AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 1, 2005
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TENNECO AUTOMOTIVE INC.
TENNECO AUTOMOTIVE OPERATING COMPANY INC.
CLEVITE INDUSTRIES INC.
THE PULLMAN COMPANY
TENNECO GLOBAL HOLDINGS INC.
TENNECO INTERNATIONAL HOLDING CORP.
TMC TEXAS INC.
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 3714 76-0515284
DELAWARE 3714 74-1933558
DELAWARE 3714 22-2940561
DELAWARE 3714 02-0359911
DELAWARE 3714 76-0450674
DELAWARE 3714 74-2067082
DELAWARE 3714 76-0523810
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</Table>
---------------------
500 NORTH FIELD DRIVE
LAKE FOREST, ILLINOIS 60045
(847) 482-5000
(Address, Including Zip Code, and Telephone
Number, Including Area Code, of Registrants'
Principal Executive Offices)
<Table>
TIMOTHY R. DONOVAN COPY TO:
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL JODI A. SIMALA, ESQ.
500 NORTH FIELD DRIVE MAYER, BROWN, ROWE & MAW LLP
LAKE FOREST, ILLINOIS 60045 190 SOUTH LASALLE STREET
(847) 482-5000 CHICAGO, ILLINOIS 60603-3441
(Name, Address, including Zip Code, (312) 782-0600
and Telephone Number, Including Area
Code, of Agent for Service of Process)
</Table>
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNTS TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
8 5/8% Senior Subordinated Notes due 2014................... $500,000,000 100% $500,000,000 $58,850
- ---------------------------------------------------------------------------------------------------------------------------------
Guarantees of 8 5/8% Senior Subordinated Notes due 2014..... $500,000,000 (2) (2) None
- ---------------------------------------------------------------------------------------------------------------------------------
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</Table>
(1) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933.
(2) No further fee is payable pursuant to Rule 457(n) under the Securities Act
of 1933.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON ANY DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT
TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The information in this preliminary prospectus is not complete and may be
changed. We are not offering to sell, or asking you to buy, any securities. We
will not make any offer to sell these securities or accept any offer to buy them
until we have delivered this prospectus in its final form. We also will not sell
these securities in any jurisdiction where it would be illegal to offer to sell
them, or solicit purchasers, prior to registering or qualifying them under that
jurisdiction's securities law.
PRELIMINARY PROSPECTUS -- SUBJECT TO COMPLETION, DATED APRIL 1, 2005
(TENNECO AUTOMOTIVE LOGO)
TENNECO AUTOMOTIVE INC.
OFFER TO EXCHANGE
ALL OUTSTANDING $500,000,000 PRINCIPAL AMOUNT OF
8 5/8% SENIOR SUBORDINATED NOTES DUE 2014 ISSUED NOVEMBER 19, 2004
FOR $500,000,000 PRINCIPAL AMOUNT OF
8 5/8% SENIOR SUBORDINATED NOTES DUE 2014 WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933
PRINCIPAL TERMS OF THE EXCHANGE OFFER:
- - We will exchange all old 8 5/8% senior subordinated notes due 2014 that were
issued on November 19, 2004 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 p.m., New York City time, on ,
2005, 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.
- - No public market currently exists for the old notes. We do not intend to list
the exchange 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.
- - The exchange notes and the guarantees thereof will rank:
- equal in right of payment with all of our and our subsidiary guarantors'
other existing and future senior subordinated debt; and
- junior in right of payment to all of our and our subsidiary guarantors'
existing and future senior debt.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 19 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 , 2005.
------------------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Summary..................................................... 1
Risk Factors................................................ 19
Forward-Looking Statements.................................. 32
Use of Proceeds............................................. 33
Capitalization.............................................. 34
Selected Historical Consolidated Financial Data............. 35
Management.................................................. 38
Security Ownership of Certain Other Beneficial Owners and
Management............................................... 43
Description of Indebtedness and Other Obligations........... 45
The Exchange Offer.......................................... 55
Description of the Notes.................................... 65
Registration Rights......................................... 106
Book-entry; Delivery and Form............................... 107
Certain United States Federal Income Tax Considerations..... 109
Plan of Distribution........................................ 112
Legal Matters............................................... 113
Experts..................................................... 113
Where You Can Find More Information......................... 113
Incorporation by Reference.................................. 114
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.
------------------------------
i
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 More 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
and Managing Director--Asia Pacific and Director, 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 , 2005.
ii
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, except as set forth under "Description of the Notes" and
"Certain United States Federal Tax Considerations," the words "we," "our" and
"us" refer to Tenneco Automotive Inc. and its subsidiaries. In this prospectus,
we use the term old notes to refer to the $500 million 8 5/8% Senior
Subordinated Notes due 2014 that were issued on November 19, 2004 in a private
offering. The term exchange notes refers to the 8 5/8% Senior Subordinated Notes
due 2014 offered in the exchange offer described in this prospectus, and we use
the term notes to refer to the old 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, 2004, we generated
net sales of $4,213 million and EBITDA (See "-- Summary Historical Consolidated
Financial Data") of $348 million.
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 71
manufacturing plants and 13 engineering and technical centers around the world,
and sell and distribute our products to customers located in more than 100
countries. For 2004, we generated approximately 53 percent of our net sales
outside of North America, including in 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. These
products 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 net sales for 2004. We also manufacture and sell ride
control products, such as shock absorbers, struts, vibration control components
and suspension systems. These products are designed to function as safety
components for vehicles, provide a comfortable ride and improve vehicle
stability and handling. Ride control products accounted for 37 percent of our
net sales for 2004.
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 76 percent of our net sales in 2004. We believe our
sales across our OEM customer base are diversified for our industry, with our
largest customers, GM, Ford, Volkswagon and DaimlerChrysler representing
approximately 18 percent, 12 percent, 11 percent and 8 percent, respectively, of
our net sales in 2004.
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 24 percent of our net sales in
2004. Our largest aftermarket customers in 2004 were NAPA, TEMOT Autoteile,
Advance Auto Parts, ADI (Automotive Distribution International), O'Reilly
Automotive, Pep Boys, Uni-Select, and Kwik-Fit Europe. We believe we have a
1
balanced mix of aftermarket customers, with our top three aftermarket customers
accounting for a total of approximately 19 percent, and our top ten aftermarket
customers accounting for a total of approximately 34 percent, of our total 2004
aftermarket net 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. In 2004, we won the GM Supplier of the Year Award, two Toyota
Excellence Level Awards, Advance Auto Parts Vendor of the Year Award, Speedy
Gold Cup Award, International Diamond Supplier Award and the Ford Excellence
Award for 2003 (awarded in 2004). In addition, we have been nominated as a
finalist and for two honorable mention Automotive News PACE technology awards,
recognizing our Kinetic suspension system, combined muffler heat exchanger and
semi-active muffler technology.
We continue to aggressively pursue new business. As of December 31, 2004,
our OE businesses had won nearly 125 projects with scheduled launches between
2004 and 2007, including Ford's light duty diesel trucks, BMW 3 Series and the
Toyota Tundra. As of December 31, 2004, our global aftermarket operations
captured new customer business, including Pep Boys and Van Heck.
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 products. In addition, increased product lives and the decreased fleet age
of vehicles on the road also are 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
2004 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
2
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 #2
</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 9 emission control manufacturing facilities in
the U.S. and 31 emission control manufacturing facilities outside of the U.S.
Our ride control operations include 9 manufacturing facilities in the U.S. and
22 in other parts of the world. We operate 13 engineering and technical
facilities worldwide and we have sales offices on 5 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 2004,
our products were included on all of the top ten light trucks 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 2004 was down approximately one percent as compared to 2003, while our North
American OE revenues increased two percent (excluding the impact of changing
foreign currency exchange rates and pass-through sales of catalytic converters)
over the same period. In Europe, our 2004 OE revenues increased twelve percent
(excluding the impact of changing foreign currency exchange rates and
pass-through sales of catalytic converters) compared to an estimated increase in
the European light vehicle production rate of one percent for the same period.
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,
2004, 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
numerous vehicle platforms in production worldwide. For example, we supply full
exhaust systems for the Nissan Xterra, Ford Transit, DaimlerChrysler DR Ram,
Jaguar XJ Type and Porsche Boxster and ride control modules for
DaimlerChrysler's Caravan, the VW Transporter, the Nissan Pathfinder and the
Peugeot 1007. 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
3
affording us opportunities to increase our contributions to vehicle platforms.
To continue developing innovative products, systems and modules, we operate 13
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
Continuously Controlled Electronic Suspension (CES) ride control system
is currently featured on Volvo's S60R, V70R, and S80R passenger cars. In
late 2004, we announced that CES will be offered as an option on the
Audi A6 and the A6 Avant in the spring of 2005.
- 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 cold-formed,
weld-free production process. Weight reduction 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.
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, in 2002 we have extended our stability improvement valve technology to
Europe which is similar to our acceleration sensitive damping technology used on
our Monroe Reflex(R) premium aftermarket shock originally launched in North
America in 1999. 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 57 percent in 2004.
Additionally, in 2004, we added a significant new aftermarket ride control
customer, Pep Boys. 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.
During 2004, we were recognized for our contribution to our customers'
successes with General Motors' 2003 Supplier of the Year Award based on quality,
technology and service and two Toyota Excellence Level Awards for the North
American launch of the new Lexus RX330. In the aftermarket, we received Advance
Auto Parts' 2003 Vendor of the Year Award in North America, and in Europe,
Speedy Repair Centre's Supplier's Golden Award for quality and service.
We also were recognized for our contribution to our customers' successes,
winning the VW Group Award in North America for quality, excellence in
development, logistics, company performance and environmental awareness. We also
received a Chief Engineers Award from Ford Motor Company for our Tunable Exhaust
Isolators and Embossed Muffler Shell concepts -- two new products that reduce
noise, vibration and harshness using lower cost, more durable materials. In the
specialty market, we received the
4
Specialty Equipment Market Association (SEMA) "Best New Off-Road/4-Wheel Drive
Product" award for the Rancho(R) brand's performance suspension for 2005 Ford
F-250/350 Trucks (awarded in 2004).
We also are a finalist and recently received two honorable mentions in the
2005 Automotive News PACE awards. Our Kinetic Reverse Function Stabilizer
technology, which allows significant enhancement to vehicle handling while
improving ride comfort and off-road capability, is a finalist in the North
American Product category. Our honorable mention awards were for our Semi Active
Muffler that delivers cost-effective exhaust performance with improved engine
power and fuel economy; and our Combined Muffler Heat Exchanger -- the first
product known to utilize waste heat from the exhaust stream of an internal
combustion engine to rapidly warm large vehicle spaces, such as school buses,
ambulances or delivery vans and vehicles. Simultaneously, the product provides
conventional acoustic attenuation.
Diverse Revenue Mix. Our revenues are well-balanced across our product
lines, markets and geographic regions. Emission control accounted for 63 percent
of our net sales for 2004, while ride control accounted for the remaining 37
percent. The OE business contributed 76 percent of our net sales for 2004 and
the aftermarket contributed 24 percent during the same periods. We generated
approximately 53 percent of our net sales for 2004 outside of North America,
including in 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 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 15 years of experience in our business
segments, including an average of 8 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 and reducing debt.
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 10 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 23 JIT
facilities worldwide.
"Own" the Product Life Cycle. We seek to leverage our aftermarket
expertise, which provides us with valuable consumer demand information, to
strengthen our competitive position with OEMs. Our market knowledge, coupled
with our leading aftermarket presence, strengthens our ties with our OE customer
base and drives OE acceptance of our aftermarket products and technologies for
use in original vehicle manufacturing.
5
Commercialize Innovative, Value-Added Products. To differentiate our
offerings from those of our competitors, we focus on commercializing innovative,
value-added products, both on our own and through strategic alliances, with
emphasis on highly engineered systems and complex assemblies and modules. We
seek to continually identify and target new, fast-growing niche markets and
commercialize our new technologies for these markets, as well as our existing
markets. For example, our exclusive Kinetic(R) Dynamic Suspension System, a
version of the Kinetic(R) Reversible Function Stabilizer Technology, is featured
as an option on the 2004 Lexus GX470 sports utility vehicle through a licensing
arrangement between us and Lexus.
Expand our Aftermarket Business. Our plans to expand our aftermarket
business are focused on four 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 control systems
are in good working condition; adding coverage to current brands; and extending
our brands and aftermarket penetration to new product segments. For example, we
are extending our line of car appearance products -- which we introduced in 2004
under the DuPont(TM) brand pursuant to a development, manufacturing and sales
agreement with DuPont(TM) -- to include performance chemicals, fuel system
cleaners and engine treatment products, and will introduce these products in
2005. In addition, Monroe(R) Quick Strut was test marketed in 2004 and
introduced as new product in early 2005. Quick Strut is a complete assembly that
includes a Monroe Sensa-Trac(R) strut, spring, strut mount bearing plate, upper
and lower spring isolators and upper spring seat. We launched a similar
Monroe(R) coil springs product in Europe in the fourth quarter of 2004. We also
launched the Monroe(R) 50,000 mile replacement campaign to help increase
customer and industry awareness. The campaign is being advertised on billboards
throughout the US and Canada stating Monroe(R) recommends replacing your shocks
and struts at 50,000 miles. We will continue to carry that message to consumers
and trade in 2005, again utilizing billboards and ads in both trade and consumer
magazines. In Europe, we launched our DNX(TM) performance product line during
the fourth quarter of 2004. Customer shipments are expected to begin in the
first quarter of 2005. 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 not previously served. For example, in 2004 we
entered into a licensee agreement with Canadian Tire under which Canadian Tire
is offering brake products under the Monroe(R) Brakes brand. This program has
led to increased sales of our Monroe(R) shock absorbers. We believe that, when
combined with our expansive customer service network, these initiatives will
yield 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 debuted on several Volvo passenger
cars, increases our content 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 in
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 GM Isuzu. Our joint venture operations in
Dalian and Shanghai, China have established us as one of the leading exhaust
suppliers in the Chinese automotive market. We expanded our Chinese presence
and, in early 2004, we
6
formed and launched production at two 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 Lingchuan Mechanical Plant to supply emission control products and
systems for various Ford platforms produced in China.
In February 2005, we acquired substantially all the assets of Gabilan
Manufacturing Inc., a manufacturer of exhaust systems for Harley-Davidson
Motorcycles. The acquisition, our first in over five years, represents an
example of our strategy to grow through niche opportunities.
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. We also strive to align 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, 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 a workforce reduction which will
eliminate up to 250 salaried positions worldwide. The majority of the
eliminated positions are at the middle and senior management levels. As
of December 31, 2004, we have incurred $21 million in severance costs.
We anticipate incurring the remaining $3 million to $5 million of costs
associated with this action by April of 2005. Of the total $21 million
in severance costs incurred to date, $5 million represents cash payments
with the remainder accrued in other short-term liabilities.
- We have successfully completed 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 closed eight facilities and
improved workflow at 20 plants worldwide.
- 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
7
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) offsetting to the greatest extent possible pressures
on overall gross margins in a challenging economic environment; and (iv)
strengthening existing customer relationships and winning new long-term OE
business.
RECENT DEVELOPMENTS
2004 REFINANCING OF SENIOR SUBORDINATED NOTES
The issuance of the old notes was part of a transaction designed to reduce
our interest expense by allowing us to redeem our then outstanding $500 million
of 11 5/8 percent senior subordinated notes due 2009. We completed this
redemption on December 20, 2004, using the net proceeds of the offering of the
old notes plus cash on hand. See "Unaudited Pro Forma Consolidated Financial
Statements."
OTHER FINANCING TRANSACTIONS
Effective on February 24, 2005, we amended our amended and restated senior
credit facility for the third time. The third amendment reduced by 75 basis
points the interest rate on the term loan B facility and the tranche B-1 letter
of credit/revolving loan facility under the senior credit facility. In
connection with the third amendment, we voluntarily prepaid $40 million in
principal on the term loan B, reducing it from $396 million to $356 million.
This voluntary repayment will reduce the amortization of the term loan B in
forward order, thus eliminating the $1 million quarterly payments that would
otherwise be due from March 31, 2005 to December 31, 2009, and reduce the $94
million payment to $74 million due March 31, 2010, but will not effect the
remaining $94 million quarterly payments due on June 30, September 30 and
December 12, 2010.
We incurred approximately $1 million in fees and expenses associated with
this amendment, which will be capitalized and amortized over the remaining term
of the senior credit facility agreement. As a result of the third amendment and
the voluntary prepayment of $40 million under the term loan B, we expect our
interest expense in 2005 will be approximately $6 million lower than what it
would otherwise have been.
Effective March 31, 2005, we increased the amount of commitments under our
revolving credit facility from $220 million to $285 million and reduced the
amount of commitments under our tranche B-1 letter of credit/revolving loan
facility from $180 million to $170 million. We have the right to further
increase the commitments under our revolving credit facility by $15 million
(with a dollar-for-dollar reduction in our tranche B-1 letter of
credit/revolving loan facility), to the extent there are new or existing lenders
who are willing to make the additional commitment to the revolving credit
facility, and we continue to evaluate opportunities to do so. See "Description
of Indebtedness and Other Obligations -- Senior Credit Facility."
ACQUISITIONS
In February 2005, we acquired substantially all the exhaust assets of
Gabilan Manufacturing, Inc., a privately held company that has developed and
manufactured motorcycle exhaust systems for Harley-Davidson motorcycles since
1978. The company also produces aftermarket muffler kits for Harley-Davidson. We
purchased Gabilan's assets for $10 million in cash. Gabilan generated
approximately $38 million in revenue in 2004.
8
THE EXCHANGE OFFER
On November 19, 2004, we completed the private offering of $500 million of
our 8 5/8% Senior Subordinated Notes due 2014. 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 $500 million of new
8 5/8% Senior Subordinated Notes that have been registered under the Securities
Act for up to $500 million aggregate principal amount of the old 8 5/8% Senior
Subordinated Notes that were issued on November 19, 2004. 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 that are applicable to
the old notes under the registration rights agreement; 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 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
- 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.
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
9
- 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 p.m.,
New York City time, on , 2005, 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 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.
10
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 and Delivery of Exchange Notes."
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,
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
. 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 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 , 2005 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
11
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 United States federal income tax
purposes. See "Certain United States Federal
Income Tax Considerations."
Exchange agent................ The Bank of New York Trust Company N.A. 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."
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 June 17, 2005; or
- any of the initial purchasers of the old
notes that holds 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
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;
and
12
- 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............ $500 million aggregate principal amount of
8 5/8 percent Senior Subordinated Notes due
2014, Series B
Maturity...................... November 15, 2014.
Interest rate................. Annual rate: 8 5/8 percent
Payment frequency: every six months on May 15
and November 15.
First payment: , 2005.
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 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 , 2005 (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 guarantees our senior credit
facility and the old notes will also
unconditionally guarantee the exchange notes on
a senior subordinated basis. Subject to limited
exceptions, 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, will be
unsecured senior subordinated obligations and
will rank junior in right of payment to our and
our subsidiary guarantors' existing and future
senior debt, including borrowings under our
senior credit facility, which is secured, and
our senior secured notes, but equal in right of
payment with any of our and our subsidiary
guarantors' future senior subordinated debt and
will rank senior in right of payment to any of
our and our subsidiary guarantors' future
subordinated debt. The exchange notes will be
effectively subordinated to all existing and
future liabilities, including trade payables,
of our foreign subsidiaries, which will not
guarantee the exchange notes, and of those of
our domestic subsidiaries that do not guarantee
the exchange notes. (See "Description of the
Notes -- Brief Description of the Notes and
Guarantees -- The Guarantees").
As of December 31, 2004, we had:
- $920 million of senior indebtedness,
including $396 million outstanding under our
senior credit facility, which is secured,
13
and $475 million aggregate principal amount
of senior secured notes, excluding
approximately $15 million of premium on
these notes, all of which would have been
senior in right of payment to the old notes
and exchange notes;
- $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,
which is secured (the "revolving credit
facility"), which if drawn would have been
senior in right of payment to the old notes
and exchange notes and guaranteed on a
senior secured basis by our subsidiary
guarantors; and
- $134 million of available capacity under a
$180 million tranche B letter of credit and
revolving loan facility, and obligations
relating to $46 million of letters of credit
issued under that facility, which letters of
credit and revolving loans if incurred
thereunder would have been senior in right
of payment to the old notes and exchange
notes and guaranteed on a senior secured
basis by our subsidiary guarantors; and
- $500 million of old notes.
As of December 31, 2004, our non-guarantor
subsidiaries had $914 million of liabilities on
their balance sheets. Effective March 31, 2005,
we increased the amount of commitments under
our revolving credit facility from $220 million
to $285 million and reduced the amount of
commitments under our tranche B-1 letter of
credit/revolving loan facility from $180
million to $170 million. See "Description of
Indebtedness and Other Obligations."
Optional redemption........... We may redeem some or all of the exchange notes
at any time on or after November 15, 2009. We
also may redeem up to 35 percent of the
aggregate principal amount of the exchange
notes using the proceeds of certain equity
offerings completed on or before November 15,
2007. 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 certain
circumstances, we will be required to make an
offer to repurchase the exchange notes at the
prices listed in "Description of the
Notes -- Change of Control."
Restrictive covenants......... We will issue the exchange notes under the
indenture dated November 19, 2004 with The Bank
of New York Trust Company, N.A., 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;
14
- enter into transactions with our
shareholders and affiliates;
- sell assets; and
- acquire the assets of, or merge or
consolidate with, other companies.
These covenants are subject to important
exceptions and qualifications that are
described in "Description of the Notes."
Investing in the exchange notes and participating in the exchange offer
involve substantial risks. See "Risk Factors" beginning on page 19 for a
discussion of certain risks relating to us, our business and an investment in
the exchange notes that you should carefully consider before participating in
the exchange offer.
15
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following summary historical consolidated financial data as of and for
the years ended December 31, 2002, 2003 and 2004 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 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 year ended
December 31, 2004, incorporated by reference herein.
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
------------------------
2002 2003 2004
------ ------ ------
(DOLLARS IN MILLIONS)
STATEMENTS OF INCOME (LOSS) DATA:
Net sales and operating revenues............................ $3,459 $3,766 $4,213
------ ------ ------
Cost of sales (exclusive of depreciation shown below)....... 2,735 2,994 3,371
Engineering, research, and development...................... 67 67 76
Selling, general, and administrative........................ 351 364 417
Depreciation and amortization of other intangibles.......... 144 163 177
Other (income) expense, net................................. (7) 2 1
------ ------ ------
3,290 3,590 4,042
Income before interest expense, income taxes, and minority
interest................................................. 169 176 171
Interest expense (net of interest capitalized).............. 141 149 179
Income tax benefit.......................................... (7) (6) (25)
Minority interest........................................... 4 6 4
------ ------ ------
Income (loss) before cumulative effect of change in
accounting principle..................................... 31 27 13
Cumulative effect of change in accounting principle, net of
income tax(1)............................................ (218) -- --
------ ------ ------
Net income (loss)........................................... $ (187) $ 27 $ 13
------ ------ ------
</Table>
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
------------------------
2002 2003 2004
------ ------ ------
(DOLLARS IN MILLIONS)
BALANCE SHEET DATA:
Total assets................................................ $2,557 $2,845 $3,110
Short-term debt............................................. 228 20 19
Long-term debt.............................................. 1,217 1,410 1,401
Minority interest........................................... 19 23 24
Shareholders' equity........................................ (94) 58 150
STATEMENT OF CASH FLOWS DATA:
Net cash provided by operating activities................... $ 188 $ 281 $ 200
Net cash used by investing activities....................... (107) (127) (116)
Net cash used by financing activities....................... (73) (49) (12)
Capital expenditures........................................ 138 130 130
OTHER FINANCIAL DATA:
EBITDA(2)................................................... $ 313 $ 339 $ 348
Ratio of EBITDA to interest expense(3)...................... 2.22 2.28 1.94
Ratio of total debt to EBITDA(4)............................ 4.62 4.22 4.08
Ratio of earnings to fixed charges(5)....................... 1.17 1.16 0.95
Working capital as a percent of sales(6).................... 3.6% 2.1% 0.9%
</Table>
- ------------
16
NOTE: We have reclassified prior years' financial statements where appropriate
to conform to 2004 presentations.
(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 4 to our consolidated financial
statements included in our Annual Report on Form 10-K for the year ended
December 31, 2004, incorporated by reference herein.
(2) EBITDA represents income before 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>
YEARS ENDED DECEMBER 31,
------------------------
2002 2003 2004
------ ------ ------
(DOLLARS IN MILLIONS)
Net income (loss)........................................... $ (187) $ 27 $ 13
Cumulative effect of change in accounting principle, net of
income tax............................................... 218 -- --
Minority interest........................................... 4 6 4
Income tax benefit.......................................... (7) (6) (25)
Interest expense (net of interest capitalized).............. 141 149 179
Depreciation and amortization of other intangibles.......... 144 163 177
------ ------ ------
EBITDA...................................................... $ 313 $ 339 $ 348
------ ------ ------
</Table>
(3) The 2004 refinancing of our senior subordinated notes would have decreased
our interest expense by approximately $15 million for 2004, on a pro forma
basis. The unaudited pro forma ratio of EBITDA to interest expense for the
Year Ended December 31, 2004, assuming we had refinanced our senior
subordinated notes at the beginning of 2004 would have been 2.12. See
"Unaudited Pro Forma Consolidated Financial Statement."
(4) The 2004 refinancing of our senior subordinated notes would not have
changed our outstanding debt as of December 31, 2004, on a pro forma basis.
The effect of the 2004 refinancing of our senior subordinated notes was
already incorporated in our balance sheet as of December 31, 2004. The
unaudited pro forma ratio of total debt to EBITDA, assuming we had
completed the 2004 refinancing of our senior subordinated notes on December
31, 2004, would have been 4.08 for the year ended December 31, 2004. See
"Unaudited Pro Forma Consolidated Financial Statement."
(5) 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, 2004, which is incorporated herein by
reference, for the computation of the ratio of earnings to fixed charges.
For the year ended December 31, 2004, earnings were insufficient by $9
million to cover fixed charges. The unaudited ratio of pro forma earnings
to fixed charges for the year ended December 31, 2004, assuming we had
refinanced our senior subordinated notes at the beginning of 2004, would
have been 0.98. See "Unaudited Pro Forma Consolidated Financial Statement."
(6) 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
17
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>
YEARS ENDED DECEMBER 31,
------------------------
2002 2003 2004
------ ------ ------
(DOLLARS IN MILLIONS)
Current assets:
Receivables -- customer notes and accounts, net.......... $ 394 $ 427 $ 458
Receivables -- other..................................... 15 15 30
Inventories.............................................. 352 343 382
Deferred income taxes.................................... 56 63 70
Prepayments and other.................................... 95 104 124
------ ------ ------
$ 912 $ 952 $1,064
Current liabilities:
Trade payables........................................... $ 505 $ 621 $ 696
Accrued taxes............................................ 40 19 24
Accrued interest......................................... 23 42 35
Accrued liabilities...................................... 172 162 226
Other accruals........................................... 48 29 47
------ ------ ------
$ 788 $ 873 $1,028
Working capital (current assets less current liabilities)... $ 124 $ 79 $ 36
Sales....................................................... $3,459 $3,766 $4,213
Working capital as a percentage of sales.................... 3.6% 2.1% 0.9%
</Table>
18
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 RELATING TO OUR EXISTING INDEBTEDNESS AND 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 NOTES.
We are a highly leveraged company. As of December 31, 2004, we had (i) $920
million of outstanding senior indebtedness and (ii) $220 million of unused
revolving credit facility capacity, $134 million of unused capacity under the
tranche B letter of credit/revolving loan facility and $46 million in
outstanding letters of credit under the tranche B letter of credit/revolving
loan facility, all of which if drawn also would have been senior debt. 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 substantially 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 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, INCLUDING DEBT THAT IS SECURED BY OUR ASSETS. THIS
COULD INTENSIFY MANY OF THE RISKS DESCRIBED HEREIN.
The terms of the indenture governing the notes, our senior credit
agreement, our senior secured notes indenture and the agreements governing our
other indebtedness will limit, but not prohibit, us and our subsidiaries from
incurring significant additional indebtedness in the future. As of December 31,
2004, under our senior credit facility, which is secured by a substantial
portion of our assets, we had $220 million of unused revolving credit facility
capacity, $134 million of unused tranche B letter of credit/revolving loan
facility capacity and $46 million of letters of credit issued under the tranche
B letter of credit/revolving loan facility, and the covenants under our debt
agreements would allow us to borrow a significant amount of additional
indebtedness. Effective March 31, 2005, we increased the amount of commitments
under our revolving credit facility from $220 million to $285 million and
reduced the amount of commitments under
19
our tranche B-1 letter of credit/revolving loan facility from $180 million to
$170 million. 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 NOTES. IN ADDITION, A SUBSTANTIAL AMOUNT OF OUR DEBT IS SECURED.
Our ability to make payments on our indebtedness, including the notes,
depends on our ability to generate cash in the future. On a pro forma basis, the
net effect of our 2004 refinancing of our senior subordinated debt would have
been to decrease our annual interest expense by approximately $15 million for
2004. Our annual debt service obligations in 2005, 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 our senior secured notes and
interest payments on the notes. Our annual cash debt service payments, based on
the amount of indebtedness we had outstanding on December 31, 2004, are expected
to be approximately $135 million for 2005. This assumes interest rates would
remain at their levels as of December 31, 2004. See "Summary -- Recent
Developments" and "-- 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, 2004, our cash flows from operating activities were $200 million.
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 senior secured
notes limit, and the indenture governing the notes will limit our ability to
sell assets and also restrict the use of proceeds from any asset 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 senior secured 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. 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 notes.
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 2004 debt service requirements by approximately $5 million before taxes on a
pro forma basis after giving effect to the offering of the old notes and the use
of proceeds therefrom. In April 2004, we entered into $150 million of
fixed-to-floating interest rate swaps with two separate financial institutions.
See "Description of Indebtedness and Other Obligations." An increase of 1.0
percent in the interest rates payable on these swaps would increase our debt
service requirements by less than $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 any portion of our remaining fixed-rate debt. Such a transaction would
initially reduce our interest expense, but may expose us to an increase in
interest rates in the future.
20
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES AND GUARANTEES IS SUBORDINATED TO
OUR AND OUR SUBSIDIARY GUARANTORS' SENIOR DEBT. UNLIKE THE NOTES, A SUBSTANTIAL
PORTION OF OUR SENIOR DEBT IS SECURED.
Payment on the notes and guarantees will be subordinated in right of
payment to all of our and our subsidiary guarantors' senior debt, including our
senior credit facility and senior secured notes. Furthermore, as a result, upon
any distribution to our creditors or the creditors of any guarantor in a
bankruptcy, liquidation or reorganization or similar proceeding relating to us
or such guarantor or our or its property, the holders of senior debt will be
entitled to be paid in full in cash before any payment may be made on the notes
or the subsidiary guarantees. In these cases, we and the guarantors may not have
sufficient funds to pay all of our creditors, and holders of the notes may
receive less, ratably, than the holders of senior debt and, due to the turnover
provisions in the indenture, less, ratably, than the holders of unsubordinated
obligations, including trade payables.
In addition, (i) our senior credit facility is (a) secured by substantially
all of the tangible and intangible assets of us and our subsidiary guarantors,
(b) collateralized by a perfected security interest in all of the capital stock
of our and the subsidiary guarantors' domestic subsidiaries and (c) secured by
up to 66 percent of the capital stock of our and the subsidiary guarantors'
direct foreign subsidiaries, and (ii) our senior secured notes and guarantees
thereof are secured by second priority liens, subject to specified exceptions,
on substantially all of the existing and future tangible and intangible assets
owned by us and our subsidiary guarantors, subject to certain limitations, that
secure our obligations under our senior credit facility. Accordingly, upon our
bankruptcy, liquidation or reorganization or similar proceeding, the holders of
the notes will have no claim against these assets or the capital stock of these
subsidiaries until the lenders under the senior credit facility and holders of
senior secured notes have been paid in full. Furthermore, all payments on the
notes and the guarantees will be blocked in the event of a payment default on
senior debt and may be blocked for up to 179 consecutive days in the event of
certain non-payment defaults on designated senior debt.
As of December 31, 2004, the notes and the guarantees were subordinated to
all of our debt.
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 NOTES.
Tenneco Automotive Inc., the issuer of the 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 notes would be substantially
impaired.
Although some of our subsidiaries will guarantee the notes, a substantial
number of them will not. Payments on the 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 notes. As of and for the year ended December 31, 2004, the
non-guarantor subsidiaries represented approximately 58 percent of our
consolidated assets, approximately 57 percent of our consolidated net sales
(excluding intercompany sales), approximately 24 percent of our consolidated
operating income and approximately 41 percent of our consolidated EBITDA (see
"Selected Historical Consolidated Financial Data"). 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 dividends and other payments to generate the
funds necessary to meet our financial obligations, including the payment of
principal and interest
21
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 notes at maturity.
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 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 December 31, 2004, our
non-guarantor subsidiaries had $914 million 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, THE INDENTURE GOVERNING OUR SENIOR SECURED NOTES 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
exchange 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
restated 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" in our Annual Report on Form 10-K for the year ended December
31, 2004, which is incorporated by reference herein.
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 circumstances, we could
be forced into bankruptcy or liquidation. 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 OR
SENIOR SECURED NOTES WHEN THEY TERMINATE OR BECOME DUE, WHICH WILL OCCUR BEFORE
THE MATURITY OF THE NOTES.
Amounts borrowed under our senior credit facility, which is secured by a
substantial portion of our assets, will mature at varying times from December
2008 to December 2010, which is prior to the maturity of the notes. The
revolving credit facility will terminate in December 2008. The term loan
facility and the tranche B letter of credit/revolving loan facility mature in
2010. Our senior secured notes mature in December 2013, which is also prior to
the maturity of the notes.
We may not be able to (i) repay or refinance amounts due under the senior
credit facility prior to their maturity dates, (ii) repay or replace the
revolving portions of our senior credit facility prior to their
22
termination or (iii) repay, refinance or extend the maturity of our senior
secured notes prior to the date described above. If we are unable to repay,
refinance or restructure all or any part of our senior credit facility or senior
secured notes, the lenders thereunder and holders thereof, as the case may be,
could proceed against any collateral securing such indebtedness. If we are
unable to repay, refinance or extend the maturity of this indebtedness prior to
the dates described above, our liquidity and financial flexibility would be
substantially impaired.
RELEASES OF THE GUARANTEES OF THE NOTES OR ADDITIONAL GUARANTEES MAY BE
CONTROLLED UNDER SOME CIRCUMSTANCES BY THE COLLATERAL AGENT UNDER OUR SENIOR
CREDIT FACILITY.
The 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 notes unless it incurs
indebtedness. In addition, under the terms of the indenture governing the notes,
a guarantee of the notes made by a guarantor will be released without any action
on the part of the trustee or any holder of the 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 is otherwise liable on account of any 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."
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.
The holders of the 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.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
THE SUBSIDIARY 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 NOTES.
Our issuance of the notes and the issuance of the guarantees by the
subsidiary guarantors 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 either the 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 notes or a guarantee was a
fraudulent conveyance, the court could avoid the payment obligations under the
notes, such guarantee or further subordinate the notes or such guarantee to
presently existing and future indebtedness of us or of such guarantor, or
require the holders
23
of the exchange notes to repay any amounts received with respect to the notes or
such guarantee. In the event of a finding that a fraudulent conveyance occurred,
you 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.
RESTRICTIVE COVENANTS IN OUR SENIOR CREDIT AGREEMENT, THE INDENTURE GOVERNING
OUR SENIOR SECURED NOTES AND THE INDENTURE GOVERNING THE NOTES MAY PREVENT US
FROM PURSUING BUSINESS STRATEGIES THAT COULD OTHERWISE IMPROVE OUR RESULTS OF
OPERATIONS.
The indenture governing the notes, the indenture governing our senior
secured notes 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 NOTES UPON A CHANGE OF CONTROL.
Upon a change of control, we will be required to make an offer to purchase
all outstanding 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 the notes, or that restrictions in our senior credit
facility, our senior secured notes or other debt we may incur in the future
would permit us to make the required 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 and our senior secured notes. 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 senior secured 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
24
notes of their right to require us to purchase the notes would cause an event of
default under our senior credit facility.
YOUR ABILITY TO TRANSFER OR RESELL THE EXCHANGE NOTES 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 EXCHANGE NOTES.
We do not intend to have the exchange 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.
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 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,
consumer confidence, patterns of consumer
25
spending, fuel costs and the automobile replacement cycle. For example, we
believe a key strength for our company is our supply of parts for many North
American light trucks and SUVs, which are currently top sellers, but which
consumers may not continue to prefer. 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 since 2001
compared to 1999 and 2000 levels. 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, 2003 and
2004, with a slight increase in 2002. We remain cautious about production
volumes for 2005 due to rising interest rates, oil and steel prices, current OE
manufacturers' inventory levels and uncertainty regarding the willingness of OE
manufacturers to continue to support vehicle sales through incentives. Given
current economic conditions, we expect the North American light vehicle build to
be approximately 15.8 million units in 2005, which is equal to 2004 levels. We
expect the European light vehicle production to remain flat in 2005. 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 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 preproduction 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.
WE RECENTLY HAVE EXPERIENCED SIGNIFICANT INCREASES IN RAW MATERIALS PRICING, AND
FURTHER CHANGES IN THE PRICES OF RAW MATERIALS 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 otherwise mitigated, could materially and adversely impact our
results. For example, we recently have experienced significant increases in
processed metal and raw carbon steel prices, which are a growing concern.
Increased pressure on carbon steel prices is expected to continue into the
foreseeable future. We are working hard to address this issue by evaluating
alternative materials and processes, reviewing material substitution
opportunities, increasing component and assembly outsourcing to low cost
countries and aggressively negotiating with our customers to allow us to recover
these higher costs from them. In addition to these actions, we continue to
pursue productivity initiatives and review opportunities to reduce costs through
restructuring activities. The situation remains fluid as we continue to pursue
these actions. At this point, we are hopeful, but cannot assure you, that these
actions and recent increases in new business awards will be effective in
containing margin pressures from these significant steel price increases. See
"Management's Discussion and Analysis of Financial Conditions and Results of
26
Operations -- Outlook" included in our Annual Report on Form 10-K for the year
ended December 31, 2004, which is incorporated by reference herein, for more
information.
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 strategic 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 and prices could materially and adversely impact our financial condition
and results of operations" and "-- 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." 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. General Motors recently forecasted that
it would produce 2.43 million vehicles in North America during the first six
months of 2005, approximately 11 percent fewer than it produced in North America
during the first six months of 2004. Similarly, Ford recently announced a
production forecast of 1.85 million vehicles in North America during the first
six months of 2005, approximately 6 percent fewer than it produced in North
America during the first six months of 2004. The highly cyclical nature of the
automotive industry presents a risk that is outside our control and that cannot
be accurately predicted.
27
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. Also, any additional increases in the average useful lives of
automotive parts would further adversely affect the demand for our aftermarket
products. Aftermarket sales represented approximately 24 percent of our net
sales for 2004, as compared to 25 percent of our net sales for 2003.
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, 2004, which is 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 certain of our current
and former real properties. We record liabilities for these activities when
environmental assessments indicate that the remedial efforts are probable and
the costs can be reasonably estimated. On this basis, we have established
reserves that we believe are adequate for the remediation activities at our
current and former real properties. Although we believe our estimates of
remediation costs are reasonable and are based on the latest available
information, the cleanup costs are estimates and are subject to revision as more
information becomes available about the extent of remediation required. In
future periods, we could be subject to cash or non-cash charges to earnings if
we are required to undertake material additional remediation efforts based on
the results of our ongoing analyses of the environmental status of our
properties, as more information becomes available to us.
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, taxes, employment matters
or commercial or contractual disputes. For 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. As major asbestos
manufacturers continue to go out of business, we may experience an increased
number of these claims.
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, 2004, which is incorporated by reference herein, for
further description.
28
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, 2004, we had approximately 18,400 employees,
approximately 55 percent of which are covered by collective bargaining
agreements that expire and are renegotiated at various points in time. At
December 31, 2004, approximately 25 percent of our employees that are covered by
collective bargaining agreements were also represented by European workers'
councils. 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 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 2004, GM, Ford, Volkswagen and DaimlerChrysler
accounted for approximately 18 percent, 12 percent, 11 percent, and 8 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 2004, approximately 53 percent of
our net sales were derived from operations outside North America. International
29
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.
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,
2003 and 2004 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 December 31, 2004, we had U.S. Federal net operating loss ("NOL")
carryforwards of $569 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 $199 million and is recorded as an asset on
our balance sheet at December 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
30
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 December 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, however, assure you that we will not undergo a majority
ownership change in the 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.
31
FORWARD-LOOKING STATEMENTS
Certain 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 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.
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.
32
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.
We used all of the net proceeds of the offering of the old notes, which
were $487 million after deducting discounts to the initial purchasers and
offering expenses, together with cash on hand of $42 million, to redeem $500
million principal amount of our 11 5/8 percent senior subordinated notes due
2009, including the applicable premiums. The outstanding senior subordinated
notes were redeemable at a price of 105.813 percent of principal amount, plus
accrued and unpaid interest to the date of redemption. See "Unaudited Pro Forma
Consolidated Financial Statement" beginning on page PF-1.
33
CAPITALIZATION
The following table sets forth our unaudited historical capitalization as
of December 31, 2004. 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, 2004,
which is incorporated herein by reference. You should also read this table in
conjunction with "Unaudited Pro Forma Consolidated Financial Statement," which
is included in this prospectus.
<Table>
<Caption>
DECEMBER 31,
2004
------------
ACTUAL
------------
(DOLLARS IN
MILLIONS)
Cash and cash equivalents................................... $ 214
======
Total debt (1):
Credit facilities
Revolving credit facility (2)......................... $ --
Tranche B letter of credit/revolving loan facility
(3).............................................. --
Term loan B (4)....................................... 396
10 1/4% senior secured notes due 2013 (5)................ 489
8 5/8% senior subordinated notes due 2014................ 500
Obligations under capital leases and other............... 35
------
Total debt...................................... $1,420
------
Minority interest........................................... 24
Shareholders' equity........................................ 150
------
Total capitalization........................................ $1,594
======
</Table>
- ------------
(1) Total debt includes actual short-term debt of $19 million. Total debt does
not include assets sold under accounts receivable securitization
arrangements. As of December 31, 2004, we had sold $68 million of
receivables in North America under an accounts receivable securitization
facility and $56 million in Europe under uncommitted arrangements. See
"Description of Indebtedness and Other Obligations -- Receivables
Financing."
(2) At December 31, 2004, the revolving credit facility included commitments of
$220 million. At December 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. Effective
March 31, 2005, we increased the amount of commitments under our revolving
credit facility from $220 million to $285 million and reduced the amount of
commitments under our tranche B-1 letter of credit/revolving loan facility
from $180 million to $170 million.
(3) At December 31, 2004, the senior credit facility included a seven-year $180
million tranche B-1 letter of credit/revolving loan facility. At December
31, 2004, we had used $46 million for letters of credit and we had
additional borrowing capacity of $134 million, subject to certain
conditions. Under current accounting rules, the tranche B-1 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. Effective March 31, 2005, we
increased the amount of commitments under our revolving credit facility from
$220 million to $285 million and reduced the amount of commitments under our
tranche B-1 letter of credit/revolving loan facility from $180 million to
$170 million.
(4) On February 24, 2005, we voluntarily prepaid $40 million in principal on the
term loan B, reducing it from $396 million to $356 million.
(5) Includes a premium of $15 million, as $125 million of the senior secured
notes were issued at a premium of 113 percent of principal amount.
34
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data as of and for
the years ended December 31, 2002, 2003 and 2004 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, 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. See "Risk Factors -- Risks Relating to Our Prior Auditors."
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, 2004 contained in our Annual Report on Form 10-K for the year
ended December 31, 2004 incorporated by reference in this prospectus.
35
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
2000(1) 2001(1) 2002(1) 2003(1) 2004(1)
---------- ---------- ---------- ---------- ----------
(DOLLARS IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
STATEMENTS OF INCOME (LOSS) DATA:
Net sales and operating revenues............................ $ 3,528 $ 3,364 $ 3,459 $ 3,766 $ 4,213
Income before interest expense, income taxes, and minority
interest--
North America............................................ 64 52 129 131 130
Europe and South America................................. 37 23 24 23 22
Asia Pacific............................................. 19 17 16 22 19
---------- ---------- ---------- ---------- ----------
Total.................................................... 120 92 169 176 171
Interest expense (net of interest capitalized)(2)........... 188 170 141 149 179
Income tax expense (benefit)(2)............................. (28) 51 (7) (6) (25)
Minority interest........................................... 2 1 4 6 4
---------- ---------- ---------- ---------- ----------
Income (loss) before cumulative effect of change in
accounting principle..................................... (42) (130) 31 27 13
Cumulative effect of change in accounting principle, net of
income tax(3)............................................ -- -- (218) -- --
---------- ---------- ---------- ---------- ----------
Net income (loss)........................................... $ (42) $ (130) $ (187) $ 27 $ 13
---------- ---------- ---------- ---------- ----------
Average number of shares of common stock outstanding
Basic................................................. 34,735,766 37,779,837 39,795,481 40,426,136 41,534,810
Diluted............................................... 34,906,825 38,001,248 41,667,815 41,767,959 44,180,460
Earnings (loss) per average share of common stock--
Basic:
Before cumulative effect of change in accounting
principle....................................... $ (1.20) $ (3.43) $ 0.78 $ 0.67 $ 0.33
Cumulative effect of change in accounting
principle(3).................................... -- -- (5.48) -- --
---------- ---------- ---------- ---------- ----------
$ (1.20) $ (3.43) $ (4.70) $ 0.67 $ 0.33
---------- ---------- ---------- ---------- ----------
Diluted:
Before cumulative effect of change in accounting
principle....................................... $ (1.20) $ (3.43) $ 0.74 $ 0.65 $ 0.31
Cumulative effect of change in accounting
principle(3).................................... -- -- (5.48) -- --
---------- ---------- ---------- ---------- ----------
$ (1.20) $ (3.43) $ (4.74) $ 0.65 $ 0.31
---------- ---------- ---------- ---------- ----------
Cash dividends per common share............................. $ 0.20 $ -- $ -- $ -- $ --
BALANCE SHEET DATA:
Total assets................................................ $ 2,937 $ 2,698 $ 2,557 $ 2,845 $ 3,110
Short-term debt............................................. 92 191 228 20 19
Long-term debt.............................................. 1,435 1,324 1,217 1,410 1,401
Minority interest........................................... 14 15 19 23 24
Shareholders' equity (deficit).............................. 330 74 (94) 58 150
STATEMENT OF CASH FLOWS DATA:
Net cash provided by operating activities................... $ 234 $ 141 $ 188 $ 281 $ 200
Net cash used by investing activities....................... (157) (126) (107) (127) (116)
Net cash provided (used) by financing activities............ (123) 3 (73) (49) (12)
Capital expenditures........................................ 146 127 138 130 130
OTHER FINANCIAL DATA:
EBITDA(4)................................................... $ 271 $ 245 $ 313 $ 339 $ 348
Ratio of EBITDA to interest expense......................... 1.45 1.44 2.22 2.28 1.94
Ratio of total debt to EBITDA............................... 5.63 6.18 4.62 4.22 4.08
Ratio of earnings to fixed charges(5)....................... 0.63 0.56 1.17 1.16 0.95
Working capital as a percent of sales(6).................... 10.1% 6.0% 3.6% 2.1% 0.9%
---------- ---------- ---------- ---------- ----------
</Table>
NOTE: Our financial statements for the five years ended December 31, 2004, which
are discussed in the following notes, are included in our Annual Report on Form
10-K for the fiscal year ended December 31, 2004, incorporated by reference
herein. We have reclassified prior years' financial statements where appropriate
to conform to 2004 presentations.
(1) For a discussion of the significant items affecting comparability of the
financial information for the years ended December 31, 2002, 2003 and 2004,
see, "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, 2004, which is incorporated by reference herein. In
accordance with Emerging Issues Task Force Issue No. 00-14, we have reduced
revenues for 2000 by $21 million to reflect the reclassification of certain
sales incentives that were previously shown in selling, general and
administrative expense. In October 2004, we announced a change in the
structure of our organization which changed our reportable segments. The
European segment now includes South American operations. While this has no
impact on our consolidated results, it changes our segment results.
(2) In accordance with Statement of Financial Accounting Standards ("SFAS") No.
145, the losses on the prepayments of debt in 2000 of $2 million were
reclassified to interest expense.
(3) 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
36
Annual Report on Form 10-K for the year ended December 31, 2004, which is
incorporated by reference herein for additional information.
(4) EBITDA represents net income before 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>
YEARS ENDED DECEMBER 31,
----------------------------------
2000 2001 2002 2003 2004
---- ----- ----- ---- ----
(DOLLARS IN MILLIONS)
Net income (loss)........................................... $(42) $(130) $(187) $ 27 $ 13
Cumulative effect of change in accounting principle, net of
income tax............................................... -- -- 218 -- --
Minority interest........................................... 2 1 4 6 4
Income tax expense (benefit)................................ (28) 51 (7) (6) (25)
Interest expense (net of interest capitalized).............. 188 170 141 149 179
Depreciation and amortization of other intangibles.......... 151 153 144 163 177
---- ----- ----- ---- ----
EBITDA...................................................... $271 $ 245 $ 313 $339 $348
---- ----- ----- ---- ----
</Table>
(5) 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, 2004, incorporated by reference herein, for
the calculation of this ratio. For the years ended December 31, 2000, 2001
and 2004, earnings were insufficient by $76 million, $80 million and $9
million, respectively, to cover fixed charges.
(6) For purposes of computing working capital as a percentage of sales, we
exclude cash and cash equivalents 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>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
2000 2001 2002 2003 2004
------- ------- ------- ------- -------
(DOLLARS IN MILLIONS EXCEPT PERCENTAGE AMOUNTS)
Current assets:
Receivables--customer notes and accounts, net............ $ 457 $ 380 $ 394 $ 427 $ 458
Receivables--other....................................... 30 15 15 15 30
Inventories.............................................. 422 326 352 343 382
Deferred income taxes.................................... 76 66 56 63 70
Prepayments and other.................................... 89 101 95 104 124
------ ------ ------ ------ ------
$1,074 $ 888 $ 912 $ 952 $1,064
Current liabilities:
Trade payables........................................... $ 464 $ 401 $ 505 $ 621 $ 696
Accrued taxes............................................ 16 35 40 19 24
Accrued interest......................................... 35 25 23 42 35
Accrued liabilities...................................... 134 148 172 162 226
Other accruals........................................... 68 76 48 29 47
------ ------ ------ ------ ------
$ 717 $ 685 $ 788 $ 873 $1,028
Working capital (current assets less current liabilities)... $ 357 $ 203 $ 124 $ 79 $ 36
Sales....................................................... $3,528 $3,364 $3,459 $3,766 $4,213
Working capital as a percent of sales....................... 10.1% 6.0% 3.6% 2.1% 0.9%
</Table>
37
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 15,
NAME 2005 POSITION(S)
- ---- ------------- -----------
Mark P. Frissora 49 Chairman of the Board of Directors, Chief Executive
Officer and President
Timothy R. Donovan 49 Executive Vice President and General Counsel and
Managing Director -- Asia Pacific and Director
Charles W. Cramb 58 Director
M. Kathryn Eickhoff 65 Director
Frank E. Macher 64 Director
Roger B. Porter 58 Director
David B. Price, Jr. 58 Director
Dennis G. Severance 60 Director
Paul T. Stecko 59 Director
Jane L. Warner 57 Director
Hari N. Nair 45 Executive Vice President and Managing
Director -- Europe and South America
Richard P. Schneider 57 Senior Vice President -- Global Administration
Brent J. Bauer 49 Senior Vice President and General Manager -- North
American Original Equipment Emissions Control
Kenneth R. Trammell 44 Senior Vice President and Chief Financial Officer
Timothy E. Jackson 48 Senior Vice President -- Manufacturing, Engineering
and Global Technology
Paul Schultz 54 Senior Vice President -- Global Supply Chain
Management
Neal Yanos 43 Senior Vice President and General Manager -- North
American Original Equipment Ride Control and North
American Aftermarket
James A. Perkins, Jr. 42 Vice President and Controller
</Table>
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.
38
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 in 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 Federal Mogul
Corporation, 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
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 Zions Bancorporation (where he serves as the
Chairman of the Audit Committee and is a member of the Compensation Committee
and the Executive Committee), Pactiv Corporation (where he serves on the
Compensation/Nominating/Governance Committee) and Extra Space Storage Inc.
(where he serves as the Chairman of the Compensation, Nominating and Corporate
Governance Committee and is a member of the Audit 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.
39
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.
Jane L. Warner -- Ms. Warner has been President of Plexus Systems, L.L.C.
since June 2004. From 2000 to June 2004, Ms. Warner held various positions with
Electronic Data Systems Corporation ("EDS"), including President of its Global
Manufacturing Industry Solutions Group and Managing Director of its Global
Automotive Industry Group. Prior to joining EDS, Ms. Warner served as President
of Kautex Textron Inc. North America from 1998 to 1999 and Executive Vice
President for Textron Automotive Company from 1994 to 1999. Previously, Ms.
Warner held various positions over a 20-year span at General Motors Corporation,
including positions in engineering, manufacturing and human resources. Ms.
Warner was named a director in October 2004. Ms. Warner also is a board member
of MeadWestvaco Corporation, where she sits on the Audit and Safety, Health and
Environmental Committees, a board member of the Original Equipment Suppliers
Association and Chairman of the Board of Trustees for Kettering University.
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.
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. In October
2004, he was named Managing Director -- Asia Pacific, with responsibility for
Australia, Asia, New Zealand and our Japanese OE business. 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
40
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. On March 9, 2004, Mr. Donovan was
elected to our Board of Directors.
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 J. 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 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
41
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).
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.
42
SECURITY OWNERSHIP OF CERTAIN OTHER BENEFICIAL OWNERS AND MANAGEMENT
MANAGEMENT
The following table shows, as of March 15, 2005, 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............................................ 6,000
M. Kathryn Eickhoff......................................... 52,652
Frank E. Macher............................................. 30,804
Roger B. Porter............................................. 34,653
David B. Price, Jr. ........................................ 63,824
Dennis G. Severance......................................... 32,804
Paul T. Stecko.............................................. 38,796
Jane L. Warner.............................................. 1,000
NAMED EXECUTIVE OFFICERS
Mark P. Frissora............................................ 827,780
Timothy R. Donovan.......................................... 166,209
Hari N. Nair................................................ 270,364
Kenneth R. Trammell......................................... 113,895
Richard P. Schneider........................................ 252,078
All executive officers and directors as a group (18
individuals).............................................. 2,469,861(5)
</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 15, 2005, Ms. Eickhoff and Messrs.
Donovan, Frissora, Nair, Trammell and Schneider held 17,399, 46,000,
175,000, 46,000, 27,250 and 29,500 restricted shares, respectively. Also
includes shares that are subject to options that are exercisable within 60
days of March 15, 2005 for Mmes. Eickhoff and Warner and Messrs. Cramb,
Donovan, Frissora, Macher, Porter, Price, Severance, Stecko, Nair, Trammell
and Schneider to purchase 30,000, 0, 5,000, 96,000, 650,000, 27,500, 30,000,
30,000, 27,500, 30,000, 189,334, 76,250 and 174,000, respectively.
(3) Mr. Frissora beneficially owns approximately 1.9 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 5.7 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 15, 2005,
the total number of common stock equivalents held by Mmes. Eickhoff and
Warner and Messrs. Cramb, Macher, Porter, Price, Severance and Stecko was
22,756, 2,370, 15,784, 27,462, 61,249, 40,554, 43,318, 40,554, respectively.
(5) Includes 1,758,123 shares that are subject to options that are exercisable
within 60 days of March 15, 2005 by all executive officers and directors as
a group. Includes 461,982 restricted shares.
43
CERTAIN OTHER STOCKHOLDERS
The following table sets forth, as of March 15, 2005 certain information
regarding the persons 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>
PERCENT OF
SHARES OF COMMON
NAME AND ADDRESS COMMON STOCK STOCK
OF BENEFICIAL OWNER(1) OWNED(1) OUTSTANDING
---------------------- ------------ -----------
Barclays Global Investors, NA and related entities.......... 4,205,682(2) 9.65%
</Table>
- ------------
(1) This information is based on information contained in filings made with the
Commission regarding the ownership of our common stock.
(2) Barclays Global Investors, NA and various related entities (collectively,
"Barclays"), 45 Fremont Street, San Francisco, California 94105, have
indicated that they have sole voting power over 3,940,076 shares and sole
dispositive power over 4,205,682 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.
44
DESCRIPTION OF INDEBTEDNESS AND OTHER OBLIGATIONS
RECENT FINANCING TRANSACTIONS
In 2003, we completed a series of transactions that resulted in the full
refinancing of our senior credit facility.
Our 2003 financing transactions began in June 2003, with our offering and
sale of an initial $350 million of 10 1/4 percent senior secured notes due 2013
in a private offering. We used the net proceeds of that offering, which totaled
approximately $338 million, to prepay $251 million of term loans and $87 million
of revolving credit borrowings outstanding under our senior credit facility at
that time. In October 2003, those $350 million of senior secured notes were
exchanged for $350 million of senior secured notes that had been registered
under the Securities Act.
In December 2003, we completed the refinancing of our senior credit
facility through an amendment and restatement of our senior credit agreement. At
that time, we received $136 million of net proceeds from the offering and sale
of an additional $125 million principal amount of 10 1/4 percent senior secured
notes due 2013 in a private offering, after deducting underwriting discounts and
commissions and other expenses and including a 13 percent price premium over the
principal amount. Also at that time, we received $391 million in net proceeds
from the new term loan B borrowings under our amended and restated senior credit
facility, after deducting fees and other expenses. We used the combined net
proceeds of these December 2003 transactions, which were approximately $527
million, to repay the $514 million outstanding under term loans A, B and C under
our senior credit facility immediately prior to the completion of the
transactions. The remaining $13 million of net proceeds were used for general
corporate purposes. See "-- Senior Credit Facility," "-- Senior Secured Notes"
and "Capitalization."
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. Our obligations under these agreements are secured by the
same assets that secure our senior credit facility. See "-- Senior Credit
Facility." Based on the current LIBOR as determined under the agreements of 2.89
percent (which rate is effective until July 15, 2005), these swaps would reduce
our quarterly interest expense by less than $1 million, which is not reflected
in the pro forma information presented elsewhere in this offering memorandum for
periods prior to April 2004. LIBOR is currently approximately 0.10 percent
higher than LIBOR determined under the agreements. If this is still the case on
July 15, 2005, the interest expense savings from these arrangements would be
reduced.
In November 2004, we issued the old notes as part of a transaction designed
to reduce our interest expense by allowing us to redeem our then outstanding
$500 million of 11 5/8 percent senior subordinated notes maturing in October of
2009. We completed this redemption on December 20, 2004, using the net proceeds
of the issuance of the old notes, together with cash on hand.
In connection with the refinancing of the 11 5/8 percent senior
subordinated notes, we amended the senior credit facility for the second time
effective November 17, 2004. This amendment allowed us to use up to $50 million
in cash on hand to pay redemption premiums and/or other fees and costs in
connection with the redemption and refinancing of the senior subordinated notes.
This amendment also excluded any redemption premium associated with the 11 5/8
percent senior subordinated notes and any interest incurred on the notes between
the call date of November 19, 2004 and the redemption date of December 20, 2004
from cash interest expense for purposes of the definition of consolidated
interest expense in the senior credit facility. In exchange for these
amendments, we agreed to pay a small fee to the consenting lenders. We also
incurred legal, advisory and other costs related to the amendment and the
issuance of the 8 5/8 percent notes. These amounts were capitalized and will be
amortized over the remaining terms of the notes and senior credit facility.
Beginning in 2005, annual interest expense savings from this transaction are
anticipated to be approximately $15 million. See "Unaudited Pro Forma
Consolidated Financial Statement."
45
Effective on February 24, 2005, we amended our senior credit facility for
the third time. The third amendment reduced by 75 basis points the interest rate
on the term loan B facility and the tranche B-1 letter of credit/revolving loan
facility under the senior credit facility. In connection with the third
amendment, we voluntarily prepaid $40 million in principal on the term loan B,
reducing it from $396 million to $356 million. This voluntary repayment will
reduce the amortization of the term loan B in forward order, thus eliminating
the $1 million quarterly payments that would otherwise be due from March 31,
2005 to December 31, 2009, and reducing the $94 million payment due March 31,
2010 to $74 million, but will not effect the remaining $94 million quarterly
payments due on June 30, September 30 and December 12, 2010.
Additional provisions of the amendment to the senior credit facility
agreement (i) amended the definition of EBITDA to exclude up to $60 million in
restructuring-related expenses occurring after February 2005, (ii) increased
permitted investments to $50 million, (iii) excluded expenses related to the
issuance of stock options from consolidated net income, (iv) permitted the
redemption of up to $125 million of senior secured notes after January 1, 2008
(subject to certain conditions), (v) increased our ability to add commitments
under the revolving credit facility by $25 million, and (vi) made other minor
modifications. We incurred approximately $1 million in fees and expenses
associated with this amendment, which will be capitalized and amortized over the
remaining term of the agreement.
The senior credit facility continues to provide: (i) the ability to
refinance our senior subordinated notes and/or our senior secured notes using
the net cash proceeds from the issuance of similarly structured debt; (ii) the
ability to repurchase 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 (iii) the prepayment of the term loans by an amount
equal to 50 percent of the company's excess cash flow.
We incurred approximately $1 million in fees and expenses associated with
this amendment, which will be capitalized and amortized over the remaining term
of the senior credit facility agreement. As a result of the third amendment and
the voluntary prepayment of $40 million under the term loan B, we expect our
interest expense in 2005 will be approximately $6 million lower than what it
would otherwise have been.
Effective March 31, 2005, we increased the amount of commitments under our
revolving credit facility from $220 million to $285 million and reduced the
amount of commitments under our tranche B-1 letter of credit/revolving loan
facility from $180 million to $170 million. See " -- Senior Credit Facility."
SENIOR CREDIT FACILITY
GENERAL
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, N.A., as administrative agent. Banc of America
Securities LLC, Citigroup Global Markets Inc., Deutsche Bank Securities Inc.,
J.P. Morgan Securities Inc. and BNY Capital Markets, Inc. are initial purchasers
of this offering and certain of our lenders under the senior credit facility are
affiliates of the initial purchasers. In addition, The Bank of New York Trust
Company, N.A., the Trustee under the indenture, is an affiliate of BNY Capital
Markets, Inc., an initial purchaser.
The senior credit facility consists of:
- a seven-year, $356 million term loan B facility maturing in December
2010 ($396 million as of December 31, 2004);
- a five-year, $285 million revolving credit facility expiring in December
2008 ($220 million as of December 31, 2004); and
- a seven-year, $170 million tranche B-1 letter of credit/revolving loan
facility expiring in December 2010 ($180 million as of December 31,
2004).
46
In February 2005 we amended our senior credit facility to reduce by 75
basis points the interest rate on the term loan B facility and the tranche B-1
letter of credit/revolving loan facility. The interest margins for borrowings
under the credit facility and fees paid on letters of credit issued under our
credit facility are subject to adjustment based on the consolidated leverage
ratio (consolidated indebtedness divided by consolidated EBITDA as defined in
the senior credit facility agreement) measured at the end of each quarter, or
upon an upgrade in the credit rating of the company as issued by Standard &
Poor's or Moody's. The amendment provides that the interest margins for
borrowings under the term loan B facility and the tranche B letter of
credit/revolving loan facility will be further reduced by 25 basis points
following: (i) the end of each fiscal quarter for which the consolidated
leverage ratio is less than 3.0 or (ii) at the point our credit ratings are
improved to BB- by Standard & Poor's (and are rated at least B1 by Moody's) or
Ba3 by Moody's (and are rated at least B+ by Standard & Poor's).
Effective March 31, 2005, we increased the amount of commitments under our
revolving credit facility from $220 million to $285 million and reduced the
amount of commitments under our tranche B-1 letter of credit/revolving loan
facility from $180 million to $170 million. This reduction of our tranche B-1
letter of credit/revolving loan facility was required under the terms of the
senior credit facility, as we had increased the amount of our revolving credit
facility commitments by more than $55 million. Under the terms of the senior
credit facility, we have the right to further increase the commitments under our
revolving credit facility by $15 million (with a dollar-for-dollar reduction in
our tranche B-1 letter of credit/revolving loan facility), to the extent there
are new or existing lenders who are willing to make the additional commitment to
the revolving credit facility, and we continue to evaluate opportunities to do
so.
TERM LOAN B FACILITY
Subject to early repayment events specified in our senior credit facility
and summarized below, the $356 million term loan B facility is repayable as
follows: $74 million on March 31, 2010 and $94 million on each of June 30,
September 30 and December 31, 2010. Borrowings under the term loan B facility
bear interest at an annual rate equal to, at our option, either (i) LIBOR plus a
margin of 300 basis points (reduced to 225 basis points in February 2005); or
(ii) a rate consisting of the greater of the JP Morgan Chase prime rate or the
Federal Funds rate plus 50 basis points, plus a margin of 200 basis points
(reduced to 125 basis points in February 2005). Beginning in February 2005, the
interest margins for borrowings under the term loan B facility will be further
reduced by 25 basis points following: (i) the end of each fiscal quarter for
which the consolidated leverage ratio is less than 3.0 or (ii) at the point our
credit ratings are improved to BB- by Standard & Poor's (and are rated at least
B1 by Moody's) or Ba3 by Moody's (and are rated at least B+ by Standard &
Poor's).
REVOLVING CREDIT FACILITY
Subject to early repayment and termination events specified in our senior
credit facility and summarized below, the $285 million revolving credit facility
requires that it be repaid by December 2008. Prior to that date, funds may be
borrowed, repaid and reborrowed under the revolving credit facility without
premium or penalty. Letters of credit may be issued under the revolving credit
facility. Borrowings under the revolving credit facility bear interest at an
annual rate equal to, at our option, either (i) LIBOR plus a margin of 325 basis
points; or (ii) a rate consisting of the greater of the JP Morgan Chase prime
rate or the Federal Funds rate plus 50 basis points, plus a margin of 225 basis
points. Letters of credit issued under the revolving credit facility 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 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 interest margins for borrowings and letters
of credit issued under the revolving credit facility are subject to adjustment
based on the consolidated leverage ratio (consolidated indebtedness divided by
consolidated EBITDA as defined in the senior credit facility agreement) measured
at the end of each quarter. The margin we pay on the revolving credit facility
will be reduced by 25 basis points following each fiscal quarter for which the
consolidated leverage ratio is less than 4.0 beginning in March 2005. We also
pay a commitment fee of 50 basis points on the unused
47
portion of the revolving credit facility. This commitment fee will be reduced by
12.5 basis points following the end of each fiscal quarter for which the
consolidated leverage ratio is less than 3.5.
TRANCHE B-1 LETTER OF CREDIT/REVOLVING LOAN FACILITY
Subject to early repayment and termination events specified in our senior
credit facility and summarized below, the $170 million tranche B-1 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. The tranche B-1 letter of credit/revolving loan facility
requires that it be repaid by December 2010. We can borrow revolving loans from
the $170 million tranche B-1 letter of credit/revolving loan facility and use
that facility to support letters of credit. The tranche B-1 letter of
credit/revolving loan facility lenders have deposited $170 million with the
administrative agent, who has invested that amount in time deposits. We do not
have an interest in any of the funds on deposit, and we do not account for those
funds as our indebtedness until we draw revolving loans from this facility. When
we draw revolving loans under this facility, the loans are funded from the $170
million on deposit with the administrative agent. When we make repayments, the
repayments are redeposited with the administrative agent.
There is no cost to us for issuing letters of credit under the tranche B-1
letter of credit/revolving loan facility, however outstanding letters of credit
reduce our availability to borrow revolving loans under this portion of the
facility. If a letter of credit issued under this facility is subsequently paid
and we do not reimburse the amount paid in full, then a ratable portion of each
lender's deposit would be used to fund the letter of credit. We pay the tranche
B-1 lenders a fee which is equal to LIBOR plus 300 basis points (reduced to 225
basis points in February 2005). This fee is offset by the return on the funds
deposited with the administrative agent which earn interest at a per annum rate
approximately equal to LIBOR. Outstanding revolving loans reduce the funds on
deposit with the administrative agent which in turn reduce the earnings of those
deposits and effectively increases our interest expense at a per annum rate
equal to LIBOR. Beginning in February 2005, the interest margins for borrowings
under the tranche B-1 letter of credit/revolving loan facility will be further
reduced by 25 basis points following: (i) the end of each fiscal quarter for
which the consolidated leverage ratio is less than 3.0 or (ii) at the point our
credit ratings are improved to BB- by Standard & Poor's (and are rated at least
B1 by Moody's) or Ba3 by Moody's (and are rated at least B+ by Standard &
Poor's).
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
guarantors' 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 (consolidated
EBITDA less consolidated capital
48
expenditures, divided by consolidated cash interest paid as defined therein) at
the end of each period indicated.
<Table>
<Caption>
QUARTERS ENDING
-------------------------------------------------------------------------
MARCH 31,
2005- SEPTEMBER 30,- MARCH 31- MARCH 31- MARCH 31-
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2005 2005 2006 2007 2008
---------- --------------- ------------ ------------ ------------
Leverage Ratio (maximum).................... 4.75 4.50 4.25 3.75 3.50
Interest Coverage Ratio (minimum)........... 2.00 2.00 2.10 2.20 2.35
Fixed Charge Coverage Ratio (minimum)....... 1.10 1.10 1.15 1.25 1.35
<Caption>
QUARTERS ENDING
---------------------------
MARCH 31- MARCH 31-
DECEMBER 31, DECEMBER 31,
2009 2010
------------ ------------
Leverage Ratio (maximum).................... 3.50 3.50
Interest Coverage Ratio (minimum)........... 2.50 2.75
Fixed Charge Coverage Ratio (minimum)....... 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 December 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 of 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.
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;
49
- 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 SECURED NOTES
As part of the 2003 refinancing transactions described above, we issued
$350 million of 10 1/4 percent senior secured notes due 2013 in June 2003, and
an additional $125 million of 10 1/4 percent senior secured notes due 2013 in
December 2003. The senior secured notes were issued under an indenture dated
June 19, 2003, as supplemented under a supplemental indenture dated December 12,
2003, by and between us and Wachovia Bank, National Association, as trustee, and
are treated as a single class of securities for all purposes under the
indenture. In October 2003 and June 2004, 100 percent of the senior secured
notes issued in June 2003 and December 2003 were exchanged for an aggregate of
$475 million of senior secured notes that had been registered under the
Securities Act.
All of our existing and future material domestic wholly-owned subsidiaries
fully and unconditionally guarantee the senior secured notes on a joint and
several basis. These guarantees are senior secured obligations of our subsidiary
guarantors. There are no significant restrictions on the ability of our
subsidiaries that have guaranteed these notes to make distributions to us. The
senior secured notes mature on July 15, 2013.
The senior secured notes are senior secured obligations and rank equally in
right of payment with our and our subsidiary guarantors' existing and future
senior debt and rank senior in right of payment to all of our existing and
future subordinated debt. The senior secured notes will be effectively
subordinated to all existing and future liabilities, including trade payables,
of our foreign subsidiaries, which will not guarantee the notes, and of those of
our domestic subsidiaries that do not guarantee the notes.
The senior secured notes and the guarantees thereof are secured by second
priority liens, subject to specified exceptions, on substantially all the
existing and future tangible and intangible assets owned by us and our
subsidiary guarantors subject to certain limitations, that secure our
obligations under our senior credit facility, except that only a portion of the
capital stock of our and our subsidiary guarantor's domestic subsidiaries is
provided as collateral and no assets or capital stock of our direct or indirect
foreign subsidiaries secure these notes or guarantees.
The notes are effectively junior to our obligations and those of the
subsidiary guarantors under our senior credit facility and any other obligations
secured by a first priority lien on the collateral securing the notes and the
guarantees, to the extent of the value of such collateral, 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 notes and the guarantees, to the extent of the value of
such assets.
Interest on the senior secured notes is payable at the rate of 10 1/4
percent per annum and is payable semi-annually in cash in arrears on each
January 15 and July 15. 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. Based on the current LIBOR as determined
under the agreements of 2.89 percent (which rate is effective until July 15,
2005), these swaps would reduce our quarterly interest expense by less than $1
million, which is not reflected in the pro forma information presented elsewhere
in this offering memorandum for periods prior to April 2004. LIBOR is currently
approximately 0.10 percent higher than LIBOR determined under the agreements. If
this is still the case on July 15, 2005, the interest expense savings from these
arrangements would be reduced.
50
We can redeem some or all of the notes at any time on and after July 15,
2008 at the following redemption prices (expressed as percentages of the
principal amount) if redeemed during the twelve-month period commencing on July
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
- ---- ----------
2008........................................................ 105.125%
2009........................................................ 103.417%
2010........................................................ 101.708%
2011 and thereafter......................................... 100.000%
</Table>
The senior secured 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 contingent obligations;
- paying dividends or make distributions to our stockholders;
- repurchasing or redeem equity interests;
- making investments;
- granting liens;
- making capital expenditures;
- entering into transactions with our shareholders and affiliates;
- selling assets; and
- acquiring the assets of, or merge or consolidate with, other companies.
These covenants are subject to a number of important exceptions. In
addition, the indenture governing the senior secured notes contains events of
defaults that are customary for notes of this type. As of December 31, 2004, we
were in compliance with the covenants and restrictions of the indenture related
to the senior secured notes.
RECEIVABLES FINANCING
In addition to our senior credit facility, our senior secured notes and the
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 $68 million at December 31, 2004. 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 2005, this program was amended to extend its term to January 30,
2006 at its current size of $75 million. In March 2005, the program agreement
was amended to increase the size to $90 million. We also sell some receivables
in our European operations to regional banks in Europe. At December 31, 2004, we
had sold $56 million of accounts receivable in Europe down from $87 million at
December 31, 2003. The arrangements to sell receivables in Europe are not
committed and can be cancelled at any time. If we were
51
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
facilities.
CERTAIN PAYMENT ARRANGEMENTS
From time to time we have entered into arrangements with major OE customers
in North America and Europe under which, in exchange for a discount, payments
for product sales are made earlier than otherwise required under existing
payment terms. To make these advance payments, the OE customers are provided
funding support by a third-party financing company. These arrangements reduced
accounts receivable by $113 million and $99 million as of December 31, 2004 and
2003, respectively. A small portion of the program, representing approximately
$14 million of the reduction in accounts receivable at December 31, 2004, was
discontinued in the first quarter of 2005. Further, we have been informed that
the financing company that supports a substantial portion of these arrangements
intends to discontinue the program by the end of 2005. The financing company has
the right to discontinue the program earlier in the event of certain rating
agency downgrades with respect to the related OE customer. Such a downgrade
occurred in the first quarter of 2005, and we cannot assure you that the
financing company will continue the program through 2005 in light thereof.
Although we cannot assure you that another similar arrangement will be available
for periods after December 2005 on commercially reasonable terms or at all, we
intend to seek such an arrangement.
One of our European subsidiaries receives payment from one of its OE
customers whereby the account receivables are satisfied through the delivery of
negotiable financial instruments. These financial instruments are then sold at a
discount to a European bank. The sales of these financial instruments are not
included in the account receivables sold in 2004. Any of these financial
instruments which were not sold as of December 31, 2004 and 2003 are classified
as other current assets and are excluded from our definition of cash
equivalents. We had sold approximately $44 million of these instruments at
December 31, 2004.
52
CERTAIN CONTRACTUAL OBLIGATIONS
Our remaining required debt principal amortization and payment obligations
under lease and certain other financial commitments as of December 31, 2004, are
shown in the following table:
<Table>
<Caption>
PAYMENTS DUE IN:
--------------------------------------------------
BEYOND
2005 2006 2007 2008 2009 2009 TOTAL
---- ---- ---- ---- ---- ------ ------
(MILLIONS)
Obligations:
Revolver borrowings................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Senior long-term debt................. 4 4 4 4 4 376 396
Long-term notes....................... 1 -- 1 2 -- 475 479
Capital leases........................ 3 3 3 3 3 3 18
Subordinated long-term debt........... -- -- -- -- -- 500 500
Other subsidiary debt................. 1 -- -- -- 1 -- 2
Short-term debt....................... 10 -- -- -- -- -- 10
---- ---- ---- ---- ---- ------ ------
Debt and capital lease obligations...... 19 7 8 9 8 1,354 1,405
Operating leases........................ 14 11 9 7 5 3 49
Interest payments....................... 109 109 109 109 109 387 932
Capital commitments..................... 49 -- -- -- -- -- 49
---- ---- ---- ---- ---- ------ ------
Total Payments.......................... $191 $127 $126 $125 $122 $1,744 $2,435
==== ==== ==== ==== ==== ====== ======
</Table>
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-1 letter of credit facility/revolving loan facility has a
termination date of December 13, 2010. The revolving credit facilities balances
included in short-term debt was zero at both December 31, 2004 and 2003,
respectively.
If we do not maintain compliance with the terms of our senior credit
facility, senior secured notes indenture and senior subordinated debt indenture,
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. 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
8 5/8 percent, respectively. Interest on our variable rate debt is calculated as
300 basis points plus LIBOR of 2.4 percent which is the current rate at December
31, 2004. We have assumed that LIBOR will remain unchanged for the outlying
years. In addition we have included the impact of our interest rate swaps
entered into in April 2004. In February 2005, we made a $40 million voluntary
payment on our senior long-term debt. The impact of this payment eliminates each
quarterly $1 million payment we were required to make through 2009 and reduces
by $20 million our first quarterly payment due in 2010.
53
We have also included an estimate of expenditures required after December
31, 2004 to complete the facilities and projects authorized at December 31,
2004, in which we have made substantial commitments in connections with
facilities.
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 not included material cash requirements for taxes as we are a
taxpayer for certain foreign jurisdictions but not in domestic locations.
Additionally, it is difficult to estimate taxes to be paid as changes in where
we generate income can have a significant impact on future tax payments. We have
also not included cash requirements for funding pension and postretirement
benefit costs. Based upon current estimates we believe we will be required to
make contributions between $58 million to $63 million to those plans in 2005.
Pension and postretirement contributions beyond 2005 will be required but those
amounts will vary based upon many factors, including the performance of our
pension fund investments during 2005. In addition, we have not included cash
requirements for environmental remediation. Based upon current estimates, we
believe we will be required to spend approximately $11 million over the next 20
to 30 years. However, due to possible modifications in remediation processes and
other factors, it is difficult to determine the actual timing of the payments.
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 is the performance of lease
obligations by a former affiliate. Our maximum liability under this guarantee
was approximately $4 million at both December 31, 2004 and 2003, 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 senior secured credit facility, the senior secured notes and the senior
subordinated notes on a joint and several basis. The arrangement for the senior
secured credit facility is also secured by first-priority liens on substantially
all our domestic assets and pledges of 66 percent of the stock of certain
first-tier foreign subsidiaries. The arrangement for the senior secured notes is
also secured by second priority liens on all of our domestic assets, excluding
some of the stock of our domestic subsidiaries. No assets or capital stock of
our direct or indirect foreign subsidiaries secure these notes. You should also
read Note 13 to our consolidated financial statements in our Annual Report on
Form 10-K for the year ended December 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 $24 million.
We have also issued $19 million in letters of credit to support some of our
subsidiaries' insurance arrangements. In addition, we have issued $3 million in
guarantees through letters of credit to guarantee other obligations of
subsidiaries primarily related to environmental remediation activities.
54
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Contemporaneously with issuing the $500 million of the old notes in the
private placement on November 19, 2004, 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 complete the exchange offer or, if the
exchange offer is not permitted, have a shelf offer declared effective within
210 days following the original issue of the old notes.
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 complete the exchange offer or, if the exchange offer is not
permitted, have a shelf offer declared effective within 210 days following the
original issue of the old notes we will be required to pay additional interest
to holders of the old notes as described under the heading "Registration
Rights."
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.
55
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.
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.
56
As of the date of this prospectus, $500 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 "-- 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 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
, 2005, 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
57
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
Notwithstanding 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
- 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 our 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
58
- comply with DTC's Automated Tender Offer Program procedures described
below.
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.
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;
59
(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 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."
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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.
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 DTC 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
61
been validly 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.
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 judgment or our
counsel's judgment, 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 subsidiary guarantors, 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, the subsidiary guarantors, 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" above. 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
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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 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
The Bank of New York Trust Company, N.A. 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>
<Caption>
By Facsimile: By registered or certified Mail:
For overnight courier and by hand (Eligible Guarantor
delivery: Institutions Only)
The Bank of New York Trust Company, (212) 298-1915 The Bank of New York Trust Company,
N.A. Attention: N.A.
c/o The Bank of New York To Confirm by Telephone c/o The Bank of New York
101 Barclay Street -- 7 East or for Information 101 Barclay Street -- 7 East
New York, New York 10286 Call: New York, New York 10286
Attention: Reorganization Unit (212) 815- Attention: Reorganization Unit
</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;
- 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.
63
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 June 17, 2005; 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.
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.
64
DESCRIPTION OF THE NOTES
The old notes were, and the exchange notes will be, issued under an
indenture dated as of November 19, 2004 (the "Indenture") by and among the
Company, the Guarantors and The Bank of New York Trust Company, N.A., as Trustee
(the "Trustee"). The Guarantors will be the following Domestic Restricted
Subsidiaries of the Company, which will be all of the Company's Domestic
Restricted Subsidiaries as of the date the notes offered hereby are issued
(other than Finance Subsidiaries, Accounts Receivable 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 notes will be unsecured
obligations of the Company, ranking subordinate in right of payment to all
Senior Debt of the Company. The notes will be unconditionally guaranteed on a
senior subordinated basis by the Guarantors as described below under the caption
"-- Brief Description of the Notes and the Guarantees -- The Guarantees." For
purposes of this section, references to "we," "our" or the "Company" include
only Tenneco Automotive Inc. and not its Subsidiaries.
On November 19, 2004, we issued $500 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 any other rights under the registration rights
agreement. The trustee will authenticate and deliver exchange notes for original
issue only in exchange for a like principal amount of old notes.
Used in this "Description of the Notes," except as the context otherwise
requires, the term "notes" means all 8 5/8 percent senior subordinated notes due
2014 issued by the Company pursuant to the Indenture (including the notes
offered for exchange hereby, the $500 million of old notes and any additional
notes that the Company may issue from time to time under the Indenture).
The following description is a summary of the material provisions of the
Indenture and does not include all of the information included in the Indenture
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 may be obtained from Tenneco. The definitions of most of the
capitalized terms used in the following summary are set forth below under
"-- Certain Definitions."
The notes offered hereby 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 the exchange offer, together with the exchange notes issued in
connection with the exchange offer and any additional notes subsequently issued
under the Indenture, will be treated as a single class of securities for 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
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 unsecured obligations of the Company, ranking subordinate in
right of payment to all Senior Debt of the Company; and
65
- unconditionally guaranteed on a senior subordinated basis by the
Guarantors.
As of December 31, 2004, we had $396 million of term loan indebtedness
outstanding under our Credit Agreement, with $220 million of unused revolving
credit facility capacity (out of $220 million committed), $134 million of unused
tranche B letter of credit/revolving loan facility capacity (out of $180 million
committed) and approximately $46 million in outstanding letters of credit under
our tranche B letter of credit/revolving loan facility, and $489 million of
other Senior Debt outstanding (including the Senior Secured Notes). On February
24, 2005, we voluntarily prepaid $40 million in principal on the Term Loan B,
reducing it to $356 million. Effective March 31, 2005, we increased the amount
of commitments under our revolving credit facility from $220 million to $285
million and reduced the amount of commitments under our tranche B-1 letter of
credit/revolving loan facility from $180 million to $170 million. See
"Description of Indebtedness and Other Obligations -- Senior Credit Facility."
In addition, under the Indenture, we also may incur additional Senior Debt and
indebtedness secured by liens on our property and assets as described below
under "-- Certain Covenants -- Limitation on Incurrence of Additional
Indebtedness" and "-- Certain Covenants -- Limitation on Liens."
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 the Credit Agreement
or the Senior Secured 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 general unsecured
obligations of the Guarantor, ranking subordinate in right of payment to all
Senior Debt of the Guarantor.
As of the date the exchange notes offered are issued, 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 "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 our Existing Indebtedness and an Investment in the
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, as of the date the exchange notes offered are issued, none of the
Company's Foreign Subsidiaries, Finance Subsidiaries, Accounts Receivable
Entities or Immaterial Domestic Subsidiaries will guarantee the notes. In the
event of a bankruptcy, liquidation or reorganization of any of these
non-guarantor Subsidiaries, the non-guarantor Subsidiaries will pay the holders
of their debt and their trade creditors before they will be able to distribute
any of their assets to the Company. As of, and for the year ended December 31,
2004; the non-guarantor Subsidiaries represented approximately 58 percent of our
consolidated assets, approximately 57 percent of our consolidated net sales
(excluding intercompany sales), approximately 24 percent of our consolidated
operating income and approximately 41 percent of our consolidated EBITDA (see
"Selected Historical Consolidated Financial Data").
66
As of December 31, 2004:
- the Company had $920 million of Senior Debt outstanding;
- the Company had $220 million of unused revolving credit facility
capacity (out of $220 million committed), $134 million of unused
capacity under the tranche B letter of credit/revolving loan facility
(out of $180 million committed) and $46 million in outstanding letters
of credit under the tranche B letter of credit/revolving loan facility,
all of which if drawn would have been Senior Debt;
- the Company had outstanding the $500 million of old notes; and
- the Company's Subsidiaries, other than the Guarantors, had $914 million
of liabilities outstanding on their balance sheets.
Effective March 31, 2005, we increased the amount of commitments under our
revolving credit facility from $220 million into $285 million and reduced the
amount of commitments under our tranche B-1 letter of credit/revolving loan
facility from $180 million to $170 million. See "Description of Indebetedness
and Other Obligations -- Senior Credit Facility."
PRINCIPAL, MATURITY AND INTEREST
Old notes in an aggregate principal amount of $500 million were issued on
November 19, 2004. Exchange notes in a like principal amount will be issued in
exchange for all notes properly tendered and not withdrawn in the exchange
offer. The notes will trade as a single class of freely tradeable notes. The
notes will mature on November 15, 2014. 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."
Interest on the notes will accrue at the rate of 8 5/8 percent per annum
and will be payable semi-annually in cash in arrears on each May 15 and November
15 each year, commencing on May 15, 2005, to the persons who are registered
holders at the close of business on the May 1 and November 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
or, if no interest has been paid, from and including the Issue Date. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
Each exchange note will bear interest from . 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 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 , 2005 that you would have received if
you had not accepted this exchange offer.
The notes will not be entitled to the benefit of any mandatory sinking
fund.
REDEMPTION
Optional Redemption. The Company may redeem all or portions of the notes,
on and after November 15, 2009 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
67
on 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
- ---- ----------
2009........................................................ 104.313%
2010........................................................ 102.875%
2011........................................................ 101.438%
2012 and thereafter......................................... 100.000%
</Table>
Optional Redemption upon Equity Offerings. At any time, or from time to
time, on or prior to November 15, 2007, 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 108.625 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:
- 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 an 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.
SUBORDINATION
The payment of all Obligations on the notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Debt. Upon any payment or distribution of assets or
securities of the Company of any kind or character, whether in cash, property or
securities to creditors upon any liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors
68
or marshaling of assets of the Company or in a bankruptcy, reorganization,
insolvency, receivership or other similar proceeding relating to the Company or
its property, whether voluntary or involuntary, all Obligations due upon all
Senior Debt must first be paid in full in cash or Cash Equivalents, or such
payment duly provided for to the satisfaction of the holders of Senior Debt,
before any payment or distribution of any kind or character is made on account
of any Obligations on the notes. If any default occurs and is continuing in the
payment when due, whether at maturity, upon any redemption, by declaration or
otherwise, of any principal of, interest on, unpaid drawings for letters of
credit issued in respect of, regularly accruing fees with respect to, or other
Obligations with respect to, any Senior Debt, no payment or distribution of any
kind or character shall be made by or on behalf of the Company with respect to
any Obligations on the notes or to acquire, redeem or defease any of the notes
for cash or property or otherwise. In addition, if any other event of default
occurs and is continuing with respect to any Designated Senior Debt, as such
event of default is defined in the instrument creating or evidencing such
Designated Senior Debt, permitting the holders of such Designated Senior Debt
then outstanding to accelerate the maturity thereof and if the Representative
for such Designated Senior Debt gives written notice of the event of default to
the Trustee (a "Default Notice"), then, unless and until all events of default
with respect to such Designated Senior Debt have been cured or waived or have
ceased to exist or the Trustee receives notice from the Representative for such
Designated Senior Debt terminating the Blockage Period (as defined below),
during the 179 days after the delivery of such Default Notice (the "Blockage
Period"), neither the Company nor any other Person on its behalf shall:
- make any payment or distribution of any kind or character with respect
to any Obligations on the notes; or
- acquire, redeem or defease any of the notes for cash or property or
otherwise.
Notwithstanding anything herein to the contrary, in no event will a
Blockage Period extend beyond 179 days from the date the Default Notice was
delivered to the Trustee and only one such Blockage Period may be commenced
within any 360 consecutive days. No event of default that existed or was
continuing on the date of the commencement of any Blockage Period with respect
to the Designated Senior Debt shall be, or be made, the basis for commencement
of a second Blockage Period by the Representative of such Designated Senior Debt
whether or not after a period of 360 consecutive days, unless such event of
default shall have been cured or waived or ceased to exist for a period of not
less than 90 consecutive days (it being acknowledged that any subsequent action,
or any breach of any financial covenants for a period commencing after the date
of commencement of such Blockage Period that, in either case, would give rise to
an event of default pursuant to any provisions of the Designated Senior Debt
under which an event of default previously existed or was continuing shall
constitute a new event of default for this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Debt, including
the holders of notes, may recover less, ratably, than holders of Senior Debt.
Any payment or distribution made to the Trustee or the holders of the notes
at a time when such payment or distribution is prohibited by the subordination
provisions of the Indenture shall be turned over to the holders of the Senior
Debt or their Representative as their interests may appear.
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 and unpaid interest, if any, and
liquidated damages, 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."
69
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 Senior Debt 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
Senior Debt and to repay the Indebtedness owed to (and terminate all
commitments of) each lender under the Credit Agreement and each other
holder of Senior Debt which has accepted such offer; or
- obtain consents required under the Credit Agreement and all such other
Senior Debt 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 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 be permitted by the terms of its Senior Debt to
make such a Change of Control Offer or have available funds sufficient to pay
either (1) all Indebtedness under the Credit Agreement and other Senior Debt the
terms of which require payments upon a Change of Control or (2) 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
70
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.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
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 2.0 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 2.0 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 2.25 to 1.0.
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).
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);
71
(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); or
(c) make any Investment (other than Permitted Investments);
(each of the foregoing actions set forth in clauses (a), (b) and (c) 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 percent
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 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
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;
72
(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; and
(V) 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) and (V) 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, together with any Restricted Payments not previously reported hereunder,
exceeds $30.0 million (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 Senior Debt, Guarantor Senior Debt or Indebtedness of a
Restricted Subsidiary that is not a Guarantor and, in the case of any such
Senior Debt 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, 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 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 first paragraph under this "Limitation
on Asset Sales" (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 preceding paragraph (each, a "Net Proceeds Offer Amount") shall be
73
applied by the Company to make an offer to purchase (the "Net Proceeds Offer")
on a date (the "Net Proceeds Offer Payment 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 Indebtedness that ranks pari passu with the notes),
such Net Proceeds Offer may be made ratably to purchase the notes and such 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 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
74
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;
(3) the Credit Agreement and/or the documentation for the Credit
Agreement and/or Indebtedness secured by a first priority Lien permitted
pursuant to clause (B) under "-- Limitation on Liens";
(4) the Senior Secured Notes and/or the documentation for the Senior
Secured Notes;
(5) customary non-assignment provisions of any contract or any lease
governing a leasehold interest of any Restricted Subsidiary;
(6) 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;
(7) agreements existing on the Issue Date to the extent and in the
manner such agreements are in effect on the Issue Date;
(8) 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;
(9) any instrument governing Indebtedness of a Foreign Restricted
Subsidiary;
(10) customary restrictions on the transfer of any property or assets
arising under a security agreement governing a Lien permitted under the
Indenture;
(11) 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;
(12) any agreement governing Refinancing Indebtedness incurred to
Refinance the Indebtedness issued, assumed or incurred pursuant to an
agreement referred to in clause (2), (4), (6), (7) or (9) above; provided,
however, that the provisions relating to such encumbrance or restriction
contained in any such Refinancing Indebtedness are not materially more
restrictive than the provisions relating to such encumbrance or restriction
contained in agreements referred to in such clause (2), (4), (6), (7) or
(9);
(13) any agreement governing the sale or disposition of any Restricted
Subsidiary which restricts dividends and distributions pending such sale or
disposition;
(14) any agreement, instrument or Lien placing encumbrances or
restrictions applicable only to a Finance Subsidiary or an Accounts
Receivable Entity; or
(15) 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.
75
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).
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; and
(2) execute and deliver to the Trustee an opinion of counsel (which
may contain customary exceptions) that such supplemental indenture has been
duly 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 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 guarantee of the Credit Agreement and of the Senior Secured
Notes made by such Guarantor is released, 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 on Designations 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).
76
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 connection with a permitted amendment. See
"-- Modification of the Indenture."
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;
(B) Liens securing Senior Debt and Liens securing Guarantor Senior
Debt;
(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; and
(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
(F) Permitted Liens.
Prohibition on Incurrence of Senior Subordinated Debt. The Company will
not, and will not permit any Guarantor to, incur or suffer to exist after the
Issue Date, Indebtedness that is senior in right of payment to the notes or the
Guarantee of such Guarantor, as the case may be, and subordinate in right of
payment to any other Indebtedness of the Company or such Guarantor, as the case
may be.
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, 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") (y)
shall be a corporation organized and validly existing under the laws of the
United States or any State thereof or the District of Columbia and (z)
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
77
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;
(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 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) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing;
(4) 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
78
(5) 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 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 or the Subsidiary Guarantees
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
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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 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
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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 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 (whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture);
(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) (whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture);
(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;
(6) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries; or
(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
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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).
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. If any Designated Senior Debt is outstanding at the time of any
acceleration of the notes, the Company shall not make any payment with respect
to the notes until five business days after the holders of such Designated
Senior Debt receive notice of such acceleration.
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 reasonable expenses, disbursements and
advances; and
(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 will be 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
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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.
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 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;
83
(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.
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 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, including amounts owing to the Trustee;
(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; and
(4) there exists no Default or Event of Default under the Indenture.
MODIFICATION OF THE INDENTURE
From time to time, the Company, any Guarantor and the Trustee, without the
consent of the holders, may amend the Indenture 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 in
accordance with the covenant described under "-- Certain
Covenants -- Merger, Consolidation and Sale of Assets"; and
(3) adding any Guarantor.
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 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.
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 known to the Trustee, the Trustee will perform only such duties as are
specifically set forth in the Indenture. During the existence 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.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture 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."
"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
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(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."
"Blockage Period" has the meaning set forth under "-- Subordination."
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"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-2 from S&P or at least P-2 from Moody's;
(4) demand and time deposit accounts, 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;
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1) through
(5) above; and
(7) solely in respect of the ordinary course cash management
activities of the Foreign Subsidiaries, equivalents of the investments
described in clause (1) above to the extent guaranteed by any member state
of the European Union or the country in which the Foreign Subsidiary
operates and equivalents of the investments described in clause (4) above
issued, accepted or offered by any commercial bank organized under the laws
of a member state of the European Union or the jurisdiction of organization
of the applicable Foreign Subsidiary having at the date of acquisition
thereof combined capital and surplus of not less than $250 million.
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"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 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."
"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) (the "Combined Subsidiaries"),
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 Combined Subsidiaries 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 Combined Subsidiaries in accordance with
GAAP.
"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
88
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 dispositions 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;
(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 multiplied by (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.
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"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 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.
"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) any non-cash compensation expense incurred for grants and
issuances of stock appreciation or similar rights, stock options,
restricted shares or other rights to officers, directors and employees of
the Company and its Subsidiaries (including any such grant or issuance to a
401(k) plan or other retirement benefit plan);
(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) from and after the
date that such operation is classified as discontinued;
(7) write downs resulting from the impairment of intangible assets;
(8) 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; and
90
(9) any restructuring charges incurred pursuant to any Genesis Project
or any related project disclosed as such in the Company's audited financial
statements prepared in accordance with GAAP, together with any related
provision for taxes, in an aggregate amount since the date of the Indenture
not to exceed $50.0 million.
"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 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 and not for speculative purposes.
"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
91
(2) any Asset Sales or other dispositions 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 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 multiplied by (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;
(2) the interest component of Capitalized Lease Obligations accrued by
the Company and the Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP; and
92
(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) any non-cash compensation expense incurred for grants and
issuances of stock appreciation or similar rights, stock options,
restricted shares or other rights to officers, directors and employees of
the Company and its Subsidiaries (including any such grant or issuance to a
401(k) plan or other retirement benefit plan);
(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) from and after the
date that such operation is 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;
(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; and
(11) any restructuring charges incurred pursuant to any Genesis
Project or any similar or related project disclosed as such in the
Company's audited financial statements prepared in accordance with GAAP,
together with any related provision for taxes, in an aggregate amount since
the date of the Indenture not to exceed $50.0 million.
"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.
"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."
93
"Credit Agreement" means the Amended and Restated Credit Agreement, dated
as of December 12, 2003, among the Company, the Guarantors, the lenders party
thereto in their capacities as lenders thereunder 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 in accordance
with their terms (the "Existing Credit Agreement"), including any agreement (a
"Replacement 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.
"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.
"Default Notice" has the meaning set forth under "-- Subordination."
"Designated Senior Debt" means (1) Indebtedness under or in respect of the
Credit Agreement (so long as such Indebtedness constitutes Senior Debt);
provided, however, that Indebtedness under any Replacement Agreement will
constitute Designated Senior Debt only if permitted under the terms of the
Existing Credit Agreement (if the Existing Credit Agreement is then in effect),
(2) Indebtedness under the Senior Secured Notes (and any Indebtedness that is
Refinancing Indebtedness of the Senior Secured Notes so long as such
Indebtedness is Senior Debt) and (3) any other Indebtedness constituting Senior
Debt which, at the time of determination, has an aggregate principal amount of
at least $50 million and is specifically designated in the instrument evidencing
such Senior Debt as "Designated Senior Debt" by the Company.
"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."
"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."
94
"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.
"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.
"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.
"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.
"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.
"Guarantor Senior Debt" means, with respect to any Guarantor, the principal
of, premium, if any, and interest (including any interest accruing subsequent to
the filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an allowed
claim under applicable law) on any Indebtedness of such Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Guarantee of such Guarantor. Without limiting the generality of the foregoing,
"Guarantor Senior Debt" shall also include the principal of, premium, if any,
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on, and all other amounts owing in respect of:
(w) all monetary obligations of every nature of the Company or any
Guarantor with respect to the Credit Agreement, including, without
limitation, obligations to pay principal and interest, reimbursement
obligations under letters of credit, fees, expenses and indemnities;
(x) all monetary obligations of every nature of the Company or any
Guarantor with respect to the Senior Secured Notes, including, without
limitation, obligations to pay principal and interest, reimbursement
obligations under letters of credit, fees, expenses and indemnities;
(y) all Interest Swap Obligations; and
95
(z) all obligations under Commodity Agreements and Currency
Agreements.
Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include:
(1) any Indebtedness of such Guarantor owing to a Subsidiary of such
Guarantor or any Affiliate of such Guarantor or any of such Affiliate's
Subsidiaries;
(2) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of such Guarantor or any Subsidiary of such
Guarantor (including, without limitation, amounts owed for compensation);
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(4) Indebtedness represented by Disqualified Capital Stock;
(5) any liability for federal, state, local or other taxes owed or
owing by such Guarantor;
(6) Indebtedness incurred in violation of the covenant described under
"-- Certain Covenants -- Limitation on Incurrence of Additional
Indebtedness";
(7) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to such Guarantor; and
(8) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of such Guarantor.
"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 1 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 5
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 5 percent of consolidated total assets
of the Company and its Domestic Restricted Subsidiaries, the Company will
designate Domestic Restricted Subsidiaries that would otherwise be Immaterial
Domestic Subsidiaries to be excluded as Immaterial Domestic Subsidiaries until
such 5 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;
(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);
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(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.
"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 (i) with respect to the notes issued on the
Issue Date, the initial purchasers identified on the cover hereof and (ii) with
respect to each issuance of additional notes, if any, the Persons purchasing
securities from the Company pursuant to the related Purchase Agreement.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
(a) any voluntary or involuntary case or proceeding under any Bankruptcy Law,
(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 such Person or with respect to any of
its assets, (c) any liquidation, dissolution, reorganization or winding up of
such Person 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 such Person.
"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 lock obligations, 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 other Person. "Investment" shall exclude extensions of trade credit
97
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 November 19, 2004, the date of initial issuance of the
old notes.
"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).
"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 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."
"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.
"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.
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"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) $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
(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 and Commodity 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
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 any agreement governing Senior
Debt, 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 any agreement governing Senior Debt; 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 any
agreement governing Senior Debt 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 any agreement
governing Senior Debt and is subject to no Lien other than a Lien in favor
of the lenders or collateral agent under any agreement governing Senior
Debt; 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 any agreement governing Senior Debt, such date shall be deemed the
incurrence of Indebtedness not constituting Permitted Indebtedness under
this clause (7) by the Company;
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(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 $75.0 million
at any one time outstanding;
(12) additional Indebtedness of Foreign Subsidiaries of the Company
under working capital facilities in an aggregate principal amount not to
exceed $75.0 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 $250.0
million at any one time outstanding.
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) Commodity Agreements, 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 or in
settlement of delinquent accounts;
(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; and
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(9) Investments in an Accounts Receivable Entity.
"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;
(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 Commodity
Agreements, Currency Agreements and Cash Management Obligations, in each
case permitted under the Indenture;
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(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 November 9, 2004, 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.
"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
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(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 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.
"Registration Rights Agreement" means (i) with respect to the notes issued
on the Issue Date, the Registration Rights Agreement dated the Issue Date 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).
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such Designated Senior
Debt in respect of any Designated Senior Debt.
"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.
"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.
"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.
"Senior Debt" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
created, incurred or assumed unless, in the case of any particular Indebtedness,
the instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness shall not be senior in
right of payment to the notes. Without limiting the generality of the foregoing,
"Senior Debt" shall also include the principal of, premium, if any, interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy
103
at the rate provided for in the documentation with respect thereto, whether or
not such interest is an allowed claim under applicable law) on, and all other
amounts owing in respect of:
(w) all monetary obligations of every nature of the Company under the
Credit Agreement, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit,
fees, expenses and indemnities;
(x) all monetary obligations of every nature of the Company under the
Senior Secured Notes, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit,
fees, expenses and indemnities;
(y) all Interest Swap Obligations; and
(z) all obligations under Commodity Agreements and Currency
Agreements.
Notwithstanding the foregoing, "Senior Debt" shall not include:
(1) any Indebtedness of the Company to a Restricted Subsidiary or any
Affiliate of the Company or any of such Affiliate's Subsidiaries;
(2) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of the Company or any Restricted Subsidiary
(including without limitation, amounts owed for compensation);
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(4) Indebtedness represented by Disqualified Capital Stock;
(5) any liability for federal, state, local or other taxes owed by the
Company;
(6) Indebtedness incurred in violation of the covenant described under
"-- Certain Covenants -- Limitation on Incurrence of Additional
Indebtedness";
(7) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company; and
(8) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of the Company.
"Senior Secured Notes" means the Company's 10 1/4 percent Senior Secured
Notes due 2013 issued from time to time under that certain indenture dated as of
June 19, 2003 with Wachovia Bank, National Association, as trustee.
"Senior Subordinated Notes due 2009" 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.
"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 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."
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"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.
105
REGISTRATION RIGHTS
We and our subsidiary guarantors entered into a registration rights
agreement with the initial purchasers of the old notes on November 19, 2004. In
that agreement, we agreed for the benefit of the holders of the old notes that
we would use our commercially reasonable efforts to file with the Commission and
cause to become effective a registration statement relating to an offer to
exchange the old notes for an issue of Commission-registered notes with terms
identical to those 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).
When the Commission declares the exchange offer registration statement
effective, we will offer the exchange notes in return for the old notes. The
exchange offer will remain open for at least 20 business days after the date we
mail notice of the exchange offer to noteholders. For each note surrendered to
us under the exchange offer, the noteholder will receive an exchange note of
equal principal amount. Interest on each exchange note will accrue from the last
interest payment date on which interest was paid on the notes or, if no interest
has been paid on the notes, from the issue date.
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 notes offered hereby 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, 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 notes offered hereby held by the initial purchaser
that have the status of an unsold allotment in the initial distribution of those
notes. We will, in the event of a shelf registration, provide to each noteholder
whose 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 (i) 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 (ii) a shelf registration statement requested by an
initial purchaser as described above is not declared effective within 60 days
after the request (also a "Target Registration Date"), the annual interest rate
borne by the notes offered hereby 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.
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. Notes not tendered in the exchange offer shall bear interest at the rate
set forth on the cover page of this offering memorandum 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.
106
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.
BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
All interests in the global notes will be subject to the operations and
procedures of DTC, Euroclear and Clearstream. We provide the following summaries
of those operations and procedures solely for the convenience of investors. The
operations and procedures of each settlement system are controlled by that
settlement system and may be changed at any time. Neither we nor the initial
purchasers are responsible for those operations or procedures.
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
- 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; banks and trust companies; clearing corporations and other
organizations. Indirect access to DTC's system is also available to others such
as banks, brokers, dealers and trust companies; these indirect participants
clear through or maintain a custodial relationship with a DTC participant,
either directly or indirectly. Investors who are not DTC participants may
beneficially own securities held by or on behalf of DTC only through DTC
participants or indirect participants in DTC.
107
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
that 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 of the notes 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 who owns 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 (and, if the investor is not a participant or an indirect
participant in DTC, on the procedures of the DTC 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 will
have any responsibility or liability for the payment of amounts to owners of
beneficial interests in a 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 relating to those interests.
Payments by participants and indirect participants in DTC 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 those
participants or indirect participants and DTC.
Transfers between participants in DTC will be effected under DTC's
procedures and will be settled in same-day funds. Neither we nor the Trustee
will have any responsibility for the performance by DTC or its direct 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; or
- certain other events provided in the indenture should occur.
108
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of certain material U.S. federal income tax
consequences of the acquisition, 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
prospectus 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.
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.
109
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 treated as 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
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 of 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
110
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, provided that
(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 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.
111
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.
112
LEGAL MATTERS
Legal matters regarding the notes offered hereby 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, the related consolidated financial
statement schedule, and management's report on the effectiveness of internal
control over financial reporting incorporated in this prospectus by reference
from the Company's Annual Report on Form 10-K for the year ended December 31,
2004, have been audited by Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their reports which are incorporated herein
by reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
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 offered
hereby 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.
113
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.
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,
2004;
- information that is considered to be filed with, as opposed to furnished
to, the Commission pursuant to our Current Reports on Form 8-K submitted
to the Commission on January 13, 2005, January 21, 2005, February 4,
2005, February 24, 2005 and March 11, 2005; 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 on or subsequent to the
date of this offering memorandum and before termination of this
offering.
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.
114
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENT
We present herein an unaudited pro forma consolidated statement of income
for the year ended December 31, 2004, that shows the effect of the issuance of
$500 million principal amount of old notes and the use of the net proceeds
therefrom, together with cash on hand, to redeem our then outstanding 11 5/8
percent senior subordinated notes.
We have prepared the unaudited pro forma consolidated statement of income as
if we completed these transactions as of January 1, 2004. 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, 2004, or results which may be
attained in the future. We have excluded our balance sheet as of December 31,
2004 as the effects of the issuance of the $500 million notes and the use of the
net proceeds to redeem our outstanding 11 5/8 percent notes have already been
incorporated.
The pro forma adjustments, as described in the notes to these unaudited pro
forma consolidated financial statements, are based upon available information
and upon certain assumptions that we believe are reasonable. We have excluded
from the unaudited pro forma consolidated financial statements the impact on
interest expense related to the interest rate swaps entered into in April 2004
for periods prior thereto.
You should read this pro forma financial statement 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, 2004, incorporated by reference herein, and our consolidated
financial statements included in that Form 10-K.
PF-1
TENNECO AUTOMOTIVE INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
<Table>
<Caption>
TENNECO TENNECO
AUTOMOTIVE INC. PRO FORMA AUTOMOTIVE INC.
YEAR ENDED DECEMBER 31, 2004 AS REPORTED ADJUSTMENTS PRO FORMA
---------------------------- --------------- ----------- ---------------
(DOLLARS IN MILLIONS EXCEPT SHARE AND
PER SHARE AMOUNTS)
REVENUES
Net sales and operating revenues........... $ 4,213 $ -- $ 4,213
----------- ---- -----------
COSTS AND EXPENSES
Cost of Sales (exclusive of depreciation
shown below)............................ 3,371 -- 3,371
Engineering, research, and development..... 76 -- 76
Selling, general, and administrative....... 417 -- 417
Depreciation and amortization of other
intangibles............................. 177 -- 177
----------- ---- -----------
4,041 -- 4,041
OTHER INCOME (EXPENSE)
Gain on sale of assets..................... 1 -- 1
Loss on sale of receivables................ (1) -- (1)
Other income (expense)..................... (1) -- (1)
----------- ---- -----------
(1) -- (1)
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES,
AND MINORITY INTEREST...................... 171 -- 171
Interest expense (net of interest
capitalized)(5)(6)...................... 179 (15)(1) 164
Income tax expense (benefit)............... (25) 6(1) (19)
Minority interest.......................... 4 4
----------- ---- -----------
NET INCOME.................................... $ 13 $ 9 $ 22
----------- ---- -----------
EARNINGS PER SHARE
Average shares of common stock
outstanding --
Basic................................... 41,534,810 41,534,810
Diluted................................. 44,180,460 44,180,460
Earnings per share of common stock --
Basic................................... $ 0.33 $ 0.54
----------- -----------
Diluted................................. $ 0.31 $ 0.51
----------- -----------
</Table>
See the accompanying notes to unaudited pro forma consolidated financial
statement.
PF-2
(1) To reflect the adjustment to interest expense for our retirement of the
outstanding 11 5/8 percent senior subordinated notes. 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
DECEMBER 31, 2004
-----------------
(DOLLARS IN
MILLIONS)
Interest expense on the new borrowings (2).................. $ 43
Lower interest expense on debt paid down (3)................ (58)
Amortization of issue cost (4).............................. --
----
Adjustment to interest expense.............................. $(15)
====
</Table>
(2) Total additional interest expense on the new senior subordinated notes
issued in November 2004 is calculated based on the new $500 million senior
subordinated notes due 2014 at an annual interest rate of 8.625 percent.
(3) Reduction in interest expense was as a result of the redemption of the
$500 million of senior subordinated notes outstanding prior to November 2004.
For these outstanding senior subordinated notes, the annual interest rate was
11.625 percent.
(4) Represents additional amortization expense for newly capitalized debt
issue costs, less the reduction in the amortization expense of prior capitalized
debt issue costs due to the writeoff of these prior costs through our issuance
of new senior subordinated notes and retirement of the outstanding senior
subordinated notes. The new debt issue costs are amortized over the terms of the
new senior subordinated notes (10 years). For the year ended December 31, 2004,
the net benefit received from the reduction in the amortization expense of prior
capitalized debt issue costs offsets the additional amortization expense for
newly capitalized debt issue costs that we will incur as a result of issuing the
new senior subordinated notes.
(5) 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. 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 statements of
income. Quarterly interest expense savings of the swaps based on the LIBOR as
determined under the agreements of 1.86 percent (which rate was in effect until
January 15, 2005) would be approximately $1 million and are not reflected in the
pro forma financial information for periods prior to April 2004.
(6) Includes $29 million or 5.813% price premium over par on the redeemed
11 5/8 percent senior subordinated notes and the write-off of approximately $8
million of deferred debt issuance costs associated with the 11 5/8 percent
notes.
PF-3
(TENNECO AUTOMOTIVE LOGO)
- --------------------------------------------------------------------------------
Until , 2005, 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.
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The restated certificate of incorporation of Tenneco Automotive Inc.
("Tenneco") provides that a director of Tenneco will not be liable to Tenneco or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that an exemption from liability or limitation of
liability is not permitted under the Delaware General Corporation law ("DGCL").
Based on the DGCL as presently in effect, a director of Tenneco will not be
personally liable to Tenneco or its stockholders for monetary damages for breach
of fiduciary duty as a director, except: (1) for any breach of the director's
duty of loyalty to Tenneco or its stockholders; (2) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) under Section 174 of the DGCL; which concerns unlawful payments of
dividends, stock purchases or redemptions; or (4) for any transactions from
which the director derived an improper personal benefit.
While these provisions give directors protection from awards for monetary
damages for breaches of their duty of care, they do not eliminate the duty.
Accordingly, Tenneco's certificate of incorporation will have no effect on the
availability of equitable remedies such as injunction or rescission based on a
director's breach of his or her duty of care. The provisions of Tenneco's
certificate of incorporation described above apply to an officer of Tenneco only
if he or she is a director of Tenneco and is acting in his or her capacity as
director. They do not apply to officers of Tenneco who are not directors.
Tenneco's by-laws include the following provisions:
"Section 14.
(1) The corporation shall indemnify and hold harmless, to the fullest
extent permitted by applicable law as it presently exists or may hereafter
be amended, any person (an "Indemnitee") who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative,
including appeals (a "proceeding"), by reason of the fact that he, or a
person for whom he is the legal representative, is or was a director or
officer of the corporation or, while a director or officer of the
corporation, is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust, enterprise or nonprofit entity,
including service with respect to employee benefit plans, against all
liability and loss suffered and expenses (including attorneys' fees)
reasonably incurred by such Indemnitee. Notwithstanding the preceding
sentence, except as otherwise provided in paragraph (3) of this Section 14,
the corporation shall be required to indemnify an Indemnitee in connection
with a proceeding (or part thereof) commenced by such Indemnitee only if
the commencement of such proceeding (or part thereof) by the Indemnitee was
authorized by the Board.
(2) The corporation shall pay the expenses (including attorneys' fees)
incurred by an Indemnitee in defending any proceeding in advance of its
final disposition, provided, however, that, to the extent required by law,
such payment of expenses in advance of the final disposition of the
proceeding shall be made only upon receipt of an undertaking by the
Indemnitee to repay all amounts advanced if it should be ultimately
determined that the Indemnitee is not entitled to be indemnified under this
Section 14 or otherwise.
(3) If a claim for indemnification or payment of expenses under this
Section 14 is not paid in full within thirty days after a written claim
therefor by the Indemnitee has been received by the corporation, the
Indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the corporation shall have the
burden of proving that the Indemnitee is not entitled to the requested
indemnification or payment of expenses under applicable law.
II-1
(4) The rights conferred on any Indemnitee by this Section 14 shall
not be exclusive of any other rights which such Indemnitee may have or
hereafter acquire under any statute, provision of the 222 Restated
Certificate of Incorporation, these By-Laws, agreement, vote of
stockholders or disinterested directors or otherwise.
(5) The corporation's obligation, if any, to indemnify or to advance
expenses to any Indemnitee who was or is serving at its request as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, enterprise or nonprofit entity shall be reduced by
any amount such Indemnitee may collect as indemnification or advancement of
expenses from such other corporation, partnership, joint venture, trust,
enterprise or nonprofit enterprise.
(6) Any repeal or modification of the foregoing provisions of this
Section 14 shall not adversely affect any right or protection hereunder of
any Indemnitee in respect of any act or omission occurring prior to the
time of such repeal or modification.
(7) This Section 14 shall not limit the right of the corporation, to
the extent and in the manner permitted by law, to indemnify and to advance
expenses to persons other than Indemnitees when and as authorized by
appropriate corporate action."
In addition, several of Tenneco's directors have entered into separate
contractual indemnity arrangements with Tenneco. These arrangements provide for
indemnification and the advancement of expenses to these directors in
circumstances and subject to limitations substantially similar to those
described above.
Tenneco has purchased insurance which purports to insure Tenneco against
some of the costs of indemnification which may be incurred under the by-law
section discussed above. The insurance also purports to insure the officers and
directors of Tenneco and its subsidiaries against some liabilities incurred by
them in the discharge of their duties as officers and directors, except for
liabilities resulting from their own malfeasance.
The by-laws of Tenneco Automotive Operating Company Inc. ("TAOC"), Clevite
Industries Inc. ("Clevite"), Tenneco Global Holdings Inc. ("Global"), Tenneco
International Holding Corp. ("TIHC") and TMC Texas Inc. ("TMC") provide that
TAOC, Clevite, Global, TIHC and TMC Texas shall indemnify their directors and
officers to the maximum extent permitted from time to time by the DGCL. The
by-laws of The Pullman Company ("Pullman") provide that Pullman shall indemnify
its directors and officers if they acted in good faith and in a manner
reasonably believed to be in the best interests of Pullman, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe that their
conduct was unlawful. Such indemnification includes expenses and attorneys' fees
incurred in connection with any claim. Expenses (including attorneys' fees) are
to be paid by Pullman in advance of the final disposition of any action upon
receipt of an undertaking by or on behalf of any director or officer to repay
the advanced amount if it is determined that such officer or director is not
entitled to be indemnified. The certificates of incorporation of Clevite,
Pullman & TIHC have provisions limiting the personal liability of their
directors to the corporation similar to that discussed above for Tenneco.
II-2
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<Table>
3.1(a) Restated Certificate of Incorporation of Tenneco Automotive
Inc., dated December 11, 1996 (incorporated herein by
reference from Exhibit 3.1(a) of Tenneco Automotive Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1997, File No. 1-12387).
3.1(b) Certificate of Amendment, dated December 11, 1996
(incorporated herein by reference from Exhibit 3.1(c) of
Tenneco Automotive Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1997, File No. 1-12387).
3.1(c) Certificate of Ownership and Merger, dated July 8, 1997
(incorporated herein by reference from Exhibit 3.1(d) of
Tenneco Automotive Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1997, File No. 1-12387).
3.1(d) Certificate of Designation of Series B Junior Participating
Preferred Stock dated September 9, 1998 (incorporated herein
by reference from Exhibit 3.1(d) of Tenneco Automotive
Inc.'s Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, File No. 1-12387).
3.1(e) Certificate of Elimination of the Series A Participating
Junior Preferred Stock of Tenneco Automotive Inc. dated
September 11, 1998 (incorporated herein by reference from
Exhibit 3.1(e) of Tenneco Automotive Inc.'s Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998, File
No. 1-12387).
3.1(f) Certificate of Amendment to Restated Certificate of
Incorporation of Tenneco Automotive Inc., dated November 5,
1999 (incorporated herein by reference from Exhibit 3.1(f)
of Tenneco Automotive Inc.'s Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999, File No. 1-12387).
3.1(g) Certificate of Amendment to Restated Certificate of
Incorporation of Tenneco Automotive Inc., dated November 5,
1999 (incorporated herein by reference from Exhibit 3.1(g)
of Tenneco Automotive Inc.'s Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999, File No. 1-12387).
3.1(h) Certificate of Ownership and Merger merging Tenneco
Automotive Merger Sub Inc. with and into Tenneco Automotive
Inc., dated November 5, 1999 (incorporated herein by
reference from Exhibit 3.1(h) of Tenneco Automotive Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, File No. 1-12387).
3.1(i) Certificate of Amendment to Restated Certificate of
Incorporation of Tenneco Automotive Inc. dated May 9, 2000
(incorporated herein by reference from Exhibit 3.1(i) of
Tenneco Automotive Inc.'s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2000, File No. 1-12387).
3.2 By-laws of Tenneco Automotive Inc., as amended March 14,
2000 (incorporated herein by reference from Exhibit 3.2(a)
of Tenneco Automotive Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1999, File No. 1-12387).
3.3 Certificate of Incorporation of Tenneco Global Holdings Inc.
("Global"), as amended (incorporated herein by reference to
Exhibit 3.3 to Tenneco Automotive Inc.'s Registration
Statement on Form S-4, Reg. No. 333-93757).
3.4 By-laws of Global (incorporated herein by reference to
Exhibit 3.4 to Tenneco Automotive Inc.'s Registration
Statement on Form S-4, Reg. No. 333-93757).
3.5 Certificate of Incorporation of TMC Texas Inc. ("TMC")
(incorporated herein by reference to Exhibit 3.5 to Tenneco
Automotive Inc.'s Registration Statement on Form S-4, Reg.
No. 333-93757).
3.6 By-laws of TMC (incorporated herein by reference to Exhibit
3.6 to Tenneco Automotive Inc.'s Registration Statement on
Form S-4, Reg. No. 333-93757).
3.7 Amended and Restate Certificate of Incorporation of Tenneco
International Holding Corp. ("TIHC") (incorporated herein by
reference to Exhibit 3.7 to Tenneco Automotive Inc.'s
Registration Statement on Form S-4, Reg. No. 333-93757).
3.8 Amended and Restated By-laws of TIHC (incorporated herein by
reference to Exhibit 3.8 to Tenneco Automotive Inc.'s
Registration Statement on Form S-4, Reg. No. 333-93757).
3.9 Amended and Restated Certificate of Incorporation of the
Pullman Company ("Pullman") (incorporated herein by
reference to Exhibit 3.11 to Tenneco Automotive Inc.'s
Registration Statement on Form S-4, Reg. No. 333-93757).
3.10 By-laws of Pullman (incorporated herein by reference to
Exhibit 3.12 to Tenneco Automotive Inc.'s Registration
Statement on Form S-4, Reg. No. 333-93757).
</Table>
II-3
<Table>
3.11 Certificate of Incorporation of Clevite Industries Inc.
("Clevite"), as amended (incorporated herein by reference to
Exhibit 3.9 to Tenneco Automotive Inc.'s Registration
Statement on Form S-4, Reg. No. 333-93757).
3.12 By-laws of Clevite (incorporated herein by reference to
Exhibit 3.10 to Tenneco Automotive Inc.'s Registration
Statement on Form S-4, Reg. No. 333-93757).
3.13 Certificate of Incorporation of Tenneco Automotive Operating
Company Inc. ("TAOC") incorporated herein by reference to
Exhibit 3.13 to Tenneco Automotive Inc.'s Registration
Statement on Form S-4, Reg. No. 333-93757).
3.14 By-laws of TAOC (incorporated herein by reference to Exhibit
3.14 to Tenneco Automotive Inc.'s Registration Statement on
Form S-4, Reg. No. 333-93757).
4.1 Indenture, dated as of November 19, 2004, among Tenneco
Automotive Inc., the Guarantors party thereto and The Bank
of New York Trust Company, N.A., as trustee, including as
exhibits thereto, the forms of 8 5/8% Senior Subordinated
Notes due 2014 (incorporated herein by reference to Exhibit
99.1 to Tenneco Automotive Inc.'s Current Report on Form 8-K
dated November 19, 2004, File No. 1-12387).
*4.2 Registration Rights Agreement, dated as of November 19,
2004, among Tenneco Automotive Inc., the guarantors party
thereto and the initial purchasers party thereto.
*4.3 Supplemental Indenture, dated as of March 28, 2005, among
Tenneco Automotive Inc., the Guarantors party thereto and
The Bank of New York Trust Company, N.A., as trustee.
*5.1 Opinion of Mayer, Brown, Rowe & Maw LLP.
12.1 Statement of Computation of Ratio of Earnings to Fixed
Charges (incorporated herein by reference from Exhibit 12 of
Tenneco Automotive Inc.'s Annual Report on Form 10-K for the
year ended December 31, 2004, File No. 1-12387).
15 None
*23.1 Consent of Mayer, Brown, Rowe & Maw LLP (included in Exhibit
5.1).
*23.2 Consent of Deloitte & Touche LLP.
*24.1 Powers of Attorney.
*25.1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of The Bank of New York Trust Company,
N.A.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
*99.4 Form of Letter to Beneficial Holders.
</Table>
- ---------------
* Filed herewith
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(a) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(b) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
II-4
(c) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
a new registration statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) to remove from registration by means of a post-effective amendment
any of the securities begin registered which remain unsold at the
termination of the offering.
(4) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(5) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(6) that, for the purpose of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this registration statement
shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
will be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrants
pursuant to the foregoing provisions, or otherwise, the registrants have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrants of expenses incurred
or paid by a director, officer or controlling person of the registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lake Forest, State of
Illinois on the 1st day of April, 2005.
TENNECO AUTOMOTIVE INC.
By: *
------------------------------------
Mark P. Frissora
Chairman of the Board of Directors,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated and on the 1st day of April, 2005.
<Table>
<Caption>
SIGNATURE POSITION
--------- --------
* Chairman of the Board of Directors,
------------------------------------------------ President and Chief Executive Officer
Mark P. Frissora (Principal Executive Officer)
* Senior Vice President and Chief Financial Officer
------------------------------------------------ (Principal Financial Officer)
Kenneth R. Trammell
* Vice President and Controller
------------------------------------------------ (Principal Accounting Officer)
James A. Perkins, Jr.
* Director
------------------------------------------------
Charles W. Cramb
/s/ TIMOTHY R. DONOVAN Director
------------------------------------------------
Timothy R. Donovan
* Director
------------------------------------------------
M. Kathryn Eickhoff
* Director
------------------------------------------------
Frank E. Macher
* Director
------------------------------------------------
David B. Price, Jr.
* Director
------------------------------------------------
Roger B. Porter
* Director
------------------------------------------------
Dennis G. Severance
</Table>
II-6
<Table>
<Caption>
SIGNATURE POSITION
--------- --------
* Director
------------------------------------------------
Paul T. Stecko
* Director
------------------------------------------------
Jane L. Warner
*By: /s/ TIMOTHY R. DONOVAN
------------------------------------------
Timothy R. Donovan
Attorney-in-Fact
</Table>
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lake Forest, State of
Illinois on the 1st day of April, 2005.
TENNECO AUTOMOTIVE OPERATING
COMPANY INC.
BY: *
------------------------------------
MARK P. FRISSORA
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated and on the 1st day of April, 2005.
<Table>
<Caption>
SIGNATURE POSITION
--------- --------
* President and Director
------------------------------------------------ (Principal Executive Officer)
Mark P. Frissora
* Senior Vice President and Chief Financial Officer
------------------------------------------------ (Principal Financial Officer)
Kenneth R. Trammell
* Vice President and Controller
------------------------------------------------ (Principal Accounting Officer)
James A. Perkins, Jr.
*By: /s/ TIMOTHY R. DONOVAN
------------------------------------------
Timothy R. Donovan
Attorney-in-Fact
</Table>
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lake Forest, State of
Illinois on the 1st day of April, 2005.
CLEVITE INDUSTRIES INC.
By: *
------------------------------------
Mark P. Frissora
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated and on the 1st day of April, 2005.
<Table>
<Caption>
SIGNATURE POSITION
--------- --------
* President and Director
------------------------------------------------ (Principal Executive Officer)
Mark P. Frissora
* Vice President and Chief Financial Officer
------------------------------------------------ (Principal Financial Officer)
Kenneth R. Trammell
* Vice President and Controller
------------------------------------------------ (Principal Accounting Officer)
James A. Perkins, Jr.
*By: /s/ TIMOTHY R. DONOVAN
------------------------------------------
Timothy R. Donovan
Attorney-in-Fact
</Table>
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lake Forest, State of
Illinois on the 1st day of April, 2005.
THE PULLMAN COMPANY
By: *
------------------------------------
Mark P. Frissora
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated and on the 1st day of April, 2005.
<Table>
<Caption>
SIGNATURE POSITION
--------- --------
* President and Director
------------------------------------------------ (Principal Executive Officer)
Mark P. Frissora
* Vice President and Chief Financial Officer
------------------------------------------------ (Principal Financial Officer)
Kenneth R. Trammell
* Vice President and Controller
------------------------------------------------ (Principal Accounting Officer)
James A. Perkins, Jr.
*By: /s/ TIMOTHY R. DONOVAN
------------------------------------------
Timothy R. Donovan
Attorney-in-Fact
</Table>
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lake Forest, State of
Illinois on the 1st day of April, 2005.
TENNECO GLOBAL HOLDINGS INC.
By: *
------------------------------------
Mark P. Frissora
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated and on the 1st day of April, 2005.
<Table>
<Caption>
SIGNATURE POSITION
--------- --------
* President
------------------------------------------------ (Principal Executive Officer)
Mark P. Frissora
* Vice President and Chief Financial Officer and
------------------------------------------------ Director
Kenneth R. Trammell (Principal Financial Officer and
Principal Accounting Officer)
/s/ TIMOTHY R. DONOVAN Director
------------------------------------------------
Timothy R. Donovan
*By: /s/ TIMOTHY R. DONOVAN
------------------------------------------
Timothy R. Donovan
Attorney-in-Fact
</Table>
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lake Forest, State of
Illinois on the 1st day of April, 2005.
TENNECO INTERNATIONAL HOLDING CORP.
By: *
------------------------------------
Mark P. Frissora
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated and on the 1st day of April, 2005.
<Table>
<Caption>
SIGNATURE POSITION
--------- --------
* President and Director
------------------------------------------------ (Principal Executive Officer)
Mark P. Frissora
* Vice President and Chief Financial Officer and
------------------------------------------------ Director
Kenneth R. Trammell (Principal Financial Officer)
* Vice President and Controller
------------------------------------------------ (Principal Accounting Officer)
James A. Perkins, Jr.
/s/ TIMOTHY R. DONOVAN Director
------------------------------------------------
Timothy R. Donovan
*By: /s/ TIMOTHY R. DONOVAN
------------------------------------------
Timothy R. Donovan
Attorney-in-Fact
</Table>
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lake Forest, State of
Illinois on the 1st day of April, 2005.
TMC TEXAS INC.
By: *
------------------------------------
Mark P. Frissora
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated and on the 1st day of April, 2005.
<Table>
<Caption>
SIGNATURE POSITION
--------- --------
* President and Director
------------------------------------------------ (Principal Executive Officer)
Mark P. Frissora
* Vice President and Chief Financial Officer
------------------------------------------------ (Principal Financial Officer)
Kenneth R. Trammell
* Vice President and Controller
------------------------------------------------ (Principal Accounting Officer)
James A. Perkins, Jr.
/s/ TIMOTHY R. DONOVAN Director
------------------------------------------------
Timothy R. Donovan
*By: /s/ TIMOTHY R. DONOVAN
------------------------------------------
Timothy R. Donovan
Attorney-in-Fact
</Table>
II-13