PROSPECTUS
(TENNECO AUTOMOTIVE LOGO)
TENNECO AUTOMOTIVE INC.
OFFER TO EXCHANGE
ALL OUTSTANDING $125,000,000 PRINCIPAL AMOUNT OF
10 1/4% SENIOR SECURED NOTES DUE 2013 ISSUED DECEMBER 12, 2003
FOR $125,000,000 PRINCIPAL AMOUNT OF
10 1/4% SENIOR SECURED NOTES DUE 2013 WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933
PRINCIPAL TERMS OF THE EXCHANGE OFFER:
- - We will exchange all old 10 1/4 percent senior secured notes due 2013 that
were issued on December 12, 2003 in a private offering that are validly
tendered and not validly withdrawn for an equal principal amount of exchange
notes that have been registered.
- - The exchange offer expires at 5:00 PM, New York City time, on Wednesday, June
30, 2004, unless we extend the offer. You may withdraw tenders of old notes at
any time prior to the expiration of the exchange offer.
- - The exchange offer is not subject to any condition other than that it will not
violate applicable law or interpretations of the staff of the Securities and
Exchange Commission and that no proceedings with respect to the exchange offer
have been instituted or threatened in any court or by any governmental agency.
PRINCIPAL TERMS OF THE EXCHANGE NOTES:
- - The terms of the exchange notes to be issued in the exchange offer are
substantially identical to the old notes, except that the exchange notes will
be freely tradeable by persons who are not affiliated with us and will not
have registration rights.
- - The exchange notes to be issued in the exchange offer will have the same terms
as our previously issued, outstanding $350 million aggregate principal amount
of 10 1/4 percent senior secured notes due 2013 and will trade as a single
class of freely tradeable notes with those outstanding registered notes.
- - No public market currently exists for the old notes or for our $350 million of
outstanding registered notes. We do not intend to list the exchange notes or
the outstanding registered notes on any securities exchange and, therefore, no
active public market is anticipated.
- - The exchange notes will be jointly and severally guaranteed by all of our
domestic subsidiaries that guarantee the old notes and our $350 million of
outstanding registered notes.
- - The exchange notes and the guarantees thereof will be secured by a second
priority lien, subject to specified exceptions, on all of our and our
subsidiary guarantors' assets that secure the old notes and our $350 million
of outstanding registered notes, and will rank:
- equal in right of payment with all of our and our subsidiary guarantors'
other existing and future senior debt;
- senior in right of payment to all of our and our subsidiary guarantors'
existing and future subordinated debt; and
- effectively junior to all of our debt under our senior credit facility and
our and our subsidiary guarantors' other obligations secured by a first
priority lien and to all liabilities of our non-guarantor subsidiaries.
- - The CUSIP Number for the exchange notes will be 880349 AD7.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 24 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This date of this prospectus is June 1 , 2004.
------------------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Summary............................... 1
Risk factors.......................... 24
Forward-looking statements............ 44
Use of proceeds....................... 46
Capitalization........................ 47
Selected historical consolidated
financial data..................... 48
Management............................ 53
Security ownership of certain
beneficial owners and management... 59
Certain relationships and related
transactions....................... 60
Description of other indebtedness and
obligations........................ 61
The exchange offer.................... 70
</Table>
<Table>
<Caption>
PAGE
----
Description of the notes.............. 83
Registration rights................... 139
Book-entry; delivery and form......... 141
Certain United States federal income
tax considerations................. 144
Plan of distribution.................. 148
Legal matters......................... 149
Experts............................... 149
Prior auditors........................ 149
Where you can find more information... 150
Incorporation by reference............ 151
Unaudited pro forma consolidated
financial statement................ PF-1
</Table>
Tenneco Automotive Inc. is a Delaware corporation. Our principal executive
offices are located at 500 North Field Drive, Lake Forest, Illinois 60045 and
our telephone number at that address is (847) 482-5000. Our web site is located
at http://www.tenneco-automotive.com. The information on our web site is not
part of this prospectus.
------------------------------
Monroe(R), Rancho(R), Fric Rot(TM), Walker(R), Gillet(TM), Quiet-Flow(R),
TruFit(R), Aluminox(TM), Walker Perfection(R), Mega-Flow(R), DynoMax(R),
Sensa-Trac(R), SafeTech(TM), Monroe Reflex(R), Thrush(R) and Impact Sensor(TM)
are some of our primary trademarks. EVA(R) is a registered trademark of Stern
Stewart & Co. All other trademarks, service marks or trade names referred to in
this prospectus are the property of their respective owners.
------------------------------
Industry and market data and other statistical information used throughout this
prospectus were obtained through company research, surveys and studies conducted
by third parties and industry and general publications. We have not
independently verified market and industry data from third-party sources. Some
data are also based on our good faith estimates, which are derived from our
review of internal surveys, as well as the independent sources described above.
While we believe internal company survey data are reliable and market
definitions are appropriate, neither these surveys nor these definitions have
been verified by any independent sources.
------------------------------
This prospectus incorporates by reference important business and financial
information about us which is not included in or delivered with this prospectus.
See "Where you can find additional information" and "Incorporation by
reference." This information, excluding exhibits to the information unless the
exhibits are specifically incorporated by reference into the information, is
available without charge to any holder or beneficial owner of old notes upon
written or oral request to Timothy R. Donovan, Executive Vice President and
General Counsel, Tenneco Automotive Inc., 500 North Field Drive, Lake Forest,
Illinois 60045, telephone number (847) 482-5000. To obtain timely delivery of
this information, you must request this information no later than five (5)
business days before the expiration of the exchange offer. Therefore, you must
request information on or before Wednesday, June 23, 2004.
i
SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. Because this is only a summary, it may not contain all of the
information you should consider in making your decision of whether to
participate in the exchange offer. To understand all of the terms of this
exchange offer and for a more complete understanding of our business, you should
carefully read this entire prospectus, particularly the section entitled "Risk
factors," and the documents incorporated by reference in this prospectus. In
this prospectus, (i) except as set forth under "Description of notes" and
"Certain United States federal tax considerations," the words "we," "our" and
"us" refer to Tenneco Automotive Inc. and its subsidiaries, and (ii) except as
the context may otherwise require, the term "senior credit facility" refers to
our senior credit agreement as amended and restated on December 12, 2003. In
this prospectus, we use the term old notes to refer to the $125 million 10 1/4
percent Senior Secured Notes due 2013 that were issued on December 12, 2003 in a
private offering and the term outstanding registered notes to refer to our
outstanding $350 million of 10 1/4 percent Senior Secured Notes due 2013 that
were issued pursuant to an exchange offer on October 25, 2003 and which have
been registered under the Securities Act. The term exchange notes refers to the
10 1/4 percent Senior Secured Notes due 2013 offered in the exchange offer
described in this prospectus, and we use the term notes to refer to the old
notes, the outstanding registered notes and the exchange notes, collectively.
Some of the statements contained in this "Summary" are forward-looking
statements. See "Forward-looking statements."
THE COMPANY
Tenneco Automotive Inc. is one of the world's largest producers of automotive
emission control and ride control products and systems. We serve both original
equipment vehicle manufacturers (which we refer to as OEMs) and the repair and
replacement markets (which we refer to as the aftermarket) worldwide, with
leading emission control brands such as Walker(R), Gillet(TM) and Fonos(TM) and
leading ride control brands including Monroe(R), Rancho(R), Clevite(R)
Elastomers and Fric Rot(TM). For the year ended December 31, 2003 and the three
months ended March 31, 2004, we generated revenues of $3,766 million and $1,034
million, respectively, and EBITDA (as described under "--Summary historical
consolidated financial data") of $339 million and $78 million, respectively.
We design, engineer, manufacture and market individual components for vehicles
as well as groups of components that are combined as modules or systems within
vehicles. We sell these parts, modules and systems globally to most leading OEMs
and throughout all aftermarket distribution channels. We operate 72
manufacturing plants and 14 engineering and technical centers around the world,
and sell and distribute our products to customers located in more than 100
countries. We generated approximately 50 percent of our 2003 net sales outside
of North America, including in rapidly expanding markets such as China and
Eastern Europe.
We manufacture and sell emission control components, such as mufflers, catalytic
converter shells, fabricated manifolds, pipes, exhaust heat exchangers, diesel
particulate filters and complete exhaust systems, all of which play a critical
role in reducing the level of pollutants in engine emission and managing engine
exhaust noise. Emission control products accounted for 63 percent of our 2003
net sales. We also manufacture and sell ride control products, such as shock
absorbers, struts, vibration control components and suspension systems, which
are designed to function as safety components for vehicles, provide a
comfortable ride and
1
improve vehicle stability and handling. Ride control products accounted for 37
percent of our 2003 net sales.
In the original equipment (which we refer to as OE) market, we serve a global
customer base of more than 30 different OEMs that includes General Motors (which
we refer to as GM), Ford Motor Co. (which we refer to as Ford), Volkswagen,
DaimlerChrysler, PSA Peugeot Citroen, Nissan, Toyota and Honda. The OE business
accounted for 75 percent of our net sales in 2003. We believe our sales across
our OEM customer base are diversified for our industry, with our largest
customers, GM, Ford, Volkswagen and DaimlerChrysler representing approximately
19 percent, 14 percent, 11 percent and 9 percent, respectively, of our revenues
from OE customers in 2003.
Our aftermarket customers include the entire aftermarket distribution chain:
full-line and specialty warehouse distributors, retailers, jobbers (traditional
parts stores that sell to installers), installer chains and car dealers. The
aftermarket business contributed 25 percent of our total revenue in 2003. Our
largest aftermarket customers in 2003 were NAPA, Advance Auto Parts, TEMOT
Autoteile, ADI (Automotive Distribution International), O'Reilly Automotive,
Uni-Select, Kwik-Fit Europe and CSK Auto. We believe we have a balanced mix of
aftermarket customers, with our top three aftermarket customers accounting for a
total of approximately 20 percent, and our top ten aftermarket customers
accounting for a total of approximately 34 percent, of our total 2003
aftermarket sales.
We are intensely focused on advanced technology and continue to be recognized
for our technological developments and ability to deliver them to the market.
For example, our Semi-Active Muffler, which helps improve fuel economy and
reduces noise output, is used worldwide on vehicle models including the VW Lupo,
Audi A2, Peugeot 807 and Citroen C8. Our Acceleration Sensitive Damping (ASD)
ride control technology, developed for the Nissan Altima and later introduced
into the global aftermarket as our Monroe Reflex(R) shock, won the prestigious
Automotive News PACE (Premier Automotive Suppliers' and OEMs' Contributions to
Excellence) Award in 2001. Our Gripper(TM) stabilizer bar system and
LiteningRod(TM) torque rod technology won honorable mentions at the 2002 and
2003 PACE Awards. In late 2003, we were awarded the 2003 CIO 100 Award from CIO
Magazine, which recognizes organizations that excel in positive business
performance through resourceful information technology and management practices.
We continue to aggressively pursue new business. During 2003, our OE businesses
won more than 90 projects that are scheduled to launch between 2004 and 2008,
including Ford's gas and diesel F-Series Super Duty, Audi's A4, Volkswagen's
Bora, Touran and Santana and GM's Lambda SUV. During 2003, our global
aftermarket operations captured new customer business, including Kwik-Fit, Midas
Austria, Mechanics Auto Parts and Wabco.
COMPETITIVE STRENGTHS
As the dynamics of the automotive industry change, so do the roles,
responsibilities and relationships of its participants. Key trends that we
believe are affecting automotive parts suppliers include customer and supplier
consolidation, increased OEM outsourcing of development, design and systems
integration activities, increased technology, globalization and global product
standardization. Growing emphasis on public safety, environmental protection and
emission regulations also has a direct impact on our business and the demand for
our
2
products. In addition, increased product lives and the decreased fleet age of
vehicles on the road also is directly affecting our businesses. We believe that
we are well-positioned to respond to these trends based upon our strengths and
capabilities described below.
ESTABLISHED BRAND NAMES. Monroe(R) ride control products and Walker(R) emission
control products, which have been offered to consumers for more than 50 years,
are two of the most recognized automotive brands. In Europe, our Gillet(TM)
brand is recognized as a leader in developing highly engineered exhaust systems
for OE customers. Well-recognized in specialty markets are our performance
brands: Rancho(R) ride control, DynoMax(R) emission control and DNX(TM), our
newest ride control and exhaust brand that serves the growing sport tuner
market, which is popular with young adults. We continue to emphasize product
value differentiation with these brands and with our other aftermarket brands:
Thrush(R), Fonos(TM) and Armstrong(TM).
LEADING MARKET POSITIONS. We are one of the world's leading manufacturers and
marketers of automotive emission control and ride control systems and parts for
the OE market and aftermarket. The following table sets forth our estimated 2003
market positions by product category based on sales estimates for each of our
primary geographic regions. These estimates are prepared in accordance with what
we believe to be standard industry practice and are based on industry sources
and our knowledge of our relative position in each market.
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
PRODUCT CATEGORY REGION MARKET POSITION
- --------------------------------------------------------------------------------------------
Aftermarket emission control.............................. North America #1
Europe* #1
Aftermarket ride control.................................. North America #1
Europe #1
OE emission control....................................... North America #2
Europe #1
OE ride control........................................... North America #1
Europe #3
- --------------------------------------------------------------------------------------------
</Table>
* Excludes OE service.
GLOBAL PRESENCE. OEMs are increasingly requiring suppliers to provide parts on a
global basis, which requires a worldwide approach to design, engineering, supply
chain management, manufacturing, distribution and sales. Our global presence and
integrated operations position us to meet the global needs of our OE and
aftermarket customers by providing high-quality, premium brand products
worldwide. We operate nine emission control manufacturing facilities in the U.S.
and 33 emission control manufacturing facilities outside of the U.S. Our ride
control operations include nine manufacturing facilities in the U.S. and 21 in
other parts of the world. We operate 14 engineering and technical facilities
worldwide and we have sales offices on six continents. Our products are sold and
distributed in more than 100 countries.
WELL-POSITIONED ON POPULAR VEHICLE PLATFORMS. We manufacture and distribute
products for many of the most-recognized car and light truck models in the
world. Globally, we serve more than 30 different OEMs and our products or
systems are consistently included on many of the top-selling vehicles. In 2003,
our products were included on all of the top ten light trucks and SUVs produced
in North America and six of the top ten passenger cars produced in North America
and Western Europe. We believe our presence on these key models is a competitive
advantage. For example, we estimate that North American light vehicle production
for the first
3
quarter of 2004 decreased approximately one percent from the same period in
2003, while our North American OE revenues increased one percent (excluding the
impact of changing foreign currency exchange rates and pass-through sales of
catalytic converters) over the same period. In Europe, our first quarter 2004 OE
revenues increased 13 percent (excluding the impact of changing foreign currency
exchange rates and pass-through sales of catalytic converters) compared to an
estimated decrease in the European light vehicle production rate of one percent
from the first quarter of 2003. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in our Annual Report on Form 10-K
for the year ended December 31, 2003, and our Quarterly Report on Form 10-Q for
the three months ended March 31, 2004, which are incorporated by reference
herein, for a description and reconciliation of the impact of pass-through sales
and foreign currency on our revenues.
TIER 1 CAPABILITIES. We are an established Tier 1 supplier with more than ten
years of product integration experience. We have modules or systems for 40
vehicle platforms in production worldwide and modules or systems for 15
additional platforms under development. For example, we supply full exhaust
systems for the Nissan Xterra, Ford Transit, Jaguar XJ type and Porsche Boxster
and ride control modules for DaimlerChrysler's Caravan, the VW Golf and the Audi
A6. Our ability to supply complete systems and modules enables us to respond to
the outsourcing trend among OEMs who are increasingly looking to their suppliers
as systems integrators to simplify the vehicle assembly process, lower costs and
reduce vehicle development time.
TECHNOLOGY LEADERSHIP. Increasingly stringent environmental regulations, a
growing diesel market, the demand for better fuel economy and heightened safety
concerns are driving our technology development. Automotive OEMs' growing demand
for technological innovation from suppliers for improved vehicle safety,
performance and functionality is resulting in a rapid increase in the technical
content of automobiles and affording us opportunities to increase our
contributions to vehicle platforms. To continue developing innovative products,
systems and modules, we operate 14 engineering and technical facilities and have
entered into several strategic alliances focused on advanced technology designs.
We continually maintain a pipeline of new technologies in the R&D and production
stages. Some of our significant technology activities and achievements include:
- We were the first supplier to develop and commercialize a diesel
particulate filter that can virtually eliminate carbon and hydrocarbon
emissions with a minimal impact on engine performance, which we
introduced on the Citroen C5 and Peugeot 406 in 2001.
- We are working to develop, for a European customer, our combined
particulate filter and De-NOx Converter for heavy-duty trucks, which can
reduce particulate emissions by up to 90 percent and nitrogen oxide
emissions by up to 70 percent.
- We recently began supplying Volvo with an innovative electronic
suspension system, which we co-developed with Ohlins Racing AB. The
Computerized Electronic Suspension (CES) ride control system is currently
or will be featured on Volvo's new S60R, V70R and S80R passenger cars.
- We developed and commercialized a tubular integrated converter (TIC)
that shortens production time, reduces manufacturing costs up to 25
percent and reduces weight up to 20 percent, using a new hot-formed,
weld-free production process. Weight reduction
4
results in improved fuel economy. Our TIC technology is applied on
current models of the Ford Transit, Ford Focus, Peugeot 406, Citroen C5
and the GM/Opel Corsa.
- We continue to win new business at Ford for our Gripper(TM) stabilizer
bar system. The Gripper(TM) combines a pressurized elastomeric,
mechanically bonded bushing with a multi-bend stabilizer bar that
eliminates potential noise while improving vehicle ride and handling. We
originally introduced this technology on the 2000 Taurus and Sable. It is
now also available on other Ford vehicles, including the Mercury Grand
Marquis, Lincoln Town Car and, most recently, the 2003 Lincoln Aviator.
Our aftermarket business benefits from the design, manufacturing and
technological expertise of our OE business as we leverage new technologies and
applications into our aftermarket products, thereby reinforcing our premium
products and strengthening our brands. We believe our OE expertise provides us
with a significant advantage over many of our aftermarket competitors. For
example, we have extended our ASD shock technology to our Monroe Reflex(R)
premium aftermarket shock, originally launched in North America in 1999 and
extended to Europe in 2002. We believe these types of initiatives have helped us
to grow our North American aftermarket ride control market share, which
increased from an estimated 47 percent in 1999 to an estimated 54 percent in
2003. We also introduced our non-ASD Monroe Reflex(R) premium aftermarket shock
in Australia in 2003.
STRONG CUSTOMER RELATIONSHIPS. We have developed long-standing business
relationships with leading global OEMs due to our superior design and
manufacturing capabilities and global presence. In each of our operating
segments, we work with our customers in all stages of production, including
design, development, component sourcing, quality assurance, manufacturing and
delivery. We believe that our customers view us as a solutions provider with a
reputation for providing high-quality, innovative products at competitive prices
with timely delivery and superior customer service. We have regularly received
supplier awards from many of our top customers. In 2000, 2001, 2002 and 2003, we
received Ford Motor Company's World Excellence Award, recognizing us as one of
Ford's top suppliers in the world. Other 2002 awards included Nissan's Master of
Quality, PACCAR's Preferred Supplier and Advance AutoParts Vendor of the Year
awards. Our other awards for 2003 include Freightliner's Master of Quality award
(the highest achievement awarded to Freightliner suppliers), General Motors
Corporation's Worldwide Purchasing/Order-To-Delivery Q.S.T.P. Award and
recognition as a General Motors Corporation Supplier of the Year, the Volkswagen
Group Award for our Puebla, Mexico operations and being named as a Diamond
Supplier for Navistar International's truck division.
DIVERSE REVENUE MIX. Our revenues are well-balanced across our product lines,
markets and geographic regions. Emission control accounted for 63 percent of our
2003 net sales and ride control accounted for the remaining 37 percent. The OE
business contributed 75 percent of our net sales in 2003, and the aftermarket
contributed 25 percent. We generated approximately 50 percent of our 2003 net
sales outside of North America, including in rapidly expanding markets such as
China and Eastern Europe. We believe the balance between our participation in
both the OE and aftermarket businesses and our global presence helps reduce our
exposure to the cyclicality of the automotive industry.
EXTENSIVE AFTERMARKET DISTRIBUTION. We have a dedicated sales force and consumer
brand marketing professionals who sell and market our products through all the
primary channels of distribution, including full-line and specialty warehouse
distributors, jobbers, installers, car dealers and automotive parts retailers.
These same retailers provide significant opportunity as
5
they are focused on increasing premium sales to automotive part installers. We
are working to leverage our portfolio of innovative and premium brand name
products and our extensive distribution capabilities to increase our sales to
retailers.
EXPERIENCED MANAGEMENT TEAM. Led by Mark P. Frissora, our senior management team
has extensive experience in the automotive industry. Our top 15 senior managers
have an average of 12 years of experience in our business segments, including an
average of ten years at Tenneco Automotive. This management team has
aggressively pursued major restructuring initiatives, cash flow management
improvements and other strategies aimed at improving our overall profitability.
BUSINESS STRATEGY
We seek to leverage our global position in the manufacture of emission control
and ride control products and systems. We intend to apply our competitive
strengths and balanced mix of products, markets, customers and distribution
channels to capitalize on many of the significant existing and emerging trends
in the automotive industry. The key components of our business strategy are
described below.
LEVERAGE GLOBAL ENGINEERING AND ADVANCED SYSTEM CAPABILITIES. We continue to
focus on the development of highly engineered systems and complex assemblies and
modules, which are designed to provide value-added solutions to customers and
generally increase vehicle content, and carry higher profit margins than
individualized components. We have developed integrated, electronically linked
global engineering and manufacturing facilities, which we believe will help us
maintain our presence on top-selling vehicles. We have more than ten years of
experience in integrating systems and modules. In addition, our Just-in-Time
(JIT) and in-line sequencing manufacturing and distribution capabilities have
enabled us to better respond to our customers' needs. We operate 20 JIT
facilities worldwide.
EXPAND OUR AFTERMARKET BUSINESS. Our plans to expand our aftermarket business
are focused on three key marketing initiatives: new product introductions;
building consumer and industry awareness of the maintenance, performance and
other benefits of ensuring that a vehicle's ride and exhaust control systems are
in good working condition; and extending our brands and aftermarket penetration
to new product segments. For example, in 2003 we introduced our new DNX(TM)
brand in the United States, that sport tunes cars with performance exhaust and
adjustable suspension systems. We plan to introduce this brand in Europe this
year. Another example is our Safety Triangle(TM) marketing campaign, which
focuses on the impact of replacing worn shock absorbers and struts on vehicle
safety. We are exploring a number of opportunities to extend our existing well
known brands, such as Monroe(R), and our product line generally to aftermarket
product segments we have not previously served. For example, in 2003 we entered
into an agreement with DuPont to develop, manufacture and market
DuPont(TM)-branded car appearance products in North America. We believe that,
when combined with our expansive customer service network, these initiatives
will yield new incremental aftermarket revenues.
ACHIEVE GREATER CONTENT PER VEHICLE. As a result of increasing emissions
standards and the introduction of multiple catalytic converters and heat
exchangers per vehicle, we believe that available emission control content per
light vehicle will rise over the next several years. We believe that consumers'
greater emphasis on automotive safety could also allow available ride control
content per light vehicle to rise. In addition, advanced technologies and
modular assemblies represent an opportunity to increase vehicle content. For
example, our innovative CES system, which we recently debuted on several Volvo
passenger cars, increases our content
6
revenues five-fold compared to a standard shock offering. We plan to take
advantage of these trends by leveraging our existing position on many
top-selling vehicle platforms and by continuing to enhance our modular/systems
capabilities.
EXECUTE FOCUSED TRANSACTIONS. In the past, we have been successful in
identifying and capitalizing on strategic acquisitions and alliances to achieve
growth. Through these acquisitions and alliances, we have (i) expanded our
product portfolio; (ii) realized incremental business with existing customers;
(iii) gained access to new customers; and (iv) achieved leadership positions
within new geographic markets.
We have developed a strategic alliance with Futaba, a leading exhaust
manufacturer in Japan that also includes a joint venture operation in Burnley,
England. We also have an alliance with Tokico, a leading Japanese ride control
manufacturer. These alliances help us grow our business with Japan based OEMs by
leveraging the geographical presence of each partner to serve Japan-based global
platforms. We have established a presence in Thailand through a joint venture
that supplies exhaust components for GMIsuzu. Our joint venture operations in
Dalian and Shanghai, China have established us as one of the leading exhaust
suppliers in the rapidly growing Chinese automotive market. We continue to
expand our Chinese presence and, in November 2003, entered into two agreements
to form new joint ventures in China. The first is with Eberspacher International
GmbH to supply emission control products and systems for luxury cars produced by
BMW and Audi in China, and the second is with Chengdu Lingchaun Mechanical Plant
to supply emission control products and systems for various Ford platforms
produced in China.
Where appropriate, we intend to continue to pursue strategic alliances, joint
ventures, acquisitions and other transactions that complement or enhance our
existing products, technology, systems development efforts, customer base and/or
domestic or international presence. We strive to align with strong local
partners to help us further develop our leadership in systems integration and to
penetrate international markets and with companies that have proven products,
proprietary technology, research capabilities and/or market penetration to help
us achieve further leadership in product offerings, customer relationships, and
systems integration and overall presence.
GROWTH IN ADJACENT MARKETS. One of our goals is to apply our existing design,
engineering and manufacturing capabilities to penetrate a variety of adjacent
markets and to achieve growth in higher-margin businesses. For example, we are
aggressively leveraging our technology and engineering leadership in emission
and ride control into adjacent markets, such as the heavy-duty market for
trucks, buses, agricultural equipment, construction machinery and other
commercial vehicles. As an established leading supplier of heavy-duty ride
control and elastomer products, we are already serving customers like Volvo
Truck, Mack, Navistar International, Freightliner and Scania. We also see
tremendous opportunity to expand our presence in the heavy-duty market with our
emission control products and systems, having recently entered this market in
Europe with diesel technologies that will help customers meet Euro 4, Euro 5 and
Kyoto requirements.
IMPROVE EFFICIENCY AND REDUCE COSTS. We are a process-oriented company and have
implemented and are continuing to implement several programs designed to improve
efficiency and reduce costs, including:
- We are successfully completing Project Genesis, our primary initiative
for improving global manufacturing and distribution efficiency. Since
launching Project Genesis in December 2001, we have reduced excess
manufacturing capacity and costs. We have
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closed eight facilities and improved workflow at 21 plants worldwide. Our
senior credit facility permits us to exclude up to $60 million of cash
charges and expenses, before taxes, related to any cost reduction
initiatives from the calculation of our financial covenant ratios through
2006. We had excluded $24 million as of March 31, 2004. As we have
previously disclosed, we continue to evaluate additional opportunities to
initiate actions that will reduce our costs through implementing the most
appropriate and efficient logistics, distribution and manufacturing
footprint for the future. For example, we recently closed a facility in
Brazil for which we will recognize charges of less than $2 million in the
second quarter of 2004. We may in the future take various additional cost
reduction actions in response to our continuing evaluation. Any cost
reduction initiatives would result in costs and charges that could be
material to our results of operations for the period in which we
implement them. At present, however, we cannot assure you as to the size,
nature or timing of any such additional costs or charges.
- We anticipate long-term savings through our Six Sigma program, a
methodology and approach designed to minimize product defects and improve
operational efficiencies.
- We have implemented a Lean manufacturing program to reduce costs,
inventories and customer lead times while improving delivery.
- We have adopted the Business Operating System (BOS), a disciplined
system to promote and manage continuous improvement. BOS focuses on the
assembly and analysis of data for quick and effective problem resolution
to create more efficient and profitable operations.
- We are using Economic Value Added (EVA(R)), a financial tool that more
effectively measures how efficiently we employ our capital resources, and
have linked the successful application of this management discipline to
our incentive compensation program.
In addition, we continue to work to reduce costs by standardizing products and
processes throughout our operations; further developing our global supply chain
management capabilities; improving our information technology; increasing
efficiency through employee training; investing in more efficient machinery; and
enhancing the global coordination of costing and quoting procedures, along with
other steps to reduce administrative and operational costs and improve cost
management.
REDUCE BORROWINGS AND IMPROVE CASH FLOW. We are focused on a core set of goals
designed to reduce borrowings and improve cash flow: (i) keeping selling,
general and administrative expenses plus engineering, research and development
costs (SGA&E) level as a percentage of sales, while continuing to invest in
sales and engineering; (ii) extracting significant cash flow from working
capital initiatives; (iii) maintaining overall gross margins in a challenging
economic environment; and (iv) strengthening existing customer relationships and
winning new long-term OE business.
2003 REFINANCING TRANSACTIONS
During 2003, we engaged in a series of transactions that resulted in the full
refinancing of our senior credit facility in December. First, in June 2003, we
offered and sold an initial $350 million of 10 1/4 percent senior secured notes
due 2013 (100 percent of which were subsequently exchanged pursuant to an
exchange offer for our $350 million of outstanding
8
registered notes, completed on October 25, 2003). We used the net proceeds of
the June offering, which totaled approximately $338 million, to prepay $251
million of term loans and $87 million of revolving credit borrowings then
outstanding under our senior credit facility.
In December 2003, we completed the refinancing of our senior credit facility
through an amendment and restatement of our senior credit facility agreement and
the offering of the old notes. At that time, we received net proceeds of
approximately $391 million from new borrowings under our amended and restated
senior credit facility and net proceeds of approximately $136 million from the
offering of $125 million principal amount of the old notes, which included a 13
percent premium over the principal amount. These proceeds were used (i) to
refinance the $514 million of term loans then outstanding under our senior
credit facility and (ii) for general corporate purposes. Our obligations under
letters of credit outstanding immediately prior to completion of the refinancing
of our senior credit facility remained outstanding under the facility after its
amendment and restatement. See "Description of indebtedness and other
obligations."
Prior to the June 2003 transaction, we had (i) approximately $765 million of
term loans under our senior credit facility with remaining principal payments of
approximately $94 million, $93 million, $7 million, $253 million and $248
million in 2004, 2005, 2006, 2007 and 2008, respectively, (ii) a $450 million
revolving credit facility scheduled to expire in November 2005, and (iii) $500
million of senior subordinated notes maturing in 2009. As of December 31, 2003,
we had approximately (a) $400 million of term loans under our senior credit
facility with remaining principal payments of $4 million annually through 2009
and $376 million in 2010, (b) a $220 million revolving loan and letter of credit
facility expiring in December 2008 and a $180 million tranche B letter of
credit/revolving loan facility expiring in December 2010 (the "tranche B letter
of credit/revolving loan facility") (which, under current accounting rules, will
not be reflected on our balance sheet unless we have outstanding thereunder
revolving loans or payments by the facility in respect of letters of credit),
(c) $475 million of senior secured notes maturing in 2013, and (d) $500 million
of senior subordinated notes maturing in 2009. On a pro forma basis, these
refinancing transactions would have increased our annual interest expense by
approximately $9 million for 2003 if they had been completed at the beginning of
the year. See "Description of other indebtedness and obligations," "Unaudited
pro forma consolidated financial statement" and our Annual Report on Form 10-K
for the year ended December 31, 2003 and Quarterly Report on Form 10-Q for the
three months ended March 31, 2004, which are incorporated by reference herein.
RECENT EVENTS
In April 2004, we entered into three separate fixed-to-floating interest rate
swaps with two separate financial institutions. These agreements swapped an
aggregate of $150 million of fixed interest rate debt at a per annum rate of
10 1/4 percent to floating interest rate debt at a per annum rate of LIBOR plus
a spread of 5.68 percent. Each agreement requires semi-annual settlements
through July 15, 2013. Based on the initial LIBOR as determined under these
agreements of 1.24 percent, these swaps would reduce our annual interest expense
by approximately $5 million, which is not reflected in the pro forma information
presented elsewhere in this prospectus.
9
THE EXCHANGE OFFER
On December 12, 2003, we completed the private offering of $125 million of our
10 1/4 percent Senior Secured Notes due 2013. In connection with that private
offering, we entered into a registration rights agreement with the initial
purchasers of the old notes. In that agreement, we agreed, among other things,
to deliver to you this prospectus for the exchange of up to $125 million of new
10 1/4 percent Senior Secured Notes which have been registered under the
Securities Act for up to $125 million aggregate principal amount of the old
10 1/4 percent Senior Secured Notes which were issued on December 12, 2003. The
exchange notes will be substantially identical to the old notes, except that:
- the exchange notes have been registered under the Securities Act and
will be freely tradable by persons who are not affiliated with us;
- the exchange notes are not entitled to the rights which are applicable
to the old notes under the registration rights agreement;
- the exchange notes will trade as a single class of freely tradeable
notes with our $350 million of outstanding registered notes, which are
registered under the Securities Act; and
- our obligation to pay additional interest on the old notes does not
apply if the registration statement of which this prospectus forms a
part is declared effective by June 10, 2004 or certain other
circumstances occur, as described under the heading "Registration
rights."
Old notes may be exchanged only in integral multiples of $1,000. You should read
the discussion under the headings "Summary--The exchange notes" and "Description
of the notes" for further information regarding the exchange notes. You should
also read the discussion under the heading "The exchange offer" for further
information regarding the exchange offer and resale of the exchange notes.
EXCHANGE OFFER..........We will exchange our exchange notes for a like aggregate
principal amount and maturity of our old notes as
provided in the registration rights agreement related to
the old notes. The exchange offer is intended to satisfy
the rights granted to holders of the old notes in that
agreement. After the exchange offer is complete, you
will no longer be entitled to any exchange or
registration rights with respect to your notes.
RESALES.................Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, we believe that the exchange notes may be
offered for resale, resold and otherwise transferred by
you (unless you are our "affiliate" within the meaning
of Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery provisions
of the Securities Act, provided that you:
- are acquiring the exchange notes in the ordinary
course of business, and
- that you have not engaged in, do not intend to engage
in, and have no arrangement or understanding with any
person to participate in, a distribution of the exchange
notes.
10
Each participating broker-dealer that receives exchange
notes for its own account pursuant to the exchange offer
in exchange for the old notes that were acquired as a
result of market-making or other trading activity must
acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. See
"Plan of distribution."
Any holder of old notes who:
- is our affiliate,
- does not acquire the exchange notes in the ordinary
course of its business, or
- cannot rely on the position of the staff of the
Commission expressed in Exxon Capital Holdings
Corporation, Morgan Stanley & Co. Incorporated or
similar no-action letters,
must, in the absence of an exemption, comply with
registration and prospectus delivery requirements of the
Securities Act in connection with the resale of the
exchange notes. We will not assume, nor will we
indemnify you against, any liability you may incur under
the Securities Act or state or local securities laws if
you transfer any exchange notes issued to you in the
exchange offer absent compliance with the applicable
registration and prospectus delivery requirements or an
applicable exemption.
EXPIRATION TIME.........The exchange offer will expire at 5:00 PM, New York City
time, on Wednesday, June 30, 2004, or such later date
and time to which we extend it. We do not currently
intend to extend the expiration time.
CONDITIONS TO THE
EXCHANGE OFFER..........The exchange offer is subject to the following
conditions, which we may waive:
- the exchange offer does not violate applicable law or
applicable interpretations of the staff of the
Commission; and
- there is no action or proceeding instituted or
threatened in any court or by any governmental agency
with respect to this exchange offer.
Please refer to the section in this prospectus entitled
"The exchange offer--Conditions to the exchange offer."
PROCEDURES FOR TENDERING
THE OLD
NOTES...................If you wish to accept and participate in this exchange
offer, you must complete, sign and date the accompanying
letter of transmittal, or a copy of the letter of
transmittal, according to the instructions contained in
this prospectus and the letter of transmittal. You must
also mail or otherwise deliver the completed, executed
letter of transmittal or the copy thereof, together with
the old notes and any other required documents, to the
exchange agent at the address set forth on the cover of
the letter of transmittal. If you hold old notes through
The Depository Trust Company and wish to participate in
the exchange offer, you must comply with the
11
Automated Tender Offer Program procedures of DTC, by
which you will agree to be bound by the letter of
transmittal.
By signing or agreeing to be bound by the letter of
transmittal, you will represent to us that, among other
things:
- any exchange notes that you receive will be acquired
in the ordinary course of your business;
- you have no arrangement or understanding with any
person or entity to participate in the distribution of
the exchange notes;
- if you are a broker-dealer that will receive exchange
notes for your own account in exchange for old notes
that were acquired as a result of market-making
activities, that you will deliver a prospectus, as
required by law, in connection with any resale of the
exchange notes; and
- you are not our "affiliate" as defined in Rule 405
under the Securities Act.
GUARANTEED DELIVERY
PROCEDURES..............If you wish to tender your old notes and your old notes
are not immediately available or you cannot deliver your
old notes, the letter of transmittal or any other
documents required by the letter of transmittal or
comply with the applicable procedures under DTC's
Automated Tender Offer Program prior to the expiration
time, you must tender your old notes according to the
guaranteed delivery procedures set forth in this
prospectus under "The exchange offer--Guaranteed
delivery procedures."
WITHDRAWAL OF
TENDERS.................A tender of old notes pursuant to the exchange offer may
be withdrawn at any time prior to the expiration time.
To withdraw, you must send a written or facsimile
transmission notice of withdrawal to the exchange agent
at its address indicated under "The exchange
offer--Exchange agent" before 5:00 p.m., New York City
time, on the expiration date of the exchange offer.
ACCEPTANCE OF OLD NOTES
AND DELIVERY OF EXCHANGE
NOTES...................If all the conditions to the completion of this exchange
offer are satisfied, we will accept any and all old
notes that are properly tendered in this exchange offer
and not properly withdrawn on or before 5:00 p.m., New
York City time, on the expiration date. We will return
any old note that we do not accept for exchange to its
registered holder at our expense as promptly as
practicable after the expiration date. We will deliver
the exchange notes to the registered holders of old
notes accepted for exchange as promptly as practicable
after the expiration date and acceptance of such old
notes. Please refer to the section in this prospectus
entitled "The exchange offer--Acceptance of old notes
for exchange; Delivery of exchange notes."
12
EFFECT ON HOLDER OF OLD
NOTES...................As a result of making, and upon acceptance for exchange
of all validly tendered old notes pursuant to the terms
of, the exchange offer described in this prospectus, we
will have fulfilled a covenant contained in the
registration rights agreement. If you are a holder of
old notes and do not tender your old notes in the
exchange offer, you will continue to hold your old notes
and you will be entitled to all the rights and
limitations applicable to the old notes in the
indenture, except for any rights under the registration
rights agreement that by their terms terminate upon the
consummation of the exchange offer.
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE
OLD NOTES...............Each exchange note will bear interest from January 15,
2004, the most recent interest payment date of the old
notes. The holders of old notes that are accepted for
exchange will be deemed to have waived the right to
receive payment of accrued interest on those old notes
from January 15, 2004 to the date of issuance of the
exchange notes. Interest on the old notes accepted for
exchange will cease to accrue upon issuance of the
exchange notes.
Consequently, if you exchange your old notes for
exchange notes, you will receive the same interest
payment on July 15, 2004, which is the next interest
payment date with respect to the old notes and the first
interest payment date with respect to the exchange
notes, that you would have received if you had not
accepted this exchange offer.
CONSEQUENCES OF FAILURE
TO EXCHANGE.............All untendered old notes will continue to be subject to
the restrictions on transfer provided for in the old
notes and in the indenture. In general, the old notes
may not be offered or sold unless registered under the
Securities Act, except pursuant to an exemption from, or
in a transaction not subject to, the Securities Act and
applicable state or local securities laws. Other than in
connection with the exchange offer, we do not currently
anticipate that we will register the old notes under the
Securities Act. The trading market for your old notes
will become more limited to the extent that other
holders of old notes participate in the exchange offer.
U.S. FEDERAL INCOME TAX
CONSIDERATIONS..........The exchange of old notes for exchange notes in the
exchange offer should not be a taxable event for U.S.
federal income tax purposes. See "Certain U.S. federal
income tax considerations."
EXCHANGE AGENT..........Wachovia Bank, National Association is the exchange
agent for the exchange offer. The address and telephone
number of the exchange agent are set forth in the
section captioned "The exchange offer--Exchange agent."
13
SHELF REGISTRATION
STATEMENT...............We have agreed to register the old notes in a shelf
registration statement and use our best efforts to cause
the shelf registration statement to be declared
effective by the Commission if:
- we determine that any changes in law or of the
applicable interpretations of the staff of the
Commission do not permit us to effect this exchange
offer or may prevent us from completing the exchange
offer as soon as practicable;
- we do not complete the exchange offer on or before
July 9, 2004; or
- any of the initial purchasers of the old notes that
hold old notes that have the status of an unsold
allotment in an initial distribution requests us to do
so in writing on or prior to the 60th day after the
consummation of the exchange offer.
We have agreed to maintain the effectiveness of the
shelf registration statement for, in some circumstances,
up to two years from the date of the original issuance
of the old notes to cover resales of the old notes held
by the holders. See "The exchange offer--Purpose and
effect of the exchange offer."
THE EXCHANGE NOTES
The following summary contains basic information about the exchange notes and is
not intended to be complete. It may not contain all of the information that is
important to you. For a more complete description of the terms of the exchange
notes, see "Description of the notes."
ISSUER..................Tenneco Automotive Inc.
GENERAL.................The form and terms of the exchange notes are identical
in all material respects to the form and terms of the
old notes except that:
- the exchange notes will bear a "Series B" designation
to differentiate them from the old notes, which bear a
"Series A" designation;
- the exchange notes have been registered under the
Securities Act and, therefore, will not bear legends
restricting their transfer;
- the exchange notes will trade as a single class of
freely tradeable notes with our $350 million of
outstanding registered notes which are registered under
the Securities Act; and
- the holders of exchange notes will not be entitled to
rights under the registration rights agreement,
including any registration rights or rights to
additional interest.
The exchange notes will evidence the same debt as the
old notes and will be entitled to the benefits of the
indenture under which the old notes were issued.
SECURITIES OFFERED......$125 million aggregate principal amount of 10 1/4
percent Senior Secured Notes due 2013, Series B.
14
MATURITY DATE...........July 15, 2013.
INTEREST PAYMENT DATES..Semi-annually in cash in arrears on January 15th and
July 15th of each year, beginning on July 15th, 2004.
INTEREST PAYMENTS ON THE
EXCHANGE NOTES..........Holders of old notes whose old notes are accepted for
exchange in the exchange offer will be deemed to have
waived the right to receive any payment in respect of
interest on the old notes accrued from January 15, 2004
to the date of issuance of the exchange notes.
Consequently, holders who exchange their old notes for
exchange notes will receive the same interest payment on
July 15, 2004 (the next interest payment date with
respect to the old notes and the first interest payment
date with respect to the exchange notes following
consummation of the exchange offer) that they would have
received if they had not accepted the exchange offer.
GUARANTEES..............Each of our material domestic wholly-owned subsidiaries
that on the issue date guarantee our senior credit
facility, the old notes and the outstanding registered
notes will also unconditionally guarantee the exchange
notes on a senior secured basis. Subject to limited
exceptions and on identical terms to the old notes and
the outstanding registered notes, future domestic
subsidiaries will also be required to guarantee the
exchange notes in certain circumstances, including if
they also guarantee our senior credit facility.
RANKING.................The exchange notes, like the old notes and our
outstanding registered notes, will be senior secured
obligations and will rank equally in right of payment
with all of our and our subsidiary guarantors' existing
and future senior debt and will rank senior in right of
payment to all of our and our subsidiary guarantors'
existing and future subordinated debt. The exchange
notes, like the old notes and the outstanding registered
notes, will be effectively subordinated to:
- all existing and future liabilities, including trade
payables, of our foreign subsidiaries, which do not
guarantee the old notes and will not guarantee the
exchange notes or the outstanding registered notes, and
- all existing and future liabilities of our domestic
subsidiaries that do not guarantee the old notes or the
outstanding registered notes and will not guarantee the
exchange notes. (See "Description of the notes--Brief
description of the notes and guarantees--The
guarantees").
The exchange notes, like the old notes and the
outstanding registered notes, will be effectively junior
to:
- our obligations and those of the subsidiary guarantors
under our senior credit facility and any other
obligations secured by a first
15
priority lien on the collateral securing the exchange
notes and the guarantees, to the extent of the value of
the collateral does not exceed the amount of the first
priority obligations, and
- our obligations and those of the subsidiary guarantors
under our senior credit facility and any other
obligations that are secured by a lien on assets that
are not part of the collateral securing the exchange
notes and the guarantees, to the extent of the value of
those assets.
As of March 31, 2004, we had:
- $926 million of senior indebtedness, including the
$125 million of old notes, approximately $16 million of
premium on the old notes and $350 million of outstanding
registered notes, of which $399 million principal amount
of term loans was secured indebtedness effectively
senior to the exchange notes to the extent of the value
of the assets securing such indebtedness;
- $220 million of additional borrowing capacity
available under a revolving loan and letter of credit
facility pursuant to the terms of our senior credit
facility (the "revolving credit facility"), which if
drawn would have been secured indebtedness effectively
senior to the exchange notes as described above;
- $117 million of available capacity under a $180
million tranche B letter of credit, revolving loan
facility, and obligations relating to $63 million of
issued letters of credit were outstanding under that
facility, which letters of credit and revolving loans if
incurred thereunder would have been secured indebtedness
effectively senior to the exchange notes as described
above; and
- $500 million principal amount of subordinated
indebtedness, consisting of our outstanding 11 5/8
percent senior subordinated notes due 2009 which are
guaranteed on a senior subordinated basis by the
subsidiary guarantors of the exchange notes offered for
exchange hereby.
As of March 31, 2004, our non-guarantor subsidiaries had
$860 million of liabilities on their balance sheets. See
"Description of other indebtedness and obligations."
COLLATERAL..............The exchange notes, like our previously issued $350
million of outstanding registered notes and the old
notes, and the guarantees will be secured by a second
priority lien on the following assets:
- substantially all existing and future property and
assets owned by us and our subsidiary guarantors, except
as described below, that secure obligations under our
senior credit facility; and
- capital stock and other securities of existing and
future domestic subsidiaries directly owned by us and
our subsidiary guarantors but, in each case, only to the
extent that the aggregate principal amount, par value,
book value as carried by us or the market value
16
(whichever is greatest), of any such capital stock and
other securities of any such subsidiary is not equal to
or greater than 20 percent of the aggregate principal
amount of notes outstanding.
The collateral will not include:
(i) the capital stock or other securities of any
existing or future foreign subsidiary owned by us or the
subsidiary guarantors;
(ii) any property or assets owned by any of our or the
subsidiary guarantors' existing or future foreign
subsidiaries;
(iii) the capital stock and other securities of our and
our subsidiary guarantors' existing and future direct
domestic subsidiaries to the extent their value exceeds
the amount described above; and
(iv) any property in which a lien may not be granted,
whether because we are unable to obtain necessary third
party consents or otherwise (collectively, sometimes
referred to in this prospectus as the "excluded
collateral"). (See "Description of the
notes--Collateral.")
Our and our subsidiary guarantors' obligations under our
senior credit facility are secured by a first priority
lien on the collateral securing the outstanding
registered notes, the old notes and exchange notes, as
well as a substantial amount of the excluded collateral
described in clauses (i) and (iii) above. As a result,
the exchange notes and guarantees, like the old notes
and the outstanding registered notes, will be
effectively subordinated to these obligations under our
senior credit facility and any other obligations secured
by a first priority lien to the extent the value of such
pledged assets is less than or equal to the amount of
such obligations. In addition, the indenture governing
the notes allows a significant amount of indebtedness
and other obligations to be secured by a lien on the
collateral securing the notes on a first priority basis,
and a significant amount of indebtedness secured by a
lien on such collateral on an equal and ratable basis,
provided that, in each case, such indebtedness or other
obligations are otherwise permitted under the indenture.
No appraisals of any collateral have been prepared in
connection with the offering of the old notes, the
offering of the outstanding registered notes or this
exchange offer. The value of the collateral at any time
will depend on market and other economic conditions,
including the availability of suitable buyers for the
collateral. In the event of a foreclosure, liquidation,
bankruptcy or similar proceeding of us or any of our
subsidiary guarantors, no assurance can be given that
the proceeds from any sale or liquidation of the
collateral will be sufficient to pay any of our
obligations under the exchange notes or any of the
guarantees thereof, in full or at all, after first
satisfying our obligations and those of the guarantors
in full under our senior credit facility and any other
obligations secured by a first priority lien on the
collateral.
17
Any proceeds received by the trustee on behalf of the
holders of the exchange notes from the sale of the
collateral securing the exchange notes and the
guarantees prior to the payment in full of our and such
guarantors' obligations secured by the first priority
liens must be delivered to the holders of those
obligations.
The security documents governing the collateral for the
exchange notes, the outstanding registered notes and old
notes provide that the first priority lien holders will
control, at all times prior to the payment in full of
the obligations secured by the first priority liens, all
remedies and other actions related to the collateral.
The second-priority liens will not entitle the trustee
or the holders of any notes, or any of the guarantees
thereof, to take any action whatsoever with respect to
the collateral prior to such time. As a result, neither
the trustee nor the holders of the exchange notes, old
notes, the outstanding registered notes or the
guarantees will be able to force a sale of the
collateral or otherwise exercise remedies normally
available to secured creditors without the concurrence
of the lenders under our senior credit facility and
other holders of first priority liens. To the extent
that the lenders and other first priority lien holders
release their liens on all or any portion of the
collateral securing the exchange notes and the
guarantees thereof, the second priority lien on such
collateral which secure the exchange notes and the
guarantees will likewise be automatically released in
most cases; provided, that, after giving effect to the
release, obligations secured by the first priority liens
on the remaining collateral remain outstanding. In
addition, the documents governing the noteholders'
rights in the collateral generally provide that, so long
as the senior credit facility is in effect, if the first
priority lien holders waive, amend, modify or vary the
first priority lien documents, the comparable second
priority lien documents will also automatically be so
waived, amended, modified or varied without the consent
of the trustee or the holders of the outstanding
registered notes, the old notes, the exchange notes or
the guarantees, unless such change, waiver or
modification materially adversely affects the rights of
the holders of the notes and the guarantees and not the
first priority lien holders in a like or similar manner.
See "Description of the notes--Collateral."
OPTIONAL REDEMPTION.....We may redeem some or all of the exchange notes at any
time on or after July 15, 2008. We also may redeem up to
35 percent of the aggregate principal amount of the
exchange notes using the proceeds of specified equity
offerings completed before July 15, 2006. The redemption
prices are described under "Description of the notes--
Redemption."
CHANGE OF CONTROL AND
ASSET SALES.............If we experience specific kinds of changes of control or
we sell assets under specified circumstances, we will be
required to make an offer
18
to repurchase the notes at the prices listed in
"Description of the notes--Change of control."
RESTRICTIVE COVENANTS...We will issue the exchange notes under the same
indenture, dated June 19, 2003, as amended and
supplemented, that governs the old notes and the
outstanding registered notes with Wachovia Bank,
National Association, as trustee. The indenture, among
other things, restricts our ability and the ability of
our restricted subsidiaries to:
- incur additional indebtedness or contingent
obligations;
- pay dividends or make distributions to our
stockholders;
- repurchase or redeem equity interests;
- make investments;
- grant liens;
- make capital expenditures;
- enter into transactions with our shareholders or
affiliates;
- sell assets; and
- acquire the assets of, or merge or consolidate with
other companies.
These covenants are subject to important exceptions and
qualifications which are described in "Description of
the notes."
USE OF PROCEEDS.........We will not receive any cash proceeds from the issuance
of the exchange notes offered in this exchange offer.
RISK FACTORS
Investing in the exchange notes and participating in this exchange offer involve
substantial risks. See "Risk factors" beginning on page 24 for a discussion of
some of the risks relating to us, our business, this exchange offer and an
investment in the exchange notes that you should carefully consider before
participating in the exchange offer.
19
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following summary historical consolidated financial data as of and for the
years ended December 31, 2002 and 2003 were derived from the audited financial
statements of Tenneco Automotive Inc. and its consolidated subsidiaries. See the
section of this prospectus entitled "Experts." The following summary historical
consolidated financial data as of and for the year ended December 31, 2001 was
derived from the audited financial statements of Tenneco Automotive Inc. and its
consolidated subsidiaries which have been audited by Arthur Andersen LLP,
independent auditors. The following summary historical consolidated financial
data as of and for each of the three months ended March 31, 2003 and 2004 were
derived from our unaudited condensed financial statements. In our opinion, the
summary historical consolidated financial data as of and for the three months
ended March 31, 2003 and 2004 include all adjusting entries, consisting only of
normal recurring adjustments, necessary to present fairly the information set
forth therein. You should not regard the results of operations for the three
months ended March 31, 2004 as indicative of the results that may be expected
for the entire fiscal year.
Our consolidated financial statements for the year ended December 31, 2001 and
for earlier years were audited by Arthur Andersen LLP. Because Arthur Andersen
LLP has ceased accounting and auditing operations, we are unable to obtain
written consent of Arthur Andersen LLP to incorporate their report in this
prospectus. See "Risk factors -- Risks relating to our prior auditors" for
further information.
The following information should be read in conjunction with "Use of proceeds,"
"Capitalization," "Selected historical consolidated financial data" and our
historical consolidated financial statements and the related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in our Annual Report on Form 10-K for the period ended
December 31, 2003, and our Quarterly Report on Form 10-Q for the three months
ended March 31, 2004, which are incorporated by reference herein.
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------
THREE MONTHS TWELVE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31, ENDED
-------------------------- ---------------- MARCH 31,
(DOLLARS IN MILLIONS) 2001 2002 2003 2003 2004 2004(2)
- ------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME DATA:
Net sales and operating
revenues.................... $3,364 $3,459 $3,766 $ 921 $1,034 $3,879
------ ------ ------ ------ ------ ------
Cost of sales (exclusive of
depreciation shown below)... 2,699 2,735 2,994 743 830 3,081
Engineering, research, and
development................. 67 67 67 19 17 65
Selling, general, and
administrative.............. 353 351 364 88 109 385
Depreciation and amortization
of other intangibles........ 137 144 163 39 45 169
Amortization of goodwill....... 16 - - - - -
Other (income) expense, net.... - (7) 2 1 - 1
------ ------ ------ ------ ------ ------
3,272 3,290 3,590 890 1,001 3,701
</Table>
20
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------
THREE MONTHS TWELVE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31, ENDED
-------------------------- ---------------- MARCH 31,
(DOLLARS IN MILLIONS) 2001 2002 2003 2003 2004 2004(2)
- ------------------------------------------------------------------------------------------------
Income before interest expense,
income taxes, and minority
interest.................... 92 169 176 31 33 178
Interest expense (net of
interest capitalized)....... 170 141 149 31 35 153
Income tax expense (benefit)... 51 (7) (6) (2) (1) (5)
Minority interest.............. 1 4 6 1 1 6
------ ------ ------ ------ ------ ------
Income (loss) before cumulative
effect of change in
accounting principle........ (130) 31 27 1 (2) 24
Cumulative effect of change in
accounting principle, net of
income tax(1)............... - (218) - - - -
------ ------ ------ ------ ------ ------
Net income (loss).............. $ (130) $ (187) $ 27 $ 1 $ (2) $ 24
====== ====== ====== ====== ====== ======
BALANCE SHEET DATA:
Total assets................... $2,681 $2,504 $2,795 $2,582 $2,912 $2,912
Short-term debt................ 191 228 20 250 18 18
Long-term debt................. 1,324 1,217 1,410 1,193 1,408 1,408
Minority interest.............. 15 19 23 18 21 21
Shareholders' equity........... 74 (94) 58 (66) 53 53
STATEMENT OF CASH FLOWS DATA:
Net cash provided (used) by
operating activities........ $ 141 $ 188 $ 281 $ 36 $ 13 $ 258
Net cash (used) by investing
activities.................. (126) (107) (127) (26) (15) (116)
Net cash provided (used) by
financing activities........ 3 (73) (49) (3) - (46)
Cash flow(3)................... 209 253 315 41 38 312
Capital expenditures........... 127 138 130 26 25 129
OTHER FINANCIAL DATA:
EBITDA(4)...................... $ 245 $ 313 $ 339 $ 70 $ 78 $ 347
Ratio of EBITDA to interest
expense(5).................. 1.44 2.22 2.28 2.26 2.23 2.27
Ratio of total debt to
EBITDA(6)(9)................ 6.18 4.62 4.22 NM NM 4.11
Ratio of earnings to fixed
charges(7).................. .56 1.17 1.16 1.03 0.95 1.14
Working capital as a percent of
sales(8)(9)................. 6.0% 3.6% 2.3% NM NM 2.4%
- ------------------------------------------------------------------------------------------------
</Table>
(1) In 2002, we adopted Statement of Financial Accounting Standards ("SFAS") No.
142, which changed the accounting for purchased goodwill from an amortization
method to an impairment-only approach. For more information about this change
you should read Note 3 to our consolidated financial statements included in our
Annual Report on Form 10-K for the year ended December 31, 2003, incorporated by
reference herein.
(2) This presentation of our results for the twelve months ended March 31, 2004,
is not a presentation in accordance with GAAP, as our fiscal year ends on
December 31. We have presented this information in order to show our performance
over the
21
last twelve months because we believe this information is important to investors
in understanding the operating trends of our business. Except for the balance
sheet data, the data in this column represent the following calculation using
the data from other columns in the table above: data from the column labeled
"Year Ended December 31, 2003" less data from the column labeled "Three Months
Ended March 31, 2003" plus data from the column labeled "Three Months Ended
March 31, 2004."
(3) The amounts included in the cash flow calculation are the sum of cash
provided before financing activities, cash paid during the year for interest and
cash paid during the year for taxes as shown in the historical statements of
cash flow. We have reported cash flow because we regularly review cash flow as a
measure of cash generated by our business to meet our debt and tax obligations.
In addition, we believe our debt holders and others analyze our cash flow for
similar purposes. We also believe that cash flow assists investors in
understanding our ability to meet our obligations. Cash flow is derived from the
statements of cash flows as follows:
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------
THREE MONTHS TWELVE
YEARS ENDED ENDED MONTHS
DECEMBER 31, MARCH 31, ENDED
---------------------- ------------- MARCH 31,
(DOLLARS IN MILLIONS) 2001 2002 2003 2003 2004 2004(2)
- ---------------------------------------------------------------------------------------------
Net cash provided (used) before
financing activities............ $ 15 $ 81 $154 $10 $(2) $142
Cash paid during the year for
interest........................ 177 145 115 20 37 132
Cash paid during the year for
taxes........................... 17 27 46 11 3 38
---- ---- ---- --- --- ----
Cash flow.......................... $209 $253 $315 $41 $38 $312
==== ==== ==== === === ====
- ---------------------------------------------------------------------------------------------
</Table>
(4) EBITDA represents income before extraordinary item, cumulative effect of
change in accounting principle, interest expense, income taxes, minority
interest and depreciation and amortization. EBITDA is not a calculation based
upon generally accepted accounting principles. The amounts included in the
EBITDA calculation, however, are derived from amounts included in the historical
statements of income data. In addition, EBITDA should not be considered as an
alternative to net income or operating income as an indicator of our operating
performance, or as an alternative to operating cash flows as a measure of
liquidity. We have reported EBITDA because we regularly review EBITDA as a
measure of our company's performance. In addition, we believe our debt holders
utilize and analyze our EBITDA for similar purposes. We also believe EBITDA
assists investors in comparing a company's performance on a consistent basis
without regard to depreciation and amortization, which can vary significantly
depending upon many factors. However, the EBITDA measure presented in this
document may not always be comparable to similarly titled measures reported by
other companies due to differences in the components of the calculation. EBITDA
is derived from the statements of income as follows:
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------
THREE MONTHS TWELVE
ENDED MONTHS
YEARS ENDED DECEMBER 31, MARCH 31, ENDED
------------------------ ------------- MARCH 31,
(DOLLARS IN MILLIONS) 2001 2002 2003 2003 2004 2004(2)
- ---------------------------------------------------------------------------------------------
Net income (loss)................ $(130) $(187) $ 27 $ 1 $(2) $ 24
Cumulative effect of change in
accounting principle, net of
income tax.................... - 218 - - - -
Minority interest................ 1 4 6 1 1 6
Income tax expense (benefit)..... 51 (7) (6) (2) (1) (5)
Interest expense (net of interest
capitalized).................. 170 141 149 31 35 153
Depreciation and amortization.... 153 144 163 39 45 169
----- ----- ---- --- --- ----
EBITDA........................... $ 245 $ 313 $339 $70 $78 $347
===== ===== ==== === === ====
- ---------------------------------------------------------------------------------------------
</Table>
(5) The senior credit facility refinancing, including the issuance of the $125
million of old notes in December 2003, together with our previous issuance of
$350 million senior secured of notes in June 2003, would have increased our
interest expense by $9 million for 2003 on a pro forma basis. The unaudited pro
forma ratio of EBITDA to interest expense, assuming we had refinanced our senior
credit facility, issued the $125 million of old notes and issued the previous
$350 million of senior secured
22
notes as of the beginning of the period would have been 2.15 for the year ended
December 31, 2003. See "Unaudited pro forma consolidated financial statement."
(6) The effect of our 2003 senior credit facility refinancing was already
reflected in our balance sheet as of March 31, 2004.
(7) For purposes of computing this ratio, earnings generally consist of income
from continuing operations before income taxes and fixed charges excluding
capitalized interest. Fixed charges consist of interest expense, the portion of
rental expense considered representative of the interest factor and capitalized
interest. See Exhibit 12 to our Annual Report on Form 10-K for the year ended
December 31, 2003, and Exhibit 12 to our Quarterly Report on Form 10-Q for the
three months ended March 31, 2004, which are incorporated herein by reference,
for the computation of the ratio of earnings to fixed charges. For the year
ended December 31, 2001, earnings were insufficient by $80 million to cover
fixed charges. For the three months ended March 31, 2004, earnings were
insufficient by $2 million to cover fixed charges.
The unaudited pro forma ratio of earnings to fixed charges, assuming we had
refinanced our senior credit facility, issued the $125 million of old notes and
issued the previous $350 million of senior secured notes as of the beginning of
the period would have been 1.13 for the year ended December 31, 2003. See
"Unaudited pro forma consolidated financial statement."
(8) For purposes of computing working capital as a percentage of sales, we
exclude cash and the current portion of long-term debt from the calculation. We
exclude these items because we manage our working capital activity through cash
and short-term debt. To include these items in the calculation would distort
actual working capital changes. Our calculation of working capital as a
percentage of sales is as follows:
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
THREE MONTHS TWELVE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31, ENDED
-------------------------- ---------------- MARCH 31,
(DOLLARS IN MILLIONS) 2001 2002 2003 2003 2004 2004(2)
- --------------------------------------------------------------------------------------------
Current assets:
Receivable--customer
notes and accounts,
net.................. $ 380 $ 394 $ 427 $ 451 $ 498 $ 498
Receivables--other...... 15 15 15 15 14 14
Inventories............. 326 352 343 373 367 367
Deferred income taxes... 66 56 63 57 63 63
Prepayments and other... 101 95 112 105 140 140
------ ------ ------ ------ ------ ------
$ 888 $ 912 $ 960 $1,001 $1,082 $1,082
Current liabilities:
Trade payables.......... $ 401 $ 505 $ 621 $ 592 $ 692 $ 692
Accrued taxes........... 35 40 19 29 25 25
Accrued interest........ 25 23 42 33 39 39
Accrued liabilities..... 148 172 162 164 205 205
Other accruals.......... 76 48 29 41 29 29
------ ------ ------ ------ ------ ------
$ 685 $ 788 $ 873 $ 859 $ 990 $ 990
Working capital (current
assets less current
liabilities)............ $ 203 $ 124 $ 87 $ 142 $ 92 $ 92
Sales...................... $3,364 $3,459 $3,766 $ 921 $1,034 $3,879
Working capital as a
percent of sales(9)..... 6.0% 3.6% 2.3% NM NM 2.4%
------ ------ ------ ------ ------ ------
- --------------------------------------------------------------------------------------------
</Table>
(9) Not meaningful ("NM") refers to financial metrics that we believe would not
provide investors with relevant information for the period presented.
23
RISK FACTORS
You should carefully consider the risks described below before participating in
this exchange offer. Additional risks and uncertainties not currently known to
us or that we currently deem to be immaterial may also materially and adversely
affect our business operations. Any of the following risks could materially
adversely affect our business, financial condition or results of operations. In
such case, you may lose all or part of your original investment. Consequently,
an investment in the notes should only be considered by persons who can assume
such risk. You are encouraged to perform your own investigation with respect to
the notes and our company. Some of the statements in this discussion of "Risk
factors" are forward looking statements. See "Forward looking statements."
RISKS RELATED TO AN INVESTMENT IN THE EXCHANGE NOTES
OUR SUBSTANTIAL DEBT COULD ADVERSELY AFFECT OUR ABILITY TO RAISE ADDITIONAL
CAPITAL TO FUND OUR OPERATIONS, LIMIT OUR ABILITY TO REACT TO CHANGES IN THE
ECONOMY OR OUR INDUSTRY AND PREVENT US FROM MAKING PAYMENTS ON THE EXCHANGE
NOTES.
We are a highly leveraged company. As of March 31, 2004, we had $1,426 million
of outstanding indebtedness. Our substantial amount of debt requires significant
interest payments. We also incur additional debt from time to time to finance
working capital, capital expenditures, investments or acquisitions, or for other
general corporate purposes.
This level of indebtedness could have important consequences for you, including
the following:
- a substantial portion of our cash flow from operations is dedicated to
the repayment of our indebtedness and would not be available for other
purposes;
- it may limit our ability to borrow money or sell stock for our working
capital, capital expenditures, debt service requirements or other
purposes;
- it may limit our flexibility in planning for, or reacting to, changes
in our operations, our business or the industry in which we compete;
- we are more highly leveraged than all of our major competitors, which
may place us at a competitive disadvantage;
- it may make us more vulnerable to downturns in our business or the
economy;
- our ability to meet the debt service requirements of our other
indebtedness could make it more difficult for us to make payments on the
notes; and
- there would be a material adverse effect on our business and financial
condition if we were unable to service our indebtedness or obtain
additional financing, as needed.
DESPITE OUR SUBSTANTIAL INDEBTEDNESS, WE MAY STILL BE ABLE TO INCUR
SIGNIFICANTLY MORE DEBT. THIS COULD INTENSIFY MANY OF THE RISKS DESCRIBED
HEREIN.
The terms of the indenture governing the exchange notes, the old notes and the
outstanding registered notes, our senior credit agreement and the agreements
governing our other indebtedness limit, but do not prohibit, us or our
subsidiaries from incurring significant additional indebtedness in the future.
As of March 31, 2004, under our senior credit facility we had $220 million of
unused revolving credit facility capacity, $117 million of unused tranche B
letter of credit/revolving loan facility capacity and $63 million of letters of
credit issued under the tranche B letter of credit/revolving loan facility, and
the covenants under our debt
24
agreements would allow us to borrow a significant amount of additional
indebtedness. The more we become leveraged, the more we, and in turn our
security holders, become exposed to many of the risks described herein.
WE ARE REQUIRED TO MAKE SUBSTANTIAL DEBT SERVICE PAYMENTS, AND WE MAY NOT BE
ABLE TO GENERATE SUFFICIENT CASH TO SERVICE ALL OF OUR INDEBTEDNESS, INCLUDING
THE EXCHANGE NOTES.
Our ability to make payments on our indebtedness, including the exchange notes,
depends on our ability to generate cash in the future. On a pro forma basis, the
net effect of our 2003 refinancing transactions, including the offering of the
old notes and our previous issuance of $350 million of senior secured notes in
June 2003, would have increased our annual interest expense by approximately $9
million for 2003. Our annual debt service obligations in 2004, assuming we incur
no further indebtedness, will consist primarily of interest and required
principal payments under our senior credit facility and the agreements governing
the debt incurred by our foreign subsidiaries, interest payments on the notes
offered for exchange hereby, the old notes and the outstanding registered notes
(taking into consideration, in each instance, the use of proceeds therefrom) and
interest payments on our 11 5/8 percent senior subordinated notes due 2009. Our
annual cash debt service payments, based on the amount of indebtedness we had
outstanding on March 31, 2004, are expected to be approximately $153 million for
2004 and $147 million for 2005. This assumes interest rates would remain at
their levels as of March 31, 2004. See "--Our variable rate indebtedness
subjects us to interest rate risk, which could cause our annual debt service
obligations to increase significantly." Accordingly, we will have to generate
significant cash flows from operations to meet our debt service requirements.
For the year ended December 31, 2003 and the three months ended March 31, 2004,
our cash flows from operating activities were $281 million and $13 million,
respectively. If we do not generate sufficient cash flow to meet our debt
service and working capital requirements, we may need to seek additional
financing or sell assets. This may make it more difficult for us to obtain
financing on terms that are acceptable to us, or at all. Without any such
financing, we could be forced to sell assets to make up for any shortfall in our
payment obligations under unfavorable circumstances.
Our senior credit agreement, the indenture governing the notes offered for
exchange hereby, the old notes and the $350 million of outstanding registered
notes, and the indenture governing our senior subordinated notes limit our
ability to sell assets and also restrict the use of proceeds from any sale.
Moreover, our senior credit facility is secured on a first priority basis by
substantially all of our and our subsidiary guarantors' tangible and intangible
domestic assets, pledges of all of the stock of our and our subsidiary
guarantors' direct domestic subsidiaries and pledges of 66 percent of the stock
of our and our subsidiary guarantors' direct foreign subsidiaries. The notes
offered hereby, the old notes and the $350 million of outstanding registered
notes are secured on a second priority basis by substantially all of our and our
subsidiary guarantors' tangible and intangible assets excluding, however, any
stock of foreign subsidiaries and a portion of the stock of domestic
subsidiaries. If necessary, we may not be able to sell assets quickly enough or
for sufficient amounts to enable us to meet our obligations, including our
obligations on the notes. Furthermore, a substantial portion of our assets are,
and may continue to be, intangible assets. Therefore, it may be difficult for us
to pay you in the event of an acceleration of the exchange notes.
25
OUR VARIABLE RATE INDEBTEDNESS SUBJECTS US TO INTEREST RATE RISK, WHICH COULD
CAUSE OUR ANNUAL DEBT SERVICE OBLIGATIONS TO INCREASE SIGNIFICANTLY.
Certain of our borrowings, including borrowings under our senior credit
facility, are at variable rates of interest and expose us to interest rate risk.
If interest rates increase, our debt service obligations on the variable rate
indebtedness would increase even though the amount borrowed remained the same,
and our net income would decrease. An increase of 1.0 percent in the interest
rates payable on our existing variable rate indebtedness would have increased
our 2003 estimated debt service requirements by approximately $6 million before
taxes on a pro forma basis after giving effect to the 2003 refinancing
transactions, including the offering of the old notes and the offering of the
previously issued $350 million of senior secured notes. In April 2004, we
entered into $150 million of fixed-to-floating interest rate swaps with two
separate financial institutions. An increase of 1.0 percent in the interest
rates payable on these swaps would increase our debt service requirements by
approximately $2 million annually before taxes. We have no interest rate hedge
agreements that would shield us from this risk. We might consider entering into
additional fixed-to-floating interest rate swaps on all or a portion of our
existing senior subordinated notes, our senior credit facility, the previously
issued senior secured notes or the notes offered hereby. Such a transaction
would initially reduce our interest expense, but may expose us to an increase in
interest rates in the future.
WE RELY ON OUR SUBSIDIARIES TO FUND OUR FINANCIAL OBLIGATIONS, INCLUDING THE
NOTES. ADDITIONALLY, NOT ALL OF OUR SUBSIDIARIES WILL GUARANTEE THE NOTES AND
ASSETS OF OUR NON-GUARANTOR SUBSIDIARIES MAY NOT BE AVAILABLE TO MAKE PAYMENTS
ON THE EXCHANGE NOTES.
Tenneco Automotive Inc., the issuer of the exchange notes, is a holding company
and relies on its subsidiaries for all funds necessary to meet its financial
obligations, including the notes. The assets of Tenneco Automotive Inc. consist
of the stock of subsidiaries and certain intellectual property. If distributions
from our subsidiaries to us were eliminated, delayed, reduced or otherwise
impaired, our ability to make payments on the exchange notes would be
substantially impaired.
Although some of our subsidiaries will guarantee the exchange notes, a
substantial number of them will not. Payments on the exchange notes, like those
on the old notes and the outstanding registered notes, will only be required to
be made by Tenneco Automotive Inc. and the subsidiary guarantors. The
non-guarantor subsidiaries consist of all of our foreign subsidiaries,
immaterial domestic subsidiaries and variable interest entities and other
finance-related subsidiaries. Because the non-guaranteeing subsidiaries may have
other creditors and are not obligated to repay and do not guarantee repayment of
the notes, you cannot rely on such subsidiaries to make any payments on the
notes directly to you or to make sufficient distributions to enable us to
satisfy our obligations to you under the exchange notes or under the old notes.
As of and for the three months ended March 31, 2004 and the year ended December
31, 2003, the non-guarantor subsidiaries represented approximately 60 percent
and 59 percent, respectively, of our consolidated assets, approximately 61
percent and 52 percent, respectively, of our consolidated net sales (excluding
intercompany sales), approximately 24 percent and 24 percent, respectively, of
our consolidated operating income and approximately 44 percent and 40 percent,
respectively, of our consolidated EBITDA (see "Selected historical consolidated
financial data"). The non-guarantor subsidiaries consist of all of our foreign
subsidiaries, immaterial domestic subsidiaries and accounts receivable entities
and other finance-related subsidiaries. To the extent we expand our
international operations, a larger percentage of our consolidated assets, net
sales and operating income may be derived from non-guarantor foreign
subsidiaries. Our ability to repatriate cash from foreign subsidiaries may be
limited. See "--Risks relating to our business--We are subject to risks related
to our international operations." We will depend in part on the non-guarantor
subsidiaries for
26
dividends and other payments to generate the funds necessary to meet our
financial obligations, including the payment of principal and interest on the
notes. Further, the earnings from, or other available assets of, these
non-guarantor subsidiaries, together with our guarantor subsidiaries, may not be
sufficient to make distributions to enable us to pay interest on the notes when
due or principal of the exchange notes, the old notes or the outstanding
registered notes at maturity.
In addition, none of the assets or property owned by our non-guarantor
subsidiaries is part of the collateral securing the notes. If any or all of our
non-guarantor subsidiaries become the subject of a bankruptcy, liquidation or
reorganization, the creditors of the subsidiary or subsidiaries, including debt
holders, must be paid in full out of the subsidiary's or subsidiaries' assets
before any monies may be distributed to us as the holder of the equity in the
subsidiary or subsidiaries. As a result, in general, the exchange notes, like
the old notes and the outstanding registered notes, have the effect of being
subordinated to existing and future third-party indebtedness and other
liabilities of those non-guarantor subsidiaries, including trade payables. As of
March 31, 2004 and December 31, 2003, our non-guarantor subsidiaries had $860
million and $800 million, respectively, of liabilities recorded on their balance
sheets. The indenture governing the notes limits, but does not prohibit, our
subsidiaries from incurring additional indebtedness.
OUR FAILURE TO COMPLY WITH THE COVENANTS CONTAINED IN THE AGREEMENT GOVERNING
OUR SENIOR CREDIT FACILITY OR OUR OTHER DEBT AGREEMENTS, INCLUDING AS A RESULT
OF EVENTS BEYOND OUR CONTROL, COULD RESULT IN AN EVENT OF DEFAULT WHICH COULD
MATERIALLY AND ADVERSELY AFFECT OUR OPERATING RESULTS AND OUR FINANCIAL
CONDITION.
Our senior credit facility requires us to maintain specified financial ratios.
In addition, our senior credit facility and our other debt instruments require
us to comply with various operational and other covenants. If there were an
event of default under any of our debt instruments that was not cured or waived,
the holders of the defaulted debt could cause all amounts outstanding with
respect to that debt to be due and payable immediately. We cannot assure you
that our assets or cash flow would be sufficient to fully repay borrowings under
our outstanding debt instruments, either upon maturity or if accelerated, upon
an event of default, or that, if we were required to repurchase the notes or any
of our other debt securities upon a change of control, we would be able to
refinance or restructure the payments on those debt securities.
For example, in each of 2000, 2001 and 2002, we were required to seek an
amendment to our senior credit facility to revise the financial ratios we are
required to maintain thereunder. We were able to obtain an amendment in each of
those years. In addition, we reset our financial ratios when we amended and
related our senior credit facility in 2003 to cover periods not addressed by
prior amendments. If, in the future, we are required to obtain similar
amendments, there can be no assurance that those amendments would be available
on commercially reasonable terms or at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" included in our Quarterly Report on Form 10-Q for the three months
ended March 31, 2004 and our Annual Report on Form 10-K for the year ended
December 31, 2003, which are incorporated herein by reference.
If, as or when required, we are unable to repay, refinance or restructure our
indebtedness under our senior credit facility, or amend the covenants contained
therein, the lenders under our senior credit facility could elect to terminate
their commitments thereunder, cease making further loans and institute
foreclosure proceedings against our assets. Under such
27
circumstances, we could be forced into bankruptcy or liquidation. See "--We may
not be able to repay, refinance or replace our senior credit facility when it
terminates or becomes due, which will occur before the maturity date of the
notes offered hereby." In that event, any proceeds received upon a realization
of the collateral would be applied first to amounts due under our senior credit
facility and the guarantees thereof and to certain other senior creditors before
any proceeds would be available to make payment on the exchange notes and the
old notes. See "--There may not be sufficient collateral to pay all or any
portion of the exchange notes." In addition, any event of default or declaration
of acceleration under one of our debt instruments could also result in an event
of default under one or more of our other financing agreements, including the
notes and the agreements under which we sell certain of our accounts receivable.
This would have a material adverse impact on our liquidity and financial
position.
WE MAY NOT BE ABLE TO REPAY, REFINANCE OR REPLACE OUR SENIOR CREDIT FACILITY
WHEN IT TERMINATES OR BECOMES DUE, WHICH WILL OCCUR BEFORE THE MATURITY DATE OF
THE EXCHANGE NOTES OFFERED FOR EXCHANGE HEREBY.
Our senior credit facility consists of a term loan B facility, a revolving
credit facility and a tranche B letter of credit/revolving loan facility. See
"Description of other indebtedness and obligations -- Senior credit facility."
At March 31, 2004, the outstanding balance under the term loan portion of our
senior credit facility was $399 million, we had $220 million of unused revolving
credit facility capacity and $117 million of unused capacity under the tranche B
letter of credit/revolving loan facility, pursuant to which letters of credit
and revolving loans may be issued and made, and we had $63 million in issued
letters of credit outstanding under the tranche B letter of credit/revolving
loan facility. Amounts borrowed under our senior credit facility will mature at
varying times from December 2008 to December 2010, which is prior to the
maturity of the old notes and the exchange notes offered for exchange hereby.
The revolving credit facility will terminate in December 2008. Although the term
loan facility and the tranche B letter of credit/revolving loan facility mature
in 2010, each is subject to mandatory prepayment in full and, in the case of
letters of credit under the tranche B letter of credit/revolving loan facility,
mandatory cash collateralization in full, (a) on April 15, 2009, if by that date
our senior subordinated notes are not refinanced or extended with a maturity not
earlier than April 15, 2011, and (b) on the date which is six months prior to
the date to which the senior subordinated notes have been refinanced or had
their maturity extended, if the senior subordinated notes have been refinanced
or had their maturity extended to a date prior to April 15, 2011.
We may not be able to (i) repay or refinance amounts due under the senior credit
facility prior to their maturity dates or the dates of mandatory prepayment and
cash collateralization, (ii) repay or replace the revolving portions of our
senior credit facility prior to their termination or (iii) refinance or extend
the maturity of our senior subordinated notes prior to the dates described
above. If we are unable to repay, refinance or restructure all or any part of
our senior credit facility, the lenders thereunder could proceed against the
collateral securing it. If we are unable to replace the revolving portions of
our senior credit facility prior to their termination or refinance or extend the
maturity of our senior subordinated notes prior to the dates described above,
our liquidity and financial flexibility would be substantially impaired.
28
WE MAY NOT BE ABLE TO REPAY OR REFINANCE OUR 11 5/8 PERCENT SENIOR SUBORDINATED
NOTES WHEN THEY BECOME DUE, WHICH WILL OCCUR BEFORE THE MATURITY DATE OF THE
EXCHANGE NOTES OFFERED FOR EXCHANGE HEREBY.
As of March 31, 2004, we had outstanding $500 million face value of our 11 5/8
percent senior subordinated notes. These senior subordinated notes mature on
October 15, 2009, which is prior to the maturity of the notes offered hereby. We
may not be able to repay or refinance the senior subordinated notes on or before
their maturity date, and as a result, under certain conditions, a mandatory
prepayment and cash collateralization event will arise under our senior credit
facility with respect to the term loan facility and the tranche B letter of
credit/revolving loan facility thereunder. The terms of the indenture governing
the notes place restrictions and limitations on our ability to refinance the
senior subordinated notes although we are, in certain cases, permitted by the
indenture to refinance the senior subordinated notes with debt that ranks equal
in right of payment to the exchange notes, the old notes and the outstanding
registered notes, including first priority secured debt, during the one year
prior to their maturity. See "Description of the notes--Certain
covenants--Limitation on Incurrence of Additional Indebtedness." We cannot
assure you, however, that any refinancing of the senior subordinated notes will
be possible on acceptable terms or at all, or that we will have sufficient funds
to repay them when due. See "Description of other indebtedness and
obligations--Senior subordinated notes."
THERE MAY NOT BE SUFFICIENT COLLATERAL TO PAY ALL OR ANY PORTION OF THE EXCHANGE
NOTES.
Indebtedness under our senior credit facility and other senior secured
indebtedness that we may incur in the future (referred to herein as the "First
Priority Claims") is and will be secured by a first priority lien on
substantially all of our and our subsidiary guarantors' tangible and intangible
assets, the pledge of the capital stock and other equity interests of all of our
and our subsidiary guarantors' direct domestic subsidiaries and the pledge of 66
percent of the stock of our and our subsidiary guarantors' direct foreign
subsidiaries. The exchange notes, like the old notes and the outstanding
registered notes, are secured by a second priority lien on only a portion of the
assets that secure the First Priority Claims including, subject to certain
exceptions:
(i) all of our and our subsidiary guarantors' tangible and intangible
assets that secure our obligations under our senior credit facility and
(ii) a portion of the capital stock of our and our subsidiary guarantors'
direct domestic subsidiaries.
In the event of a bankruptcy, liquidation, dissolution, reorganization or
similar proceeding against us or any subsidiary guarantor, the assets that are
pledged as shared collateral securing the First Priority Claims and the notes
must be used first to pay the First Priority Claims in full before making any
payments on the exchange notes, the old notes and the outstanding registered
notes.
At March 31, 2004, there was $399 million of indebtedness outstanding relating
to First Priority Claims. In addition, the indenture governing the notes allows
a significant amount of indebtedness and other obligations to be secured by a
lien on the collateral securing the notes on a first priority basis, and a
significant amount of indebtedness secured by a lien on such collateral on an
equal and ratable basis with the notes, provided that, in each case, such
indebtedness or other obligation is otherwise permitted under the indenture. As
of March 31, 2004, the terms of the indenture governing the notes offered hereby
would have permitted us
29
to incur up to a maximum of an additional $800 million of indebtedness related
to First Priority Claims. This amount includes $150 million that, under the
terms of the indenture, would be available for us to incur as First Priority
Claim indebtedness only to the extent the amount outstanding under our accounts
receivables securitization program was less than $150 million. We had $144
million of accounts receivable sold under that program at March 31, 2004. Any
additional obligations secured by a lien on the collateral securing the notes
(whether senior to or equal with the second priority lien of the notes) will
dilute the value of the collateral securing the exchange notes offered hereby,
the old notes and the outstanding registered notes.
Many of our assets, such as 66 percent of the capital stock of our foreign
subsidiaries and a portion of the capital stock of our domestic subsidiaries,
are not part of the collateral securing the exchange notes offered hereby, the
old notes and the outstanding registered notes, but do secure the First Priority
Claims. With respect to the assets that are not part of the collateral securing
the exchange notes and the old notes, the exchange notes, like the old notes,
will be effectively junior to these obligations to the extent of the value of
such assets. There is no requirement that the holders of the First Priority
Claims first look to these excluded assets before foreclosing, selling or
otherwise acting upon the collateral shared with the exchange notes, the old
notes and the outstanding registered notes.
The collateral securing the exchange notes, like the old notes and outstanding
registered notes, will be subject to any and all exceptions, defects,
encumbrances, liens and other imperfections as may be or have been accepted by
the lenders under our senior credit facility and other holders of first priority
liens on the collateral from time to time, whether existing on or after the date
the notes are issued. The initial purchasers of the old notes neither analyzed
the effect of nor participated in any negotiations relating to such exceptions,
limitations, imperfections and liens, and the existence thereof could adversely
affect the value of the collateral securing the notes as well as the ability of
the collateral agent to realize or foreclose on such collateral.
Applicable law requires that a security interest in certain tangible and
intangible assets can only be properly perfected and the priority thereof
retained through certain actions undertaken by the secured party. Portions of
the collateral comprised of, among other things, cash and cash accounts, any
parcel of real property with a value under $1 million and non-U.S. intellectual
property owned by us and our subsidiary guarantors have not been perfected with
respect to the First Priority Claims and will not be perfected with respect to
the exchange notes, the old notes and outstanding registered notes. As to the
other collateral shared by the holders of the exchange notes, old notes and
First Priority Claims, there can be no assurance that the lenders under our
senior credit facility have taken all actions necessary to create properly
perfected security interests, which may result in the loss of the security
interest or the priority of the security interest in favor of the noteholders
against third parties. To the extent that third parties, including lenders under
any credit facility, enjoy liens permitted under our senior credit facility,
such third parties will have rights and remedies with respect to the assets or
property subject to such liens that, if exercised, could adversely affect the
value of the collateral.
No appraisals of any collateral were prepared in connection with any previous
offering of notes or this exchange offer. The value of the collateral at any
time will depend on market and other economic conditions, including the
availability of suitable buyers for the collateral. By their nature, some or all
of the pledged assets may be illiquid and may have no readily
30
ascertainable market value. The value of the assets pledged as collateral for
the exchange notes, the old notes and the outstanding registered notes could be
impaired in the future as a result of changing economic conditions, our failure
to implement our business strategy, competition or other future trends. In the
event of a foreclosure, liquidation, bankruptcy or similar proceeding, no
assurance can be given that the proceeds from any sale or liquidation of the
collateral will be sufficient to pay our obligations under the notes, in full or
at all, after first satisfying our obligations in full under First Priority
Claims and any other obligations secured by a first-priority lien on the
collateral. In addition, we may not have second priority liens perfected on all
of the collateral securing the notes prior to the closing of the offering. See
"Description of the notes--Collateral."
Accordingly, there may not be sufficient collateral to pay all or any of the
amounts due on the exchange notes, the old notes or the outstanding registered
notes. Any claim for the difference between the amount, if any, realized by
holders of the outstanding registered notes, the exchange notes and the old
notes from the sale of the collateral securing the exchange notes, the old notes
and the outstanding registered notes and the obligations under the notes will
rank equally in right of payment with all of our other unsecured unsubordinated
indebtedness and other obligations, including trade payables.
HOLDERS OF EXCHANGE NOTES WILL NOT CONTROL DECISIONS REGARDING COLLATERAL.
The holders of the First Priority Claims control substantially all matters
related to the collateral securing the First Priority Claims, the outstanding
registered notes, the old notes and the exchange notes. JPMorgan Chase Bank
serves as the administrative agent under our senior credit facility and, in such
capacity, as the collateral agent under the security agreements governing our
existing First Priority Claims collateral. The holders of First Priority Claims
may cause JP Morgan Chase Bank to dispose of, release, foreclose on, or take
other actions with respect to the shared collateral with which holders of the
outstanding registered notes, the exchange notes and the old notes may disagree
or that may be contrary to the interests of holders of the outstanding
registered notes, the exchange notes and the old notes. To the extent shared
collateral is released from securing First Priority Claims, the second priority
liens securing the outstanding registered notes, the exchange notes and the old
notes will also automatically be released in most instances. In addition, the
security documents generally provide that, so long as First Priority Claims are
in effect, if the first priority lien holders waive, amend, modify or vary the
first priority lien documents, the comparable second priority lien documents
will automatically be so waived, amended, modified or varied without the consent
of the trustee or the holders of the exchange notes, the old notes and
guarantees thereof, unless such waiver, amendment, modification or variation
materially adversely affects the rights of the holders of the notes and
guarantees thereof and not the first priority lien holders in a like or similar
manner. Except under limited circumstances, if at any time first priority liens
cease to be in effect, the second priority liens securing the outstanding
registered notes, the exchange notes and the old notes will also be released and
the outstanding registered notes, the exchange notes and the old notes will
become unsecured senior obligations. There is no requirement that the holders of
First Priority Claims release or otherwise take any action with respect to
excluded collateral before releasing or otherwise taking action with respect to
the collateral shared with the notes. See "Description of the
notes--Collateral." In the event First Priority Claims cease to be in effect
with respect to shared collateral, but remain in effect with respect to excluded
collateral, the holders of First Priority Claims would remain our secured
creditors, while the noteholders would cease to be secured.
31
Furthermore, the security documents allow us and our subsidiaries to remain in
possession of, retain exclusive control over, to freely operate, and to collect,
invest and dispose of any income from, the collateral securing the notes. In
addition, to the extent we sell any assets that constitute collateral, the
proceeds from such sale will be subject to the second priority lien securing the
outstanding registered notes, the exchange notes and the old notes only to the
extent such proceeds would otherwise constitute "collateral" securing the notes
under the security documents. To the extent the proceeds from any such sale of
collateral do not constitute "collateral" under the security documents, the pool
of assets securing the exchange notes and the old notes would be reduced and the
notes would not be secured by such proceeds. For instance, if we sell any of our
domestic assets which constitute collateral securing the notes and, with the
proceeds from such sale, purchase assets in Europe which we transfer to one of
our foreign subsidiaries, the holders of the notes would not receive a security
interest in the assets purchased in Europe and transferred to our foreign
subsidiary because the pool of assets which constitutes collateral securing the
notes under the security documents excludes assets owned by our foreign
subsidiaries.
RELEASES OF THE GUARANTEES OF THE EXCHANGE NOTES OR ADDITIONAL GUARANTEES MAY BE
CONTROLLED UNDER SOME CIRCUMSTANCES BY THE COLLATERAL AGENT UNDER OUR SENIOR
CREDIT FACILITY.
The exchange notes, like the old notes and the outstanding registered notes,
will be guaranteed by each of our current and future domestic subsidiaries that
guarantees the obligations under our senior credit facility. If we create or
acquire a material domestic subsidiary in the future and the collateral agent
under our senior credit facility does not require that subsidiary to guarantee
the obligations under the senior credit facility, then the subsidiary will not
be required to guarantee the exchange notes, the old notes or the outstanding
registered notes unless it incurs indebtedness. In addition, under the terms of
the indenture, a guarantee of the outstanding registered notes, the exchange
notes or the old notes made by a guarantor will be released without any action
on the part of the trustee or any holder of the outstanding registered notes,
the exchange notes or the old notes if the collateral agent under our senior
credit facility releases the guarantee of obligations under our senior credit
facility made by that guarantor (unless the guarantor remains or becomes a
guarantor of any of our senior subordinated notes or is otherwise liable on
account of our indebtedness). Additional releases of the guarantees of the notes
are permitted under some circumstances. See "Description of the notes--Brief
description of the notes and the guarantees--The guarantees."
THE CAPITAL STOCK SECURING THE EXCHANGE NOTES WILL AUTOMATICALLY BE RELEASED
FROM THE SECOND PRIORITY LIEN AND NO LONGER BE DEEMED TO BE COLLATERAL TO THE
EXTENT THE PLEDGE OF SUCH CAPITAL STOCK WOULD REQUIRE THE FILING OF SEPARATE
FINANCIAL STATEMENTS FOR ANY OF OUR SUBSIDIARIES WITH THE COMMISSION.
The indenture governing the outstanding registered notes, the exchange notes and
the old notes and the security documents provides that, to the extent that any
rule is adopted, amended or interpreted which would require the filing with the
Commission (or any other governmental agency) of separate financial statements
of any of our subsidiaries due to the fact that such subsidiary's capital stock
or other securities secure the notes, then such capital stock and other
securities will automatically be deemed not to be part of the collateral
securing the outstanding registered notes, the exchange notes and the old notes
to the extent necessary to not be subject to such requirement. In such event,
the security documents will be amended, without the consent of any holder of the
outstanding registered notes, the
32
exchange notes or the old notes, to the extent necessary to release the second
priority liens on such capital stock and securities. As a result, holders of the
exchange notes and the old notes could lose all or a portion of their security
interest in the capital stock and other securities if any such rule comes into
effect.
BECAUSE THE LIABILITY OF EACH OF OUR SUBSIDIARY GUARANTORS UNDER ITS GUARANTEE
MAY BE REDUCED TO ZERO, AVOIDED OR RELEASED UNDER CERTAIN CIRCUMSTANCES, YOU MAY
NOT RECEIVE ANY PAYMENTS FROM SOME OR ALL OF THE GUARANTORS.
The holders of the exchange notes, like holders of the old notes and outstanding
registered notes, have the benefit of guarantees from our subsidiary guarantors.
However, the guarantees from our subsidiary guarantors are limited to the
maximum amount which the subsidiary guarantors are permitted to guarantee under
applicable law. As a result, each subsidiary guarantor's liability under its
guarantee could be reduced to zero, depending upon the amount of other
obligations of the subsidiary guarantor or based on other defenses available to
guarantors. Further, under the circumstances discussed more fully below, a court
under federal or state fraudulent conveyance and transfer statutes could void
the obligations under the guarantee or further subordinate it to all other
obligations of the subsidiary guarantor. In addition, you will lose the benefit
of a particular subsidiary guarantee if it is released under certain
circumstances described under "Description of the notes--Brief description of
the notes and the guarantees--The guarantees." If any subsidiary guarantor's
liability under the guarantee is reduced to zero or released, the assets of such
subsidiary will no longer be available as collateral securing the outstanding
registered notes, the exchange notes or the old notes.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
THE SUBSIDIARY GUARANTEES AND THE LIENS SECURING THE GUARANTEES AND REQUIRE
NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM US OR THE SUBSIDIARY GUARANTORS. IF
THAT OCCURS, YOU MAY NOT RECEIVE ANY PAYMENTS ON THE EXCHANGE NOTES.
Our issuance of the outstanding registered notes, the old notes and the exchange
notes, the issuance of the guarantees by the subsidiary guarantors and the grant
of the second priority liens may be subject to review under federal and state
fraudulent transfer and conveyance statutes. While the relevant laws may vary
from state to state, under such laws the payment of consideration will be a
fraudulent conveyance if (i) we paid the consideration with the intent of
hindering, delaying or defrauding creditors or (ii) we or any of the subsidiary
guarantors, as applicable, received less than reasonably equivalent value or
fair consideration in return for issuing any of the outstanding registered
notes, the old notes, the exchange notes or a guarantee, and, in the case of
(ii) only, one of the following is true:
- we or any of the subsidiary guarantors were or was insolvent, or
rendered insolvent, by reason of such transactions;
- paying the consideration left us or any of the subsidiary guarantors
with an unreasonably small amount of capital to carry on the business; or
- we or any of the subsidiary guarantors intended to, or believed that we
or it would, be unable to pay debts as they matured.
If a court were to find that the issuance of the outstanding registered notes,
the old notes, the exchange notes, a guarantee or a second priority lien was a
fraudulent conveyance, the court could avoid the payment obligations under such
notes, such guarantee or such second priority lien or subordinate such notes,
such guarantee or such second priority lien to presently existing
33
and future indebtedness of us or of a guarantor, or require the holders of such
notes to repay any amounts received with respect to such notes or such
guarantee. In the event of a finding that a fraudulent conveyance occurred, you,
the holders of the old notes and the outstanding registered notes may not
receive any repayment on the notes.
Generally, an entity would be considered insolvent if, at the time it incurred
indebtedness:
- the sum of its liabilities (contingent or otherwise) was greater than
the fair value of all its assets;
- the present fair saleable value of its assets is less than the amount
required to pay the probable liability on its existing debts and
liabilities as they become due;
- it cannot pay its debts as they become due; or
- it had at such time an unreasonably small amount of capital with which
to conduct its business.
RIGHTS OF HOLDERS OF EXCHANGE NOTES IN THE COLLATERAL MAY BE ADVERSELY AFFECTED
BY BANKRUPTCY PROCEEDINGS.
The right of the collateral agent for the exchange notes, the old notes and the
outstanding registered notes to repossess and dispose of the collateral securing
the exchange notes, the old notes and the outstanding registered notes upon
acceleration is likely to be significantly impaired by federal bankruptcy law if
bankruptcy proceedings are commenced by or against us prior to or possibly even
after the collateral agent has repossessed and disposed of the collateral. Under
the U.S. Bankruptcy Code, a secured creditor, such as the collateral agent for
the notes, is prohibited from repossessing its security from a debtor in a
bankruptcy case, or from disposing of security repossessed from a debtor,
without bankruptcy court approval. Moreover, bankruptcy law permits the debtor
to continue to retain and to use collateral, and the proceeds, products, rents,
or profits of the collateral, even though the debtor is in default under the
applicable debt instruments, provided that the secured creditor is given
"adequate protection." The meaning of the term "adequate protection" may vary
according to circumstances, but it is intended in general to protect the value
of the secured creditor's interest in the collateral and may include cash
payments or the granting of additional security, if and at such time as the
court in its discretion determines, for any diminution in the value of the
collateral as a result of the stay of repossession or disposition or any use of
the collateral by the debtor during the pendency of the bankruptcy case. In view
of the broad discretionary powers of a bankruptcy court, it is impossible to
predict how long payments under the notes could be delayed following
commencement of a bankruptcy case, whether or when the collateral agent would
repossess or dispose of the collateral, or whether or to what extent holders of
the exchange notes, the old notes and the outstanding registered notes would be
compensated for any delay in payment of loss of value of the collateral through
the requirements of "adequate protection." Furthermore, in the event the
bankruptcy court determines that the value of the collateral is not sufficient
to repay all amounts due on the notes, the holders of the notes would have
"undersecured claims" as to the difference. Federal bankruptcy laws do not
permit the payment or accrual of interest, costs, and attorneys' fees for
"undersecured claims" during the debtor's bankruptcy case.
RIGHTS OF HOLDERS OF EXCHANGE NOTES IN THE COLLATERAL MAY BE ADVERSELY AFFECTED
BY THE FAILURE TO PERFECT SECURITY INTERESTS IN CERTAIN COLLATERAL ACQUIRED IN
THE FUTURE.
The security interest in the collateral securing the exchange notes and the old
notes includes assets of us and our subsidiary guarantors, both tangible and
intangible, whether now owed or
34
acquired or arising in the future. Applicable law requires that certain property
and rights acquired after the grant of a general security interest can only be
perfected at the time such property and rights are acquired and identified.
There can be no assurance that the trustee or the collateral agent will monitor,
or that we will inform the trustee or the collateral agent of, the future
acquisition of property and rights that constitute collateral, and that the
necessary action will be taken to properly perfect the security interest in such
after acquired collateral. The collateral agent for the notes has no obligation
to monitor the acquisition of additional property or rights that constitute
collateral or the perfection of any security interests therein. Such failure may
result in the loss of the security interest therein or the priority of the
security interest in favor of the exchange notes, like those in favor of the old
notes and the outstanding registered notes, against third parties.
RESTRICTIVE COVENANTS IN OUR SENIOR CREDIT AGREEMENT, THE INDENTURE GOVERNING
OUR OUTSTANDING SENIOR SUBORDINATED NOTES AND THE INDENTURE GOVERNING THE
EXCHANGE NOTES, THE OLD NOTES AND THE OUTSTANDING REGISTERED NOTES MAY PREVENT
US FROM PURSUING BUSINESS STRATEGIES THAT COULD OTHERWISE IMPROVE OUR RESULTS OF
OPERATIONS.
The indenture governing the exchange notes, the old notes and the outstanding
registered notes and the indentures governing our other outstanding debt
securities and our senior credit agreement limit our ability, among other
things, to:
- incur additional indebtedness or contingent obligations;
- pay dividends or make distributions to our shareholders;
- repurchase or redeem our equity interests;
- make investments;
- grant liens;
- make capital expenditures;
- enter into transactions with our shareholders and affiliates;
- sell assets; and
- acquire the assets of, or merge or consolidate with, other companies.
In addition, our senior credit facility requires us to maintain a maximum
adjusted leverage ratio of consolidated debt to consolidated EBITDA, a minimum
adjusted interest coverage ratio of consolidated EBITDA to consolidated cash
interest paid and a minimum adjusted fixed charge coverage ratio of consolidated
EBITDA less consolidated capital expenditures to consolidated cash interest paid
(each as defined in the senior credit agreement). Complying with these
restrictive covenants and financial ratios may impair our ability to finance our
future operations or capital needs or to engage in other favorable business
activities.
WE MAY NOT HAVE SUFFICIENT FUNDS OR BE PERMITTED BY OUR SENIOR DEBT TO PURCHASE
THE EXCHANGE NOTES UPON A CHANGE OF CONTROL.
Upon a change of control, we will be required to make an offer to purchase all
outstanding exchange notes, old notes and outstanding registered notes. However,
we cannot assure you that we will have or will be able to borrow sufficient
funds at the time of any change of control to make any required repurchases of
notes, or that restrictions in our senior credit facility or other debt we may
incur in the future would permit us to make the required
35
repurchases. For the foreseeable future, our senior credit facility will not
permit us to make the required repurchases. Our failure to purchase, or give
notice of purchase of, the notes would be a default under the indenture, which
would in turn be a default under our senior credit facility. In addition, a
change of control may be an event of default under our senior credit facility
and would require us to make an offer to purchase the notes at 101 percent of
the principal amount thereof. Subject to limited exceptions, our senior credit
facility prohibits the purchase of outstanding notes prior to repayment of the
borrowings under our senior credit facility and any exercise by the holders of
the notes of their right to require us to repurchase the notes will cause an
event of default under our senior credit facility.
YOUR ABILITY TO TRANSFER OR RESELL THE EXCHANGE NOTES OFFERED FOR EXCHANGE
HEREBY MAY BE LIMITED BY THE ABSENCE OF AN ACTIVE TRADING MARKET, AND THERE IS
NO ASSURANCE THAT ANY ACTIVE TRADING MARKET WILL DEVELOP FOR THE NOTES.
Although our $350 million of outstanding registered notes have been registered
under the Securities Act and are generally freely tradeable, we have not listed
the outstanding registered notes on a national securities exchange, and we do
not intend to have the exchange notes or the outstanding registered notes listed
on a national securities exchange. Therefore, we cannot assure you that an
active market for the exchange notes is available, will develop or, if
developed, that a market will continue. Historically, the market for
noninvestment grade debt has been subject to disruptions that have caused
substantial volatility in the prices of securities similar to the exchange
notes. We cannot assure you that the market, if any, for the exchange notes will
be free from similar disruptions or that any such disruptions may not adversely
affect the prices at which you may sell your notes. In addition, subsequent to
their initial issuance, the exchange notes may trade at a discount from their
initial offering price, depending upon prevailing interest rates, the market for
similar notes, our performance and other factors.
IF YOU DO NOT PROPERLY TENDER YOUR OLD NOTES, YOU WILL CONTINUE TO HOLD
UNREGISTERED OLD NOTES AND BE SUBJECT TO THE SAME LIMITATIONS AS PRESENTLY EXIST
ON YOUR ABILITY TO TRANSFER OLD NOTES.
We will only issue exchange notes in exchange for old notes that are timely
received by the exchange agent together with all required documents, including a
properly completed and signed letter of transmittal or proper compliance with
DTC's Automated Tender Offer Program. Therefore, you should allow sufficient
time to ensure timely delivery of the old notes and you should carefully follow
the instructions on how to tender your old notes. Neither we nor the exchange
agent are required to tell you of any defects or irregularities with respect to
your tender of the old notes. If you are eligible to participate in the exchange
offer and do not tender your old notes or if we do not accept your old notes
because you did not tender your old notes properly, then, after we consummate
the exchange offer, you will continue to hold old notes that are subject to the
existing transfer restrictions and will no longer have any registration rights
or be entitled to any additional interest with respect to the old notes.
In addition:
- if you tender your old notes for the purpose of participating in a
distribution of the exchange notes, you will be required to comply with
the registration and prospectus delivery requirements of the Securities
Act in connection with any resale of the exchange notes; and
- if you are a participating broker-dealer that receives exchange notes
for your own account in exchange for old notes that you acquired as a
result of market-making
36
activities or any other trading activities, you will be required to
acknowledge that you will deliver a prospectus in connection with any
resale of those exchange notes.
We have agreed that, for a period of 180 days after the exchange offer is
consummated, we will make this prospectus available to any participating
broker-dealer for use in connection with any resales of the exchange notes. We
do not and will not assume, or indemnify you against, any of your liabilities or
obligations in connection with any resale of the exchange notes.
After the exchange offer is consummated, if you continue to hold any old notes,
you may have difficulty selling them because there will be fewer old notes
outstanding.
RISKS RELATING TO OUR BUSINESS
CHANGES IN CONSUMER DEMAND AND PRICES COULD MATERIALLY AND ADVERSELY IMPACT OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Demand for and pricing of our products are subject to economic conditions and
other factors present in the various domestic and international markets where
our products are sold. Demand for our OE products is subject to the level of
consumer demand for new vehicles that are equipped with our parts. The level of
new car purchases is cyclical, affected by such factors as interest rates,
gasoline prices, consumer confidence, patterns of consumer spending and the
automobile replacement cycle. Demand for our aftermarket, or replacement,
products varies based upon such factors as the level of new vehicle purchases,
which initially displaces demand for aftermarket products, the severity of
winter weather, which increases the demand for certain aftermarket products, and
other factors, including the average useful life of parts and number of miles
driven. For example, weakened economic conditions in the United States over the
last several years resulted in substantially all the customers of our North
American operations slowing new vehicle production in 2001, 2002 and 2003
compared to 1999 and 2000. Further decreases in demand for automobiles and
automotive products generally, or in the demand for our products in particular,
could materially and adversely impact our financial condition and results of
operations.
WE MAY BE UNABLE TO REALIZE SALES REPRESENTED BY OUR AWARDED BUSINESS, WHICH
COULD MATERIALLY AND ADVERSELY IMPACT OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The realization of future sales from awarded business is inherently subject to a
number of important risks and uncertainties, including the number of vehicles
that our OE customers will actually produce, the timing of that production and
the mix of options that our OE customers and consumers may choose. For example,
substantially all of our North American vehicle manufacturer customers slowed
new light vehicle production in 2001 and 2003, with a slight increase in 2002.
These production rates for the first quarter of 2004 were down approximately one
percent from the same period last year, and we remain cautious regarding
production volumes for the remainder of 2004. Given current economic conditions,
we expect the North American light vehicle build to be approximately 16 million
units in 2004, which is a slight increase from 2003 levels. We also expect the
European light vehicle production to remain flat with 2003 levels. In addition,
our customers generally have the right to replace us with another supplier at
any time for a variety of reasons and have increasingly demanded price decreases
over the life of awarded business. Accordingly, we cannot assure you that we
will in fact realize any or all of the future sales represented by our awarded
business. Any failure to
37
realize these sales could have a material adverse effect on our financial
condition and results of operations.
In many cases, we must commit substantial resources in preparation for
production under awarded OE business well in advance of the customer's
production start date. In some instances, the terms of our OE customer
arrangements permit us to recover these pre-production costs if the customer
cancels the business through no fault of our company. Although we have been
successful in recovering these costs under appropriate circumstances in the
past, we can give no assurance that our results of operations will not be
materially impacted in the future if we are unable to recover these types of
pre-production costs related to OE cancellation of awarded business. See Note 11
to our consolidated financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Environmental and
Other Matters" included in our Annual Report on Form 10-K for the year ended
December 31, 2003 and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Environmental and Other Matters" included
in our Quarterly Report on Form 10-Q for the three months ended March 31, 2004,
which are incorporated by reference herein, for a discussion of recent cost
recovery discussions with one of our OE customers.
WE MAY BE UNABLE TO COMPETE FAVORABLY IN THE HIGHLY COMPETITIVE AUTOMOTIVE PARTS
INDUSTRY.
The automotive parts industry is highly competitive. Although the overall number
of competitors has decreased due to ongoing industry consolidation, we face
significant competition within each of our major product areas. The principal
competitive factors are price, quality, service, product performance, design and
engineering capabilities, new product innovation, global presence and timely
delivery. We cannot assure you that we will be able to continue to compete
favorably in this competitive market or that increased competition will not have
a material adverse effect on our business by reducing our ability to increase or
maintain sales or profit margins.
WE MAY NOT BE ABLE TO SUCCESSFULLY RESPOND TO THE CHANGING DISTRIBUTION CHANNELS
FOR AFTERMARKET PRODUCTS.
Major automotive aftermarket retailers, such as AutoZone and Advance Auto Parts,
are attempting to increase their commercial sales by selling directly to
automotive parts installers in addition to individual consumers. These
installers have historically purchased from their local warehouse distributors
and jobbers, who are our more traditional customers. We cannot assure you that
we will be able to maintain or increase aftermarket sales through increasing our
sales to retailers. Furthermore, because of the cost focus of major retailers,
we have occasionally been required to offer price concessions to them. Our
failure to maintain or increase aftermarket sales, or to offset the impact of
any reduced sales or pricing through cost improvements, could have an adverse
impact on our business and operating results.
WE MAY BE UNABLE TO REALIZE OUR BUSINESS STRATEGY OF IMPROVING OPERATING
PERFORMANCE AND GENERATING SAVINGS AND IMPROVEMENTS TO HELP OFFSET PRICING
PRESSURES FROM OUR CUSTOMERS.
We have either implemented or plan to implement strategic initiatives designed
to improve our operating performance. The failure to achieve the goals of these
initiatives could have a material adverse effect on our business, particularly
since we rely on these initiatives to offset pricing pressures from our
customers, as described above. See "--Changes in consumer demand could
materially and adversely impact our financial condition and results of
operations" and
38
"--We may be unable to realize sales represented by our awarded business, which
could materially and adversely impact our financial condition or a result of
operations." We cannot assure you that we will be able to successfully implement
or realize the expected benefits of any of these initiatives or that we will be
able to sustain improvements made to date.
THE CYCLICALITY OF AUTOMOTIVE PRODUCTION AND SALES COULD CAUSE A DECLINE IN OUR
FINANCIAL CONDITION AND RESULTS.
A decline in automotive sales and production would likely cause a decline in our
sales to vehicle manufacturers, and could result in a decline in our results of
operations and financial condition. The automotive industry has been
characterized historically by periodic fluctuations in overall demand for
vehicles due to, among other things, changes in general economic conditions and
consumer preferences. These fluctuations generally result in corresponding
fluctuations in demand for our products. The highly cyclical nature of the
automotive industry presents a risk that is outside our control and that cannot
be accurately predicted.
LONGER PRODUCT LIVES OF AUTOMOTIVE PARTS ARE ADVERSELY AFFECTING AFTERMARKET
DEMAND FOR SOME OF OUR PRODUCTS.
The average useful life of automotive parts has steadily increased in recent
years due to innovations in products and technologies. The longer product lives
allow vehicle owners to replace parts of their vehicles less often. As a result,
a portion of sales in the aftermarket has been displaced. This has adversely
impacted, and will likely continue to adversely impact, our aftermarket sales.
Aftermarket sales represented approximately 25 percent of our net sales for
2003, as compared to 26 percent of our net sales for 2002.
WE MAY INCUR MATERIAL COSTS RELATED TO PRODUCT WARRANTIES, ENVIRONMENTAL AND
REGULATORY MATTERS AND OTHER CLAIMS, WHICH COULD HAVE AN ADVERSE IMPACT ON OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
From time to time, we receive product warranty claims from our customers,
pursuant to which we may be required to bear costs of repair or replacement of
certain of our products. Vehicle manufacturers are increasingly requiring their
outside suppliers to guarantee or warrant their products and to be responsible
for the operation of these component products in new vehicles sold to consumers.
Warranty claims may range from individual customer claims to full recalls of all
products in the field. We cannot assure you that costs associated with providing
product warranties will not be material, or that those costs will not exceed any
amounts reserved for them in our financial statements. For a description of our
accounting policies regarding warranty reserves, see our consolidated financial
statements included in Item 8 of our Annual Report on Form 10-K for the year
ended December 31, 2003 and Note 5 to our consolidated financial statements
included in our Quarterly Report on Form 10-Q for the three months ended March
31, 2004, which are incorporated by reference herein.
Additionally, we are subject to a variety of environmental and pollution control
laws and regulations in all jurisdictions in which we operate. Soil and
groundwater remediation activities are being conducted at six of our real
properties which will be collateral for the notes.
We also from time to time are involved in legal proceedings, claims or
investigations that are incidental to the conduct of our business. Some of these
proceedings allege damages against us relating to environmental liabilities,
intellectual property matters, personal injury claims, employment matters or
commercial or contractual disputes. For example, we are involved in
39
litigation over medical benefits provided to some of our former employees. As
another example, we are involved in litigation with the minority owner of one of
our Indian joint ventures over various operational issues that involves a
court-mandated bidding process. We are also subject to a number of lawsuits
initiated by a significant number of claimants alleging health problems as a
result of exposure to asbestos. Many of these cases involve significant numbers
of individual claimants. Many of these cases also involve numerous defendants,
with the number of each in some cases exceeding 200 defendants from a variety of
industries. We are experiencing an increasing number of these claims, likely due
to bankruptcies of major asbestos manufacturers. In future periods, we could be
subject to cash costs or non-cash charges to earnings if any of these matters is
resolved unfavorably to us.
We vigorously defend ourselves in connection with all of the matters described
above. We cannot, however, assure you that the costs, charges and liabilities
associated with these matters will not be material, or that those costs, charges
and liabilities will not exceed any amounts reserved for them in our financial
statements. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Environmental and Other Matters," and our consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 2003 and Note 5 to our consolidated financial statements in
our Quarterly Report on Form 10-Q for the three months ended March 31, 2004,
incorporated by reference herein, for further description.
THE HOURLY WORKFORCE IN THE AUTOMOTIVE INDUSTRY IS HIGHLY UNIONIZED AND OUR
BUSINESS COULD BE ADVERSELY AFFECTED BY LABOR DISRUPTIONS.
Although we consider our current relations with our employees to be good, if
major work disruptions were to occur, our business could be adversely affected
by, for instance, a loss of revenues, increased costs or reduced profitability.
As of December 31, 2003, we had over 19,000 employees, approximately 53 percent
of which were subject to a total of approximately 50 collective bargaining
agreements that expire and are renegotiated at various points in time.
Twenty-eight of these agreements covering approximately 4,000 employees will
expire on various dates during 2004. At December 31, 2003, approximately 30
percent of our employees were represented by workers' councils within our
European operations. We have not experienced a material labor disruption in our
workforce in the last ten years, but there can be no assurance that we will not
experience a material labor disruption at one of our facilities in the future in
the course of renegotiation of our labor arrangements or otherwise. In addition,
substantially all of the hourly employees of North American vehicle
manufacturers are represented by the United Automobile, Aerospace and
Agricultural Implement Workers of America under collective bargaining agreements
and vehicle manufacturers and their employees in other countries are also
subject to labor agreements. A work stoppage or strike at the production
facilities of a significant customer, at our facilities or at a significant
supplier could have an adverse impact on us by disrupting demand for our
products and/or our ability to manufacture our products. For example, a GM
strike in 1998 reduced second and third quarter revenue and income growth of our
OE business in that year.
CONSOLIDATION AMONG AUTOMOTIVE PARTS CUSTOMERS AND SUPPLIERS COULD MAKE IT MORE
DIFFICULT FOR US TO COMPETE FAVORABLY.
Our financial condition and results of operations could be adversely affected
because the customer base for automotive parts is consolidating in both the
original equipment market and aftermarket. As a result, we are competing for
business from fewer customers. Due to the cost focus of these major customers,
we have been, and expect to continue to be, required to
40
reduce prices as part of our initial business quotations and over the life of
vehicle platforms we have been awarded. We cannot be certain that we will be
able to generate cost savings and operational improvements in the future that
are sufficient to offset price reductions required by existing customers and
necessary to win additional business.
Furthermore, the trend toward consolidation among automotive parts suppliers is
resulting in fewer, larger suppliers who benefit from purchasing and
distribution economies of scale. If we cannot achieve cost savings and
operational improvements sufficient to allow us to compete favorably in the
future with these larger companies, our financial condition and results of
operations could be adversely affected due to a reduction of, or inability to
increase, sales.
WE ARE DEPENDENT ON LARGE CUSTOMERS FOR FUTURE REVENUES, THE LOSS OF ANY OF
WHICH COULD HAVE A MATERIAL ADVERSE IMPACT ON US.
We depend on major vehicle manufacturers for a substantial portion of our net
sales. For example, during 2003, GM, Ford, Volkswagen, and DaimlerChrysler
accounted for approximately 19 percent, 14 percent, 11 percent, and 9 percent of
our net sales, respectively. The loss of all or a substantial portion of our
sales to any of our large-volume customers could have a material adverse effect
on our financial condition and results of operations by reducing cash flows and
our ability to spread costs over a larger revenue base. We may make fewer sales
to these customers for a variety of reasons, including: (i) loss of awarded
business; (ii) reduced or delayed customer requirements; or (iii) strikes or
other work stoppages affecting production by the customers.
WE ARE SUBJECT TO RISKS RELATED TO OUR INTERNATIONAL OPERATIONS.
We have manufacturing and distribution facilities in many regions and countries,
including Australia, China, India, North America, Europe and South America, and
sell our products worldwide. For 2003, about 50 percent of our net sales were
derived from operations outside North America. International operations are
subject to various risks which could have a material adverse effect on those
operations or our business as a whole, including:
- exposure to local economic conditions;
- exposure to local political conditions, including the risk of seizure
of assets by foreign government;
- exposure to local social unrest, including any resultant acts of war,
terrorism or similar events;
- exposure to local public health issues and the resultant impact on
economic and political conditions;
- currency exchange rate fluctuations;
- hyperinflation in certain foreign countries;
- controls on the repatriation of cash, including imposition or increase
of withholding and other taxes on remittances and other payments by
foreign subsidiaries; and
- export and import restrictions.
41
EXCHANGE RATE FLUCTUATIONS COULD CAUSE A DECLINE IN OUR FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
As a result of our international operations, we generate a significant portion
of our net sales and incur a significant portion of our expenses in currencies
other than the U.S. dollar. To the extent we are unable to match revenues
received in foreign currencies with costs paid in the same currency, exchange
rate fluctuations in that currency could have a material adverse effect on our
business. For example, where we have significantly more costs than revenues
generated in a foreign currency, we are subject to risk if that foreign currency
appreciates against the U.S. dollar because the appreciation effectively
increases our costs in that location. From time to time, as and when we
determine it is appropriate and advisable to do so, we will seek to mitigate the
effect of exchange rate fluctuations through the use of derivative financial
instruments. We cannot assure you, however, that we will continue this practice
or be successful in these efforts.
The financial condition and results of operations of some of our operating
entities are reported in foreign currencies and then translated into U.S.
dollars at the applicable exchange rate for inclusion in our consolidated
financial statements. As a result, appreciation of the U.S. dollar against these
foreign currencies will have a negative impact on our reported revenues and
operating profit while depreciation of the U.S. dollar against these foreign
currencies will have a positive effect on reported revenues and operating
profit. For example, our European operations were positively impacted in 2002
and 2003 due to the strengthening of the Euro against the U.S. dollar. Our South
American operations were negatively impacted by the devaluation in 2000 of the
Brazilian currency as well as by the devaluation of the Argentine currency in
2002. We do not generally seek to mitigate this translation effect through the
use of derivative financial instruments.
FURTHER SIGNIFICANT CHANGES IN OUR STOCKHOLDER COMPOSITION MAY JEOPARDIZE OUR
ABILITY TO USE SOME OR ALL OF OUR NET OPERATING LOSS CARRYFORWARDS.
As of March 31, 2004, we had federal net operating loss ("NOL") carryforwards of
$536 million available to reduce taxable income in future years, and these NOL
carryforwards expire in various years through 2024. The federal tax effect of
these NOLs is $188 million and is recorded as an asset on our balance sheet at
March 31, 2004. Our ability to utilize our NOL carryforwards could become
subject to significant limitations under Section 382 of the Internal Revenue
Code ("Section 382") if we undergo a majority ownership change. We would undergo
a majority ownership change if, among other things, the stockholders who own or
have owned, directly or indirectly, five percent or more of our common stock or
are otherwise treated as five percent stockholders under Section 382 and the
regulations promulgated thereunder, increase their aggregate percentage
ownership of our stock by more than 50 percentage points over the lowest
percentage of the stock owned by these stockholders at any time during the
testing period, which is generally the three-year period preceding the potential
ownership change. In the event of a majority ownership change, Section 382
imposes an annual limitation on the amount of taxable income a corporation may
offset with NOL carryforwards. Any unused annual limitation may be carried over
to later years until the applicable expiration date for the respective NOL
carryforwards. If we were to undergo a majority ownership change, we would be
required to record a reserve for some or all of the asset currently recorded on
our balance sheet. As of March 31, 2004, we believe that there had been a
significant change, but not a majority change, in our ownership during the prior
three years. We cannot assure you that we will not undergo a majority ownership
change in the
42
future. Further, because an ownership change for federal tax purposes can occur
based on trades among our existing stockholders, whether we undergo a majority
ownership change may be a matter beyond our control.
THE PRICES OF RAW MATERIALS MAY CHANGE, WHICH COULD HAVE A MATERIAL ADVERSE
IMPACT ON US.
Significant increases in the cost of certain raw materials used in our products,
to the extent they are not timely reflected in the price we charge our customers
or mitigated through long-term supply contracts, could materially and adversely
impact our results.
RISKS RELATING TO OUR PRIOR AUDITORS
ARTHUR ANDERSEN LLP, OUR FORMER AUDITORS, AUDITED CERTAIN FINANCIAL INFORMATION
SET FORTH AND INCORPORATED BY REFERENCE IN THIS PROSPECTUS. IN THE EVENT SUCH
FINANCIAL INFORMATION IS LATER DETERMINED TO CONTAIN FALSE STATEMENTS, YOU MAY
BE UNABLE TO RECOVER DAMAGES FROM ARTHUR ANDERSEN LLP.
Arthur Andersen LLP completed its audit of our financial statements as of
December 31, 2001 and for the three years then ended and issued its report with
respect to such financial statements on January 28, 2002. Subsequently, Arthur
Andersen LLP was convicted of obstruction of justice for activities relating to
its previous work for Enron Corp.
In May 2002, both our audit committee and our board of directors approved the
appointment of Deloitte & Touche LLP as our independent auditors to audit our
financial statements for fiscal year 2002. Deloitte & Touche LLP replaced Arthur
Andersen LLP, which had served as our independent auditors for over 35 years. We
had no disagreements required to be disclosed pursuant to Item 304 of Regulation
S-K with Arthur Andersen LLP on any matter of accounting principle or practice,
financial statement disclosure or auditing scope or procedure. Arthur Andersen
LLP audited the financial statements that we incorporate by reference in this
prospectus as of December 31, 2001, and for the year ended December 31, 2001, as
set forth in their report. We include these financial statements in reliance on
the authority of Arthur Andersen LLP's experience giving said report.
Arthur Andersen LLP has stopped conducting business before the Commission, has
ceased accounting and audit-related practice and has limited assets available to
satisfy the claims of creditors. As a result, you may be limited in your ability
to recover damages from Arthur Andersen LLP under federal or state law if it is
later determined that there are false statements contained in this prospectus
relating to or contained in financial data audited by Arthur Andersen LLP. In
addition, the ability of Arthur Andersen LLP to satisfy claims (including claims
arising from its provision of auditing and other services to us) is limited as a
result of the diminished amount of assets of Arthur Andersen LLP that are now or
may in the future be available to satisfy claims.
43
FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus constitute "forward-looking
statements" as that term is defined under Section 21E of the Securities Exchange
Act of 1934, as amended, concerning, among other things, the prospects and
developments of our company and business strategies for our operations, all of
which are subject to risks and uncertainties. These forward-looking statements
are included in various sections of this prospectus. They are identified as
"forward-looking statements" or by their use of terms (and variations thereof)
such as "will," "may," "can," "anticipate," "intend," "continue," "estimate,"
"expect," "plan," "should," "outlook," "believe" and "seek," and similar terms
(and variations thereof) and phrases.
Our actual results may differ materially from those anticipated in these
forward-looking statements. These forward-looking statements are affected by
risks, uncertainties and assumptions that we make, including, among other
things, the factors that are described in "Risk factors" and:
- general economic, business and market conditions;
- potential legislation, regulatory changes and other governmental
actions, including the ability to receive regulatory approvals and the
timing of such approvals;
- new technologies that reduce the demand for certain of our products or
otherwise render them obsolete;
- our ability to integrate operations of acquired businesses quickly and
in a cost effective manner;
- changes in distribution channels or competitive conditions in the
markets and countries where we operate;
- capital availability or costs, including changes in interest rates,
market perceptions of the industries in which we operate or ratings of
securities;
- increases in the cost of compliance with regulations, including
environmental regulations and environmental liabilities in excess of the
amount reserved;
- changes by the Financial Accounting Standards Board, Public Company
Accounting Oversight Board or the Securities and Exchange Commission of
authoritative accounting principles generally accepted in the United
States of America or policies;
- acts of war or terrorism, including, but not limited to, the events
taking place in the middle east, the current military actions in Iraq and
the continuing war on terrorism, as well as actions taken or to be taken
by the United States or other governments as a result of further acts or
threats of terrorism, and the impact of these acts on economic, financial
and social conditions in the countries where we operate; and
- the timing and occurrence (or non-occurrence) of transactions and
events which may be subject to circumstances beyond our control.
Where, in any forward-looking statement, we or our management expresses an
expectation or belief as to future results, we express that expectation or
belief in good faith and believe it has a reasonable basis, but we can give no
assurance that the statement of expectation or belief will result or be achieved
or accomplished.
44
You should be aware that any forward-looking statement made by us in this
prospectus, or elsewhere, speaks only as of the date on which we make it. New
risks and uncertainties come up from time to time, and it is impossible for us
to predict these events or how they may affect us. We have no duty to, and do
not intend to, update or revise the forward-looking statements in this
prospectus after the date of this prospectus. In light of these risks and
uncertainties, you should keep in mind that any scenarios or results contained
in any forward-looking statement made in this prospectus or elsewhere might not
occur.
45
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange notes.
In consideration for issuing the exchange notes as contemplated in this
prospectus, we will receive in exchange old notes in like principal amount,
which will be cancelled and as such will not result in any increase in our
indebtedness.
The net proceeds we received from the offering of the old notes, after deducting
underwriting discounts and commissions and other expenses including a 13 percent
premium price over par, amounted to approximately $136 million. We used those
proceeds, together with the net proceeds of the initial term loan B borrowings
under our amended and restated senior credit facility (which, after deducting
fees and other expenses, were approximately $391 million):
(i) to prepay the $514 million of term A, B and C loans outstanding
under our senior credit facility immediately prior to the completion of
those transactions, and
(ii) for general corporate purposes.
The estimated net proceeds of the offering of the old notes do not include
approximately $6 million of accrued interest on the old notes for the period
from June 19 through December 12, 2003 that investors in the old notes paid to
us. We subsequently used those funds to pay, on January 15, 2004, accrued
interest on the notes from June 19, 2003.
Our obligations with respect to letters of credit under our senior credit
facility outstanding immediately prior to the completion of the offering of the
old notes remained outstanding under our senior credit facility, as amended and
restated. See "Capitalization." At March 31, 2004 there were no borrowings under
the revolving portions of our senior credit facility and letters of credit
issued under our senior credit facility totaled $63 million. As a result, at
March 31, 2004, under our senior credit facility we had $220 million of
borrowing capacity available under the revolving credit facility and $117
million of available capacity under the tranche B letter of credit/revolving
loan facility. See "Description of other indebtedness and obligations--Senior
credit facility."
46
CAPITALIZATION
The following table sets forth our unaudited historical capitalization as of
March 31, 2004. See "Description of indebtedness and other obligations."
<Table>
<Caption>
- -----------------------------------------------------------------------
MARCH 31,
2004
---------
(DOLLARS IN MILLIONS) ACTUAL
- -----------------------------------------------------------------------
Cash........................................................ $ 149
=======
Total debt(1):
Credit facilities
Revolving credit facility(2)....................... $ -
Tranche B letter of credit/revolving loan
facility(3)....................................... -
Term loan B........................................ 399
10 1/4% senior secured notes due 2013(4)................. 491
11 3/8% senior subordinated notes due 2009............... 500
Obligations under capital leases and other............... 36
-------
Total debt...................................... 1,426
-------
Minority interest........................................... 21
Shareholders' equity
Premium on common stock and other capital surplus........ 2,754
Accumulated other comprehensive loss..................... (247)
Retained earnings (accumulated deficit).................. (2,214)
-------
293
Less Shares held as treasury common stock, at cost....... 240
-------
53
-------
Total capitalization........................................ $ 1,500
=======
- -----------------------------------------------------------------------
</Table>
(1) Total debt includes actual short-term debt of $18 million. Total debt does
not include assets sold under accounts receivable securitization arrangements.
As of March 31, 2004, we had sold $54 million of receivables in North America
under an accounts receivable securitization facility and $90 million in Europe
under uncommitted arrangements. See "Description of other indebtedness and
obligations -- Receivables financing."
(2) The revolving credit facility includes commitments of $220 million. At March
31, 2004, there were no borrowings outstanding under the revolving credit
facility, and we had additional available borrowing capacity of $220 million,
subject to certain conditions.
(3) Our senior credit facility includes a seven-year $180 million tranche B
letter of credit/revolving loan facility. At March 31, 2004, we had used $63
million for letters of credit and we had additional borrowing capacity of $117
million, subject to certain conditions. Under current accounting rules, the $180
million tranche B letter of credit/revolving loan facility will be reflected as
debt on our balance sheet only if we have outstanding thereunder revolving loans
or payments by the facility in respect of letters of credit.
(4) Includes a premium of $16 million, as the additional $125 million of old
notes were issued at 113 percent of principal amount. In April 2004, we entered
into three separate fixed-to-floating interest rate swaps with two separate
financial institutions with respect to a portion of these notes. These
agreements swapped $150 million aggregate principal amount of fixed interest
rate debt at a per annum rate of 10 1/4 percent to floating interest rate debt
at a per annum rate of LIBOR plus a spread of 5.68 percent. Each of these
agreements requires semi-annual settlements through July 15, 2013. See
"Description of other indebtedness and obligations--Swap agreements."
You should read this table in conjunction with our consolidated financial
statements and the related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in our Annual Report on
Form 10-K for the year ended December 31, 2003 and our Quarterly Report on Form
10-Q for the three months ended March 31, 2004, which are incorporated herein by
reference.
47
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data as of and for the
years ended December 31, 2002 and 2003, were derived from the audited financial
statements of Tenneco Automotive Inc. and its consolidated subsidiaries which
have been audited by Deloitte & Touche LLP, independent registered public
accounting firm. See "Experts." The following summary historical consolidated
financial data as of and for the years ended December 31, 1999, 2000 and 2001
were derived from the audited financial statements of Tenneco Automotive Inc.
and its consolidated subsidiaries which have been audited by Arthur Andersen
LLP, independent auditors. See "Risk factors--Risks relating to our prior
auditors." The following selected historical consolidated selected financial
data as of and for the three month periods ended March 31, 2003 and 2004 were
derived from the unaudited financial statements of Tenneco Automotive Inc. and
its consolidated subsidiaries. In our opinion, the selected historical
consolidated financial data of Tenneco Automotive Inc. as of and for the three
months ended March 31, 2003 and 2004 include all adjusting entries, consisting
only of normal recurring adjustments, necessary to present fairly the
information set forth therein. You should not regard the results of operations
for the three months ended March 31, 2004 as indicative of the results that may
be expected for the full year. You should read all of this information in
conjunction with the Financial Statements of Tenneco Automotive Inc. and
Consolidated Subsidiaries for the year ended December 31, 2003 and for the three
months ended March 31, 2004, contained in our Annual Report on Form 10-K for the
year ended December 31, 2003 and our Quarterly Report on Form 10-Q for the three
months ended March 31, 2004, respectively. These documents are incorporated by
reference in this prospectus.
Our consolidated financial statements for the year ended December 31, 2001 and
for earlier years were audited by Arthur Andersen LLP. Because Arthur Andersen
LLP has ceased accounting and auditing operations, we are unable to obtain
written consent of Arthur Andersen LLP to incorporate their report in this
prospectus. Because Arthur Andersen LLP has not consented to incorporating their
report in this prospectus, investors will not be able to recover against Arthur
Andersen LLP in connection with our use of this report. In addition, the ability
of Arthur Andersen LLP to satisfy any claims (including claims arising from its
provision of auditing and other services to us) is limited as a result of the
diminished amount of assets of Arthur Andersen LLP that are now or may in the
future be available to satisfy claims. See "Risk factors--Risks relating to our
prior auditors."
48
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
(DOLLARS IN MILLIONS, EXCEPT SHARE AND PER -------------------------------------------------
SHARE AMOUNTS) 1999(1) 2000(1) 2001(1) 2002(1)
- ---------------------------------------------------------------------------------------------
STATEMENTS OF INCOME DATA(2):
Net sales and operating revenues from
continuing operations............ $ 3,260 $ 3,528 $ 3,364 $ 3,459
Income from continuing operations before
interest expense, income taxes, and
minority interest--
North America.................... 166 68 52 129
Europe........................... 44 40 23 18
Other............................ (62) 12 17 22
---------- ---------- ---------- ----------
Total............................ 148 120 92 169
Interest expense (net of interest
capitalized)(2)(4)............... 134 188 170 141
Income tax expense (benefit)(4)..... 72 (28) 51 (7)
Minority interest................... 23 2 1 4
---------- ---------- ---------- ----------
Income (loss) from continuing
operations....................... (81) (42) (130) 31
Income (loss) from discontinued
operations, net of income tax(3)... (208) - - -
Cumulative effect of changes in accounting
principles, net of income tax(5)... (134) - - (218)
---------- ---------- ---------- ----------
Net income (loss)................... $ (423) $ (42) $ (130) $ (187)
========== ========== ========== ==========
Average number of shares of common stock
outstanding
Basic......................... 33,480,686 34,735,766 37,779,837 39,795,481
Diluted....................... 33,656,063 34,906,825 38,001,248 41,667,815
Earnings (loss) per average share of
common stock--
Basic:
Continuing operations...... $ (2.42) $ (1.20) $ (3.43) $ 0.78
Discontinued operations(3)... (6.23) - - -
Cumulative effect of changes in
accounting principles(5)... (3.99) - - (5.48)
---------- ---------- ---------- ----------
$ (12.64) $ (1.20) $ (3.43) $ (4.70)
========== ========== ========== ==========
Diluted:
Continuing operations...... $ (2.42) $ (1.20) $ (3.43) $ 0.74
Discontinued operations(3)... (6.23) - - -
Cumulative effect of changes in
accounting principles(5)... (3.99) - - (5.48)
---------- ---------- ---------- ----------
$ (12.64) $ (1.20) $ (3.43) $ (4.74)
========== ========== ========== ==========
Cash dividends per common share..... $ 4.50 $ 0.20 $ - $ -
BALANCE SHEET DATA:
Total assets........................ $ 2,943 $ 2,886 $ 2,681 $ 2,504
Short-term debt(2).................. 56 92 191 228
Long-term debt(2)................... 1,578 1,435 1,324 1,217
Minority interest................... 16 14 15 19
Shareholders' equity (deficit)...... 422 330 74 (94)
STATEMENT OF CASH FLOWS DATA:
Net cash provided (used) by operating
activities....................... $ (254) $ 234 $ 141 $ 188
Net cash (used) by investing activities... (1,188) (157) (126) (107)
Net cash provided (used) by financing
activities....................... 1,495 (123) 3 (73)
Cash flow(6)........................ 169 281 209 253
Capital expenditures from continuing
operations....................... 154 146 127 138
OTHER FINANCIAL DATA:
EBITDA(7)........................ $ 292 $ 271 $ 245 $ 313
Ratio of earnings to fixed
charges(8).................... 0.88 0.63 0.56 1.17
Working capital as a percent of
sales(9)(10).................. 15.6% 10.1% 6.0% 3.6%
---------- ---------- ---------- ----------
<Caption>
- ------------------------------------------ ------------------------------------
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
(DOLLARS IN MILLIONS, EXCEPT SHARE AND PER ---------- -----------------------
SHARE AMOUNTS) 2003(1) 2003 2004
- ------------------------------------------
STATEMENTS OF INCOME DATA(2):
Net sales and operating revenues from
continuing operations............ $ 3,766 $ 921 $ 1,034
Income from continuing operations before
interest expense, income taxes, and
minority interest--
North America.................... 131 28 30
Europe........................... 14 (1) (3)
Other............................ 31 4 6
---------- ---------- ----------
Total............................ 176 31 33
Interest expense (net of interest
capitalized)(2)(4)............... 149 31 35
Income tax expense (benefit)(4)..... (6) (2) (1)
Minority interest................... 6 1 1
---------- ---------- ----------
Income (loss) from continuing
operations....................... 27 1 (2)
Income (loss) from discontinued
operations, net of income tax(3)... - - -
Cumulative effect of changes in accounting
principles, net of income tax(5)... - - -
---------- ---------- ----------
Net income (loss)................... $ 27 $ 1 $ (2)
========== ========== ==========
Average number of shares of common stock
outstanding
Basic......................... 40,426,136 40,084,584 40,861,204
Diluted....................... 41,767,959 40,907,138 43,539,508
Earnings (loss) per average share of
common stock--
Basic:
Continuing operations...... 0.67 $ 0.02 $ (0.05)
Discontinued operations(3)... - - -
Cumulative effect of changes in
accounting principles(5)... - - -
---------- ---------- ----------
$ 0.67 $ 0.02 $ (0.05)
========== ========== ==========
Diluted:
Continuing operations...... $ 0.65 $ 0.02 $ (0.05)
Discontinued operations(3)... - - -
Cumulative effect of changes in
accounting principles(5)... - - -
---------- ---------- ----------
$ 0.65 $ 0.02 $ (0.05)
========== ========== ==========
Cash dividends per common share..... $ - $ - $ -
BALANCE SHEET DATA:
Total assets........................ $ 2,795 $ 2,582 $ 2,912
Short-term debt(2).................. 20 250 18
Long-term debt(2)................... 1,410 1,193 1,408
Minority interest................... 23 18 21
Shareholders' equity (deficit)...... 58 (66) 53
STATEMENT OF CASH FLOWS DATA:
Net cash provided (used) by operating
activities....................... $ 281 36 13
Net cash (used) by investing activities... (127) (26) (15)
Net cash provided (used) by financing
activities....................... (49) (3) -
Cash flow(6)........................ 315 41 38
Capital expenditures from continuing
operations....................... 130 26 25
OTHER FINANCIAL DATA:
EBITDA(7)........................ $ 339 $ 70 $ 78
Ratio of earnings to fixed
charges(8).................... 1.16 1.03 0.95
Working capital as a percent of
sales(9)(10).................. 2.3% NM NM
---------- ---------- ----------
</Table>
- ------------
NOTE: Our financial statements for the five years ended December 31, 2003, which
are discussed in the following notes, are included in our Annual Report on Form
10-K for the fiscal year ended December 31, 2003 and our financial statements
for the three months ended March 31, 2003 and 2004 are included in our Quarterly
Report on Form 10-Q for the three months ended March 31, 2004, incorporated by
reference herein.
(1) For a discussion of the significant items affecting comparability of the
financial information for the three months ended March 31, 2003 and 2004, and
for the years ended December 31, 2001, 2002 and 2003, see, "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in our Quarterly Report on Form 10-Q for the three months ended March
31, 2004 and our Annual Report on Form 10-K for the year ended December 31,
2003, which are incorporated by reference herein. In accordance with Emerging
Issues Task Force Issue No. 00-14, we have reduced revenues for 1999 and 2000
49
by $19 million, and $21 million, respectively, to reflect the reclassification
of certain sales incentives that were previously shown in selling, general and
administrative expense.
(2) In 1999, we contributed the assets of our former paperboard packaging
operations to a new joint venture and spun off our former specialty packaging
operations (including the interest in the containerboard joint venture) to our
stockholders. Debt amounts through November 4, 1999 are net of allocations of
corporate debt to the net assets of our discontinued specialty packaging and
paperboard packaging segments. Interest expense through November 4, 1999 is net
of interest expense allocated to income from discontinued operations. These
allocations of debt and related interest expense were based on the ratio of our
investment in the specialty packaging and paperboard packaging segments'
respective net assets to our consolidated net assets plus debt.
(3) Discontinued operations reflected in the above periods consist of our (a)
specialty packaging segment, which was discontinued in August 1999, and (b)
paperboard packaging segment, which was discontinued in June 1999.
(4) In accordance with Statement of Financial Accounting Standards ("SFAS") No.
145, the losses on the prepayments of debt in 1999 and 2000 of $28 million and
$2 million, respectively, were reclassified to interest expense.
(5) In 1999, we implemented the American Institute of Certified Public
Accountants Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities." In addition, effective January 1, 1999, we changed our method of
accounting for customer acquisition costs from a deferred method to an
expense-as-incurred method. In 2002, we adopted SFAS No. 142 which changes the
accounting for purchased goodwill from an amortization method to an impairment
only approach. You should also read the notes to our consolidated financial
statements, appearing in Item 8 of our Annual Report on Form 10-K for the year
ended December 31, 2003, which is incorporated by reference herein for
additional information.
(6) The amounts included in the cash flow calculation are the sum of cash
provided before financing activities, cash paid during the year for interest and
cash paid during the year for taxes as shown in the historical statements of
cash flow. We have reported cash flow because we regularly review cash flow as a
measure of cash generated by our business to meet our debt and tax obligations.
In addition, we believe our debt holders and others analyze our cash flow for
similar purposes. We also believe that cash flow assists investors in
understanding our ability to meet our obligations. Cash flow is derived from the
statements of cash flows as follows:
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------------
THREE
MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------- -----------
(DOLLARS IN MILLIONS) 1999 2000 2001 2002 2003 2003 2004
- -------------------------------------------------------------------------------------------------------------
Net cash provided (used) before financing activities from
continuing operations.................................... $(228) $ 77 $ 15 $ 81 $154 $10 $(2)
Cash paid during the year for interest...................... 260 186 177 145 115 20 37
Cash paid during the year for taxes......................... 137 18 17 27 46 11 3
----- ---- ---- ---- ---- --- ---
Cash Flow................................................... $ 169 $281 $209 $253 $315 $41 $38
===== ==== ==== ==== ==== === ===
</Table>
50
(7) EBITDA represents net income before extraordinary item, cumulative effect of
change in accounting principles, interest expense, income taxes, minority
interest and depreciation and amortization. EBITDA is not a calculation based
upon generally accepted accounting principles. The amounts included in the
EBITDA calculation, however, are derived from amounts included in the historical
statements of income data. In addition, EBITDA should not be considered as an
alternative to net income or operating income as an indicator of our operating
performance, or as an alternative to operating cash flows as a measure of
liquidity. We have reported EBITDA because we regularly review EBITDA as a
measure of our company's performance. In addition, we believe our debt holders
utilize and analyze our EBITDA for similar purposes. We also believe EBITDA
assists investors in comparing a company's performance on a consistent basis
without regard to depreciation and amortization, which can vary significantly
depending upon many factors. However, the EBITDA measure presented in this
document may not always be comparable to similarly titled measures reported by
other companies due to differences in the components of the calculation. EBITDA
is derived from the statements of income as follows:
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------
THREE
MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------- -----------
(DOLLARS IN MILLIONS) 1999 2000 2001 2002 2003 2003 2004
- ---------------------------------------------------------------------------------------------------------------
Net income (loss)........................................... $(423) $(42) $(130) $(187) $ 27 $ 1 $(2)
Cumulative effect of change in accounting principles, net of
income tax............................................... 134 - - 218 - - -
Loss (income) from discontinued operations, net of income
tax...................................................... 208 - - - - - -
Minority interest........................................... 23 2 1 4 6 1 1
Income tax expense (benefit)................................ 72 (28) 51 (7) (6) (2) (1)
Interest expense (net of interest capitalized).............. 134 188 170 141 149 31 35
Depreciation and amortization............................... 144 151 153 144 163 39 45
----- ---- ----- ----- ---- --- ---
EBITDA...................................................... $ 292 $271 $ 245 $ 313 $339 $70 $78
===== ==== ===== ===== ==== === ===
</Table>
(8) For purposes of computing this ratio, earnings generally consist of income
from continuing operations before income taxes and fixed charges excluding
capitalized interest. Fixed charges consist of interest expense, the portion of
rental expense considered representative of the interest factor and capitalized
interest. See Exhibit 12 to our Annual Report on Form 10-K for the year ended
December 31, 2003, and Exhibit 12 to our Quarterly Report on Form 10-Q for the
three months ended March 31, 2004 incorporated by reference herein, for the
calculation of this ratio. For the years ended December 31, 1999, 2000 and 2001,
earnings were insufficient by $22 million, $76 million and $80 million,
respectively, to cover fixed charges. For the three months ended March 31, 2004,
earnings were insufficient by $2 million to cover fixed charges.
51
(9) For purposes of computing working capital as a percentage of sales, we
exclude cash and the current portion of long-term debt from the calculation. We
exclude these items because we manage our working capital activity through cash
and short-term debt. To include these items in the calculation would distort
actual working capital changes. Our calculation of working capital as a
percentage of sales is as follows:
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------------------
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------ ----------------
(DOLLARS IN MILLIONS) 1999 2000 2001 2002 2003 2003 2004
- ------------------------------------------------------------------------------------------------------------------
Current assets:
Receivables--customer notes and accounts, net... $ 557 $ 457 $ 380 $ 394 $ 427 $ 451 $ 498
Receivables--other.............................. 14 30 15 15 15 15 14
Inventories..................................... 412 422 326 352 343 373 367
Deferred income taxes........................... 59 76 66 56 63 57 63
Prepayments and other........................... 75 89 101 95 112 105 140
------ ------ ------ ------ ------ ------ ------
$1,117 $1,074 $ 888 $ 912 $ 960 $1,001 $1,082
Current liabilities:
Trade payables.................................. $ 348 $ 464 $ 401 $ 505 $ 621 $ 592 $ 692
Accrued taxes................................... 20 16 35 40 19 29 25
Accrued interest................................ 29 35 25 23 42 33 39
Accrued liabilities............................. 149 134 148 172 162 164 205
Other accruals.................................. 61 68 76 48 29 41 29
------ ------ ------ ------ ------ ------ ------
$ 607 $ 717 $ 685 $ 788 $ 873 $ 859 $ 990
Working capital (current assets less current
liabilities).................................... $ 510 $ 357 $ 203 $ 124 $ 87 $ 142 $ 92
Sales.............................................. $3,260 $3,528 $3,364 $3,459 $3,766 $ 921 $1,034
Working capital as a percent of sales(10).......... 15.6% 10.1% 6.0% 3.6% 2.3% NM NM
------ ------ ------ ------ ------ ------ ------
</Table>
(10) Not meaningful ("NM") refers to financial metrics that we believe would not
provide the investor with relevant information for the period presented.
52
MANAGEMENT
The following table sets forth information regarding persons who, as of the date
of this prospectus, are executives or directors of Tenneco Automotive Inc.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
AGE AT
MARCH 19,
NAME 2004 POSITION(S)
- ---------------------------------------------------------------------------------------------------
Mark P. Frissora 48 Chairman of the Board of Directors, Chief Executive
Officer and President
Timothy R. Donovan 48 Executive Vice President, Managing
Director--International and General Counsel and Director
Charles W. Cramb 57 Director
M. Kathryn Eickhoff 64 Director
Frank E. Macher 63 Director
Roger B. Porter 57 Director
David B. Price, Jr. 58 Director
Dennis G. Severance 60 Director
Paul T. Stecko 59 Director
Hari N. Nair 43 Executive Vice President and Managing Director--Europe
Richard P. Schneider 56 Senior Vice President--Global Administration
Brent Bauer 48 Senior Vice President and General Manager--North American
Original Equipment Emissions Control
Kenneth R. Trammell 43 Senior Vice President and Chief Financial Officer
Timothy E. Jackson 47 Senior Vice President--Global Technology
Paul Schultz 53 Senior Vice President--Global Supply Chain Management
Neal Yanos 42 Senior Vice President and General Manager--North American
Original Equipment Ride Control and North American
Aftermarket
James A. Perkins, Jr. 41 Vice President and Controller
- ---------------------------------------------------------------------------------------------------
</Table>
During 1999, we separated our automotive businesses from our former specialty
packaging operations. This completed a series of transactions begun in December
1996, when the company previously known as Tenneco Inc. separated its energy and
shipbuilding businesses from its automotive and packaging operations through the
spin off of our company as a separate, public company. The final separation was
accomplished in November 1999 when we spun off Pactiv Corporation, which at the
time was known as Tenneco Packaging Inc. and held our specialty packaging
business. At the time of this spin off, we were known as "Tenneco Inc."
Immediately following the spin off, we changed our name to "Tenneco Automotive
Inc." to reflect the fact that our continuing operations are the automotive
business. In light of the form of these transactions, our parent company is the
continuing legal entity which from December 1996 until the 1999 spin off was
known as Tenneco Inc. As described below, a number of our directors and officers
served the former Tenneco Inc., our former packaging operations or our
automotive operations prior to completion of these transactions.
53
DIRECTORS
Charles W. Cramb--Mr. Cramb has been Senior Vice President and Chief Financial
Officer of The Gillette Company, a global manufacturer and marketer of a wide
variety of consumer products, since 1997. He joined Gillette in 1970 and served
in a number of financial positions. From 1976 to 1981, he held several key
financial management positions in Gillette's European operations, including
Manager, Financial Services, Gillette Europe, and Financial Controller, Gillette
Industries Limited, UK. From 1981 to 1995, he held a series of senior financial
management positions in the United States, including Controller, International
Operations; Vice President, Finance and Strategic Planning, Gillette North
Atlantic Group; Assistant Controller, The Gillette Company; and Vice President,
Finance, Planning and Administration, Diversified Group. From 1995 to 1997, he
was Corporate Vice President and Corporate Controller. He is a director of the
Private Sector Council, where he is Vice Chairman. He also serves on the Board
of Visitors for Lawrence Academy and for the College of Business Administration,
Northeastern University. He is also a director of Idenix Pharmaceuticals Inc.,
where he is a member of the Audit Committee. He was elected to our Board of
Directors in March of 2003 and is the Chairman of our Audit Committee.
Timothy R. Donovan--Mr. Donovan was elected to our Board of Directors on March
9, 2004. See below under "--Executive Officers" for a summary of his background.
M. Kathryn Eickhoff--Ms. Eickhoff has been President of Eickhoff Economics,
Inc., a consulting firm, since 1987. From 1985 to 1987, she was Associate
Director for Economic Policy for the U.S. Office of Management and Budget. Prior
to that, Ms. Eickhoff spent 23 years at Townsend Greenspan & Co., Inc., an
economic consulting firm, most recently as Executive Vice President and
Treasurer. She is also a director of AT&T Corp., where she is a member of the
Audit Committee and the Nominating and Governance Committee, and The Moorings,
Inc., a non-profit retirement community Naples, Florida. Ms. Eickhoff has been a
director of our company since 1996 (and prior to that was a director of the
former Tenneco Inc. since 1987). She also served as a member of Tenneco Inc.'s
Board of Directors from 1982 until her resignation to join the Office of
Management and Budget in 1985. Ms. Eickhoff is a member of our Audit Committee
and Three-Year Independent Director Evaluation Committee.
Mark P. Frissora--Mr. Frissora was named our Chairman in March 2000. See below
under "--Executive officers" for a summary of his background.
Frank E. Macher--Mr. Macher served as Chief Executive Officer of Federal Mogul
Corporation, a manufacturer of motor vehicle parts and supplies, from January
2001 to July 2003 and as Chairman of Federal Mogul from October 2001 to January
2004. From June 1997 to his retirement in July 1999, Mr. Macher served as
President and Chief Executive Officer of ITT Automotive, a supplier of
automotive components. From 1966 to his retirement in 1996, Mr. Macher was
employed by Ford Motor Company, serving most recently as Vice President and
General Manager of the Automotive Components Division. Mr. Macher was named a
director of our company in July 2000. He is also a director of Decoma
International, Inc., where he serves on the Audit Committee, and a member of the
Board of Trustees of Kettering University and the Detroit Renaissance. Mr.
Macher is a member of our Audit Committee.
Roger B. Porter--Mr. Porter is the IBM Professor of Business and Government at
Harvard University. Mr. Porter has served on the faculty at Harvard University
since 1977. Mr. Porter also held senior economic policy positions in the Ford,
Reagan and George H. W. Bush White Houses, serving as special assistant to the
President and executive secretary of the Economic
54
Policy Board from 1974 to 1977, as deputy assistant to the President and
director of the White House Office of Policy Development from 1981 to 1985 and
as assistant to the President for economic and domestic policy from 1989 to
1993. He is also a director of National Life Insurance Company (where he serves
on the Executive and Finance Committees and is Chairman of the Nominations and
Governance Committee), Zions Bancorporation (where he serves on the Audit and
Compensation Committees) and Pactiv Corporation (where he serves on the
Compensation/Nominating/Governance Committee). Mr. Porter has been a director of
our company since 1998. Mr. Porter is the Chairman of our
Compensation/Nominating/ Governance Committee and a member of our Three-Year
Independent Director Evaluation Committee.
David B. Price, Jr.--Mr. Price has served as Chief Executive Officer of Birdet
Price, LLC, an investment and consulting firm, since July 2001. Previously, Mr.
Price was President of Noveon Inc. from February 2001 until May 2001. Noveon,
Inc. was formerly the Performance Materials Segment of BF Goodrich Company prior
to its sale to an investor group in February 2001. While with BF Goodrich
Company from July 1997 to February 2001, Mr. Price served as Executive Vice
President of the BF Goodrich Company and President and Chief Operating Officer
of BF Goodrich Performance Materials. Prior to joining BF Goodrich, Mr. Price
held various executive positions over a 25-year span at Monsanto Company, most
recently serving as President of the Performance Materials Division of Monsanto
Company from 1995 to July 1997. From 1993 to 1995, he was Vice President and
General Manager of commercial operations for the Industrial Products Group and
was also named to the management board of Monsanto's Chemical Group. He is also
a director of CH2M HILL. Mr. Price was named a director of our company in 1999.
Mr. Price is a member of our Three-Year Independent Director Evaluation
Committee and the Chairman of our Compensation/Nominating/Governance Committee.
Dennis G. Severance--Dr. Severance is the Accenture Professor of Computer and
Information Systems of the University of Michigan Business School. Before
joining the University of Michigan in 1978, Dr. Severance was an Associate
Professor and Principal Investigator in the Management Information System
Research Center at the University of Minnesota. Prior to that, he was an
Assistant Professor in the Department of Operations Research at Cornell
University. Dr. Severance became a director in July 2000. Dr. Severance is a
member of our Audit Committee.
Paul T. Stecko--Mr. Stecko has served as the Chief Executive Officer of
Packaging Corporation of America since April 1999. From November 1998 to April
1999, Mr. Stecko served as President and Chief Operating Officer of Tenneco Inc.
From January 1997 to November 1998, Mr. Stecko served as Chief Operating Officer
of Tenneco Inc. From December 1993 through January 1997, Mr. Stecko served as
Chief Executive Officer of Tenneco Packaging Inc. Prior to joining Tenneco
Packaging Inc., Mr. Stecko spent 16 years with International Paper Company. Mr.
Stecko has been a director of our company since 1998. He is also a director of
State Farm Mutual Insurance Company, American Forest and Paper Association and
Cives Corporation, and is the Chairman of the Board of Packaging Corporation of
America. Mr. Stecko is a member of the Compensation/Nominating/Governance
Committee and the Chairman of our Three-Year Independent Director Evaluation
Committee.
The present term of office for the directors named above will generally expire
at the 2005 annual meeting of stockholders, subject to their earlier retirement,
resignation or removal.
55
EXECUTIVE OFFICERS
Mark P. Frissora--Mr. Frissora became our Chief Executive Officer in connection
with the 1999 spin off of Pactiv Corporation and has been serving as President
of the automotive operations since April 1999. In March 2000, he was also named
our Chairman. From 1996 to April 1999, he held various positions within our
automotive operations, including Senior Vice President and General Manager of
the worldwide original equipment business. Mr. Frissora joined us in 1996 from
AeroquipVickers Corporation, where he served since 1991 as a Vice President. In
the 15 years prior to joining AeroquipVickers, he served for ten years with
General Electric and five years with Philips Lighting Company in management
roles focusing on product development and marketing. He is a member of The
Business Roundtable and the World Economic Forum's Automotive Board of
Governors. He is also a director of NCR Corporation, where he serves on its
Compensation Committee, and FMC Corporation, where he serves on its Audit
Committee. Mr. Frissora became a director of our company in 1999.
Timothy R. Donovan--Mr. Donovan was named Managing Director of our International
Group in May 2001 with responsibility for all operations in Asia and South
America, as well as our Japanese OE business worldwide. He was named our Senior
Vice President and General Counsel in August 1999. He was promoted to Executive
Vice President in December 2001. Mr. Donovan also is in charge of our worldwide
Environmental, Health and Safety Program. Prior to joining us, Mr. Donovan was a
partner in the law firm of Jenner & Block from 1989, and at the time of his
resignation in September 1999 was serving as the Chairman of its Corporate and
Securities Department and as a member of its Executive Committee. He is also a
director of John B. Sanfilippo & Son, Inc., where he is a member of its
Compensation Committee and is the Chairman of its Audit Committee. Mr. Donovan
was elected to our Board of Directors on March 9, 2004.
Hari N. Nair--Mr. Nair was named our Executive Vice President and Managing
Director--Europe effective June 2001. Previously he was Senior Vice President
and Managing Director--International. Prior to December 2000, Mr. Nair was the
Vice President and Managing Director--Emerging Markets. Previously, Mr. Nair was
the Managing Director for Tenneco Automotive Asia, based in Singapore and
responsible for all operations and development projects in Asia. He began his
career with the former Tenneco Inc. in 1987, holding various positions in
strategic planning, marketing, business development, quality and finance. Prior
to joining Tenneco, Mr. Nair was a senior financial analyst at General Motors
Corporation focusing on European operations.
Richard P. Schneider--Mr. Schneider was named as our Senior Vice
President--Global Administration in connection with the 1999 spin off and is
responsible for the development and implementation of human resources programs
and policies and employee communications activities for our worldwide
operations. Prior to the 1999 spin off, Mr. Schneider served as our Vice
President--Human Resources. He joined us in 1994 from International Paper
Company where, during his 20 year tenure, he held key positions in labor
relations, management development, personnel administration and equal employment
opportunity.
Brent Bauer--Mr. Bauer joined the former Tenneco Inc. in August 1996 as a Plant
Manager and was named Vice President and General Manager--European Original
Equipment Emission Control in September 1999. Mr. Bauer was named Vice President
and General Manager--European and North American Original Equipment Emission
Control in July 2001. Currently, Mr. Bauer serves as our Vice President and
General Manager--North American Original Equipment Emission Control. Prior to
joining Tenneco, he was employed at AeroquipVickers
56
Corporation for ten years in positions of increasing responsibility serving most
recently as Director of Operations.
Kenneth R. Trammell--Mr. Trammell was named our Senior Vice President and Chief
Financial Officer in September 2003, having served as our Vice President and
Controller from September 1999. From April 1997 to November 1999 he served as
Corporate Controller of Tenneco Inc. He joined Tenneco Inc. in May 1996 as
Assistant Controller. Before joining Tenneco Inc., Mr. Trammell spent 12 years
with the international public accounting firm of Arthur Andersen LLP, last
serving as a senior manager.
Timothy E. Jackson--Mr. Jackson joined us as Senior Vice President and General
Manager--North American Original Equipment and Worldwide Program Management in
June 1999. He served in this position until August 2000, at which time he was
named Senior Vice President--Global Technology. Mr. Jackson joined us from ITT
Industries where he was President of that company's Fluid Handling Systems
Division. With over 20 years of management experience, 14 within the automotive
industry, he was also Chief Executive Officer for HiSAN, a joint venture between
ITT Industries and Sanoh Industrial Company. Mr. Jackson has also served in
senior management positions at BF Goodrich Aerospace and General Motors
Corporation.
Paul Schultz--Mr. Schultz was named our Senior Vice President--Global Supply
Chain Management in April 2002. Prior to joining the company, Mr. Schultz was
the Vice President, Supply Chain Management at Ingersoll-Rand Company. Mr.
Schultz joined Ingersoll-Rand in 1998 as Vice President, Strategic Sourcing for
their joint venture company, Ingersoll Dresser Pump. He was later promoted to
Vice President, Manufacturing Operations, where he successfully introduced and
led the Six Sigma initiative. Prior to joining Ingersoll-Rand, Mr. Schultz was
with AlliedSignal (now Honeywell International) where he served for 25 years in
staff and management positions. Most recently, he was our Corporate Director,
Global Commodity Management.
Neal Yanos--Mr. Yanos was named our Senior Vice President and General
Manager--North American Original Equipment Ride Control and North American
Aftermarket on May 8, 2003. He joined our Monroe ride control division as a
process engineer in 1988 and since that time has served in a broad range of
assignments including product engineering, strategic planning, business
development, finance, program management and marketing, including Director of
our North American original equipment GM/VW business unit and most recently as
our Vice President and General Manager--North American Original Equipment Ride
Control from December 2000. Before joining our company, Mr. Yanos was employed
in various engineering positions by Sheller Globe Inc. (now part of Lear
Corporation) from 1985 to 1988.
James A. Perkins, Jr.--Mr. Perkins joined us as Vice President and Controller in
February of 2004. Prior to joining the company, Mr. Perkins spent fifteen years
with General Electric in various management positions in acquisitions
integration, finance and corporate audit. Most recently, from 2001 to 2003, he
was Director, Commercial Operations for GE Medical Systems Information
Technology, a provider of products and services for the medical industry. Prior
to that, he served as Chief Financial Officer and Vice President for GE-Fanuc
Corporation from 1999 to 2000 (manufacturing related products) and for
GE-Medical Systems Ultrasound from 1998 to 1999 (medical-related devices and
services).
57
The present term of office for the officers named above will generally expire on
the earliest of their retirement, resignation or removal.
For information regarding our director and officer compensation and benefits,
please refer to our periodic filings with the Commission under the Securities
Exchange Act of 1934.
58
SECURITY OWNERSHIP OF CERTAIN OTHER BENEFICIAL OWNERS
AND MANAGEMENT
MANAGEMENT
The following table shows, as of March 19, 2004, the number of shares of our
common stock, par value $.01 per share (the only class of voting securities
outstanding), beneficially owned by: (1) each director; (2) each of our five
most highly compensated executive officers for 2003; and (3) all current
directors and executive officers as a group.
<Table>
<Caption>
- -------------------------------------------------------------------------------
SHARES OF COMMON
STOCK(1)(2)(3)(4)
- -------------------------------------------------------------------------------
DIRECTORS
- ---------
Charles W. Cramb............................................ 0
M. Kathryn Eickhoff......................................... 46,188
Frank E. Macher............................................. 24,386
Sir David Plastow(5)........................................ 32,306
Roger B. Porter............................................. 30,117
David B. Price, Jr. ........................................ 57,406
Dennis G. Severance......................................... 26,386
Paul T. Stecko.............................................. 32,538
NAMED EXECUTIVE OFFICERS
- ------------------------
Mark P. Frissora............................................ 863,630
Timothy R. Donovan.......................................... 271,043
Hari N. Nair................................................ 250,337
Richard P. Schneider........................................ 205,212
Brent J. Bauer.............................................. 123,569
All executive officers and directors as a group (18
individuals).............................................. 2,354,325(6)
- -------------------------------------------------------------------------------
</Table>
(1) Each director and executive officer has sole voting and investment power
over the shares beneficially owned (or has the right to acquire shares as
described in note (2) below) as set forth in this column, except for restricted
shares.
(2) Includes restricted shares. At March 19, 2004, Ms. Eickhoff and Messrs.
Donovan, Frissora, Nair, Schneider and Bauer held 16,436, 28,000, 100,000,
28,000, 17,500 and 17,500 restricted shares, respectively. Also includes shares
that are subject to options that are exercisable within 60 days of March 19,
2004 for Ms. Eickhoff and Messrs. Cramb, Donovan, Frissora, Macher, Plastow,
Porter, Price, Severance, Stecko, Nair, Schneider and Bauer to purchase 25,000,
0, 198,334, 666,666, 22,500, 28,764, 26,882, 25,000, 22,500, 25,000, 186,669,
140,000 and 90,834 shares, respectively.
(3) Mr. Frissora beneficially owns approximately 2.0 percent of the outstanding
common stock. Each of the other individuals listed in the table owns less than 1
percent of the outstanding shares of our common stock, respectively, except for
all directors and executive officers as a group, who beneficially own
approximately 5.4 percent of the outstanding common stock.
(4) For non-management directors, does not include common stock equivalents
received in payment of director fees. These common stock equivalents are payable
in cash or, at the Company's option, shares of common stock after a
non-management director ceases to serve as a director. At March 19, 2004, the
total number of common stock equivalents held by Ms. Eickhoff and Messrs. Cramb,
Macher, Plastow, Porter, Price, Severance and Stecko was 20,941, 13,969, 25,647,
31,875, 57,453, 38,739, 41,504 and 38,739, respectively.
(5) Retired effective May 11, 2004.
(6) Includes 1,723,853 shares that are subject to options that are exercisable
within 60 days of March 19, 2004 by all executive officers and directors as a
group. Includes 274,019 restricted shares.
59
CERTAIN OTHER STOCKHOLDERS
The following table sets forth, as of March 19, 2004, certain information
regarding the person known by us to be the beneficial owner of more than 5
percent of our outstanding common stock (the only class of voting securities
outstanding).
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------
SHARES OF
NAME AND ADDRESS COMMON STOCK PERCENT OF COMMON
OF BENEFICIAL OWNER(1) OWNED(1) STOCK OUTSTANDING
- ------------------------------------------------------------------------------------------------------
Dimensional Fund Advisors, Inc. ........................ 2,499,200(2) 5.97%(2)
Barclays Global Investors, NA and related entities...... 2,343,156(3) 5.60%(3)
- ------------------------------------------------------------------------------------------------------
</Table>
(1) This information is based on information contained in filings made with the
Commission regarding the ownership of our common stock.
(2) Dimensional Fund Advisors Inc. ("Dimensional"), 1299 Ocean Avenue, 11th
Floor, Santa Monica, California 90401, has indicated that it has sole voting and
dispositive power over 2,499,200 shares. Dimensional has also advised us that it
is a registered investment advisor and these shares are held on behalf of
various advisory clients.
(3) Barclays Global Investors, NA and various related entities (collectively,
"Barclays"), 45 Fremont Street, San Francisco, California 94105, have indicated
that they have sole voting and dispositive power over 2,249,570 shares in the
aggregate. Barclays has also advised the Company that all shares reflected above
are held in trust accounts on behalf of the beneficiaries of those accounts.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to August 12, 2003, Mr. Frissora was indebted to our company for amounts
incurred in connection with his 1999 relocation from Ohio to our headquarters in
Lake Forest, Illinois. This loan was made prior to the adoption of the
prohibition on loans to directors and executive officers included in the
Sarbanes-Oxley Act of 2002. The terms of that loan provided for no interest and
that principal was only payable in full upon termination of his employment prior
to August 2003, except for a termination without cause or following a change in
control. In accordance with the terms of the loan, the aggregate outstanding
balance ($400,000) was forgiven on August 12, 2003 based on Mr. Frissora's
continued employment at that time. This amount was included in Mr. Frissora's
taxable compensation for 2003.
60
DESCRIPTION OF OTHER INDEBTEDNESS AND OBLIGATIONS
SENIOR CREDIT FACILITY
GENERAL
As amended and restated in December 2003, our senior credit facility is a
committed senior secured financing arrangement with a group of banks and other
financial institutions, with J.P. Morgan Securities Inc. and Deutsche Bank
Securities Inc. as co-lead arrangers and joint book-runners, Bank of America,
N.A. and Citicorp North America, Inc., as co-documentation agents, Deutsche Bank
Securities Inc. as syndication agent, and JPMorgan Chase Bank, as administrative
agent.
The senior credit facility consists of:
- a seven-year, $400 million term loan B facility maturing in December
2010;
- a five-year, $220 million revolving credit facility expiring in
December 2008; and
- a seven-year, $180 million tranche B letter of credit/revolving loan
facility expiring in December 2010.
As part of the amendment and restatement, in addition to the amendments
described below, the terms of our senior credit facility were also revised to:
(i) extend the period of time during which we can exclude up to $60 million of
cash charges and expenses before taxes, related to our cost reduction
initiatives from the calculation of the financial covenant ratios by another two
years through 2006; (ii) permit the refinancing of our senior subordinated notes
and/or our senior secured notes using the net cash proceeds from the issuance of
similarly structured debt; (iii) permit the repurchase of our senior
subordinated notes and/or our senior secured notes using the net cash proceeds
from the issuance of shares of common stock of Tenneco Automotive Inc.; and (iv)
delete the mandatory prepayment of term loans from excess cash flow in 2003 and
reduce the percentage of excess cash flow that must be used to prepay term loans
in subsequent years from 75 percent to 50 percent.
On May 12, 2004 we amended our senior credit facility with the consent of our
senior lenders. The amendment enhances our flexibility by permitting us to
refinance, on or before December 31, 2004, any of our outstanding senior
subordinated notes without the requirement of a substantially concurrent
refinancing transaction. Under certain circumstances, the amendment also permits
us to amend the indenture governing our outstanding senior subordinated notes.
TERM LOAN B FACILITY
Subject to early repayment events specified in our senior credit facility and
summarized below, the $400 million term loan B facility is repayable in
consecutive equal quarterly installments of $1 million during the first six
years after the funding date, which began on March 31, 2004, the balance being
payable in equal quarterly installments during the last year (with the due date
of the final payment occurring on December 12, 2010). Borrowings under the term
loan B facility bear interest at a rate per annum equal to the London Interbank
Offered Rate ("LIBOR") plus 325 basis points in the case of LIBOR loans, or an
agreed base rate plus 225 basis points in the case of base rate loans, in each
case subject to adjustment following the first anniversary of the effectiveness
of our amended and restated senior credit facility based on a leverage-based
financial test. Although the term loan facility matures in 2010, such facility
is subject to mandatory prepayment in full (a) on April 15, 2009, if by that
date our senior
61
subordinated notes are not refinanced or extended with a maturity not earlier
than April 15, 2011, and (b) on the date which is six months prior to the date
to which the senior subordinated notes have been refinanced or had their
maturity extended, if our the senior subordinated notes have been refinanced or
had their maturity extended to a date prior to April 15, 2011.
REVOLVING CREDIT FACILITY
Subject to early repayment and termination events specified in our senior credit
facility and summarized below, the $220 million revolving credit facility
requires that it be repaid on or prior to, and will expire on, the fifth
anniversary of the funding date. Prior to that date, funds may be borrowed,
repaid and reborrowed under the revolving credit facility without premium or
penalty. Borrowings under the revolving credit facility will bear interest at
the rate of LIBOR plus 325 basis points, in the case of LIBOR loans, or an
agreed base rate plus 225 basis points, in the case of base rate loans, in each
case subject to adjustment following the first anniversary of the effectiveness
of the amended senior credit facility based on a leverage-based financial test.
Letters of credit issued thereunder accrue a letter of credit fee at a per annum
rate of 325 basis points for the pro rata account of the lenders under such
facility (subject to adjustment following the first anniversary of the
effectiveness of the amended and restated senior credit facility based on a
leverage-based financial test) and a fronting fee for the account of each of the
issuers thereof in an amount to be agreed upon. We may request that the lenders
or other entities provide additional commitments to the revolving credit
facility up to an aggregate facility size of $275 million. Up to $100 million of
the revolving credit facility is available for the issuance of letters of
credit. We are required to pay a commitment fee on a quarterly basis with
respect to the average daily unused portion of the revolving loan commitments in
an amount equal to 50 basis points, subject to adjustment following the first
anniversary of the effectiveness of our amended senior credit facility based on
a leverage-based financial test.
TRANCHE B LETTER OF CREDIT/REVOLVING LOAN FACILITY
Subject to early repayment and termination events specified in our senior credit
facility and summarized below, the $180 million tranche B letter of
credit/revolving loan facility is available for borrowings of revolving loans
and to support letters of credit issued from time to time under our senior
credit facility and expires on the seventh anniversary of the funding date. On
the funding date, participating lenders deposited $180 million with the
administrative agent, who was obligated to invest that amount in time deposits.
Revolving loans can be drawn, repaid and reborrowed thereunder. Such revolving
loans will be funded from such deposits and such repayments will be redeposited
with the administrative agent. If a letter of credit is paid under this facility
and not reimbursed in full by us, each participating lender's ratable share of
the deposit will be applied automatically in satisfaction of the reimbursement
obligation. We do not and will not have an interest in any such funds on deposit
and we have not and will not account for such funds as our indebtedness when
deposited with the administrative agent until drawn by us as described below.
Revolving loans borrowed under such facility will be funded with the funds on
deposit in such accounts and accrue interest at a rate per annum equal to LIBOR
plus 325 basis points, or if an event of default has occurred thereunder and the
lenders holding the majority of the credit extensions thereunder so require, an
agreed base rate plus 225 basis points, in each case payable monthly in arrears
and subject to adjustment following the first anniversary of the effectiveness
of our amended and restated senior credit facility based on a leverage-based
financial test. Letters of credit issued thereunder accrue a
62
letter of credit fee at a per annum rate of 325 basis points for the pro rata
account of the lenders under such facility (subject to adjustment following the
first anniversary of the effectiveness of our amended and restated senior credit
facility based on a leverage-based financial test) payable monthly in arrears
and a fronting fee for the ratable account of the issuers thereof at a per annum
rate in an amount to be agreed upon payable monthly in arrears. The
administrative agent pays on a monthly basis to the lenders under the facility a
return on their funds actually on deposit in such accounts in an amount equal to
a per annum rate of monthly LIBOR (reset every business day during such monthly
period) minus 10 basis points. We are obligated to pay such lenders on a monthly
basis a fee equal to the excess of (x) a per annum rate equal to monthly LIBOR
(reset at the start of the applicable month) plus 325 basis points on the size
of such facility (i.e., $180 million initially) over (y) the sum of (1) the
amount of such return for such month, (2) the amount of interest accrued on such
loans under such facility for such month and (3) the letter of credit fees (but
not the fronting fees) accrued on such letters of credit under such facility for
such month; provided, that except in certain circumstances, the aggregate amount
of such interest and fees shall not exceed the amount determined pursuant to
clause (x) above minus such return. Although the tranche B letter of
credit/revolving loan facility matures in 2010, the facility is subject to
mandatory prepayment in full and cash collateralization in full of letters of
credit issued thereunder, (a) on April 15, 2009, if our senior subordinated
notes are not refinanced or extended with a maturity not earlier than April 15,
2011, and (b) on the date which is six months prior to the date to which the
senior subordinated notes have been refinanced or had their maturity extended,
if our the senior subordinated notes have been refinanced or had their maturity
extended to a date prior to April 15, 2011.
Under current accounting rules, the tranche B letter of credit/revolving loan
facility will be reflected as debt on our balance sheet only if we have
outstanding thereunder revolving loans or payments by the facility in respect of
letters of credit. We will not be liable for any losses to or misappropriation
of any (i) return due to the administrative agent's failure to achieve the
return described above or to pay all or any portion of such return to any lender
under such facility or (ii) funds on deposit in such account by such lender
(other than the obligation to repay funds released from such accounts and
provided to us as revolving loans under such facility.)
COLLATERAL AND GUARANTEES
Our senior credit facility is jointly and severally guaranteed on a first
priority basis by each of our material direct and indirect domestic
subsidiaries, subject to some exceptions. Our senior credit facility is also
secured by substantially all of the tangible and intangible assets of us and our
subsidiary guarantors and is collateralized by a perfected security interest in
all of the capital stock of our and the subsidiary guarantors' direct domestic
subsidiaries and up to 66 percent of the capital stock of our and the subsidiary
guarantor's direct foreign subsidiaries.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Our senior credit facility requires that we maintain financial ratios equal to
or better than the following consolidated leverage ratios (consolidated
indebtedness divided by consolidated EBITDA as defined therein), consolidated
interest coverage ratios (consolidated EBITDA divided by consolidated cash
interest paid as defined therein) and fixed charge coverage ratios
63
(consolidated EBITDA less consolidated capital expenditures, divided by
consolidated cash interest paid as defined therein) at the end of each period
indicated.
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------------
QUARTERS ENDING
--------------------------------------------------------------
SEPTEMBER 30,
MARCH 31 -- 2004 -- SEPTEMBER 30, -- MARCH 31 --
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
2004 2005 2005 2006
- --------------------------------------------------------------------------------------------------------------
Leverage Ratio (maximum)...................... 5.00 4.75 4.50 4.25
Interest Coverage Ratio (minimum)............. 2.00 2.00 2.00 2.10
Fixed Charge Coverage Ratio (minimum)......... 1.10 1.10 1.10 1.15
<Caption>
- ---------------------------------------------- ---------------------------------------------------------
QUARTERS ENDING
---------------------------------------------------------
MARCH 31 -- MARCH 31 -- MARCH 31 -- MARCH 31 --
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2007 2008 2009 2010
- ---------------------------------------------------------------------------------------------------------
Leverage Ratio (maximum)...................... 3.75 3.50 3.50 3.50
Interest Coverage Ratio (minimum)............. 2.20 2.35 2.50 2.75
Fixed Charge Coverage Ratio (minimum)......... 1.35 1.35 1.50 1.75
</Table>
Our senior credit facility agreement also contains customary representations and
warranties and restrictions on our operations that are customary for similar
facilities, including limitations on: (i) incurring additional liens; (ii) sale
and leaseback transactions (except for the permitted transactions described
above); (iii) liquidations and dissolutions; (iv) incurring additional
indebtedness or guarantees except for specified permitted debt; (v) capital
expenditures; (vi) dividends; (vii) mergers and consolidations; and (viii)
prepayments and modifications of subordinated and other debt instruments.
Compliance with these requirements and restrictions is a condition for any
incremental borrowings under our senior credit facility and failure to meet
these requirements enables the lenders to require repayment of any outstanding
loans.
Our senior credit facility does not contain any terms that specifically provide
for the acceleration of the payment of the facility as a result of a credit
rating agency downgrade.
The agreement for our senior credit facility may be further amended at any time
in accordance with the terms thereof, without the consent of any noteholders.
As of March 31, 2004, we were in compliance with both the financial covenants
and operational restrictions of the facility.
PREPAYMENTS
Our senior secured credit facility requires that the following be used first, to
prepay the term loan B facility and second, to prepay and cash collateralize the
tranche B letter of credit/revolving loan facility:
- 100 percent of the net proceeds of any issuance or incurrence of
indebtedness by us or our subsidiaries, subject to some exceptions;
- 50 percent of the net proceeds of any issuance of equity by us or our
subsidiaries, subject to some exceptions;
- 100 percent of the net proceeds of any sale or other disposition by us
or our subsidiaries or any assets, subject to some exceptions;
- 50 percent of annual excess cash flow as defined in our senior credit
facility; and
- 100 percent of the net proceeds of casualty insurance, condemnation
awards or other recoveries, subject to some exceptions.
The mandatory prepayment percentages listed above, other than the percentage
relating to issuance of equity, will be reduced if we achieve certain
performance measures established in our senior credit facility. In addition,
each of the term loan facility and the tranche B letter of credit/revolving loan
facility is subject to mandatory prepayment in full and, in the case of
64
letters of credit under the tranche B letter of credit/revolving loan facility,
mandatory cash collateralization in full, (a) on April 15, 2009, if our
outstanding senior subordinated notes are not refinanced or extended with a
maturity not earlier than April 15, 2011, and (b) on the date which is six
months prior to the date to which the senior subordinated notes have been
refinanced or maturity extended, if our outstanding senior subordinated notes
have been fully refinanced or had their maturity extended to a date prior to
April 15, 2011.
EVENTS OF DEFAULT
Events of default under our senior credit facility include, but are not limited
to:
- our failure to pay principal or interest when due (subject to a grace
period for interest);
- our material breach of any representation or warranty;
- covenant defaults; and
- events of bankruptcy.
In addition, a change of control of our company will permit the senior lenders
to make all amounts outstanding under our senior credit facility immediately due
and payable.
SENIOR SUBORDINATED NOTES
We have outstanding $500 million of 11 5/8 percent senior subordinated notes due
October 15, 2009. Our senior subordinated notes were issued under an indenture
dated October 14, 1999, by and between us and The Bank of New York, as trustee,
and are treated as a single class of securities for all purposes under that
indenture. All of our existing and future material domestic wholly owned
subsidiaries fully and unconditionally guarantee these notes on a joint and
several basis. There are no significant restrictions on the ability of the
subsidiaries that have guaranteed these notes to make distributions to us.
Our senior subordinated notes are senior subordinated unsecured obligations
ranking junior in right of payment to all of our existing and future senior debt
and all liabilities of our subsidiaries that do not guarantee those notes. In
the event of liquidation, bankruptcy, insolvency or similar events, holders of
senior debt, such as the lenders under our senior credit facility, are entitled
to receive payment in full in cash or cash equivalents before holders of the
senior subordinated notes are entitled to receive any payments. No payments may
be made on the outstanding senior subordinated notes if we default on the
payment of senior debt, and payments on the outstanding senior subordinated
notes may be blocked for up to 180 days if we default on the senior debt in some
other way until such default is cured or waived. Interest on the outstanding
senior subordinated notes is payable at the rate of 11 5/8 percent per annum and
is payable semi-annually in cash on each April 15 and October 15. The
outstanding senior subordinated notes will mature on October 15, 2009.
We have the right to redeem the outstanding senior subordinated notes in whole
or in part form time to time on and after October 15, 2004 at the following
redemption prices (expressed as percentages of the principal amount) if redeemed
during the twelve-month period
65
commencing on October 15 of the year set forth below, plus, in each case,
accrued and unpaid interest, if any, to the date of redemption.
<Table>
<Caption>
- ------------------------------------------------------------------------
YEAR PERCENTAGE
- ------------------------------------------------------------------------
2004........................................................ 105.813%
2005........................................................ 103.875%
2006........................................................ 101.938%
2007 and thereafter......................................... 100.000%
- ------------------------------------------------------------------------
</Table>
The senior subordinated debt indenture requires that we, as a condition to
incurring certain types of indebtedness not otherwise permitted, maintain an
interest coverage ratio of not less than 2.25. We have not incurred any of the
types of indebtedness not otherwise permitted by this indenture. This indenture
also contains restrictions on our operations, including limitations on:
- incurring additional indebtedness or liens;
- dividends;
- distributions and stock repurchases;
- investments; and
- mergers and consolidations.
These covenants are subject to a number of important exceptions. In addition,
the indenture governing the outstanding senior subordinated notes contains
events of defaults that are substantially similar to those contained in the
indenture governing our senior secured notes. As of March 31, 2004, we were in
compliance with the covenants and restrictions of the indenture related to the
outstanding senior subordinated notes.
RECEIVABLES FINANCING
In addition to our senior credit facility and senior subordinated notes, we also
sell some of our accounts receivable. In North America, we have an accounts
receivable securitization program with a commercial bank. We sell OE and
aftermarket receivables on a daily basis under this program. We had sold
accounts receivable under this program of $54 million and $50 million at March
31, 2004 and 2003, respectively. This program is subject to cancellation prior
to its maturity date if we were to:
- fail to pay interest or principal payments on an amount of indebtedness
exceeding $50 million,
- default on the financial covenant ratios under the senior credit
facility, or
- fail to maintain certain financial ratios in connection with the
accounts receivable securitization program.
In January 2003, this program was amended to extend its term to January 31, 2005
and reduce the size of the program to $50 million and was then subsequently
further amended to increase its size to $75 million with its termination date
unchanged at January 31, 2005. We also sell some receivables in our European
operations to regional banks in Europe. At March 31, 2004 and 2003, we had sold
$90 million and $72 million, respectively, of accounts receivable in Europe. The
arrangements to sell receivables in Europe are not committed and can be
66
cancelled at any time. If we were not able to sell receivables under either the
North American or European securitization programs, our borrowings under our
revolving credit agreement would increase. These accounts receivable
securitization programs provide us with access to cash at costs that are
generally favorable to alternative sources of financing, and allow us to reduce
borrowings under our revolving credit facility.
SWAP AGREEMENTS
In April 2004, we entered into three separate fixed-to-floating interest rate
swaps with two separate financial institutions. These agreements swapped an
aggregate of $150 million of fixed interest rate debt with a per annum rate of
10 1/4 percent to floating interest rate debt at a per annum rate of LIBOR plus
a spread of 5.68 percent. Each agreement requires semi-annual settlements
through July 15, 2013. Based on the initial LIBOR as determined under the
agreements of 1.24 percent, these swaps would reduce our annual interest expense
by approximately $5 million, which is not reflected in the pro forma information
presented elsewhere in this prospectus.
CERTAIN CONTRACTUAL OBLIGATIONS
Our remaining required debt principal amortization and payment obligations under
lease and other financial commitments as of March 31, 2004 are shown in the
following table:
<Table>
<Caption>
- -----------------------------------------------------------------------------------------
PAYMENTS DUE IN:
--------------------------------------------------
BEYOND
(MILLIONS) 2004 2005 2006 2007 2008 2008 TOTAL
- -----------------------------------------------------------------------------------------
Obligations:
Revolver borrowings.................. $ - $ - $ - $ - $ - $ - $ -
Senior long-term debt................ 3 4 4 4 4 380 399
Long-term notes...................... - 1 - 1 2 476 480
Capital leases....................... 3 3 3 3 2 5 19
Subordinated long-term debt.......... - - - - - 500 500
Other subsidiary debt................ 1 1 - - - - 2
Short-term debt...................... 10 - - - - - 10
---- ---- ---- ---- ---- ------ ------
Debt and capital lease
obligations.................... 17 9 7 8 8 1,361 1,410
Operating leases..................... 11 15 13 12 5 6 62
Interest payments.................... 98 127 127 127 126 308 913
Capital commitments.................. 42 - - - - - 42
Stock appreciation rights............ 2 - - - - - 2
---- ---- ---- ---- ---- ------ ------
Total payments....................... $170 $151 $147 $147 $139 $1,675 $2,429
==== ==== ==== ==== ==== ====== ======
- -----------------------------------------------------------------------------------------
</Table>
67
We principally use our revolving credit facilities to finance our short-term
capital requirements. As a result, we classify the outstanding balances of the
revolving credit facilities within our short-term debt even though the revolving
credit facility has a termination date of December 13, 2008 and the tranche B
letter of credit facility/revolving loan facility has a termination date of
December 13, 2010.
If we do not maintain compliance with the terms of our senior credit facility,
the indenture governing the notes offered for exchange hereby and senior
subordinated debt indenture described above, all amounts under those
arrangements could, automatically or at the option of the lenders or other debt
holders, become due. Additionally, each of those facilities contains provisions
that certain events of default under one facility will constitute a default
under the other facility, allowing the acceleration of all amounts due. Except
as otherwise discussed herein, we currently expect to maintain compliance with
terms of all of our various credit agreements for the foreseeable future.
Included in our contractual obligations is the amount of interest to be paid on
our long-term debt. As our debt structure contains both fixed and variable rate
interest debt, we have made assumptions in calculating the amount of the future
interest payments. Interest on our senior secured notes and senior subordinated
notes is calculated using the fixed rates of 10 1/4 percent and 11 5/8 percent,
respectively. Interest on our variable rate debt is calculated as 350 basis
point plus LIBOR of 1.5 percent which is the current rate at March 31, 2004. We
have assumed that LIBOR will remain unchanged for the outlying years. In
addition, we have not included the impact of interest rate swaps completed in
April 2004. See "--Swap agreements."
We have also included an estimate of expenditures required after March 31, 2004
to complete the facilities and projects authorized at December 31, 2003 in which
we have made substantial commitments in connection with the facilities. In
addition, we have included an estimate of our obligation to a consulting firm
who received stock appreciation rights ("SAR") as partial payment for services
rendered in the year 2000. The SAR's expire in November 2004.
We have not included purchase obligations as part of our contractual obligations
as we generally do not enter into long-term agreements with our suppliers. In
addition, the agreements we currently have do not specify the volumes we are
required to purchase. If any commitment is provided, in many cases the
agreements state only the minimum percentage of our purchase requirements we
must buy from the supplier. As a result, these purchase obligations fluctuate
from year to year and we are not able to quantify the amount of our future
obligation.
We have also not included material cash requirements for taxes and funding
requirements for pension and postretirement benefits. We have not included cash
requirements for taxes as we are a taxpayer in certain foreign jurisdictions but
not in domestic locations. Additionally, it is difficult to estimate taxes to be
paid as shifts in where we generate income can have a significant impact on
future tax payments. We have not included cash requirements for funding pension
and postretirement costs, as based upon current estimates we believe we will be
required to make contributions between $34 million to $41 million to those plans
in 2004, of which approximately $3 million had been contributed as of March 31,
2004. Pension and postretirement contributions beyond 2004 will be required but
those amounts will vary based upon many factors, including the performance of
our pension fund investments during 2004.
We occasionally provide guarantees that could require us to make future payments
in the event that the third party primary obligor does not make its required
payments. We have not recorded a liability for any of these guarantees. The only
third party guarantee we have made
68
is the performance of lease obligations by a former affiliate. Our maximum
liability under this guarantee was approximately $4 million at March 31, 2004,
respectively. We have no recourse in the event of default by the former
affiliate. However, we have not been required to make any payments under this
guarantee.
Additionally, we have from time to time issued guarantees for the performance of
obligations by some of our subsidiaries, and some of our subsidiaries have
guaranteed our debt. All of our then existing and future material domestic
wholly-owned subsidiaries fully and unconditionally guarantee the $800 million
senior secured credit facility, the $475 million senior secured notes and the
$500 million senior subordinated notes on a joint and several basis. The
arrangement for the senior secured credit facility is also secured by
substantially all our domestic assets and pledges of 66 percent of the stock of
certain first-tier foreign subsidiaries. The arrangement for the $475 million
senior secured notes is secured by second priority liens, subject to specified
exceptions, on all of our domestic assets that secure obligations under our
senior credit facility, except that only a portion of the capital stock of our
domestic subsidiaries is provided as collateral. No assets or capital stock of
our direct or indirect foreign subsidiaries secure. You should also read Note 12
to our consolidated financial statements in our Annual Report on Form 10-K for
the year ended December 31, 2003 and Note 13 to our Quarterly Report on Form
10-Q for the three months ended March 31, 2004, incorporated by reference herein
where we present the Supplemental Guarantor Condensed Consolidating Financial
Statements.
We have issued guarantees through letters of credit in connection with some
obligations of our affiliates. We have guaranteed through letters of credit
support for local credit facilities, travel and procurement card programs, and
cash management requirements for some of our subsidiaries totaling $42 million
at March 31, 2004. We have also issued $18 million in letters of credit to
support some of our subsidiaries' insurance arrangements and $3 million in
guarantees through letters of credit to guarantee other obligations of
subsidiaries primarily related to environmental remediation activities at March
31, 2004.
69
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Contemporaneously with issuing the $125 million of the old notes in the private
placement on December 12, 2003, we entered into a registration rights agreement
with the initial purchasers of the old notes. In that agreement we agreed to
file a registration statement relating to an offer to exchange the old notes for
exchange notes. The registration statement of which this prospectus forms a part
was filed in compliance with that obligation. We also agreed to use our
commercially reasonable efforts to cause that exchange offer to be consummated
within 210 days following the original issue of the old notes.
The exchange notes we propose to issue will have terms substantially identical
to the old notes except that the exchange notes will not contain terms with
respect to transfer restrictions, registration rights or additional interest
payable for the failure to have the registration statement of which this
prospectus forms a part declared effective by June 11, 2004 or the exchange
offer consummated by July 9, 2004.
We reserve the right, in our sole discretion, to purchase or make offers for any
old notes that remain outstanding following the expiration or termination of
this exchange offer and, to the extent permitted by applicable law, to purchase
old notes in the open market or privately negotiated transactions, in one or
more additional tender or exchange offers or otherwise. The terms and prices of
these purchases or offers could differ significantly from the terms of this
exchange offer.
Under the circumstances set forth below, we will use our commercially reasonable
efforts to cause the Commission to declare effective a shelf registration
statement with respect to the resale of the old notes and keep the statement
effective for up to two years after the original issuance of the old notes.
These circumstances include:
- if we and our subsidiary guarantors determine that any applicable law,
Commission rules or regulations or prevailing interpretations of such
rules or regulations by the staff of the Commission do not permit us to
effect the exchange offer as contemplated by the registration rights
agreement;
- if the exchange offer is not consummated within 210 days after the
original issue of the old notes; or
- if any of the initial purchasers in the private offering of the old
notes (i) holds old notes that have the status of an unsold allotment in
an initial distribution, and (ii) such initial purchaser so requests in
writing on or before the 60th day after the consummation of the exchange
offer.
If we fail to comply with our obligations under the registration rights
agreement to have the registration statement of which this prospectus forms a
part declared effective by June 11, 2004, or the exchange offer consummated by
July 9, 2004, we will be required to pay additional interest to holders of the
old notes as described under the heading "Registration rights."
70
Each holder of old notes that wishes to exchange such old notes for exchange
notes in the exchange offer will be required, among other things, to make the
following representations:
- any exchange notes will be acquired in the ordinary course of its
business;
- such holder has no arrangement or understanding with any person to
participate in the distribution of the exchange notes;
- if such holder is a broker-dealer that will receive exchange notes for
its own account in exchange for old notes that were acquired as a result
of market making activities, that such holder will deliver a prospectus,
as required by law, in connection with any resale of exchange notes; and
- such holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of either us or any of the subsidiary guarantors.
RESALE OF EXCHANGE NOTES
Based on interpretations of the Commission staff set forth in no action letters
issued to unrelated third parties, we believe that exchange notes issued under
the exchange offer in exchange for old notes may be offered for resale, resold
and otherwise transferred by any exchange note holder without compliance with
the registration and prospectus delivery provisions of the Securities Act, if:
- such holder is not an "affiliate" of us or our subsidiary guarantors
within the meaning of Rule 405 under the Securities Act;
- such exchange notes are acquired in the ordinary course of the holder's
business; and
- the holder does not intend to participate in the distribution of such
exchange notes.
Any holder who tenders in the exchange offer with the intention of participating
in any manner in a distribution of the exchange notes cannot rely on the
position of the staff of the Commission set forth in "Exxon Capital Holdings
Corporation" or similar interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
If as stated above a holder cannot rely on the position of the staff of the
Commission set forth in "Exxon Capital Holdings Corporation" or similar
interpretive letters, any effective registration statement used in connection
with a secondary resale transaction must contain the selling security holder
information required by Item 507 of Regulation S-K under the Securities Act.
This prospectus may be used for an offer to resell, for the resale or for other
retransfer of exchange notes only as specifically set forth in this prospectus.
With regard to broker-dealers, only broker-dealers that acquired the old notes
as result of market-making activities or other trading activities may
participate in the exchange offer. Each broker-dealer that receives exchange
notes for its own account in exchange for old notes, where such old notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. Please read the section
captioned "Plan of distribution" for more details regarding these procedures for
the transfer of exchange notes.
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TERMS OF EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus and in
the letter of transmittal, we will accept for exchange any old notes properly
tendered and not withdrawn prior to the expiration time. We will issue $1,000
principal amount of exchange notes in exchange for each $1,000 principal amount
of old notes surrendered under the exchange offer. Old notes may be tendered
only in integral multiples of $1,000.
The form and terms of the exchange notes will be substantially identical to the
form and terms of the old notes except that the exchange notes will:
- be registered under the Securities Act,
- not bear legends restricting their transfer,
- bear a "Series B" designation to differentiate them from the old notes,
which bear a "Series A" designation, and
- not provide for any additional interest upon our failure to fulfill our
obligations under the registration rights agreement to file and cause to
be effective a registration statement.
The exchange notes will evidence the same debt as the old notes. The exchange
notes will be issued under and entitled to the benefits of the same indenture
that authorized the issuance of the old notes. Consequently, both series will be
treated as a single class of debt securities under that indenture.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of exchange notes being tendered for exchange.
As of the date of this prospectus, $125 million aggregate principal amount of
the old notes are outstanding. This prospectus and the letter of transmittal are
being sent to all registered holders of old notes. There will be no fixed record
date for determining registered holders of old notes entitled to participate in
the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions of the
registration rights agreement, the applicable requirements of the Securities Act
and the Securities Exchange Act of 1934 and the rules and regulations of the
Commission. Old notes that are not tendered for exchange in the exchange offer
will remain outstanding and continue to accrue interest and will be entitled to
the rights and benefits such holders have under the indenture relating to the
old notes.
We will be deemed to have accepted for exchange properly tendered old notes when
we have given oral or written notice of the acceptance to the exchange agent.
The exchange agent will act as agent for the tendering holders for the purposes
of receiving the exchange notes from us and delivering exchange notes to such
holders. Subject to the terms of the exchange and the registration rights
agreement, we expressly reserve the right to amend or terminate the exchange
offer, and not to accept for exchange any old notes not previously accepted for
exchange, upon the occurrence of any of the conditions specified below under the
caption "--Certain conditions to the exchange offer."
Holders who tender old notes in the exchange offer will not be required to pay
brokerage commissions or fees, or, subject to the instructions in the letter of
transmittal, transfer taxes with respect to the exchange of old notes. We will
pay all charges and expenses, other than those transfer taxes described below,
in connection with the exchange offer. It is important
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that you read the section labeled "--Fees and expenses" below for more details
regarding fees and expenses incurred in the exchange offer.
EXPIRATION TIME; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time on Wednesday,
June 30, 2004, unless, in our sole discretion, we extend it.
In order to extend the exchange offer, we will notify the exchange agent orally
or in writing of any extension. We will notify in writing or by public
announcement the registered holders of old notes of the extension no later than
9:00 a.m., New York City time, on the business day after the previously
scheduled expiration date.
We expressly reserve the right, in our sole discretion:
- to delay accepting for exchange any old notes;
- to extend the exchange offer or to terminate the exchange offer and to
refuse to accept old notes not previously accepted if any of the
conditions set forth below under "--Conditions to the exchange offer"
have not been satisfied, by giving oral or written notice of such
extension or termination to the exchange agent; or
- subject to the terms of the registration rights agreement, to amend the
terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice or public
announcement thereof to the registered holders of old notes. If we amend the
exchange offer in a manner that we determine to constitute a material change, we
will promptly disclose such amendment in a manner reasonably calculated to
inform the holders of old notes of such amendment.
Without limiting the manner in which we may choose to make public announcements
of any delay in acceptance, extension, termination or amendment of the exchange
offer, we shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by issuing a timely press
release to a financial news service. If we make any material change to this
exchange offer, we will disclose this change by means of a post-effective
amendment to the registration statement which includes this prospectus and will
distribute an amended or supplemented prospectus to each registered holder of
old notes. In addition, we will extend this exchange offer for an additional
five to ten business days as required by the Exchange Act, depending on the
significance of the amendment, if the exchange offer would otherwise expire
during that period. We will promptly notify the exchange agent by oral notice,
promptly confirmed in writing, or written notice of any delay in acceptance,
extension, termination or amendment of this exchange offer.
CONDITIONS TO THE EXCHANGE OFFER
Despite any other terms of the exchange offer, we will not be required to accept
for exchange, or exchange any exchange notes for, any old notes, and we may
terminate the exchange offer as provided in this prospectus before accepting any
old notes for exchange, if we determine in our sole discretion:
- the exchange offer would violate applicable law or any applicable
interpretation of the staff of the Commission; or
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- any action or proceeding has been instituted or threatened in any court
or by any governmental agency with respect to the exchange offer.
In addition, we will not be obligated to accept for exchange the old notes of
any holder that has not made the representations described in the letter of
transmittal and under "--Purpose and effect of the exchange offer,"
"--Procedures for tendering the old notes" and "Plan of distribution," and such
other representations as may be reasonably necessary under applicable Commission
rules, regulations or interpretations to make available to it an appropriate
form for registration of the exchange notes under the Securities Act.
We expressly reserve the right, at any time or at various times, to extend the
period of time during which the exchange offer is open. Consequently, we may
delay acceptance of any old notes by giving oral or written notice of such
extension to the registered holders of the old notes. During any such
extensions, all old notes previously tendered will remain subject to the
exchange offer, and we may accept them for exchange unless they have been
previously withdrawn. We will return any old notes that we do not accept for
exchange for any reason without expense to their tendering holder as promptly as
practicable after the expiration or termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer, and to
reject for exchange any old notes not previously accepted for exchange, upon the
occurrence of any of the conditions of the exchange offer specified above. We
will give oral or written notice or public announcement of any extension,
amendment, non-acceptance or termination to the registered holders of the old
notes as promptly as practicable. In the case of any extension, such notice will
be issued no later than 9:00 a.m., New York City time, on the business day after
the previously scheduled expiration date.
These conditions are for our sole benefit and we may assert them regardless of
the circumstances that may give rise to them or waive them in whole or in part
at any or at various times in sole discretion. If we fail at any time to
exercise any of the foregoing rights, that failure will not constitute a waiver
of such right. Each such right will be deemed an ongoing right that we may
assert at any time or at various times.
In addition, we will not accept for exchange any old notes tendered, and will
not issue exchange notes in exchange for any such old notes, if at such time any
stop order will be threatened or in effect with respect to the registration
statement of which this prospectus constitutes a part or the qualification of
the indenture under the Trust Indenture Act of 1939.
PROCEDURES FOR TENDERING THE OLD NOTES
Only a holder of old notes may tender such old notes in the exchange offer. To
tender in the exchange offer, a holder must:
- complete, sign and date the letter of transmittal, or a facsimile of
the letter of transmittal; have the signature on the letter of
transmittal guaranteed if the letter of transmittal so requires; and mail
or deliver such letter of transmittal or facsimile to the exchange agent
prior to the expiration date; or
- comply with DTC's Automated Tender Offer Program procedures described
below.
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In addition, either:
- the exchange agent must receive old notes along with the letter of
transmittal; or
- the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of such old notes into the exchange
agent's account at DTC according to the procedures for book-entry
transfer described below or a properly transmitted agent's message; or
- the holder must comply with the guaranteed delivery procedures
described below.
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at the
address set forth below under "--Exchange agent" prior to the expiration time.
The tender by a holder that is not withdrawn prior to the expiration time will
constitute an agreement between such holder and us in accordance with the terms
and subject to the conditions set forth in this prospectus and in the letter of
transmittal.
The method of delivery of old notes, the letter of transmittal and all other
required documents to the exchange agent is at the holder's election and risk.
Rather than mail these items, we recommend that holders use an overnight or hand
delivery service. In all cases, holders should allow sufficient time to assure
delivery to the exchange agent before the expiration time. Holders should not
send us the letter of transmittal or old notes. Holders may request their
respective brokers, dealers, commercial banks, trust companies or other nominees
to effect the above transactions for them.
We will determine in our sole discretion all questions as to the validity, form,
eligibility (including time of receipt) and acceptance of tendered old notes and
withdrawal of tendered old notes. Our determination will be final and binding.
We reserve the absolute right to reject any old notes not properly tendered or
any old notes the 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 binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of old notes must be cured
within such time as we shall determine. Although we intend to notify holders of
defects or irregularities with respect to tenders of old notes, neither we, the
exchange agent nor any other person will incur any liability for failure to give
such notification. Tenders of old notes will not be deemed made until such
defects or irregularities have been cured or waived. Any old notes received by
the exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the exchange
agent without cost to the tendering holder, unless otherwise provided in the
letter of transmittal, as soon as practicable following the expiration of the
exchange offer.
In all cases, we will issue exchange notes for old notes that we have accepted
for exchange under the exchange offer only after the exchange agent timely
receives:
- old notes or a timely book-entry confirmation of such old notes into
the exchange agent's account at DTC; and
- properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
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By signing the letter of transmittal, each tendering holder of the old notes
represents, among other things, that:
(i) any exchange notes that the holder receives will be acquired in the
ordinary course of its business;
(ii) the holder has no arrangement or understanding with any person or
entity to participate in the distribution of the exchange notes;
(iii) if the holder is a broker-dealer that will receive exchange notes
for its own account in exchange for old notes that were acquired as a
result of market-making activities, that it will deliver a prospectus, as
required by law, in connection with any resale of such exchange notes;
and
(iv) the holder is not an "affiliate" of us or any of our subsidiary
guarantors, as defined in Rule 405 of the Securities Act.
Any beneficial owner whose old notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contract the registered holder promptly and instruct it to tender on the
owners' behalf. If such beneficial owner wishes to tender on its own behalf, it
must, prior to completing and executing the letter of transmittal and delivering
its old notes, either make appropriate arrangements to register ownership of the
old notes in such owner's name or obtain a properly completed bond power from
the registered holder of old notes. The transfer of registered ownership may
take considerable time and may not be completed prior to the expiration time.
Signatures on a letter of transmittal or a notice of withdrawal described below
must be guaranteed by a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or correspondent in the United States or another
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act, unless the old notes tendered pursuant thereto are tendered by a
registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the letter of transmittal or
for the account of an eligible guarantor institution.
If the letter of transmittal is signed by a person other than the registered
holder of any old notes listed on the old notes, such old notes must be endorsed
or accompanied by a properly completed bond power. The bond power must be signed
by the registered holder as the registered holder's name appears on the old
notes and an eligible guarantor institution must guarantee the signature on the
bond power.
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, such
persons should so indicate when signing. Unless waived by us, they should also
submit evidence satisfactory to us of their authority to deliver the letter of
transmittal.
The exchange agent and DTC have confirmed that any financial institution that is
a participant in DTC's system may use DTC's Automated Tender Offer Program to
tender. Participants in the program may, instead of physically completing and
signing the letter of transmittal and delivering it to the exchange agent,
transmit their acceptance of the exchange offer electronically. They may do so
by causing DTC to transfer the old notes to the exchange agent in accordance
with its procedures for transfer. DTC will then send an agent's message to the
76
exchange agent. The term "agent's message" means a message transmitted by DTC,
received by the exchange agent and forming part of the book-entry confirmation,
to the effect that: (1) DTC has received an express acknowledgement from a
participant in its Automated Tender Offer Program that is tendering old notes
that are the subject of such book-entry confirmation; (2) such participant has
received and agrees to be bound by the terms of this prospectus and the letter
of transmittal (or, in the case of an agent's message relating to guaranteed
delivery, that such participant has received and agrees to be bound by the
notice of guaranteed delivery); and (3) the agreement may be enforced against
such participant.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect to
the old notes at DTC for purposes of the exchange offer promptly after the date
of this prospectus and any financial institution participating in DTC's system
may make book-entry delivery of old notes by causing DTC to transfer such old
notes into the exchange agent's account at DTC in accordance with DTC's
procedures for transfer. Holders of old notes who are unable to deliver
confirmation of the book-entry tender of their old notes into the exchange
agent's account at DTC or all other documents of transmittal to the exchange
agent on or prior to the expiration date must tender their old notes according
to the guaranteed delivery procedures described below under "--Guaranteed
delivery procedures."
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their old notes but whose old notes are not
immediately available or who cannot deliver their old notes, the letter of
transmittal or any other required documents to the exchange agent or comply with
the applicable procedures under DTC's Automated Tender Offer Program prior to
the expiration time may tender if:
- the tender is made through an eligible guarantor institution;
- prior to the expiration time, the exchange agent receives from such
eligible guarantor institution either a properly completed and duly
executed notice of guaranteed delivery (by facsimile transmission, mail
or hand delivery) or a properly transmitted agent's message and notice of
guaranteed delivery:
- setting forth the name and address of the holder, the registered
number(s) of such old notes and the principal amount of old notes
tendered;
- stating that the tender is being made thereby; and
- guaranteeing that, within three (3) New York Stock Exchange trading
days after the expiration date, the letter of transmittal (or facsimile
thereof) together with the old notes or a book-entry confirmation, and
any other documents required by the letter of transmittal will be
deposited by the eligible guarantor institution with the exchange
agent; and
- the exchange agent receives such properly completed and executed letter
of transmittal (or facsimile thereof), as well as all tendered old notes
in proper form for transfer or a book-entry confirmation, and all other
documents required by the letter of transmittal, within three (3) New
York Stock Exchange trading days after the expiration date.
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WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of old notes may
withdraw their tenders at any time prior to the expiration of the exchange
offer. For a withdrawal to be effective the exchange agent must receive a
written notice (which may be by telegram, telex, facsimile transmission or
letter) of withdrawal at one of the addresses set forth below under "--Exchange
agent", or the holder must comply with the appropriate procedure of DTC's
Automated Tender Offer Program system.
Any such notice of withdrawal must specify the name of the person who tendered
the old notes to be withdrawn, identify the old notes to be withdrawn (including
the principal amount of such old notes and, if applicable, the registration
numbers and total principal amount of such old notes), and where certificates
for old notes have been transmitted, specify the name in which such old notes
were registered, if different from that of the withdrawing holder. Any such
notice of withdrawal must also be signed by the person having tendered the old
notes to be withdrawn in the same manner as the original signature on the letter
of transmittal by which these old notes were tendered, including any required
signature guarantees, or be accompanied by documents of transfer sufficient to
permit the trustee for the old notes to register the transfer of these notes
into the name of the person having made the original tender and withdrawing the
tender, and, if applicable because the old notes have been tendered through the
book-entry procedure, specify the name and number of the participant's account
at The Depository Trust Company to be credited, if different than that of the
person having tendered the old notes to be withdrawn.
If certificates for old notes have been delivered or otherwise identified to the
exchange agent, then, prior to the release of such certificates, the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn, and a signed notice of withdrawal with signatures guaranteed by an
eligible guarantor institution unless such holder is an eligible guarantor
institution.
If old notes have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn old notes and
otherwise comply with the procedures of such facility. We will determine all
questions as to the validity, form and eligibility (including time of receipt)
of such notices, and our determination shall be final and binding on all
parties. We will deem any old notes so withdrawn not to have validity tendered
for exchange for purposes of the exchange offer. Any old notes that have been
tendered for exchange but that are not exchanged for any reason will be returned
to their holder without cost to the holder (or, in the case of old notes
tendered by book-entry transfer into the exchange agent's account of DTC
according to the procedures described above, such old notes will be credited to
an account maintained with DTC for old notes) 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 the old notes" above at any time
prior to the expiration time.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE AND DELIVERY OF EXCHANGE NOTES
Your tender of old notes will constitute an agreement between you and us
governed by the terms and conditions provided in this prospectus and in the
related letter of transmittal.
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We will be deemed to have received your tender as of the date when your duly
signed letter of transmittal accompanied by your old notes tendered, or a timely
confirmation of a book-entry transfer of these notes into the exchange agent's
account at DTC with an agent's message, or a notice of guaranteed delivery from
an eligible guarantor institution is received by the exchange agent.
All questions as to the validity, form, eligibility, including time of receipt,
acceptance and withdrawal of tenders will be determined by us in our sole
discretion. Our determination will be final and binding.
We reserve the absolute right to reject any and all old notes not properly
tendered or any old notes which, if accepted, would, in our opinion or our
counsel's opinion, be unlawful. We also reserve the absolute right to waive any
conditions of this exchange offer or irregularities or defects in tender as to
particular notes. Our interpretation of the terms and conditions of this
exchange offer, including the instructions in the letter of transmittal, will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of old notes must be cured within such time as we
shall determine. We, the exchange agent or any other person will be under no
duty to give notification of defects or irregularities with respect to tenders
of old notes. We and the exchange agent or any other person will incur no
liability for any failure to give notification of these defects or
irregularities. Tenders of old notes will not be deemed to have been made until
such irregularities have been cured or waived. The exchange agent will return
without cost to their holders any old notes that are not properly tendered and
as to which the defects or irregularities have not been cured or waived as
promptly as practicable following the expiration date.
If all the conditions to the exchange offer are satisfied or waived on the
expiration date, we will accept all old notes properly tendered and will issue
the exchange notes promptly thereafter. Please refer to the section of this
prospectus entitled "--Conditions to the exchange offer." For purposes of this
exchange offer, old notes will be deemed to have been accepted as validly
tendered for exchange when, as and if we give oral or written notice of
acceptance to the exchange agent.
We will issue the exchange notes in exchange for the old notes tendered pursuant
to a notice of guaranteed delivery by an eligible guarantor institution only
against delivery to the exchange agent of the letter of transmittal, the
tendered old notes and any other required documents, or the receipt by the
exchange agent of a timely confirmation of a book-entry transfer of old notes
into the exchange agent's account at DTC with an agent's message, in each case,
in form satisfactory to us and the exchange agent.
If any tendered old notes are not accepted for any reason provided by the terms
and conditions of this exchange offer or if old notes are submitted for a
greater principal amount than the holder desires to exchange, the unaccepted or
non-exchanged old notes will be returned without expense to the tendering
holder, or, in the case of old notes tendered by book-entry transfer procedures
described above, will be credited to an account maintained with the book-entry
transfer facility, as promptly as practicable after withdrawal, rejection of
tender or the expiration or termination of the exchange offer.
By tendering into this exchange offer, you will irrevocably appoint our
designees as your attorney-in-fact and proxy with full power of substitution and
resubstitution to the full extent of your rights on the notes tendered, subject
to the indenture. This proxy will be considered coupled with an interest in the
tendered notes. This appointment will be effective only when and to the extent
that we accept your notes in this exchange offer. All prior proxies on these
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notes will then be revoked and you will not be entitled to give any subsequent
proxy. Any proxy that you may give subsequently will not be deemed effective.
EXCHANGE AGENT
Wachovia Bank, National Association has been appointed as exchange agent for the
exchange offer. You should direct questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal and requests for the notice of guaranteed delivery to the exchange
agent addressed as follows:
<Table>
For overnight courier or by hand delivery: By registered or certified Mail:
Wachovia Bank, National Association Wachovia Bank, National Association
Customer Information Center Customer Information Center
Corporate Trust Operations-NC1153 Corporate Trust Operations-NC1153
1525 West W.T. Harris Boulevard -3C3 1525 West W.T. Harris Boulevard -3C3
Charlotte, NC 28262-1153 Charlotte, NC 28288
Attention: Marsha Rice Attention: Marsha Rice
Phone # 704-590-7413
Fax # 704-590-7628
</Table>
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA
FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY TO
THE EXCHANGE AGENT.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation is
being made by mail, however, we may make additional solicitations by telegraph,
telephone or in person by our officers and regular employees and those of our
affiliates.
We have not retained any dealer-manager in connection with the exchange offer
and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses. We will also pay brokerage houses and other
custodians, nominees and fiduciaries their reasonable out-of-pocket expenses for
forwarding copies of the prospectus, letters of transmittal and related
documents to the beneficial owners of the old notes and for handling or
forwarding tenders for exchange to their customers.
Our expenses in connection with the exchange offer include Commission
registration fees, fees and expenses of the exchange agent and trustee,
accounting and legal fees, printing costs, transfer taxes and related fees and
expenses.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of old notes
under the exchange offer. The tendering holder, however, will be required to pay
any transfer taxes (whether imposed on the registered holder or any other
person) if:
- certificates representing old notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be issued in
the name of, any person other than the registered holder of old notes
tendered;
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- tendered old notes are registered in the name of any person other than
the person signing the letter of transmittal; or
- transfer tax is imposed for any reason other than the exchange of old
notes under the exchange offer.
If satisfactory evidence of payment of such taxes is not submitted with the
letter of transmittal, the amount of such transfer taxes will be billed to that
tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of old notes who do not exchange their old notes for exchange notes
under the exchange offer will remain subject to the restrictions on transfer of
such old notes as set forth in the legend printed on the old notes as a
consequence of the issuance of the old notes pursuant to the exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws, and otherwise as set forth in the
offering memorandum distributed in connection with the private placement
offering of the old notes.
In general, you may not offer or sell the old notes unless they are registered
under the Securities Act, or if the offer or sale is exempt from registration
under the Securities Act and applicable state securities laws. Except as
required by the registration rights agreement related to the old notes, we do
not intend to register resales of the old notes under the Securities Act. Based
on interpretations of the Commission staff, exchange notes issued pursuant to
the exchange offer may be offered for resale, resold or otherwise transferred by
their holders (other than any such holder that is our or a subsidiary
guarantor's "affiliate" within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that the holders acquired the exchange notes in the
ordinary course of the holders' business and the holders have no arrangement or
understanding with respect to the distribution of the exchange notes to be
acquired in the exchange offer. Any holder who tenders in the exchange offer for
the purpose of participating in a distribution of the exchange notes could not
rely on the applicable interpretations of the Commission and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
The registration rights agreement requires us to file a registration statement
for a continuous offering under the Securities Act for your benefit if:
- we determine that any changes in law or of the applicable
interpretations of the staff of the Commission do not permit us to effect
this exchange offer or may prevent us from completing the exchange offer
as soon as practicable;
- we do not complete the exchange offer on or before July 9, 2004; or
- you are an initial purchaser of the old notes who holds old notes that
have the status of an unsold allotment in an initial distribution and you
request us to do so in writing on or prior to the 60th day after the
consummation of the exchange offer.
We do not currently anticipate that we will register under the Securities Act
any old notes that remain outstanding after completion of the exchange offer.
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ACCOUNTING TREATMENT
We will record the exchange notes in our accounting records at the same carrying
value as the old notes, as reflected in our accounting records on the date of
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes in connection with the exchange offer. We will amortize the costs of
the exchange offer and the unamortized expenses related to the issuance of the
exchange notes over the term of the exchange notes.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered old notes in the open market or
privately negotiated transactions, through subsequent exchange offers or
otherwise. We have no present plans to acquire any old notes that are not
tendered in the exchange offer or to file a registration statement to permit
resales of any untendered old notes.
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DESCRIPTION OF THE NOTES
The old notes were, and the exchange notes will be, issued under an indenture,
dated as of June 19, 2003, as amended and supplemented by a supplemental
indenture, dated as of December 12, 2003 (such indenture as supplemented by such
supplemental indenture, the "Indenture") by and among the Company, the
Guarantors and Wachovia Bank, National Association, as Trustee (the "Trustee").
The definitions of most of the initially capitalized terms used in the following
summary are set forth below under "--Certain definitions."
On December 12, 2003, we issued $125 million aggregate principal amount of old
notes under the Indenture. The terms of the exchange notes will be identical in
all material respects to the old notes, except the exchange notes will not
contain transfer restrictions and holders of exchange notes will no longer have
any registration rights or be entitled to any additional interest. The trustee
will authenticate and deliver exchange notes for original issue only in exchange
for a like principal amount of old notes.
On June 19, 2003, the Company issued $350 million aggregate principal amount of
10 1/4 percent senior secured notes due 2013 under the Indenture. In October
2003, we exchanged 100 percent of these initial $350 million of notes for a like
amount of notes that had been registered under the Securities Act. These
outstanding registered notes are fully and unconditionally guaranteed by the
Guarantors. Accordingly, used in this "Description of the notes," except as the
context otherwise requires, the term "notes" means all 10 1/4 percent senior
secured notes due 2013 issued by the Company pursuant to the Indenture
(including the notes offered for exchange hereby, the $125 million of old notes,
the $350 million of outstanding registered notes and any additional notes that
the Company may issue from time to time under the Indenture).
Any old notes that remain outstanding after the consummation of the exchange
offer, together with the exchange notes and the outstanding registered notes,
will be treated as a single class of securities under the Indenture. All
references in this section to specified percentages in aggregate principal
amount of the outstanding notes will be deemed, at any time after the exchange
offer is consummated, to be the same percentage in aggregate principal amount of
the outstanding registered notes, the old notes and exchange notes then
outstanding.
The Guarantors of the old notes and the outstanding registered notes are
currently, and of the exchange notes will be, the following Domestic Restricted
Subsidiaries of the Company, which are all of the Company's Domestic Restricted
Subsidiaries as of the Issue Date other than Finance Subsidiaries, Variable
Interest Entities and Immaterial Domestic Restricted Subsidiaries:
- Tenneco Automotive Operating Company Inc.,
- The Pullman Company,
- Clevite Industries Inc.,
- Tenneco Global Holdings Inc.,
- TMC Texas Inc. and
- Tenneco International Holding Corp.
The exchange notes, like the old notes and the outstanding registered notes,
will be general senior obligations of the Company, ranking equal in right of
payment with all existing and
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future unsubordinated indebtedness of the Company. The notes will be
unconditionally guaranteed by the Guarantors as described below under the
caption "--Brief description of the notes and the guarantees--The guarantees."
The notes and the Guarantees will be secured by a second priority lien, subject
to certain exceptions, on the Collateral as described below under the caption
"--Collateral." The Security Documents referred to below under the caption
"--Collateral" define the terms of the liens and security interests that secure
the notes. For purposes of this section, references to "we," "our" or the
"Company" include only Tenneco Automotive Inc. and not its Subsidiaries.
The following description is a summary of the material provisions of the
Indenture and the Security Documents and does not include all of the information
included in the Indenture and the Security Documents and may not include all of
the information that you would consider important. This summary is qualified by
reference to the Trust Indenture Act of 1939, as amended (the "TIA"), and to all
of the provisions of the Indenture, including the definitions of terms therein
and those terms made a part of the Indenture by reference to the TIA as in
effect on the date of the Indenture. A copy of the Indenture and the Security
Documents may be obtained from the Company.
The old notes are and the exchange notes will be issued in fully registered form
only, without coupons, in denominations of $1,000 and integral multiples
thereof. Initially, the Trustee will act as paying agent and registrar for the
notes. The notes may be presented for registration or transfer and exchange at
the offices of the registrar, which initially will be the Trustee's corporate
trust office. The Company may change any paying agent and registrar without
notice to holders of the notes. The Company will pay principal (and premium, if
any) on the notes at the Trustee's corporate trust office in New York, New York.
Interest may be paid at the Trustee's corporate trust office, by check mailed to
the registered address of the holders or by wire transfer if instructions
therefor are furnished by a holder. Any old notes that remain outstanding after
the completion of this exchange offer, together with the exchange notes issued
pursuant to this exchange offer and the outstanding registered notes, will be
treated as a single class of securities all purposes under the Indenture,
including, without limitation, waivers, amendments, redemptions and offers to
purchase. The registered holder of a note will be treated as the owner of it for
all purposes. Only registered holders of notes will have rights under the
Indenture.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
THE NOTES
The old notes are, and the exchange notes will be:
- general secured obligations of the Company;
- secured by second-priority Liens on and security interests in a
substantial portion of the assets of the Company that secure Credit
Agreement Obligations other than the exceptions described under the
caption "--Collateral" below;
- equal in right of payment with all existing and future senior
indebtedness of the Company;
- senior in right of payment to any existing and future subordinated
indebtedness of the Company; and
- unconditionally guaranteed on a secured basis by the Guarantors.
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Pursuant to the Security Documents and the Intercreditor Agreement, the liens
and security interests securing the exchange notes, like those securing the old
notes, under the Security Documents are second in priority (subject to Permitted
Liens) to any and all liens and security interests at any time granted to secure
First Priority Claims, which include Credit Agreement Obligations. As of March
31, 2004, we had $399 million of term loan indebtedness outstanding under the
Credit Agreement, with $220 million of unused revolving credit facility
capacity, $117 million of unused tranche B letter of credit/revolving loan
facility capacity and approximately $63 million in outstanding letters of credit
under the tranche B letter of credit/ revolving loan facility. Such amounts are,
or would be, secured by first-priority liens on the Collateral. In addition,
under the Indenture, we also may incur additional indebtedness secured by
first-priority liens or second-priority liens as described below under
"--Certain covenants--Limitation on Incurrence of Additional Indebtedness" and
"--Certain covenants--Limitation on Liens." The collateral securing the notes is
subject to control by creditors with first-priority liens. If there is a
default, the value of the Collateral may not be sufficient to repay both the
first-priority creditors and the holders of the notes. As described below under
"--Collateral," there are significant assets that secure the Credit Agreement
Obligations but not the notes, such as the stock of Foreign Subsidiaries and
that portion of the stock of Domestic Subsidiaries which is excluded from the
Collateral. The old notes are, and the exchange notes will be, designated
"Designated Senior Debt" for purposes of the indenture governing the Senior
Subordinated Notes.
THE GUARANTEES
The old notes are, and the exchange notes will be, guaranteed by the following
subsidiaries of the Company:
- all Domestic Restricted Subsidiaries that guarantee First Priority
Claims or that, so long as the Senior Subordinated Notes are outstanding,
guarantee the Senior Subordinated Notes; and
- any other subsidiary that executes a Subsidiary Guarantee in accordance
with the provisions of the Indenture.
Each Subsidiary Guarantee of the notes will be:
- a general secured obligation of the Guarantor;
- secured by a second-priority Lien on and security interest in a
substantial portion of the assets of the Guarantor that secure Credit
Agreement Obligations and other First Priority Claims other than the
exceptions described under the caption "--Collateral" below;
- equal in right of payment to all existing and future senior
indebtedness of the Guarantor; and
- senior in right of payment to existing and future subordinated
indebtedness of the Guarantor.
As of the date of the notes offered hereby are issued pursuant to this exchange
offer, all of our subsidiaries will be "Restricted Subsidiaries." However, under
the circumstances described below under the subheading "--Certain
covenants--Limitation on Designations of Unrestricted Subsidiaries," the Company
will be permitted to designate certain of its Subsidiaries as
85
"Unrestricted Subsidiaries." Our Unrestricted Subsidiaries will not be subject
to the restrictive covenants in the Indenture. Our Unrestricted Subsidiaries
will not guarantee the notes.
These Subsidiary Guarantees will be joint and several obligations of the
Guarantors. The obligations of each Guarantor under its Subsidiary Guarantee
will be limited as necessary to prevent that Subsidiary Guarantee from
constituting a fraudulent conveyance under applicable law. See "Risk
Factors--Risks related to an investment in the exchange notes--Because each of
our subsidiary guarantor's liability under its guarantee may be reduced to zero,
avoided or released under certain circumstances, you may not receive any
payments from some or all of the guarantors." Federal and state statutes allow
courts, under specific circumstances, to void a guarantee and the liens securing
such guarantee and require noteholders to return payments received from the
entity providing such guarantee.
Also, none of the Company's Foreign Subsidiaries, Finance Subsidiaries, Accounts
Receivable Entities or Immaterial Domestic Subsidiaries guarantee the old notes
or will guarantee the exchange 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 the Company. As of, and
for the three months ended, March 31, 2004, and the year ended December 31,
2003, the non-guarantor Subsidiaries represented approximately 60 percent and 59
percent, respectively, of our consolidated assets, approximately 61 percent and
52 percent, respectively, of our consolidated net sales (excluding intercompany
sales), approximately 24 percent and 24 percent, respectively, of our
consolidated operating income and approximately 44 percent and 40 percent,
respectively, of our consolidated EBITDA (see "Selected historical consolidated
financial data").
As of March 31, 2004:
- the Company had $926 million of senior indebtedness outstanding,
including $125 million of the old notes, approximately $16 million of
premium on the old notes and the $350 million of outstanding registered
notes, of which $399 million was indebtedness under the Credit Agreement
secured by a First Priority Claim on the Collateral as well as other
assets;
- the Company had $220 million of unused revolving credit facility
capacity, $117 million of unused capacity under the tranche B letter of
credit/revolving loan facility and $63 million in outstanding letters of
credit under the tranche B letter of credit/revolving loan facility, all
of which if drawn would have been indebtedness under the Credit Agreement
secured by a first priority lien on the Collateral as well as other
assets;
- the Company had $500 million principal amount of subordinated
indebtedness outstanding; and
- the Company's Subsidiaries, other than the Guarantors, had $860 million
of liabilities outstanding on their balance sheets.
PRINCIPAL, MATURITY AND INTEREST
Upon the completion of the issuance of the old notes on December 12, 2003, the
Company had, and continues to have, outstanding $475 million aggregate principal
amount of its 10 1/4 percent senior secured notes due 2013. Notes in an
aggregate principal amount of up to $125 million will be issued in the exchange
offer in exchange for the currently outstanding
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$125 million of old notes issued on December 12, 2003. The notes offered for
exchange hereby are part of the same class of debt securities under the
Indenture as the $350 million aggregate principal amount of outstanding
registered notes and the old notes, and will have the same terms as the
outstanding registered notes and the old notes. The notes offered for exchange
hereby that are exchanged in the exchange offer, together with the outstanding
registered notes, will trade as a single class of freely tradeable notes.
The old notes, the exchange notes and the outstanding registered notes will
mature on July 15, 2013. Without the consent of any holders of notes, additional
notes in an unlimited amount may be issued under the Indenture from time to
time, subject to the limitations set forth under "--Certain
covenants--Limitation on Incurrence of Additional Indebtedness." The old notes,
the exchange notes issued in connection with this exchange offer, the
outstanding registered notes and any additional notes subsequently issued will
be treated as a single class for all purposes under the Indenture, including,
without limitation, waivers, amendments, redemptions and options to purchase.
Any additional notes subsequently issued will be secured, equally and ratably
with the notes, by the Second Priority Liens on the Collateral described below
under the caption "--Collateral." As a result, the issuance of any additional
notes will have the effect of diluting the value of the security interest in the
Collateral for the then outstanding notes.
Interest on the notes will accrue at the rate of 10 1/4 percent per annum and
will be payable semiannually in cash in arrears on each January 15 and July 15,
commencing on July 15, 2004, to the persons who are registered holders at the
close of business on the January 1 and July 1 immediately preceding the
applicable interest payment date. Interest on the notes will accrue from and
including the most recent date to which interest has been paid. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
Holders of old notes whose old notes are accepted for exchange in the exchange
offer will be deemed to have waived the right to receive any payment in respect
of interest on the old notes accrued from June 19, 2003 to the date of issuance
of the exchange notes. Consequently, holders who exchange their old notes for
exchange notes will receive the same interest payment on July 15, 2004 (the
first interest payment date with respect to the old notes and the exchange notes
following consummation of the exchange offer) that they would have received had
they not accepted the exchange offer.
The notes are not entitled to the benefit of any mandatory sinking fund.
COLLATERAL
The old notes, the outstanding registered notes and the related guarantees are,
and the exchange notes and related guarantees will be, secured by
second-priority Liens, subject to certain exceptions (the "Second Priority
Liens"), granted by the Company and the Guarantors on the following assets of
the Company and each Guarantor (whether now owned or hereafter arising or
acquired) to the extent such assets secure the First Priority Claims and to the
extent that a second-priority Lien is able to be granted or perfected therein
(but subject in each case only to the extent that First Priority Claims are
secured by a first-priority Lien thereon) (collectively, the "Collateral"):
(1) substantially all of the Company's and each Guarantor's property and
assets, other than Excluded Collateral (defined below), including, without
limitation: real property, fixtures, receivables, inventory, cash and cash
accounts, equipment, intellectual property, insurance policies, permits,
commercial tort claims, chattel paper, letter of credit rights, supporting
87
obligations, general intangibles and proceeds and products from any and all
of the foregoing; and
(2) all of the capital stock or other securities of Domestic Subsidiaries
owned directly by the Company or a Guarantor but, in each case, only to the
extent that the inclusion of such capital stock and other securities shall
mean that the aggregate principal amount, par value, book value as carried
by the Company or the market value, whichever is the greatest (the
"Applicable Value"), of any such capital stock and other securities of any
such Subsidiary of the Company is not equal to or greater than 20 percent of
the aggregate principal amount of notes then outstanding.
The Collateral does not and will not include (i) any property or assets owned by
any Foreign Subsidiary, Immaterial Subsidiary, Accounts Receivable Entity or
Finance Subsidiary, (ii) the capital stock and other securities of Foreign
Subsidiaries, (iii) any Capital Stock and other securities of Domestic
Restricted Subsidiaries to the extent the Applicable Value of such Capital Stock
and other securities (on a Subsidiary-by-Subsidiary basis) is equal to or
greater than 20% of the aggregate principal amount of the notes then outstanding
and (iv) proceeds and products from any and all of the foregoing excluded
collateral described in clauses (i) through (iii), unless such proceeds or
products would otherwise constitute Collateral within the definition above
(collectively, the "Excluded Collateral"). In addition, in the event that Rule
3-16 or Rule 3-10 of Regulation S-X under the Securities Act is amended,
modified or interpreted by the Commission to require (or is replaced with
another rule or regulation, or any other law, rule or regulation is adopted,
which would require) the filing with the Commission (or any other governmental
agency) of separate financial statements of any Domestic Subsidiary of the
Company due to the fact that such Domestic Subsidiary's Capital Stock or other
securities secure the notes, then the Capital Stock or other securities of such
Subsidiary shall automatically be deemed not to be part of the Collateral but
only to the extent necessary to not be subject to such requirement. In such
event, the Security Documents may be amended or modified, without the consent of
any holder of notes, to the extent necessary to release the Second Priority
Liens on the shares of Capital Stock or other securities that are so deemed to
no longer constitute part of the Collateral. In the event that Rule 3-16 and
Rule 3-10 of Regulation S-X under the Securities Act is amended, modified or
interpreted by the Commission to permit (or are replaced with another rule or
regulation, or any other law, rule or regulation is adopted, which would permit)
such Domestic Subsidiary's Capital Stock and other securities to secure the
notes in excess of the amount then pledged without the filing with the
Commission (or any other governmental agency) of separate financial statements
of such Domestic Subsidiary, then the Capital Stock and other securities of such
Subsidiary shall automatically be deemed to be a part of the collateral but only
to the extent necessary to not be subject to any such financial statement
requirement. The Excluded Collateral (other than that referred to in clause (i)
above), however, does presently secure the Company's and its Subsidiaries'
Credit Agreement Obligations. The Excluded Collateral had significant value at
March 31, 2004.
From and after June 19, 2003, if the Company or any Guarantor creates any
additional security interest in any property to secure any Credit Agreement
Obligations or other First Priority Claims or any other obligations that are
secured equally and ratably with the notes by the Second Priority Lien upon the
Collateral, it must concurrently grant a Second Priority Lien (subject to First
Priority Liens and Permitted Liens) upon such property as security for the notes
unless such property is Excluded Collateral. Also, if granting a security
interest in such property requires the consent of a third party, the Company
will use commercially reasonable efforts to
88
obtain such consent with respect to the Second Priority Lien for the benefit of
the Trustee on behalf of the holders of the notes. If such third party does not
consent to the granting of the Second Priority Lien after the use of
commercially reasonable efforts, the Company will not be required to provide
such security interest.
The Company, the Guarantors and the Trustee, as collateral agent (together with
any successor collateral agent, the "Collateral Agent"), have entered into one
or more Security Documents defining the terms of the Liens that secure the
notes. These security interests will secure the payment and performance when due
of all of the Obligations of the Company and the Guarantors under the exchange
notes on the same terms as they secure the old notes, the Indenture, the
Subsidiary Guarantees and the Security Documents, as provided in the Security
Documents.
The Collateral is pledged to the Collateral Agent for its benefit and the
benefit of the Trustee and the holders of the outstanding registered notes, the
old notes and, when issued, the exchange notes. The Second Priority Liens are
subject and subordinate to the First Priority Liens, and no payment or other
distributions from (or with respect to) any realization upon the Collateral may
be made on account of the Second Priority Liens until all obligations in respect
of the First Priority Liens have been paid in full in cash in accordance with
the terms thereof. The Second Priority Liens are also subject to Permitted
Liens, including those granted to third parties on or prior to the Issue Date.
The persons holding such Liens may have rights and remedies with respect to the
property subject to such Lien that, if exercised, could adversely affect the
value of the Collateral or the ability of the Collateral Agent to realize or
foreclose on the Collateral.
The Liens securing the notes are second in priority (subject to Permitted Liens)
to any and all Liens at any time granted to secure Credit Agreement Obligations
and other First Priority Claims. First Priority Claims include the Credit
Agreement Obligations and Obligations under any future Indebtedness of the
Company and Restricted Subsidiaries that is secured by a Lien described in
clause (B) of the covenant described under the caption "--Certain covenants--
Limitation on Liens" and is designated by us upon incurrence as first-priority
Lien debt, as well as certain Hedging Obligations and obligations in respect of
cash management services. In addition, other Indebtedness of the Company and the
Restricted Subsidiaries that is secured by a Lien permitted pursuant to the
covenant described under the caption "--Certain covenants--Limitation on Liens"
and that is designated by the Company upon incurrence may be secured equally and
ratably with the notes by the second-priority security interests in the
Collateral (the "Other Second-Lien Obligations").
The Trustee has entered into the Intercreditor Agreement. Pursuant to the terms
of the Intercreditor Agreement, prior to the Discharge of First Priority Claims,
the Credit Agent and the holders of First Priority Claims will determine the
time and method by which the Liens on the Collateral will be enforced. The
Trustee will not be permitted to enforce the Liens even if an Event of Default
has occurred and the notes have been accelerated except (a) in any insolvency or
liquidation proceeding, as necessary to file a claim or statement of interest
with respect to the notes or (b) as necessary to take any action not adverse to
the First Priority Liens in order to preserve or protect its rights in the
Second Priority Liens. As a result, while any First Priority Liens are
outstanding, neither the Trustee nor the holders of the notes will be able to
force a sale of the Collateral or otherwise exercise remedies normally available
to secured creditors without the concurrence of the holders of the First
Priority Liens or their agent. The Intercreditor Agreement does not require the
holders of First Priority Claims (including, without
89
limitation, Credit Agreement Obligations) to marshal assets or to satisfy any
obligations owed to them first from collateral pledged to them which constitutes
Excluded Collateral even if the other collateral available to them would have
satisfied their claims and left Collateral available to benefit the holders of
the notes. In addition, the Security Documents generally provide that, so long
as the Credit Agreement is in effect the lenders thereunder may change, waive,
modify or vary the Security Documents without the consent of the Trustee or the
holders of the notes, unless such change, waiver or modification materially
adversely affects the rights of the holders of the notes and not the other
secured creditors in a like or similar manner. After the Discharge of the First
Priority Claims, the Trustee in accordance with the provisions of the Indenture
will distribute all cash proceeds (after payment of the costs of enforcement and
collateral administration) of the Collateral received by it under the Security
Documents for the ratable benefit of the holders of the notes and other
Indebtedness secured equally and ratably with a Second Priority Lien. Future
holders of First Priority Liens and of Other Second-Lien Obligations, or their
respective agents, will be required to become a party to the Intercreditor
Agreement.
Whether prior to or after the Discharge of First Priority Claims, the Company
and the Guarantors will be entitled to releases of assets included in the
Collateral from the Liens securing the notes under any one or more of the
following circumstances:
(1) if all other Liens on that asset securing First Priority Claims or any
Other Second-Lien Obligations then secured by that asset (including all
commitments thereunder) are released; provided, that after giving effect to
the release, obligations secured by the First Priority Liens on the
remaining Collateral remain outstanding (regardless of the principal or
stated amount thereof); provided, further, however, that in the event that
an Event of Default under the Indenture of which the Credit Agent has notice
exists as of the date on which the First Priority Claims release a Lien on
any asset as described in this clause (1), the Second Priority Liens on the
Collateral will not be released, except in connection with the exercise of
remedies by the Credit Agent and thereafter, the Trustee (acting at the
direction of the holders of a majority of outstanding principal amount of
Second Priority Claims) will have the right to direct the Collateral Agent
to foreclose upon the Collateral (but in such event, the Second Priority
Liens will be released when such Event of Default and all other Events of
Default under the Indenture cease to exist);
(2) to enable us to consummate asset dispositions permitted or not
prohibited under the covenant described below under the caption "--Certain
covenants--Limitation on Asset Sales";
(3) if the Company provides substitute collateral with at least an
equivalent fair value, as determined in good faith by the Board of Directors
of the Company and such substitute Collateral is subject to the Liens of the
Security Documents in accordance with the provisions of the Indenture and
Security Documents;
(4) if all of the stock of any of our Subsidiaries that is pledged to the
Collateral Agent is released or if any Subsidiary that is a Guarantor is
released from its Subsidiary Guarantee, that Subsidiary's assets will also
be released;
(5) in respect of assets included in the Collateral with a fair value, as
determined in good faith by the Board of Directors of the Company, of up to
$1.0 million in any calendar year, subject to a cumulative carryover for any
amount not used in any prior calendar year; or
(6) as described under "--Modification of the Indenture and Security
Documents" below.
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The Second Priority Lien on all Collateral also will be released upon (i)
payment in full of the principal of, accrued and unpaid interest and liquidated
damages, if any, on the notes and all other Obligations under the Indenture, the
Subsidiary Guarantees and the Security Documents that are due and payable at or
prior to the time such principal, accrued and unpaid interest and liquidated
damages, if any, are paid, (ii) a satisfaction and discharge of the Indenture as
described below under the caption "--Satisfaction and discharge" and (iii) a
legal defeasance or covenant defeasance as described below under the caption
"--Legal defeasance and covenant defeasance."
If the Company subsequently incurs obligations under a new Credit Agreement or
other First Priority Claims which are secured by assets of the Company or its
Domestic Restricted Subsidiaries of the type constituting Collateral, then the
notes will be secured at such time by a Second Priority Lien on the collateral
securing such First Priority Claims, other than the Excluded Collateral, to the
same extent provided by the Security Documents. See "Risk factors--Risks related
to an investment in the notes--Holders of notes will not control decisions
regarding collateral."
At any time that the holders of Second Priority Liens are entitled to direct the
disposition or other actions with respect to the Collateral, the holders of a
majority in aggregate principal amount of such Second Priority Claims shall be
entitled to direct such disposition or action.
The holders of the First Priority Liens will receive all proceeds from any
realization on the Collateral until the First Priority Claims are paid in full
in cash in accordance with the terms thereof. Proceeds realized by the
Collateral Agent from the Collateral will be applied:
- first, to amounts owing to the holders of the First Priority Liens in
accordance with the terms of the First Priority Claims;
- second, to amounts owing to the Collateral Agent in accordance with the
terms of the Security Documents;
- third, to amounts owing to the Trustee in its capacity as such in
accordance with the terms of the Indenture and to any collateral agent
acting on behalf of holders of Other Second Lien Obligations in
accordance with the terms of the documentation governing such Other
Second Lien Obligations;
- fourth, to amounts owing to the holders of the notes in accordance with
the terms of the Indenture and holders of Other Second Lien Obligations,
pro rata based on the aggregate principal amount of each such holder's
obligations; and
- fifth, to the Company and/or other persons entitled thereto.
Subject to the terms of the Security Documents, the Company and each Guarantor
have the right to remain in possession and retain exclusive control of the
Collateral securing the notes (other than any securities constituting part of
the Collateral and deposited with the Collateral Agent in accordance with the
provisions of the Security Documents and other than as set forth in the Security
Documents), to freely operate the Collateral and to collect, invest and dispose
of any income therefrom.
Collateral comprised of, among other things, cash and cash accounts, non-U.S.
intellectual property owned by the Company and the Guarantors and any parcel of
real property with a value under $1.0 million has not been perfected with
respect to the First Priority Claims and will not be perfected with respect to
the notes. Further, no appraisals of any of the Collateral have been prepared by
or on behalf of the Company in connection with any previous offering
91
of notes or this exchange offer. There can be no assurance that the proceeds
from the sale of the Collateral remaining after the satisfaction of all
obligations owed to the holders of the First Priority Liens or the holders of
other Liens which have priority over or rank pari passu with the Second Priority
Liens would be sufficient to satisfy the obligations owed to the holders of the
notes. By its nature, some or all of the Collateral will be illiquid and may
have no readily ascertainable market value. Accordingly, there can be no
assurance that the Collateral can be sold in a short period of time, if salable.
See "Risk factors--Risks related to an investment in the exchange notes--Rights
of holders of exchange notes in the collateral may be adversely affected by
bankruptcy proceedings."
REDEMPTION
Optional Redemption. The Company may redeem all or portions of the notes on and
after July 15, 2008, upon not less than 30 nor more than 60 days' notice, at the
following redemption prices (expressed as percentages of the principal amount)
if redeemed during the twelve-month period commencing on July 15, 2008 of the
year set forth below, plus, in each case, accrued and unpaid interest, if any,
to the date of redemption:
<Table>
<Caption>
- ------------------------------------------------------------------------
YEAR PERCENTAGE
- ------------------------------------------------------------------------
2008........................................................ 105.125%
2009........................................................ 103.417%
2010........................................................ 101.708%
2011 and thereafter......................................... 100.000%
- ------------------------------------------------------------------------
</Table>
Optional Redemption upon Equity Offerings. At any time, or from time to time,
on or prior to July 15, 2006, the Company may, at its option, use all or any
portion of the net cash proceeds of one or more Equity Offerings (as defined
below) to redeem up to 35 percent of the aggregate principal amount of the notes
issued at a redemption price equal to 110.25 percent of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of redemption;
provided that at least 65 percent of the aggregate principal amount of notes
issued remains outstanding immediately after any such redemption. In order to
effect the foregoing redemption with the proceeds of any Equity Offering, the
Company shall make such redemption not more than 180 days after the consummation
of any such Equity Offering.
As used in the preceding paragraph, "Equity Offering" means any public or
private sale of the common stock of the Company, other than any public offering
with respect to the Company's common stock registered on Form S-8 or other
issuances upon exercise of options by employees of the Company or any of its
Restricted Subsidiaries.
Mandatory Redemption. The Company is not required to make scheduled mandatory
redemption payments or sinking fund payments with respect to the notes.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the notes are to be redeemed at any time,
selection of the notes for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which the notes are listed or, if the notes are not then listed on a national
securities exchange, on a pro rata basis, by lot or by such method as the
Trustee shall deem fair and appropriate; provided, however, that:
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- no notes of a principal amount of $1,000 or less shall be redeemed in
part; and
- if a partial redemption is made with the proceeds of a Equity Offering,
selection of the notes or portions thereof for redemption shall be made
by the Trustee only on a pro rata basis or on as nearly a pro rata basis
as is practicable (subject to DTC procedures), unless such method is
otherwise prohibited.
Notice of an optional redemption shall be mailed 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. If any note is to be redeemed in part only, the notice of
redemption that relates to such note shall state the portion of the principal
amount thereof to be redeemed. A new note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original note. On and after the redemption date, interest
will cease to accrue on notes or portions thereof called for redemption as long
as the Company has deposited with the paying agent funds in satisfaction of the
applicable redemption price pursuant to the Indenture.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control, each
holder will have the right to require that the Company purchase all or a portion
of such holder's notes pursuant to the offer described below (the "Change of
Control Offer"), at a purchase price equal to 101 percent of the principal
amount thereof plus accrued interest, if any, thereon to the date of purchase.
Notwithstanding the occurrence of a Change of Control, the Company will not be
obligated to repurchase the notes under this covenant if it has exercised its
right to redeem all the notes under the terms of the section entitled
"Redemption--Optional Redemption."
The Indenture provides that, prior to the mailing of the notice referred to
below, but in any event within 30 days following any Change of Control, the
Company covenants to:
- repay in full and terminate all commitments under Indebtedness under
the Credit Agreement and all other First Priority Claims the terms of
which require repayment upon a Change of Control or offer to repay in
full and terminate all commitments under the Credit Agreement and all
other such First Priority Claims and to repay the Indebtedness owed to
(and terminate all commitments of) each lender under the Credit Agreement
and each other holder of a First Priority Claims which has accepted such
offer; or
- obtain consents required under the Credit Agreement and all such other
First Priority Claims to permit the repurchase of the notes as provided
below.
The Company will first comply with the covenant in the immediately preceding
sentence before it is required to repurchase notes under the provisions
described below.
Within 30 days following the date upon which the Change of Control occurs, the
Company will send, by first class mail, a notice to each holder, with a copy to
the Trustee, which notice shall govern the terms of the Change of Control Offer.
Such notice will state, among other things, the purchase date, which must be no
earlier than 30 days nor later than 60 days from the date such notice is mailed,
other than as may be required by law (the "Change of Control Payment Date").
Holders electing to have a note purchased pursuant to a Change of Control Offer
will be required to surrender the note, with the form entitled "Option of Holder
to Elect Purchase" on the reverse of the note completed, to the paying agent at
the address specified in the
93
notice prior to the close of business on the third business day prior to the
Change of Control Payment Date.
The Company 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 the Company and
purchases all notes validly tendered and not withdrawn under such Change of
Control Offer.
If a Change of Control Offer is required to be made, there can be no assurance
that the Company will have available funds sufficient to pay the Change of
Control purchase price for all the notes that might be delivered by holders
seeking to accept the Change of Control Offer. In the event the Company is
required to purchase outstanding notes pursuant to a Change of Control Offer,
the Company expects that it would seek third party financing to the extent it
does not have available funds to meet its purchase obligations. However, there
can be no assurance that the Company would be able to obtain such financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a holder's right to require the purchase of notes upon a
Change of Control. Restrictions in the Indenture described herein on the ability
of the Company and the Restricted Subsidiaries to incur additional Indebtedness,
to grant Liens on their property, to make Restricted Payments and to make Asset
Sales may also make more difficult or discourage a takeover of the Company,
whether favored or opposed by the management of the Company. Consummation of any
such transaction in certain circumstances may require the purchase of the notes,
and there can be no assurance that the Company or the acquiring party will have
sufficient financial resources to effect such purchase. Such restrictions and
the restrictions on transactions with Affiliates may, in certain circumstances,
make more difficult or discourage any leveraged buyout of the Company or any of
its Subsidiaries by the management of the Company. While such restrictions cover
a wide variety of arrangements which have traditionally been used to effect
highly leveraged transactions, the Indenture may not afford the holders
protection in all circumstances from the adverse aspects of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations to the extent such laws and
regulations are applicable in connection with a Change of Control Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the "Change of Control" provisions of the Indenture, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
The definition of "Change of Control" includes, among other transactions, a
disposition of "all or substantially all" of the property and assets of the
Company. With respect to the disposition of property or assets, the phrase "all
or substantially all" as used in the Indenture varies according to the facts and
circumstances of the subject transactions, has no clearly established meaning
under relevant law and is subject to judicial interpretation. Accordingly, in
certain circumstances, there may be a degree of uncertainty in ascertaining
whether a particular transaction would involve a disposition of "all or
substantially all" of the property or assets of a Person, and therefore it may
be unclear whether a Change of Control has occurred and whether the Company is
required to make a Change of Control Offer.
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CERTAIN COVENANTS
The Indenture contains, among others, the following covenants (which took effect
as of June 19, 2003, the date of the Indenture):
Limitation on Incurrence of Additional Indebtedness. The Company will not, and
will not permit any of the Restricted Subsidiaries to, directly or indirectly,
create, incur, issue, assume, guarantee, acquire, become liable, contingently or
otherwise, with respect to, or otherwise become responsible for payment of
(collectively, "incur") any Indebtedness (other than Permitted Indebtedness);
provided, however, that if no Default or Event of Default shall have occurred
and be continuing at the time of or as a consequence of the incurrence of any
such Indebtedness:
(a) the Company, any Guarantor, any Finance Subsidiary that is a Domestic
Restricted Subsidiary and any Accounts Receivable Entity that is a Domestic
Restricted Subsidiary may incur Indebtedness (including, without limitation,
Acquired Indebtedness) if on the date of the incurrence of such
Indebtedness, after giving effect to the incurrence thereof, the
Consolidated Fixed Charge Coverage Ratio of the Company would be greater
than 2.25 to 1.0; and
(b) any Restricted Subsidiary that is not a Guarantor (and is not a Finance
Subsidiary or an Accounts Receivable Entity that is a Domestic Restricted
Subsidiary) may incur Indebtedness (including, without limitation, Acquired
Indebtedness) if, on the date of the incurrence of such Indebtedness, after
giving effect to the incurrence thereof,
(i) the Consolidated Fixed Charge Coverage Ratio of the Company would be
greater than 2.25 to 1.0; and
(ii) if the agreements governing such Indebtedness contain an encumbrance
or restriction on the ability of the applicable Restricted Subsidiary
that is not a Guarantor (and is not a Finance Subsidiary or an Accounts
Receivable Entity that is a Domestic Restricted Subsidiary) to pay
dividends or make distributions on or in respect of its Capital Stock,
the Combined Fixed Charge Coverage Ratio of the Restricted Subsidiaries
that are not Guarantors would be greater than 2.5 to 1.0.
Notwithstanding the foregoing, the Company will not incur any Permitted
Indebtedness if the proceeds thereof are used, directly or indirectly, to
refinance any Subordinated Indebtedness unless such Permitted Indebtedness is
Refinancing Indebtedness.
No Indebtedness incurred pursuant to the Consolidated Fixed Charge Coverage
Ratio test of the preceding paragraph (including, without limitation,
Indebtedness under the Credit Agreement) shall reduce the amount of Indebtedness
which may be incurred pursuant to any clause of the definition of Permitted
Indebtedness (including without limitation, Indebtedness under the Credit
Agreement pursuant to clause (2) of the definition of Permitted Indebtedness).
The Company and the Guarantors will not incur or suffer to exist any
Indebtedness that is subordinated in right of payment to any other Indebtedness
of the Company or the Guarantors unless such Indebtedness is at least equally
subordinated in right of payment to the notes and any Subsidiary Guarantee.
95
Limitation on Restricted Payments. The Company will not, and will not cause or
permit any of the Restricted Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Capital Stock of the
Company) on or in respect of shares of its Capital Stock to holders of such
Capital Stock (including by means of a Person (including an Unrestricted
Subsidiary) making such a payment with the proceeds of an Investment made by
the Company or any Restricted Subsidiary);
(b) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock (including by means of a
Person (including an Unrestricted Subsidiary) making such a payment with the
proceeds of an Investment made by the Company or any Restricted Subsidiary);
(c) make any principal payment on, or purchase, redeem, defease, retire or
otherwise acquire for value, prior to any scheduled principal payment,
sinking fund or maturity, any Subordinated Indebtedness (other than the
principal payment on, or the purchase, redemption, defeasance, retirement or
other acquisition for value of, Subordinated Indebtedness made in
satisfaction of or anticipation of satisfying a sinking fund obligation,
principal installment or final maturity within one year of the due date of
such obligation, installment or final maturity); or
(d) make any Investment (other than Permitted Investments);
(each of the foregoing actions set forth in clauses (a), (b), (c) and (d) being
referred to as a "Restricted Payment"), if at the time of such Restricted
Payment or immediately after giving effect thereto:
(1) a Default or an Event of Default shall have occurred and be continuing;
(2) the Company is not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
covenant described under "--Limitation on Incurrence of Additional
Indebtedness"; or
(3) the aggregate amount of Restricted Payments (including such proposed
Restricted Payment) made after March 31, 2003 (the amount expended for such
purpose, if other than in cash, being the Fair Market Value of such property
as determined reasonably and in good faith by the Board of Directors of the
Company) shall exceed the sum of:
(v) $30.0 million; plus
(w) 50 percent of the cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss, minus 100% of such
loss) of the Company earned during the period beginning on the first day
of the fiscal quarter commencing on April 1, 2003 and through the end of
the most recent fiscal quarter for which financial statements are
available prior to the date such Restricted Payment occurs (the
"Reference Date") (treating such period as a single accounting period);
plus
(x) 100 percent of the Fair Market Value of the net proceeds received by
the Company from any Person (other than a Subsidiary of the Company) from
the issuance and sale subsequent to March 31, 2003 and on or prior to the
Reference Date of Qualified Capital Stock of the Company (excluding any
net proceeds from an Equity Offering to the extent used to redeem notes
pursuant to the provisions described under
96
"--Redemption--Optional Redemption upon Equity Offerings") or from the
issuance of Indebtedness of the Company that has been converted into or
exchanged for Qualified Capital Stock of the Company subsequent to the
Issue Date and on or prior to the Reference Date; plus
(y) without duplication of any amounts included in clause (3)(x) above,
100 percent of the Fair Market Value of the net proceeds of any
contribution to the common equity capital of the Company received by the
Company from a holder of the Company's Capital Stock (excluding any net
proceeds from an Equity Offering to the extent used to redeem the notes
pursuant to the provisions described under "--Redemption--Optional
Redemption upon Equity Offerings") subsequent to March 31, 2003; plus
(z) an amount equal to the lesser of (A) the sum of the Fair Market Value
of the Capital Stock of an Unrestricted Subsidiary owned by the Company
and/or the Restricted Subsidiaries and the aggregate amount of all
Indebtedness of such Unrestricted Subsidiary owed to the Company and each
Restricted Subsidiary on the date of Revocation of such Unrestricted
Subsidiary as an Unrestricted Subsidiary in accordance with the covenant
described under "--Limitation on Designations of Unrestricted
Subsidiaries" or (B) the Designation Amount with respect to such
Unrestricted Subsidiary on the date of the Designation of such Subsidiary
as an Unrestricted Subsidiary in accordance with the covenant described
under "--Limitation on Designations of Unrestricted Subsidiaries."
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit:
(I) the payment of any dividend within 60 days after the date of declaration
of such dividend if the dividend would have been permitted on the date of
declaration;
(II) the acquisition of any shares of Capital Stock of the Company, either
(A) solely in exchange for shares of Qualified Capital Stock of the Company
or (B) through the application of net proceeds of a substantially concurrent
sale for cash (other than to a Subsidiary of the Company) of shares of
Qualified Capital Stock of the Company;
(III) so long as no Default or Event of Default shall have occurred and be
continuing, repurchases of Capital Stock (or rights or options therefor) of
the Company from officers, directors, employees or consultants pursuant to
equity ownership or compensation plans or stockholders agreements not to
exceed $15.0 million in the aggregate subsequent to March 31, 2003;
(IV) dividends and distributions paid on Common Stock of a Restricted
Subsidiary on a pro rata basis;
(V) any purchase or redemption of Indebtedness that ranks subordinate and
junior in right of payment to the notes utilizing any Net Cash Proceeds
remaining after the Company has complied with the requirements of the
covenants described under "--Limitation on Asset Sales" and "--Change of
Control";
(VI) any purchase, redemption, defeasance, retirement, payment or prepayment
of principal of Subordinated Indebtedness either (i) solely in exchange for
shares of Qualified Capital Stock of the Company or (ii) through the
application of net proceeds of a substantially concurrent sale for cash
(other than to a Subsidiary of the Company) of shares of Qualified Capital
Stock of the Company or Refinancing Indebtedness; and
97
(VII) an Investment with the net proceeds of a substantially concurrent sale
for cash (other than to a Subsidiary of the Company) of shares of Qualified
Capital Stock of the Company.
In determining the aggregate amount of Restricted Payments made subsequent to
March 31, 2003 in accordance with clause (3) of the first paragraph of this
covenant "--Limitation on Restricted Payments," amounts expended pursuant to
clauses (I), (II) and (III), (VI)(ii)(a) and (VII) shall be included in such
calculation.
Not later than the date the Company is required to file its financial statements
with the Commission (without giving effect to any extensions thereof) with
respect to any fiscal quarter during which any Restricted Payment was made
(which, in the case of the Company's fourth fiscal quarter of any fiscal year,
shall be the date on which the Company is required to file its annual financial
statements for that fiscal year), the Company will deliver to the Trustee an
officers' certificate stating that such Restricted Payment complies with the
Indenture and setting forth in reasonable detail the basis upon which the
required calculations were computed, which calculations may be based upon the
Company's latest available internal quarterly financial statements.
Limitation on Asset Sales. The Company will not, and will not permit any of the
Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) the Company or the applicable Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
Fair Market Value of the assets sold or otherwise disposed of;
(2) at least 75 percent of the consideration received by the Company or the
Restricted Subsidiary, as the case may be, from such Asset Sale shall be in
the form of cash or Cash Equivalents and is received at the time of such
disposition; and
(3) upon the consummation of an Asset Sale, the Company shall apply, or
cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to
such Asset Sale within 365 days after receipt thereof either (A) to prepay
any Applicable Indebtedness and, in the case of any such Applicable
Indebtedness under any revolving credit facility, effect a permanent
reduction in the availability under such revolving credit facility (or
effect a permanent reduction in availability under such revolving credit
facility, regardless of the fact that no prepayment is required), (B) to
acquire Replacement Assets (which, if Collateral will be made subject to the
Liens of the applicable Security Documents), or (C) a combination of
prepayment and investment permitted by the foregoing clauses (3)(A) and
(3)(B).
Pending the final application of the Net Cash Proceeds, the Company and the
Restricted Subsidiaries may temporarily reduce Pari Passu Indebtedness (or, in
the case of an Asset Sale by a Restricted Subsidiary, Indebtedness of a
Restricted Subsidiary) or otherwise invest such Net Cash Proceeds in any manner
not prohibited by the Indenture.
On the 366th day after an Asset Sale or such earlier date, if any, as the Board
of Directors of the Company or of such Restricted Subsidiary determines not to
apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses
(3)(A), (3)(B) and (3)(C) of the preceding paragraph (each, a "Net Proceeds
Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which have not
been applied on or before such Net Proceeds Offer Trigger Date as permitted in
clauses (3)(A), (3)(B) and (3)(C) of the first paragraph under this
"--Limitation on Asset Sales" (each a "Net Proceeds Offer Amount") shall be
applied by the Company to make an offer to purchase (the "Net Proceeds Offer")
on a date (the "Net Proceeds Offer Payment
98
Date") not less than 30 nor more than 60 days following the applicable Net
Proceeds Offer Trigger Date, from all holders on a pro rata basis, that
principal amount of notes equal to the Net Proceeds Offer Amount at a price
equal to 100 percent of the principal amount of the notes to be purchased, plus
accrued and unpaid interest, if any, thereon to the date of purchase; provided,
however, that if the Company elects (or is required by the terms of any
Applicable Pari Passu Indebtedness), such Net Proceeds Offer may be made ratably
to purchase the notes and such Applicable Pari Passu Indebtedness.
If at any time any non-cash consideration received by the Company or any
Restricted Subsidiary, as the case may be, in connection with any Asset Sale is
converted into or sold or otherwise disposed of for cash (other than interest
received with respect to any such non-cash consideration) or Cash Equivalents,
then such conversion or disposition shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in accordance with
this covenant.
The Company may defer the Net Proceeds Offer until there is an aggregate
unutilized Net Proceeds Offer Amount equal to or in excess of $35.0 million
resulting from one or more Asset Sales or deemed Asset Sales (at which time, the
entire unutilized Net Proceeds Offer Amount, and not just the amount in excess
of $35.0 million, shall be applied as required pursuant to this paragraph). The
first such date the aggregate unutilized Net Proceeds Offer Amount is equal to
or in excess of $35.0 million shall be treated for this purpose as the Net
Proceeds Offer Trigger Date.
In the event of the transfer of substantially all (but not all) of the property
and assets of the Company and the Restricted Subsidiaries after the Issue Date
as an entirety to a Person in a transaction permitted under "--Merger,
Consolidation and Sale of Assets," the successor corporation shall be deemed to
have sold the properties and assets of the Company and the Restricted
Subsidiaries not so transferred for purposes of this covenant, and shall comply
with the provisions of this covenant with respect to such deemed sale as if it
were an Asset Sale. In addition, the Fair Market Value of such properties and
assets of the Company or the Restricted Subsidiaries deemed to be sold shall be
deemed to be Net Cash Proceeds for purposes of this covenant.
Notice of each Net Proceeds Offer will be mailed to the record holders as shown
on the register of holders within 30 days following the Net Proceeds Offer
Trigger Date, with a copy to the Trustee, and shall comply with the procedures
set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
holders may elect to tender their notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent holders properly tender
notes in an amount exceeding the Net Proceeds Offer Amount, notes of tendering
holders will be purchased on a pro rata basis (based on amounts tendered). To
the extent that the aggregate amount of the notes tendered pursuant to a Net
Proceeds Offer is less than the Net Proceeds Offer Amount, the Company may use
such excess Net Proceeds Offer Amount for general corporate purpose or for any
other purposes not prohibited by the Indenture. Upon completion of any such Net
Proceeds Offer, the Net Proceeds Offer Amount shall be reset to zero. A Net
Proceeds Offer shall remain open for a period of at least 20 business days or
such longer period as may be required by law.
The Company will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations to the extent such laws and
regulations are applicable in connection with the repurchase of notes pursuant
to a Net Proceeds Offer. To the extent that the provisions of any securities
laws or regulations conflict with the "Asset Sale" provisions
99
of the Indenture, the Company shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations under
the "Asset Sale" provisions of the Indenture by virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not cause or permit any of the
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to:
(a) pay dividends or make any other distributions on or in respect of its
Capital Stock (it being understood that the priority of any preferred stock
in receiving dividends or liquidating distributions prior to dividends or
liquidating distributions being paid on common stock shall not be deemed a
restriction on the ability to make distributions on Capital Stock);
(b) make loans or advances or to pay any Indebtedness or other obligation
owed to the Company or any other Restricted Subsidiary; or
(c) transfer any of its property or assets to the Company or any other
Restricted Subsidiary;
except for such encumbrances or restrictions existing under or by reason of:
(1) applicable law;
(2) the Indenture and/or the Security Documents;
(3) the Credit Agreement and/or the documentation for the First Priority
Liens;
(4) customary non-assignment provisions of any contract or any lease
governing a leasehold interest of any Restricted Subsidiary;
(5) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person or the properties or assets of the Person
so acquired;
(6) agreements existing on the Issue Date to the extent and in the manner
such agreements are in effect on the Issue Date;
(7) any other agreement entered into after the Issue Date which contains
encumbrances and restrictions which are not materially more restrictive with
respect to any Restricted Subsidiary than those in effect with respect to
such Restricted Subsidiary pursuant to agreements as in effect on the Issue
Date;
(8) any instrument governing Indebtedness of a Foreign Restricted
Subsidiary;
(9) customary restrictions on the transfer of any property or assets arising
under a security agreement governing a Lien permitted under the Indenture;
(10) secured Indebtedness otherwise permitted to be incurred pursuant to the
covenants described under "--Limitation on Incurrence of Additional
Indebtedness" and "--Limitation on Liens" that limit the right of the debtor
to dispose of the assets securing such Indebtedness;
(11) any agreement governing Refinancing Indebtedness incurred to Refinance
the Indebtedness issued, assumed or incurred pursuant to an agreement
referred to in clause (2), (5), (6) or (8) above; provided, however, that
the provisions relating to such encumbrance or restriction contained in any
such Refinancing Indebtedness are not
100
materially more restrictive than the provisions relating to such encumbrance
or restriction contained in agreements referred to in such clause (2), (5),
(6) or (8);
(12) any agreement governing the sale or disposition of any Restricted
Subsidiary which restricts dividends and distributions pending such sale or
disposition;
(13) any agreement, instrument or Lien placing encumbrances or restrictions
applicable only to a Finance Subsidiary or an Accounts Receivable Entity; or
(14) any agreement governing Indebtedness permitted to be incurred pursuant
to the "--Limitation on Incurrence of Additional Indebtedness" covenant;
provided that the provisions relating to such encumbrance or restriction
contained in such Indebtedness, taken as a whole, are not materially more
restrictive than the provisions contained in the Credit Agreement or in the
Indenture as in effect on the Issue Date.
Limitation on Issuances of Capital Stock of Restricted Subsidiaries. The
Company will not permit any of the Restricted Subsidiaries (other than a Finance
Subsidiary or an Accounts Receivable Entity) to issue any Preferred Stock (other
than to the Company or to a Restricted Subsidiary) or permit any Person (other
than the Company or a Restricted Subsidiary) to own any Preferred Stock of any
Restricted Subsidiary (other than a Finance Subsidiary or an Accounts Receivable
Entity). The Company will not, and will not permit any Restricted Subsidiary to,
issue, sell, transfer or dispose of any Capital Stock of any Restricted
Subsidiary (other than a Finance Subsidiary or an Accounts Receivable Entity)
that is not a Guarantor (other than the granting of Liens permitted by the
covenant described under "--Limitation on Liens") unless such issuance, sale,
transfer or disposition results in the issuer of such Capital Stock no longer
being a Restricted Subsidiary.
Issuance of Subsidiary Guarantees. If, on or after the Issue Date, the Company
forms or acquires any Domestic Restricted Subsidiary (other than (w) an Acquired
Subsidiary for so long as it is not a Wholly Owned Domestic Restricted
Subsidiary, (x) a Finance Subsidiary, (y) an Accounts Receivable Entity or (z)
an Immaterial Domestic Subsidiary) that incurs any Indebtedness (other than
Indebtedness owing to the Company or a Restricted Subsidiary), or if, on or
after the Issue Date, any Restricted Subsidiary that is not a Guarantor
guarantees (a "Guarantee") any Indebtedness of the Company or a Guarantor (other
than Indebtedness owing to the Company or a Restricted Subsidiary) ("Guaranteed
Indebtedness"), then the Company shall cause such Domestic Restricted Subsidiary
or Restricted Subsidiary that is not a Guarantor, as the case may be, to:
(1) execute and deliver to the Trustee a supplemental indenture in form
reasonably satisfactory to the Trustee pursuant to which such Domestic
Restricted Subsidiary or Restricted Subsidiary that is not a Guarantor, as
the case may be, shall unconditionally guarantee (each, a "Subsidiary
Guarantee") all of the Company's obligations under the notes and the
Indenture on the terms set forth in the Indenture;
(2) in the case of a Domestic Restricted Subsidiary, if such Domestic
Restricted Subsidiary grants any Lien upon any of its property as security
for any First Priority Claims, execute one or more Security Documents upon
substantially the same terms, but subject to the Intercreditor Agreement,
that grants the Collateral Agent a Second Priority Lien upon such property
for its benefit, the benefit of the Trustee and the benefit of the holders
of the notes, subject to the exceptions described above under the caption
"--Collateral"; and
(3) execute and deliver to the Trustee an opinion of counsel (which may
contain customary exceptions) that such supplemental indenture and Security
Documents have been duly
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authorized, executed and delivered by such Domestic Restricted Subsidiary or
Restricted Subsidiary that is not a Guarantor, as the case may be, and
constitutes a legal, valid, binding and enforceable obligation of such
Domestic Restricted Subsidiary or Restricted Subsidiary that is not a
Guarantor, as the case may be.
Thereafter, such Domestic Restricted Subsidiary or Restricted Subsidiary that
was not a Guarantor, as the case may be, shall be a Guarantor for all purposes
of the Indenture. The Company may cause any other Restricted Subsidiary of the
Company to issue a Subsidiary Guarantee and become a Guarantor.
If granting the Lien described in clause (2) above requires the consent of a
third party, such Domestic Restricted Subsidiary will use commercially
reasonable efforts to obtain such consent with respect to the Second Priority
Lien for the benefit of the Collateral Agent, the Trustee and the benefit of the
holders of the notes, but if the third party does not consent to the granting of
the Second Priority Lien after the use of commercially reasonably efforts, such
Domestic Restricted Subsidiary will not be required to do so. Also if a Second
Priority Lien on such property cannot be granted or perfected under applicable
law, the Domestic Restricted Subsidiary will not be required to grant such Lien.
If the Guaranteed Indebtedness is pari passu with the notes, then the Guarantee
of such Guaranteed Indebtedness shall be pari passu with the Subsidiary
Guarantee. If the Guaranteed Indebtedness is subordinated to the notes, then the
Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the notes.
Notwithstanding the foregoing, a Subsidiary Guarantee of the notes provided by a
Guarantor will be released without any action required on the part of the
Trustee or any holder of the notes:
(1) if the Credit Agent releases the guarantee of First Priority Claims made
by such Guarantor, unless such Guarantor has any Indebtedness outstanding or
remains a guarantor of Indebtedness of the Company or another Guarantor;
(2) if (a) all of the Capital Stock of, or all or substantially all of the
assets of, such Guarantor is sold or otherwise disposed of (including by way
of merger or consolidation) to a Person other than us or any of our Domestic
Restricted Subsidiaries or (b) such Guarantor ceases to be a Restricted
Subsidiary, and we otherwise comply, to the extent applicable, with the
covenant described under the caption "--Limitation on Asset Sales";
(3) if we designate such Guarantor as an Unrestricted Subsidiary in
accordance with the covenant described below under the caption "--Limitation
of Designation of Unrestricted Subsidiaries"; or
(4) upon our request if the fair market value of the assets of the
applicable Guarantor (as determined in good faith by the Board of Directors
of the Company), together with the fair market value of the assets of other
Guarantors whose Subsidiary Guarantee was released in the same calendar year
in reliance on this paragraph (4), do not exceed $1.0 million (subject to
cumulative carryover for amounts not used in any prior calendar year).
At our request, the Trustee will execute and deliver any instrument evidencing
such release. A Guarantor may also be released from its obligation under its
Subsidiary Guarantee in
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connection with a permitted amendment. See "--Modification of the Indenture and
Security Documents."
Limitation on Liens. The Company will not, and will not cause or permit any of
the Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Liens of any kind against or upon any property or
assets of the Company or any of the Restricted Subsidiaries, whether now owned
or hereafter acquired, or any proceeds therefrom, or assign or otherwise convey
any right to receive income or profits therefrom unless:
(1) in the case of Liens securing Indebtedness that is expressly subordinate
or junior in right of payment to the notes or a Subsidiary Guarantee, the
notes or such Subsidiary Guarantee is secured by a Lien on such property,
assets or proceeds that is senior in priority to such Liens; and
(2) in all other cases, the notes are equally and ratably secured,
except for:
(A) Liens existing as of the Issue Date to the extent and in the manner such
Liens are in effect on the Issue Date, other than First Priority Liens;
(B) Liens securing Indebtedness permitted to be incurred pursuant to clause
(2) or (11) of the definition of "Permitted Indebtedness" and all other
Obligations relating thereto;
(C) Liens securing the notes or any Subsidiary Guarantee;
(D) Liens in favor of the Company or any Guarantor;
(E) Liens securing Refinancing Indebtedness which is incurred to Refinance
any Indebtedness (including, without limitation, Acquired Indebtedness)
which has been secured by a Lien permitted under the Indenture and which has
been incurred in accordance with the provisions of the Indenture; provided,
however, that such Liens:
(I) are no less favorable to holders of the notes and are not more
favorable to the lienholders with respect to such Liens than the Liens in
respect of the Indebtedness being Refinanced;
(II) do not extend to or cover any property or assets of the Company or
any of its Restricted Subsidiaries not securing the Indebtedness so
Refinanced; and
(III) do not grant a First Priority Lien on any property unless the
Indebtedness refinanced had the benefit of a First Priority Lien on such
property; and
(F) Permitted Liens.
If the Company or any Restricted Subsidiary shall, directly or indirectly,
create, incur, assume or suffer to exist any Lien (other than a Permitted Lien
and a First Priority Lien permitted by the Indenture) on any Excluded
Collateral, the Company or such Restricted Subsidiary shall equally and ratably
secure the Obligations of the Company in respect of the Indenture and the notes;
provided, however, that the Company and the Restricted Subsidiaries may incur up
to $50.0 million aggregate principal or stated amount of Indebtedness
outstanding at any one time secured by Excluded Collateral as to which it would
otherwise have had to equally and ratably secure the obligations of the Company
in respect of the Indenture and the notes without doing so.
Merger, Consolidation and Sale of Assets. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or into
any Person, or sell, assign,
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transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary to sell, assign, transfer, lease, convey or otherwise
dispose of) all or substantially all of the Company's assets (determined on a
consolidated basis for the Company and the Restricted Subsidiaries) whether as
an entirety or substantially as an entirety to any Person unless:
(1) either (A) the Company shall be the surviving or continuing corporation
or (B) the Person (if other than the Company) formed by such consolidation
or into which the Company is merged or the Person which acquires by sale,
assignment, transfer, lease, conveyance or other disposition the properties
and assets of the Company and the Restricted Subsidiaries substantially as
an entirety (the "Surviving Entity") (x) shall be a corporation organized
and validly existing under the laws of the United States or any State
thereof or the District of Columbia, (y) shall expressly assume, by
supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the notes and the
performance of every covenant of the notes, the Indenture and the
Registration Rights Agreement on the part of the Company to be performed or
observed and (z) shall expressly assume, by documentation specified by, and
executed and delivered to, the Trustee, the due and punctual performance of
every covenant and obligation under the Security Documents on the part of
the Company to be performed or observed;
(2) immediately after giving effect to such transaction on a pro forma basis
and the assumption contemplated by clause (1)(B)(y) above (including giving
effect to any Indebtedness and Acquired Indebtedness incurred or anticipated
to be incurred in connection with or in respect of such transaction), the
Company or such Surviving Entity, as the case may be, shall be able to incur
at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the covenant described under "--Limitation on
Incurrence of Additional Indebtedness";
(3) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (1)(B)(y) above
(including, without limitation, giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred and any Lien
granted or to be released in connection with or in respect of the
transaction), no Default or Event of Default shall have occurred and be
continuing; and
(4) the Company or the Surviving Entity shall have delivered to the Trustee
an officers' certificate and an opinion of counsel, each stating that such
consolidation, merger, sale, assignment, transfer, lease, conveyance or
other disposition and, if a supplemental indenture is required in connection
with such transaction, such supplemental indenture comply with the
applicable provisions of the Indenture and that all conditions precedent in
the Indenture relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries, the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
The Indenture provides that upon any consolidation, combination or merger or any
transfer of all or substantially all of the assets of the Company in accordance
with the foregoing in which the Company is not the continuing corporation, the
successor Person formed by such consolidation or into which the Company is
merged or to which such conveyance, lease or transfer is made shall succeed to,
and be substituted for, and may exercise every right and
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power of, the Company under the Indenture and the notes with the same effect as
if such surviving entity had been named as such.
No Guarantor (other than any Guarantor whose Subsidiary Guarantee is to be
released in accordance with the terms of the Subsidiary Guarantee and Indenture
in connection with any transaction complying with the provisions of the covenant
described under "--Limitation on Asset Sales") will, and the Company will not
cause or permit any Guarantor to, consolidate with or merge with or into any
Person other than the Company or any other Guarantor unless:
(1) the entity formed by or surviving any such consolidation or merger (if
other than the Guarantor) is a corporation organized and existing under the
laws of the United States or any State thereof or the District of Columbia;
(2) such entity shall expressly assume by supplemental indenture (in form
and substance satisfactory to the Trustee), executed and delivered to the
Trustee, the performance of every covenant of the notes, the Indenture and
each Registration Rights Agreement on the part of such Guarantor to be
performed or observed;
(3) such entity shall expressly assume, by documentation specified by, and
executed and delivered to the Trustee, the due and punctual performance of
every covenant and obligation under the Security Documents on the part of
such Guarantor to be performed or observed;
(4) immediately after giving effect to such transaction, no Default or Event
of Default shall have occurred and be continuing;
(5) immediately after giving effect to such transaction and the use of any
net proceeds therefrom on a pro forma basis, the Company could satisfy the
provisions of clause (2) of the first paragraph of this covenant; and
(6) the Company shall have delivered to the Trustee an officers' certificate
and opinion of counsel, each stating that such consolidation or merger and,
if a supplemental indenture is required in connection with such transaction,
such supplemental indenture comply with the applicable provisions of the
Indenture and that all conditions precedent in the Indenture relating to
such transaction have been satisfied.
Limitation on Transactions with Affiliates. (a) The Company will not, and will
not permit any of the Restricted Subsidiaries to, directly or indirectly, enter
into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), other than:
(x) Affiliate Transactions permitted under paragraph (b) below; and
(y) Affiliate Transactions on terms that are not materially less favorable
than those that would have reasonably been expected in a comparable
transaction at such time on an arm's-length basis from a Person that is not
an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions
which are similar or part of a common plan) involving aggregate payments or
other property with a Fair Market Value in excess of $10.0 million shall be
approved by the Board of Directors of the Company or such Restricted Subsidiary,
as the case may be, such approval to be evidenced by a Board Resolution stating
that such Board of Directors has determined that such transaction complies
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with the foregoing provisions. If the Company or any Restricted Subsidiary
enters into an Affiliate Transaction (or series of related Affiliate
Transactions related to a common plan) on or after the Issue Date that involves
an aggregate Fair Market Value of more than $50.0 million, the Company or such
Restricted Subsidiary, as the case may be, shall, prior to the consummation
thereof, obtain a favorable opinion as to the fairness of such transaction or
series of related transactions to the Company or the relevant Restricted
Subsidiary, as the case may be, from a financial point of view, from an
Independent Financial Advisor and file the same with the Trustee.
(b) The restrictions set forth in paragraph (a) shall not apply to:
(1) employment, consulting and compensation arrangements and agreements of
the Company or any Restricted Subsidiary consistent with past practice or
approved by a majority of the disinterested members of the Board of
Directors (or a committee comprised of disinterested directors);
(2) reasonable fees and compensation paid to, and indemnity provided on
behalf of, officers, directors, employees, consultants or agents of the
Company or any Restricted Subsidiary as determined in good faith by the
Company's Board of Directors or senior management;
(3) transactions exclusively between or among the Company and any of the
Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries; provided that such transactions are not otherwise prohibited
by the Indenture; and
(4) Restricted Payments, Permitted Investments or Permitted Liens permitted
by the Indenture.
Payments for Consent. The Company will not, and will not cause or permit any of
its Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
any notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the Indenture, the notes, the Subsidiary Guarantees
or any of the Security Documents unless such consideration is offered to be paid
to all holders who so consent, waive or agree to amend in the time frame set
forth in solicitation documents relating to such consent, waiver or amendment.
Limitation on Designations of Unrestricted Subsidiaries. The Company may, on or
after the Issue Date, designate any Subsidiary of the Company (other than a
Subsidiary of the Company which owns Capital Stock of a Restricted Subsidiary or
is a Guarantor) as an "Unrestricted Subsidiary" under the Indenture (a
"Designation") only if:
(1) no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such Designation;
(2) the Company would be permitted under the Indenture to make an Investment
at the time of Designation (assuming the effectiveness of such Designation)
in an amount (the "Designation Amount") equal to the sum of (A) the Fair
Market Value of the Capital Stock of such Subsidiary owned by the Company
and/or any of the Restricted Subsidiaries on such date and (B) the aggregate
amount of Indebtedness of such Subsidiary owed to the Company and the
Restricted Subsidiaries on such date; and
(3) the Company would be permitted to incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the covenant described under
"--Limitation on
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Incurrence of Additional Indebtedness" at the time of Designation (assuming
the effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to have made
an Investment constituting a Restricted Payment in the Designation Amount
pursuant to the covenant described under "--Limitation on Restricted Payments"
for all purposes of the Indenture.
The Indenture further provides that the Company shall not, and shall not permit
any Restricted Subsidiary to, at any time:
(x) provide direct or indirect credit support for or a guarantee of any
Indebtedness of any Unrestricted Subsidiary (including any undertaking
agreement or instrument evidencing such Indebtedness);
(y) be directly or indirectly liable for any Indebtedness of any
Unrestricted Subsidiary; or
(z) be directly or indirectly liable for any Indebtedness which provides
that the holder thereof may (upon notice, lapse of time or both) declare a
default thereon or cause the payment thereof to be accelerated or payable
prior to its final scheduled maturity upon the occurrence of a default with
respect to any Indebtedness of any Unrestricted Subsidiary (including any
right to take enforcement action against such Unrestricted Subsidiary),
except, in the case of clause (x) or (y), to the extent permitted under the
covenant described under "--Limitation on Restricted Payments."
The Indenture further provides that the Company may revoke any Designation of a
Subsidiary as an Unrestricted Subsidiary ("Revocation"), whereupon such
Subsidiary shall then constitute a Restricted Subsidiary, if
(1) no Default or Event of Default shall have occurred and be continuing at
the time and after giving effect to such Revocation;
(2) all Liens and Indebtedness of such Unrestricted Subsidiaries outstanding
immediately following such Revocation would, if incurred at such time, have
been permitted to be incurred for all purposes of the Indenture; and
(3) such Subsidiary shall for purposes of the covenant described above under
"--Issuance of Subsidiary Guarantees" be treated as having then been
acquired by the Company.
All Designations and Revocations must be evidenced by an officers' certificate
of the Company delivered to the Trustee certifying compliance with the foregoing
provisions.
Reports to Holders. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, to the extent
permitted by the Exchange Act, the Company will file with the Commission, and
provide to the Trustee and the holders of the notes, the annual reports and the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) that are
specified in Sections 13 and 15(d) of the Exchange Act within the time periods
required; provided, however, that availability of the foregoing materials on the
SEC's EDGAR service shall be deemed to satisfy the Company's delivery
obligations under this provision. In the event that the Company is not permitted
to file such reports, documents and information with the Commission pursuant to
the Exchange Act, the Company will nevertheless provide such Exchange Act
information to the Trustee and the holders of the
107
notes as if the Company were subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act within the time periods required by law.
If the Company has designated any of its Subsidiaries as an Unrestricted
Subsidiary, 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 to the financial
statements, and in "Management's Discussion and Analysis of Financial Condition
and Results of Operations," of the financial condition and results of operations
of the Company and the Restricted Subsidiaries.
In addition, the Company has agreed that, for so long as any notes remain
outstanding, it 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.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(1) the failure to pay interest on any notes when the same becomes due and
payable and the default continues for a period of 30 days;
(2) the failure to pay the principal on any notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase notes tendered pursuant
to a Change of Control Offer or a Net Proceeds Offer);
(3) a default by the Company or any Restricted Subsidiary in the observance
or performance of any other covenant or agreement contained in the Indenture
which default continues for a period of 30 days after the Company receives
written notice specifying the default from the Trustee or the holders of at
least 25 percent of the outstanding principal amount of the notes (except in
the case of a default with respect to the covenant described under
"--Certain covenants--Merger, Consolidation and Sale of Assets," which will
constitute an Event of Default with such notice requirement but without such
passage of time requirement);
(4) a default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any Indebtedness
of the Company or of any Restricted Subsidiary (or the payment of which is
guaranteed by the Company or any Restricted Subsidiary), whether such
Indebtedness now exists or is created after the Issue Date, which default
(A) is caused by a failure to pay principal of such Indebtedness after 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 such acceleration is not
rescinded, or such Indebtedness is not repaid, within 30 days) 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, exceeds
$75.0 million or more at any time;
(5) one or more judgments in an aggregate amount in excess of $75.0 million
not covered by adequate insurance (other than self-insurance) shall have
been rendered against the Company or any of the Restricted Subsidiaries and
such judgments remain undischarged, unpaid or unstayed for a period of 60
days after such judgment or judgments become final and nonappealable;
108
(6) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries;
(7) any Subsidiary Guarantee of a Significant Subsidiary of the Company
ceases to be in full force and effect or any Subsidiary Guarantee of such a
Significant Subsidiary is declared to be null and void and unenforceable or
any Subsidiary Guarantee of such a Significant Subsidiary is found to be
invalid or any Guarantor which is such a Significant Subsidiary denies its
liability under its Subsidiary Guarantee (other than by reason of release of
such Guarantor in accordance with the terms of the Indenture); or
(8) unless all of the Collateral has been released from the Second Priority
Liens in accordance with the provisions of the Security Documents, default
by the Company or any Restricted Subsidiary in the performance of the
Security Documents which adversely affects the enforceability, validity,
perfection (in the case of Collateral for which perfection is required under
the Security Documents) or priority of the Second Priority Lien on a
material portion of the Collateral granted to the Collateral Agent for its
benefit and the benefit of the Trustee and the holders of the notes, the
repudiation or disaffirmation by the Company or any Restricted Subsidiary of
its material obligations under the Security Documents or the determination
in a judicial proceeding that the Security Documents are unenforceable or
invalid against the Company or any Restricted Subsidiary party thereto for
any reason with respect to a material portion of the Collateral (which
default, repudiation, disaffirmation or determination is not rescinded,
stayed or waived by the Persons having such authority pursuant to the
Security Documents or otherwise cured within 60 days after the Company
receives written notice thereof specifying such occurrence from the Trustee
or the holders of at least 25 percent of the outstanding principal amount of
the notes and demanding that such default be remedied).
If an Event of Default (other than an Event of Default specified in clause (6)
above) shall occur and be continuing, the Trustee or the holders of at least 25
percent in principal amount of outstanding notes may declare the principal of,
premium, if any, and accrued interest on all the notes to be due and payable by
notice in writing to the Company (and to the Trustee if given by the holders)
specifying the respective Event of Default and that it is a "notice of
acceleration," and the same shall become immediately due and payable. If an
Event of Default specified in clause (6) above occurs and is continuing, then
all unpaid principal of, premium, if any, and accrued and unpaid interest on all
of the outstanding notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
holder.
The Indenture provides that, at any time after a declaration of acceleration
with respect to the notes as described in the preceding paragraph, the holders
of a majority in principal amount of the then outstanding notes may rescind and
cancel such declaration and its consequences:
(1) if the rescission would not conflict with any judgment or decree;
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
the acceleration;
(3) to the extent the payment of such interest is lawful, if interest on
overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid;
(4) if the Company has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances; and
109
(5) in the event of the cure or waiver of an Event of Default of the type
described in clause (6) of the description above of Events of Default, the
Trustee shall have received an officers' certificate and an opinion of
counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or Event of Default or
impair any right consequent thereto.
The holders of a majority in principal amount of the then outstanding notes may
waive any existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the principal of or premium, if
any, or interest on any notes.
Holders of the notes may not enforce the Indenture or the notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers' certificate
to the Trustee promptly upon the Company obtaining knowledge of any Default or
Event of Default (provided that the Company shall provide such certification at
least annually whether or not it knows of any Default or Event of Default) that
has occurred and, if applicable, describe such Default or Event of Default and
the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its obligations
and the obligations of any Guarantors discharged with respect to the outstanding
notes ("Legal Defeasance"). Such Legal Defeasance means that the Company shall
be deemed to have paid and discharged the entire indebtedness represented by the
outstanding notes, except for:
(1) the rights of holders to receive payments in respect of the principal
of, premium, if any, and interest on the notes when such payments are due;
(2) the Company's 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 payments;
(3) the rights, powers, trust, duties and immunities of the Trustee and the
Company's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
or failure to comply with such obligations shall not constitute a Default or
Event of Default with respect to the notes. In the event Covenant Defeasance
occurs, certain events (not including nonpayment, bankruptcy, receivership,
reorganization and insolvency events) described under "--Events of default" will
no longer constitute an Event of Default with respect to the notes.
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In order to exercise Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the holders cash in U.S. dollars, non-callable U.S. government
obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants selected by the Company, to pay the principal of,
premium, if any, and interest on the notes on the stated date of payment
thereof or on the applicable redemption date, as the case may be;
(2) in the case of Legal Defeasance, the Company shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the
date of the Indenture, 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 shall confirm that, the holders 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 Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that the holders 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 shall have occurred and be continuing on
the date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of or constitute a default under the Indenture, any
Security Document or any other material agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries is bound;
(6) the Company shall have delivered to the Trustee an officers' certificate
stating that the deposit was not made by the Company with the intent of
preferring the holders over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors
of the Company or others;
(7) the Company shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent
provided for or relating to the Legal Defeasance or the Covenant Defeasance
have been complied with;
(8) the Company shall have delivered to the Trustee an opinion of counsel to
the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; and
(9) certain other customary conditions precedent are satisfied.
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SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect (except
as to surviving rights or registration of transfer or exchange of the notes and
subordination provisions, as expressly provided for in the Indenture) as to all
outstanding notes when:
(1) either (a) all the old notes and exchange notes theretofore
authenticated and delivered (except lost, stolen or destroyed notes which
have been replaced or paid and notes for whose payment money has theretofore
been deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust) have been
delivered to the Trustee for cancellation or (b) all notes not theretofore
delivered to the Trustee for cancellation have (i) become due and payable,
(ii) will become due and payable at their stated maturity within one year or
(iii) are to be called for redemption within one year under arrangements
satisfactory to the Trustee, and the Company has irrevocably deposited or
caused to be deposited with the Trustee funds in an amount sufficient to pay
and discharge the entire Indebtedness on the notes not theretofore delivered
to the Trustee for cancellation, for principal of, premium, if any, and
interest on the notes to the date of deposit together with irrevocable
instructions from the Company directing the Trustee to apply such funds to
the payment thereof at maturity or redemption, as the case may be;
(2) the Company and/or the Guarantors have paid all other sums payable under
the Indenture and the Security Documents; and
(3) the Company has delivered to the Trustee an officers' certificate and an
opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been
complied with.
MODIFICATION OF THE INDENTURE AND SECURITY DOCUMENTS
From time to time, the Company, any Guarantor and the Trustee, without the
consent of the holders of the old notes or exchange notes, may amend the
Indenture and may direct the Collateral Agent to amend the Security Documents
for certain specified purposes, including:
(1) curing ambiguities, defects or inconsistencies, so long as such change
does not, in the opinion of the Trustee, adversely affect the rights of any
of the holders of the notes in any material respect;
(2) providing for the assumption by a successor Person of the obligations of
the Company or any Guarantor under the Indenture and the Security Documents
in accordance with the covenant described under "Certain covenants--Merger,
Consolidation and Sale of Assets";
(3) adding any Guarantor;
(4) adding any additional assets as Collateral;
(5) releasing Collateral from the Lien of the Indenture and the Security
Documents when permitted or required by the Security Documents or the
Indenture; and
(6) upon any amendment, waiver or consent to the security documents granting
the First Priority Liens on the Collateral, amending, waiving or consenting
to the comparable provisions of the Security Documents as and to the extent
set forth under "--Collateral."
In formulating its opinion on such matters, the Trustee will be entitled to rely
on such evidence as it deems appropriate, including, without limitation, solely
on an opinion of counsel.
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Other modifications and amendments of the Indenture and the Security Documents
may be made with the consent of the holders of a majority in principal amount of
the then outstanding notes issued under the Indenture, except that, without the
consent of each holder affected thereby, no amendment may:
(1) reduce the amount of notes whose holders must consent to an amendment;
(2) reduce the rate of or change or have the effect of changing the time for
payment of interest, including defaulted interest, on any notes;
(3) reduce the principal of or change or have the effect of changing the
fixed maturity of any notes; or change the date on which any notes may be
subject to redemption or reduce the redemption price therefor;
(4) make any notes payable in money other than that stated in the notes;
(5) make any change in provisions of the Indenture protecting the right of
each holder to receive payment of principal of, premium, if any, and
interest on such notes on or after the stated due date thereof or to bring
suit to enforce such payment, or permitting holders of a majority in
principal amount of the then outstanding notes to waive Defaults or Events
of Default;
(6) amend, change or modify in any material respect the obligation of the
Company to make and consummate a Change of Control Offer after the
occurrence of a Change of Control or make and consummate a Net Proceeds
Offer with respect to any Asset Sale that has been consummated or modify any
of the provisions or definitions with respect thereto;
(7) modify or change any provision of the Indenture or the related
definitions affecting the ranking of the notes or any Subsidiary Guarantee
in a manner which adversely affects the holders;
(8) modify the provisions of "--Certain covenants--Payments for Consent" in
any manner adverse to a holder of notes; or
(9) release any Guarantor from any of its obligations under its Subsidiary
Guarantee or the Indenture otherwise than in accordance with the terms of
the Indenture.
TAKING AND DESTRUCTION
Following Discharge of the First Priority Claims, upon any Taking or Destruction
of any Collateral, all Net Insurance Proceeds received by the Company or any
Guarantor shall be deemed Net Cash Proceeds and shall be applied in accordance
with the "--Certain covenants--Limitation on Asset Sales" covenant (except that
references to "270 days" and "271st day" shall be deemed to be replaced with
"360 days" and "361st day").
GOVERNING LAW
The Indenture provides that it, the notes and any Subsidiary Guarantees will be
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be required
thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence
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of an Event of Default, the Trustee will exercise such rights and powers vested
in it by the Indenture, and use the same degree of care and skill in its
exercise, as a prudent Person would exercise or use under the circumstances in
the conduct of its own affairs.
The Indenture and the provisions of the TIA contain certain limitations on the
rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture and the Intercreditor Agreement. Reference is made to the Indenture or
the Intercreditor Agreement, as the case may be, for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Accounts Receivable Entity" means a Person, including, without limitation, a
Subsidiary of the Company, whose operations consist solely of owning and/or
selling accounts receivable of the Company and its Subsidiaries and engaging in
other activities in connection with transactions that are Permitted Receivables
Financings.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or
at the time it merges or consolidates with the Company or any of the Restricted
Subsidiaries or assumed by the Company or any Restricted Subsidiary in
connection with the acquisition of assets from such Person and in each case not
incurred by such Person in connection with, or in anticipation or contemplation
of, such Person becoming a Restricted Subsidiary or such acquisition, merger or
consolidation.
"Acquired Subsidiary" means a Person which becomes a Restricted Subsidiary after
the Issue Date; provided that such Person has outstanding voting Capital Stock
prior to becoming a Subsidiary of the Company and a majority of such voting
Capital Stock was owned by Persons other than the Company and its Restricted
Subsidiaries.
"Affiliate" means, with respect to any specified Person, any other Person who
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"Affiliate Transaction" has the meaning set forth under "--Certain
covenants--Limitation on Transactions with Affiliates."
"Applicable Indebtedness" means:
(1) in respect of any asset that is the subject of an Asset Sale at a time
when such asset is included in the Collateral, Pari Passu Indebtedness or
Indebtedness of a Subsidiary of the Company that, in each case, is secured
at such time by Collateral under a Lien that is senior or prior to the
Second Priority Liens (including, without limitation, the First Priority
Claims); or
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(2) in respect of any other asset, any Pari Passu Indebtedness or any
unsubordinated Indebtedness of any Guarantor, and in the case of an Asset
Sale by a Subsidiary that is not a Guarantor, Indebtedness of such
Subsidiary.
"Applicable Pari Passu Indebtedness" means:
(1) in respect of any asset that is the subject of an Asset Sale at a time
when such asset is included in the Collateral, Pari Passu Indebtedness that
is secured at such time by all or any part of the Collateral; or
(2) in respect of any other asset, any Pari Passu Indebtedness.
"Applicable Value" has the meaning set forth under "--Collateral."
"Asset Acquisition" means (1) an Investment by the Company or any Restricted
Subsidiary in any other Person pursuant to which such Person shall become a
Restricted Subsidiary, or shall be merged with or into the Company or any
Restricted Subsidiary, or (2) the acquisition by the Company or any Restricted
Subsidiary of the assets of any Person (other than a Restricted Subsidiary)
which constitute all or substantially all of the assets of such Person or
comprise any division or line of business of such Person or any other properties
or assets of such Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance, lease
(other than operating leases entered into in the ordinary course of business),
assignment or other transfer (other than the granting of a Lien in accordance
with the Indenture) for value by the Company or any of the Restricted
Subsidiaries (including any Sale and Leaseback Transaction) to any Person other
than the Company or a Restricted Subsidiary of (a) any Capital Stock of any
Restricted Subsidiary; or (b) any other property or assets of the Company or any
Restricted Subsidiary other than in the ordinary course of business; provided,
however, that Asset Sales shall not include:
(1) a transaction or series of related transactions for which the Company or
the Restricted Subsidiaries receive aggregate consideration of less than $5
million;
(2) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Company as permitted by the covenant
described under "--Certain covenants--Merger, Consolidation and Sale of
Assets";
(3) any Restricted Payment made in accordance with the covenant described
under "--Certain covenants--Limitation on Restricted Payments"; or
(4) sales of accounts receivable and related assets pursuant to a Permitted
Receivables Financing made in accordance with the covenant described under
"--Certain covenants--Limitation on Incurrence of Additional Indebtedness."
"Attributable Debt" in respect of a Sale and Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the notes, compounded annually) of the total obligations of the lessee
for 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).
"Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
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"Board Resolution" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have been
duly adopted by the Board of Directors of such Person and to be in full force
and effect on the date of such certification, and delivered to the Trustee.
"Capital Stock" means (1) with respect to any Person that is a corporation, any
and all shares, interests, participation or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person, and (2) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Capitalized Lease Obligations" means, as to any Person, the obligations of such
Person under a lease that are required to be classified and accounted for as
capital lease obligations under GAAP and, for purposes of this definition, the
amount of such obligations at any date shall be the capitalized amount of such
obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means:
(1) marketable direct obligations issued by, or unconditionally guaranteed
by, the United States Government or issued by any agency thereof and backed
by the full faith and credit of the United States, in each case maturing
within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United States
of America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Rating Services
("S&P") or Moody's Investors Service, Inc. ("Moody's");
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within one year
from the date of acquisition thereof issued by any bank organized under the
laws of the United States of America or any state thereof or the District of
Columbia or any U.S. branch of a foreign bank having at the date of
acquisition thereof combined capital and surplus of not less than $250
million;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4) above;
and
(6) investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (1) through (5)
above.
"Cash Management Obligations" means, with respect to any Person, all obligations
of such Person in respect of overdrafts and related liabilities owed to any
other Person that arise from treasury, depositary or cash management services,
including in connection with any automated clearing house transfers of funds, or
any similar transactions.
"Change of Control" means the occurrence of one or more of the following events:
(1) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of
the Company to any Person or group
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of related Persons for purposes of Section 13(d) of the Exchange Act (a
"Group"), together with any Affiliates thereof (whether or not otherwise in
compliance with the provisions of the Indenture);
(2) the approval by the holders of Capital Stock of the Company of any plan
or proposal for the liquidation or dissolution of the Company (whether or
not otherwise in compliance with the provisions of the Indenture);
(3) any Person or Group shall become the beneficial owner, directly or
indirectly, of shares representing more than 35 percent of the aggregate
ordinary voting power represented by the issued and outstanding Capital
Stock of the Company; or
(4) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election by such Board of Directors or whose
nomination for election by the stockholders of the Company was approved
pursuant to a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office.
"Change of Control Offer" has the meaning set forth under "--Change of Control."
"Change of Control Payment Date" has the meaning set forth under "--Change of
Control."
"Collateral" has the meaning set forth under "--Collateral."
"Collateral Agent" has the meaning set forth under "--Collateral."
"Collateral Agreement" means that certain Collateral Agreement, dated as of the
Issue Date, among the Collateral Agent, the Trustee for the notes, the Company
and the Subsidiaries of the Company party thereto, granting, among other things,
a second-priority Lien on the Collateral described therein in favor of the
Collateral Agent for its benefit and the benefit of the Trustee and the holders
of the notes, as amended, modified, restated, supplemented or replaced from time
to time.
"Combined EBITDA" means, with respect to the Restricted Subsidiaries that are
not Guarantors (and are not a Finance Subsidiary or an Accounts Receivable
Entity that is a Domestic Restricted Subsidiary), for any period, the sum
(without duplication) of:
(1) Combined Net Income; and
(2) to the extent Combined Net Income has been reduced thereby:
(A) all income taxes of the Restricted Subsidiaries that are not
Guarantors (and are not a Finance Subsidiary or an Accounts Receivable
Entity that is a Domestic Restricted Subsidiary) paid or accrued in
accordance with GAAP for such period;
(B) Combined Interest Expense; and
(C) Combined Non-cash Charges,
less any non-cash items increasing Combined Net Income for such period, all as
determined on a combined basis for the Restricted Subsidiaries that are not
Guarantors (and are not a Finance Subsidiary or an Accounts Receivable Entity
that is a Domestic Restricted Subsidiary) in accordance with GAAP.
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"Combined Fixed Charge Coverage Ratio" means, with respect to the Restricted
Subsidiaries that are not Guarantors (and are not a Finance Subsidiary or an
Accounts Receivable Entity that is a Domestic Restricted Subsidiary), the ratio
of Combined EBITDA during the four full fiscal quarters (the "Four Quarter
Period") ending on or prior to the date of the transaction giving rise to the
need to calculate the Combined Fixed Charge Coverage Ratio (the "Transaction
Date") to Combined Fixed Charges for the Four Quarter Period. In addition to and
without limitation of the foregoing, for purposes of this definition, "Combined
EBITDA" and "Combined Fixed Charges" shall be calculated after giving effect on
a pro forma basis for the period of such calculation to:
(1) the incurrence or repayment of any Indebtedness of any of the Restricted
Subsidiaries that are not Guarantors (and are not a Finance Subsidiary or an
Accounts Receivable Entity that is a Domestic Restricted Subsidiary) (and
the application of the proceeds thereof) giving rise to the need to make
such calculation and any incurrence or repayment of other Indebtedness (and
the application of the proceeds thereof), other than the incurrence or
repayment of Indebtedness in the ordinary course of business for working
capital purposes pursuant to working capital facilities, occurring during
the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be, (and the application of the
proceeds thereof) occurred on the first day of the Four Quarter Period; and
(2) any Asset Sales or other disposition or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make
such calculation as a result of one of the Restricted Subsidiaries that are
not Guarantors (and are not a Finance Subsidiary or an Accounts Receivable
Entity that is a Domestic Restricted Subsidiary) (including any Person who
becomes such a Restricted Subsidiary as a result of the Asset Acquisition)
incurring, assuming or otherwise being liable for Acquired Indebtedness and
also including any Combined EBITDA (provided that such Combined EBITDA shall
be included only to the extent includable pursuant to the definition of
"Combined Net Income") attributable to the assets which are the subject of
the Asset Acquisition or Asset Sale or other disposition during the Four
Quarter Period) occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date as if such Asset Sale or Asset Acquisition or other
disposition (including the incurrence, assumption or liability for any such
Acquired Indebtedness) occurred on the first day of the Four Quarter Period.
If any of the Restricted Subsidiaries that are not Guarantors (and are not a
Finance Subsidiary or Accounts Receivable Entity that is a Domestic Restricted
Subsidiary) directly or indirectly guarantee Indebtedness of a third Person, the
preceding sentence shall give effect to the incurrence of such guaranteed
Indebtedness as if the Restricted Subsidiary had directly incurred or otherwise
assumed such guaranteed Indebtedness. Furthermore, in calculating "Combined
Fixed Charges" for purposes of determining the denominator (but not the
numerator) of this "Combined Fixed Charge Coverage Ratio":
(1) interest on outstanding Indebtedness determined on a fluctuating basis
as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal
to the rate of interest on such Indebtedness in effect on the Transaction
Date;
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(2) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a factor of
a prime or similar rate, a eurocurrency interbank offered rate, or other
rates, then the interest rate in effect on the Transaction Date will be
deemed to have been in effect during the Four Quarter Period; and
(3) notwithstanding clause (1) above, interest on Indebtedness determined on
a fluctuating basis, to the extent such interest is covered by agreements
relating to Interest Swap Obligations, shall be deemed to accrue at the rate
per annum in effect on the Transaction Date resulting after giving effect to
the operation of such agreements on such date.
"Combined Fixed Charges" means, with respect to the Restricted Subsidiaries that
are not Guarantors (and are not a Finance Subsidiary or an Accounts Receivable
Entity that is a Domestic Restricted Subsidiary) for any period, the sum,
without duplication, of:
(1) Combined Interest Expense, plus
(2) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of the Restricted Subsidiaries that are not Guarantors
(other than Finance Subsidiaries and Accounts Receivable Entities that are
Domestic Restricted Subsidiaries) paid, accrued and/or scheduled to be paid
or accrued during such period times (y) a fraction, the numerator of which
is one and the denominator of which is one minus the then current effective
consolidated federal, state and local income tax rate of the Company,
expressed as a decimal.
"Combined Interest Expense" means, with respect to the Restricted Subsidiaries
that are not Guarantors (and are not a Finance Subsidiary or Accounts Receivable
Entity that is a Domestic Restricted Subsidiary) for any period, the sum of,
without duplication:
(1) the aggregate of the interest expense of the Restricted Subsidiaries
that are not Guarantors (and are not a Finance Subsidiary or Accounts
Receivable Entity that is a Domestic Restricted Subsidiary) for such period
determined on a combined basis in accordance with GAAP, including without
limitation,
(A) any amortization of debt discount,
(B) the net costs under Interest Swap Obligations and Attributable Debt,
(C) all capitalized interest, and
(D) the interest portion of any deferred payment obligation;
(2) the interest component of Capitalized Lease Obligations and Attributable
Debt paid, accrued and/or scheduled to be paid or accrued by the Restricted
Subsidiaries that are not Guarantors (and are not a Finance Subsidiary or
Accounts Receivable Entity that is a Domestic Restricted Subsidiary) during
such period as determined on a consolidated basis in accordance with GAAP;
and
(3) net losses relating to sales of accounts receivable pursuant to
Permitted Receivable Financings during such period as determined on a
combined basis in accordance with GAAP;
provided that Combined Interest Expense shall not include any of the foregoing
to the extent owing to the Company or any Restricted Subsidiary or to the extent
owed by a Finance Subsidiary or an Accounts Receivable Entity that is a Domestic
Restricted Subsidiary.
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"Combined Net Income" means, with respect to the Restricted Subsidiaries that
are not Guarantors (and are not Finance Subsidiaries or Accounts Receivable
Entities that are Domestic Restricted Subsidiaries), for any period, the
aggregate net income (or loss) of the Restricted Subsidiaries that are not
Guarantors (and are not Finance Subsidiaries or Accounts Receivable Entities
that are Domestic Restricted Subsidiaries) for such period as determined on a
combined basis in accordance with GAAP; provided that there shall be excluded
therefrom:
(1) after-tax gains and losses from Asset Sales or abandonments or reserves
relating thereto;
(2) extraordinary or non-recurring gains or losses (determined on an
after-tax basis);
(3) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary or
is merged or consolidated with any Restricted Subsidiary that is not a
Guarantor (and are not Finance Subsidiaries or Accounts Receivable Entities
that are Domestic Restricted Subsidiaries);
(4) the net income of any Person, other than a Restricted Subsidiary, except
to the extent of cash dividends or distributions paid to the Restricted
Subsidiaries that are not Guarantors (and are not Finance Subsidiaries or
Accounts Receivable Entities that are Domestic Restricted Subsidiaries) by
such Person;
(5) any restoration to income of any contingency reserve, except to the
extent that provision for such reserve was made out of Combined Net Income
accrued at any time following the Issue Date;
(6) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or not
such operations were classified as discontinued);
(7) write downs resulting from the impairment of intangible assets; and
(8) the amount of amortization or write-off deferred financing costs and
debt issuance costs of the Company and its Restricted Subsidiaries during
such period and any premium or penalty paid in connection with redeeming or
retiring Indebtedness of the Company and its Restricted Subsidiaries prior
to the stated maturity thereof pursuant to the agreements governing such
Indebtedness.
"Combined Non-cash Charges" means, with respect to the Restricted Subsidiaries
that are not Guarantors (and are not Finance Subsidiaries or Accounts Receivable
Entities that are Domestic Restricted Subsidiaries), for any period, the
aggregate depreciation, amortization and other non-cash expenses of the
Restricted Subsidiaries that are not Guarantors (and are not Finance
Subsidiaries or Accounts Receivable Entities that are Domestic Restricted
Subsidiaries) reducing Combined Net Income for such period, determined on a
combined basis in accordance with GAAP (excluding any such charge which requires
an accrual of or a reserve for cash charges for any future period).
"Commission" means the Securities and Exchange Commission, as from time to time
constituted, or if at any time after the execution of the Indenture such
Commission is not existing and performing the applicable duties now assigned to
it, then the body or bodies performing such duties at such time.
"Commodity Agreement" means any commodity futures contract, commodity option or
other similar agreement or arrangement entered into by the Company or any
Restricted Subsidiary of the Company designed to protect the Company or any of
its Restricted Subsidiaries against
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fluctuations in the price of the commodities at the time used in the ordinary
course of business of the Company or any of its Restricted Subsidiaries.
"Common Collateral" means all of the assets of any Grantor, whether real,
personal or mixed, constituting both First Priority Collateral and Second
Priority Collateral.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, with respect to the Company, for any period, the
sum (without duplication) of:
(1) Consolidated Net Income; and
(2) to the extent Consolidated Net Income has been reduced thereby:
(A) all income taxes of the Company and the Restricted Subsidiaries paid
or accrued in accordance with GAAP for such period;
(B) Consolidated Interest Expense; and
(C) Consolidated Non-cash Charges,
less any non-cash items increasing Consolidated Net Income for such period, all
as determined on a consolidated basis for the Company and the Restricted
Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to the Company,
the ratio of Consolidated EBITDA of the Company during the Four Quarter Period
ending on or prior to the Transaction Date to Consolidated Fixed Charges of the
Company for the Four Quarter Period. In addition to and without limitation of
the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis for the period of such calculation to:
(1) the incurrence or repayment of any Indebtedness of the Company or any of
the Restricted Subsidiaries (and the application of the proceeds thereof)
giving rise to the need to make such calculation and any incurrence or
repayment of other Indebtedness (and the application of the proceeds
thereof), other than the incurrence or repayment of Indebtedness in the
ordinary course of business for working capital purposes pursuant to working
capital facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may be,
(and the application of the proceeds thereof) occurred on the first day of
the Four Quarter Period; and
(2) any Asset Sales or other disposition or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make
such calculation as a result of the Company or one of the Restricted
Subsidiaries (including any Person who becomes a Restricted Subsidiary as a
result of the Asset Acquisition) incurring, assuming or otherwise being
liable for Acquired Indebtedness and also including any Consolidated EBITDA
(provided that such Consolidated EBITDA shall be included only to the extent
includable pursuant to the definition of "Consolidated Net Income")
attributable to the assets which are the subject of the Asset Acquisition or
Asset Sale or other disposition during the Four Quarter Period) occurring
during the Four Quarter Period or at any time subsequent to the
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last day of the Four Quarter Period and on or prior to the Transaction Date
as if such Asset Sale or Asset Acquisition or other disposition (including
the incurrence, assumption or liability for any such Acquired Indebtedness)
occurred on the first day of the Four Quarter Period.
If the Company or any of the Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding sentence shall give
effect to the incurrence of such guaranteed Indebtedness as if the Company or
any Restricted Subsidiary had directly incurred or otherwise assumed such
guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed
Charges" for purposes of determining the denominator (but not the numerator) of
this "Consolidated Fixed Charge Coverage Ratio":
(1) interest on outstanding Indebtedness determined on a fluctuating basis
as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal
to the rate of interest on such Indebtedness in effect on the Transaction
Date;
(2) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a factor of
a prime or similar rate, a eurocurrency interbank offered rate, or other
rates, then the interest rate in effect on the Transaction Date will be
deemed to have been in effect during the Four Quarter Period; and
(3) notwithstanding clause (1) above, interest on Indebtedness determined on
a fluctuating basis, to the extent such interest is covered by agreements
relating to Interest Swap Obligations, shall be deemed to accrue at the rate
per annum in effect on the Transaction Date resulting after giving effect to
the operation of such agreements on such date.
"Consolidated Fixed Charges" means, with respect to the Company for any period,
the sum, without duplication, of:
(1) Consolidated Interest Expense, plus
(2) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of the Company (other than dividends paid in Qualified
Capital Stock) or any Restricted Subsidiary paid, accrued and/or scheduled
to be paid or accrued during such period times (y) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
effective consolidated federal, state and local income tax rate of the
Company, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to the Company for any
period, the sum of, without duplication:
(1) the aggregate of the interest expense of the Company and the Restricted
Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP, including without limitation,
(A) any amortization of debt discount,
(B) the net costs under Interest Swap Obligations,
(C) all capitalized interest, and
(D) the interest portion of any deferred payment obligation;
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(2) the interest component of Capitalized Lease Obligations and Attributable
Debt paid, accrued and/or scheduled to be paid or accrued by the Company and
the Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP; and
(3) net losses relating to sales of accounts receivable pursuant to
Permitted Receivables Financings during such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company, for any period,
the aggregate net income (or loss) of the Company and the Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP; provided that there shall be excluded therefrom:
(1) after-tax gains and losses from Asset Sales or abandonments or reserves
relating thereto;
(2) extraordinary or non-recurring gains or losses (determined on an
after-tax basis);
(3) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary or
is merged or consolidated with the Company or any Restricted Subsidiary;
(4) the net income (but not loss) of any Restricted Subsidiary to the extent
that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is restricted by a contract, operation
of law or otherwise;
(5) the net income of any Person, other than a Restricted Subsidiary, except
to the extent of cash dividends or distributions paid to the Company or to a
Restricted Subsidiary by such Person;
(6) any restoration to income of any contingency reserve, except to the
extent that provision for such reserve was made out of Consolidated Net
Income accrued at any time following March 31, 2003;
(7) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or not
such operations were classified as discontinued);
(8) in the case of a successor to the Company by consolidation or merger or
as a transferee of the Company's assets, any earnings of the successor
corporation prior to such consolidation, merger or transfer of assets;
(9) write downs resulting from the impairment of intangible assets; and
(10) the amount of amortization or write-off of deferred financing costs and
debt issuance costs of the Company and its Restricted Subsidiaries during
such period and any premium or penalty paid in connection with redeeming or
retiring Indebtedness of the Company and its Restricted Subsidiaries prior
to the stated maturity thereof pursuant to the agreements governing such
Indebtedness.
"Consolidated Net Tangible Assets" means, as of any date of determination, the
total assets, less goodwill and other intangibles (other than patents,
trademarks, copyrights, licenses and other intellectual property), shown on the
balance sheet of the Company and its Restricted Subsidiaries for the most
recently ended fiscal quarter for which financial statements are available,
determined on a consolidated basis in accordance with GAAP.
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"Consolidated Non-cash Charges" means, with respect to the Company, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
the Company and the Restricted Subsidiaries reducing Consolidated Net Income of
the Company for such period, determined on a consolidated basis in accordance
with GAAP (excluding any such charge which requires an accrual of or a reserve
for cash charges for any future period).
"Covenant Defeasance" has the meaning set forth under "--Legal Defeasance and
Covenant Defeasance."
"Credit Agent" means JPMorgan Chase Bank in its capacity as collateral agent
under the Credit Agreement or any Person designated the "Credit Agent" pursuant
to the Intercreditor Agreement.
"Credit Agreement" means the Credit Agreement dated as of September 30, 1999,
among the Company, the Guarantors, the lenders party thereto in their capacities
as lenders thereunder and Commerzbank and Bank of America, N.A., as
co-documentation agents, Citicorp North America Inc., as syndication agent, and
JPMorgan Chase Bank, as administrative agent, together with the documents
related thereto (including, without limitation, any guarantee agreements and
security documents), in each case as such agreements may be amended (including
any amendment and restatement thereof), supplemented or otherwise modified from
time to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder (provided that such increase in borrowings is
permitted by the covenant described under "--Certain covenants--Limitation on
Incurrence of Additional Indebtedness" (including the definition of Permitted
Indebtedness)) or adding Subsidiaries as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
lender or group of lenders. We do not intend to amend the Indenture to update
the definition of Credit Agreement set forth therein, as the Amended and
Restated Credit Agreement, dated as of December 12, 2003, among the Company, the
Guarantors, the lenders party thereto and JPMorgan Chase Bank, as administrative
agent, together with the documents related thereto (including, without
limitation, any guarantee agreements and security documents), is an amendment
and restatement of such Credit Agreement included within this definition.
"Credit Agreement Obligations" means all Obligations under or pursuant to the
Credit Agreement.
"Credit Facilities" means one or more debt facilities (including the Credit
Agreement) or commercial paper facilities providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables to
lenders or to special purpose entities formed to borrow from lenders against
such receivables) or letters of credit, or any debt securities or other form of
debt financing (including convertible or exchangeable debt instruments), in each
case, as amended, supplemented, modified, extended, renewed, restated or
refunded in whole or in part from time to time.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
"Default" means an event or condition the occurrence of which is, or with the
lapse of time or the giving of notice of both would be, an Event of Default.
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"Designation" has the meaning set forth under "--Certain covenants--Limitation
on Designations of Unrestricted Subsidiaries."
"Designation Amount" has the meaning set forth under "--Certain
covenants--Limitation on Designations of Unrestricted Subsidiaries."
"Destruction" means any damage to, loss of or destruction of all or any portion
of the Collateral.
"Discharge of First Priority Claims" means, except to the extent otherwise
provided in the Intercreditor Agreement, payment in full in cash of (a) the
principal of and interest and premium, if any, on all Indebtedness outstanding
under the First-Lien Credit Facilities or, with respect to letters of credit
outstanding thereunder, delivery of cash collateral or backstop letters of
credit in respect thereof in compliance with such First-Lien Credit Facilities,
as applicable, in each case after or concurrently with termination of all
commitments to extend credit thereunder and (b) any other First Priority Claims
that are due and payable or otherwise accrued and owing at or prior to the time
such principal and interest are paid.
"Disqualified Capital Stock" means that portion of any Capital Stock which, by
its terms (or by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is mandatorily exchangeable for Indebtedness, or is redeemable or exchangeable
for Indebtedness, at the sole option of the holder thereof on or prior to the
final maturity date of the notes.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary incorporated or
otherwise organized under the laws of the United States or any State thereof or
the District of Columbia.
"DTC" means the Depository Trust Company or any successor thereto.
"Equity Offering" has the meaning set forth under "--Redemption--Optional
Redemption upon Equity Offerings."
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto, and the rules and regulations of the
Commission promulgated thereunder.
"Excluded Collateral" has the meaning set forth under "--Collateral."
"Fair Market Value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair Market Value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company.
"Finance Subsidiary" means a Restricted Subsidiary that is organized solely for
the purpose of owning Indebtedness of the Company and/or other Restricted
Subsidiaries and issuing securities the proceeds of which are utilized by the
Company and/or other Restricted Subsidiaries, and which engages only in such
activities and activities incident thereto.
"First-Lien Credit Facilities" means (a) the Credit Facilities provided pursuant
to the Credit Agreement and (b) any other Credit Facility, that, in the case of
both clauses (a) and (b), is secured by a Lien permitted pursuant to clause (B)
of the covenant "--Limitation on Liens."
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"First Priority Cash Management Obligations" means any Cash Management
Obligations secured by any Common Collateral under the same First Priority
Collateral Documents that secure Obligations under the Senior Credit Agreement.
"First Priority Claims" means (a) all Credit Agreement Obligations, (b) all
Obligations under one or more other First-Lien Credit Facilities, the
Indebtedness under each of which is designated by the Company as "First Priority
Claims" for purposes of the Indenture, provided that the lenders under each
First-Lien Credit Facility then in effect have consented to such designation
pursuant to the provisions of the First Priority Documents then in effect, (c)
all other Obligations of the Company or any other Grantor under the First
Priority Documents, including all First Priority Hedging Obligations and First
Priority Cash Management Obligations and (d) all Future Other First-Lien
Obligations. First Priority Claims shall include all interest accrued or
accruing (or which would, absent the commencement of an Insolvency or
Liquidation Proceeding, accrue) after the commencement of an Insolvency or
Liquidation Proceeding in accordance with and at the rate specified in the
relevant First Priority Document whether or not the claim for such interest is
allowed as a claim in such Insolvency or Liquidation Proceeding. To the extent
any payment with respect to the First Priority Claims (whether by or on behalf
of any Grantor, as proceeds of security, enforcement of any right of set-off or
otherwise) is declared to be fraudulent or preferential in any respect, set
aside or required to be paid to a debtor in possession, trustee, receiver or
similar Person, then the obligation or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if such payment
had not occurred. Notwithstanding the foregoing the notes and related
Obligations will not constitute First Priority Claims and Collateral therefor
will not constitute First Priority Collateral even if any proceeds of the notes
are used to repay Obligations under the Credit Agreement. Notwithstanding
anything to the contrary contained in this definition, any Obligation under a
First Priority Document (including any Cash Management Obligations or Hedging
Obligations) shall constitute a "First Priority Claim" if the Credit Agent or
the relevant First Priority Lender or First Priority Lenders under such First
Priority Document shall have received a written representation from the Company
in or in connection with such First Priority Document that such Obligation
constitutes a "First Priority Claim" under and as defined in the Indenture
(whether or not such Obligation is at any time determined not to have been
permitted to be incurred under the Indenture).
"First Priority Collateral" means all of the assets of any Grantor, whether
real, personal or mixed, with respect to which a Lien is granted or held as
security for any First Priority Claim.
"First Priority Collateral Documents" means any agreement, document or
instrument pursuant to which a Lien is granted securing any First Priority
Claims or under which rights or remedies with respect to such Liens are
governed.
"First Priority Documents" means the Credit Agreement, the First Priority
Collateral Documents, and each of the other agreements, documents and
instruments (including each agreement, document or instrument providing for or
evidencing a First Priority Hedging Obligation or First Priority Cash Management
Obligation) providing for or evidencing any other Obligation under the Credit
Agreement or any other First-Lien Credit Facility or any Future Other First-Lien
Obligations, and any other related document or instrument executed or delivered
pursuant to any First Priority Document at any time or otherwise evidencing any
First Priority Claims.
"First Priority Hedging Obligations" means any Hedging Obligations secured by
any Common Collateral under the same First Priority Collateral Documents that
secure Obligations under a Senior Credit Agreement.
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"First Priority Lenders" means the Persons holding First Priority Claims,
including the Credit Agent.
"First Priority Liens" means all Liens that secure the First Priority Claims.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary that is
organized and existing under the laws of a jurisdiction other than the United
States, any State thereof or the District of Columbia.
"Foreign Subsidiary" means any Subsidiary that is organized and existing under
the laws of a jurisdiction other than the United States, any State thereof or
the District of Columbia.
"Future Other First-Lien Obligations" means all Obligations of the Company or
any other Grantor in respect of Cash Management Obligations or Hedging
Obligations that are designated by the Company as "First Priority Claims" for
purposes of the Indenture (other than any First Priority Cash Management
Obligations and First Priority Hedging Obligations); provided that the required
lenders (however denominated) under any Senior Credit Agreement then in effect
have consented to such designation.
"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 may be approved by a significant segment of the accounting profession
of the United States, which are in effect as of the Issue Date.
"Grantors" means each of the Company and the Subsidiaries that has executed and
delivered a First Priority Collateral Document or a Security Document.
"Guarantee" has the meaning set forth under "--Certain covenants--Issuance of
Subsidiary Guarantees."
"Guarantor" means (1) each Wholly Owned Domestic Restricted Subsidiary of the
Company (other than any Immaterial Domestic Subsidiaries, Accounts Receivable
Entities and Finance Subsidiaries) as of the Issue Date and (2) each other
Restricted Subsidiary that in the future is required to or executes a Subsidiary
Guarantee pursuant to the covenant described under "--Certain
covenants--Issuance of Subsidiary Guarantees" or otherwise; provided that any
Person constituting a Guarantor as described above shall cease to constitute a
Guarantor when its Subsidiary Guarantee is released in accordance with the terms
of the Indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of such
Person in respect of (a) interest rate or currency swap agreements, interest
rate or currency cap agreements, interest rate or currency collar agreements or
(b) other agreements or arrangements designed to protect such Person against
fluctuations in interest rates and/or currency exchange rates.
"Immaterial Domestic Subsidiaries" means at any time, any Domestic Restricted
Subsidiary of the Company having total assets (as determined in accordance with
GAAP) in an amount of less than one percent of the consolidated total assets of
the Company and its Domestic Restricted Subsidiaries (as determined in
accordance with GAAP); provided, however, that the total assets (as so
determined) of all Immaterial Domestic Subsidiaries shall not exceed five
percent of consolidated total assets of the Company and its Domestic
Subsidiaries (as so determined). In the event that the total assets of all
Immaterial Domestic Subsidiaries exceed five percent of consolidated total
assets of the Company and its Domestic Restricted Subsidiaries, the Company
127
will designate Domestic Restricted Subsidiaries that would otherwise be
Immaterial Domestic Subsidiaries to be excluded as Immaterial Domestic
Subsidiaries until such five percent threshold is met. Notwithstanding the
foregoing, no Domestic Restricted Subsidiary that guarantees the Credit
Agreement or any Credit Agreement Obligation shall be deemed an Immaterial
Domestic Subsidiary.
"incur" has the meaning set forth under "--Certain covenants--Limitation on
Incurrence on Additional Indebtedness."
"Indebtedness" means, with respect to any Person, without duplication:
(1) all Obligations of such Person for borrowed money;
(2) all Obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments;
(3) all Capitalized Lease Obligations of such Person and Attributable Debt
of such Person;
(4) all Obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
Obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the ordinary
course of business that are not overdue by 90 days or more or are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted);
(5) all Obligations for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction;
(6) guarantees and other contingent obligations in respect of Indebtedness
of any other Person referred to in clauses (1) through (5) above and clauses
(8) and (10) below;
(7) all Obligations of any other Person of the type referred to in clauses
(1) through (6) which are secured by any Lien on any property or asset of
such Person, the amount of such Obligation being deemed to be the lesser of
the Fair Market Value of such property or asset or the amount of the
Obligation so secured;
(8) all Obligations under currency agreements and interest swap agreements
of such Person;
(9) all Disqualified Capital Stock of the Company and all Preferred Stock of
a Restricted Subsidiary with the amount of Indebtedness represented by such
Disqualified Capital Stock or Preferred Stock being equal to the greater of
its voluntary or involuntary liquidation preference and its maximum fixed
repurchase price, but excluding accrued and unpaid dividends, if any; and
(10) all Outstanding Permitted Receivables Financings.
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock or Preferred Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified Capital
Stock or Preferred Stock as if such Disqualified Capital Stock or Preferred
Stock were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the Fair Market Value of such Disqualified Capital Stock or
Preferred Stock, such Fair Market Value shall be determined reasonably and in
good faith by the Board of Directors of the issuer of such Disqualified Capital
Stock or Preferred Stock.
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"Independent Financial Advisor" means a firm (1) which does not, and whose
directors, officers and employees and Affiliates do not, have a direct or
indirect material financial interest in the Company and (2) which, in the
judgment of the Board of Directors of the Company, is otherwise independent and
qualified to perform the task for which it is to be engaged.
"Initial Purchasers" means the Persons purchasing securities from the Company
pursuant to the related Purchase Agreement.
"Insolvency or Liquidation Proceeding" means (a) any voluntary or involuntary
case or proceeding under any Bankruptcy Law with respect to any Grantor, (b) any
other voluntary or involuntary insolvency, reorganization or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or other similar
case or proceeding with respect to any Grantor or with respect to any of their
respective assets, (c) any liquidation, dissolution, reorganization or winding
up of any Grantor whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy or (d) any assignment for the benefit of creditors or
any other marshaling of assets and liabilities of any Grantor.
"Intercreditor Agreement" means that certain Intercreditor Agreement, dated as
of the Issue Date, by and among the Company, JPMorgan Chase Bank, as Credit
Agent, and Wachovia Bank, National Association, as Trustee, as amended
(including any amendment and restatement thereof), supplemented or otherwise
modified from time to time.
"Interest Swap Obligations" means the obligations of the Company and the
Restricted Subsidiaries pursuant to any arrangement with any other Person,
whereby, directly or indirectly, the Company or any Restricted Subsidiary is
entitled to receive from time to time periodic payments calculated by applying
either a floating or a fixed rate of interest on a stated notional amount in
exchange for periodic payments made by such other Person calculated by applying
a fixed or a floating rate of interest on the same notional amount and shall
include, without limitation, interest rate swaps, caps, floors, collars and
similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan or
other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and the Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiaries, as the case may be. If the Company or any Restricted Subsidiary
sells or otherwise disposes of any Capital Stock of any Restricted Subsidiary
(the "Referent Subsidiary") such that, after giving effect to any such sale or
disposition, the Referent Subsidiary shall cease to be a Restricted Subsidiary,
the Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the Fair Market Value of the Capital Stock of the
Referent Subsidiary not sold or disposed of.
"Issue Date" means the date of initial issuance of the notes, June 19, 2003.
"Legal Defeasance" has the meaning set forth under "--Legal Defeasance and
Covenant Defeasance."
"Lien" means any lien, mortgage, deed of trust, deed to secure debt, pledge,
security interest, charge or encumbrance of any kind (including any conditional
sale or other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
129
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the
form of cash or Cash Equivalents, including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest), received
by the Company or any of the Restricted Subsidiaries from such Asset Sale net
of:
(1) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking
fees, sales commissions and relocation expenses);
(2) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions and
any tax sharing arrangements;
(3) repayments of Indebtedness secured by the property or assets subject to
such Asset Sale that is required to be repaid in connection with such Asset
Sale; and
(4) appropriate amounts to be determined by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP,
against any liabilities associated with such Asset Sale and retained by the
Company or any Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale.
"Net Insurance Proceeds" means the insurance proceeds (excluding liability
insurance proceeds payable to the Trustee for any loss, liability or expense
incurred by it and excluding the proceeds of business interruption insurance) or
condemnation awards actually received by the Company or any Restricted
Subsidiary of the Company as a result of the Destruction or Taking of all or any
portion of the Collateral, net of:
(1) reasonable out-of-pocket expenses and fees paid by the Company or a
Restricted Subsidiary relating to such Taking or Destruction (including,
without limitation, expenses of attorneys and insurance adjusters);
(2) taxes paid or payable by the Company or a Restricted Subsidiary after
taking into account any reduction in consolidated tax liability due to
available tax credits or deductions and any tax sharing arrangements; and
(3) repayment of Indebtedness that is secured by the property or assets that
are the subject of such Taking or Destructions; provided that, in the case
of any Destruction or Taking involving Collateral, the Lien securing such
Indebtedness constitutes a Lien permitted by the Indenture to be prior to
the Lien granted to the Collateral Agent for the benefit of the holders of
the notes pursuant to the Security Documents.
"Net Proceeds Offer" has the meaning set forth under "--Certain
covenants--Limitation on Asset Sales."
"Net Proceeds Offer Amount" has the meaning set forth under "--Certain
covenants--Limitation on Asset Sales."
"Net Proceeds Offer Payment Date" had the meaning set forth under "--Certain
covenants--Limitation on Asset Sales."
"Net Proceeds Offer Trigger Date" has the meaning set forth under "--Certain
covenants--Limitation on Asset Sales."
130
"Obligations" means any and all obligations with respect to the payment of (a)
any principal of or interest (including interest accruing on or after the
commencement of any Insolvency or Liquidation Proceedings, whether or not a
claim for post-filing interest is allowed in such proceeding) or premium on any
Indebtedness, including any reimbursement obligation in respect of any letter of
credit, (b) any fees, indemnification obligations, damages, expense
reimbursement obligations or other liabilities payable under the documentation
governing any Indebtedness, (c) any obligation to post cash collateral in
respect of letters of credit and any other obligations and (d) any Cash
Management Obligations or Hedging Obligations.
"Other Second-Lien Obligations" has the meaning set forth under "--Collateral."
"Outstanding Permitted Receivables Financings" means the aggregate amount of the
receivables sold or financed pursuant to a Permitted Receivables Financing that
remain uncollected at any one time.
"Pari Passu Indebtedness" means any unsubordinated Indebtedness of the Company
(other than any Indebtedness owed to any Subsidiary of the Company).
"Permitted Indebtedness" means, without duplication, each of the following:
(1) Indebtedness under the notes, the Indenture and any Subsidiary
Guarantees outstanding on the Issue Date;
(2) Indebtedness incurred pursuant to the Credit Agreement (or, in the case
of clause (2)(x) below, pursuant to a Credit Facility) in an aggregate
principal amount at any time outstanding not to exceed the greater of:
(x) the sum of (i) $1,000 million (reduced by any required permanent
repayments with the proceeds of Asset Sales (which are accompanied by a
corresponding permanent commitment reduction) thereunder) and (ii) $150.0
million less the aggregate amount then outstanding under the Outstanding
Permitted Receivables Financings referred to in clause (14) below; and
(y) the sum of (A) 85 percent of the net book value of the accounts
receivable of the Company and the Restricted Subsidiaries and (B) 50
percent of the net book value of the inventory of the Company and the
Restricted Subsidiaries;
(3) other Indebtedness of the Company and the Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions are made thereon;
(4) Interest Swap Obligations of the Company covering Indebtedness of the
Company or any Guarantor and Interest Swap Obligations of any Restricted
Subsidiary covering Indebtedness of such Restricted Subsidiary; provided,
however, that such Interest Swap Obligations are entered into to protect the
Company and the Restricted Subsidiaries from fluctuations in interest rates
on Indebtedness incurred in accordance with the Indenture to the extent the
notional principal amount of such Interest Swap Obligations does not exceed
the principal amount of the Indebtedness to which such Interest Swap
Obligations relate;
(5) Indebtedness under Currency Agreements; provided that in the case of
Currency Agreements which relate to Indebtedness, such Currency Agreements
do not increase the Indebtedness of the Company and the Restricted
Subsidiaries outstanding other than as a
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result of fluctuations in foreign currency exchange rates or by reason of
fees, indemnities and compensation payable thereunder;
(6) Indebtedness of a Restricted Subsidiary of the Company to the Company or
to a Restricted Subsidiary of the Company for so long as such Indebtedness
is held by the Company, a Restricted Subsidiary of the Company or the
lenders or collateral agent under the Credit Agreement or the Collateral
Agent for the benefit of the Trustee and the holders of the notes, in each
case subject to no Lien held by a Person other than the Company, a
Restricted Subsidiary of the Company or the lenders or collateral agent
under the Credit Agreement or the Collateral Agent for the benefit of the
Trustee and the holders of the notes; provided that if as of any date any
Person other than the Company, a Restricted Subsidiary of the Company or the
lenders or collateral agent under the Credit Agreement or the Collateral
Agent for its benefit and for the benefit of the Trustee and the holders of
the notes owns or holds any such Indebtedness or holds a Lien in respect of
such Indebtedness, such date shall be deemed the incurrence of Indebtedness
not constituting Permitted Indebtedness under this clause (6) by the issuer
of such Indebtedness;
(7) Indebtedness of the Company to a Restricted Subsidiary of the Company
for so long as such Indebtedness is held by a Restricted Subsidiary of the
Company or the lenders or the collateral agent under the Credit Agreement or
the Collateral Agent for the benefit of the Trustee and the holders of the
notes and is subject to no Lien other than a Lien in favor of the lenders or
collateral agent under the Credit Agreement or the Collateral Agent for the
benefit of the Trustee and the holders of the notes; provided that (a) any
Indebtedness of the Company to any Restricted Subsidiary of the Company is
unsecured and, except in the case of Indebtedness owed to Foreign
Subsidiaries, subordinated, pursuant to a written agreement, to the
Company's obligations under the Indenture and the notes and (b) if as of any
date any Person other than a Restricted Subsidiary of the Company owns or
holds any such Indebtedness or any Person holds a Lien other than a Lien in
favor of the lenders or collateral agent under the Credit Agreement or the
Collateral Agent for its benefit and for the benefit of the Trustee and the
holders of the notes in respect of such Indebtedness, such date shall be
deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness under this clause (7) by the Company;
(8) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in
the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; provided, however, that such Indebtedness is
extinguished within five business days after incurrence;
(9) Indebtedness of the Company or any of the Restricted Subsidiaries
represented by letters of credit for the account of the Company or any such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
(10) Refinancing Indebtedness;
(11) additional Indebtedness of the Company and the Restricted Subsidiaries
in an aggregate principal amount not to exceed $50.0 million at any one time
outstanding;
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(12) additional Indebtedness of Foreign Subsidiaries of the Company under
working capital facilities in an aggregate principal amount not to exceed
$50.0 million at any one time outstanding;
(13) Purchase Money Indebtedness and Capitalized Lease Obligations (and any
Indebtedness incurred to Refinance such Purchase Money Indebtedness or
Capitalized Lease Obligations) not to exceed 5 percent of Consolidated Net
Tangible Assets at any one time outstanding; and
(14) Outstanding Permitted Receivables Financings not to exceed $150.0
million at any one time outstanding less any amount of Indebtedness then
outstanding and incurred pursuant to clause (2)(x)(ii) above.
If any Indebtedness incurred by the Company or any Restricted Subsidiary would
qualify in more than one of the categories of Permitted Indebtedness as set
forth in clauses (1) through (14) of this definition, the Company may designate
under which category such incurrence shall be deemed to have been made.
"Permitted Investments" means:
(1) Investments by the Company or any Restricted Subsidiary in any Person
that is or will become immediately after such Investment a Restricted
Subsidiary or that will merge or consolidate into the Company or a
Restricted Subsidiary;
(2) Investments in the Company by any Restricted Subsidiary; provided that
any Indebtedness evidencing such Investment is unsecured;
(3) Investments in cash and Cash Equivalents;
(4) loans and advances to employees, officers and directors of the Company
and the Restricted Subsidiaries in the ordinary course of business for bona
fide business purposes not in excess of an aggregate of $15.0 million at any
one time outstanding;
(5) Currency Agreements and Interest Swap Obligations entered into in the
ordinary course of the Company's or a Restricted Subsidiary's businesses and
otherwise in compliance with the Indenture;
(6) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(7) Investments made by the Company or the Restricted Subsidiaries as a
result of consideration received in connection with an Asset Sale made in
compliance with the covenant described under "--Certain
covenants--Limitation on Asset Sales";
(8) Investments in Persons, including, without limitation, Unrestricted
Subsidiaries and joint ventures, engaged in a business similar or related to
or logical extensions of the businesses in which the Company and the
Restricted Subsidiaries are engaged on the Issue Date, not to exceed 5
percent of Consolidated Net Tangible Assets at any one time outstanding;
(9) Investments in the notes; and
(10) Investments in an Accounts Receivable Entity.
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"Permitted Liens" means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges or claims either
(A) not delinquent or (B) contested in good faith by appropriate proceedings
and, in each case, as to which the Company or any Restricted Subsidiary
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(2) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(3) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, contracts, performance
and return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);
(4) judgment Liens not giving rise to an Event of Default so long as such
Lien is adequately bonded and any appropriate legal proceedings which may
have been duly initiated for the review of such judgment shall not have been
finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(5) easements, rights-of-way, zoning restrictions and other similar charges
or encumbrances in respect of real property not impairing in any material
respect the ordinary conduct of the business of the Company or any of the
Restricted Subsidiaries;
(6) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or asset
which is not leased property subject to such Capitalized Lease Obligation;
(7) purchase money Liens securing Indebtedness incurred to finance property
or assets of the Company or any Restricted Subsidiary acquired in the
ordinary course of business, and Liens securing Indebtedness which
Refinances any such Indebtedness; provided, however, that (A) the related
purchase money Indebtedness (or Refinancing Indebtedness) shall not exceed
the cost of such property or assets and shall not be secured by any property
or assets of the Company or any Restricted Subsidiary other than the
property and assets so acquired and (B) the Lien securing the purchase money
Indebtedness shall be created within 90 days after such acquisition;
(8) Liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(9) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
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(10) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company
or any of the Restricted Subsidiaries, including rights of offset and
set-off;
(11) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(12) Liens securing Indebtedness and other Obligations under Currency
Agreements and Cash Management Obligations, in each case permitted under the
Indenture;
(13) Liens securing Acquired Indebtedness (and any Indebtedness which
Refinances such Acquired Indebtedness) incurred in accordance with the
covenant described under "--Certain covenants--Limitation on Incurrence of
Additional Indebtedness"; provided that (A) such Liens secured the Acquired
Indebtedness at the time of and prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary and were not granted
in connection with, or in anticipation of the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary and (B) such Liens do
not extend to or cover any property or assets of the Company or of any of
the Restricted Subsidiaries other than the property or assets that secured
the Acquired Indebtedness prior to the time such Indebtedness became
Acquired Indebtedness of the Company or a Restricted Subsidiary;
(14) Liens securing Indebtedness of Foreign Restricted Subsidiaries incurred
in accordance with the Indenture; provided that such Liens do not extend to
any property or assets other than property or assets of Foreign Restricted
Subsidiaries; and
(15) Liens incurred in connection with a Permitted Receivables Financing.
"Permitted Receivables Financing" means any sale by the Company or a Restricted
Subsidiary of accounts receivable and related assets intended to be (and which
shall be treated for purposes of the Indenture as) a true sale transaction with
customary limited recourse based upon the collectibility of the receivables sold
and the corresponding sale or pledge of such accounts receivable (or an interest
therein), in each case without any guarantee by the Company or any Restricted
Subsidiary other than an Accounts Receivable Entity.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that has
preferential rights to any other Capital Stock of such Person with respect to
dividends or redemptions or upon liquidation.
"Purchase Agreement" means (i) with respect to the notes issued on the Issue
Date, the Purchase Agreement, dated as of June 10, 2003, by and among the
Company, the Guarantors and the Initial Purchasers, and (ii) with respect to
each issuance of additional notes, if any, the purchase agreement or
underwriting agreement among the Company, the Guarantors and the Initial
Purchasers.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary incurred for the purpose of financing all or any part of
the purchase price or the cost of an Asset Acquisition or construction or
improvement of any property; provided that the aggregate principal amount of
such Indebtedness does not exceed such purchase price or cost.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
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"Reference Date" has the meaning set forth under "--Certain
covenants--Limitation on Restricted Payments."
"Refinance" means in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of Indebtedness incurred in accordance with the covenant
described under "--Certain covenants--Limitation on Incurrence of Additional
Indebtedness" (other than pursuant to clause (2), (4), (5), (6), (7), (8), (9),
(11), (12), (13) or (14) of the definition of Permitted Indebtedness), in each
case that does not:
(1) result in an increase in the aggregate principal amount of any
Indebtedness of such Person as of the date of such proposed Refinancing
(plus the amount of any premium reasonably necessary to Refinance such
Indebtedness and plus the amount of reasonable expenses incurred by the
Company in connection with such Refinancing); or
(2) create Indebtedness with (A) a Weighted Average Life to Maturity that is
less than the Weighted Average Life to Maturity of the Indebtedness being
Refinanced or (B) a final maturity earlier than the final maturity of the
Indebtedness being Refinanced;
provided that (i) if such Indebtedness being Refinanced is Indebtedness of the
Company and/or a Guarantor, then such Refinancing Indebtedness shall be
Indebtedness solely of the Company and/or such Guarantor and (ii) if such
Indebtedness being Refinanced is subordinate or junior in right of payment to
the notes, then such Refinancing Indebtedness shall be expressly subordinate to
the notes to the same extent and in the same manner as the Indebtedness being
Refinanced.
"Registration Rights Agreement" means (i) with respect to the notes issued on
the Issue Date, the Registration Rights Agreement dated June 19, 2003 among the
Company, the Guarantors and the Initial Purchasers, and (ii) with respect to any
issuance of additional notes, the registration rights agreement relating to such
issuance of additional notes issued in a transaction exempt from the
registration requirements of the Securities Act, the registration rights
agreement, if any, among the Company, the Guarantors and the Initial Purchasers
under the related Purchase Agreement.
"Replacement Assets" means assets and property that will be used in the business
of the Company and/or its Restricted Subsidiaries as existing on the Issue Date
or in a business the same, similar or reasonably related thereto (including
Capital Stock of a Person which becomes a Restricted Subsidiary).
"Restricted Payment" has the meaning set forth under "--Certain
covenants--Limitation on Restricted Payments."
"Restricted Subsidiary" means any Subsidiary of the Company that has not been
designated by the Board of Directors of the Company, by a Board Resolution
delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in
compliance with the covenant described under "--Certain covenants--Limitation on
Designations of Unrestricted Subsidiaries." Any such Designation may be revoked
by a Board Resolution of the Company delivered to the Trustee, subject to the
provisions of such covenant.
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"Revocation" has the meaning set forth under "--Certain covenants--Limitation on
Designations of Unrestricted Subsidiaries."
"Sale and Leaseback Transaction" means any direct or indirect arrangement with
any Person or to which any such Person is a party, providing for the leasing to
the Company or a Restricted Subsidiary of any property, whether owned by the
Company or any Restricted Subsidiary at the Issue Date or later acquired, which
has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced on the security of such Property.
"Second Priority Claims" means all Obligations in respect of the notes or
arising under the Second Priority Documents or any of them.
"Second Priority Collateral" means all of the assets of any Grantor, whether
real, personal or mixed, with respect to which a Lien is granted or held as
security for any Second Priority Claim.
"Second Priority Documents" means (a) the Indenture, the notes, the Security
Documents and any document or instrument evidencing or governing any Other
Second-Lien Obligations (as defined under "--Collateral") and any (b) other
related documents or instruments executed and delivered pursuant to any Second
Priority Document described in clause (a) above evidencing or governing any
Obligations thereunder.
"Second Priority Liens" has the meaning set forth under "--Collateral."
"Second Priority Mortgages" means a collective reference to each mortgage, deed
of trust, deed to secure debt, and any other document or instrument under which
any Lien on real property owned by any Grantor is granted to secure any Second
Priority Claims or under which rights or remedies with respect to any such Liens
are governed.
"Securities Act" means the Securities Act of 1933, as amended, or any successor
statute or statutes thereto, and the rules and regulations of the Commission
promulgated thereunder.
"Security Documents" means the Collateral Agreement, the Second Priority
Mortgages and any other document or instrument pursuant to which a Lien is
granted by any Grantor to secure any Second Priority Claims or under which
rights or remedies with respect to any such Lien are governed.
"Senior Credit Agreement" means the agreement designated as the "Senior Credit
Agreement" pursuant to the Intercreditor Agreement.
"Senior Subordinated Notes" means the Company's 11 5/8 percent Senior
Subordinated Notes due 2009 issued under that certain indenture dated as of
October 14, 1999 with The Bank of New York, as trustee.
"Significant Subsidiary" means, with respect to any Person, any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities
Act.
"Subordinated Indebtedness" means Indebtedness as to which the payment of
principal (and premium, if any) and interest and other payment obligations is
subordinate or junior in right of payment by its terms to the notes or the
Subsidiary Guarantees of the Company or a Guarantor, as applicable, including,
without limitation, the Senior Subordinated Notes.
"Subsidiary," with respect to any Person, means (1) any corporation of which the
outstanding Capital Stock having at least a majority of the votes entitled to be
cast in the election of
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directors under ordinary circumstances shall at the time be owned, directly or
indirectly, by such Person or (2) any other Person of which at least a majority
of the voting interest under ordinary circumstances is at the time, directly or
indirectly, owned by such Person.
"Subsidiary Guarantee" has the meaning set forth under "--Certain
covenants--Issuance of Subsidiary Guarantees."
"Surviving Entity" has the meaning set forth under "--Certain covenants--Merger,
Consolidation and Sale of Assets."
"Taking" means any taking of all or any portion of the Collateral by
condemnation or other eminent domain proceedings, pursuant to any law, general
or special, or by reason of the temporary requisition of the use or occupancy of
all or any portion of the Collateral by any governmental authority, civil or
military, or any sale pursuant to the exercise by any such governmental
authority of any right which it may then have to purchase or designate a
purchaser or to order a sale of all or any portion of the Collateral.
"Transaction Date" has the meaning set forth in the definition of Combined Fixed
Charge Coverage Ratio.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as such
pursuant to and in compliance with the covenant described under "--Certain
covenants--Limitation on Designations of Unrestricted Subsidiaries." Any such
designation may be revoked by a Board Resolution of the Company delivered to the
Trustee, subject to the provisions of such covenant.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at
any date, the number of years obtained by dividing (A) the then outstanding
aggregate principal amount of such Indebtedness into (B) the sum of the total of
the products obtained by multiplying (I) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (II) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Domestic Restricted Subsidiary" means a Wholly Owned Restricted
Subsidiary that is also a Domestic Restricted Subsidiary.
"Wholly Owned Restricted Subsidiary" of the Company means any Restricted
Subsidiary of which all the outstanding voting securities (other than in the
case of a Foreign Restricted Subsidiary, directors' qualifying shares or an
immaterial amount of shares required to be owned by other Persons pursuant to
applicable law) are owned by the Company or any other Wholly Owned Restricted
Subsidiary.
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REGISTRATION RIGHTS
We and our subsidiary guarantors entered into a registration rights agreement
with the initial purchasers of the old notes on December 12, 2003. In that
agreement, we agreed for the benefit of the holders of the notes to file with
the Commission and to use our commercially reasonable efforts to cause to become
effective, a registration statement relating to an offer to exchange the old
notes for an issue of Commission-registered exchange notes. These exchange notes
are to have terms identical to the old notes (except that the exchange notes
will not be subject to restrictions on transfer or to any increase in annual
interest rate as described below).
As soon as practicable after the registration statement of which this prospectus
forms a part is declared effective, we will offer to all holders of the old
notes, unless prohibited by law or Commission staff policy, an opportunity to
exchange their old notes for a like principal amount of exchange notes. The
exchange offer will remain open for at least 20 business days (or longer if
required by applicable law) after the date we commence the exchange offer. For
each old note surrendered to us under the exchange offer, the holder of the old
note will receive an exchange note of equal principal amount.
If applicable interpretations of the staff of the Commission do not permit us to
effect the exchange offer, we will use our commercially reasonable efforts to
cause to become effective a shelf registration statement relating to resales of
the old notes and to keep that shelf registration statement effective until the
expiration of the time period referred to in Rule 144(k) under the Securities
Act, or such shorter period that will terminate when all notes covered by the
shelf registration statement have been sold. Upon the request of any initial
purchaser of the old notes, we will also use our commercially reasonable efforts
to cause a shelf registration statement to become and remain effective for a
specified period as to old notes held by the initial purchaser that have the
status of an unsold allotment in the initial distribution of the notes. We will,
in the event of a shelf registration:
- provide to each old noteholder whose old notes are covered thereby
copies of the prospectus that is a part of the shelf registration
statement,
- notify each such noteholder when the shelf registration statement has
become effective, and
- take certain other actions to permit resales of the notes.
A noteholder that sells notes under the shelf registration statement generally
will be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to certain
of the civil liability provisions under the Securities Act in connection with
those sales and will be bound by the provisions of the registration rights
agreement that are applicable to such a noteholder (including certain
indemnification obligations).
If:
- the exchange offer is not completed (or, if the exchange offer is not
permitted, the shelf registration statement is not declared effective) on
or before the date that is 210 days after the closing date (the "Target
Registration Date"), or
- we are requested by an initial purchaser holding old notes that have
the status of an unsold allotment in an initial distribution to file a
shelf registration statement, and such
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shelf registration statement is not declared effective within 60 days
after the initial purchaser's request (also a "Target Registration
Date"),
the annual interest rate borne by the old notes will be increased 0.25 percent
per annum with respect to the first 90 days after the applicable Target
Registration Date, and, if the exchange offer is not completed (or, if required,
the shelf registration statement is not declared effective) prior to the end of
such 90-day period, by an additional 0.25 percent per annum (together with the
increase described in the preceding clause, as applicable, the "Additional
Stated Interest"), in each case until the exchange offer is completed or the
shelf registration statement is declared effective. Notwithstanding the
foregoing, in no event will the Additional Stated Interest exceed 1.0 percent
per annum in the aggregate. Any amounts of additional interest due on an old
note pursuant to this paragraph will be payable in cash on the periodic interest
payment dates of the old notes.
If we effect the exchange offer, we will be entitled to close the exchange offer
20 business days after its commencement, provided that we have accepted all
notes validly surrendered in accordance with the terms of the exchange offer as
otherwise described herein. Any old notes not tendered in the exchange offer
shall bear interest at the rate set forth on the cover page of this prospects
and be subject to all the terms and conditions specified in the indenture,
including transfer restrictions.
This summary of the provisions of the registration rights agreement does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the registration rights agreement, a copy of
which is available from us upon request.
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BOOK-ENTRY; DELIVERY AND FORM
THE GLOBAL NOTES
The exchange notes will be issued in the form of one or more notes in global
form without interest or coupons which are called global notes. The old notes,
to the extent validly tendered and accepted and directed by their holders in the
letters of transmittal, will be exchanged through book-entry electronic transfer
for the global note(s). Upon issuance, the global notes will be deposited with
The Depository Trust Company, or DTC, and registered in the name of Cede & Co.,
as nominee of DTC.
All interests in the global notes may be subject to the procedures and
requirements of DTC and its direct and indirect participants, which are called
DTC participants, and procedures of Euroclear Bank S.A./N.V., as operator of the
Euroclear System, which we refer to as "Euroclear," and Clearstream Banking,
societe anonyme, which were refer to as "Clearstream."
Ownership of beneficial interests in each global note will be limited to persons
who have accounts with DTC, called DTC participants, or persons who hold
interests through DTC participants. We expect that under procedures established
by DTC:
- upon deposit of each global note with DTC's custodian, DTC will credit
portions of the principal amount of the global note to the accounts of
the DTC participants designated with an interest in the global notes; and
- ownership of beneficial interests in each global note will be shown on,
and transfer of ownership of those interests will be effected only
through, records maintained by DTC (with respect to interests of DTC
participants) and the records of DTC participants (with respect to other
owners of beneficial interests in the global note).
Beneficial interests in the global notes may not be exchanged for notes in
physical, certificated form except in the limited circumstances described below.
Beneficial interests in one global note may generally be exchanged for interests
in another global note.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
EXCHANGES AMONG THE GLOBAL NOTES. Beneficial interests in one global note may
generally be exchanged for interests in another global note. Under certain
circumstances, the Trustee may require the seller to provide certain written
certifications in the form provided in the indenture.
A beneficial interest in a global note that is transferred to a person who takes
delivery through another global note will, upon transfer, become subject to any
transfer restrictions and other procedures applicable to beneficial interests in
the other global note.
DTC has advised us that it is:
- a limited purpose trust company organized under the laws of the State
of New York,
- a "banking organization" within the meaning of the New York State
Banking Law,
- a member of the Federal Reserve System,
- a "clearing corporation" within the meaning of the Uniform Commercial
Code, and
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- a "clearing agency" registered under Section 17A of the Securities
Exchange Act of 1934.
DTC was created to hold securities for its participants and to facilitate the
clearance and settlement of securities transactions between its participants
through electronic book-entry changes to the accounts of its participants. DTC's
participants include securities brokers and dealers (including the initial
purchasers of the old notes), banks and trust companies, clearing corporations
and certain other organizations. Indirect access to DTC's system is also
available to others such as banks, brokers, dealers and trust companies,
referred to as "indirect participants," that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Investors who are not participants may beneficially own securities held by or on
behalf of DTC only through participants or indirect participants.
So long as DTC's nominee is the registered owner of a global note, that nominee
will be considered the sole owner or holder of the notes represented by the
global note for all purposes under the indenture. Except as provided below,
owners of beneficial interests in a global note:
- will not be entitled to have notes represented by the global note
registered in their names
- will not receive or be entitled to receive physical, certificated
notes, and
- will not be considered the owners or holders thereof under the
indenture for any purpose, including with respect to the giving of any
direction, instruction or approval to the trustee under the indenture.
As a result, each investor owning a beneficial interest in a global note must
rely on the procedures of DTC to exercise any rights of a holder of notes under
the indenture or the global note (and, if the investor is not a participant or
an indirect participant in DTC, on the procedures of the participant through
which the investor owns its interest).
Payments of principal, premium (if any) and interest with respect to the notes
represented by a global note will be made by the trustee to DTC's nominee as the
registered holder of the global note. Neither we nor the trustee has or will
have any responsibility or liability for the payment of these amounts to owners
of beneficial interests in the global note, for any aspect of the records
relating to or payments made on account of those interests by DTC, or for
maintaining supervising or reviewing any records of DTC related to those
interests.
Payments by the participants and indirect participants to the owners of
beneficial interests in a global note will be governed by standing instructions
and customary industry practice and will be the responsibility of the
participants or the indirect participants and DTC.
Transfers between participants in DTC will be effected under DTC's procedures
and will be settled in same-day funds. Transfers between participants in
Euroclear or Clearstream will be effected in the ordinary way under the rules
and operating procedures of those systems.
Cross-market transfers between DTC participants, on the one hand, and Euroclear
or Clearstream participants, on the other hand, will be effected within DTC
through the DTC participants that are acting as depositories for Euroclear and
Clearstream. To deliver or receive an interest in a global note held in a
Euroclear or Clearstream account, an investor must send transfer instructions to
Euroclear or Clearstream, as the case may be, under the rules and procedures of
that system and within the established deadlines of that system. If the
transaction meets its settlement requirements, Euroclear or Clearstream, as the
case may be,
142
will send instructions to its DTC depositary to take action to effect final
settlement by delivering or receiving interests in the relevant global notes in
DTC, and making or receiving payment under normal procedures for same-day funds
settlement applicable to DTC. Euroclear and Clearstream participants may not
deliver instructions directly to the DTC depositories that are acting for
Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant that purchases an interest in a global note from a DTC
participant will be credited on the business day for Euroclear or Clearstream
immediately following the DTC settlement date. Cash received in Euroclear or
Clearstream from the sale of an interest in a global note to a DTC participant
will be received with value on the DTC settlement date but will be available in
the relevant Euroclear or Clearstream cash account as of the business day for
Euroclear or Clearstream following the DTC settlement date.
DTC, Euroclear and Clearstream have agreed to the above procedures to facilitate
transfers of interests in the global notes among participants in those
settlement systems. However, the settlement systems are not obligated to perform
these procedures and may discontinue or change these procedures at any time.
Neither we nor the Trustee will have any responsibility for the performance by
DTC, Euroclear or Clearstream or their participants or indirect participants of
their obligations under the rules and procedures governing their operations.
CERTIFICATED NOTES
Notes in physical, certificated form will be issued and delivered to each person
that DTC identifies as a beneficial owner of the related notes only if:
- DTC notifies us at any time that it is unwilling or unable to continue
as depositary for the global notes and a successor depositary is not
appointed within 90 days;
- DTC ceases to be registered as a clearing agency under the Securities
Exchange Act of 1934 and a successor depositary is not appointed within
90 days;
- we, at our option, notify the trustee that we elect to cause the
issuance of certificated notes; or
- certain other events provided in the indenture should occur.
143
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of certain material U.S. federal income tax
consequences of the purchase, ownership and disposition of an exchange note
acquired pursuant to the exchange offer. For purposes of this discussion, a
"U.S. Holder" means a beneficial owner of an exchange note that for U.S. federal
income tax purposes is either:
- a citizen or resident alien of the United States;
- a corporation (including for this purpose any other entity treated as a
corporation for U.S. federal income tax purposes) created or organized in
or under the laws of the United States or any political subdivision
thereof;
- an estate the income of which is subject to U.S. federal income
taxation regardless of its source; or
- a trust (i) that is subject to the primary supervision of a court
within the United States and under the control of one or more U.S.
persons, or (ii) that has a valid election in effect under applicable
U.S. Treasury regulations to be treated as a U.S. person.
A "non-U.S. Holder" means a beneficial owner of an exchange note that, for U.S.
federal income tax purposes, is a nonresident alien, corporation (including for
this purpose any other entity treated as a corporation for U.S. federal income
tax purposes), trust or estate that is not a U.S. Holder.
This summary is based on provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations issued thereunder, and administrative
and judicial interpretations thereof, all as of the date of this memorandum and
all of which are subject to change (perhaps retroactively), and is for general
purposes only. This summary addresses only holders who hold the exchange notes
as capital assets and does not represent a detailed description of the U.S.
federal income tax consequences to holders in light of their particular
circumstances. In addition, it does not represent a detailed description of the
U.S. federal income tax consequences to holders that are subject to special
treatment under the U.S. federal income tax laws, such as taxpayers subject to
the alternative minimum tax, expatriates, financial institutions, partnerships
or other pass-through entities, individual retirement and other tax deferred
accounts, dealers in securities or currencies, life insurance companies,
tax-exempt organizations, persons holding exchange notes as a hedge or hedged
against currency risk, as a position in a straddle, and U.S. holders whose
functional currency is other than the U.S. dollar. We cannot assure you that a
change in law will not alter significantly the tax considerations that we
describe in this summary. If a partnership (including, for this purpose, any
other entity, either foreign and domestic, treated as a partnership for U.S.
federal income tax purposes) holds the notes, the tax treatment of a partner as
a beneficial owner of a note generally will depend upon the status of the
partner and activities of the partnership. Foreign partnerships are generally
subject to special tax documentation requirements. We cannot assure you that a
change in law will not alter significantly the tax considerations that we
describe in this summary.
144
YOU SHOULD CONSULT YOUR TAX ADVISOR CONCERNING THE PARTICULAR U.S. FEDERAL
INCOME TAX CONSEQUENCES TO YOU RESULTING FROM YOUR OWNERSHIP OF THE EXCHANGE
NOTES, AS WELL AS THE CONSEQUENCES TO YOU ARISING UNDER THE LAWS OF ANY OTHER
TAXING JURISDICTION.
THE EXCHANGE OFFER
The exchange of your old notes for exchange notes pursuant to the terms of the
exchange offer should not be a taxable event for U.S. federal income tax
purposes. Consequently, your initial tax basis in an exchange note should be
equal to your adjusted tax basis in the old note at the time of the exchange of
such old note for the exchange note. In addition, your holding period for an
exchange note should include your holding period for the old note exchanged for
such exchange note.
U.S. FEDERAL INCOME TAX CONSEQUENCES FOR U.S. HOLDERS
STATED INTEREST. Except as set forth below, a U.S. Holder of an exchange note
will have ordinary interest income equal to the amount of interest paid or
accrued on an exchange note, realized in accordance with the holder's regular
method of tax accounting for U.S. federal income tax purposes. The exchange
notes will not be issued with original issue discount ("OID").
DISPOSITIONS. Generally, a sale, exchange, redemption or other disposition of an
exchange note will result in capital gain or loss equal to the difference, if
any, between the amount realized on the disposition (excluding amounts
attributable to accrued and unpaid interest, which will be taxed as ordinary
income to the extent not previously included in gross income by the U.S. Holder)
and the U.S. Holder's adjusted tax basis in the exchange note. A U.S. Holder's
adjusted tax basis for determining gain or loss on the disposition of a exchange
note generally will equal the purchase price of the old note exchanged for such
exchange note, reduced by amortizable bond premium to reduce interest on the old
note. Such gain or loss will be long-term capital gain or loss if the exchange
note is held for more than one year.
NON-U.S. HOLDERS
U.S. FEDERAL WITHHOLDING TAX. The United States generally imposes a 30 percent
withholding tax on payments of interest to non-U.S. persons. The 30 percent (or
lower applicable treaty rate) U.S. federal withholding tax will not apply to a
non-U.S. Holder in respect of any payment of principal or interest on an
exchange note or a particular series of notes that is not effectively connected
with the conduct of a U.S. trade or business conducted by such non-U.S. Holder
provided that such holder:
- does not actually (or constructively) own ten percent or more of all
classes of our voting stock within the meaning of the Code and U.S.
Treasury regulations;
- is not a controlled foreign corporation that is related to us;
- is not a bank whose receipt of interest on the exchange notes is
described in section 881(c)(3)(A) of the Code; and
- (a) provides identifying information (i.e. name and address) to us on
the applicable IRS Form W-8BEN (or successor form), and certifies, under
penalty of perjury, that such holder is not a U.S. person or (b) a
financial institution holding the exchange notes on behalf of such holder
certifies, under penalty of perjury, that it has received the
145
applicable IRS Form W-8BEN (or successor form) from the beneficial owner
and provides us with a copy.
If a non-U.S. Holder cannot satisfy the requirements described above, payments
of premium and interest made to such holder will be subject to the 30 percent
U.S. federal withholding tax, unless such holder provides us with a properly
executed (i) applicable IRS Form W-8BEN (or successor form) claiming an
exemption from or reduction in withholding under the benefit an income tax
treaty or (ii) IRS Form W-8ECI (or successor form) stating that interest paid on
the exchange note is not subject to withholding tax because it is effectively
connected with such holder's conduct of a trade or business in the United
States.
The 30 percent U.S. federal withholding tax will not apply to any gain or income
realized on the sale, exchange, retirement or other disposition of an exchange
note by a non-U.S. Holder who is not engaged in the conduct of a U.S. trade or
business.
U.S. FEDERAL INCOME TAX. If a non-U.S. Holder is engaged in a trade or business
in the United States and interest on the exchange notes is effectively connected
with the conduct of that trade or business (although exempt from the 30 percent
U.S. withholding tax), such holder may, subject to any applicable tax treaty, be
subject to U.S. federal income tax on that interest on a net income basis in the
same manner as if such holder were a U.S. person as defined under the Code. In
addition, if a non-U.S. Holder is a foreign corporation (or other entity treated
as a corporation for U.S. federal income tax purposes), it may be subject to a
branch profits tax equal to 30 percent (or lower applicable treaty rate) of its
earnings and profits for the taxable year, subject to adjustments, that are
effectively connected with the conduct by it of a trade or business in the
United States. For this purpose, effectively connected interest on exchange
notes will be included in earnings and profits.
Any gain realized on the disposition of an exchange note by a non-U.S. Holder
generally will not be subject to U.S. federal income tax, unless (1) such gain
is effectively connected with the conduct of a trade or business in the United
States (by such holder, in which case if such non-U.S. Holder is a corporation,
a 30 percent (or lower applicable treaty rate) branch profits tax may also
apply, or (2) such holder is an individual who is present in the United States
for 183 days or more in the taxable year of that disposition and certain other
conditions are met.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements apply to interest paid to, and to
the proceeds of a sale or other disposition of an exchange note by, certain U.S.
Holders. In addition, back-up withholding applies to a non-corporate U.S. Holder
unless such holder provides a correct taxpayer identification number and
otherwise complies with applicable requirements of the backup withholding rules.
Backup withholding generally does not apply to payments made to certain exempt
U.S. persons, such as corporations and tax-exempt organizations.
In general, a non-U.S. Holder will not be subject to backup withholding and
information reporting with respect to interest payments that we make to such
holder provided that we have received from such holder the statement described
above under "--Non-U.S. Holders--U.S. federal withholding tax."
Payments of the proceeds of a sale or other disposition of the exchange notes
made to or through a foreign office of a foreign, non-U.S. related financial
intermediaries will not be subject to information reporting or backup
withholding. In addition, a non-U.S. Holder will not be subject to backup
withholding or information reporting with respect to the proceeds of the
146
sale of an exchange note within the United States or conducted through certain
U.S. related financial intermediaries, if the payor receives the statement
described above under "--Non-U.S. Holders--U.S. federal withholding tax" and
does not have actual knowledge or reason to know that such holder is a U.S.
person, as defined under the Code, or such holder otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or credit against a holder's U.S. federal income tax liability provided
the required information is furnished by such holder to the IRS.
147
PLAN OF DISTRIBUTION
Until 90 days after the date of this prospectus, all dealers effecting
transactions in the exchange notes, whether or not participating in this
distribution, may be required to deliver a prospectus. This is in addition to
the obligation of dealers to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
Each broker-dealer that receives exchange notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received in exchange for old notes
only where such old notes were acquired as a result of market-making activities
or other trading activities. We have agreed that, for a period of 180 days from
the date on which the exchange offer is consummated, 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 exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer 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 exchange notes or a combination of such methods of
resale, at prices related to such prevailing market prices or at 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 or the purchasers of any exchange notes.
Any broker-dealer that resells exchange notes that were received by it for its
own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of exchange 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, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
The exchange notes are a new issue of securities, and there is currently no
established trading market for the notes. We do not intend to apply for the
exchange notes to be listed on any securities exchange or to arrange for the
exchange notes to be quoted on any quotation system. We cannot assure you that a
liquid trading market will develop for the exchange notes, that you will be able
to sell your exchange notes at a particular time or that the prices that you
receive when you sell will be favorable.
148
LEGAL MATTERS
Legal matters regarding the notes will be passed upon for us by Mayer, Brown,
Rowe & Maw LLP. Mayer, Brown, Rowe & Maw LLP has in the past represented and
continues to represent us in various matters.
EXPERTS
The consolidated financial statements and the related consolidated financial
statement schedule incorporated in this prospectus by reference from the
Company's Annual Report on Form 10-K for the years ended December 31, 2002 and
2003 have been audited by Deloitte & Touche LLP, independent registered public
accounting firm, as stated in their report (which report expresses an
unqualified opinion and includes explanatory paragraphs related to (i) a change
in accounting for goodwill and intangible assets upon adoption of Statement of
Financial Accounting Standards No. 142, and (ii) the application of procedures
relating to certain disclosures and reclassifications of financial statement
amounts related to the 2001 financial statements that were audited by other
auditors who have ceased operations and for which Deloitte & Touche LLP has
expressed no opinion or other form of assurance other than with respect to such
disclosures and reclassifications), which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
With respect to the unaudited interim financial information for the periods
ended March 31, 2003 and 2004, which is incorporated herein by reference,
Deloitte & Touche LLP has applied limited procedures in accordance with
professional standards for a review of such information. However, as stated in
their report included in our Quarterly Report on Form 10-Q for the three months
ended March 31, 2004 and incorporated by reference herein, they did not audit
and they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
Deloitte & Touche LLP are not subject to the liability provisions of Section 11
of the Securities Act of 1933 for their report on the unaudited interim
financial information because the report is not a "report" or a "part" of the
registration statement prepared or certified by an accountant with the meaning
of Sections 7 and 11 of the Act.
PRIOR AUDITORS
Our consolidated financial statements and schedule for the year ended December
31, 2001, which are also incorporated by reference herein from our 2003 Annual
Report on Form 10-K, were audited by Arthur Andersen LLP. Because Arthur
Andersen has ceased accounting and auditing operations, we are unable to obtain
written consent of Arthur Andersen to incorporate their report in this
prospectus. Because Arthur Andersen has not consented to incorporating their
report in this prospectus, investors will not be able to recover against Arthur
Andersen in connection with our use of this report. In addition, the ability of
Arthur Andersen to satisfy any claims (including claims arising from its
provision of auditing and other services to us) is limited as a result of the
diminished amount of assets of Arthur Andersen that are now or may in the future
be available to satisfy claims. See "Risk factors--Risks related to our former
auditors."
149
WHERE YOU CAN FIND MORE INFORMATION
We are required to file annual and quarterly reports and other information with
the Securities and Exchange Commission. You may read and copy any reports,
statements and other information we file at the Commission's public reference
room at 450 Fifth Street, Washington, D.C. 20549. You may request copies of the
documents, upon payment of a duplicating fee, by writing the Public Reference
Section of the Commission. Please call 1-800-SEC-0330 for further information on
the public reference rooms. Our filings will also be available to the public
from commercial document retrieval services and at the web site maintained by
the Commission at http://www.sec.gov.
We have filed a registration statement on Form S-4 to register with the
Commission the exchange notes offered hereby to be issued in exchange for the
old notes. This prospectus is part of that registration statement. As allowed by
the Commission's rules, this prospectus does not contain all of the information
you can find in the registration statement or the exhibits to the registration
statement. You should note that where we summarize in this prospectus the
material terms of any contract, agreement or other document filed as an exhibit
to the registration statement, the summary information provided in the
prospectus is less complete than the actual contract, agreement or document. You
should refer to the exhibits filed to the registration statement for copies of
the actual contract, agreement or document.
We have agreed that, whether or not we are required to do so by the rules and
regulations of the Commission, for so long as any of the notes remains
outstanding, we will furnish to the trustee and the holders of the notes and,
upon written request, to securities analysts and prospective investors, and file
with the Commission (unless the Commission will not accept such a filing) (i)
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 we were
required to file such reports, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and, with respect to the
annual information only, a report thereon by our certified independent
accountants and (ii) all reports that would be required to be filed with the
Commission on Form 8-K if we were required to file such reports, in each case
within the time period specified in the rules and regulations of the Commission.
In addition, for so long as any of the notes remain outstanding, we have agreed
to make available to any holder of the notes or prospective purchaser of the
notes, at their request, the information required by Rule 144A(d)(4) under the
Securities Act.
We have not authorized anyone to give you any information or to make any
representations about us or the transactions we discuss in this prospectus other
than those contained in this prospectus. If you are given any information or
representations about these matters that is not discussed in this prospectus,
you must not rely on that information. This prospectus is not an offer to sell
or a solicitation of an offer to buy securities anywhere or to anyone where or
to whom we are not permitted to offer or sell securities under applicable law.
150
INCORPORATION BY REFERENCE
We are incorporating by reference certain information that we have filed with
the Commission under the informational requirements of the Securities Exchange
Act of 1934. The information contained in the documents we are incorporating by
reference is considered to be part of this prospectus. We are incorporating by
reference:
- our Annual Report on Form 10-K for the fiscal year ended December 31,
2003, which we filed with the Commission on March 11, 2004;
- our Quarterly Report on Form 10-Q for the three months ended March 31,
2004, which we filed with the Commission on May 3, 2004;
- our Current Reports on Form 8-K filed with or furnished to the
Commission on January 27, 2004, February 18, 2004, March 10, 2004, March
24, 2004, April 16, 2004, April 20, 2004, May 3, 2004, May 6, 2004, May
17, 2004, May 20, 2004 and May 24, 2004; and
- items filed by us with the Commission under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934 subsequent to the date of
this prospectus and before expiration of this exchange offer.
Any information incorporated by reference is considered to be part of this
prospectus, and any information that we file with the Commission subsequent to
the filing of the incorporated material or the date of this prospectus will
automatically update and, if applicable, supercede the incorporated information
and this prospectus.
151
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENT
We have shown the effect of the refinancing of our 2003 refinancing of our
senior credit facility, including the offering of the $125 million of old notes
and our previous issuance of $350 million of notes in June 2003, in the
following unaudited pro forma consolidated statement of income for the year
ended December 31, 2003.
We have prepared the unaudited pro forma consolidated statement of income as if
we refinanced our senior credit facility and issued both the $125 million of old
notes issued in December 2003 and the $350 million of outstanding registered
notes issued in June 2003 as of January 1, 2003. The unaudited pro forma
consolidated financial statement for this period is not necessarily indicative
of the results that would have actually occurred if these transactions had been
consummated as of January 1, 2003, or results that may be attained in the
future.
The pro forma adjustments, as described in the notes to this unaudited pro forma
consolidated financial statement, are based upon available information and upon
certain assumptions that we believe are reasonable. We have excluded our balance
sheet and statement of income for the three months ended March 31, 2004, as the
effects of the 2003 refinancing of our senior credit facility, including the
related issuance of the $475 million of senior secured notes, have already been
incorporated. In addition, we have excluded from the unaudited pro forma
consolidated financial statement the impact on interest expense related to the
interest rate swaps entered into in April 2004. See "Description of other
indebtedness and obligations--Swap agreements."
You should read these pro forma financial statements in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in our Annual Report filed on Form 10-K for the year ended
December 31, 2003 and our Quarterly Report on Form 10-Q for the three months
ended March 31, 2004, incorporated by reference herein, and our consolidated
financial statements beginning on page 61 of that Form 10-K and on page 4 of
that Form 10-Q.
PF-1
TENNECO AUTOMOTIVE INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------------------
TENNECO TENNECO
YEAR ENDED DECEMBER 31, 2003 AUTOMOTIVE INC. PRO FORMA AUTOMOTIVE INC.
(DOLLARS IN MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS) AS REPORTED ADJUSTMENTS PRO FORMA
- -----------------------------------------------------------------------------------------------------------------
REVENUES
Net sales and operating revenues.................. $ 3,766 $ - $ 3,766
--------------- ----------- ---------------
COSTS AND EXPENSES
Cost of Sales (exclusive of depreciation shown
below)......................................... 2,994 - 2,994
Engineering, research, and development............ 67 - 67
Selling, general, and administrative.............. 364 - 364
Depreciation and amortization of other intangibles... 163 - 163
--------------- ----------- ---------------
3,588 - 3,588
OTHER INCOME (EXPENSE)
Loss on sale of receivables....................... (2) - (2)
--------------- ----------- ---------------
(2) - (2)
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES, AND
MINORITY INTEREST................................. 176 - 176
Interest expense (net of interest capitalized)(5)... 149 9(1) 158
Income tax expense (benefit)...................... (6) (4)(1) (10)
Minority interest................................. 6 - 6
--------------- ----------- ---------------
NET INCOME (LOSS).................................... $ 27 $ (5) $ 22
=============== =========== ===============
EARNINGS (LOSS) PER SHARE
Average shares of common stock outstanding--
Basic.......................................... 40,426,136 40,426,136
Diluted........................................ 41,767,959 41,767,959
Earnings (loss) per share of common stock--
Basic.......................................... $ 0.67 $ 0.53
=============== ===============
Diluted........................................ $ 0.65 $ 0.52
=============== ===============
- -----------------------------------------------------------------------------------------------------------------
</Table>
See the accompanying notes to unaudited pro forma consolidated financial
statement.
PF-2
TENNECO AUTOMOTIVE INC.
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENT
(1) To reflect adjustments to interest expense for our 2003 senior credit
facility refinancing, including the offering of the $125 million of senior
secured notes in December 2003 and our previous issuance of $350 million of
senior secured notes in June 2003, the interest expense adjustment is tax
effected at an estimated tax rate of 40 percent:
The following shows the components of this adjustment:
<Table>
<Caption>
- -------------------------------------------------------------------------------
YEAR ENDED
(DOLLARS IN MILLIONS) DECEMBER 31, 2003
- -------------------------------------------------------------------------------
$ 46
Interest expense on the new borrowings(2)...................
(36)
Lower interest expense on debt paid down(3).................
(1)
Amortization of issue cost(4)...............................
-----------------
$ 9
Adjustment to interest expense..............................
=================
- -------------------------------------------------------------------------------
</Table>
(2) Total additional interest expense on the term loan is calculated based on
the new $400 million term loan at the annual weighted average interest rate of
LIBOR plus 325 basis points. For the current term loan B facility, the annual
weighted average interest rate percent for the year ended December 31, 2003 was
approximately 5.3 percent. Total additional interest expense on the senior
secured notes is calculated based on the $350 million senior secured notes at an
assumed annual interest rate of 10.25 percent and on the $125 million senior
secured notes at an assumed annual market rate of interest of 8.32 percent and a
coupon rate of 10.25 percent.
(3) Reduction in interest expense was as a result of paying down the term loans
under our prior senior credit facility. For the term loans, the annual weighted
average interest rate percent for the year ended December 31, 2003 was
approximately (i) 4.7 percent for the term loan A facility, (ii) 5.3 percent for
the term loan B facility, and (iii) 5.6 percent for the term loan C facility.
For the revolving credit facility, the annual weighted average interest rate
percent was approximately 4.6 percent for the same time period.
(4) Represents additional amortization expense for newly capitalized debt issue
costs, less a reduction in the amortization expense of prior capitalized debt
issue costs due to the writeoff of these prior costs. The new debt issuance
costs are amortized over the terms of the new revolving credit facility (5
years), the new term loan and tranche B letter of credit/revolving loan facility
(7 years), and the senior secured notes (10 years).
(5) In April 2004, we entered into three separate fixed-to-floating interest
rate swaps with two separate financial institutions. Those agreements swapped an
aggregate of $150 million of fixed interest rate debt at a per annum rate of
10 1/4 percent to floating interest rate debt at a per annum rate of LIBOR plus
a spread of 5.68 percent. In accordance with the Commission's preparation
requirements for pro forma financial statements, the income statement effects of
these swaps are excluded from the unaudited pro forma consolidated statement of
income. Annualized interest expense savings of the swaps based on the initial
LIBOR as determined under the agreements of 1.24 percent would be approximately
$5 million.
PF-3
(TENNECO AUTOMOTIVE LOGO)
- --------------------------------------------------------------------------------
Until September 28, 2004, all dealers that, buy, sell or trade the exchange
notes, whether or not participating in the exchange offer, may be required to
deliver a prospectus. This requirement is in addition to the dealers' obligation
to deliver a prospectus when acting as underwriters and with respect to their
unsold allotments and subscriptions.
- --------------------------------------------------------------------------------