EXHIBIT 99.2
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Risk factors
You should carefully consider the information set forth in this section, as well
as the other information contained in this offering memorandum, in deciding
whether to invest in the notes.
RISKS RELATED TO OUR BUSINESS
WE HAVE A SIGNIFICANT LEVEL OF INDEBTEDNESS THAT COULD ADVERSELY AFFECT OUR
FINANCIAL CONDITION AND PREVENT US FROM MAKING PRINCIPAL AND INTEREST PAYMENTS
ON OUR DEBT OBLIGATIONS, INCLUDING THE NOTES.
We have now and, after the offering, will continue to have, a significant level
of indebtedness. As of May 31, 2003, after giving pro forma effect to this
offering, the closing of our new senior secured credit facility and the
application of our net proceeds therefrom, assuming 100% of our 9 3/8% senior
subordinated notes are tendered, our aggregate outstanding indebtedness would
have been $385.3 million.
Our significant level of indebtedness could have important consequences to you.
For example, it may:
- - make it more difficult for us to satisfy our obligations with respect to
the notes and our other debt;
- - limit our ability to obtain additional financing for capital expenditures,
acquisitions, joint ventures, strategic alliances, research and
development, working capital or other purposes;
- - require us to dedicate a material portion of our operating cash flow to
fund interest payments on our indebtedness, thereby reducing funds
available for capital expenditures, acquisitions, joint ventures,
strategic alliances, research and development, working capital or other
purposes;
- - reduce our flexibility in responding to changing business and economic
conditions;
- - increase our vulnerability to adverse economic and industry conditions;
and
- - place us at a competitive disadvantage compared to our competitors that
may have less debt.
A SUBSTANTIAL PORTION OF OUR REVENUE COMES FROM CUSTOMERS IN A LIMITED NUMBER OF
INDUSTRIES, PARTICULARLY THE AUTOMOTIVE, AEROSPACE AND DEFENSE INDUSTRIES.
Although we manufacture numerous products for use in many different
applications, approximately 77% of our fiscal year 2002 net sales came from our
Automotive Segment and our Power Group within our Technologies Segment which
supply products primarily to the automotive, aerospace and defense industries.
An economic downturn in one or more of these industries or any other adverse
change that could affect these industries such as increased government
regulation or decreased military spending could have a material adverse effect
on us.
In addition, a majority of the net sales generated by the Technologies Segment
in fiscal year 2002 was attributable, directly or indirectly, to the United
States government. Although we do not foresee government spending on defense
applications incorporating our products decreasing in the short term, changes in
the domestic or international political climate could lead to decreases in
federal military spending, which could have a material adverse effect on us.
OUR BUSINESS IS VERY COMPETITIVE AND INCREASED COMPETITION COULD REDUCE OUR
SALES.
Markets for our products are highly competitive. We compete based on quality,
service, price, performance, timely delivery and technological innovation. Many
of our competitors are more diversified and have greater financial and other
resources than we do. In addition, with respect to certain of our products, some
of our competitors are divisions of our OEM customers. We cannot assure you that
our business will not be adversely affected by
competition or that we will be able to maintain our profitability if the
competitive environment changes.
OUR AUTOMOTIVE SEGMENT FACES INTENSE COMPETITION FOR ITS PRODUCTS AND SERVICES
AND AUTOMOTIVE MANUFACTURERS ARE INCREASINGLY USING A SMALLER NUMBER OF
SUPPLIERS TO SATISFY THEIR MANUFACTURING REQUIREMENTS.
The motor vehicle components industry is highly competitive and we believe this
competition will intensify in the future. Our Automotive Segment faces
competition from both domestic and international suppliers, as well as the
automotive manufacturers themselves. In order to simplify vehicle designs and
assembly processes and reduce their costs, automotive manufacturers are
increasingly expecting their suppliers to provide fully engineered,
pre-assembled combinations of components in systems and modules rather than
individual components. Many suppliers do not have the technological or economic
resources to satisfy these increasingly demanding standards. As a result,
automotive manufacturers are increasingly relying on a smaller number of
suppliers who can satisfy their more demanding manufacturing requirements. In
addition, the automotive manufacturers have increasingly demanded price
decreases from their suppliers, which forces suppliers like us to continually
search for ways to reduce our manufacturing costs to preserve our operating
margins. Our inability to achieve the cost savings and technological innovation
necessary to comply with the increasingly demanding requirements of one or more
of the automotive manufacturers to whom we supply our products could have a
material adverse effect on us.
OUR AUTOMOTIVE SEGMENT IS DEPENDENT ON A SMALL NUMBER OF PRINCIPAL CUSTOMERS FOR
A SIGNIFICANT PERCENTAGE OF ITS NET SALES.
In fiscal year 2002, Honda accounted for 12% of our net sales. The loss of any
significant portion of our sales to this customer or any other significant
customers would have a material adverse affect on us. The programs we have
entered into with many of our automotive customers provide for supplying the
customers' requirements for a particular model, rather than for manufacturing a
specific quantity of products. Therefore, the loss of a program for a major
model or a significant decrease in demand for certain key models or a group of
related models sold by any of our major customers could have a material adverse
effect on us.
DEMAND FOR OUR AUTOMOTIVE PRODUCTS DEPENDS UPON THE OVERALL CONDITION OF THE
GLOBAL AUTOMOTIVE INDUSTRY.
Our financial performance depends on the economic conditions in the global
automotive industry, as well as in the North American and European economies.
Sales of our automotive products represented more than 60% of our net sales in
fiscal year 2002. Demand in the automotive industry fluctuates in response to
overall economic conditions and is particularly sensitive to changes in interest
rate, consumer confidence and fuel costs. Any sustained weakness in demand or
continued downturn in the global automotive industry or North American or
European economies could have a material adverse effect on us.
WE MAY NOT BE SUCCESSFUL IN IMPLEMENTING OUR STRATEGY OF DEVELOPING NEW
APPLICATIONS FOR OUR EXISTING TECHNOLOGIES AND PENETRATING NEW MARKETS FOR OUR
EXISTING PRODUCTS.
One of the key elements of our business strategy is to develop new applications
for our existing technologies outside of our core automotive, aerospace and
defense markets. We plan to enter into new markets through joint ventures,
acquisitions, strategic alliances, licensing arrangements and other technology
initiatives in an effort to diversify and grow our revenue base. Successful
implementation of this strategy will depend upon a number of factors including,
without limitation, our ability to:
- - identify new industries, applications and markets for our technologies;
- - successfully integrate any acquired businesses into our operations;
- - negotiate and execute favorable joint venture, strategic alliance,
licensing and other technology arrangements for these new applications;
- - manufacture products for these new applications in a cost efficient and
profitable manner;
- - develop effective marketing, sales and distribution networks for these new
applications; and
- - obtain necessary financing consents to implement this strategy.
Our failure to implement one or more elements of this strategy may have a
material adverse effect on us. In addition, we may incur additional indebtedness
to implement this strategy, which may increase our leverage.
WE MAY NOT BE ABLE TO KEEP PACE WITH TECHNOLOGICAL ADVANCES IN THE INDUSTRIES IN
WHICH WE COMPETE OR FUND THE CAPITAL INVESTMENTS NECESSARY TO UPGRADE OUR
FACILITIES AND ENHANCE OUR PROCESSES NECESSARY IN ORDER TO KEEP PACE WITH SUCH
ADVANCES.
Our business divisions and the markets for their products are subject to
technological advances, evolving industry standards, changing customer
requirements and improvements in and expansion of product offerings. Advances in
technologies may make certain of our products and processes obsolete. Although
we attempt to explore and develop new technologies in the industries in which we
compete, we cannot assure you that our technologies and products will remain
competitive or that we will be able to fund the capital investments necessary to
upgrade our facilities and enhance our processes necessary to keep pace with
such advances. Our failure to keep pace with technological changes in the
industries in which we compete could have a material adverse effect on us.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY ADEQUATELY, WE COULD LOSE
OUR COMPETITIVE ADVANTAGE IN MANY OF THE INDUSTRIES IN WHICH WE COMPETE.
Our ability to compete effectively in the technology sectors in which we operate
will depend, in part, on our ability to protect our current and future
proprietary technologies, product designs and testing and manufacturing
processes under existing and future patent, copyright, trademark, trade secret
and unfair competition laws. We may not be able to adequately protect our
intellectual property from misappropriation or infringement and may need to
defend our intellectual property against the infringement claims of others,
either of which could result in the loss of our competitive advantage in our
markets and materially harm us. We face the following risks in protecting our
intellectual property:
- - we cannot be certain that our pending United States and foreign patent
applications will result in issued patents or that any patents issued will
be sufficiently broad to protect our technologies or processes;
- - third parties may design around our patented technologies or seek to
challenge or invalidate our patented technologies;
- - we may incur significant costs and diversion of management resources in
prosecuting or defending patent infringement suits;
- - we may not be successful in prosecuting or defending patent infringement
suits and, as a result, may be forced to seek to enter into costly royalty
or licensing agreements; however, such royalty or licensing agreements may
not be available to us or may not be available to us on commercially
reasonable terms; and
- - the contractual provisions we rely on to protect our trade secrets and
proprietary information, such as our confidentiality and non-disclosure
agreements with our employees, consultants and other third parties, may be
breached and our trade secrets and proprietary information may be
disclosed to our competitors or the public.
Moreover, the laws of certain foreign countries do not protect intellectual
property rights to the same extent as the laws of the United States. Although we
implement protective measures and intend to defend and enforce our proprietary
rights, there can be no assurance that these efforts will succeed. We may be
forced to litigate within the United States or abroad to enforce our issued or
licensed patents, to protect our trade secrets and know-how or to determine the
enforceability, scope and validity of our proprietary rights and the proprietary
rights of others. Enforcing or defending our proprietary rights may be expensive
and may fail to result in timely and effective relief.
WE MAY NOT HAVE SUFFICIENT INSURANCE COVERAGE OR FUNDS AVAILABLE TO COVER ALL
POTENTIAL PRODUCT LIABILITY AND WARRANTY CLAIMS.
The failure of our products to perform as expected could give rise to product
liability, warranty or recall claims, or claims for personal injury, property or
other damages. We do not carry insurance for warranty or product recall claims.
Although we believe we maintain adequate product liability insurance and a
comprehensive quality control program, we cannot give any assurance that our
products will not suffer from defects or other deficiencies or that we will not
experience material warranty or products liability related costs, including
product recalls in the future. Defects and deficiencies may result in additional
development costs, diversion of technical and economic resources and the loss of
credibility with our current and prospective customers. We also may incur
material losses and significant costs in excess of anticipated amounts as a
result of our customers returning products to us as a result of warranty-related
issues. A successful claim against us may force us to incur significant costs
which could result in a reduction of our working capital available for other
uses, and have a material adverse effect on us.
ENVIRONMENTAL REGULATIONS THAT AFFECT EACH OF OUR BUSINESS SEGMENTS MAY LEAD TO
SIGNIFICANT, UNFORESEEN EXPENSES.
Our operations and properties are subject to a wide variety of increasingly
complex and stringent federal, state, local and international environmental laws
and regulations, including those governing the use, storage, handling,
generation, treatment, emission, release, discharge and disposal of materials,
substances and wastes, the remediation of contaminated soil and groundwater and
the health and safety of our employees. Some environmental laws, including but
not limited to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, impose strict, and in certain circumstances,
joint and several liability for remediation of hazardous substances at
contaminated sites which may include facilities presently or formerly owned or
operated by us or our predecessors, as well as at properties to which wastes we
or our predecessors generated have been sent or otherwise come to be located.
The nature of our operations exposes us to the risk of claims with respect to
such matters, and we can give no assurance that violations of such laws have not
occurred or will not occur or that material costs or liabilities will not be
incurred in connection with such claims. Future events, such as new information,
changes in existing environmental laws or their interpretation, or more vigorous
enforcement policies of regulatory agencies, may have a material adverse effect
on us.
Complying with environmental and safety requirements has added and will continue
to add to our cost of doing business, and has increased the capital-intensive
nature of our business. We believe that we are in compliance in all material
respects with these laws and regulations and have set aside reserves for known
remediation and corrective measures projects. However, we cannot assure you that
our reserves will not be exceeded, or that we will not be adversely impacted by
costs, liabilities or claims with respect to our operations under existing laws
or those that may be adopted.
AS A GOVERNMENT CONTRACTOR AND SUBCONTRACTOR, WE ARE SUBJECT TO POTENTIALLY
ADVERSE EFFECTS OF GOVERNMENT CONTRACT PROVISIONS AND AUDITS.
As a contractor and subcontractor to the United States government, we are
subject to various laws and regulations that are more restrictive than those
applicable to non-government contractors. The majority of our Technologies
Segment's fiscal year 2002 net sales were made directly or indirectly to the
United States government. Contracts directly or indirectly with the United
States government are governed by rules favoring the government's or the prime
contractors' contractual position. As a consequence, such contracts may be
subject to protest or challenge by unsuccessful bidders or to termination,
reduction or modification in the event of changes in government requirements,
reductions in federal spending or other factors. The accuracy and
appropriateness of certain costs and expenses used to substantiate our direct
and indirect costs for the United States government under both cost-plus and
fixed-price contracts are subject to extensive regulation and audit by the
Defense Contract Audit Agency, an agency of the United States Department of
Defense.
WE FACE INCREASINGLY STRINGENT UNITED STATES AND FOREIGN GOVERNMENT REGULATIONS
AND POLICIES, AND HAVE EXPOSURE TO CERTAIN OTHER RISKS ASSOCIATED WITH OUR
FOREIGN OPERATIONS.
Domestic and foreign political developments and government regulations and
policies directly affect our products and services in the United States and
abroad. We currently have manufacturing and distribution relationships in North
America, Germany, Asia and Mexico. The modification of existing laws,
regulations or policies, or the
adoption of new laws, regulations or policies could have a material adverse
effect us. Our failure to comply with these laws and regulations could subject
us to civil and criminal penalties which also could have a material adverse
effect on us.
In addition, our foreign operations are subject to certain risks which could
have a material adverse effect on us. These risks include, but are not limited
to:
- - currency exchange rate fluctuations;
- - tax rates in certain foreign countries potentially exceeding those in the
United States and the potential subjection of foreign earnings to
withholding requirements or the imposition of tariffs, exchange controls
or other restrictions; and
- - general economic and political conditions in countries where we operate
and/or sell our products, including inflation.
WE MAY BE UNABLE TO OBTAIN CERTAIN PARTS, RAW MATERIALS AND NATURAL GAS AT
FAVORABLE PRICES.
Generally, our raw material requirements are obtainable from various sources and
in the desired quantities. However, our suppliers may be unable to provide parts
at prices acceptable to us, on schedules or at the quality we require, and
obtaining alternative parts could slow or stop production of our products and
impair our ability to generate revenues. The principal raw materials which we
require to manufacture our products are rubber, steel, zinc, nickel, boron and
aluminum. The prices of these raw materials are subject to fluctuation.
Similarly, the price of natural gas is subject to fluctuation. Our Wolverine
division and the Filtration and Minerals Segment use a substantial amount of
natural gas in connection with certain of their manufacturing operations. If we
were forced to find alternate suppliers or if the price of one or more of the
commodities rose substantially, we may be forced to expend unforeseen resources,
which could have a material adverse effect on us.
WE DEPEND ON THE SERVICES OF KEY INDIVIDUALS AND RELATIONSHIPS, THE LOSS OF
WHICH WOULD MATERIALLY HARM US.
Our success will depend, in part, on the efforts of our executive officers and
other key employees. In addition, our future success will depend on, among other
factors, our ability to attract and retain other qualified personnel. The loss
of the services of any of our key employees or the failure to attract or retain
employees could have a material adverse effect on us. In addition, the
controlling shareholder of our parent, Granaria Holdings B.V., provides us with
valuable strategic, operational and financial support, the loss of which could
have a material adverse effect on us.
WE MAY BE SUBJECT TO WORK STOPPAGES AT OUR FACILITIES OR OUR CUSTOMERS MAY BE
SUBJECTED TO WORK STOPPAGES.
As of May 31, 2003, approximately 30% of our work force was unionized. If our
unionized workers were to engage in strikes, work stoppages or other slowdowns
in the future, we could experience a significant disruption of our operations,
which could have a material adverse effect on us. In addition, if a greater
percentage of our work force becomes unionized, our business and financial
results could be materially adversely affected. Many of our direct or indirect
customers have unionized work forces. Strikes, work stoppages or slowdowns
experienced by these customers or their suppliers could result in slowdowns or
closures of assembly plants where our products are sold. Any interruption in the
delivery of our customers' products could reduce demand for our products and
could have a material adverse effect on us.
WE ARE CONTROLLED BY A SMALL NUMBER OF SHAREHOLDERS WHOSE INTERESTS MAY CONFLICT
WITH THE INTERESTS OF THE HOLDERS OF THE NOTES.
We are a wholly-owned subsidiary of our parent whose only asset is our stock.
Granaria Holdings B.V., indirectly owns 45.7% of the common stock of our parent
and controls 62.5% of the common stock of our parent. ABN AMRO Participaties
B.V. and Residex Capital IV, C.V. indirectly own 37.5% and 15.0%, respectively,
of the common stock of our parent. Circumstances may occur in which the
interests of Granaria Holdings B.V., ABN AMRO Participaties B.V. and Residex
Capital IV, C.V. could be in conflict with the interests of the holders of the
notes. If we encounter financial difficulties, or are unable to pay certain of
our debts as they mature, the interests of
our parent's shareholders (whether or not as holders of our equity securities)
might conflict with those of the holders of the notes. In addition, our parent's
shareholders may have an interest in pursuing acquisitions, divestitures or
other transactions that, in their judgment, could enhance their equity
investment, even though such transactions might involve risks to the holders of
the notes.
RISKS RELATED TO THE OFFERING
NOT ALL OF OUR SUBSIDIARIES ARE GUARANTORS AND ASSETS OF THE NON-GUARANTOR
SUBSIDIARIES MAY NOT BE AVAILABLE TO MAKE PAYMENTS ON THE NOTES.
Not all of our subsidiaries will guarantee the notes. Unrestricted subsidiaries,
foreign subsidiaries and receivables subsidiaries will not be guarantors. In the
event of a bankruptcy, liquidation or reorganization of any of these
non-guarantor subsidiaries, these non-guarantor subsidiaries will pay the
holders of their debts and their trade creditors before they will be able to
distribute any of their assets to us. The non-guarantor subsidiaries generated
approximately 13% of our Adjusted EBITDA for the twelve-month period ended May
31, 2003 and held approximately 19% of our total assets as of May 31, 2003.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES WILL BE SUBORDINATED TO THE RIGHTS
OF OUR AND THE GUARANTORS' EXISTING AND FUTURE SECURED CREDITORS. ASSETS OF OUR
NON-GUARANTOR SUBSIDIARIES MAY NOT BE AVAILABLE TO MAKE PAYMENTS ON THE NOTES.
Holders of our secured indebtedness and the secured indebtedness of the
guarantors will have claims that are senior to the claims of holders of the
notes to the extent of the value of the assets securing such secured
indebtedness. We expect we and our subsidiaries will be parties to a new senior
secured credit facility, which is secured by substantially all of our assets,
all of our capital stock, and all of the equity interests in our domestic
subsidiaries. Our industrial revenue bonds will be secured by letters of credit
issued under our new senior secured credit facility. The notes will be
effectively subordinated to the debt obligations under our new senior secured
credit facility and our industrial revenue bonds. If we are declared bankrupt or
insolvent, or are liquidated, holders of our secured debt and the secured debt
of our subsidiaries will be entitled to be paid from our assets before any
payment may be made with respect to the notes. In addition, in that
circumstance, holders of debt of our non-guarantor subsidiaries would be
entitled to be paid from the assets of those subsidiaries before the proceeds of
those assets could be applied to pay the notes. If any of the foregoing events
occur, we cannot assure you that we will have sufficient assets to pay amounts
due on our secured debt, the secured debt of the guarantors, the debt of our
non-guarantor subsidiaries, and the notes. As a result, holders of the notes may
receive less, ratably, than holders of our and the guarantors' secured debt and
the holders of the debt of our non-guarantor subsidiaries. As of May 31, 2003,
assuming this offering and the related transactions had occurred on that date,
we would have had approximately $165.3 million of senior secured indebtedness
outstanding and $85.0 million of additional senior secured indebtedness
available to be borrowed under our new senior secured credit facility.
OUR EXISTING DEBT AGREEMENTS CURRENTLY INCLUDE, AND OUR NEW SENIOR SECURED
CREDIT FACILITY, WILL INCLUDE RESTRICTIVE AND FINANCIAL COVENANTS THAT LIMIT OR
MAY IN THE FUTURE LIMIT OUR OPERATING FLEXIBILITY.
The agreements governing our indebtedness obligations relating to our new senior
secured credit facility, the notes and our industrial revenue bonds, as well as
our unconsolidated accounts receivable asset-backed securitization, contain or
will contain covenants that, among other things, restrict our ability to take
specific actions in certain situations, even if we believe them to be in our
best interest. These include restrictions on our ability to:
- - incur additional debt, pay dividends or distributions on, or redeem or
repurchase, our capital stock;
- - permit liens on our assets to secure debt;
- - merge, consolidate or enter into other business combination transactions;
- - issue and sell capital stock of our subsidiaries;
- - enter into certain transactions with affiliates;
- - enter into sale and leaseback transactions;
- - transfer or sell assets; and
- - make certain investments, including investments in joint ventures.
In addition, the agreements governing our senior secured credit facility and our
unconsolidated accounts asset-backed receivable securitization, contain
financial covenants which require us to comply with specified financial ratios
and tests relating to leverage and fixed charge coverage ratios, among others.
These restrictions could limit our ability to obtain future financings, make
needed capital expenditures, withstand a future downturn in our business or the
economy in general, or otherwise conduct necessary corporate activities. We may
also be prevented from taking advantage of business opportunities that arise
because of the limitations that these restrictive covenants impose on us.
Our ability to comply with our covenants may be affected by events beyond our
control, including prevailing economic, financial, and industry conditions. A
breach of any of these covenants would result in a default under the applicable
agreement. A default, if not waived, could result in acceleration of the
obligations outstanding under, or termination of, the applicable agreement and
in a default with respect to, and acceleration of the debt outstanding under, or
termination of, the other agreements. If that should occur, we may not be able
to pay all such debt or to borrow sufficient funds to refinance it. Even if new
financing were then available, it may not be on terms that are acceptable to us.
WE MAY NOT BE ABLE TO REPURCHASE THE NOTES OR REPAY DEBT UNDER OUR NEW SENIOR
SECURED CREDIT FACILITY UPON A CHANGE IN CONTROL.
Upon the occurrence of a "change of control," as defined in the indenture,
holders of the notes may require us to offer to repurchase all or any part of
their notes. We may not have sufficient funds at the time of the change of
control to make the required purchases, or restrictions under our new senior
secured credit facility may not allow such repurchases. Additionally, such a
change of control may constitute a default under the terms of our new senior
secured credit facility. In such event, the lenders under our new senior secured
credit facility may accelerate the outstanding indebtedness thereunder, causing
an event of default under the indenture. If the change of control were to cause
a default under our new senior secured credit facility, we would be required to
repay our outstanding indebtedness and cash collateralize our outstanding
letters of credit under our revolving credit facility. As a result, in the event
of a change of control, we may not have or be able to raise sufficient funds to
repurchase the notes, repay outstanding indebtedness under our new senior
secured credit facility and cash collateralize our outstanding letters of credit
under our revolving credit facility. Furthermore, using available cash to fund
the potential consequences of a change of control may impair our ability to
obtain additional financing in the future.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE NOTE HOLDERS TO RETURN PAYMENTS RECEIVED FROM GUARANTORS.
The notes will be guaranteed by our parent and substantially all of our domestic
subsidiaries. The guarantees may be subject to review under United States
bankruptcy law and comparable provisions of state fraudulent conveyance laws if
a bankruptcy or reorganization case or lawsuit is commenced by or on behalf of
our or one of a guarantor's unpaid creditors. Under these laws, if a court were
to find in such a bankruptcy or reorganization case or lawsuit that, at the time
any guarantor issued a guarantee of the notes:
- - it issued the guarantee to delay, hinder or defraud present or future
creditors; or
- - it received less than reasonably equivalent value or fair consideration
for issuing the guarantee at the time it issued the guarantee; and
- it was insolvent or rendered insolvent by reason of issuing the
guarantee; or
- it was engaged, or about to engage, in a business or transaction for
which its remaining unencumbered assets constituted unreasonably
small capital to carry on its business; or
- it intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they mature;
then the court could void the obligations under the guarantee, subordinate the
guarantee of the notes to that guarantor's other debt or take other action
detrimental to holders of the notes and the guarantees of the notes.
The measures of insolvency for purposes of these fraudulent transfer laws vary
depending upon the law of the jurisdiction applied in any proceeding to
determine whether a fraudulent transfer has occurred. Generally, however, a
guarantor would be considered insolvent if, at the time it incurred the debt:
- - the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- - it could not pay its debts as they become due.
We cannot be sure as to the standard that a court would use to determine whether
or not a guarantor was solvent at the relevant time, or, regardless of the
standard that the court uses, that the issuance of the guarantees would not be
voided or the guarantees would not be subordinated to the guarantors' other
debt. If such a case were to occur, the guarantees of our domestic subsidiaries
could also be subject to the claim that, since the guarantees were incurred for
our benefit and only indirectly for the benefit of such guarantors, the
obligations of such guarantors were incurred for less than fair consideration.
THERE ARE RESTRICTIONS ON YOUR ABILITY TO TRANSFER OR RESELL THE NOTES WITHOUT
REGISTRATION UNDER APPLICABLE SECURITIES LAWS.
The notes are being offered and sold pursuant to exemptions from registration
under United States and applicable state securities laws. Therefore, you may
transfer or resell the notes in the United States only in a transaction
registered under or exempt from the registration requirements of the United
States and applicable state securities laws, and you may be required to bear the
risk of your investment for an indefinite period of time. We are obligated to
commence an offer to exchange the notes for equivalent notes registered under
United States securities laws or, in certain circumstances, to register the
reoffer and resale of the notes under United States securities laws. The SEC has
discretion to declare a registration statement effective and may delay or deny
the effectiveness of a registration statement for a variety of reasons.
THERE IS NO ESTABLISHED TRADING MARKET FOR THE NOTES, AND YOU MAY NOT BE ABLE TO
SELL THEM QUICKLY OR AT THE PRICE THAT YOU PAID.
The notes are a new issue of securities for which there is no established public
market. The initial purchasers have advised us that they intend to make a market
in the notes, and the exchange notes, if issued, as permitted by applicable laws
and regulations. However, the initial purchasers are not obligated to make a
market in the notes or the exchange notes, and they may discontinue their
market-making activities at any time without notice. The notes are being offered
and sold only to qualified institutional buyers and to persons outside of the
United States and are subject to restrictions on transfer. Therefore, we cannot
assure you that an active market for the notes or exchange notes will develop
or, if developed, that it will continue. Historically, the market for
non-investment grade debt has been subject to disruptions that have caused
substantial volatility in the prices of securities similar to the notes. We
cannot assure you that the market, if any, for the notes or 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 notes or 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. We expect that the
notes will be eligible to be traded in The PORTAL(SM) Market. We do not intend
to apply for listing of the notes on any securities exchange.