financial assurances (currently $7.5 million) to guarantee the Company's
performance. This Consent Order does not address any potential natural resource
damage claims. In April 1993, NJDEP issued orders which require the prevention
of discharge of contaminated groundwater and stormwater from the site and the
elimination of other potential exposure concerns. The Company believes, although
there can be no assurance, that, taking into account its plans for development
of the site, it can comply with the NJDEP order at a cost of no more than $7.5
million.
Lease Commitments
Leases for certain equipment at the Company's mineral products plants are
accounted for as capital leases and are included in "Property, plant and
equipment, net," at December 31, 1999 and 2000 in the amount of $1.9 and $0.9
million, respectively. The Company also has operating leases related to the
sale-leaseback transaction discussed in Note 9 and for transportation,
production and data processing equipment and for various buildings and offices.
Rental expense on operating leases was $15.1, $17.3 and $17.9 million for 1998,
1999 and 2000, respectively. Future minimum lease payments for properties which
were held under long-term noncancelable leases as of December 31, 2000 were as
follows:
Capital Operating
Leases Leases
------- ---------
(Thousands)
2001.................................... $ 299 $ 10,848
2002.................................... 164 9,608
2003.................................... 145 8,138
2004.................................... 4 6,974
2005.................................... 1 2,001
Later years............................. -- 3,010
----- --------
Total minimum payments.................. 613 $ 40,579
========
Less interest included above............ (80)
-----
Present value of net minimum lease $ 533
=====
payments................................
Other Matters
The Company has received site designation from the New Jersey Hazardous
Waste Facilities Siting Commission for the construction of a hazardous waste
treatment, storage and disposal facility at its Linden, New Jersey property and
has received approval from the New Jersey Turnpike Authority for a direct access
ramp from the Turnpike to the site. If the Company is successful in securing the
necessary permits to construct and operate the hazardous waste facility and
decides to proceed with this project, the Company would develop and operate the
facility in a separate subsidiary, either on its own or in a joint venture with
a suitable partner. The Company estimates that the cost of constructing the
facility will be approximately $100.0 million and, if approved, the facility is
anticipated to be in operation three years after commencement of construction.
The Company anticipates utilizing internally generated cash and/or seeking
project or other independent financing for this project. Accordingly, the
Company would not expect such facility to impact materially its liquidity or
capital resources. The Company is also investigating other development
opportunities at this site.
See Note 8 for information regarding additional contingencies.
F-46
ISP CHEMCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ISP CHEMCO INC.
SUPPLEMENTARY DATA (UNAUDITED)
Quarterly Financial Data (Unaudited)
1999 by Quarter 2000 by Quarter
--------------------------------------- ---------------------------------------
First Second Third Fourth First Second Third Fourth
------- ------- ------- ------- -------- -------- -------- -------
(Millions)
Net sales................................. $ 201.6 $ 193.2 $ 188.2 $ 204.4 $ 197.9 $ 200.3 $ 195.9 $ 189.8
Cost of products sold..................... 119.4 111.4 106.9 144.7 129.4 127.0 129.7 128.5
------- ------- ------- ------- -------- -------- -------- -------
Gross profit.............................. $ 82.2 $ 81.8 $ 81.3 $ 59.7 $ 68.5 $ 73.3 $ 66.2 $ 61.3
======= ======= ======= ======= ======= ======= ======= =======
Operating income(1)....................... $ 46.9 $ 38.8 $ 38.8 $ 22.0 $ 25.7 $ 29.8 $ 24.1 $ 2.7
======= ======= ======= ======= ======= ======= ======= =======
Income from continuing operations
before income taxes.................... $ 24.0 $ 27.0 $ 22.6 $ 10.8 $ 15.3 $ 17.1 $ 44.2 $ 75.0
Income taxes.............................. (8.6) (9.3) (8.0) (3.7) (5.1) (6.2) (15.5) (26.4)
------- ------- ------- ------- ------- ------- ------- -------
Income from continuing operations......... 15.4 17.7 14.6 7.1 10.2 10.9 28.7 48.6
------- ------- ------- ------- ------- ------- ------- -------
Discontinued operation:
Income from discontinued operation,
net of income taxes.................... 0.5 0.9 0.4 -- -- -- -- --
Gain on sale of discontinued operation,
net of income taxes.................... -- -- 24.5 (1.0) -- -- -- --
------ ------ -------- ------- ------ ------- ------ ------
Income (loss) from discontinued operation. 0.5 0.9 24.9 (1.0) -- -- -- --
------- ------- ------- ------- ------ ------ ------ ------
Net income................................ $ 15.9 $ 18.6 $ 39.5 $ 6.1 $ 10.2 $ 10.9 $ 28.7 $ 48.6
======= ======= ======= ======= ======= ======= ======= =======
------------------
(1) Operating income for the first quarter of 1999 reflects a pre-tax gain of
$8.5 million from the sale of the Company's pearlescent pigments business.
See Note 6 to Consolidated Financial Statements. Operating income for the
fourth quarter of 2000 reflects a provision for restructuring of $14.4
million. See Note 4 to Consolidated Financial Statements.
F-47
SCHEDULE II
ISP CHEMCO INC.
VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 1998
(Thousands)
Balance Charged to Balance
January 1, Costs and December 31,
1998 Expenses Deductions Other 1998
---------- ---------- ---------- -------- ------------
Description
Valuation and Qualifying Accounts Deducted from
Assets to Which They Apply:
Allowance for doubtful accounts........... $ 2,609 $ 78 $ 291(a) $ 98(b) $ 2,494
Reserve for inventory market valuation.... 13,585 15,410 7,762(a) 127(b) 21,360
Reserves for restructuring................ -- 10,503 1,161 -- 9,342
Year Ended December 31, 1999
(Thousands)
Balance Charged to Balance
January 1, Costs and December 31,
1999 Expenses Deductions 1999
---------- ---------- ----------- ------------
Description
Valuation and Qualifying Accounts Deducted from
Assets to Which They Apply:
Allowance for doubtful accounts........... $ 2,494 $ 2,026 $ 1,109(a) $ 3,411
Reserve for inventory market valuation.... 21,360 5,063 11,275(a) 15,148
Reserves for restructuring and staff
reduction............................... 9,342 2,273(c) 10,291(d) 1,324
Year Ended December 31, 2000
(Thousands)
Balance Charged to Balance
January 1, Costs and December 31,
2000 Expenses Deductions Other 2000
---------- ---------- ---------- ---------- ------------
Description
Valuation and Qualifying Accounts Deducted From
Assets to which They Apply:
Allowance for doubtful accounts........... $ 3,411 $ 1,934 $ 434(a) $ - $ 4,911
Reserve for inventory market valuation.... 15,148 11,902 8,535(a) 3,798(b) 22,313
Reserves for restructuring and staff
reduction............................... 1,324 3,613 1,324 -- 3,613
Notes:
-----
(a) Represents write-off of uncollectible accounts net of recoveries, and the
effects of foreign currency translation.
(b) Represents balance acquired in acquisitions.
(c) Reflects a reserve established for a staff reduction program in 1999 (see
Note 4 to Consolidated Financial Statements).
(d) Includes $1,863 of excess reserves which were reversed and credited to the
Consolidated Statement of Income (see Note 4 to Consolidated Financial
Statements).
S-1
=============================================== ===================================================
We have not authorized any dealer, sales
representative, or any other person to give any
information or to make any representations not
contained in this prospectus. This prospectus $305,000,000
does not offer to sell or buy any securities in
any jurisdiction where it is unlawful. ISP Chemco Inc.
ISP Chemicals Inc.
___________________ ISP Minerals Inc.
ISP Technologies Inc.
Co-Issuers
TABLE OF CONTENTS
Page
----
Prospectus Summary........................... 1 Guaranteed, jointly and severally
Risk Factors................................. 14 on a senior, unsecured basis by all
Where You Can Find More Information.......... 19 of our domestic subsidiaries
Forward-Looking Statements................... 19 (other than certain immaterial
The Exchange Offer........................... 20 subsidiaries and our accounts
Capitalization............................... 29 receivable financing subsidiary)
Unaudited Pro Forma Consolidated
Financial Statements....................... 30
Selected Financial Data...................... 36
Management's Discussion and Analysis of
Financial Condition and Results of -------------------------------
Operations................................. 38
The Restructuring............................ 49 PROSPECTUS
Business..................................... 50
Management................................... 60 -------------------------------
Executive Compensation....................... 62
Certain Relationships........................ 66
Security Ownership of Certain Beneficial
Owners and Management...................... 68
Description of Other Indebtedness............ 69
Description of the Registered Notes.......... 72 ___________ __, 2001
Federal Income Tax
Considerations............................. 109
Plan of Distribution......................... 110
Legal Matters................................ 110
Experts...................................... 110
Index to Consolidated Financial
Statements and Schedules................... F-1
=============================================== ===================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Each registrant is a Delaware corporation. Subsection (b)(7) of Section 102
of the Delaware General Corporation Law enables a corporation in its original
certificate of incorporation or an amendment to its certificate of incorporation
to eliminate or limit the personal liability of a director to the corporation or
its stockholders for monetary damages for violations of the director's fiduciary
duty, except (1) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (2) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3) pursuant
to Section 174 of the DGCL (providing for liability of directors for unlawful
payment of dividends or unlawful stock purchases or redemptions) or (4) for any
transactions from which a director derived an improper personal benefit. The
Certificate of Incorporation of each corporate registrant (other than ISP Real
Estate Company, Inc.) has eliminated the personal liability of directors to the
fullest extent permitted by Subsection (b)(7) of Section 102 of the DGCL.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with such action, suit or proceeding provided that such director
or officer acted in good faith in a manner reasonably believed to be in, or not
opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, provided further that such director or officer
has no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
director or officer, or former director or officer, who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director or officer of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with such action, suit or proceeding provided that such director or officer
acted in good faith in a manner reasonably believed to be in, or not opposed to,
the best interests of the corporation, and, with respect to any criminal action
or proceeding, provided further that such director or officer has no reasonable
cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
director or officer, or former director or officer, who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person acted in any of the capacities set forth
above, against expenses (including attorneys' fees) actually and reasonably
incurred in connection with the defense or settlement of such action or suit
provided that such director or officer acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, except that no indemnification may be made in respect of any claim,
issue or matter as to which such director or officer shall have been adjudged to
be liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such director or officer is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsections (a) and (b) or in the defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith; that
indemnification and advancement of expenses provided
II-1
for, by, or granted pursuant to, Section 145 shall not be deemed exclusive of
any other rights to which the indemnified party may be entitled; and empowers
the corporation to purchase and maintain insurance on behalf of any person who
is or was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture trust or other enterprise against any
liability asserted against him or incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liabilities under Section 145.
Each corporate registrant's By-Laws states that the registrant shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action or suit by reason of the fact
that he is or was a director, officer or employee of the corporation, or is or
was serving at the request of the corporation as a director, officer or employee
of another corporation, partnership, joint venture, trust or other enterprise
against judgments, fines and amounts paid in settlement actually incurred by him
in connection with such action or suit if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interest of BMCA.
Item 21. Exhibits and Financial Statement Schedules,
(a) Exhibits
Exhibit
Number Description
--------- -----------
* 3.1 -- Certificate of Incorporation of ISP Chemco Inc.
* 3.2 -- By-laws of ISP Chemco Inc.
* 3.3 -- Certificate of Incorporation of ISP Chemicals Inc.
* 3.4 -- Amendment to Certificate of Incorporation of ISP Chemicals Inc.
* 3.5 -- By-laws of ISP Chemicals Inc.
* 3.6 -- Certificate of Incorporation of ISP Minerals Inc.
* 3.7 -- Amendment to Certificate of Incorporation of ISP Minerals Inc.
* 3.8 -- By-laws of ISP Minerals Inc.
* 3.9 -- Certificate of Incorporation of ISP Technologies Inc.
* 3.10 -- Amendment to Certificate of Incorporation of ISP Technologies
Inc.
* 3.11 -- By-laws of ISP Technologies Inc.
* 3.12 -- Certificate of Incorporation of ISP Management Company, Inc.
* 3.13 -- Amendment to Certificate of Incorporation of ISP Management
Company, Inc.
* 3.14 -- By-laws of ISP Management Company, Inc.
* 3.15 -- Certificate of Incorporation of Bluehall Incorporated
* 3.16 -- By-laws of Bluehall Incorporated
* 3.17 -- Certificate of Incorporation of Verona Inc.
* 3.18 -- By-laws of Verona Inc.
* 3.19 -- Certificate of Incorporation of ISP Real Estate Company, Inc.
* 3.20 -- By-laws of ISP Real Estate Company, Inc.
* 3.21 -- Certificate of Incorporation of ISP Freetown Fine Chemicals Inc.
* 3.22 -- By-laws of ISP Freetown Fine Chemicals Inc.
* 3.23 -- Certificate of Incorporation of ISP International Corp.
* 3.24 -- By-laws of ISP International Corp.
* 3.25 -- Certificate of Incorporation of ISP (Puerto Rico) Inc.
* 3.26 -- By-laws of ISP (Puerto Rico) Inc.
* 3.27 -- Certificate of Incorporation of ISP Alginates Inc.
* 3.28 -- By-laws of ISP Alginates Inc.
* 3.29 -- Certificate of Incorporation of ISP Environmental Services Inc.
* 3.30 -- By-laws of ISP Environmental Services Inc.
* 3.31 -- Certificate of Incorporation of ISP Investments Inc.
* 3.32 -- By-Laws of ISP Investments Inc.
* 3.33 -- Certificate of Incorporation of ISP Global Technologies Inc.
* 3.34 -- Amendment to Certificate of Incorporation of ISP Global
Technologies Inc.
II-2
* 3.35 -- By-laws of ISP Global Technologies Inc.
* 3.36 -- Operating Agreement of ISP Chemicals LLC
* 3.37 -- Operating Agreement of ISP Management LLC
* 3.38 -- Operating Agreement of ISP Minerals LLC
* 3.39 -- Operating Agreement of ISP Technologies LLC
* 3.40 -- Operating Agreement of ISP Investments LLC
* 3.41 -- Operating Agreement if ISP Global Technologies LLC
* 4.1 -- Indenture, dated as of June 27, 2001, between ISP Chemco Inc.,
ISP Chemicals Inc., ISP Minerals Inc. and ISP Technologies Inc.,
as issuers, the subsidiary guarantors party thereto and
Wilmington Trust Company, as trustee.
* 4.2 -- Form of Notes (included in Exhibit 4.1).
* 4.3 -- A/B Exchange Registration Rights Agreement, dated as of June 27,
2001, by and among ISP Chemco Inc., ISP Chemicals Inc., ISP
Minerals Inc. and ISP Technologies Inc., as issuers, the
subsidiary guarantors party thereto, and Bear Stearns & Co. Inc.,
J.P. Morgan Securities Inc., Deutsche Bank Alex. Brown Inc., UBS
Warburg LLC, Scotia Capital (USA) Inc., BNP Paribas Securities
Corp., and BNY Capital Markets, Inc., as initial purchasers.
* 5.1 -- Opinion of Weil, Gotshal & Manges LLP
* 8.1 -- Opinion of Weil, Gotshal & Manges LLP
* 10.1 -- Credit Agreement, dated as of June 27, 2001, between ISP Chemco
Inc., ISP Chemicals Inc., ISP Minerals Inc. and ISP Technologies
Inc., as borrowers, the subsidiary guarantors party thereto, the
lenders party thereto, The Chase Manhattan Bank, as
administrative agent, J.P. Morgan Securities Inc., as advisor,
lead arranger and bookrunner, Bear Stearns Corporate Lending Inc.
and UBS Warburg LLC, as co-syndication agents, and Deutsche Bank
Alex. Brown Inc. and The Bank of Nova Scotia, as co-documentation
agents.
* 10.2 -- Pledge and Security Agreement, dated as of June 27, 2001, among
ISP Chemco Inc., ISP Chemicals Inc., ISP Minerals Inc. and ISP
Technologies Inc., as borrowers, the subsidiary guarantors party
thereto, The Chase Manhattan Bank, as administrative agent, J.P.
Morgan Securities Inc., as advisor, lead arranger and bookrunner,
Bear Stearns Corporate Lending Inc. and UBS Warburg LLC, as
co-syndication agents, and Deutsche Bank Alex. Brown Inc. and The
Bank of Nova Scotia, as co-documentation agents.
* 10.3 -- Amended and Restated Management Agreement, dated as of January 1,
1999, by and among GAF Corporation, G-I Holdings Inc., G
Industries Corp., Merick Inc., GAF Fiberglass Corporation,
International Specialty Products Inc., GAF Building Materials
Corporation, GAF Broadcasting Company, Inc., Building Materials
Corporation of America and ISP Opco Holdings Inc., as assignee of
International Specialty Products Inc.
* 10.4 -- Amendment No. 1 to Amended and Restated Management Agreement,
dated as of January 1, 2000, by and among GAF Corporation, G-I
Holdings Inc., G Industries Corp., Merick Inc., GAF Fiberglass
Corporation, International Specialty Products Inc., GAF Building
Materials Corporation, GAF Broadcasting Company, Inc., Building
Materials Corporation of America and ISP Opco Holdings Inc., as
assignee of International Specialty Products Inc.
* 10.5 -- Amendment No. 2 to Amended and Restated Management Agreement,
dated as of January 1, 2001, by and among G-I Holdings Inc.,
Merick Inc., International Specialty Products Inc., GAF
Broadcasting Company, Inc., Building Materials Corporation of
America and ISP Opco Holdings Inc., as assignee of International
Specialty Products Inc.
* 10.6 -- Amendment No. 3 to Amended and Restated Management Agreement,
dated as of June 27, 2001, by and among G-I Holdings Inc., Merick
Inc., International Specialty Products Inc., ISP Investco LLC,
GAF Broadcasting Company, Inc., Building Materials Corporation of
America and ISP Management Company, Inc., as assignee of ISP
Chemco Inc.
* 10.7 -- Tax Sharing Agreement, dated as of January 1, 2001, by and among
International Specialty Products Inc., Newco Holdings Inc. and
ISP Chemco Inc.
* 12.1 -- Computation of Ratio of Earnings to Fixed Charges.
* 21.1 -- Subsidiaries of ISP Chemco Inc.
23.1 -- Consent of Arthur Andersen LLP.
* 23.2 -- Consent of Weil, Gotshal & Manges LLP (to be included in Exhibits
5 and 8).
24 -- Power of Attorney.
* 25 -- Form T-1 Statement of Eligibility under the Trust Indenture Act
of 1939, as amended, of Wilmington Trust Company, as Trustee
under the Indenture.
II-3
* 99.1 -- Form of Letter of Transmittal.
* 99.2 -- Form of Notice of Guaranteed Delivery.
------------------------
* To be filed by amendment.
Item 22. Undertakings.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, each
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by a Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, each Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) Each undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the Prospectus pursuant
to Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(c) Each undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(d) Each undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement. (iii) To include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in
the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the Registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Item 8.A of Form 20-F at the start of any
delayed offering or throughout a continuous offering. Financial statements
and information otherwise required by Section 10(a)(3) of the Act need not
be furnished, provided, that the Registrant includes in the prospectus, by
means of a post-effective amendment, financial statements required pursuant
to this paragraph (a)(4) and other information necessary to ensure that all
other information in the prospectus is at least current as the date of
those financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial
statements and information are contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the Form F-3.
(e) Each of the undersigned Registrants hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-5
POWER OF ATTORNEY
Each director and/or officer of the registrant whose signature appears
below hereby appoints Susan B. Yoss, as his attorney-in-fact to sign in his name
and on his behalf, in any and all capacities stated below, and to file with the
Securities and Exchange Commission, and all amendments, including post-effective
amendments, to this registration statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the Township of Wayne, State of New
Jersey, on 25th day of September, 2001.
ISP CHEMCO INC.
ISP CHEMICALS INC.
ISP MINERALS INC.
ISP TECHNOLOGIES INC.
ISP MANAGEMENT COMPANY, INC.
By: /s/ Susan B. Yoss
---------------------------------
Name: Susan B. Yoss
Title Executive Vice President -
Finance and Treasurer
Signature Title Date
--------- ----- -----
/s/ Sunil Kumar Chief Executive Officer, President and September 25, 2001
------------------------------------ Director (Principal Executive Officer)
Sunil Kumar
/s/ Susan B. Yoss Executive Vice President - Finance and September 25, 2001
------------------------------------ Treasurer (Principal Financial Officer)
Susan B. Yoss
/s/ Jon W. Rushatz Vice President - Finance (Principal September 25, 2001
------------------------------------ Accounting Officer)
Jon W. Rushatz
/s/ Paul T. Brady Director September 25, 2001
------------------------------------
Paul T. Brady
/s/ Roger J. Cope Director September 25, 2001
------------------------------------
Roger J. Cope
/s/ Stephen R. Olsen Director September 25, 2001
------------------------------------
Stephen R. Olsen
/s/ Steven E. Post Director September 25, 2001
------------------------------------
Steven E. Post
S-1
POWER OF ATTORNEY
Each director and/or officer of the registrant whose signature appears
below hereby appoints Susan B. Yoss, as his attorney-in-fact to sign in his name
and on his behalf, in any and all capacities stated below, and to file with the
Securities and Exchange Commission, and all amendments, including post-effective
amendments, to this registration statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the Township of Wayne, State of New
Jersey, on 25th day of September, 2001.
BLUEHALL INCORPORATED
VERONA INC.
ISP REAL ESTATE COMPANY, INC.
ISP FREETOWN FINE CHEMICALS INC.
ISP INTERNATIONAL CORP.
ISP (PUERTO RICO) INC.
By: /s/ Susan B. Yoss
----------------------------------
Name: Susan B. Yoss
Title: Executive Vice President -
Finance and Treasurer
Signature Title Date
--------- ----- ----
/s/ Sunil Kumar Chief Executive Officer and President September 25, 2001
------------------------------------ (Principal Executive Officer)
Sunil Kumar
/s/ Susan B. Yoss Executive Vice President - Finance and September 25, 2001
------------------------------------ Treasurer (Principal Financial Officer)
Susan B. Yoss
/s/ Jon W. Rushatz Vice President - Finance September 25, 2001
------------------------------------ (Principal Accounting Officer)
Jon W. Rushatz
/s/ Richard A. Weinberg Director September 25, 2001
------------------------------------
Richard A. Weinberg
S-2
POWER OF ATTORNEY
Each director and/or officer of the registrant whose signature appears
below hereby appoints Susan B. Yoss, as his attorney-in-fact to sign in his name
and on his behalf, in any and all capacities stated below, and to file with the
Securities and Exchange Commission, and all amendments, including post-effective
amendments, to this registration statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the Township of Wayne, State of New
Jersey, on 25th day of September, 2001.
ISP ALGINATES INC.
By: /s/ Susan B. Yoss
----------------------------------
Name: Susan B. Yoss
Title: Executive Vice President -
Finance and Treasurer
Signature Title Date
--------- ----- ----
/s/ Sunil Kumar Chief Executive Officer and President September 25, 2001
------------------------------------ (Principal Executive Officer)
Sunil Kumar
/s/ Susan B. Yoss Executive Vice President - Finance and September 25, 2001
------------------------------------ Treasurer (Principal Financial Officer)
Susan B. Yoss
/s/ Jon W. Rushatz Vice President - Finance September 25, 2001
------------------------------------ (Principal Accounting Officer)
Jon W. Rushatz
/s/ Richard A. Weinberg Director September 25, 2001
------------------------------------
Richard A. Weinberg
S-3
POWER OF ATTORNEY
Each director and/or officer of the registrant whose signature appears
below hereby appoints Sunil Kumar, as his attorney-in-fact to sign in his name
and on his behalf, in any and all capacities stated below, and to file with the
Securities and Exchange Commission, and all amendments, including post-effective
amendments, to this registration statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the Township of Wayne, State of New
Jersey, on 25th day of September, 2001.
ISP ENVIRONMENTAL SERVICES, INC.
By: /s/ Sunil Kumar
-------------------------------
Name: Sunil Kumar
Title: Chief Executive Officer
and President
Signature Title Date
--------- ----- ----
/s/ Sunil Kumar Chief Executive Officer and President September 25, 2001
------------------------------------ (Principal Executive Officer)
Sunil Kumar
/s/ Jon W. Rushatz Vice President - Finance and Treasurer September 25, 2001
------------------------------------ (Principal Accounting Officer)
Jon W. Rushatz
/s/ Richard A. Weinberg Director September 25, 2001
------------------------------------
Richard A. Weinberg
S-4
POWER OF ATTORNEY
Each director and/or officer of the registrant whose signature appears
below hereby appoints Susan B. Yoss, as his attorney-in-fact to sign in his name
and on his behalf, in any and all capacities stated below, and to file with the
Securities and Exchange Commission, and all amendments, including post-effective
amendments, to this registration statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the Township of Wayne, State of New
Jersey, on 25th day of September, 2001.
ISP INVESTMENTS INC.
ISP GLOBAL TECHNOLOGIES INC.
By: /s/ Susan B. Yoss
----------------------------------
Name: Susan B. Yoss
Title: Executive Vice President -
Finance and Treasurer
Signature Title Date
--------- ----- ----
/s/ Sunil Kumar Chief Executive Officer and President September 25, 2001
------------------------------------ (Principal Executive Officer)
Sunil Kumar
/s/ Susan B. Yoss Executive Vice President - Finance and September 25, 2001
------------------------------------ Treasurer (Principal Financial Officer)
Susan B. Yoss
/s/ Jon W. Rushatz Vice President - Finance September 25, 2001
------------------------------------ (Principal Accounting Officer)
Jon W. Rushatz
/s/ Richard A. Weinberg Director September 25, 2001
------------------------------------
Richard A. Weinberg
/s/ Arthur W. Clark Director September 25, 2001
------------------------------------
Arthur W. Clark
/s/ Barry A. Crozier Director September 25, 2001
------------------------------------
Barry A. Crozier
S-5
POWER OF ATTORNEY
Each director and/or officer of the registrant whose signature appears
below hereby appoints Susan B. Yoss, as his attorney-in-fact to sign in his name
and on his behalf, in any and all capacities stated below, and to file with the
Securities and Exchange Commission, and all amendments, including post-effective
amendments, to this registration statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the Township of Wayne, State of New
Jersey, on 25th day of September, 2001.
ISP CHEMICALS LLC
By: ISP Chemicals Inc., its Sole Member
By: /s/ Susan B. Yoss
----------------------------------
Name: Susan B. Yoss
Title: Executive Vice President -
Finance and Treasurer
Signature Title Date
--------- ----- ----
/s/ Sunil Kumar Chief Executive Officer, President and Director September 25, 2001
------------------------------------ of ISP Chemicals Inc. (Principal Executive
Sunil Kumar Officer)
Executive Vice President - Finance and September 25, 2001
/s/ Susan B. Yoss Treasurer of ISP Chemicals Inc. (Principal
------------------------------------ Financial Officer)
Susan B. Yoss
/s/ Jon W. Rushatz Vice President - Finance of ISP Chemicals September 25, 2001
------------------------------------ Inc. (Principal Accounting Officer)
Jon W. Rushatz
/s/ Paul T. Brady
------------------------------------ Director of ISP Chemicals Inc. September 25, 2001
Paul T. Brady
/s/ Roger J. Cope
------------------------------------ Director of ISP Chemicals Inc. September 25, 2001
Roger J. Cope
/s/ Stephen R. Olsen
------------------------------------ Director of ISP Chemicals Inc. September 25, 2001
Stephen R. Olsen
/s/ Steven E. Post
------------------------------------ Director of ISP Chemicals Inc. September 25, 2001
Steven E. Post
S-6
POWER OF ATTORNEY
Each director and/or officer of the registrant whose signature appears
below hereby appoints Susan B. Yoss, as his attorney-in-fact to sign in his name
and on his behalf, in any and all capacities stated below, and to file with the
Securities and Exchange Commission, and all amendments, including post-effective
amendments, to this registration statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the Township of Wayne, State of New
Jersey, on 25th day of September, 2001.
ISP MANAGEMENT LLC
By: ISP Management Company, Inc.,
its Sole Member
By: /s/ Susan B. Yoss
----------------------------------
Name: Susan B. Yoss
Title: Executive Vice President -
Finance and Treasurer
Signature Title Date
--------- ----- ----
/s/ Sunil Kumar Chief Executive Officer, President and Director September 25, 2001
------------------------------------ of ISP Management Company, Inc.
Sunil Kumar (Principal Executive Officer)
Executive Vice President - Finance and September 25, 2001
/s/ Susan B. Yoss Treasurer of ISP Management Company, Inc.
------------------------------------ (Principal Financial Officer)
Susan B. Yoss
/s/ Jon W. Rushatz Vice President - Finance of ISP Management September 25, 2001
------------------------------------ Company, Inc. (Principal Accounting Officer)
Jon W. Rushatz
/s/ Paul T. Brady
------------------------------------ Director of ISP Management Company, Inc. September 25, 2001
Paul T. Brady
/s/ Roger J. Cope
------------------------------------ Director of ISP Management Company, Inc. September 25, 2001
Roger J. Cope
/s/ Stephen R. Olsen
------------------------------------ Director of ISP Management Company, Inc. September 25, 2001
Stephen R. Olsen
/s/ Steven E. Post
------------------------------------ Director of ISP Management Company, Inc. September 25, 2001
Steven E. Post
S-7
POWER OF ATTORNEY
Each director and/or officer of the registrant whose signature appears
below hereby appoints Susan B. Yoss, as his attorney-in-fact to sign in his name
and on his behalf, in any and all capacities stated below, and to file with the
Securities and Exchange Commission, and all amendments, including post-effective
amendments, to this registration statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the Township of Wayne, State of New
Jersey, on 25th day of September, 2001.
ISP MINERALS LLC
By: ISP Minerals Inc., its Sole Member
By: /s/ Susan B. Yoss
----------------------------------
Name: Susan B. Yoss
Title: Executive Vice President -
Finance and Treasurer
Signature Title Date
--------- ----- ----
/s/ Sunil Kumar Chief Executive Officer, President and Director September 25, 2001
------------------------------------ of ISP Minerals Inc. (Principal Executive
Sunil Kumar Officer)
Executive Vice President - Finance and September 25, 2001
/s/ Susan B. Yoss Treasurer of ISP Minerals Inc. (Principal
------------------------------------ Financial Officer)
Susan B. Yoss
/s/ Jon W. Rushatz Vice President - Finance of ISP Minerals September 25, 2001
------------------------------------ Inc. (Principal Accounting Officer)
Jon W. Rushatz
/s/ Paul T. Brady
------------------------------------ Director of ISP Minerals Inc. September 25, 2001
Paul T. Brady
/s/ Roger J. Cope
------------------------------------ Director of ISP Minerals Inc. September 25, 2001
Roger J. Cope
/s/ Stephen R. Olsen
------------------------------------ Director of ISP Minerals Inc. September 25, 2001
Stephen R. Olsen
/s/ Steven E. Post
------------------------------------ Director of ISP Minerals Inc. September 25, 2001
Steven E. Post
S-8
POWER OF ATTORNEY
Each director and/or officer of the registrant whose signature appears
below hereby appoints Susan B. Yoss, as his attorney-in-fact to sign in his name
and on his behalf, in any and all capacities stated below, and to file with the
Securities and Exchange Commission, and all amendments, including post-effective
amendments, to this registration statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the Township of Wayne, State of New
Jersey, on 25th day of September, 2001.
ISP TECHNOLOGIES LLC
By: ISP Technologies Inc., its Sole
Member
By: /s/ Susan B. Yoss
----------------------------------
Name: Susan B. Yoss
Title: Executive Vice President -
Finance and Treasurer
Signature Title Date
--------- ----- ----
Chief Executive Officer and President and September 25, 2001
/s/ Sunil Kumar Director of ISP Technologies Inc.
------------------------------------ (Principal Executive Officer)
Sunil Kumar
Executive Vice President - Finance and September 25, 2001
/s/ Susan B. Yoss Treasurer of ISP Technologies Inc.
------------------------------------ (Principal Financial Officer)
Susan B. Yoss
/s/ Jon W. Rushatz Vice President - Finance of ISP September 25, 2001
------------------------------------ Technologies Inc. (Principal Accounting
Jon W. Rushatz Officer)
/s/ Paul T. Brady
------------------------------------ Director of ISP Technologies Inc. September 25, 2001
Paul T. Brady
/s/ Roger J. Cope
------------------------------------ Director of ISP Technologies Inc. September 25, 2001
Roger J. Cope
/s/ Stephen R. Olsen
------------------------------------ Director of ISP Technologies Inc. September 25, 2001
Stephen R. Olsen
/s/ Steven E. Post
------------------------------------ Director of ISP Technologies Inc. September 25, 2001
Steven E. Post
S-9
POWER OF ATTORNEY
Each director and/or officer of the registrant whose signature appears
below hereby appoints Susan B. Yoss, as his attorney-in-fact to sign in his name
and on his behalf, in any and all capacities stated below, and to file with the
Securities and Exchange Commission, and all amendments, including post-effective
amendments, to this registration statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the Township of Wayne, State of New
Jersey, on 25th day of September, 2001.
ISP INVESTMENTS LLC
By: ISP Investments Inc., its Sole
Member
By: /s/ Susan B. Yoss
----------------------------------
Name: Susan B. Yoss
Title: Executive Vice President -
Finance and Treasurer
Signature Title Date
--------- ----- ----
Chief Executive Officer and President of ISP September 25, 2001
/s/ Sunil Kumar Investments Inc. (Principal Executive
------------------------------------ Officer)
Sunil Kumar
Executive Vice President - Finance and September 25, 2001
/s/ Susan B. Yoss Treasurer of ISP Investments Inc.
------------------------------------ (Principal Financial Officer)
Susan B. Yoss
/s/ Jon W. Rushatz Vice President - Finance of ISP Investments September 25, 2001
------------------------------------ Inc. (Principal Accounting Officer)
Jon W. Rushatz
/s/ Richard A. Weinberg
------------------------------------ Director of ISP Investments Inc. September 25, 2001
Richard A. Weinberg
/s/ Arthur W. Clark
------------------------------------ Director of ISP Investments Inc. September 25, 2001
Arthur W. Clark
/s/ Barry A. Crozier
------------------------------------ Director of ISP Investments Inc. September 25, 2001
Barry A. Crozier
S-10
POWER OF ATTORNEY
Each director and/or officer of the registrant whose signature appears
below hereby appoints Susan B. Yoss, as his attorney-in-fact to sign in his name
and on his behalf, in any and all capacities stated below, and to file with the
Securities and Exchange Commission, and all amendments, including post-effective
amendments, to this registration statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the Township of Wayne, State of New
Jersey, on 25th day of September, 2001.
ISP GLOBAL TECHNOLOGIES LLC
By: ISP Global Technologies Inc.,
its Sole Member
By: /s/ Susan B. Yoss
----------------------------------
Name: Susan B. Yoss
Title: Executive Vice President -
Finance and Treasurer
Signature Title Date
--------- ----- ----
Chief Executive Officer and President of ISP September 25, 2001
/s/ Sunil Kumar Global Technologies Inc. (Principal
------------------------------------ Executive Officer)
Sunil Kumar
Executive Vice President - Finance and September 25, 2001
Treasurer of ISP
/s/ Susan B. Yoss Global Technologies Inc.
------------------------------------ (Principal Financial Officer)
Susan B. Yoss
/s/ Jon W. Rushatz Vice President - Finance of ISP September 25, 2001
------------------------------------ Global Technologies Inc.
Jon W. Rushatz (Principal Accounting Officer)
/s/ Richard A. Weinberg
------------------------------------ Director of ISP Global Technologies Inc. September 25, 2001
Richard A. Weinberg
/s/ Arthur W. Clark
------------------------------------ Director of ISP Global Technologies Inc. September 25, 2001
Arthur W. Clark
/s/ Barry A. Crozier
------------------------------------ Director of ISP Global Technologies Inc. September 25, 2001
Barry A. Crozier
S-11
EXHIBIT LIST
Exhibit
Number Description
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* 3.1 -- Certificate of Incorporation of ISP Chemco Inc.
* 3.2 -- By-laws of ISP Chemco Inc.
* 3.3 -- Certificate of Incorporation of ISP Chemicals Inc.
* 3.4 -- Amendment to Certificate of Incorporation of ISP Chemicals Inc.
* 3.5 -- By-laws of ISP Chemicals Inc.
* 3.6 -- Certificate of Incorporation of ISP Minerals Inc.
* 3.7 -- Amendment to Certificate of Incorporation of ISP Minerals Inc.
* 3.8 -- By-laws of ISP Minerals Inc.
* 3.9 -- Certificate of Incorporation of ISP Technologies Inc.
* 3.10 -- Amendment to Certificate of Incorporation of ISP Technologies
Inc.
* 3.11 -- By-laws of ISP Technologies Inc.
* 3.12 -- Certificate of Incorporation of ISP Management Company, Inc.
* 3.13 -- Amendment to Certificate of Incorporation of ISP Management
Company, Inc.
* 3.14 -- By-laws of ISP Management Company, Inc.
* 3.15 -- Certificate of Incorporation of Bluehall Incorporated
* 3.16 -- By-laws of Bluehall Incorporated
* 3.17 -- Certificate of Incorporation of Verona Inc.
* 3.18 -- By-laws of Verona Inc.
* 3.19 -- Certificate of Incorporation of ISP Real Estate Company, Inc.
* 3.20 -- By-laws of ISP Real Estate Company, Inc.
* 3.21 -- Certificate of Incorporation of ISP Freetown Fine Chemicals Inc.
* 3.22 -- By-laws of ISP Freetown Fine Chemicals Inc.
* 3.23 -- Certificate of Incorporation of ISP International Corp.
* 3.24 -- By-laws of ISP International Corp.
* 3.25 -- Certificate of Incorporation of ISP (Puerto Rico) Inc.
* 3.26 -- By-laws of ISP (Puerto Rico) Inc.
* 3.27 -- Certificate of Incorporation of ISP Alginates Inc.
* 3.28 -- By-laws of ISP Alginates Inc.
* 3.29 -- Certificate of Incorporation of ISP Environmental Services Inc.
* 3.30 -- By-laws of ISP Environmental Services Inc.
* 3.31 -- Certificate of Incorporation of ISP Investments Inc.
* 3.32 -- By-Laws of ISP Investments Inc.
* 3.33 -- Certificate of Incorporation of ISP Global Technologies Inc.
* 3.34 -- Amendment to Certificate of Incorporation of ISP Global
Technologies Inc.
* 3.35 -- By-laws of ISP Global Technologies Inc.
* 3.36 -- Operating Agreement of ISP Chemicals LLC
* 3.37 -- Operating Agreement of ISP Management LLC
* 3.38 -- Operating Agreement of ISP Minerals LLC
* 3.39 -- Operating Agreement of ISP Technologies LLC
* 3.40 -- Operating Agreement of ISP Investments LLC
* 3.41 -- Operating Agreement if ISP Global Technologies LLC
* 4.1 -- Indenture, dated as of June 27, 2001, between ISP Chemco Inc.,
ISP Chemicals Inc., ISP Minerals Inc. and ISP Technologies Inc.,
as issuers, the subsidiary guarantors party thereto, and
Wilmington Trust Company, as trustee.
* 4.2 -- Form of Notes (included in Exhibit 4.1).
* 4.3 -- A/B Exchange Registration Rights Agreement, dated as of June 27,
2001, by and among ISP Chemco Inc., ISP Chemicals Inc., ISP
Minerals Inc. and ISP Technologies Inc., as issuers, the
subsidiary guarantors party thereto, and Bear Stearns & Co.
Inc., J.P. Morgan Securities Inc., Deutsche Bank Alex. Brown
Inc., UBS Warburg LLC, Scotia Capital (USA) Inc., BNP Paribas
Securities Corp., and BNY Capital Markets, Inc., as initial
purchasers.
* 5.1 -- Opinion of Weil, Gotshal & Manges LLP
* 8.1 -- Opinion of Weil, Gotshal & Manges LLP
* 10.1 -- Credit Agreement, dated as of June 27, 2001, between ISP Chemco
Inc., ISP Chemicals Inc., ISP Minerals Inc. and ISP Technologies
Inc., as borrowers, the subsidiary guarantors party thereto, the
lenders party thereto, The Chase Manhattan Bank, as
administrative agent, J.P. Morgan Securities Inc., as advisor,
lead arranger and bookrunner, Bear Stearns Corporate Lending
Inc. and UBS Warburg LLC, as co-syndication agents, and Deutsche
Bank Alex. Brown Inc. and The Bank of Nova Scotia, as
co-documentation agents.
* 10.2 -- Pledge and Security Agreement, dated as of June 27, 2001, among
ISP Chemco Inc., ISP Chemicals Inc., ISP Minerals Inc. and ISP
Technologies Inc., as borrowers, the subsidiary guarantors party
thereto, The Chase Manhattan Bank, as administrative agent, J.P.
Morgan Securities Inc., as advisor, lead arranger and
bookrunner, Bear Stearns Corporate Lending Inc. and UBS Warburg
LLC, as co-syndication agents, and Deutsche Bank Alex. Brown
Inc. and The Bank of Nova Scotia, as co-documentation agents.
* 10.3 -- Amended and Restated Management Agreement, dated as of January
1, 1999, by and among GAF Corporation, G-I Holdings Inc., G
Industries Corp., Merick Inc., GAF Fiberglass Corporation,
International Specialty Products Inc., GAF Building Materials
Corporation, GAF Broadcasting Company, Inc., Building Materials
Corporation of America and ISP Opco Holdings Inc., as assignee
of International Specialty Products Inc.
* 10.4 -- Amendment No. 1 to Amended and Restated Management Agreement,
dated as of January 1, 2000, by and among GAF Corporation, G-I
Holdings Inc., G Industries Corp., Merick Inc., GAF Fiberglass
Corporation, International Specialty Products Inc., GAF Building
Materials Corporation, GAF Broadcasting Company, Inc., Building
Materials Corporation of America and ISP Opco Holdings Inc., as
assignee of International Specialty Products Inc.
* 10.5 -- Amendment No. 2 to Amended and Restated Management Agreement,
dated as of January 1, 2001, by and among G-I Holdings Inc.,
Merick Inc., International Specialty Products Inc., GAF
Broadcasting Company, Inc., Building Materials Corporation of
America and ISP Opco Holdings Inc., as assignee of International
Specialty Products Inc.
* 10.6 -- Amendment No. 3 to Amended and Restated Management Agreement,
dated as of June 27, 2001, by and among G-I Holdings Inc.,
Merick Inc., International Specialty Products Inc., ISP Investco
LLC, GAF Broadcasting Company, Inc., Building Materials
Corporation of America and ISP Management Company, Inc., as
assignee of ISP Chemco Inc.
* 10.7 -- Tax Sharing Agreement, dated as of January 1, 2001, by and among
International Specialty Products Inc., Newco Holdings Inc. and
ISP Chemco Inc.
* 12.1 -- Computation of Ratio of Earnings to Fixed Charges.
* 21.1 -- Subsidiaries of ISP Chemco Inc.
23.1 -- Consent of Arthur Andersen LLP.
* 23.2 -- Consent of Weil, Gotshal & Manges LLP (to be included in
Exhibits 5 and 8).
24 -- Power of Attorney.
* 25 -- Form T-1 Statement of Eligibility under the Trust Indenture Act
of 1939, as amended, of Wilmington Trust Company, as Trustee
under the Indenture.
* 99.1 -- Form of Letter of Transmittal.
* 99.2 -- Form of Notice of Guaranteed Delivery.
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* To be filed by amendment.